**UNITED
      STATES**


**SECURITIES
      AND EXCHANGE COMMISSION**


WASHINGTON,
      D.C. 20549


______________





**Form
      10-Q**


(Mark
      one)


x
            Quarterly
                Report Pursuant to Section 13 or 15(d) of the Securities Exchange
                Act of
                1934For
                the quarterly period ended June 30,
                2006


OR


 ̈
            Transition
                report pursuant to Section 13 or 15(d) of the Securities Exchange
                Act of
                1934For
                the transition period from _______________ to
                ________________


______________





**Commission
      File Number**  **333-114547**


______________





**ADVANCED
      ACCESSORY HOLDINGS CORPORATION**


*(Exact
      name of registrant as specified in its charter)*





**Delaware**
            **56-2426615***(State
                or other jurisdiction of*
            *(I.R.S.
                Employer**incorporation
                or organization)*
            *Identification
                No.)*





**12900
                Hall Road, Suite 200, Sterling Heights, MI**
            **48313***(Address
                of principal executive offices)*
            *(Zip
                Code)*





**(586)
      997-2900**


*(Registrant’s
      telephone number, including area code)*





**NOT
      APPLICABLE**


*(Former
      name, former address and former fiscal year, if changed since last
      report)*





Indicate
      by check mark whether the registrant (1) has filed all reports required to
      be
      filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
      the
      preceding 12 months (or for such a 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
             ̈
            No
            x


Indicate
      by check mark whether the Registrant is a large accelerated filer, an
      accelerated filer, or a non-accelerated filer. See definition of “accelerated
      filer and large accelerated filer” in Rule 12b-2 of the Exchange Act. (Check
      one):


Large
      accelerated filer  ̈  Accelerated
      filer  ̈  Non-accelerated
      filer x


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


Yes
             ̈
            No
            x


Indicate
      the number of shares outstanding of each of the issuer’s classes of common
      stock, as of the latest practicable date.




Class
            
            Outstanding
                at August 18, 2006Membership
                Units
            
            100











**ADVANCED
            ACCESSORY HOLDINGS CORPORATION**
  INDEX








Page
                No.Part
                I.Financial
                InformationItem
                1.Financial
                StatementsConsolidated
                Condensed Balance Sheets as of June 30, 2006 (unaudited) and December
                31, 2005
            
            
            1Consolidated
                Condensed Statements of Operations for the three and six months ended
                June
                30, 2006 and 2005 (unaudited)
            
            
            2Consolidated
                Condensed Statements of Cash Flows for the six months ended June
                30, 2006
                and 2005 (unaudited)
            
            
            3Consolidated
                Condensed Statement of Changes in Members’ Equity for the six months ended
                June 30, 2006 (unaudited)
            
            
            4Notes
                to Consolidated Condensed Financial Statements (unaudited)
            
            
            5Item
                2.Management's
                Discussion and Analysis of Financial Condition and Results of
                Operations
            
            
            9Item
                3.Quantitative
                and Qualitative Disclosures About Market Risk
            
            
            16Item
                4.Controls
                and Procedures
            
            
            16Part
                II.Other
                Information and SignatureItem
                1.Legal
                Proceedings
            
            
            16Item
                1A.Risk
                Factors
            
            
            16Item
                2.Unregistered
                Sales of Equity Securities and Use of Proceeds
            
            
            17Item
                3.Defaults
                Upon Senior Securities
            
            
            17Item
                4.Submission
                of Matters to a Vote of Security-Holders
            
            
            17Item
                5.Other
                Information
            
            
            17Item
                6.Exhibits
            
            
            17Signature
            
            
            18





**PART
            I. FINANCIAL INFORMATION**
 
 **Item
            1.**  **Financial
            Statements**
 
 **ADVANCED
            ACCESSORY HOLDINGS CORPORATION**
 **CONSOLIDATED
            CONDENSED BALANCE SHEETS**
 **As
            of June 30, 2006 and December 31, 2005**
 **(Dollars
            in thousands)**







**June
                30,**
            
            **December
                31,****2006**
            
            **2005****ASSETS**
            
            **(Unaudited)**Current
                assetsCash
            
            $
            2,398
            
            $
            13,642Accounts
                receivable, less reserves of $165 and $1,870, respectively
            
            
            31,604
            
            
            64,318InventoriesRaw
                materials
            
            
            6,542
            
            
            21,740Work-in-process
            
            
            4,478
            
            
            13,153Finished
                goods
            
            
            1,289
            
            
            27,857Reserves
            
            
            (1,002
            )
            
            (4,437
            )Total
                inventories
            
            
            11,307
            
            
            58,313Other
                current assets
            
            
            4,200
            
            
            6,554Total
                assets of discontinued operations
            
            
            206,066
            
            
            —Total
                current assets
            
            
            255,575
            
            
            142,827Property
                and equipment, net
            
            
            17,579
            
            
            62,871Intangible
                assets, net
            
            
            66,093
            
            
            89,268Deferred
                income taxes
            
            
            —
            
            
            131Other
                noncurrent assets
            
            
            386
            
            
            1,838Total
                Assets
            
            $
            339,633
            
            $
            296,935**LIABILITIES
                AND MEMBERS’ EQUITY**Current
                liabilitiesCurrent
                maturities of long-term debt
            
            $
            14
            
            $
            3,940Accounts
                payable
            
            
            20,528
            
            
            40,037Accrued
                liabilities
            
            
            4,799
            
            
            22,708Deferred
                income taxes
            
            
            —
            
            
            1,513Total
                liabilities of discontinued operations
            
            
            239,416
            
            
            —Total
                current liabilities
            
            
            264,757
            
            
            68,198Noncurrent
                liabilitiesDeferred
                income taxes
            
            
            1,797
            
            
            5,119Other
                noncurrent liabilities
            
            
            32,290
            
            
            4,558Long-term
                debt, less current maturities
            
            
            96,402
            
            
            268,173Total
                noncurrent liabilities
            
            
            128,692
            
            
            277,850Members’
                deficitUnits
            
            
            58,582
            
            
            58,582Other
                comprehensive income
            
            
            503
            
            
            (1,352
            )Accumulated
                deficit
            
            
            (112,901
            )
            
            (106,343
            )Total
                members’ deficit
            
            
            (53,816
            )
            
            (49,113
            )Total
                Liabilities and Members’ Deficit
            
            $
            339,633
            
            $
            296,935







The
            accompanying notes are an integral part of the
 consolidated
            condensed financial statements.
 1
 **ADVANCED
              ACCESSORY HOLDINGS CORPORATION**
 **CONSOLIDATED
              CONDENSED STATEMENTS OF OPERATIONS**
 **(Dollars
              in thousands)**
 **(Unaudited)**














