---

UNITED STATESSECURITIES AND EXCHANGE COMMISSIONWashington, D.C. 20549
_______________

FORM 10-Q_______________

(Mark One)

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

For the quarterly period endedOctober 31, 2009

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 registrant as specified in its charter) **_______________**

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

7115 16thStreet East, Suite 105Sarasota, Florida 34243(Address of principal
executive offices)

(941) 952-9255(Registrant's telephone
number, including area code) **_______________**

Indicate by check mark whether the Registrant: (1) has filed all
reports required to be filed by Section 13 or 15(d) of the Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days. Yes [X]    No
[   ]

Indicate by check mark whether the registrant has submitted
electronically and posted on its corporate Web site, if any, every
Interactive Data File required to be submitted and posted pursuant to Rule 405
of regulation S-T (Section 229.405) during the preceding 12 months (or for
such shorter period that the registrant was required to submit and post such
files). Yes [   ]    No [   ]

Indicate by check mark whether the registrant is a large
accelerated filer, an accelerated filer, a non-accelerated filer, or a
smaller reporting company. See the definitions of large accelerated filer,
accelerated filer and smaller reportingcompany in Rule 12b-2 of the
Exchange Act. (Check one):

|Large accelerated filer [   ] | Accelerated filer [   ] | Non-accelerated filer [   ] | Smaller reporting company [X]
|----------------------------- | ----------------------- | --------------------------- | -----------------------------
|                              |                         | (Do not check if a smaller  |                              
|                              |                         | reporting company)          |                              

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

As of December 15, 2009, 104,560,373 common shares of the
Registrant were issued and outstanding.

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CARBIZ INC.

FORM 10-Q

For the Quarterly Period Ended October 31, 2009

INDEX

|PART
      I  | Financial
      Information                                                                 | 1 
|------------- | ------------------------------------------------------------------------------------------- | --
|Item
      1. | Financial
      Statements                                                                  | 1 
|Item
      2. | Managements
      Discussion and Analysis of Financial Condition and Results of Operations | 32
|Item
      3. | Quantitative
      and Qualitative Disclosures about Market Risk                            | 45
|Item
      4T | Controls
      and Procedures                                                               | 45
|              |                                                                                             |   
|PART
      II | Other
      Information                                                                     | 46
|Item
      1. | Legal
      Proceedings                                                                     | 46
|Item
      1A | Risk
      Factors                                                                          | 46
|Item
      2. | Unregistered
      Sales of Equity Securities and Use of Proceeds                           | 46
|Item
      4. | Submission
      of Matters to a Vote of Security Holders                                   | 46
|Item
      5. | Other
      Information                                                                     | 46
|Item
      6. | Exhibits                                                                                    | 46

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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)     | our ability to obtain additional financing on terms
      favorable to us, if at all;                                                                                                                                                                                
| | ------- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |         |                                                                                                                                                                                                                                                                      
| | (ii)    | whether we are successful in implementing our business
      strategy;                                                                                                                                                                                               
| |         |                                                                                                                                                                                                                                                                      
| | (iii)   | our ability to increase revenues in the future and to
      continue as a going concern;                                                                                                                                                                             
| |         |                                                                                                                                                                                                                                                                      
| | (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
      losses 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)   | potential infringement by us of third parties
      proprietary rights;                                                                                                                                                                                             
| |         |                                                                                                                                                                                                                                                                      
| | (xv)    | defects in our products;                                                                                                                                                                                                                                             
| |         |                                                                                                                                                                                                                                                                      
| | (xvi)   | our compliance with privacy laws;                                                                                                                                                                                                                                    
| |         |                                                                                                                                                                                                                                                                      
| | (xvii)  | our ability to obtain adequate remedies in the event that
      our intellectual property rights are violated;                                                                                                                                                       
| |         |                                                                                                                                                                                                                                                                      
| | (xviii) | our ability to develop and market on a timely and
      cost-effective basis new products that meet changing market conditions,
      and                                                                                                                            
| |         |                                                                                                                                                                                                                                                                      
| | (xix)   | the risk factors identified in our most recent Annual
      Report on Form 10-K, including factors identified under the headings
      Description of Business, Risk Factors and Managements Discussion and
      Analysis or Plan of Operation.              

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. Unless
otherwise indicated, all dollar amounts expressed herein are in U.S. dollars.

---

PART 1  FINANCIAL INFORMATION

Item 1. Financial Statements

|CARBIZ INC.                                
|-------------------------------------------
|Condensed
      Consolidated Balance Sheets

|                                                                            |   | October 31, 2009 |   |   | January 31, 2009 |  
|--------------------------------------------------------------------------- | - | ---------------- | - | - | ---------------- | -
|                                                                            |   | (unaudited)      |   |   |                  |  
|ASSETS                                                                      |   |                  |   |   |                  |  
|CURRENT                                                                     |   |                  |   |   |                  |  
|Cash and cash
      equivalents                                             | $ | 312,159          |   | $ | 674,624          |  
|Accounts receivable, net                                                    |   | 295,220          |   |   | 85,649           |  
|Current portion of
      notes receivable, net                              |   | 8,725,777        |   |   | 5,945,345        |  
|Current portion net investment in
      direct                              |   |                  |   |   |                  |  
|financing and sales-type leases                                             |   | 5,515,229        |   |   | -                |  
|Inventory                                                                   |   | 2,603,717        |   |   | 2,923,696        |  
|Prepaid and other
      assets                                              |   | 611,541          |   |   | 333,046          |  
|                                                                            |   | 18,063,643       |   |   | 9,962,360        |  
|NON-CURRENT                                                                 |   |                  |   |   |                  |  
|Notes receivable, less current portion                                      |   | 9,452,926        |   |   | 13,999,053       |  
|Net investment in
      direct financing and                                |   |                  |   |   |                  |  
|sales-type leases,
      less current portion                               |   | 2,298,012        |   |   | -                |  
|Deferred financing
      costs and prepaid interest                         |   | 3,500,727        |   |   | 625,197          |  
|Property plant and equipment, net                                           |   | 679,322          |   |   | 596,415          |  
|                                                                            | $ | 33,994,630       |   | $ | 25,183,025       |  
|LIABILITIES                                                                 |   |                  |   |   |                  |  
|CURRENT                                                                     |   |                  |   |   |                  |  
|Accounts payable and accrued
      liabilities                              | $ | 2,762,208        |   | $ | 4,527,041        |  
|Notes Payable                                                               |   |                  |   |   |                  |  
|Line of credit                                                              |   | 22,715,232       |   |   | 36,696,175       |  
|Inventory floor plan                                                        |   | 4,987,453        |   |   | 4,596,590        |  
|Short Term                                                                  |   | 55,070           |   |   | -                |  
|Other Debt                                                                  |   | 130,075          |   |   | -                |  
|Related party                                                               |   | -                |   |   | 200,000          |  
|Current portion of
      capital lease obligation                           |   | -                |   |   | 2,620            |  
|Current portion of convertible
      debentures                             |   | 680,284          |   |   | 255,113          |  
|Derivative liabilities                                                      |   | 4,546,874        |   |   | 11,796,217       |  
|Deferred revenue                                                            |   | 143,756          |   |   | 1,985            |  
|                                                                            |   | 20,686,385       |   |   | 58,075,741       |  
|NON-CURRENT                                                                 |   |                  |   |   |                  |  
|Notes Payable, less
      current portion                                   |   | 756,771          |   |   | -                |  
|Convertible debenture, less current
      portion                           |   | -                |   |   | 1,855,330        |  
|                                                                            |   |                  |   |   |                  |  
|                                                                            |   | 36,777,723       |   |   | 59,931,071       |  
|                                                                            |   |                  |   |   |                  |  
|COMMITMENTS AND CONTIGENCIES                                                |   | -                |   |   | -                |  
|STOCKHOLDERS' DEFICIENCY                                                    |   |                  |   |   |                  |  
|COMMON SHARES                                                               |   | 20,818,928       |   |   | 19,364,233       |  
|Unlimited shares authorized, 102,520,603 and 87,744,296 common
      shares |   |                  |   |   |                  |  
|issued and
      outstanding at October 31, 2009 and January 31, 2009       |   |                  |   |   |                  |  
|ADDITIONAL PAID-IN CAPITAL                                                  |   | 7,752,847        |   |   | 6,788,937        |  
|ACCUMULATED OTHER COMPREHENSIVE LOSS                                        |   | (385,197         | ) |   | (385,197         | )
|ACCUMULATED DEFICIT                                                         |   | (30,969,671      | ) |   | (60,516,019      | )
|                                                                            |   | (2,783,093       | ) |   | (34,748,046      | )
|                                                                            | $ | 33,994,630       |   | $ | 25,183,025       |  

The accompanying notes are an integral part of these condensed
consolidated financial statements. 1

---

|CARBIZ INC.                                    
|-----------------------------------------------
|Condensed Consolidated Statements of Operations
|(Unaudited)                                    

|                                            |   | For the three months ended |   |   | For the nine months ended |  
|------------------------------------------- | - | -------------------------- | - | - | ------------------------- | -
|                                            |   | October
      31,          |   |   | October
      31,         |  
|                                            |   | 2009                       |   |   | 2008                      |  
|SALES                                       |   |                            |   |   |                           |  
|Used car sales                              | $ | 5,776,463                  |   | $ | 12,303,021                |  
|Used car sales from sales type leases       |   | 537,844                    |   |   | -                         |  
|Consulting and collection
      services    |   | 93,944                     |   |   | 112,449                   |  
|Interest and lease income                   |   | 1,996,279                  |   |   | 1,467,773                 |  
|                                            |   | 8,404,530                  |   |   | 13,883,243                |  
|COST OF SALES (exclusive of depreciation    |   |                            |   |   |                           |  
|included
      in other operating expenses) |   |                            |   |   |                           |  
|Used car costs                              |   | 4,732,860                  |   |   | 8,139,743                 |  
|Consulting and collection
      services    |   | 382,135                    |   |   | 164,107                   |  
|                                            |   | 5,114,995                  |   |   | 8,303,850                 |  
|GROSS PROFIT                                |   | 3,289,535                  |   |   | 5,579,393                 |  
|                                            |   |                            |   |   |                           |  
|OPERATING EXPENSES                          |   |                            |   |   |                           |  
|Personnel expenses                          |   | 771,627                    |   |   | 640,276                   |  
|Selling expenses                            |   | 160,796                    |   |   | 272,307                   |  
|Professional fees                           |   | 313,742                    |   |   | 142,221                   |  
|Provision for credit losses                 |   | 3,046,982                  |   |   | 4,729,559                 |  
|Gain on sale of software assets             |   | -                          |   |   | -                         |  
|Loss on extinguishment
      of debt        |   | -                          |   |   | 1,205,720                 |  
|Other operating expenses                    |   | 1,184,106                  |   |   | 1,075,658                 |  
|                                            |   | 5,477,253                  |   |   | 8,065,741                 |  
|OPERATING LOSS                              |   | (2,187,718                 | ) |   | (2,486,348                | )
|INTEREST AND OTHER EXPENSES                 |   | (3,185,259                 | ) |   | (3,037,922                | )
|GAIN (LOSS) ON DERIVATIVE                   |   |                            |   |   |                           |  
|FINANCIAL INSTRUMENTS                       |   | 3,237,448                  |   |   | (287,417                  | )
|GAIN (LOSS) ON EXTINGUSHIMENT OF DEBT       |   | (7,059                     | ) |   |                           |  
|LOAN PORTFOLIO PURCHASE                     |   |                            |   |   |                           |  
|TRANSACTION COSTS                           |   | -                          |   |   | -                         |  
|NET INCOME (LOSS) FOR THE PERIOD            | $ | (2,142,588                 | ) | $ | (5,811,687                | )
|NET INCOME (LOSS) PER SHARE:                |   |                            |   |   |                           |  
|Basic                                       | $ | (0.02                      | ) | $ | (0.08                     | )
|Diluted                                     | $ | (0.02                      | ) | $ | (0.08                     | )
|WEIGHTED AVERAGE SHARES OUTSTANDING         |   |                            |   |   |                           |  
|Basic                                       |   | 102,520,603                |   |   | 74,737,369                |  
|Diluted                                     |   | 102,520,603                |   |   | 74,737,369                |  

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

2

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|CARBIZ INC.                                    
|-----------------------------------------------
|Condensed Consolidated Statements of Cash Flows
|(unaudited)                                    

|                                                               |   | For the Nine Months Ended |  
|-------------------------------------------------------------- | - | ------------------------- | -
|                                                               |   | October 31, 2009          |  
|NET INFLOW (OUTFLOW) OF CASH RELATED                           |   |                           |  
|TO THE FOLLOWING ACTIVITIES:                                   |   |                           |  
|OPERATING ACTIVITIES                                           |   |                           |  
|Net Income (Loss)                                              | $ | 29,546,348                |  
|Items not affecting cash:                                      |   |                           |  
|Depreciation
      of property and equipment                   |   | 120,771                   |  
|Gain
      on derivative liabilities                           |   | (3,172,211                | )
|Gain on sale
      of software operations                      |   | -                         |  
|Gain
      on extinguishment of debt                           |   | (33,192,228               | )
|Loss on extinguishment
      of debt                           |   | -                         |  
|Amortization
      of deferred financing costs                 |   | 435,214                   |  
|Amortization
      of prepaid interest                         |   | 395,601                   |  
|Amortization
      of debt discount                            |   | 746,862                   |  
|Share-based
      compensation                                 |   | 182,625                   |  
|Provision
      for credit losses                              |   | 6,422,508                 |  
|Net changes in operating assets and liabilities:               |   |                           |  
|Accounts
      receivable                                      |   | (238,509                  | )
|Notes receivable                                               |   | (2,947,918                | )
|Net
      investment in direct financing and sales-type leases |   | (10,438,641               | )
|Prepaids and
      other assets                                |   | (278,495                  | )
|Inventory                                                      |   | 319,979                   |  
|Deferred costs                                                 |   | -                         |  
|Accounts
      payable and accrued liabilities                 |   | (1,734,676                | )
|Deferred revenue                                               |   | 141,771                   |  
|NET CASH FLOWS FROM OPERATING
      ACTIVITIES                 |   | (13,690,999               | )
|INVESTING ACTIVITIES                                           |   |                           |  
|Proceeds from sale of software
      operations                |   | -                         |  
|Acquisition of Star Financial assets                           |   | (7,921,997                | )
|Proceeds from sale of notes
      receivable                   |   | 2,947,577                 |  
|Acquisition of property and equipment                          |   | (193,678                  | )
|NET CASH FLOWS FROM INVESTING
      ACTIVITIES                 |   | (5,168,098                | )
|FINANCING ACTIVITIES                                           |   |                           |  
|Repayment of capital leases                                    |   | (2,620                    | )
|Proceeds from line of credit, net                              |   | 17,493,681                |  
|Payments on term loan financing                                |   | (16,579,643               | )
|Proceeds under term loan financing                             |   | 16,685,934                |  
|Repayment of related party
      debt                          |   | (200,000                  | )
|Proceeds from exercise of warrants                             |   | 1,099,280                 |  
|NET CASH FLOWS FROM FINANCING
      ACTIVITIES                 |   | 18,496,632                |  
|EFFECT OF EXCHANGE RATE CHANGES ON CASH                        |   |                           |  
|AND CASH EQUIVALENTS                                           |   | -                         |  
|INCREASE (DECREASE) IN CASH AND                                |   |                           |  
|CASH EQUIVALENTS                                               |   | (362,465                  | )
|CASH AND CASH EQUIVALENTS,                                     |   |                           |  
|BEGINNING OF PERIOD                                            |   | 674,624                   |  
|CASH AND CASH EQUIVALENTS,                                     |   |                           |  
|END OF PERIOD                                                  | $ | 312,159                   |  

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

3

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|CARBIZ INC.                                             
|--------------------------------------------------------
|Notes to the Condensed Consolidated Financial Statements
|October 31, 2009 and 2008                               
|(unaudited)                                             

|1. | BASIS OF PREPARATION AND SUMMARY OF ACCOUNTING
      POLICIES                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|-- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|   | The accompanying unaudited condensed consolidated
      financial statements have been prepared in accordance with accounting
      principles generally accepted in the United States (GAAP) for interim
      financial information and with the instructions to Form 10-Q and Article
      10 of Regulation S-X. Accordingly, they do not include all of the
      information and footnotes required by GAAP for complete financial
      statements. In the opinion of management, all adjustments (consisting of
      normal recurring accruals) considered necessary for a fair presentation of
      the results of operations for the periods presented have been included.
      Operating results for the nine months ended October 31, 2009 and 2008 are
      not necessarily indicative of the results that may be expected for the
      fiscal year. The balance sheet at January 31, 2009 has been derived from
      the audited financial statements at that date, but does not include all of
      the information and footnotes required by GAAP for complete financial
      statements.                                                                                                                                                                                                                                               
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|   | Readers should read these condensed consolidated
      financial statements together with the historical consolidated financial
      statements of the Company for the years ended January 31, 2009, and 2008,
      included in our Annual Report on Form 10-K for the year ended January 31,
      2009, filed with the Securities and Exchange Commission (SEC) on April
      24, 2009 (the Annual Report).                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|   | References to the Company or Carbiz include the Companys
      consolidated subsidiaries. All dollar figures presented in the condensed
      consolidated financial statements are denominated in U.S. dollars unless
      otherwise indicated.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|   | Accounts, notes receivable and net investment in
      direct financing and sales-type leases                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|   | Accounts receivable, notes receivable and net investment
      in direct financing and sales-type leases (referred to as lease
      receivables) consist of balances due from customers related to consulting
      and collections services and the sale or leasing of used automobiles. They
      are presented in the condensed consolidated balance sheet net of an
      allowance for credit losses. Accounts receivables typically have terms of
      net 30 days. Notes and lease receivables have remaining terms ranging from
      1 to 60 months and require weekly, bi-weekly or monthly payments. Note
      receivable interest is calculated weekly based on the outstanding balance
      and lease receivable interest is imputed in the lease payments.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|   | Allowance for credit losses and concentration of
      credit risk                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|   | The allowance reflects the Companys best estimate of
      probable losses inherent in the accounts, notes and lease receivables. The
      Company determines the allowances based on known troubled accounts,
      historical experience of collections, write-offs and asset recoveries,
      credit quality of customers and other industry and Company economic
      considerations.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|   | The Company initiates steps to pursue collection of
      payments for notes or lease receivables upon the customers first missed
      payment. Initial steps may include contacting the customer via telephone,
      performing a field visit to the customers work or home, or activating the
      automobiles onboard starter disrupt system. When the initial steps are
      not successful, the Company then takes steps to repossess the automobile.
      While we have a successful history of recovering automobiles that secure
      delinquent loans through repossession, as is experienced widely in our
      industry, we generally are unable to recover a significant amount of value
      from the ultimate sale of the repossessed vehicle relative to the
      associated note or lease receivable. This is typically due to the
      deteriorated condition of the repossessed automobile. During our year
      ending January 31, 2009, our recovery amount as a percent of our gross
      write-offs amounted to 12.5% (8.4% for the two year period ended January
      31, 2009). We will continue to make attempts to improve recovery
      percentages; however, we currently anticipate that the recovery
      percentages that we will experience in the foreseeable future will be
      consistent with this amount.
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|   | Once the automobile is in the Companys possession, and
      the applicable States statutory notice period for repossessed accounts
      has passed, typically 0 to 30 days, the vehicle is liquidated and the
      associated receivable account is charged off. In situations where the
      Company has been unable to successfully repossess                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             