**Three
                Months Ended**
            
            **Six
                Months Ended****June
                30,**
            
            **June
                30,****2006**
            
            **2005**
            
            **2006**
            
            **2005**Net
                sales
            
            $
            46,950
            
            $
            52,353
            
            $
            92,312
            
            $
            102,334Cost
                of sales
            
            
            42,392
            
            
            45,888
            
            
            84,502
            
            
            89,982Gross
                profit
            
            
            4,558
            
            
            6,465
            
            
            7,810
            
            
            12,352Selling,
                administrative and product development expenses
            
            
            4,567
            
            
            5,252
            
            
            9,347
            
            
            11,071Amortization
                of intangible assets
            
            
            1,797
            
            
            1,797
            
            
            3,591
            
            
            3,597Operating
                loss
            
            
            (1,806
            )
            
            (584
            )
            
            (5,128
            )
            
            (2,316
            )Other
                expenseInterest
                expense
            
            
            (2,915
            )
            
            (2,441
            )
            
            (5,741
            )
            
            (4,806
            )Foreign
                currency gain (loss), net
            
            
            439
            
            
            (440
            )
            
            637
            
            
            (609
            )Other
                income (expense)
            
            
            (16
            )
            
            75
            
            
            (1
            )
            
            71Loss
                from continuing operations before income taxes
            
            
            (4,298
            )
            
            (3,390
            )
            
            (10,233
            )
            
            (7,660
            )Benefit
                from income taxes
            
            
            (978
            )
            
            (149
            )
            
            (844
            )
            
            (282
            )Net
                loss from continuing operations
            
            
            (3,320
            )
            
            (3,241
            )
            
            (9,389
            )
            
            (7,378
            )Discontinued
                operations:Income
                (loss) from discontinued operations
            
            
            5,989
            
            
            2,124
            
            
            4,996
            
            
            (1,299
            )Provision
                for income taxes
            
            
            1,944
            
            
            1,166
            
            
            2,165
            
            
            1,275Net
                income (loss) from discontinued operations
            
            
            4,045
            
            
            958
            
            
            2,831
            
            
            (2,574
            )Net
                income (loss)
            
            $
            725
            
            $
            (2,283
            )
            $
            (6,558
            )
            $
            (9,952
            )





The
            accompanying notes are an integral part of the
 consolidated
            condensed financial statements.
 2
 **ADVANCED
              ACCESSORY HOLDINGS CORPORATION**
 **CONSOLIDATED
              CONDENSED STATEMENTS OF CASH FLOWS**
 **(Dollars
              in thousands)**
 **(Unaudited)**








**Six
                months Ended****June
                30,****2006**
            
            **2005****CASH
                FLOWS FROM OPERATING ACTIVITIES:**Net
                loss
            
            $
            (6,558
            )
            $
            (9,952
            )Adjustments
                to reconcile net loss to netcash
                provided by (used for) operating activities:Depreciation
                and amortization
            
            
            11,147
            
            
            12,770Deferred
                taxes
            
            
            (781
            )
            
            (671
            )Foreign
                currency (gain)/loss
            
            
            (2,632
            )
            
            3,478Loss
                on disposal of assets
            
            
            772
            
            
            8Interest
                accretion on notes
            
            
            4,735
            
            
            4,120Changes
                in assets and liabilities, net:Accounts
                receivable
            
            
            (20,685
            )
            
            (23,718
            )Inventories
            
            
            942
            
            
            5Other
                current assets
            
            
            251
            
            
            (3,341
            )Other
                noncurrent assets
            
            
            (1,341
            )
            
            4,166Accounts
                payable
            
            
            9,606
            
            
            3,876Accrued
                liabilities
            
            
            3,116
            
            
            3,288Other
                noncurrent liabilities
            
            
            215
            
            
            (573
            )Net
                cash used for operating activities
            
            
            (1,213
            )
            
            (6,544
            )**CASH
                FLOWS USED FOR INVESTING ACTIVITIES:**Acquisition
                of property and equipment
            
            
            (3,359
            )
            
            (6,766
            )Proceeds
                from disposals of property and equipment
            
            
            143
            
            
            —Net
                cash used for investing activities
            
            
            (3,216
            )
            
            (6,766
            )**CASH
                FLOWS (USED FOR) PROVIDED BY FINANCING
                ACTIVITIES:**Net
                increase (decrease) in revolving loan
            
            
            (675
            )
            
            6,182Repayment
                of debt
            
            
            (1,898
            )
            
            (1,045
            )Debt
                issuance costs
            
            
            (9
            )
            
            (92
            )Net
                cash (used for) provided by financing activities
            
            
            (2,582
            )
            
            5,045Effect
                of exchange rate changes
            
            
            533
            
            
            (769
            )Net
                decrease in cash
            
            
            (6,478
            )
            
            (9,034
            )Cash
                at beginning of period
            
            
            13,642
            
            
            14,960Cash
                at end of period
            
            $
            7,164
            
            $
            5,926

















The
            accompanying notes are an integral part of the
 consolidated
            condensed financial statements.
 3
 3
 **ADVANCED
              ACCESSORY HOLDINGS CORPORATION**
 **CONSOLIDATED
              CONDENSED STATEMENT OF CHANGES IN MEMBERS’ EQUITY**
 **For
              the Six Months Ended June 30, 2006**
 **(Dollars
              in thousands)**
 **(Unaudited)**








**Other**
            
            
            
            **Total****Members’**
            
            **comprehensive**
            
            **Accumulated**
            
            **members’****capital**
            
            **income**
            
            **deficit**
            
            **equity**Balance
                at December 31, 2005
            
            $
            58,582
            
            $
            (1,352
            )
            $
            (106,343
            )
            $
            (49,113
            )Currency
                translation adjustment
            
            
            —
            
            
            1,855
            
            
            —
            
            
            1,855Net
                loss
            
            
            —
            
            
            —
            
            
            (6,558
            )
            
            (6,558
            )Balance
                at June 30, 2006
            
            $
            58,582
            
            $
            503
            
            $
            (112,901
            )
            $
            (53,816
            )























The
            accompanying notes are an integral part of the
 consolidated
            condensed financial statements.
 4
 **ADVANCED
            ACCESSORY HOLDINGS CORPORATION**
 **CONSOLIDATED
            CONDENSED STATEMENT OF CHANGES IN MEMBERS’ EQUITY**
 **For
            the Six Months Ended June 30, 2006**
 **(Dollars
            in thousands)**
 **(Unaudited)**





**1.**  **BASIS
      OF PRESENTATION**





On
      April 15, 2003, substantially all of the equity interests of Advanced Accessory
      Systems, LLC (“AAS” or "Predecessor") were acquired by Castle Harlan
      Partners IV, L.P. (the "Acquisition"), a private equity investment fund
      organized and managed by Castle Harlan Inc. CHAAS Holdings, LLC (“CHAAS
      Holdings”) was formed in April 2003 in connection with the Acquisition and was
      the direct parent of CHAAS Acquisitions, LLC (“CHAAS Acquisitions”) which was
      formed as an acquisition vehicle to acquire the Predecessor's equity interest
      from J.P. Morgan Partners (23 SBIC), LLC, directors and officers of the
      Predecessor, and other investors.





The
      aggregate consideration paid at or shortly after the closing of the Acquisition
      was approximately $266,000, approximately $168,000 of which was used to repay,
      assume or defease certain indebtedness at the time of the Acquisition and
      approximately $98,000 (inclusive of subordinated promissory notes and a
      subsequent working capital adjustment) of which was used for the closing
      purchase price of the equity interests of AAS.





In
      January 2004, Advanced Accessory Holdings Corporation (“AAHC” or “the Company”)
      was formed by our direct parent, CHAAS Holdings, LLC in connection with an
      offering of our $88,000 aggregate principal amount at maturity, 131⁄4% Senior
      Discount Notes due 2011 (the “Senior Discount Notes”). At that time, CHAAS
      Holdings made a contribution of all of its equity interests in CHAAS
      Acquisitions to the Company in exchange for all the outstanding membership
      units
      of the Company. Subsequent to this transaction, CHAAS Holdings is the direct
      parent of the Company and the Company is the direct parent of CHAAS Acquisitions
      and the indirect parent of the Predecessor. Unless the context otherwise
      requires, all information which refers to “we,” “our” or “us” refers to the
      Company and its subsidiaries.





The
      Acquisition was accounted for in accordance with the purchase method of
      accounting. Accordingly, the purchase price of the Acquisition has been
      allocated to identifiable assets acquired and liabilities assumed based upon
      the
      estimated fair values at the acquisition date. The Company engaged an
      independent appraiser to assist in the determination of fair value at the
      acquisition date and such independent appraiser completed its work during the
      fourth quarter of 2003. The accompanying financial statements of the Company
      as
      of and for the periods ended June 30, 2005, December 31, 2005 and June 30,
      2006 reflect the allocation of the purchase consideration to tangible assets,
      goodwill and other identifiable intangible assets.





The
      North American subsidiaries of the Company use a fiscal month-end that
      corresponds to two four-week months and one five-week month per quarter, each
      ending on Saturday. The exception to this rule is at year-end, when the
      subsidiaries close on December 31. The Company’s Brink subsidiary uses the
      calendar month-end and year-end. The Company’s financial statements are dated as
      of the end of the calendar period, although they reflect the different closing
      dates identified above.





The
      accompanying unaudited consolidated financial statements have been prepared
      in
      accordance with accounting principles generally accepted in the United States
      of
      America for interim financial information and with the instructions to Form
      10-Q. Accordingly, they do not include all information and footnotes required
      by
      accounting principles generally accepted in the United States of America for
      complete financial statements and should be read in conjunction with the Annual
      Report on Form 10-K for the fiscal year ended December 31,
      2005.





In
      the opinion of the Company, the accompanying unaudited consolidated condensed
      financial statements contain all adjustments, which are normal and recurring
      in
      nature, necessary to present fairly its financial position as of June 30, 2006
      and the results of its operations for the three and six months ended June 30,
      2006 and 2005.





5
 **ADVANCED
            ACCESSORY HOLDINGS CORPORATION**
 **NOTES
            TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS**
 **(Dollars
            in thousands)**
 **(Unaudited)**





**2.**
            **DISCONTINUED
                OPERATIONS**





On
      May 17, 2006 the Company and certain of its affiliates signed a purchase
      agreement (the “Agreement”) with Thule AB (“Buyer”) to sell substantially all of
      the net assets of Valley Industries, LLC (“Valley”) and all of the issued and
      outstanding stock of CHAAS Holdings B.V. (“Brink”) and AAS (collectively, the
“Discontinued Companies”). Pursuant to the Agreement, the Buyer will purchase
      the Automotive Accessories Business, consisting of Valley, Brink and SportRack
      Accessories, Inc. and their respective subsidiaries. In accordance with the
      Agreement, on May 12, 2006, AAS transferred 100% of the outstanding
      membership interest of SportRack, LLC to CHAAS Acquisitions, and SportRack,
      LLC
      transferred to AAS its ownership of 10% of the outstanding stock issued by
      SportRack Accessories, Inc. in order that SportRack Accessories, Inc. is a
      wholly-owned subsidiary of AAS. The proceeds of the sale will be
      $203,000.  The expected gain on the sale is in the range of $75,000 to
      $85,000 based on the current book values of the net assets sold and the
      retirement of all of the long-term debt of the Company, except for certain
      capital leases. On July 13, 2006 the Company, certain of its affiliates and
      the
      Buyer signed Amendment No. 1 to the Agreement, a copy of which is attached
      to
      this Form 10-Q as Exhibit 10.1. The Company expects the transaction contemplated
      by the Agreement, as amended, to be consummated in the third quarter. A copy
      of
      the Agreement was filed as an exhibit to Form 8-K dated May 12,
      2006.





The
      Discontinued Companies manufacture towing systems for the Original Equipment
      Manufacturer’s (OEM) market and aftermarket in North America and Europe and
      lifestyle accessories for both the automotive and sporting accessory
      aftermarkets. These accessories typically attach to towing or rack systems
      and
      are used for carrying items such as bicycles, skis, luggage, surfboards and
      sailboards.





On
      June 5, 2006, in connection with the sale of the Discontinued Companies, the
      Company, AAS and AAS Capital Corporation, a wholly-owned subsidiary of AAS,
      commenced a combined tender offer and consent solicitation in respect of the
      13
1⁄4% Senior Discount Notes due 2011, issued by the Company pursuant to the
      indenture dated February 4, 2004 and the 10 3⁄4% Senior Notes due 2011, issued by
      AAS and AAS Capital Corporation, pursuant to the indenture dated May 23, 2003.
      A
      copy of the press release announcing the combined tender offer and consent
      solicitation was filed as an exhibit to Form 8-K dated June 5,
      2006.





In
      accordance with FASB Statement No. 144, “Accounting for the Impairment or
      Disposal of Long-lived Assets,” (“SFAS No. 144”) the net assets of the
      Discontinued Companies were accounted for as held for sale subsequent to the
      signing of the Agreement on May 17, 2006. Accordingly, the Statement of
      Operations reports the results of the Discontinued Companies in a separate
      component of income after net loss from continuing operations for both current
      and prior periods. The assets and liabilities of the Discontinued Companies
      are
      presented separately as one line item each for total assets and liabilities
      for
      the current period only.





SFAS
      No. 144 also requires long lived assets classified as held for sale to be
      recorded at the lower of their carrying value or fair value less cost to sell
      and that depreciation and amortization not be recorded on the long lived assets
      while classified as held for sale. Based on the expected gain on the sale of
      the
      Discontinued Companies, the Company believes that the book value of their net
      assets is fairly stated and no write-down to fair value was
      required.