4

---

|CARBIZ INC.                                             
|--------------------------------------------------------
|Notes to the Condensed Consolidated Financial Statements
|October 31, 2009 and 2008                               
|(unaudited)                                             

|1. | BASIS OF PREPARATION AND SUMMARY OF ACCOUNTING
      POLICIES (continued)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|-- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|   | the automobile, the account is written off immediately.
      When a customers account becomes severely delinquent (usually 14 days for
      weekly pay accounts, 30 days for bi-weekly pay accounts and 60 days for
      monthly pay accounts), the Company suspends accrual of interest income.
      Notes and lease receivables for accounts held in repossession are fully
      reserved for in the allowance for credit losses.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|   | The Company maintains an allowance for credit losses on
      an aggregate basis for the notes and lease receivable portfolio.
      Management considers the allowance for credit losses to be sufficient to
      cover estimated losses in the collection of outstanding receivables. The
      allowance is based primarily upon historical credit loss experience with
      consideration given to recent credit loss trends, changes in loan
      characteristics (i.e., average amounts financed and terms of the notes),
      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, the Company believes that it has given appropriate
      consideration to all relevant factors and has made reasonable assumptions
      in determining the allowance.                                                                                                                                                                                                                                                                                                                    
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|   | For accounts where the automobile was repossessed, the
      difference between the loan or lease balance and the fair value of the
      repossessed automobile (based on the average wholesale selling price at
      auction) is charged to the allowance for credit losses. Generally,
      repossessed automobiles are sold at auction. On average, accounts are
      approximately 60-90 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 expenses all costs incurred in connection
      with the process of initiating, refinancing or restructuring notes or
      lease receivables to include all costs related to underwriting, securing
      collateral, closing transactions, processing loan documents, and
      determining credit worthiness.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|   | Inventory                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|   | Inventory consists of used vehicles and is stated at the
      lower of cost or net realizable value. Cost is determined on a specific
      item basis.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|   | Net Income (loss) per share                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|   | The Company accounts for income (loss) per share in
      accordance with Accounting Standards Codification (ASC) No. 260
      Earnings per Share(pre-Codification Statements of Financial
      Accounting Standard No. 128, Earnings per Share). Basic (loss)
      income per share represents our income (loss) divided by the weighted
      average number of shares of common stock outstanding during each period.
      It excludes the dilutive effects of potentially issuable common shares
      such as those related to our convertible debentures, warrants, and
      employee stock options. Diluted income (loss) per share is calculated by
      including potentially dilutive share issuances in the denominator and the
      effects on income of those shares in the numerator. The Company computes
      the effects on diluted income/loss per share arising from warrants and
      options using the treasury stock method or, in the case of liability
      classified derivative warrants, the reverse treasury stock method. The
      Company computes the effects on diluted income/loss per share arising from
      convertible securities, such as the convertible debentures, using the
      if-converted method. Adjustments to income (loss) for interest and
      derivative income (expense) are necessary to arrive at the numerator for
      diluted income (loss) per share. The effects arising from potentially
      dilutive share issuances, if anti-dilutive, are
excluded.

5

---

|CARBIZ INC.                                             
|--------------------------------------------------------
|Notes to the Condensed Consolidated Financial Statements
|October 31, 2009 and 2008                               
|(unaudited)                                             

|1. | BASIS OF PREPARATION AND SUMMARY OF ACCOUNTING
      POLICIES (continued)                               
|-- | --------------------------------------------------------------------------------------------------------
|   |                                                                                                         
|   | The numerators and denominators for the calculation of
      net income (loss) per share are as follows:

| |                                         |   | Three
      months ended |   |   | Nine
      months ended |  
| | --------------------------------------- | - | ------------------------ | - | - | ----------------------- | -
| |                                         |   | 2009                     |   |   | 2008                    |  
| | Net income (loss) (numerator for basic) | $ | (2,142,588               | ) | $ | (5,811,687              | )
| | Basic denominator:                      |   |                          |   |   |                         |  
| | Weighted average shares outstanding     |   | 102,520,603              |   |   | 74,737,369              |  
| |                                         |   |                          |   |   |                         |  
| | Net income per common share-basic       | $ | (0.02                    | ) | $ | (0.08                   | )
| |                                         |   |                          |   |   |                         |  
| | Diluted numerator:                      |   |                          |   |   |                         |  
| | Net income (loss)                       |   | ($2,142,588              | ) |   | ($5,811,687             | )
| | Adjustments to net income (loss)        |   | -                        |   |   | -                       |  
| | Adjusted net income (loss)              |   | ($2,142,588              | ) |   | ($5,811,687             | )
| |                                         |   |                          |   |   |                         |  
| | Diluted denominator:                    |   |                          |   |   |                         |  
| | Weighted average shares outstanding     |   | 102,520,603              |   |   | 74,737,369              |  
| |                                         |   |                          |   |   |                         |  
| | Effect of diluted securities            |   |                          |   |   |                         |  
| | Convertible Debentures                  |   | -                        |   |   | -                       |  
| | Stock Options                           |   | -                        |   |   | -                       |  
| | Warrants (Equity)                       |   | -                        |   |   | -                       |  
| | Derivative Liabilities                  |   | -                        |   |   | -                       |  
| | Adjusted weighted average shares        |   | 102,520,603              |   |   | 74,737,369              |  
| | Net income (loss) per common            |   |                          |   |   |                         |  
| | share-diluted                           | $ | (0.02                    | ) | $ | (0.08                   | )

Adjustments to net income (loss) to arrive
  at the diluted numerator consist of interest on convertible debt. The effects
  of 6,760,558 stock options, 1,432,294 common stock warrants, and 41,250,089
  shares indexed to the derivative liabilities outstanding have been excluded
  from dilutive securities for the nine months ended October 31, 2009, as their
  effect would be anti-dilutive. In addition, 8,488,041 options and 6,708,318
  shares indexed to the derivative liabilities outstanding have been excluded
  from dilutive securities for the nine months ended October 31, 2008.

Derivative financial instruments

Derivative financial instruments, as
defined in Accounting Standards Codification (ASC) No. 815-10-15-83,
Derivatives and Hedging (pre-Codification Statements of Financial
Accounting Standard No. 133, Accounting for Derivative Financial Instruments
and Hedging Activities), consist of financial instruments or other contracts
that contain a notional amount and one or more underlying variables (e.g.
interest rate, security price or other variable), require no initial net
investment and permit net settlement. Derivative financial instruments may be
free-standing or embedded in other financial instruments. Further, derivative
financial instruments are initially, and subsequently, measured at fair value
and recorded as liabilities or, in rare instances, assets.

6

---

|CARBIZ INC.                                             
|--------------------------------------------------------
|Notes to the Condensed Consolidated Financial Statements
|October 31, 2009 and 2008                               
|(unaudited)                                             

|1. | BASIS OF PREPARATION AND SUMMARY OF ACCOUNTING
      POLICIES (continued)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|-- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|   | The Company generally does not use derivative financial
      instruments to hedge exposures to cash-flow, market or foreign-currency
      risks. However, the Company has entered into certain other financial
      instruments and contracts, such as debt financing arrangements and
      freestanding warrants with features that are either not afforded equity
      classification, embody risks not clearly and closely related to host
      contracts, or may be net- cash settled by the counterparty. These
      instruments are required to be carried as derivative liabilities, at fair
      value, in the Companys consolidated financials.
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|   | Fair value of financial assets and
    liabilities                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|   | The Company measures the fair value of financial assets
      and liabilities based on guidance of Accounting Standards Codification
      (ASC) No. 820, Fair Value Measurements and Disclosures(pre-Codification Statements of Financial Accounting Standards No.
      157, Fair Value Measurements), which defines fair value,
      establishes a framework for measuring fair value, and expands disclosures
      about fair value measurements.                                                                                                                                                                                                        
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|   | The Company adopted the provisions of ASC 820 for
      financial assets and liabilities, as well as for any other assets and
      liabilities that are carried at fair value on a recurring basis. The
      adoption of the provisions of ASC 820 did not materially impact the
      Companys consolidated financial position and results of
  operations.                                                                                                                                                                                                                                                                                                  
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|   | ASC 820-10-35-2 defines fair value as the price that
      would be received to sell an asset or paid to transfer a liability in an
      orderly transaction between market participants at the measurement date.
      ASC 820-10-50 describes three levels of inputs that may be used to measure
      fair value as follows:                                                                                                                                                                                                                                                                                                                                 

| | Level 1 - | quoted prices in active markets for identical assets or
      liabilities;                                               
| | --------- | -------------------------------------------------------------------------------------------------------------------------
| | Level 2 - | significant other observable inputs based on market data
      obtained from sources independent of the reporting entity;
| | Level 3 - | inputs that are unobservable (for example cash flow
      modeling inputs based on assumptions).                         

Fair values of derivative warrants are
generally determined using the Black-Scholes-Merton valuation technique.
Significant assumptions are as follows: Market prices  we use our quoted market
prices; Term  we use the remaining contractual term of the contract; Volatility
 we use our historical trading volatility for periods consistent with the
remaining term of the contract; Risk-Free Rate  we use currently published
yields on zero-coupon U.S. Government Securities with maturities consistent with
the remaining term of the contract.

Fair values for the compound embedded
derivatives are determined using the Monte Carlo valuation technique, because
that technique embodies all of the assumptions (including credit risk,
interest-rate risk and exercise/conversion behaviors) that are necessary to fair
value complex, compound derivative instruments. Significant assumptions are
determined as follows: Trading market valueswe use our published trading market
values; Termwe use the remaining contractual terms of the debentures;
Volatilitywe use our historical trading volatility for periods consistent with
the remaining terms; Interest Riskwe adjust the contractual coupon rates to
give effect to both (i) the trend in the market indicator over a historical
period consistent with the remaining term and (ii) the historical fluctuations
in the prime lending rate over each period; Credit Riskwe use credit-risk
adjusted bond yield curves from publicly available surveys in categories of
credit risk (as published by Standard & Poors and Moodys) we consider
similar to our credit risk, with is speculative to highly speculative; and
Exercise/Conversion behaviorwe establish assumptions (quantified as a
percentage that the conversion price is in the money) regarding the likelihood
that the investor will convert currently or hold to maturity.

7

---

|CARBIZ INC.                                             
|--------------------------------------------------------
|Notes to the Condensed Consolidated Financial Statements
|October 31, 2009 and 2008                               
|(unaudited)                                             

|1. | BASIS OF PREPARATION AND SUMMARY OF ACCOUNTING
      POLICIES (continued)                                                                                              
|-- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   |                                                                                                                                                                        
|   | The following table summarizes the level of inputs used
      to measure certain financial instruments at fair value on a recurring
      basis as of October 31, 2009:

| |                              |   | Fair
      Value Measurements Using | 
| | ---------------------------- | - | ----------------------------------- | 
| |                              |   | Level 1                             | 
| |                              |   |                                     | 
| | Compound Embedded Derivative |   | -                                   | 
| | Warrant Derivatives          |   | -                                   | 
| |                              | $ | -                                   | 

The following represents a
reconciliation of the changes in fair value of financial instruments measured at
fair value on a recurring basis using significant unobservable inputs (Level 2
and 3) during the following periods.

| |                                                       |   | Three Months     |   |   | Nine Months      |  
| | ----------------------------------------------------- | - | ---------------- | - | - | ---------------- | -
| |                                                       |   | Ended            |   |   | Ended            |  
| |                                                       |   | October 31, 2009 |   |   | October 31, 2009 |  
| | Beginning balance                                     | $ | 7,807,054        |   | $ | 11,796,217       |  
| |                                                       |   |                  |   |   |                  |  
| | Issuances:                                            |   |                  |   |   |                  |  
| | Issuance of warrants                                  |   |                  |   |   | 3,647,015        |  
| |                                                       |   |                  |   |   |                  |  
| | Conversions and cancellations :                       |   |                  |   |   |                  |  
| | Private
      Placement Financing conversion (Note 5) |   |                  |   |   | (70,068          | )
| | Trafalgar Financing
      extinguishment (Note 5)     |   |                  |   |   | (6,614,201       | )
| | Trafalgar
      Financing conversion                  |   |                  |   |   | (129,351         | )
| | Exercise of warrants                                  |   |                  |   |   | (887,795         | )
| | Private
      Placement Financing redemption (Note 5) |   | (22,732          | ) |   | (22,732          | )
| | Total                                                 |   | (22,732          | ) |   | (7,724,147       | )
| |                                                       |   |                  |   |   |                  |  
| | Fair value adjustments :                              |   |                  |   |   |                  |  
| | Compound
      embedded derivatives                   |   | (1,761,067       | ) |   | (994,360         | )
| | Warrant derivatives                                   |   | (1,476,381       | ) |   | (2,177,851       | )
| | Total                                                 |   | (3,237,448       | ) |   | (3,172,211       | )
| |                                                       |   |                  |   |   |                  |  
| | Balance at October 31, 2009                           | $ | 4,546,874        |   | $ | 4,546,874        |  

8

---

|CARBIZ INC.                                             
|--------------------------------------------------------
|Notes to the Condensed Consolidated Financial Statements
|October 31, 2009 and 2008                               
|(unaudited)                                             

|1. | BASIS OF PREPARATION AND SUMMARY OF ACCOUNTING
      POLICIES (continued)                                                                                                                       
|-- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   |                                                                                                                                                                                                 
|   | Revenue recognition                                                                                                                                                                             
|   |                                                                                                                                                                                                 
|   | The Companys revenue is primarily derived from the sale
      and leasing of used automobiles, and the sale of consulting and
      collections services to dealers in the automobile industry:
|   |                                                                                                                                                                                                 
|   | (1)                                                                                                                                                                                             
|   |                                                                                                                                                                                                 
|   |                                                                                                                                                                                                 
|   |                                                                                                                                                                                                 
|   | (2)                                                                                                                                                                                             
|   |                                                                                                                                                                                                 
|   |                                                                                                                                                                                                 
|   |                                                                                                                                                                                                 
|   | (3)                                                                                                                                                                                             
|   |                                                                                                                                                                                                 
|   |                                                                                                                                                                                                 

Lease transactions

To qualify for financing under the new
DSC financing agreement, the Company converted a number of existing finance note
receivables to lease receivables, in February 2009. All Company financed
receivables were eligible for the February 2009 conversion. Since the Company
aggregates its receivables to determine the allowance for credit losses, there
is no overall adjustment in the credit quality of the Companys receivables. The
Company considered these transactions to be direct financing leases and
accounted for the leases including the minimum lease payments and the
unguaranteed residual value as the gross investment in the lease. The difference
between this gross investment and the cost or carrying amount was recorded as
unearned income. The unearned income and initial direct costs will be amortized
to income over the lease term so as to produce a constant periodic rate of
return on the net investment in the lease.

Any new leases are considered
sales-type leases and the minimum lease payments and the residual value of the
underlying auto are considered in the fair value. The revenue recognition for
sales-type leases involves recognizing both a profit element and a financing
element over the term of the lease.

The estimated residual value is
reviewed by management quarterly. If the review results in a lower residual
estimate than had been previously established, management will then make a
determination as to whether the decline is other than temporary. If the decline
is judged to be other than temporary, an adjustment will be made to the residual
value. The resulting reduction in the net investment will be recognized as a
loss in the period in which the estimate is changed. Management determined no
such adjustments were needed during the quarter ended July 31, 2009.

9

---

|CARBIZ INC.                                             
|--------------------------------------------------------
|Notes to the Condensed Consolidated Financial Statements
|October 31, 2009 and 2008                               
|(unaudited)                                             

|1. | BASIS OF PREPARATION AND SUMMARY OF ACCOUNTING
      POLICIES (continued)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|-- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|   | Transfer of Financial Assets                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|   | The Company has sold portions of its previously generated
      and recently acquired financed note receivable portfolio. All portfolio
      sales during this period have met the requirements for a sale and the
      Company did not retain the right to service or collect those
  loans.                                                                                                                                                                                                                                                                                                                                                                                   
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|   | During the nine months ended October 31, 2009, the
      Company sold approximately $2.95 million of notes receivable for cash. The
      sale resulted in an immaterial gain.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|   | Use of estimates                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|   | In preparing the Companys consolidated 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 dates of
      the consolidated financial statements and the reported amounts of revenues
      and expenses during the reporting periods. Actual results could differ
      from those estimates. Estimates are used when accounting for items and
      matters such as the allowance for credit losses, accrued liabilities,
      share-based payments, derivative liabilities and contingencies.
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|   | Deferred finance costs                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|   | Deferred finance costs include the fair value of warrants
      issued to an existing lender in conjunction with the issuance of the Wells
      Fargo Preferred Credit line of credit. They will be amortized over the
      term of the respective financing arrangement. Approximate future
      amortization of deferred finance costs is as follows as of October 31,
      2009:                                                                                                                                                                                                                                                                                           

Years ending October 312010
    $
      1,123,5362011
    
      702,210$
      1,825,746


Prepaid interest

Prepaid interest included the initial
interest recorded in conjunction with the issuance of the Wells Fargo Preferred
Credit line of credit and is amortized over the term of the respective financing
arrangement. Such amount was determined by comparing the cost of the acquired
portfolio and other assets to the fair value of such assets acquired, and the
difference was recognized as prepaid interest (see Note 8). Approximate future
amortization of prepaid interest is as follows as of October 31, 2009:

Years ending October 312010
    $
      1,016,3012011
    
      658,680$
      1,674,981


Share-Based Compensation

The Company uses the fair-value method
to determine compensation for all arrangements under which employees and others
receive shares of stock or equity instruments. The fair value of each option
award is estimated on the date of grant using the Black-Scholes valuation model
that uses assumptions for expected volatility, expected dividends, expected
term, and the risk-free interest rate. Expected volatilities are based