Revenue
      and pre-tax income (loss) of the Discontinued Companies are as
      follows:





Three
                Months Ended
            
            Six
                Months EndedJune
                30, 2006
            
            June
                30, 2005
            
            June
                30, 2006
            
            June
                30, 2005Revenues
            
            $
            78,583
            
            $
            76,069
            
            $
            139,748
            
            $
            137,358Pre-tax
                income (loss)
            
            
            5,989
            
            
            2,124
            
            
            4,996
            
            
            (1,299
            )








6
 **ADVANCED
          ACCESSORY HOLDINGS CORPORATION**
 **NOTES
          TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS**
 **(Dollars
          in thousands)**
 **(Unaudited)**


**2.**
            **DISCONTINUED
                OPERATIONS (continued)**





The
      assets and liabilities of the Discontinued Companies are as
      follows:





June
                30, 2006Cash
            
            $
            4,766Accounts
                Receivable
            
            
            55,576Inventory
            
            
            48,619Property
                and equipment, net
            
            
            43,315Intangible
                Assets, net
            
            
            20,970Other
                assets
            
            
            32,820Total
                assets of Discontinued Companies
            
            $
            206,066Current
                maturities of long-term debt
            
            $
            4,565Accounts
                payable
            
            
            29,982Accrued
                liabilities
            
            
            22,061Deferred
                income taxes
            
            
            4,436Long-term
                debt
            
            
            175,001Other
                liabilities
            
            
            3,371Total
                liabilities of Discontinued Companies
            
            $
            239,416








**3.**
            **COMPREHENSIVE
                INCOME (LOSS)**





Comprehensive
      income (loss) for the Company is as follows:








Three
                months ended
            
            Six
                months endedJune
                30, 2006
            
            June
                30, 2005
            
            June
                30, 2006
            
            June
                30, 2005Net
                income (loss)
            
            $
            725
            
            $
            (2,283
            )
            $
            (6,558
            )
            $
            (9,952
            )Change
                in the cumulative translation adjustment, net of tax
            
            
            1,248
            
            
            (2,108
            )
            
            1,855
            
            
            (3,798
            )Comprehensive
                income (loss)
            
            $
            1,973
            
            $
            (4,391
            )
            $
            (4,703
            )
            $
            (13,750
            )








**4.**
            **CURRENCY
                CONTRACTS**





The
      Company has significant operations in Europe where the functional currency
      is
      the Euro. In February and May 2004, the Company entered into a series of
      foreign currency forward option contracts related to the Euro (“Euro Collar”),
      which matured quarterly on a staggered basis. For each reporting period, the
      Company recorded the fair value, as determined by independent financial
      institutions, of open obligations and the resultant gains and losses were
      recorded in the Statement of Operations. The final option contracts expired
      during the second quarter of 2005. For the three and six months ended June
      30,
      2005, the Company recorded an unrealized gain on foreign currency options of
      $26
      and $164, respectively.








7
 **ADVANCED
          ACCESSORY HOLDINGS CORPORATION**
 **NOTES
          TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS**
 **(Dollars
          in thousands)**
 **(Unaudited)**


**5.**  **INTANGIBLE
      ASSETS**





A
      summary of intangible assets identified by the Company follows **:**




Customer
                Contracts
              
              Customer
                Relationships
              
              Technology
              
              IntangiblePension
                  Asset
              
              Tradename
                  /
                Trademark
              
              Deferred
                Financing
                  Costs
              
              Deferred
                Selling
                  Costs
              
              TotalAmortization
                  period in years
              
              *8
                  - 10*
              
              *15
                  - 21*
              
              *10*
              
              *15*
              
              *Indefinite*
              
              *7
                  - 8*
              
              *Indefinite*Balance
                  at December 31, 2005
              
              $
              30,989
              
              $
              30,643
              
              $
              13,183
              
              $
              466
              
              $
              7,070
              
              $
              6,917
              
              $
              —
              
              $
              89,268Less
                  discontinued operations at December 31, 2005
              
              
              (68
              )
              
              (12,819
              )
              
              (58
              )
              
              —
              
              
              (2,876
              )
              
              (4,783
              )
              
              —
              
              
              (20,604
              )Balance
                  at December 31, 2005 from continuing operations
              
              
              30,921
              
              
              17,824
              
              
              13,125
              
              
              466
              
              
              4,194
              
              
              2,134
              
              
              —
              
              
              68,664Additions
              
              
              —
              
              
              —
              
              
              —
              
              
              —
              
              
              —
              
              
              287
              
              
              732
              
              
              1,019Foreign
                  currency translation
              
              
              76
              
              
              117
              
              
              
              
              
              —
              
              
              25
              
              
              —
              
              
              —
              
              
              218Amortization
              
              
              (2,150
              )
              
              (543
              )
              
              (900
              )
              
              —
              
              
              —
              
              
              (215
              )
              
              —
              
              
              (3,808
              )Balance
                  at June 30, 2006
              
              $
              28,847
              
              $
              17,398
              
              $
              12,225
              
              $
              466
              
              $
              4,219
              
              $
              2,206
              
              $
              732
              
              $
              66,093







Amortization
      expense of identifiable intangible assets for the three and six months ended
      June 30, 2006 was $1,906 and $3,808, respectively, which included $108 and
      $215
      of amortization of deferred financing costs included in interest
      expense.








**6.**  **RESTRUCTURING
      COSTS**





On
      March 8, 2006 the Company announced its intention to close the Greenwood,
      Mississippi facility. Current production is being transferred to other
      locations. The costs to close the facility will include severance, cost to
      move
      equipment and ongoing lease costs and are estimated to be approximately
      $2,200.




During
      the three and six months ended June 30, 2006 the Company accrued $133 and $191,
      respectively, as a ratable portion of the employee termination costs. No
      payments were made against this accrual and the liability at June 30, 2006
      was
      $191. The Company anticipates that the closure will be complete during the
      third
      quarter of 2006.













8
 **ADVANCED
            ACCESSORY HOLDINGS CORPORATION**


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





The
      following discussion of our results of operations and financial condition should
      be read in conjunction with our financial statements and notes thereto included
      elsewhere in this Form 10-Q. This Form 10-Q contains forward-looking statements.
      Discussions containing forward-looking statements may be found in the material
      set forth above, in the material set forth below, as well as in this Form 10-Q
      generally. Forward-looking statements generally can be identified by the use
      of
      terms such as “may,” “will,” “should,” “expect,” “anticipate,” “believe,”
“intend,” “plan,” “estimate,” “predict,” “potential,” “forecast,” “project,”
“will be,” “continue” or variations of such terms, or the use of these terms in
      the negative.  Our actual results may differ significantly from the results
      discussed in the forward-looking statements, and such differences may be
      material.  General risks that may impact the achievement of such forecasts
      include, but are not limited to: compliance with new laws and regulations,
      general economic conditions in the markets in which we operate, fluctuation
      in
      demand for our products and in the production of vehicles for which we are
      a
      supplier, significant raw material price fluctuations, labor disputes with
      our
      employees or those of our significant customers or suppliers, changes in
      consumer preferences, dependence on significant automotive customers, the level
      of competition in the automotive supply industry, pricing pressure from
      automotive customers, our substantial leverage, limitations imposed by our
      debt
      facilities, changes in the popularity of particular vehicle models or towing
      and
      rack systems, the loss of programs on particular vehicle models, risks
      associated with conducting business in foreign countries, other business factors
      and other risks detailed from time to time in the Company’s reports filed with
      the Securities & Exchange Commission.  Any such forward-looking
      statements are not guarantees of future performance and involve risks and
      uncertainties.  Actual events or results may differ materially from those
      discussed in the forward-looking statements.  All of these forward-looking
      statements are based on estimates and assumptions made by our management which,
      although believed to be reasonable, are inherently uncertain.  Given these
      risks and uncertainties, readers are cautioned not to place undue reliance
      on
      forward-looking statements.  We disclaim any obligation to update any
      forward-looking statements.





**OVERVIEW**





***Company
      Background***





We
      believe that we are one of the world’s leading designers and manufacturers of
      exterior accessories for automotive original equipment manufacturers and the
      aftermarket. We design and manufacture a wide array of both rack systems and
      towing systems and related accessories. Our broad offering of rack systems
      includes fixed and detachable racks and accessories, which can be installed
      on
      vehicles to carry items such as bicycles, skis, luggage, surfboards and
      sailboards. Our towing products and accessories include trailer hitches, trailer
      balls, ball mounts, electrical harnesses, safety chains and locking pins. Our
      products are sold to original equipment manufacturers (“OEMs”) as standard
      accessories or options for a variety of light vehicles and to the
      aftermarket.





***Discontinued
      Operations***





On
      May 17, 2006 Advanced Accessory Holdings Corporation (“AAHC” or the “Company”)
      and certain of its affiliates signed a purchase agreement (the “Agreement”) with
      Thule AB (“Buyer”) to sell substantially all of the net assets of Valley
      Industries, LLC (“Valley”) and all of the issued and outstanding stock of CHAAS
      Holdings B.V. (“Brink”) and Advanced Accessory Systems, LLC (“AAS” or
“Predecessor”, together with Valley and Brink, the “Discontinued
      Companies”). Pursuant to the Agreement, the Buyer will purchase the Automotive
      Accessories Business, consisting of Valley, Brink and SportRack Accessories,
      Inc. and their respective subsidiaries. In accordance with the Agreement, on
      May 12, 2006, AAS transferred 100% of the outstanding membership interest
      of SportRack, LLC to CHAAS Acquisitions, and SportRack, LLC transferred to
      AAS
      its ownership of 10% of the outstanding stock issued by SportRack Accessories,
      Inc. in order that SportRack Accessories, Inc. is a wholly-owned subsidiary
      of
      AAS. On July 13, 2006 the Company, certain of its affiliates and the Buyer
      signed Amendment No. 1 to the Agreement, a copy of which is attached to this
      Form 10-Q as Exhibit 10.1. The Company expects the transaction contemplated
      by
      the Agreement, as amended, to be consummated in the third quarter. A copy of
      the
      Agreement was filed as an exhibit to Form 8-K dated May 12, 2006.





9
 **ADVANCED
            ACCESSORY HOLDINGS CORPORATION**




On
      June 5, 2006, in connection with the sale of the Discontinued Companies, the
      Company, AAS and AAS Capital Corporation, a wholly-owned subsidiary of AAS,
      commenced a combined tender offer and consent solicitation in respect of the
      13
1⁄4% Senior Discount Notes due 2011, issued by the Company pursuant to the
      indenture dated February 4, 2004 and the 10 3⁄4% Senior Notes due 2011, issued by
      AAS and AAS Capital Corporation, pursuant to the indenture dated May 23, 2003.
      A
      copy of the press release announcing the combined tender offer and consent
      solicitation was filed as an exhibit to Form 8-K dated June 5,
      2006.








***Industry
      Trends and Competition***





Several
      trends are affecting the already highly competitive automotive industry,
      including a decline in the US domestic market share with its accompanying price
      pressures, worldwide increases in steel, aluminum and resin demand and prices
      and the ongoing financial distress of the US domestic OEMs and supply
      base.




***US
      Domestic Market Share***





The
      US market share for General Motors and Ford has declined and their US domestic
      vehicle production levels continue to decrease. This affects us in lower sales
      volumes to these customers and in increased pressure to lower our selling
      prices. Year-to-year price reductions are common in the industry, and the
      long-term contracts that we use to sell our products often include annual price
      reductions. We do not believe that these price reductions will have a material
      adverse impact on our results because we intend to offset such price reductions
      through cost reductions and other productivity increases.




***Increases
      in Raw Materials Costs***





Worldwide
      market conditions, including the growth of demand from China and other Asian
      countries, and the tensions in the Mid-East have resulted in higher steel,
      aluminum and resin prices in recent years. These increases in demand are seen
      as
      long-term and we do not expect prices to go down in the short term. We are
      focused on mitigating the impact of this trend through commercial agreements
      with our customers, competitive sourcing arrangements, technology advancements
      and improvements in the efficiency of our production processes.




***Financial
      Distress of US Domestic OEMs and Suppliers***





The
      declining market share of US domestic OEMs, their high legacy costs, and
      increased raw material prices and higher energy costs have resulted in financial
      losses for them. As well, several large automotive suppliers have filed for
      Chapter 11 bankruptcy protection. A result of these issues is that the US
      domestic automotive industry is experiencing a major structural change. The
      Company is not able to predict how long these industry trends will continue,
      but
      a sustained downturn could have a material adverse effect on the Company's
      results of operations, cash flows and financial position.




***The
      Acquisition***





On
      April 15, 2003, substantially all of the equity interests of AAS were acquired
      by Castle Harlan Partners IV, L.P. (the “Acquisition”), a private equity
      investment fund organized and managed by Castle Harlan Inc., a private New
      York
      based equity firm. CHAAS Holdings, LLC (“CHAAS Holdings”) was formed in April
      2003 in connection with the Acquisition and was the direct parent of CHAAS
      Acquisitions, LLC (“CHAAS Acquisitions”) which was also formed pursuant to the
      Acquisition.





In
      January 2004, the Company was formed by CHAAS Holdings. At that time, CHAAS
      Holdings made a contribution of all of its equity interests in CHAAS
      Acquisitions to the Company in exchange for all of the outstanding membership
      units of the Company. CHAAS Holdings is the direct parent of the Company and
      the
      Company is the direct parent of CHAAS Acquisitions and the indirect parent
      of
      the Predecessor. Unless the context otherwise requires, all information which
      refers to “we”, “our” or “us” refers to the Company and its
      subsidiaries.