10

---

|CARBIZ INC.                                             
|--------------------------------------------------------
|Notes to the Condensed Consolidated Financial Statements
|October 31, 2009 and 2008                               
|(unaudited)                                             

|1. | BASIS OF PREPARATION AND SUMMARY OF ACCOUNTING
      POLICIES (continued)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|-- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|   | on the historical volatility of the Companys common
      stock over the expected term of the options. The expected term of options
      granted to employees is derived using the simplified method which
      computes expected terms as the average of the sum of the vesting term plus
      the contract term. The risk-free interest rate is based on the U.S.
      Treasury yield rates in effect at the time of grant for the period of the
      expected term.                                                                                                                                                                                             
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|   | Subsequent events                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|   | Management has considered all subsequent events through
      the date of filing of the report with the SEC in connection with the
      preparation of these condensed consolidated financial
statements.                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|   | Effect of recent accounting
  pronouncements                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|   | In August 2009, the FASB issued ASU No. 2009-03, SEC
      Update  Amendments to Various Topics Containing SEC Staff Accounting
      Bulletins.This ASU updated cross-references to Codification text. The
      adoption of ASU 2009-03 will not have a material impact on our condensed
      financial statements.                                                                                                                                                                                                                                                                                                                                                    
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|   | In August 2009, the FASB issued ASU No. 2009-04,
      Accounting for Redeemable Equity Instruments  Amendment to Section
      480-10-S99.This ASU represents an update to Section 480-10-S99,
      Distinguishing Liabilities from Equity, per Emerging Issues Task
      Force Topic D-98, Classification and Measurement of Redeemable
      Securities. The adoption of ASU 2009-04 will not have a material impact
      on our condensed financial statements.                                                                                                                                                                                                  
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|   | In August 2009, the FASB ASU No. 2009-05, Fair Value
      Measurements and Disclosures (Topic 820)  Measuring Liabilities at Fair
      Value.This Accounting Standards Update amends Subtopic 820-10, Fair
      Value Measurements and Disclosures - Overall, to provide guidance on the
      fair value measurement of liabilities. The adoption of ASU 2009-05 is not
      expected to have a material impact on our condensed financial
      statements.                                                                                                                                                                                                         
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|   | In September 2009, the FASB issued ASU No. 2009-07,
      Technical Corrections to SEC Paragraphs. This Accounting Standards
      Update corrected SEC paragraphs in response to comment letters. The
      adoption of ASU 2009-07 will not have material impact on our condensed
      financial statements.                                                                                                                                                                                                                                                                                                                                                            
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|   | In September 2009, the FASB issued ASU No. 2009-08,
      Earnings Per Share Amendments to Section 260-10- S99. This
      Codification Update represents technical corrections to Topic 260-10-S99,
      Earnings per Share, based on EITF Topic D-53, Computation of Earnings Per
      Share for a Period that Includes a Redemption or an Induced Conversion of
      a Portion of a Class of Preferred Stock and EITF Topic D-42, The Effect of
      the Calculation of Earnings per Share for the Redemption or Induced
      Conversion of Preferred Stock. The adoption of ASU 2009-08 will not have
      material impact on our condensed financial statements.
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|   | In September 2009, the FASB issued ASU No. 2009-09,
      Accounting for Investments-Equity Method and Joint Ventures and
      Accounting for Equity-Based Payments to Non-Employees. This Accounting
      Standards Update represents a correction to Section 323-10-S99-4,
      Accounting by an Investor for Stock-Based Compensation Granted to
      Employees of an Equity Method Investee.Section 323-10-S99-4 was
      originally entered into the Codification incorrectly. The adoption of ASU
      2009-09 will not have material impact on our condensed financial
      statements.                                                                      
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|   | In September 2009, the FASB issued ASU No. 2009-12, Fair
      Value Measurements and Disclosures (Topic 820), Investments in Certain
      Entities that Calculate Net Asset Value per Share (or Its Equivalent).
      This Accounting Standards Update amends Subtopic 820-10, Fair Value
      Measurements and Disclosures Overall, to provide guidance on the fair
      value measurement of investments in certain entities that calculate net
      asset value per share (or its equivalent). The adoption of ASU 2009-12
      will not have material impact on our condensed financial
  statements.                                                           

11

---

|CARBIZ INC.                                             
|--------------------------------------------------------
|Notes to the Condensed Consolidated Financial Statements
|October 31, 2009 and 2008                               
|(unaudited)                                             

|2. | LIQUIDITY AND MANAGEMENTS PLANS                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|-- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|   | As of October 31, 2009, the Company had $312,159 in cash
      and cash equivalents. During the nine month period ended October 31, 2009,
      we decreased our accounts payable and accrued liabilities $1.8 million
      which totaled $2.7 million at October 31, 2009. The Company has incurred
      significant net losses and negative cash flows from operations in each of
      the two years ended January 31, 2009; however, during the nine months
      ended October 31, 2009, the Company recorded $29.5 million of net income,
      which includes a $33.2 million gain on the extinguishment of debt. As of
      October 31, 2009, the Company had a stockholders deficit of $2.8 million
      versus a deficit of $34.7 million at January 31, 2009.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|   | During the nine months ended October 31, 2009, we issued
      980,392 shares of common stock at a conversion price of $0.0765 in a
      Trafalgar convertible debenture conversion                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|   | In January 2009, the Company executed another debenture
      modification agreement with Trafalgar which terms were effective on
      February 20, 2009 (February 2009 modification). The February 2009
      modification was made pursuant to the Company modifying the terms of the
      Companys other debt arrangements including the revolving line-of-credit,
      term and floor plan notes payable, which were also effective February 20,
      2009 (See Notes 4 an 5). Pursuant to the February 2009 modification,
      Trafalgar revised the payment terms related to certain of the convertible
      debentures. Debenture principal and interest payments are due as follows:
      $250,000 in March 2009; $50,000 per month April 2009 through December
      2009; $100,000 per month January 2010 through August 2010; and the
      remaining balance of approximately $5.1 million in September 2010, as long
      as the Company holds $10 million of consumer notes that are not in default
      from its BHPH business and cash on hand exceeds its payables by at least
      $1 million. A further modification was made by Trafalgar which allowed the
      Company to further modify the terms of the its loan agreements with
      DSC.
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|   | In February 2009, the Company completed a restructuring
      of floor plan and line of credit debt held by SWC Services LLC (SWC) with
      Dealer Services Corporation (DSC). The restructured debt agreement
      provided the Company with a maximum credit facility of $19.5 million for
      floor plan and lease financing. Although the Company had approximately
      $43.3 million of outstanding notes payable as of January 31, 2009,
      effective February 20, 2009, the Company was only obligated to repay $12.0
      million of this amount due to the debt restructuring. The $12.0 million is
      payable in installments over 24 months through February 2011 and is
      included in the aforementioned new credit facility.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|   | On June 15, 2009, the Company obtained a revolving line
      of credit with Wells Fargo Preferred Capital for up to $20 million that
      will finance up to 55% of the Companys eligible financed notes
      receivable. The revolving line of credit is a 2 year commitment and
      interest is payable monthly.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|   | During the nine months ending October 31, 2009, a board
      member warrant holder exercised 11,762,351 common stock warrants with
      proceeds to the company of $1,099,280.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|   | In August 2009, the Company was unable to make its
      monthly curtailment payment due under the DSC term loan. The Company
      negotiated a deferral of that payment to DSC by agreement to a deferral
      fee of approximately $350,000, or about $100 per car securitizing the term
      loan. Subsequent to that agreement, DSC ceased funding new inventory on
      the floor plan line of credit. This cessation prevented the Company from
      replacing sold vehicles and had a severe adverse effect on the Companys
      sales, portfolio growth and cash flow. As a further result of the
      reduction of the Companys sales and cash flow, the Company was forced to
      negotiate a deferral of two additional monthly curtailment payments on its
      DSC term loan in September and October 2009. The cost of each monthly
      deferral was approximately $350,000. The deferral costs were added to the
      basis of the loan and recorded as interest in the Statement of Operations.
      These additional charges caused the effective interest rate of the DSC
      debt to be approximately 40%.                                                                                                                                  
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|   | The Company continues to operate at a greatly reduced
      sales rate due to the lack of inventory financing, which is absolutely
      crucial to the continuing operations of the Company. During subsequent
      discussions with DSC, it has become clear that DSC does not intend to
      restore normal funding to the Company under any circumstances and, as a
      result, the Company is engaged in a vigorous search to find a suitable
      replacement                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         

12

---

|CARBIZ INC.                                             
|--------------------------------------------------------
|Notes to the Condensed Consolidated Financial Statements
|October 31, 2009 and 2008                               
|(unaudited)                                             

|2. | LIQUIDITY AND MANAGEMENTS PLANS
  (continued)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|-- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|   | credit facility. However, the continuing worldwide
      financial and credit crises have strained investor liquidity and contract
      credit markets, which will likely make the cost of raising funds through
      the debt or equity markets more expensive or make those markets
      unavailable. If additional financing is raised by the issuance of
      securities, control of the Company may change and/or our shareholders may
      suffer significant dilution. However, there can be no assurance that
      financing efforts will be successful, and if a suitable replacement credit
      facility is not found, the future viability of the Company is in
    doubt.                                                                                                                                                                                                                                                                                                                                                                                                                           
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|3. | ACCOUNTS RECEIVABLE, NOTES RECEIVABLE AND NET
      INVESTMENT IN DIRECT FINANCING AND SALES-TYPE LEASES                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|   | The average net balance of outstanding note receivables
      and investment in direct financing and sales-type leases were
      approximately $30.6 million and $33.3 million during the nine months ended
      October 31, 2009 and 2008, respectively. The Company earned approximately
      $5.4 million and $4.8 million of interest and lease income on note and
      lease receivables with an average yield of 23.40% and 19.12% during the
      nine months ended October 31, 2009 and 2008, respectively. Those amounts
      have been included as interest and lease income within revenues in these
      Condensed Consolidated Financial Statements. The Company paid an average
      effective global interest rate of 26.1% and 12.7% to finance the notes
      receivable and net investment in direct financing and sales-type lease
      balances during both the nine months ended October, 31 2009 and 2008. The
      reason for the increase in the global effective interest rate is the fees
      charged by DSC for deferring three months of principal and interest
      payments.

13

---

|CARBIZ INC.                                             
|--------------------------------------------------------
|Notes to the Condensed Consolidated Financial Statements
|October 31, 2009 and 2008                               
|(unaudited)                                             

|3. | ACCOUNTS RECEIVABLE, NOTES RECEIVABLE AND NET
      INVESTMENT IN DIRECT FINANCING AND SALES-TYPE LEASES
  (continued)
|-- | ----------------------------------------------------------------------------------------------------------------------
|   |                                                                                                                       
|   | Accounts, notes receivable and investment in direct
      financing and sales-type leases consist of the
following:   

| |                                   |   |                 |   |   | Accounts Held |   |   | Accounts       |   |   |            |  
| | --------------------------------- | - | --------------- | - | - | ------------- | - | - | -------------- | - | - | ---------- | -
| |                                   |   |                 |   |   | in            |   |   | Delinquent >90 |   |   |            |  
| |                                   |   | Active Accounts |   |   | Repossession  |   |   | Days           |   |   | Total      |  
| | Accounts receivable               | $ | 214,230         |   |   |               |   | $ | 109,928        |   | $ | 324,158    |  
| | Less: Allowance for credit losses |   | -               |   |   |               |   |   | (28,938        | ) |   | (28,938    | )
| |                                   | $ | 214,230         |   | $ | -             |   | $ | 80,990         |   | $ | 295,220    |  
| |                                   |   |                 |   |   |               |   |   |                |   |   |            |  
| | Notes receivable                  | $ | 22,565,436      |   | $ | 739,380       |   | $ | 967,429        |   | $ | 24,272,245 |  
| | Less: Allowance for credit losses |   | (4,386,733      | ) |   | (739,380      | ) |   | (967,429       | ) |   | (6,093,542 | )
| |                                   | $ | 18,178,703      |   | $ | -             |   | $ | -              |   | $ | 18,178,703 |  
| | Investment in direct financing    |   |                 |   |   |               |   |   |                |   |   |            |  
| | and sales-type
      leases       | $ | 9,348,187       |   | $ | 665,464       |   | $ | 424,991        |   | $ | 10,438,642 |  
| | Less: Allowance for credit losses |   | (1,534,946      | ) |   | (665,464      | ) |   | (424,991       | ) |   | (2,625,400 | )
| |                                   | $ | 7,813,241       |   | $ | -             |   | $ | -              |   | $ | 7,813,241  |  
| | Notes receivable, net :           |   |                 |   |   |               |   |   |                |   |   |            |  
| | Current                           | $ | 8,725,777       |   |   |               |   |   |                |   | $ | 8,725,777  |  
| | Non-current                       |   | 9,452,926       |   |   |               |   |   |                |   |   | 9,452,926  |  
| |                                   | $ | 18,178,703      |   | $ | -             |   | $ | -              |   | $ | 18,178,703 |  
| | Investment in direct financing    |   |                 |   |   |               |   |   |                |   |   |            |  
| | and
      sales-type leases, net  |   |                 |   |   |               |   |   |                |   |   |            |  
| | Current                           | $ | 5,515,229       |   |   |               |   |   |                |   | $ | 5,515,229  |  
| | Non-current                       |   | 2,298,012       |   |   |               |   |   |                |   |   | 2,298,012  |  
| |                                   | $ | 7,813,241       |   | $ | -             |   | $ | -              |   | $ | 7,813,241  |  

| |                     |  | Number
      of Accounts as of |  |  | October
      31, 2009 | 
| | ------------------- |  | ------------------------------ |  |  | ---------------------- | 
| | Accounts Receivable |  | 45                             |  |  | -                      | 
| | Notes               |  | 2,766                          |  |  | 170                    | 
| | Leases              |  | 1,363                          |  |  | 123                    | 

Notes receivable and net investment in
direct financing and sales-type leases have an average remaining portfolio life
of 25 and 17 months, respectively.

14

---

|CARBIZ INC.                                             
|--------------------------------------------------------
|Notes to the Condensed Consolidated Financial Statements
|October 31, 2009 and 2008                               
|(unaudited)                                             

|3. | ACCOUNTS RECEIVABLE, NOTES RECEIVABLE AND NET
      INVESTMENT IN DIRECT FINANCING AND SALES-TYPE LEASES
  (continued)  
|-- | ------------------------------------------------------------------------------------------------------------------------
|   |                                                                                                                         
|   | The components of the net investment in direct financing
      and sales-type leases at October 31, 2009 are as
follows:

| | Total future minimum lease payments                                  | $ | 10,715,036 |  
| | -------------------------------------------------------------------- | - | ---------- | -
| | Unguaranteed residual value                                          |   | 2,636,219  |  
| | Unearned income                                                      |   | (2,912,613 | )
| | Gross net investment in direct financing and sales-type
      leases |   | 10,438,642 |  
| | Loss allowance for credit losses                                     |   | (2,625,400 | )
| | Net investment in direct financing and sales type leases             | $ | 7,813,241  |  

The average remaining life for the
lease portfolio is 17 months, and the future expected maturities are
approximately $5.5 million during this year and $2.3 million the following year.

Allowance for credit loss activity is
as follows for the nine months ended October 31, 2009

| |                                            |   | Used Car Sales   |   |   | Consulting and |  |   |            |  
| | ------------------------------------------ | - | ---------------- | - | - | -------------- |  | - | ---------- | -
| |                                            |   | and
      Leases |   |   | Collections    |  |   | Total      |  
| | February 1, 2009                           | $ | 6,250,031        |   | $ | 1,093          |  | $ | 6,251,124  |  
| | Provision
      for credit losses          |   | 1,589,046        |   |   |                |  |   | 1,589,046  |  
| | Write-offs of gross notes receivable       |   | (2,085,775       | ) |   |                |  |   | (2,085,775 | )
| | Loss on
      notes sold                   |   | (451,415         | ) |   |                |  |   | (451,415   | )
| | Fair value of repossessed vehicles         |   | 327,131          |   |   |                |  |   | 327,131    |  
| | Recoveries
      of notes receivable       |   | 3,744            |   |   |                |  |   | 3,744      |  
| | Reserve Adjustment                         |   | 1,724,201        |   |   |                |  |   | 1,724,201  |  
| | April 30, 2009                             | $ | 7,356,963        |   | $ | 1,093          |  | $ | 7,358,056  |  
| | Provision for credit losses                |   | 1,763,898        |   |   | 22,582         |  |   | 1,786,480  |  
| | Write-offs
      of gross notes receivable |   | (2,529,663       | ) |   |                |  |   | (2,529,663 | )
| | Loss on notes sold                         |   | (313,554         | ) |   |                |  |   | (313,554   | )
| | Fair value
      of repossessed vehicles   |   | 201,358          |   |   |                |  |   | 201,358    |  
| | Recoveries of notes receivable             |   | 280,872          |   |   |                |  |   | 280,872    |  
| | Star
      Portfolio Purchase Reserve      |   | 1,879,224        |   |   |                |  |   | 1,879,224  |  
| | July 31, 2009                              | $ | 8,639,098        |   | $ | 23,675         |  | $ | 8,662,773  |  
| | Provision
      for credit losses          |   | 3,041,719        |   |   | 5,263          |  |   | 3,046,982  |  
| | Write-offs of gross notes receivable       |   | (3,581,853       | ) |   |                |  |   | (3,581,853 | )
| | Loss on
      notes sold                   |   | (204,079         | ) |   |                |  |   | (204,079   | )
| | Fair value of repossessed vehicles         |   | 478,570          |   |   |                |  |   | 478,570    |  
| | Recoveries
      of notes receivable       |   | 345,487          |   |   |                |  |   | 345,487    |  
| | October 31, 2009                           | $ | 8,718,942        |   | $ | 28,938         |  | $ | 8,747,880  |  

15

---

|CARBIZ INC.                                             
|--------------------------------------------------------
|Notes to the Condensed Consolidated Financial Statements
|October 31, 2009 and 2008                               
|(unaudited)                                             

|4. | CREDIT FACILITIES                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|-- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|   | Dealer Services Corporation                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|   | On January 16, 2009, the Company entered into an Asset
      Purchase Agreement with Dealer Services Corporation (DSC) and the
      Chapter 7 Trustee of SWC Services LLC (SWC Trustee). Pursuant to the
      agreement, DSC agreed to purchase all of the rights and interest of SWC
      under the Companys loan agreement with SWC for $12 million.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|   | In connection therewith, DSC agreed to forgive all of the
      outstanding balance due by the Company under the SWC Loan Agreement in
      excess of $12,000,000. On February 20, 2009, the Asset Purchase Agreement
      was consummated when the Company had a total balance of approximately
      $43.3 million outstanding under the SWC credit facilities. DSC forgave
      approximately $31.3 million worth of that debt and executed a $14 million
      new credit facility (New Loan Agreement), $12 million of which
      represented the then remaining balance due under the SWC Loan
      Agreement.                                                                                                                                                                                                                    
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|   | Pursuant to that New Loan Agreement, the Company had to
      convert a number of outstanding notes receivable due by the Company from
      consumers into closed-end leases. The Company delivered to DSC a set of
      conversion documents, consisting of a signed closed-end lease and a bill
      of sale for each vehicle.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|   | The Company incurred costs of approximately $4.6 million
      in connection with the conversion of these notes receivable, which
      included customer incentives, sales tax payments, and license and title
      fees.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|   | All of the financial covenants contained in the SWC loan
      agreement have been deleted from the New Loan Agreement and replaced by an
      obligation for the Company to maintain a minimum of $3,500,000 of accounts
      receivable. As was the case under the previous loan agreement, the
      obligation of the Company and its operating subsidiaries to pay all
      amounts due under the New Loan Agreement is secured by a pledge to DSC of
      all of the assets of the Company and its operating subsidiaries. The
      Company also paid DSC a loan origination fee of $120,000 and a commitment
      fee of $250,000 in addition to issuing DSC warrants to purchase 9,718,289
      shares of the Companys common stock at a purchase price of $.03 per
      share. The warrants will expire on February 28, 2014.
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|   | The Company has agreed to enter into a registration
      rights agreement on or before December 31, 2010, pursuant to which the
      Company will be required to register for resale by DSC the shares to be
      issued to DSC under the warrants, and to use its commercially reasonable
      efforts to obtain all necessary consents to enter into such
    agreement.                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|   | Pursuant to the warrants issued to DSC in connection with
      the New Loan Agreement, the issuance of warrants to Ross Quigley on
      February 20, 2009 would have required the Company to increase the
      9,718,289 shares issuable under the existing DSC Warrant to 10,222,604
      shares and reduce the exercise price for all of the shares issuable from
      $0.03 per share to $0.02852 per share. However, with the consent of DSC,
      in lieu of these modifications, the Company issued additional warrants to
      DSC to purchase up to an additional 750,000 shares of the Companys common
      stock at an exercise price of $0.08 per share. The warrants will expire on
      February 20, 2014.                                                                                                              
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|   | Both of the DSC warrants were valued at February 20, 2009
      using the Black-Scholes Option Pricing Model, resulting in a fair value of
      $1,286,000 for the $0.03 warrants and $100,000 for the $0.08 warrants.
      Significant assumptions included: trading market value$0.14;
      volatility133.49%; term5.0 years; and, risk free rate1.81%. The
      aggregate fair value of $1,386,000 was included in a component of the
      consideration extended for purposes of computing the gain on
      extinguishment of SWC debt.                                                                                                                                                                                                                                                                                          
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|   | In connection with entering into the Asset Purchase
      Agreement and the New Loan Agreement, Trafalgar Capital Specialized
      Investment Fund, Luxembourg, the holder of the Companys convertible
      debentures (see note 5), consented to the execution and delivery of the
      New Loan Agreement, which consent was required by a subordination and
      inter-creditor agreement with Trafalgar.                                                                                                                                                                                                                                                                                                                                                                                                                              

16

---

|CARBIZ INC.                                             
|--------------------------------------------------------
|Notes to the Condensed Consolidated Financial Statements
|October 31, 2009 and 2008                               
|(unaudited)                                             

|4. | CREDIT FACILITIES (continued)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|-- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|   | On February 25, 2009, the Company, its operating
      subsidiaries and DSC further amended and restated the New Loan Agreement
      to provide for the inclusion of five new Carbiz subsidiaries in the credit
      facility. Four of these subsidiaries have been formed to carry out the
      business of the Company in Indiana and one has been formed to carry out
      the business of the Company in Nebraska. Under this amendment and the
      promissory notes executed by the operating subsidiaries thereunder, the
      amount of available credit was expanded from $14 million to $19.5
      million.
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|   | As with the New Loan Agreement, Trafalgar also consented
      to this amendment since such consent was similarly required by the
      Trafalgar subordination and inter-creditor agreement.                                                                                                                                                                                                                                                                                                                                                                                                                               
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|   | Since all of the aforementioned events relate directly to
      the debt forgiveness, all of the costs associated therewith have been
      recognized as an adjustment of the gain on debt extinguishment, as
      follows:                                                                                                                                                                                                                                                                                                                                                                                               

DSC Debt Forgiveness
    $
    31,374,909Write off of SWC Deferred Financing Costs
    
    (603,943
    )DSC Origination and Commitment Fee
    
    (370,000
    )Fair Value of DSC Warrants
    
    (1,385,815
    )Lease Conversion Costs
    
    (4,596,053
    )Gain on Debt forgiveness
    
    24,419,098Trafalgar Loan Modification (See Note 5)
    
    8,780,189Gain on Extinguishment of Debt
    $
    33,199,287


The DSC debt has an effective interest
rate of approximately 40.84%, and principal and interest are payable monthly.
The effective interest rate is higher when compared to previous quarters because
DSC agreed to allow the Company to defer payment of three principal and interest
payments. DSC charged a per car fee for the deferral. This provided some
additional cash flow to the Company. Amounts due to DSC are collateralized by
all of the assets of the Company and its subsidiaries and the Chairman of the
Boards stock in the Company.