10
 **ADVANCED
            ACCESSORY HOLDINGS CORPORATION**





**RESULTS
      OF OPERATIONS**





**Three
      Months Ended June 30, 2006 Compared to the Three Months Ended June 30,
      2005**





*Net
      sales.* Net sales for the second quarter of 2006 were $47.0 million, representing a
      decrease of $5.4 million, or 10.3%, compared with net sales of $52.4 million
      for
      the second quarter of 2005. North American OEM sales decreased approximately
      $6.3 million, primarily as a result of a general overall volume decline in
      sport
      utility vehicles linked to higher fuel prices. This decline is partially offset
      by new product replacement programs such as the General Motors 900 series sport
      utility vehicles (“SUVs”) and new product offerings such as the Jeep Commander
      and GM’s HHR. European OEM sales increased by $0.9 million due to new business
      awards at Ford and Volkswagen. The European sales increase includes an increase
      of approximately $0.3 million due primarily to the increase of the average
      exchange rates between the US Dollar and primarily the Czech
      Koruna.





*Gross
      profit.* Gross
      profit for the second quarter of 2006 was $4.6 million, which represents a
      decrease of $1.9 million, or 29.2%, compared with gross profit of $6.5 million
      for the second quarter of 2005. Gross profit as a percentage of net sales was
      9.8% for the second quarter of 2006 and 12.4% for the second quarter of 2005.
      The decrease in gross profit and margin reflects the impact of lower volume
      and
      product mix and increases in raw material costs, partially offset by improved
      plant operating performance.





*Selling,
      administrative and product development expenses.* Selling,
      administrative and product development expenses for the second quarter of 2006
      were $4.6 million, representing a decrease of $0.7 million, or 13.2%, compared
      with $5.3 million for the second quarter of 2005. The net decrease is due to
      lower engineering and selling expenses, the results of restructuring actions,
      cost improvements on tooling programs and lower sales commissions in line with
      volume levels. These decreases are partially offset by the cost of restructuring
      actions included in the closing of the Greenwood, Mississippi plant.





*Operating
      loss.* The
      operating loss for the second quarter of 2006 was $1.8 million and $0.6 million
      for the second quarter of 2005. The increase in operating loss resulted from
      decreased gross profit partially offset by lower selling, administrative and
      product development expenses, as discussed above.





*Interest
      expense.* Interest expense for the second quarter of 2006 was $2.9 million and for the
      second quarter of 2005 was $2.4 million. This increase reflects higher interest
      rates and slightly higher debt levels in the second quarter of 2006 relative
      to
      2005.





*Foreign
      currency gain (loss).* Foreign
      currency gain in the second quarter of 2006 was $0.4 million compared to a
      foreign currency loss of $0.4 million in the second quarter of 2005. Both the
      gain and loss were primarily attributable to the US Dollar-denominated
      intercompany indebtedness of SportRack Automotive GmbH and its subsidiaries
      (collectively, “SportRack Europe”), whose functional currency is the Euro.





*Benefit
      from income taxes.* During the second quarter of 2006 we recorded a loss from continuing operations
      before income taxes of $4.3 million and recorded an income tax benefit of $1.0
      million.  The effective tax rate differs from the US federal income tax
      rate primarily due to changes in valuation allowances on the deferred tax assets
      (including current net operating losses) of all North American operations and
      differences in the tax rates of foreign operations.  During the second
      quarter of 2005 we had a net loss from continuing operations before taxes of
      $3.4 million and recorded an income tax benefit of $0.1 million.





*Net
      loss from continuing operations* .
      We recorded a net loss from continuing operations of $3.3 million in the second
      quarter of 2006 and $3.2 million in the second quarter of 2005. The increase
      in
      the net loss was a result of the items discussed above related to net sales,
      gross profit and foreign currency.





*Net
      income (loss) from discontinued operations* .
      We recorded income from discontinued operations of $6.0 million in the second
      quarter of 2006 and an income tax provision of $2.0 million, resulting in net
      income from discontinued operations of $4.0 million. In the second quarter
      of
      2005 we recorded income from discontinued operations of $2.1 million and an
      income tax provision of $1.2 million, resulting in net income from discontinued
      operations of $1.0 million. Gross profit in the second quarter of 2006 was
      $23.0
      million which represents an increase of $3.0 million or 15.0%, compared with
      gross profit of $20.0 million for the same period in 2005. The increase in
      gross
      profit is attributable to volume, pricing and discontinued depreciation
      partially offset by manufacturing performance. Foreign currency gain in the
      second quarter of 2006 was $0.7 million compared to a loss of $1.8 million
      in
      the second quarter of 2005. Both the foreign currency gain and the loss were
      primarily attributable to the US Dollar-denominated intercompany indebtedness
      of
      Brink, whose functional currency is the Euro.





11
 **ADVANCED
            ACCESSORY HOLDINGS CORPORATION**




**Six
      Months Ended June 30, 2006 Compared to the Six Months Ended June 30,
      2005**





*Net
      sales.* Net sales for the first six months of 2006 were $92.3 million, representing
      a
      decrease of $10.0 million, or 9.8%, compared with net sales of $102.3 million
      for the first six months of 2005. North American OEM sales decreased by
      approximately $11.6 million, primarily as a result of a general trend away
      from
      sport utility vehicles due to high operating costs at current fuel prices.
      This
      decrease is partially offset by the launch of replacement programs such as
      the
      General Motors 900 series line of SUVs and new product entries such as the
      Jeep
      Commander and GM’s HHR. This net decrease was offset by increased European OEM
      sales of $1.6 million which was driven by new business awards at Ford and
      Volkswagen.





*Gross
      profit.* Gross
      profit for the first six months of 2006 was $7.8 million, which represents
      a
      decrease of $4.6 million, or 37.1%, compared with gross profit of $12.4
      million for the first six months of 2005. Gross profit as a percentage of
      net sales was 8.5% for the first six months of 2006 versus 12.1% for the first
      six months of 2005. The overall decrease in gross profit reflects volume and
      mix
      as well as increases in raw material costs.





*Selling,
      administrative and product development expenses* .
      Selling, administrative and product development expenses for the first six
      months of 2006 were $9.3 million representing a decrease of $1.8 million, or
      16.2%, compared with $11.1 million for the first six months of 2005. The net
      decrease is due to lower engineering and selling expenses, results from
      restructuring actions, cost improvements on tooling programs and lower sales
      commissions in line with volume levels. These decreases are partially offset
      by
      the cost of restructuring actions included in the closing of the Greenwood,
      Mississippi plant.





*Operating
      loss.* The
      operating loss for the first six months of 2006 was $5.1 million representing
      a
      decrease of $2.8 million compared with an operating loss of $2.3 million for
      the
      first six months of 2005. The decrease resulted from decreased gross profit
      partially offset by lower selling, administrative and product development
      expenses, as discussed above.





*Interest
      expense.* Interest expense for the first six months of 2006 was $5.7 million representing
      an increase of $0.9 million or 18.8%, compared with interest expense of $4.8
      million for the first six months of 2005. This increase reflects higher interest
      rates and debt levels in the first six months of 2006 relative to
      2005.





*Foreign
      currency gain (loss).* Foreign currency gain in the first six months of 2006 was $0.6 million compared
      to a loss of $0.6 million in the first six months of 2005. Both the gain and
      loss were primarily attributable to the US Dollar-denominated intercompany
      indebtedness of SportRack Europe, whose functional currency is the Euro.





*Benefit
      from income taxes.* During the first six months of 2006 we recorded a loss from continuing
      operations before income taxes of $10.2 million and recorded an income tax
      benefit of $0.8 million.  The effective tax rate differs from the US
      federal income tax rate primarily due to changes in valuation allowances on
      the
      deferred tax assets of all North American operations and differences in the
      tax
      rates of foreign countries.  During the first six months of 2005 we had a
      net loss from continuing operations before taxes of $7.7 million and recorded
      an
      income tax benefit of $0.3 million.





*Net
      loss from continuing operations* .
      We recorded a net loss from continuing operations of $9.4 million in the first
      six months of 2006 and $7.4 million in the first six months of 2005. The net
      losses were a result of the items discussed above related to net sales, gross
      profit, foreign currency loss and the other expense and income
      items.





12
 **ADVANCED
            ACCESSORY HOLDINGS CORPORATION**




*Net
      income (loss) from discontinued operations* .
      We recorded income from discontinued operations of $5.0 million in the second
      quarter of 2006 and an income tax provision of $2.2 million, resulting in net
      income from discontinued operations of $2.8 million. In the second quarter
      of
      2005 we recorded a loss from discontinued operations of $1.3 million and an
      income tax provision of $1.3 million, resulting in a net loss from discontinued
      operations of $2.6 million. Gross profit for the first six months of the 2006
      was $37.3 million which represents an increase of $3.4 million, or 10.0%
      compared with gross profit of $33.9 for the same period in 2005. The increase is
      attributable to volume, pricing and discontinued depreciation partially offset
      by manufacturing performance and foreign exchange. Foreign currency gain in
      the
      first six months of 2006 was $1.2 million compared with a loss of $2.9 million
      in the first six months of 2005. Both the foreign currency gain and the loss
      were primarily attributable to the US Dollar-denominated intercompany
      indebtedness of Brink, whose functional currency is the Euro.





**LIQUIDITY
      AND CAPITAL RESOURCES**





Our
      principal liquidity requirements are to service our debt and meet our working
      capital and capital expenditure needs. The indebtedness of our continuing
      operations at June 30, 2006 was $96.4 million including current maturities
      of
      $14,000.





On
      May 12, 2006, we entered into a Consent and Eighth Amendment to the Amended
      and
      Restated Credit Agreement (the “Eighth Amendment”) with General Electric Capital
      Corporation (“GECC”) individually as a lender and as agent for the lenders
      referred to therein. Under the Eighth Amendment, GECC and the lenders consented
      to the transfer (i) by AAS to CHAAS of 100% of the outstanding membership
      interests of SportRack, LLC and (ii) by SportRack, LLC to AAS of 10% of the
      outstanding stock issued by SportRack Accessories, Inc., such that SportRack
      Accessories, Inc. is a wholly-owned subsidiary of AAS, in each case in
      accordance with certain documents set forth in the Eighth Amendment. A copy
      of
      the Eighth Amendment was attached as an Exhibit to Form 8-K dated May 12,
      2006.





On
      March 29, 2006, we entered into the Seventh Amendment to the Amended and
      Restated Credit Agreement (the "Seventh Amendment") with General Electric
      Capital Corporation individually as a lender and as agent for the lenders
      referred to therein to modify the fixed charge coverage ratio covenant and
      the
      senior secured leverage ratio covenant. Although we were able to meet our senior
      leverage covenant for the quarter ended December 31, 2005, the agreement was
      amended because we anticipated that we would be unable to meet our fixed charge
      coverage ratio covenant for the quarter ended December 31, 2005 and future
      quarters.





Prior
      to this modification, the required minimum fixed charge coverage ratios for
      all
      borrowers and their subsidiaries were 1.05 to 1.00 for the fiscal quarter ended
      December 31, 2005 and 1.15 to 1.00 for each fiscal quarter ending thereafter.
      The required minimum fixed charge coverage ratios for the European borrowers
      and
      their subsidiaries were 1.25 to 1.00 for the fiscal quarters ended March 31,
      2005, June 30, 2005 and September 30, 2005. Under the modified fixed charge
      coverage ratio covenant, the required minimum fixed charge coverage ratio for
      all borrowers and their subsidiaries range from 1.15 to 1.00 for the fiscal
      quarter ending June 30, 2007 and for each fiscal quarter ending thereafter.
      The
      required minimum fixed charge coverage ratios for European borrowers and their
      subsidiaries are 1.25 to 1.00 for the fiscal quarter ended December 31, 2005
      and
      1.15 to 1.00 for the following fiscal quarters through December 31, 2006. The
      actual fixed charge coverage ratio for the fiscal quarter ended June 30,
      2006 was 1.78 to 1.00 and we were in compliance with the modified covenant
      as of
      June 30, 2006.





Prior
      to the modification of the senior secured leverage ratio covenant, the required
      maximum leverage ratios for all borrowers and their subsidiaries were 1.75
      to
      1.00 for the fiscal quarters ended March 31, 2005 and June 30, 2005; 1.50 to
      1.00 for the fiscal quarter ended September 30, 2005; and 1.25 to 1.00 for
      each
      fiscal quarter ending thereafter. Under the modified senior secured leverage
      ratio covenant, the required maximum leverage ratios for all borrowers and
      their
      subsidiaries range from 2.00 to 1.00 for fiscal quarters ended June 30, 2006
      and
      June 30, 2006; 1.75 to 1.00 for the fiscal quarter ending September 30,
      2006; 1.50 to 1.00 for the fiscal quarter ending December 31, 2006; and 1.25
      to
      1.00 for each fiscal quarter ending thereafter. The actual leverage ratio for
      the quarter ended June 30, 2006 was 1.55 to 1.00 and we were in compliance
      with
      the modified covenant as of June 30, 2006.





13
 **ADVANCED
            ACCESSORY HOLDINGS CORPORATION**




In
      addition, the Seventh Amendment modified the definition of “Obligations” under
      the credit agreement to include obligations of any credit party in favor of
      any
      lender party to the credit agreement arising under (i) certain bank products
      offered by such lender or (ii) any agreement with such lender to fix or hedge
      foreign currency risk of up to an aggregate maximum amount of $2.4 million.
      A
      copy of the Seventh Amendment was attached as an exhibit to the Annual Report
      filed on Form 10-K as of December 31, 2005.