In August 2009, the Company was unable
to make its monthly curtailment payment due under the DSC term loan. The Company
negotiated a deferral of that payment to DSC by agreement to a deferral fee of
approximately $350,000, or about $100 per car securitizing the term loan.
Subsequent to that agreement, DSC ceased funding new inventory on the floor plan
line of credit. This cessation prevented the Company from replacing sold
vehicles and had a severe adverse effect on the Companys sales, portfolio
growth and cash flow. As a further result of the reduction of the Companys
sales and cash flow, the Company was forced to negotiate a deferral of two
additional monthly curtailment payments on its DSC term loan in September and
October 2009. The cost of each monthly deferral was approximately $350,000. The
deferral costs were added to the basis of the loan and recorded as interest in
the Statement of Operations. These additional charges caused the effective
interest rate of the DSC debt to be approximately 40.84% .

The Company continues to operate at a
greatly reduced sales rate due to the lack of inventory financing, which is
absolutely crucial to the continuing operations of the Company. During
subsequent discussions with DSC, it has become clear that DSC does not intend to
restore normal funding to the Company under any circumstances and, as a result,
the Company is engaged in a vigorous search to find a suitable replacement
credit facility. However, the continuing worldwide financial and credit crises
have strained investor liquidity and contract credit markets, which will likely
make the cost of raising funds through the debt or equity markets more expensive
or make those markets unavailable. If additional financing is raised by the
issuance of securities, control of the Company may change and/or our
shareholders may suffer significant dilution. However, there can be no assurance
that financing efforts will be successful, and if a suitable replacement credit
facility is not found, the future viability of the Company is in doubt.

17

---

|CARBIZ INC.                                             
|--------------------------------------------------------
|Notes to the Condensed Consolidated Financial Statements
|October 31, 2009 and 2008                               
|(unaudited)                                             

|4. | CREDIT FACILITIES (continued)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|-- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|   | Wells Fargo Preferred Capital                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|   | On June 15, 2009, all of the Company's subsidiaries that
      are borrowers under the New Loan Agreement with DSC, entered into an
      amendment to the New Loan Agreement , which permits the Company's
      subsidiaries to enter into the Well Fargo Loan Agreement (the "WF Loan
      Agreement") and grant Wells Fargo Preferred Capital ("Wells Fargo") a
      security interest in their personal property.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|   | All of the Company's direct and indirect subsidiaries
      entered into the WF Loan Agreement dated June 15, 2009 with Wells Fargo
      Preferred Capital, Inc. Under the WF Loan Agreement, Wells Fargo committed
      to loan the Company up to (i) $15,000,000 through and including December
      31, 2009, (ii) $17,000,000 commencing January 1, 2010 through and
      including March 31, 2010 and (iii) $20,000,000 thereafter. The purpose of
      the credit facility is to finance receivables generated by the Company
      from the sales of used vehicles. The Company may borrow up to 55% of the
      outstanding amount due under eligible receivables, as defined in the WF
      Loan Agreement, other than receivables acquired from Star Financial
      Services (Star see Note 8). With respect to the receivables acquired
      from Star Financial Services in June 2009, they may borrow up to 95% of
      the amount outstanding under such receivables through the 60th day
      following the date of the WF Loan Agreement and 90% thereafter.
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|   | In order to obtain the consent of DSC to the WF Loan
      Agreement, DSC requested that the Company issue to DSC warrants to
      purchase an additional 30,781,800 shares of Company common stock at a
      purchase price of $0.08 per share at any time until June 15, 2014. The
      Company's board of directors approved such issuance, finding that the WF
      Loan Agreement was necessary for the future growth of the
  Company.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|   | In connection with entering into the WF Loan Agreement,
      Wells Fargo entered into an Inter-creditor Agreement with DSC and a
      Subordination and Inter-creditor Agreement with Trafalgar Capital
      Specialized Investment Fund, Luxembourg and the Star note
  holders.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|   | The WF Loan Agreement is subject to certain borrowing
      limitations, and includes certain financial and restrictive covenants,
      including but not limited to covenants requiring the maintenance of
      minimum Earnings Before Interest, Tax, Depreciation and Amortization
      (EBITDA) and debt to equity ratios. The credit facility will expire on
      June 30, 2011.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|   | The covenant requiring a minimum EBITDA ratio became
      effective as of September 2009. Due to the reduced level of inventory and
      sales during the quarter, the Company was not able to meet that covenant.
      and has received a verbal waiver of the EBITDA covenant from Wells Fargo
      for the periods of September and October 2009.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|   | Loans bear interest at an annual rate equal to the
      three-month London Interbank Offered Rate plus 3.35%, (3.95% at October
      31, 2009) and an unused line fee of 0.25% per annum is charged on the
      unused portion of the credit facility on a monthly basis. The Company must
      pay Wells Fargo an administrative fee of $1,000 per month. The WF debt has
      an effective interest rate of approximately 12.00%, and interest is
      payable monthly.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|   | Amounts due to Wells Fargo under the WF Loan Agreement
      are secured by a security interest in all of the personal property of the
      Company and its subsidiaries, and guaranteed by the Company under a
      Guaranty Agreement.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|   | The Companys initial draw under the WF Loan Agreement
      was $10,303,665, of which $8,153,665 was used to pay the indebtedness of
      Star to Wells Fargo.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         

18

---

|CARBIZ INC.                                             
|--------------------------------------------------------
|Notes to the Condensed Consolidated Financial Statements
|October 31, 2009 and 2008                               
|(unaudited)                                             

|4. | CREDIT FACILITIES (continued)                                                                                                                
|-- | ---------------------------------------------------------------------------------------------------------------------------------------------
|   |                                                                                                                                              
|   | The balance outstanding under the DSC, Wells Fargo and
      other debt obligations at October 31, 2009 are comprised of the
      following:

|                         |   | Current    |  |   | Non-Current | 
|------------------------ | - | ---------- |  | - | ----------- | 
|WF line of credit        | $ | 12,205,092 |  | $ | -           | 
|DSC line of credit       |   | 10,509,510 |  |   | -           | 
|DSC inventory floor plan |   | 4,987,453  |  |   | -           | 
|Short term notes         |   | 55,070     |  |   | -           | 
|Other debt               |   | 130,705    |  |   | 756,771     | 
|Total                    | $ | 27,887,830 |  | $ | 756,771     | 

The total Wells Fargo line of credit and DSC line of credit have been classified
    as current liability on the Condensed Consolidated Balance Sheet as a result
    of DSC’s cessation of funding of the Company’s inventory floor
    plan.

|5. | CONVERTIBLE DEBENTURES                                                                            
|-- | --------------------------------------------------------------------------------------------------
|   |                                                                                                   
|   | Convertible debentures consist of the following as of
      October 31, 2009 and January 31, 2009:

October 31, 2009
    
    
      January 31, 2009Convertible debentures, at face valueMaturing through September 2010 (1,2)
    $
      4,786,400
    
    $
      5,817,189Maturing December 1, 2010 (3)
    
      -
    
    
      77,0004,786,400
    
    
      5,894,189Less: unamortized discount
    
      (4,106,116
    )
    
      (3,783,746
    )$
      680,284
    
    $
      2,110,443Current
    $
      680,284
    
    $
      255,113Long-term
    
      -
    
    
      1,855,330$
      680,284
    
    $
      2,110,443


1. Trafalgar Convertible Debentures

On February 28, 2007 the Company issued
12.0%, face value $2,500,000 Secured Convertible Debentures (February Trafalgar
Debenture) to Trafalgar Capital Specialized Investment Fund, Luxembourg
(Trafalgar). The face value of the February Trafalgar Debenture amounted to
$2,286,400and $2,821,877 as of October 31, 2009 and January 31, 2009,
respectively. Interest is payable quarterlyand the principal balance is
payable on September 30, 2010. In connection with the issuance of these
debentures, the Company also issued detachable warrants to Trafalgar that are
indexed to 2,500,000 shares of common stock, have a strike price of $0.15 and a
term of five years.

On August 31, 2007 the Company issued
12.0%, face value $1,000,000 Secured Convertible Debentures to Trafalgar
(August Trafalgar Debenture). The face value of the August Trafalgar Debenture
amounted to $1,000,000 and $1,178,127 as of October 31, 2009 and January
31, 2009, respectively. Interest is payable quarterly and the principal balance
is payable on September 30, 2010. In connection with the issuance of these
debentures, the Company also issued detachable warrants to Trafalgar that are
indexed to 2,000,000 shares of common stock, have strike prices of $0.15 for
1,000,000 warrants and $0.22 for 1,000,000, and a term of three years.

On September 26, 2007 the Company
issued 11.0%, face value $1,500,000 Secured Convertible Debentures (September
Trafalgar Debenture) to Trafalgar. The face value of the September Trafalgar
Debenture

19

---

|CARBIZ INC.                                             
|--------------------------------------------------------
|Notes to the Condensed Consolidated Financial Statements
|October 31, 2009 and 2008                               
|(unaudited)                                             

|5. | CONVERTIBLE DEBENTURES (continued)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|-- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|   | amounted to $1,500,000 and $1,817,182 as of October
        31, 2009 and January 31, 2009, respectively. Interest is payable quarterly
        and the principal balance is payable on September 30, 2010. In connection
        with the issuance of these debentures, the Company also issued detachable
        warrants to Trafalgar that are indexed to 2,000,000 shares of common stock,
        have strike prices ranging from $0.01 to $0.20, and a term of three years.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|   | The face values above give effect to conversion, capitalization
        of interest and, as discussed further below, modifications. The Trafalgar
        Debentures are secured by all tangible and intangible assets of the Company,
        but are subordinate in priority to the DSC and Wells Fargo credit facilities.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|   | The Trafalgar Debentures are convertible at Trafalgars
        option into common shares of the Company at a price per share equal to
        the lesser of (i) US$0.22 or (ii) 85% of the lowest daily closing bid
        price of the Companys common shares, as quoted by Bloomberg, L.P.
        for the five trading days immediately preceding the date of conversion.
        Trafalgar has the option to require the Company to redeem the debentures
        for cash in the event of defaults and certain other contingent events,
        including events related to the common stock into which the instruments
        are convertible, registration and listing (and maintenance thereof) of
        the Companys common stock and filing of reports with the Securities
        and Exchange Commission (the Default Put). In addition, the
        Company extended registration rights to Trafalgar that requires registration
        of the shares underlying the warrants and the continuing effectiveness
        of the registration statement under which shares are registered; the Company
        would be required to pay monthly liquidating damages of 2.0% (capped at
        15%) for defaults under this provision.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|   | In the evaluation of the Trafalgar Debentures, the
        Company concluded that the conversion feature was not afforded the exemption
        as a conventional convertible instrument as defined in ASC 815-40-25-41,
        Application of Additional Criteria to Conventional Convertible Debt and
        Other Hybrid Instruments(pre- Codification Emerging Issues Task Force
        Consensus No. 05-02, Meaning of "Conventional Convertible Debt Instrument"
        in Issue No. 00-19), due to the variable conversion price; and it
        did not otherwise meet the conditions for equity classification set forth
        in ASC 815-40-25-7 through 815-40-25-10, Additional Conditions Necessary
        for Equity Classification(pre-Codification EITF 00-19, Accounting
        for Derivative Financial Instruments Indexed to, and Potentially Settled
        in, a Companys Own Stock). Since equity classification is not
        available for the conversion feature, the Company was required to bifurcate
        the embedded conversion feature and carry it as a derivative liability,
        at fair value in accordance with ASC 815, Derivatives and Hedging(pre-Codification
        Statements of Financial Accounting Standard No. 133, Accounting for
        Derivative Financial Instruments and Hedging Activities). The Company
        also concluded that the Default Put required bifurcation because, while
        puts on debt instruments are generally considered clearly and closely
        related to the host, the Default Put is indexed to certain events, noted
        above, that are not associated with debt instruments. The Company combined
        all embedded features that required bifurcation into one compound derivative
        instrument that is carried as a component of derivative liabilities.
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|   | The Company evaluated the detachable warrants for purposes
        of classification under ASC 480-10,Distinguishing Liabilities from
        Equity(pre-Codification SFAS 150, Accounting for Certain Financial
        Instruments with Characteristics of both Liabilities and Equity).
        The warrants did not embody any of the conditions for liability classification
        under the ASC 480-10 context. The warrants were then evaluated under ASC
        815. The warrants did not meet the conditions for equity classification
        set forth in ASC 815-40-25-7 through 815-40-25-10. Therefore, the warrants
        are required to be classified as liabilities at fair value under ASC 815.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              

20

---

|CARBIZ INC.                                             
|--------------------------------------------------------
|Notes to the Condensed Consolidated Financial Statements
|October 31, 2009 and 2008                               
|(unaudited)                                             

|5. | CONVERTIBLE DEBENTURES (continued)                                                                                                                                                         
|-- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   |                                                                                                                                                                                            
|   | Based upon the accounting conclusions above, the
      allocation of the basis arising from each of the Trafalgar Debentures
      financing transactions is summarized in the table
below:

| |                         |   | February   |   |   | August     |   |   | September  |   |   |            |  
| | ----------------------- | - | ---------- | - | - | ---------- | - | - | ---------- | - | - | ---------- | -
| |                         |   | Trafalgar  |   |   | Trafalgar  |   |   | Trafalgar  |   |   |            |  
| |                         |   | Debentures |   |   | Debentures |   |   | Debentures |   |   | Total      |  
| | Deferred finance costs  | $ | 310,164    |   | $ | 125,169    |   | $ | 187,620    |   | $ | 622,953    |  
| | Penalty expense         |   | -          |   |   | -          |   |   | 40,000     |   |   | 40,000     |  
| | Prepaid interest        |   | 90,833     |   |   | 20,000     |   |   | 27,500     |   |   | 138,333    |  
| | Derivative liabilities: |   |            |   |   |            |   |   |            |   |   |            |  
| | Compound derivative     |   | (1,655,432 | ) |   | (752,941   | ) |   | (1,308,073 | ) |   | (3,716,446 | )
| | Warrants                |   | (562,500   | ) |   | (380,200   | ) |   | (495,250   | ) |   | (1,437,950 | )
| | Convertible debentures  |   | (383,087   | ) |   | -          |   |   | -          |   |   | (383,087   | )
| | Day-one derivative loss |   | 101,058    |   |   | 133,141    |   |   | 303,371    |   |   | 537,570    |  
| | Financing proceeds      | $ | 2,098,964  |   | $ | 854,831    |   | $ | 1,244,832  |   | $ | 4,198,627  |  

2. Modifications

The Convertible Debentures were
originally sold to Trafalgar during the fiscal year ended January 31, 2008 and
modified and extended a number of times during fiscal year ended January 31,
2009.

On September 15, 2008, the Company
entered into a debenture modification agreement (September 2008 Modification),
which modified the principal and interest payment schedules and effective
interest rates for certain of the outstanding secured convertible debentures.

Although the contractual interest rates
of 8%, 10% and 11% were not revised pursuant to the September 2008 Modification,
the modified terms of the debentures include additional interest payments of
amounts which provide for an internal rate of return to Trafalgar of 20% on the
debentures over their outstanding term. The additional interest payments are due
upon maturity of the debentures.

In addition, pursuant to the September
2008 Modification agreement, the Company issued 2,500,000 shares of the
Companys common stock to Trafalgar in exchange for the cancellation of 6.5
million outstanding common stock warrants previously held by Trafalgar. The
Company also issued 4,000,000 shares to Trafalgar as a forbearance fee for delay
of payments due under the convertible debentures.

More recently, a further modification
effective on February 20, 2009 (February 2009 modification) was made allowing
the Company to modify the terms of the Companys other debt arrangements
including the revolving line-of-credit, term and floor plan notes payable, which
were also effective February 20, 2009 (see Note 4). In the February 2009
modification, Trafalgar (i) capitalized $203,890 of interest and (ii) extended
the maturity dates of all three of the debentures to September 30, 2010. A
further modification was made by Trafalgar to subordinate its indebtedness which
allowed the Company to further modify the terms of its loan agreements with DSC.
(see Note 4). As a result of these modifications, the effective borrowing rate,
as computed pursuant to ASC 470-60-55-10, Determining Whether the Creditor
Granted a Concession(pre-Codification EITF 02-04, Determining Whether a
Debtors Modification or Exchange of Debt Instruments is within the Scope of
SFAS 15 Troubled Debt Restructurings), increased from approximately 12.0% to
14.0% . As a result of an increase in the effective borrowing rate and other
qualitative considerations, including the principal purpose of the modifications
being related to establishing the DSC borrowing arrangement, the modifications
did not constitute a troubled debt restructuring.

21

---

|CARBIZ INC.                                             
|--------------------------------------------------------
|Notes to the Condensed Consolidated Financial Statements
|October 31, 2009 and 2008                               
|(unaudited)                                             

5.         
CONVERTIBLE DEBENTURES (continued)

The Company accounted for the
modifications to the debentures based on the provisions of ASC 470-50, Debt
Modifications and Extinguishments (pre-Codification EITF 96-19, Debtors
Accounting for Modification or Exchange of Debt Instruments), which
establishes the criteria to determine if substantial modifications of the terms
of the debt instruments have occurred. The revisions to the terms of debentures
were considered substantial when considering both the change in the present
value of cash flows and the change in the fair value of the embedded conversion
feature, as defined, and therefore for accounting purposes the debentures have
been accounted for as debt extinguishments and the revised debentures recorded
at fair value on the date of execution of the February 2009 Modification. The
Company recorded a gain on modification of debt of $8,780,189, as a result of
these transactions.

The amount of gain was computed as
follows:

Carrying value of debentures prior to the modification:Compound derivative financial
      instruments
    $
    12,169,259Debentures
    
    2,405,99014,575,249Fair value of modified debentures
    
    5,524,108Gain on extinguishment
    $
    9,051,141Reallocation of fair value of modified
      debentures:Compound derivative financial instruments
    $
    5,555,058Debentures
    
    240,000Day-one derivative loss
    
    (270,952
    )$
    5,524,106


The fair value of the modified
debentures represents the present value of the future cash flows. The credit
risk adjusted market rate used for purposes of present value amounted to 14.0%
and was based upon current corporate bond rates for issues with similar credit
risks as those of the Company. The reallocation of the fair value is required
first to the derivatives, because those are required to be carried at fair
value. Since the fair value was insufficient to record both the derivative and
debt, a day-one loss has been reflected in our statement of operations as a
component, and reduction of, the gain on extinguishment. Accordingly, the net
gain includes the $9,051,142 gain on extinguishment less the $270,952 day-one
derivative loss.

During the nine months ended October
31, 2009, the Company issued 11,073,419 and 1,599,494 shares of common stock in
connection with the exercise of warrants and the conversions of convertible
debentures, respectively, and $888,310 and $199,419 of related derivative
liability related thereto was credited to equity.

3. Private Placement October 1, 2007
Convertible Debentures

On October 1, 2007, the Company
completed an 11.0%, face value $800,000 financing with a group of investors
(Purchasers), all of which are related parties, by issuing to them debentures
with a face amount of $800,000 and which have an original maturity date of
December 1, 2010 (October Debentures). Interest on the October Debentures is
payable monthly. The principal is payable December 1, 2010.

The October Debentures are convertible
at the Purchasers option into common shares of the Company at a price per share
equal to the lesser of (i) US$0.22 or (ii) 85% of the lowest daily closing bid
price of the Companys common shares, as quoted by Bloomberg, L.P. for the five
trading days immediately preceding the date of conversion.

In addition, the Company issued to the
Purchasers warrants to purchase up to an aggregate of 1,066,667 common shares at
any time until September 26, 2010, with 266,666 shares subject to purchase at
US$0.01 per share, 266,667 shares at US$0.10 per share, 266,667 shares at
US$0.15 per share and 266,667 shares subject to purchase at US$0.22 per
share.

22

---

|CARBIZ INC.                                             
|--------------------------------------------------------
|Notes to the Condensed Consolidated Financial Statements
|October 31, 2009 and 2008                               
|(unaudited)                                             

|5. | CONVERTIBLE DEBENTURES (continued)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|-- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|   | In the evaluation of the Private Placement Debentures,
      the Company concluded that the conversion feature was not afforded the
      exemption as a conventional convertible instrument as defined in ASC
      815-40-25-41 due to the variable conversion price; and it did not
      otherwise meet the conditions for equity classification set forth in ASC
      815-40-25-7 through 815-40-25-10. Since equity classification is not
      available for the conversion feature, the Company was required to
      bifurcate the embedded conversion feature and carry it as a derivative
      liability, at fair value in accordance with ASC 815.                                                                            
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|   | The Company evaluated the warrants for purposes of
      classification under ASC 480-10. The warrants did not embody any of the
      conditions for liability classification under the ASC 480-10 context. The
      warrants were then evaluated under ASC 815. The warrants did meet the
      conditions for equity classification set forth in ASC 815-40-25-7 through
      815-40-25-10. Therefore, the warrants were recorded upon inception in
      accordance with ASC 470-20-25-2, Debt Instruments with Detachable
      Warrants(pre-Codification Accounting Principles Board Opinion No. 14
      Accounting for Convertible Debt and Debt Issued with Stock Purchase
      Warrants), at a relative fair value of $133,814.
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|   | Based upon the accounting conclusions above, the
      allocation of the basis arising from the Private Placement Debentures
      financing transactions is summarized in the table
below:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 

Private PlacementDebenturesCompound derivative
    $
      (896,800
    )Paid in capital
    
      (133,814
    )Day-one derivative loss
    
      230,614Financing proceeds
    $
      800,000


The face value of the October
debentures amounted to $77,000 at January 31, 2009 after giving effect to
conversions. On February 20, 2009, $50,000 of the principal was converted into
the Companys Common Stock. The Company redeemed, in cash, the remaining $27,000
of outstanding principal and accrued interest on October 27, 2009. The Company
was also required to pay a redemption premium of 15% as specified in the
original debenture agreement. The Company accounted for the redemption of the
remaining balance based on the provisions of ASC 470-50, Debt Modifications
and Extinguishments. Since the carrying value of the debentures and the
embedded conversion feature on the date of redemption was less than the amount
paid to redeem the note, the Company recorded a loss on extinguishment of debt
of $7,059 as a result of the redemption.

The amount of the loss was computed as
follows:

Carrying value of debentures prior to the
      redemption:Compound derivative financial instruments
    $
    22,732Debentures
    
    8,852$
    31,584Redemption price of debentures:Principal
    $
    27,000Accrued Interest
    
    6,602Redemption Premium (15% of Principal and
      Accrued Interest)
    
    5,041$
    38,643Loss on extinguishment
    $
    (7,059
    )


The loss on extinguishment is
calculated by subtracting the carrying value of debentures prior to the
redemption from the redemption price.

23

---

|CARBIZ INC.                                             
|--------------------------------------------------------
|Notes to the Condensed Consolidated Financial Statements
|October 31, 2009 and 2008                               
|(unaudited)                                             

|6. | DERIVATIVE LIABILITIES                                                                                  
|-- | --------------------------------------------------------------------------------------------------------
|   |                                                                                                         
|   | Fair values of derivative liabilities as of October 31,
      2009 and January 31, 2009 were as follows:

| |                                                      |   | October
      31, 2009 |  |  | January
      31, 2009 | 
| | ---------------------------------------------------- | - | ---------------------- |  |  | ---------------------- | 
| |                                                      |   |                        |  |  | Number of              | 
| |                                                      |   |                        |  |  | Indexed                | 
| |                                                      |   | Balance                |  |  | Common Shares          | 
| | Compound Embedded Derivatives associated
      with: |   |                        |  |  |                        | 
| | Convertible debentures, $5,000,000
      original    |   |                        |  |  |                        | 
| | face
      value; due September 2010                 | $ | 2,843,448              |  |  | 109,404,393            | 
| | Convertible debentures, $800,000
      original      |   |                        |  |  |                        | 
| | face
      value; due December 2010                  |   | -                      |  |  | -                      | 
| | Warrant Liabilities Expiring:                        |   |                        |  |  |                        | 
| | October 2009                                         |   | -                      |  |  | -                      | 
| | October 2010                                         |   | 7,103                  |  |  | 382,796                | 
| | April 2011                                           |   | 8,748                  |  |  | 314,276                | 
| | October 2011                                         |   | 16,258                 |  |  | 876,200                | 
| | February 2014                                        |   | 455,436                |  |  | 10,468,289             | 
| | June 2014                                            |   | 1,215,881              |  |  | 30,781,800             | 
| |                                                      | $ | 4,546,874              |  |  | 152,227,754            | 

Information and significant assumptions
embodied in the Companys valuations (including ranges for certain assumptions
during the subject periods that instruments were outstanding) as of October 31,
2009 are illustrated in the following tables:

| |                                                                                    | Compound           
| | ---------------------------------------------------------------------------------- | -------------------
| |                                                                                    | Embedded Derivative
| | $4,786,400 face value secured convertible
      debentures due September 30, 2010: |                    
| | Conversion price                                                                   | $0.055             
| | Volatility                                                                         | 113.32%  272.01%  
| | Equivalent term (years)                                                            | 0.082  0.889      
| | Credit-risk adjusted yield                                                         | 8.90%              
| | Interest-risk adjusted rate                                                        | 12.00%  14.25%    
| | Dividends                                                                          | --                 

Information and significant assumptions
embodied in the Companys valuations related to the Private Placement Financing
as of October 27, 2009 (prior to the redemption) are illustrated in the
following table:

$27,000 face value secured convertible
debentures due December 1, 2010:

| | Conversion price            | $0.055          
| | --------------------------- | ----------------
| | Volatility                  | 44.46%  283.07%
| | Equivalent term (years)     | 0.092  0.966   
| | Credit-risk adjusted yield  | 8.90%  9.67%   
| | Interest-risk adjusted rate | 11.00%  14.85% 
| | Dividends                   | --              

Derivative liabilities are adjusted
quarterly to their estimated fair values and any changes in fair value are
recorded as gain (loss) on derivative liabilities in the condensed consolidated
statements of operations.

24

---

|CARBIZ INC.                                             
|--------------------------------------------------------
|Notes to the Condensed Consolidated Financial Statements
|October 31, 2009 and 2008                               
|(unaudited)                                             

|6. | DERIVATIVE LIABILITIES (continued)                                    
|-- | ----------------------------------------------------------------------
|   |                                                                       
|   | Gain (loss) on derivative liabilities consists of the
      following:

| |                               |   | Three Months Ended |  |   | Nine Months Ended |  
| | ----------------------------- | - | ------------------ |  | - | ----------------- | -
| |                               |   | October 31,        |  |   | October 31,       |  
| |                               |   | 2009               |  |   | 2008              |  
| | Compound embedded derivatives | $ | 1,761,067          |  | $ | (1,000,140        | )
| | Warrant derivatives           |   | 1,476,381          |  |   | 712,723           |  
| |                               | $ | 3,237,448          |  | $ | (287,417          | )

|7. | STOCKHOLDERS EQUITY                                                                 
|-- | -------------------------------------------------------------------------------------
|   |                                                                                      
|   | Stock options and incentive stock grants                                             
|   |                                                                                      
|   | Stock option activity for the nine months ended October
      31, 2009 is as follows:

| |                                     |  | Number Of  |   |  | Weighted Average   | 
| | ----------------------------------- |  | ---------- | - |  | ------------------ | 
| |                                     |  | Options    |   |  | Exercise Price (*) | 
| | Outstanding, February 1, 2009       |  | 7,421,891  |   |  | $0.15              | 
| | Options granted during the period   |  | -          |   |  | -                  | 
| | Options cancelled during the period |  | (1,184,000 | ) |  | 0.28               | 
| | Options exercised during the period |  | -          |   |  | -                  | 
| | Outstanding, October 31, 2009       |  | 6,237,891  |   |  | $0.14              | 

(*) The 1998 series of options were
denominated in Canadian dollars. For purpose of this schedule the exercise
prices have been converted into U.S. dollars based on the foreign exchange rate
as at the end of the period.

At October 31, 2009, the outstanding
stock options had no aggregate intrinsic value.

Stock options outstanding and
exercisable as of October 31, 2009 are as follows:

October 31, 2009Options
        Outstanding
      
      
      Options
        ExercisableExercise
      
      
      
      
      Weighted
      
      
      
      
      
      WeightedPrice
      
      Number
      
      
      Average
      
      
      Number
      
      
      AverageLife
        (Yrs)
      
      
      
      
      
      Life
        (Yrs)0.13
      
      5,600,000
      
      
      2.22
      
      
      2,240,000
      
      
      2.220.19
      
      637,891
      
      
      0.08
      
      
      637,891
      
      
      0.086,237,891
      
      
      2
      
      
      2,877,891
      
      
      1.75


(*) The 1998 series of options were
denominated in Canadian dollars. For purpose of this schedule the exercise
prices have been converted into U.S. dollars based on the foreign exchange rate
as at the end of the period.

25

---

|CARBIZ INC.                                             
|--------------------------------------------------------
|Notes to the Condensed Consolidated Financial Statements
|October 31, 2009 and 2008                               
|(unaudited)                                             

|7. | STOCKHOLDERS EQUITY (continued)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|-- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|   | During the nine months ended October 31, 2009 and 2008,
      the Company recognized share-based compensation expense of $75,600 and
      $63,891, respectively for stock options granted to employees, and $96,900
      and $96,900, respectively, for incentive stock granted to employees and
      directors and $10,125, and $64,168, respectively of expense for stock
      previously granted to consultants for services rendered under a contract
      with a term which required the amortization of the total
expense.
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|   | A summary of the Companys non-vested stock options as of
      October 31, 2009, and changes during the nine months then ended, is
      summarized as follows:                                                                                                                                                                                                                                                                                                                                                                     

SharesNon-vested at February 1, 2009
    
    3,360,000Granted
    
    -Vested
    
    -Forfeited/Cancelled
    
    -Non-vested at October 31, 2009
    
    3,360,000


At October 31, 2009, the options had a
weighted average grant date fair value of $0.09 and no intrinsic value.

As of October 31, 2009, there was
approximately $223,720 of unrecognized compensation cost related to non-vested
stock options granted. These costs will be expensed over the next two years and
three months.

On January 25, 2007, the Company
awarded 3,400,000 common shares as restricted stock to certain directors,
officers, and key employees of the Company of which 1,360,000 shares have been
vested as of October 31, 2009.

Warrants

The Company has granted warrants to
purchase shares of common stock. Warrants outstanding, related activity during
the period, details of prices and warrants exercisable at October 31, 2009 are
as follows:

Weighted AverageNumber
    
    
    Exercise PriceOutstanding, February 1, 2009
    
    23,424,825
    
    $
    0.10Issued
    
    51,250,089
    
    
    0.07Exercised
    
    (11,362,750
    )
    
    0.11Cancelled or expired
    
    (8,811,467
    )
    
    0.11Outstanding, October 31, 2009
    
    54,500,697
    
    $
    0.08


26

---

|CARBIZ INC.                                             
|--------------------------------------------------------
|Notes to the Condensed Consolidated Financial Statements
|October 31, 2009 and 2008                               
|(unaudited)                                             

|7. | STOCKHOLDERS EQUITY
(continued)
|-- | --------------------------------

Exercise
    
    
    
    Weighted AveragePrices
    
    Number
    
    Remaining Life (Years)0.01
    
    144,334
    
    0.920.03
    
    9,718,289
    
    4.310.08
    
    41,531,800
    
    4.060.10
    
    144,334
    
    0.920.11
    
    697,072
    
    1.160.15
    
    1,194,334
    
    1.260.20
    
    632,434
    
    1.620.21
    
    438,100
    
    1.9354,500,697
    
    3.94


As of October 31, 2009, of the
54,500,697 total warrants outstanding, 11,677,336 are classified as equity and
42,823,361 are classified as liabilities.

The derivative classification and
accounting for the Companys warrants is based upon ASC 815 Derivatives and
Hedging (preCodificiation EITF 00-19 Accounting for Derivative Financial
Instruments Indexed to, and

Potentially Settled in, a Companys
Own Stock), which sets forth eight conditions for classification of warrants
in stockholders equity; otherwise the warrants require liability classification
and fair value measurement pursuant to ASC 815 (pre-Codification SFAS 133) and,
commencing on February 1, 2009, ASC 815 (pre-Codification EITF 07-05
Determining Whether an Instrument (or Embedded Feature) Is Indexed to
an Entity's Own Stock). Warrants are evaluated under these conditions
upon inception and as of the close of each reporting period. See Note 6
Derivative Liabilities for information associated with our warrants that are
classified as liabilities.

Conversion of Trafalgar convertible
debentures

During the nine months ended October
31, 2009, the Company issued 980,392 shares of common stock at a conversion
price of $0.0765 in a Trafalgar Convertible Debenture conversion.

Conversion of October 1, 2007
related party convertible debentures

On February 19, 2009, a holder of
certain of the Companys October 1, 2007 convertible debentures converted
$50,000 of principal and $8,196 of accrued interest due under the debentures
into 619,102 shares of common stock of the Company. The conversion price was
$0.094. The holder is the spouse of a member of the board of directors.

Exercise of related party warrants

On February 16, 2009, 11,073,419 shares
of common stock were issued upon exercise of outstanding warrants. The Company
received proceeds of $996,578 based on the CDN$0.12 warrant exercise price.

On February 16, 2009, the Company
issued 289,332 shares of common stock upon exercise of outstanding warrants. The
Company received proceeds of $33,273 at exercise prices of $0.01 (72,333
shares), $0.10 (72,333 shares), $0.15 (72,333 shares) and $0.20 (72,333 shares).

The warrant holder is a member of the
board of directors of the Company.

27

---

|CARBIZ INC.                                             
|--------------------------------------------------------
|Notes to the Condensed Consolidated Financial Statements
|October 31, 2009 and 2008                               
|(unaudited)                                             

|7. | STOCKHOLDERS EQUITY (continued)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|-- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|   | Unregistered shares issued to officers and directors
      for directors fees                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|   | On March 24, 2009the board of directors authorized the
      fees payable to directors for their services during the fiscal year ended
      January 31, 2009 to be paid in shares of common stock. Accordingly, on
      March 24, 2009 the Company issued 1,687,500 unregistered common shares
      valued at $0.08 per share aggregating $135,000 in payment of this
      liability, recorded at January 31, 2009.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|   | Unregistered shares issued under cross marketing
      agreement                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|   | On March 24, 2009, the Company issued 125,562
      unregistered common shares valued at $0.08 per share aggregating $10,125
      to Dealer Services Corporation as partial consideration for execution of a
      cross marketing agreement for marketing and training services to be
      provided for a lease-here pay-here funding program.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|   | Additional warrants issued to DSC                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|   | On June 15, 2009, the Company issued to DSC warrants to
      purchase 30,781,800 shares of the Companys stock at a purchase price of
      $0.08 per share. The warrants will expire on June 15, 2014. The Company
      has agreed to enter into registration rights agreements covering the
      shares subject to the warrants similar to the registration rights
      agreements the Company agreed to enter into in connection with the
      warrants previously issued to DSC. See Note 4. The fair value of these
      warrants on date of issuance was $2,247,071 which was charged to deferred
      financing costs at that time and is being amortized over the remaining
      term of the DSC credit facility. The previously issued warrants were
      charged as an adjustment of the gain on debt extinguishment. See Note 4.
      These warrants were also considered to be derivative liabilities and are
      adjusted quarterly to their estimated fair values. See Note 6.
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|   | Expired warrants                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|   | During October 2009, approximately 8,811,467 of the 2004
      Warrants expired without being exercised. The weighted average exercise
      price of the expired warrants was approximately $0.11.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|8. | STAR FINANCIAL PORTFOLIO ACQUISITION                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|   | On June 15, 2009, the Company completed its purchase of a
      loan portfolio comprising approximately 1,500 automobile and light truck
      loans, with a face value of $9,738,862 and an estimated net realizable
      value of $6,598,187, from Star Financial Services (Star). Consideration
      for the purchase consisted of the assumption of face value $8,153,665
      notes payable due by Star to Wells Fargo Preferred Capital, Inc. (WFPC)
      under a line of credit arrangement, which amount was secured by the
      purchased portfolio, and up to $2,067,534 in other indebtedness to Stars
      principals, which amount was subject to adjustment for estimated loan loss
      allowances. The final, adjusted other indebtedness assumed amounted to
      $756,771.                                                                                                                                                                                               
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|   | Contemporaneously with the above purchase, and as a
      pre-negotiated condition precedent to completing the purchase, the Company
      entered into the Wells Fargo loan agreement, terms of which are discussed
      in Note 4. As a result of the negotiations with Wells Fargo Preferred
      Credit to accomplish the purchase, the Company received significant
      reductions in future interest on drawings on the Wells Fargo loan
      agreement (currently 3.95% compared to market rates which range from 12%
      to 20%). The terms of the purchase agreement provided for the assumption
      of Stars Wells Fargo line of credit balance and repayment through
      drawings under the Wells Fargo loan agreement upon closing, which was
      accomplished.                                                                                                                                                                                                               
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|   | The Company accounted for the purchase as an asset
      acquisition, at cost, by first allocating the total consideration for the
      purchase between the purchase of assets from Star and the future interest
      reductions arising from the Wells Fargo loan agreement, characterized as
      prepaid interest. The consideration was then                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    

28

---

|CARBIZ INC.                                             
|--------------------------------------------------------
|Notes to the Condensed Consolidated Financial Statements
|October 31, 2009 and 2008                               
|(unaudited)                                             

|8. | STAR FINANCIAL PORTFOLIO ACQUISITION
      (continued)                                                                                                            
|-- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   |                                                                                                                                                                   
|   | allocated to the assets acquired from Star (other than
      cash) based upon their relative fair values. The following table
      illustrates these allocations:

| |                                                |   | Star Asset |  |   | Wells Fargo Loan |  |   |           | 
| | ---------------------------------------------- | - | ---------- |  | - | ---------------- |  | - | --------- | 
| |                                                |   | Purchase   |  |   | Agreement        |  |   | Total     | 
| | Assets acquired:                               |   |            |  |   |                  |  |   |           | 
| | Loan portfolio                                 | $ | 6,598,187  |  | $ | -                |  | $ | 6,598,187 | 
| | Other assets, including
      $231,666 in cash |   | 241,666    |  |   | -                |  |   | 241,666   | 
| | Prepaid interest                               |   | -          |  |   | 2,070,582        |  |   | 2,070,582 | 
| |                                                | $ | 6,839,853  |  | $ | 2,070,582        |  | $ | 8,910,436 | 
| | Consideration:                                 |   |            |  |   |                  |  |   |           | 
| | Assumption of credit line                      | $ | 6,083,083  |  | $ | 2,070,582        |  | $ | 8,153,665 | 
| | Assumption of other indebtedness               |   | 756,771    |  |   | -                |  |   | 756,771   | 
| |                                                | $ | 6,839,853  |  | $ | 2,070,582        |  | $ | 8,910,436 | 

The loan portfolio is valued at its
estimated net realizable value. The prepaid interest represents the value of the
negotiated interest rate reductions expected in future periods, and will be
amortized into interest expense over the term of the Wells Fargo loan agreement
using the effective interest method.

Certain expenses of the purchase and
Wells Fargo loan agreement, amounting to $637,500, were expensed since the
allocation of the purchase consideration above resulted in the assets initial
carrying values closely approximating fair values of the assets acquired.

29

---

|CARBIZ INC.                                             
|--------------------------------------------------------
|Notes to the Condensed Consolidated Financial Statements
|October 31, 2009 and 2008                               
|(unaudited)                                             

|9. | SEGMENT INFORMATION                                                                                                                                                                                                                                                                                                                                                                       
|-- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   |                                                                                                                                                                                                                                                                                                                                                                                           
|   | The Company operates and manages its business in two
      segments, which are its used car sales and leasing segment (CarBiz Auto
      Credit) and consulting and collections services offered to independent
      car dealerships (Consulting and Collections). For the previous period,
      the Consulting and Collections segment was named Software and Other
      Products.

| | Three months ended October 31,            |   |                    |   |   | 2009           |   |   |            |  
| | ----------------------------------------- | - | ------------------ | - | - | -------------- | - | - | ---------- | -
| |                                           |   |                    |   |   | Consulting and |   |   |            |  
| |                                           |   | Carbiz Auto Credit |   |   | Collections    |   |   | Total      |  
| | Sales                                     | $ | 8,310,586          |   | $ | 93,944         |   | $ | 8,404,530  |  
| | Cost of Sales                             |   | 4,732,860          |   |   | 382,135        |   |   | 5,114,995  |  
| | Gross Profit                              |   | 3,577,726          |   |   | (288,191       | ) |   | 3,289,535  |  
| | Other Operating Expenses (1)              |   | 5,286,154          |   |   | 147,649        |   |   | 5,433,803  |  
| | Loss from Operations, before Depreciation |   |                    |   |   |                |   |   |            |  
| | and Other Income (Expense)                | $ | (1,708,428         | ) | $ | (435,840       | ) |   | (2,144,268 | )
| | Depreciation & Amortization               |   |                    |   |   |                |   |   | 43,450     |  
| | Other Income (Expense)                    |   |                    |   |   |                |   |   | 45,130     |  
| | Net Income                                |   |                    |   |   |                |   | $ | (2,142,588 | )
| | Total Assets                              | $ | 33,699,410         |   | $ | 295,220        |   | $ | 33,994,630 |  

| |                                           |   |                    |   |   | 2008               |   |   |            |  
| | ----------------------------------------- | - | ------------------ | - | - | ------------------ | - | - | ---------- | -
| |                                           |   |                    |   |   | Software and Other |   |   |            |  
| |                                           |   | Carbiz Auto Credit |   |   | Products           |   |   | Total      |  
| | Sales                                     | $ | 13,770,794         |   | $ | 112,449            |   | $ | 13,883,243 |  
| | Cost of Sales                             |   | 8,139,743          |   |   | 164,107            |   |   | 8,303,850  |  
| | Gross Profit                              |   | 5,631,051          |   |   | (51,658            | ) |   | 5,579,393  |  
| | Other Operating Expenses (1)              |   | 7,295,604          |   |   | 742,304            |   |   | 8,037,908  |  
| | Loss from Operations, before Depreciation |   |                    |   |   |                    |   |   |            |  
| | and Other Income (Expense)                | $ | (1,664,553         | ) | $ | (793,962           | ) |   | (2,458,515 | )
| | Depreciation & Amortization               |   |                    |   |   |                    |   |   | 27,833     |  
| | Other Income (Expense)                    |   |                    |   |   |                    |   |   | (3,325,339 | )
| | Net Loss                                  |   |                    |   |   |                    |   | $ | (5,811,687 | )
| | Total Assets                              | $ | 29,573,964         |   | $ | 3,314,012          |   | $ | 32,887,976 |  

(1) Excluding depreciation and
amortization, which is shown separately

30

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|CARBIZ INC.                                             
|--------------------------------------------------------
|Notes to the Condensed Consolidated Financial Statements
|October 31, 2009 and 2008                               
|(unaudited)                                             

|9. | SEGMENT INFORMATION
(continued)
|-- | -------------------------------

| | Nine months ended October 31,             |   |                    |  |   | 2009           |   |   |            |  
| | ----------------------------------------- | - | ------------------ |  | - | -------------- | - | - | ---------- | -
| |                                           |   |                    |  |   | Consulting and |   |   |            |  
| |                                           |   | Carbiz Auto Credit |  |   | Collections    |   |   | Total      |  
| | Sales                                     | $ | 29,320,331         |  | $ | 418,956        |   | $ | 29,739,287 |  
| | Cost of Sales                             |   | 16,264,791         |  |   | 1,006,279      |   |   | 17,271,070 |  
| | Gross Profit                              |   | 13,055,540         |  |   | (587,323       | ) |   | 12,468,217 |  
| | Other Operating Expenses (1)              |   | 12,936,565         |  |   | 396,062        |   |   | 13,332,627 |  
| | Loss from Operations, before Depreciation |   |                    |  |   |                |   |   |            |  
| | and Other Income (Expense)                | $ | 118,975            |  | $ | (983,385       | ) |   | (864,410   | )
| | Depreciation & Amortization               |   |                    |  |   |                |   |   | 120,771    |  
| | Other Income (Expense)                    |   |                    |  |   |                |   |   | 30,531,529 |  
| | Net Income                                |   |                    |  |   |                |   | $ | 29,546,348 |  
| | Total Assets                              | $ | 33,699,410         |  | $ | 295,220        |   | $ | 33,994,630 |  

| |                                           |   |                    |   |   | 2008               |  |   |            |  
| | ----------------------------------------- | - | ------------------ | - | - | ------------------ |  | - | ---------- | -
| |                                           |   |                    |   |   | Software and Other |  |   |            |  
| |                                           |   | Carbiz Auto Credit |   |   | Products           |  |   | Total      |  
| | Sales                                     | $ | 30,489,754         |   | $ | 1,100,708          |  | $ | 31,590,462 |  
| | Cost of Sales                             |   | 17,659,835         |   |   | 819,390            |  |   | 18,479,225 |  
| | Gross Profit                              |   | 12,829,919         |   |   | 281,318            |  |   | 13,111,237 |  
| | Other Operating Expenses (1)              |   | 12,873,267         |   |   | 116,239            |  |   | 12,989,506 |  
| | Loss from Operations, before Depreciation |   |                    |   |   |                    |  |   |            |  
| | and Other Income (Expense)                | $ | (43,348            | ) | $ | 165,079            |  |   | 121,731    |  
| | Depreciation & Amortization               |   |                    |   |   |                    |  |   | 107,511    |  
| | Other Income (Expense)                    |   |                    |   |   |                    |  |   | (4,269,760 | )
| | Total Operating Loss                      |   |                    |   |   |                    |  | $ | (4,255,540 | )
| | Total Assets                              | $ | 29,573,964         |   | $ | 3,314,012          |  | $ | 32,887,976 |  

(1) Excluding depreciation and
amortization, which is shown separately

|10. | INCOME TAXES                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|--- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|    | As of October 31, 2009, the Company had net operating
      loss carry-forwards (NOLs) of approximately $26.7 million (expiring from
      2010 through 2030) and $13.7 million (expiring 2010 through 2017) in the
      United States and Canada, respectively. The use of the United States NOLs
      may be limited in any given year as a result of previous changes in
      ownership. The Company recorded a gain on the extinguishment of debt of
      approximately $33.2 million during the three months ended April 30, 2009.
      The $24.4 million of U.S. gain on debt extinguishment has been excluded
      from income for income tax purposes based on Internal Revenue Code Section
      108. As of February 1, 2011, the Company will be required to reduce
      certain U.S. tax attributes which will include the reduction of available
      NOLs. The Company expects available U.S. NOLs to be reduced by
      approximately $24.4 million. The $8.8 million of Canadian gain on debt
      extinguishment is not includable in Canadian income and has been treated
      as a permanent item.
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|    | As a result of the above, no income taxes are expected to
      result from fiscal 2010 operations.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             

31

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

The following Managements Discussion and Analysis of Financial
Condition and Results of Operations contains forward-looking statements
concerning our revenues, operating results, and financial condition. Such
forward-looking statements include our intent to open additional credit centers
in the future; our expectations regarding the future revenues for, and the
market acceptance of, our consulting service, and our expectations regarding
future expense levels related to our credit center business and interest
expenses. The following discussion should also be read in conjunction with the
Companys interim Condensed Consolidated Financial Statements as of October 31,
2009 and the January 31, 2009 audited Consolidated Financial Statements included
in our January 31, 2009 Form 10-K.

Overview

The financial services industry is facing unprecedented
challenges in the face of the current national and global economic crisis. The
overall U.S. economy is experiencing significantly reduced business activity as
a result of, among other factors, disruptions in the financial markets during
the past year. Carbiz has been further challenged by the credit crisis due to
our primary lender, SWC Services LLC (SWC), filing bankruptcy in October 2008,
which decreased our access to operating cash flow during the period from October
2008 through February 2009. Accordingly, these financing constraints negatively
impacted our planned expansion and funding budgets during the first part of our
2010 fiscal year. In response to SWCs bankruptcy filing, on January 16, 2009,
Carbiz Inc. and its operating subsidiaries entered into amended financing
arrangements among Dealer Services Corporation (DSC), the trustee for SWC and
certain guarantors to the SWC Loan Agreement. The agreement provided for the
transfer of SWCs interests in the Loan Documents to DSC with the terms subject
to the Trustees receipt of a final order of the United States Bankruptcy Court
for the Northern District of Illinois. The agreement also provided that DSC
would forgive approximately $31.3 million of a total of approximately $43.3
million outstanding debt previously due to SWC and to additionally provide
future inventory floor plan financing of up to $7.5 million and used car lease
funding up to $14 million.

On June 15, 2009, we entered into a loan and security agreement
with Wells Fargo Preferred Capital, Inc. Wells Fargo committed to initially loan
Carbiz up to $15 million to finance receivables generated by Carbiz from the
sale of used vehicles and provides for a 55% advance rate on those receivables.
The loan has a stated interest rate of the 3 month LIBOR plus 3.35% . The line
of credit will increase to $17 million on January 1, 2010, and to $20 million on
March 31, 2010 and will terminate on June 30, 2011. These new credit facilities
will help expand our portfolio and provide us access to cash.

In August 2009, the Company was unable to make its monthly
curtailment payment due under the DSC term loan. The Company negotiated a
deferral of that payment to DSC by agreement to a deferral fee of approximately
$350,000, or about $100 per car securitizing the term loan. Subsequent to that
agreement, DSC ceased funding new inventory on the floor plan line of credit.
This cessation prevented the Company from replacing sold vehicles and had a
severe adverse effect on the Companys sales, portfolio growth and cash flow. As
a further result of the reduction of the Companys sales and cash flow, the
Company was forced to negotiate a deferral of two additional monthly curtailment
payments on its DSC term loan in September and October 2009. The cost of each
monthly deferral was approximately $350,000. The deferral costs were added to
the basis of the loan and recorded as interest in the Statement of Operations.
These additional charges caused the effective interest rate of the DSC debt to
be approximately 40%.

The Company continues to operate at a greatly reduced sales
rate due to the lack of inventory financing, which is absolutely crucial to the
continuing operations of the Company. During subsequent discussions with DSC, it
has become clear that DSC does not intend to restore normal funding to the
Company under any circumstances and, as a result, the Company is engaged in a
vigorous search to find a suitable replacement credit facility. However, the
continuing worldwide financial and credit crises have strained investor
liquidity and contract credit markets, which will likely make the cost of
raising funds through the debt or equity markets more expensive or make those
markets unavailable. If additional financing is raised by the issuance of
securities, control of the Company may change and/or our shareholders may suffer
significant dilution. However, there can be no assurance that financing efforts

32

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will be successful, and if a suitable replacement credit
facility is not found, the future viability of the Company is in doubt.

Critical Accounting Policies

Revenue recognition

The Companys revenue is primarily derived from the sale and
leasing of used automobiles, and the sale of consulting and collections services
to dealers in the automobile industry:

|(1) | Used automobile sales:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|--- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|    | The Company recognizes revenue on the sale of automobiles
      upon execution of the sales contract, the customer taking possession of
      the automobile, and financing having been approved. Customers are required
      to meet certain underwriting guidelines in order to obtain financing of
      the automobile through the Company.                                                                                                                                                                                                                                                                                                                        
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|(2) | Used automobile leases:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|    | The Company recognizes revenue on the lease of
      automobiles upon execution of the lease contract, the customer taking
      possession of the automobile, and lease financing having been approved.
      Customers are required to meet certain underwriting guidelines in order to
      obtain lease financing of the automobile through the Company. The Company
      accounts for leases as a sales-type lease.                                                                                                                                                                                                                                            
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|(3) | Consulting and collections services                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|    | The Company generates revenue from the sale of consulting
      and collections services. These fees include charges for training
      seminars, performance group seminars, consulting engagements and
      collection and skip tracing services to the automobile industry. Revenue
      is recognized when a signed contract has been executed, the services have
      been delivered, fees are fixed or determinable, collectability is
      reasonable assured and when all significant obligations have been
      fulfilled. Therefore, for services that extend over a period of time,
      revenue is recognized ratably over the term of the
  contract.

Lease transactions

To qualify for financing under the new DSC financing agreement,
the Company converted a number of existing finance note receivables to lease
receivables, in February 2009. All Company financed receivables were eligible
for the February 2009 conversion. Since the Company aggregates its receivables
to determine the allowance for credit losses, there is no overall adjustment in
the credit quality of the Companys receivables. The Company considered these
transactions to be direct financing leases and accounted for the leases
including the minimum lease payments and the unguaranteed residual value as the
gross investment in the lease. The difference between this gross investment and
the cost or carrying amount was recorded as unearned income. The unearned income
and initial direct costs will be amortized to income over the lease term so as
to produce a constant periodic rate of return on the net investment in the
lease.

Any new leases are considered sales-type leases and the
minimum lease payments and the residual value of the underlying auto are
considered in the fair value. The revenue recognition for sales-type leases
involves recognizing both a profit element and a financing element over the term
of the lease.

The estimated residual value is reviewed by management
quarterly. If the review results in a lower residual estimate than had been
previously established, management will then make a determination as to whether
the decline is other than temporary. If the decline is judged to be other than
temporary, an adjustment will be made to the residual value. The resulting
reduction in the net investment will be recognized as a loss in the period in
which the estimate is changed. Management determined no such adjustments were
needed during the quarter ended July 31, 2009.

33

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Transfer of Financial Assets

The Company has sold portions of its previously generated and
recently acquired financed note receivable portfolio. All portfolio sales during
this period have met the requirements for a sale and the Company did not retain
the right to service or collect those loans.

During the nine months ended October 31, 2009, the Company sold
approximately $2.95 million of notes receivable for cash. The sale resulted in
an immaterial gain.

Use of estimates

In preparing the Companys consolidated 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 dates of the consolidated financial statements and
the reported amounts of revenues and expenses during the reporting periods.
Actual results could differ from those estimates. Estimates are used when
accounting for items and matters such as the allowance for credit losses,
accrued liabilities, share-based payments, derivative liabilities and
contingencies.

Deferred finance costs

Deferred finance costs include the fair value of warrants
issued to an existing lender in conjunction with the issuance of the Wells Fargo
Preferred Credit line of credit. They will be amortized over the term of the
respective financing arrangement. Approximate future amortization of deferred
finance costs is as follows as of October 31, 2009:

Years ending October 312010
    $
    1,123,5362011
    
    702,210$
    1,825,746


Prepaid interest

Prepaid interest included the initial interest recorded in
conjunction with the issuance of the Wells Fargo Preferred Credit line of credit
and is amortized over the term of the respective financing arrangement. Such
amount was determined by comparing the cost of the acquired portfolio and other
assets to the fair value of such assets acquired, and the difference was
recognized as prepaid interest (see Note 8). Approximate future amortization of
prepaid interest is as follows as of October 31, 2009:

Years ending October 312010
    $
    1,016,3012011
    
    658,680$
    1,674,981


Share-Based Compensation

The Company uses the fair-value method to determine
compensation for all arrangements under which employees and others receive
shares of stock or equity instruments. The fair value of each option award is
estimated on the date of grant using the Black-Scholes valuation model that uses
assumptions for expected volatility, expected dividends, expected term, and the
risk-free interest rate. Expected volatilities are based on the historical
volatility of the Companys common stock over the expected term of the options.
The expected term of options granted to employees is derived using the
simplified method which computes expected terms as the average of the sum of
the

34

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vesting term plus the contract term. The risk-free interest
rate is based on the U.S. Treasury yield rates in effect at the time of grant
for the period of the expected term.

Derivative instruments

The Company generally does not use derivative financial
instruments to hedge exposures to cash-flow, market or foreign-currency risks.
However, the Company has entered into certain other financial instruments and
contracts, such as debt financing arrangements and freestanding warrants with
features that are either not afforded equity classification, embody risks not
clearly and closely related to host contracts, or may be net-cash settled by the
counterparty. These instruments are required to be carried as derivative
liabilities, at fair value, in the Companys consolidated financials.

The Company estimates fair values of derivative financial instruments
  using the Black-Scholes-Merton or the Monte Carlo Simulation valuation technique,
  because that technique embodies all of the assumptions (including credit risk,
  interest risk, stock price volatility and conversion behavior estimates) that
  are necessary to fair value complex compound derivative instruments. Estimating
  fair values of derivative financial instruments requires the development of
  significant and subjective estimates that may, and are likely to, change over
  the duration of the instrument with related changes in internal and external
  market factors. In addition, option-based techniques are highly volatile and
  sensitive to changes in the Companys trading market price which has high-historical
  volatility. Since derivative financial instruments are initially and subsequently
  carried at fair values, the Companys income will reflect the volatility
  in these estimate and assumption changes.

Allowance for credit losses and concentration of credit risk

The allowance reflects the Companys best estimate of probable
losses inherent in the accounts, notes and lease receivables. The Company
determines the allowances based on known troubled accounts, historical
experience of collections, write-offs and asset recoveries, credit quality of
customers and other industry and Company economic considerations.

The Company initiates steps to pursue collection of payments
for notes or lease receivables upon the customers first missed payment. Initial
steps may include contacting the customer via telephone, performing a field
visit to the customers work or home, or activating the automobiles onboard
starter disrupt system. When the initial steps are not successful, the Company
then takes steps to repossess the automobile. While we have a successful history
of recovering automobiles that secure delinquent loans through repossession, as
is experienced widely in our industry, we generally are unable to recover a
significant amount of value from the ultimate sale of the repossessed vehicle
relative to the associated note or lease receivable. This is typically due to
the deteriorated condition of the repossessed automobile. During our year ending
January 31, 2009, our recovery amount as a percent of our gross write-offs
amounted to 12.5% (8.4% for the two year period ended January 31, 2009). We will
continue to make attempts to improve recovery percentages; however, we currently
anticipate that the recovery percentages that we will experience in the
foreseeable future will be consistent with this amount.

Once the automobile is in the Companys possession, and the
applicable States statutory notice period for repossessed accounts has passed,
typically 0 to 30 days, the vehicle is liquidated and the associated receivable
account is charged off. In situations where the Company has been unable to
successfully repossess the automobile, the account is written off immediately.
When a customers account becomes severely delinquent (usually 14 days for
weekly pay accounts, 30 days for bi-weekly pay accounts and 60 days for monthly
pay accounts), the Company suspends accrual of interest income. Notes and lease
receivables for accounts held in repossession are fully reserved for in the
allowance for credit losses.

The Company maintains an allowance for credit losses on an
aggregate basis for the notes and lease receivable portfolio. Management
considers the allowance for credit losses to be sufficient to cover estimated
losses in the collection of outstanding receivables. The allowance is based
primarily upon historical credit loss experience with consideration given to
recent credit loss trends, changes in loan characteristics (i.e., average
amounts financed and terms of the notes), 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

35

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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, the Company believes that it has given appropriate
consideration to all relevant factors and has made reasonable assumptions in
determining the allowance.

For accounts where the automobile was repossessed, the
difference between the loan or lease balance and the fair value of the
repossessed automobile (based on the average wholesale selling price at auction)
is charged to the allowance for credit losses. Generally, repossessed
automobiles are sold at auction. On average, accounts are approximately 60-90
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 expenses all costs incurred in connection with the
process of initiating, refinancing or restructuring notes or lease receivables
to include all costs related to underwriting, securing collateral, closing
transactions, processing loan documents, and determining credit worthiness.

Three Month Financial Information

The following summary of selected financial information for the
three month period ended October 31, 2009 and 2008 is derived from, and should
be read in conjunction with, and is qualified in its entirety by reference to,
our Condensed Consolidated Financial Statements, including the notes thereto as
of and for periods ended October 31, 2009 and 2008.

Three months ended October 31, 2009 compared to the three
months ended October 31, 2008

|                                      |   | October    |   |  | Percentage |  |   | October    |   |  | Percentage | 
|------------------------------------- | - | ---------- | - |  | ---------- |  | - | ---------- | - |  | ---------- | 
|                                      |   | 31, 2009   |   |  | of Sales   |  |   | 31, 2008   |   |  | of Sales   | 
|Sales                                 | $ | 8,404,530  |   |  | 100.0%     |  | $ | 13,883,243 |   |  | 100.0%     | 
|Cost of sales                         |   | 5,114,995  |   |  | 60.9%      |  |   | 8,303,850  |   |  | 59.8%      | 
|Gross profit                          |   | 3,289,535  |   |  | 39.1%      |  |   | 5,579,393  |   |  | 40.2%      | 
|Operating expenses                    |   | 5,477,253  |   |  | 65.2%      |  |   | 8,065,741  |   |  | 58.1%      | 
|Operating income (loss)               |   | (2,187,718 | ) |  | -26.0%     |  |   | (2,486,348 | ) |  | -17.9%     | 
|Interest expense                      |   | (3,185,259 | ) |  | -37.9%     |  |   | (3,037,922 | ) |  | -21.9%     | 
|Gain (loss) on derivative instruments |   | 3,237,448  |   |  | 63.3%      |  |   | (287,417   | ) |  | -3.5%      | 
|Loss on extinguishment of debt        |   | (7,059     | ) |  | -0.1%      |  |   | -          |   |  | 0.0%       | 
|Net Income                            | $ | (2,142,588 | ) |  | -25.5%     |  | $ | (5,811,687 | ) |  | -41.9%     | 
|Income (loss) per common              |   |            |   |  |            |  |   |            |   |  |            | 
|share                                 |   |            |   |  |            |  |   |            |   |  |            | 
|Basic                                 | $ | (0.02      | ) |  |            |  | $ | (0.08      | ) |  |            | 
|                                      |   |            |   |  |            |  |   |            |   |  |            | 
|Diluted                               | $ | (0.02      | ) |  |            |  | $ | (0.08      | ) |  |            | 

Revenue

In the three months ended October 31, 2009, our revenues
decreased by approximately $5.5 million compared to the same period ended
October 31, 2008. This decrease was primarily due to a drop in used car sales
and leases caused by our inability to fund replacement inventory and the
deteriorating U.S. economy. We are currently looking for a supplement to our
current floor plan lines.

Total revenue from car sales and leases during the three months
ended October 31, 2009 was $6.3 million compared to $12.3 million during the
three months ended October 31, 2008, an decrease of 53%. This was a result of
weak sales and lack of inventory.

36

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Total revenue from consulting and collection services during
the three months ended October 31, 2009 was $93,944 compared to $112,449 during
the three months ended October 31, 2008, a decrease of $18,505. The small
decrease relates the loss of clients due to the decline of the economy.

Interest and lease income for the three months ended October
31, 2009 increased by $528,506 compared to the previous years three month
period. This increase is due to the increased portfolio size and the addition of
the Star Financial portfolio.

Cost of Sales

Our overall cost of sales expense decreased by $3.1 million for
the three months ended October 31, 2009, compared to the previous years three
month period. Used car costs decreased by $3.4 million due to reduced sales and
leases. Our consulting and collections cost of sales increased by $218,028
during the three months ended October 31, 2009 due to the increase in the
collections department staff and a new California collections office opened this
quarter in support of the acquired Star Portfolio.

Expenses

For the three months ended October 31, 2009, our personnel
expenses increased by $131,351 compared to the previous years three month
period. This was due to an increase in corporate staff positions and managerial
positions. Selling expenses decreased for the three months ended October 31,
2009 by $111,511 due to a planned reduction in advertising spending.
Professional fees increased by $171,521, due the increased need for legal
review. Other operating expenses increased by $108,448 during the three month
period ended October 31, 2009, mostly due to the increased cost of consumable
goods and rent expense.

Interest Expense

Our interest expense and other expenses decreased by $147,337
for the three months ended October 31, 2009, compared to the previous years
three month period, due to the lower amount of outstanding debt. The outstanding
debt was $28.6 million in the current year as compared to $41.3 million in the
prior. Interest expense associated with convertible debenture financings is
recognized based on the effective interest method, and interest expense is
therefore expected to increase due to increased carrying values.

Gain/Loss on Derivative Instruments

For the three months ended October 31, 2009, we incurred a
non-cash gain of $3.5 million as a result of the fair value adjustment of
outstanding derivative instruments which is based primarily on fluctuations in
our stock price. During the three months ended October 31, 2008, we incurred a
non-cash loss of $287,417. We expect gains and losses on derivative instruments
in the future while the convertible debentures, the host instrument of the
derivative liabilities, and related warrants remain outstanding.

Provision for credit losses

As of October 31, 2009, the total Carbiz Auto Credit loan
portfolio was approximately $24.2 million and the net investment in lease
receivables was approximately $10.5 million. The allowance for doubtful accounts
at the same date was approximately $6.1 million for the vehicle loan portfolio,
and $2.6 million for lease portfolio, a total of $8.7 million. The provision for
credit losses decreased by $1.7, mostly attributable to large blocks of consumer
notes written off in the prior year.

37

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Nine Month Financial Information

The following summary of selected financial information for the
nine months ended October 31, 2009 and 2008 is derived from, and should be read
in conjunction with, and is qualified in its entirety by reference to, our
interim financial statements, including the notes thereto, for periods ended
October 31, 2009 and 2008.

Nine months ended October 31, 2009 compared to the nine
months ended October 31, 2008

|                                      |   | October    |   |  | Percentage |  |   | October    |   |  | Percentage | 
|------------------------------------- | - | ---------- | - |  | ---------- |  | - | ---------- | - |  | ---------- | 
|                                      |   | 31, 2009   |   |  | of Sales   |  |   | 31, 2008   |   |  | of Sale    | 
|Sales                                 | $ | 29,739,287 |   |  | 100.0%     |  | $ | 31,590,462 |   |  | 100.0%     | 
|Cost of sales                         |   | 17,271,070 |   |  | 58.1%      |  |   | 18,479,225 |   |  | 58.5%      | 
|Gross profit                          |   | 12,468,217 |   |  | 41.9%      |  |   | 13,111,237 |   |  | 41.5%      | 
|Operating expenses                    |   | 13,453,398 |   |  | 45.2%      |  |   | 14,302,737 |   |  | 45.3%      | 
|Operating income (loss)               |   | (985,181   | ) |  | -3.3%      |  |   | (1,191,500 | ) |  | -3.8%      | 
|Interest expense                      |   | (5,195,410 | ) |  | -17.5%     |  |   | (6,822,286 | ) |  | -21.6%     | 
|Gain (loss) on derivative instruments |   | 3,172,211  |   |  | 10.7%      |  |   | 3,758,246  |   |  | 11.9%      | 
|Gain on extinguishment of debt        |   | 33,192,228 |   |  | 111.6%     |  |   | -          |   |  | 0.0%       | 
|Transaction costs                     |   | (637,500   | ) |  | -2.1%      |  |   | -          |   |  | 0.0%       | 
|Net income                            | $ | 29,546,348 |   |  | 99.4%      |  | $ | (4,255,540 | ) |  | -13.5%     | 
|Income (loss) per common              |   |            |   |  |            |  |   |            |   |  |            | 
|share                                 |   |            |   |  |            |  |   |            |   |  |            | 
|Basic                                 | $ | 0.29       |   |  |            |  | $ | (0.06      | ) |  |            | 
|                                      |   |            |   |  |            |  |   |            |   |  |            | 
|Diluted                               | $ | 0.13       |   |  |            |  | $ | (0.06      | ) |  |            | 

Revenue

In the nine months ended October 31, 2009, our revenues
decreased by approximately $1.9 million compared to the same period ended
October 31, 2008. This decrease was due to lower vehicle sales and a reduction
of software and consulting revenue caused by the sale of the software
assets.

Total revenue from car sales and leases during the nine months
ended October 31, 2009 was $23.9 million compared to $25.7 million during the
nine months ended October 31, 2008, a decrease of 7.5% . This was a result of
weak sales and lack of inventory.

Total revenue from consulting and collection services during
the nine months ended October 31, 2009 was $418,956 compared to $1,100,708
during the nine months ended October 31, 2008, a decrease of $681,752. The
decrease was due to the sale of the software assets during the prior period.

Interest and lease income for the nine months ended October 31,
2009 increased by $595,259 compared to the previous years nine month period.
This increase is due to the increased portfolio size and the addition of the for
Star Financial portfolio.

Cost of Sales

Our overall cost of sales expense decreased by $1.2 million for
  the nine months ended October 31, 2009, compared to the previous years
  nine month period. Used car costs decreased by $1.4 million due to reduced automobile
  sales and leases. Our consulting and collections cost of sales increased by
  $186,889 during the nine months ended October 31, 2009 due to the increase in
  the collections department staff and a new California collections office opened
  this quarter.

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Expenses

For the nine months ended October 31, 2009, our personnel
expenses increased by $150,188 compared to the previous years nine month
period. This was due to an increase in corporate staff positions and managerial
positions. Selling expenses decreased for the nine months ended October 31, 2009
by $215,881 due to a planned reduction in advertising spending. Professional
fees increased by $60,907, due the increased need for legal review for the Star
Financial transaction and the DSC credit facility agreements. Other operating
expenses increased by $288,140 during the nine month period ended October 31,
2009, mostly due to the increased cost of consumable goods and rent expense.

Interest Expense

Our interest expense and other expenses decreased by $1.6
million for the nine months ended October 31, 2009, compared to the previous
years nine month period, due to the lower amount of outstanding debt . The
outstanding debt was approximately $28.6 million in the current year as compared
to $41.3 million in the prior. Interest expense associated with convertible
debenture financings is recognized based on the effective interest method, and
interest expense is therefore expected to increase due to increased carrying
values.

Gain/Loss on Derivative Instruments

For the nine months ended October 31, 2009, we incurred a
non-cash gain of $3.2 million as a result of the fair value adjustment of
outstanding derivative instruments which is based primarily on fluctuations in
our stock price. During the nine months ended October 31, 2008 we incurred a
non-cash gain of $3.8 million. We expect gains and losses on derivative
instruments in the future while the convertible debentures, the host instrument
of the derivative liabilities, and related warrants remain outstanding.

Gain on extinguishment of debt

During the nine months ended October 31, 2009, we had a $33.2
million gain on extinguishment of debt. $24.4 million of the extinguishment gain
came from the DSC debt forgiveness of $31.4, less the cost of converting our
financed receivables to leases of approximately $4.6 million, the fair value of
the DSC warrants issued, of approximately $1.4 million, the write off of
deferred financing costs of approximately $600,000 and the additional DSC
origination and commitment fees of $370,000. The remaining $8.8 million gain on
debt extinguishment was derived from a modification of the Trafalgar debenture
agreement. There was a $7,059 loss on debt extinguishment that was included with
the extinguishment gain during the nine months ended October 31, 2009. There was
no such gain in the nine months ended October 31, 2008.

Gain on sale of Software assets

Through June 30, 2008, this segment of our business consisted
of new sales and monthly revenue for software products and new sales and other
related products including revenue from credit bureau fees, supply sales, and
forms programming, and new sales and monthly revenue for consulting products.
The software operation of this segment was sold on July 2, 2008. As of July 2,
2008, our ongoing revenue stream has consisted of new sales and monthly revenue
from consulting products, training products, Buy Here-Pay Here performance
groups, seminars, other one time dealer assistance, and supply sales. In the
beginning of fiscal year 2010, the Company opened a collection facility at the
corporate headquarters to provide collection services to both our own stores and
independent car dealerships.

Provision for credit losses

As of October 31, 2009, the total Carbiz Auto Credit loan
portfolio was approximately $24.2 million and the net investment in lease
receivables was approximately $10.5 million. The allowance for doubtful accounts
at the same date was approximately $6.1 million for the vehicle loan portfolio,
and $2.6 million for lease portfolio, a total of

39

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$8.7 million. The provision for cedit losses decreased by $1.7,
mostly attributable to large blocks of consumer notes written off in the prior
year.

Significant Financing Arrangements

Trafalgar Secured Subordinated Debenture Financings

January 2009 and subsequent modifications

In January 2009, the Company executed another debenture
modification agreement with Trafalgar which terms were effective on February 20,
2009 (the February 2009 modification). The February 2009 modification was made
pursuant to the Company modifying the terms of the Companys other debt
arrangements including the revolving line-of-credit, term and floor plan notes
payable, which were also effective February 20, 2009. Pursuant to the February
2009 modification, Trafalgar revised the payment terms related to certain of the
convertible debentures. Debenture principal and interest payments are due as
follows: $250,000 in March 2009; $50,000 per month April 2009 through December
2009; $100,000 per month January 2010 through August 2010; and the remaining
balance of approximately $5,100,000, in September 2010, as long as the Company
holds $10 million of consumer notes that are not in default from its BHPH
business and cash on hand exceeds its payables by at least $1 million. A further
modification was made by Trafalgar which allowed the Company to further modify
the terms of the its loan agreements with DSC.

Additional Unsecured Subordinated Debenture Financing

On February 19, 2009, a holder of certain of the Companys
October 1, 2007 convertible debentures converted $50,000 principal and $8,196 of
accrued interest due under the debentures into 619,102 shares of common stock of
the Company. The conversion price was $0.094. The holder is the spouse of a
member of the board of directors. On February 16, 2009, 11,073,419 shares of
common stock were issued upon exercise, by a Company director, of outstanding
warrants issued as part of the previously reported October 6, 2004 sale of
convertible debentures. The Company received proceeds of $996,578 based on the
CDN$ 0.12 warrant exercise price. On February 16, 2009, the Company issued
289,332 shares of common stock upon exercise of outstanding warrants issued as
part of the October 1, 2007 convertible debenture financing. The Company
received proceeds of $33,273 at exercise prices of $0.01 (72,333 shares), $0.10
(72,333 shares), $0.15 (72,333 shares), and $0.20 (72,333 shares). The warrant
holder was a member of the board of directors.

Senior Credit Facilities

Dealer Services Corporation

On January 16, 2009, we entered into an Asset Purchase
Agreement with Dealer Services Corporation (DSC) and the bankruptcy Trustee of
SWC Services LLC (Trustee), pursuant to which DSC agreed to purchase and the
Trustee agreed to transfer and assign to DSC all of the rights and interest of
SWC under the Loan Agreement and the other documents entered into by us and the
various guarantors in connection with the SWC Loan Agreement (collectively, the
Loan Documents).

The Asset Purchase Agreement provided that, in consideration
for the transfer to DSC of SWCs rights in the Loan Documents, DSC would pay to
the Trustee the sum of $12,000,000. The final order was effective on February
20, 2009, and $12,000,000 was paid to the Trustee, and upon receipt of such
amount the Trustee transferred to DSC its liens and encumbrances in and to our
automobile inventory.

The Asset Purchase Agreement also provided that the Loan
Agreement would be amended, effective as of February 20, 2009, pursuant to the
terms of the Third Amended and Restated Loan and Security Agreement by and
between us, DSC and the other parties thereto (the New Loan Agreement). The
New Loan Agreement substantially revised the terms of the Loan Agreement, and
provided that DSC would forgive all of the outstanding balance due under the SWC
Loan Agreement in excess of $12,000,000. At February 20, 2009, there was a total
balance of approximately $43.3 million borrowed under the SWC credit facilities.
The forgiveness of such amount resulted in us recognizing

40

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income in the our fiscal year 2010 for both financial reporting
and federal income tax purposes in the amount of the difference between the
amount owed as of the closing date and $12,000,000, less the amount of any costs
incurred. We incurred normal transaction costs including commitment fees and
legal costs related to the restructuring of current notes receivable as required
under the New Loan Agreement. For tax purposes it is anticipated that we will
apply IRC Section 108 to the gain associated with the forgiveness of SWC debt in
fiscal year 2010. We believe that we have net operating loss carry forwards
(NOLs) available that will be adequate to absorb any remaining taxable income.
However, as a consequence of using IRC Section 108, these NOLs will most likely
be reduced to zero in the year following the transaction. There may also be
other adjustments that we must make that would have the effect of deferring any
potential income tax liabilities. We believe that beyond the reduction of the
NOLs that these other adjustments will not have a material impact on our
consolidated financial position.

As DSC primarily provides financing to automobile dealers who
lease automotive vehicles to consumers, the New Loan Agreement provided that we
had to convert a number of outstanding notes receivable due from consumers who
have purchased vehicles from us into closed-end leases or pay a substantial
penalty to DSC. Under the New Loan Agreement, we delivered to DSC a set of
conversion documents, consisting of a signed closed-end lease and a bill of sale
for each vehicle, with respect to vehicles with an aggregate Floor Plan Value
(as defined below) of approximately $9,000,000. We incurred costs of
approximately $4.6 million in connection with the conversion of these notes
receivable, including incentives to borrowers under the notes receivables. The
New Loan Agreement provided us with floor plan financing, and generally provides
that all advances borrowed to purchase vehicles must be repaid ratably over a
two-year period, or upon the sale of the associated vehicle. For loans which are
converted to closed-end leases, the two years will commence on the date of
conversion. The total credit limit under the New Loan Agreement, as amended, is
$19,500,000, which includes the $12,000,000 paid to the Trustee under the Asset
Purchase Agreement. The interest rate for all advances under the floor plan
facility, including the amount paid to the Trustee for our inventory of vehicles
and all vehicles subject to the conversion documents, will be variable, based
upon published rates of DSC.

In August 2009, the Company was unable to make its monthly
curtailment payment due under the DSC term loan. The Company negotiated a
deferral of that payment to DSC by agreement to a deferral fee of approximately
$350,000, or about $100 per car securitizing the term loan. Subsequent to that
agreement, DSC ceased funding new inventory on the floor plan line of credit.
This cessation prevented the Company from replacing sold vehicles and had a
severe adverse effect on the Companys sales, portfolio growth and cash flow. As
a further result of the reduction of the Companys sales and cash flow, the
Company was forced to negotiate a deferral of two additional monthly curtailment
payments on its DSC term loan in September and October 2009. The cost of each
monthly deferral was approximately $350,000. The deferral costs were added to
the basis of the loan and recorded as interest in the Statement of Operations.
These additional charges caused the effective interest rate of the DSC debt to
be approximately 40.84% .

The Company continues to operate at a greatly reduced sales
rate due to the lack of inventory financing, which is absolutely crucial to the
continuing operations of the Company. During subsequent discussions with DSC, it
has become clear that DSC does not intend to restore normal funding to the
Company under any circumstances and, as a result, the Company is engaged in a
vigorous search to find a suitable replacement credit facility. However, the
continuing worldwide financial and credit crises have strained investor
liquidity and contract credit markets, which will likely make the cost of
raising funds through the debt or equity markets more expensive or make those
markets unavailable. If additional financing is raised by the issuance of
securities, control of the Company may change and/or our shareholders may suffer
significant dilution. However, there can be no assurance that financing efforts
will be successful, and if a suitable replacement credit facility is not found,
the future viability of the Company is in doubt.

All of the financial covenants contained in the prior Loan
Agreement have been deleted from the New Loan Agreement and replaced by an
obligation for us to maintain a minimum of $3,500,000 of accounts receivable. As
was the case under the previous Loan Agreement, the obligation to pay all
amounts due under the New Loan Agreement is secured by a pledge to DSC of all of
our assets. Also, Carl Ritter, our Chief Executive Officer, has pledged his
shares of our Companys common stock (3,944,112 shares) to DSC as additional
collateral.

41

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In connection with entering into the New Loan Agreement, we
paid DSC a loan origination fee of $120,000 and a commitment fee of $250,000. In
addition, on February 20, 2009, we issued to DSC warrants to purchase 9,718,289
shares of the Companys common stock at a purchase price of $.03 per share,
which was the share price in late December/early January when the Company and
DSC began negotiating the terms of the New Loan Agreement. The warrants will
expire on February 28, 2014. We have agreed to enter into a registration rights
agreement on or before December 31, 2010, pursuant to which we will be required
to register for resale by DSC the shares to be issued to DSC under the warrant,
and to use our commercially reasonable efforts to obtain all necessary consents
to enter into such agreement.

In connection with entering into the Asset Purchase Agreement
and the New Loan Agreement, we, DSC and Trafalgar Capital Specialized Investment
Fund, Luxembourg (Trafalgar), entered into a Fifth Amendment To and
Reaffirmation Of Subordination and Inter-creditor Agreement, dated January 14,
2009, amending the Subordination and Inter-creditor Agreement between Trafalgar
and DSC, as SWCs assignee of that agreement. Under the Fifth Amendment,
Trafalgar consented to the execution and delivery of the New Loan Agreement.

In connection with the closing of the Asset Purchase Agreement
and the New Loan Agreement, the Company requested that Ross Quigley, a director
and significant shareholder of the Company, exercise certain warrants previously
issued to him to purchase 11,073,419 shares of Company common stock at CDN$.12
per share, 72,333 shares at US$.20 per share, 72,333 shares at US$.15 per share,
72,333 shares at US$.10 per share and 72,333 shares at US$.01 per share, in
order to provide additional equity financing to the Company. As a condition to
such purchase, Mr. Quigley requested that the Company issue to him an additional
warrant to purchase up to 10 million shares of Company common stock at any time
prior to February 20, 2014 for US$.08 per share (the New Quigley Warrant) and,
upon approval of the transaction by the Board of Directors, the Company agreed
to issued such warrant to Mr. Quigley. On February 20, 2009, Mr. Quigley
delivered $750,000 of the $1,029,861 to exercise the warrants to the Company.
The remaining balance of $279,861 was paid on March 13, and the Company issued
11,362,751 shares of common stock to Mr. Quigley.

Under the warrant issued to DSC in connection with the New Loan
Agreement (the Existing DSC Warrant), the issuance of the New Quigley Warrant
would have required the Company to increase the 9,718,289 shares issuable under
the Existing DSC Warrant to 10,222,604 shares and reduce the exercise price for
all of the shares issuable under the Existing DSC Warrant from $0.03 per share
to $0.02852 per share. However, DSC agreed that in lieu of the Company
increasing the number of shares issuable under the Existing DSC Warrant and
reducing the exercise price for all of the shares issuable under the Existing
DSC Warrant, the Company could issue to DSC a new warrant to purchase up to
750,000 shares of Company common stock at any time prior to February 20, 2014
for $.08 per share (the New DSC Warrant). The Company has issued such warrant
to DSC.

On February 25, 2009, the Company, its operating subsidiaries
and DSC further amended and restated the New Loan Agreement pursuant to the
terms of the Fourth Amended and Restated Loan and Security Agreement (the
Fourth Loan Agreement).

The Fourth Loan Agreement provides for the inclusion of five
new Carbiz subsidiaries in the credit facility. Four of these subsidiaries have
been formed to carry out the business of the Company in Indiana, and one has
been formed to carry out the business of the Company in Nebraska. Under the
Fourth Loan Agreement and the promissory notes executed by the operating
subsidiaries thereunder, the amount of available credit was expanded from $14
million to $19.5 million.

In connection with entering into the Fourth Loan Agreement, the
Company, DSC and Trafalgar entered into a Sixth Amendment To and Reaffirmation
Of Subordination and Inter-creditor Agreement, dated February 23, 2009, amending
the Subordination and Inter-creditor Agreement between Trafalgar and DSC. Under
the Sixth Amendment, Trafalgar consented to the execution and delivery of the
Fourth Loan Agreement and the performance of the terms thereof.

42

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Wells Fargo

On June 15, 2009, all of the Company's direct and indirect
subsidiaries (the "Borrowers") entered into the WF Loan Agreement dated June 15,
2009 with Wells Fargo Preferred Capital, Inc. Under the WF Loan Agreement, Wells
Fargo committed to loan the Borrowers up to (i) $15,000,000 through and
including December 31, 2009, (ii) $17,000,000 commencing January 1, 2010 through
and including March 31, 2010 and (iii) $20,000,000 thereafter. The purpose of
the credit facility is to finance receivables generated by the Company from the
sales of used vehicles. The Borrowers may borrow up to 55% of the outstanding
amount due under eligible receivables, as defined in the WF Loan Agreement,
other than receivables acquired from Star Financial Services in June 2009. With
respect to the receivables acquired from Star, they may borrow up to 95% of the
amount outstanding under such receivables through the 60th day following the
date of the WF Loan Agreement and 90% thereafter.

The WF Loan Agreement is subject to certain borrowing
limitations, and includes certain financial and restrictive covenants, including
but not limited to covenants requiring the maintenance of minimum EBITDA and
debt to equity ratios. The credit facility will terminate on June 30, 2011. The
covenant requiring a minimum EBITDA ratio became effective as of September 2009.
Due to the reduced level of inventory and sales during the quarter, the Company
was not able to meet that covenant. and has received a verbal waiver of the
EBITDA covenant from Wells Fargo for the periods of September and October 2009.

Loans will bear interest at an annual rate equal to the
three-month London Interbank Offered Rate plus 3.35%, (3.95% at October 31,
2009) and an unused line fee of 0.25% per annum is charged on the unused portion
of the credit facility on a monthly basis. The Company must pay Wells Fargo an
administrative fee of $1,000 per month. The WF debt has an effective interest
rate of approximately 12.00%, and interest are payable monthly.

Amounts due to Wells Fargo under the WF Loan Agreement are
secured by a security interest in all of the personal property of the Borrowers,
and guaranteed by the Company under a Guaranty Agreement.

The Borrowers initial draw under the WF Loan Agreement was
$10,303,665, of which $8,153,665 was used to pay the indebtedness of Star to
WF.

The total Wells Fargo debt outstanding at October 31, 2009 was
$12,205,092.

Liquidity and Capital Resources

As of October 31, 2009, the Company had $312,159 in cash and
cash equivalents. During the nine month period ended October 31, 2009, we
decreased our accounts payable and accrued liabilities $1.8 million which
totaled $2.7 million at October 31, 2009. The Company has incurred significant
net losses and negative cash flows from operations in each of the two years
ended January 31, 2009, however, during the nine months ended October 31, 2009,
the Company recorded $29.5 million of net income, which includes a $33.2 million
gain on the extinguishment of debt. As of October 31, 2009, the Company had a
stockholders deficit of $2.8 million versus a deficit of $34.7 million at
January 31, 2009.

During the nine months ended October 31, 2009, we issued
approximately 980,392 shares of common stock at a conversion price of $0.0765 in
a Trafalgar convertible debenture conversion. Approximately $19,000 of the
payment was charged to interest expense, and the remaining amount went to
several of the financial instruments derivative components. Accordingly, no
future cash will be required to pay off this portion of the debentures.

In January 2009, the Company executed another debenture
modification agreement with Trafalgar which terms are effective on February 20,
2009 (February 2009 modification). The February 2009 modification was made
pursuant to the Company modifying the terms of the Companys other debt
arrangements including the revolving line-of-credit, term and floor plan notes
payable, which were also effective February 20, 2009 (See Note 5). Pursuant to
the February 2009 modification, Trafalgar revised the payment terms related to
certain of the convertible debentures. Debenture principal and interest payments
are due as follows: $250,000 in March 2009; $50,000 per month April 2009 through
December 2009; $100,000 per month January 2010 through August 2010; and the
remaining balance of approximately $5.1 million in September 2010, so long as
the Company holds consumer notes

43

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that are not in default from its BHPH business which have an
aggregate balance of at least $10 million and only if cash on hand that exceeds
its payables by at least $1 million.

In February 2009, the Company completed a restructuring of
floor plan and line of credit debt held by SWC Services LLC (SWC) with Dealer
Services Corporation (DSC). The restructured debt agreement provides the Company
with a maximum credit facility of $19.5 million for floor plan and lease
financing. Although the Company had approximately $43.3 million of outstanding
notes payable as of January 31, 2009, effective February 20, 2009, the Company
was only obligated to repay $12.0 million of this amount due to the debt
restructuring. The $12.0 million is payable in installments over the next 24
months and is included in the aforementioned new credit facility. During the
current quarter, the Company was able to defer three of the monthly payments to
DSC to provide some additional cash flow. DSC will receive a fee for each car on
the term loan line as consideration for the deferral.

On June 15, 2009, the Company obtained a revolving line of
credit with Wells Fargo Preferred Capital for up to $20 million that will
finance up to 55% of the Companys eligible financed notes receivable. The
revolving line of credit is a 2 year commitment and interest is payable monthly.

During the nine months ending October 31, 2009, a board member
warrant holder exercised 11,762,351 common stock warrants with proceeds to the
company of $1,099,280.

We have incurred significant net losses and negative cash flows
from operations, although the gain on debt restructuring during the nine months
ending October 31, 2009 offset this trend and decreased our stockholders
deficit. At October 31, 2009, we had a stockholders deficit of $2.7 million
versus $34.7 million at January 31, 2009. As a result of our previous lack of
financial liquidity and negative stockholders equity, there is substantial
doubt about our ability to continue as a going concern.

In August 2009, the Company was unable to make its monthly
curtailment payment due under the DSC term loan. The Company negotiated a
deferral of that payment to DSC by agreement to a deferral fee of approximately
$350,000, or about $100 per car securitizing the term loan. Subsequent to that
agreement, DSC ceased funding new inventory on the floor plan line of credit.
This cessation prevented the Company from replacing sold vehicles and had a
severe adverse effect on the Companys sales, portfolio growth and cash flow. As
a further result of the reduction of the Companys sales and cash flow, the
Company was forced to negotiate a deferral of two additional monthly curtailment
payments on its DSC term loan in September and October 2009. The cost of each
monthly deferral was approximately $350,000. The deferral costs were added to
the basis of the loan and recorded as interest in the Statement of Operations.
These additional charges caused the effective interest rate of the DSC debt to
be approximately 40%.

The Company continues to operate at a greatly reduced sales
rate due to the lack of inventory financing, which is absolutely crucial to the
continuing operations of the Company. During subsequent discussions with DSC, it
has become clear that DSC does not intend to restore normal funding to the
Company under any circumstances and, as a result, the Company is engaged in a
vigorous search to find a suitable replacement credit facility. However, the
continuing worldwide financial and credit crises have strained investor
liquidity and contract credit markets, which will likely make the cost of
raising funds through the debt or equity markets more expensive or make those
markets unavailable. If additional financing is raised by the issuance of
securities, control of the Company may change and/or our shareholders may suffer
significant dilution. However, there can be no assurance that financing efforts
will be successful, and if a suitable replacement credit facility is not found,
the future viability of the Company is in doubt.

As of October 31, 2009, payments due by us over the next five
  fiscal years for operating and capital leases, and long-term debt are approximately
  as follows:

|                       |   | Less Than One |  |   | One to Three |  |   | Three to Five |  |   | Greater than     |  |   |            | 
|---------------------- | - | ------------- |  | - | ------------ |  | - | ------------- |  | - | ---------------- |  | - | ---------- | 
|                       |   | Year          |  |   | Years        |  |   | Years         |  |   | Five
      Years |  |   | Total      | 
|Operating Leases       | $ | 1,534,645     |  | $ | 1,873,390    |  | $ | 1,111,263     |  | $ | 1,508,139        |  | $ | 6,027,437  | 
|Long-Term Debt         |   | 1,665,601     |  |   |              |  |   |               |  |   |                  |  |   | 16,665,601 | 
|Convertible Debentures |   | 680,285       |  |   |              |  |   |               |  |   |                  |  |   | 680,285    | 
|                       | $ | 3,545,964     |  | $ | 17,207,957   |  | $ | 1,111,263     |  | $ | 1,508,139        |  | $ | 23,373,323 | 

44

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Off-Balance Sheet Arrangements

As of October 31, 2009, we do not have
any off-balance sheet arrangements.

Item 3. Quantitative and Qualitative Disclosures about
Market Risk

Not required

Item 4T. 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 last day 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. Disclosure controls
and procedures include without limitations, controls and procedures designed to
ensure that information required to be disclosed by an issuer in the reports
that it files or submits under the exchange Act is accumulated and communicated
to the issuers management, included the Certifying Officers, 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 accounting
principles generally accepted in the United States. There were no changes in our
internal control over financial reporting during our most recent quarter that
have materially affected, or are reasonably likely to materially affect, our
internal control over financial reporting.

Limitations on the Effectiveness of Internal Controls

Readers are cautioned that our management does not expect that
our disclosure controls and procedures or our internal control over financial
reporting will necessarily prevent all fraud and material error. An internal
control system, no matter how well conceived and operated, can provide only
reasonable, not absolute, assurance that the objectives of the control system
are met. Because of the inherent limitations in all control systems, no
evaluation of controls can provide absolute assurance that all control issues
and instances of fraud, if any, within the Company have been detected. The
design of any system of controls also is based in part upon certain assumptions
about the likelihood of future events, and there can be no assurance that any
control design will succeed in achieving its stated goals under all potential
future conditions. Over time, controls may become inadequate because of changes
in conditions, or the degree of compliance with the policies or procedures may
deteriorate.

45

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PART II  OTHER INFORMATION

Item 1. Legal Proceedings

We are not aware of any material legal proceedings against us
nor are we currently a party to any material legal proceedings.

Item 1A. Risk Factors.

The Companys senior lender has ceased providing funds to
the Company, and the Companys failure to obtain new financing will affect its
ability to continue its operations.

The Companys primary lender, Dealer Services Corporation, has
ceased funding advances under the Loan Agreement between it and the Company.
Without such funds, the Company is unable to replenish its vehicle inventories
at its dealerships and, as a result, revenues from the sales of vehicles have
declined substantially and are expected to continue to decline until new
financing can be obtained.

The Companys ability to continue its operations is dependent
upon its ability to obtain new financing to replace the Companys credit
facilities with DSC. The Company is presently considering financing
alternatives. However, the recent worldwide financial and credit crises have
strained investor liquidity and contracted credit markets, which will likely
make the cost of raising funds through the debt or equity markets more expensive
or make those markets unavailable. If additional financing is raised by the
issuance of securities, control of the Company may change and/or our
shareholders may suffer significant dilution. However, there can be no assurance
that financing efforts will be successful and, even if the Company does obtain
necessary financing, that the Company will achieve profitable operations. The
Company is unlikely to be able to continue its operations if it is unable to
obtain new financing in the very near future.

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

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-Q:

|Exhibit Number | Description                                                                      
|-------------- | ---------------------------------------------------------------------------------
|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

46

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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, 2009 | /s/
      Carl Ritter        
|                        | Carl Ritter                  
|                        | Chief Executive Officer      
|                        | (principal executive officer)

47

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