**Working
      Capital and Cash Flows**





Working
      capital and key elements of the consolidated statement of cash flows
      are:





June
                30, 2006
            
            December
                31,
              2005(in
                thousands)Working
                Capital
            
            $
            (9,182
            )
            $
            74,629





Six
                months ended June 30,2006
            
            2005(in
                thousands)Cash
                flows used for operating activities
            
            $
            (1,213
            )
            $
            (6,544
            )Cash
                flows used for investing activities
            
            $
            (3,216
            )
            $
            (6,766
            )Cash
                flows provided by (used) for financing activities
            
            $
            (2,582
            )
            $
            5,045





*Working
      capital*





Working
      capital decreased by $83.8 million to $(9.2) million at June 30, 2006 from
      $74.6
      million at December 31, 2005 primarily due to the reclassification of the
      Discontinued Companies. Working capital before the reclassification of the
      Discontinued Companies increased by $1.2 million to $77.4 million at June 30,
      2006 from $74.6 million at December 31, 2005. This increase is primarily due
      to
      increased accounts receivable and inventory of $22.9 million and $1.6 million,
      respectively. These increases were partially offset by increases in accounts
      payable ($10.5 million), accrued liabilities ($4.2 million) and current
      maturities of long-term debt ($0.6 million) and a decrease in cash of $6.5
      million. The net working capital decrease was favorably impacted by the
      increased exchange rate between the US Dollar and local currencies, especially
      the Euro, as of June 30, 2006 as compared with the exchange rate as of December
      31, 2005.





The
      major components of the working capital change were accounts receivable,
      accounts payable and accrued liabilities. The increase in these three components
      was attributable to increased sales and production levels prior to June 30
      as
      compared with the normal year-end shutdown period in December.





*Investing
      activities*





Cash
      flow used for investing activities for the first six months of 2006 and 2005
      represented acquisitions of property and equipment of $3.4 million and $6.8
      million, respectively, and were primarily for the expansion of capacity,
      productivity, process improvements and maintenance.





*Capital
      expenditures*





Our
      capital expenditures for 2005 were $9.3 million. Approximately $8.0 million
      was
      spent in connection with the expansion of capacity, productivity and process
      improvements and maintenance of machinery, equipment and tooling, $0.9 million
      was spent on furniture, fixtures and computers, $0.4 million on uncompleted
      construction in process and $0.1 million on repairs and improvements to land
      and
      buildings. These capital expenditures were paid for from cash flows provided
      by
      operating activities or borrowings against our revolving credit facilities.
      We
      estimate that capital expenditures for 2006 will be approximately $11.1 million,
      primarily for productivity and process improvements and maintenance. Our 2006
      capital expenditures are anticipated to be paid for from our current cash and
      cash provided by operating activities.





14
 **ADVANCED
            ACCESSORY HOLDINGS CORPORATION**




*Financing
      activities*





During
      the first six months of 2006, financing cash flows included a decrease in
      borrowings under the revolving line of credit of $0.7 million and repayment
      of
      debt of $1.9 million. For the same period in 2005 the financing cash flows
      included an increase in the revolving line of credit of $6.2 million and
      repayment of debt of $1.0 million.





*Off-balance
      sheet arrangements*





The
      Company is not party to off-balance sheet arrangements as defined in SEC
      Regulation SK, Item 303(a).





*Contractual
      Obligations*





The
      following table represents our contractual commitments associated with our
      debt
      and other obligations disclosed above as of December 31, 2005.





Payments
                due by yearTotal
            
            Year
                1
            
            Years
                2-3
            
            Years
                4-5
            
            ThereafterLong-term
                debt obligations - fixed rate
            
            $
            243,339
            
            $
            —
            
            $
            —
            
            $
            31,000
            
            $
            212,339Long-term
                debt obligations - variable rate
            
            
            43,189
            
            
            3,256
            
            
            39,933
            
            
            —
            
            
            —Interest
                on long-term fixed rate debt obligations
            
            
            129,487
            
            
            16,125
            
            
            38,080
            
            
            49,408
            
            
            25,8742Capital
                lease obligations (including interest)
            
            
            7,927
            
            
            917
            
            
            1,786
            
            
            1,699
            
            
            3,525Operating
                lease obligations
            
            
            41,201
            
            
            7,258
            
            
            12,997
            
            
            6,688
            
            
            14,258Total
            
            $
            465,143
            
            $
            27,556
            
            $
            92,796
            
            $
            88,795
            
            $
            255,996





In
      addition to the above, our senior credit facility includes obligations subject
      to variable interest rates. Borrowings under the credit facility, at the
      Company’s election, may be made as “index rate” loans or LIBOR rate loans, plus
      an applicable margin. As both the interest rate and the relative balances of
      the
      variable rate debt are not determinable, the interest related to the variable
      rate debt is not reflected in the above table. At December 31, 2005 the
      outstanding variable rate obligations were $43.2 million and the weighted
      average interest rate for those obligations was 7.65%.





**Debt
      and Credit Sources**





Our
      indebtedness at June 30, 2006 before the reclassification of the Discontinued
      Companies was $276.0 million. We expect that our primary sources of cash will
      be
      from operating activities and borrowings under our revolving credit facilities.
      As of June 30, 2006, we had borrowings under the revolving credit facilities
      totaling $35.1 million and had $16.1 million of available borrowing capacity.
      Standby letters of credit totaling $2.9 million providing security for our
      US
      workers compensation program reduced borrowing availability.





On
      May 12, 2006 we entered into the Eighth Amendment to the Amended and Restated
      Credit Agreement, and on March 29, 2006 we entered into the Seventh Amendment
      to
      the Amended and Restated Credit Agreement. See the discussion of the amendments
      to the credit facility in “- Liquidity and Capital Resources”.





*International
      operations*





Our
      continuing companies conduct operations in the Czech Republic, Germany and
      Spain. Net sales from international operations during the first six months
      of
      2006 were $10.1 million, or 10.9% of our net sales. At June 30, 2006,
      assets associated with these operations were approximately 18.8% of total
      assets, and we had no indebtedness denominated in currencies other than the
      US
      Dollar.





15
 **ADVANCED
            ACCESSORY HOLDINGS CORPORATION**




Our
      international operations may be subject to volatility because of currency
      fluctuations, inflation and changes in political and economic conditions in
      these countries. Most of the revenues and costs and expenses of our operations
      in these countries are denominated in the local currencies. The financial
      position and results of operations of the Company's foreign subsidiaries are
      measured using the local currency as the functional currency.





*Currency
      contracts*





We
      have significant operations in Europe where the functional currency is the
      Euro.
      In February and May 2004, we entered into a series of foreign currency forward
      option contracts related to the Euro (“Euro Collar”), which matured quarterly on
      a staggered basis. For each reporting period we recorded the fair value, as
      determined by independent financial institutions, of open obligations and the
      resultant gains and losses were recorded in the Statement of Operations. The
      final option contracts expired during the second quarter of 2005. For the three
      and six months ended June 30, 2005, the Company recorded an unrealized gain
      on
      foreign currency options of $26,000 and $164,000, respectively.








**Item
      3.**  **Quantitative
      and Qualitative Disclosures About Market Risk**





In
      May 2004, we executed several foreign currency option contracts. See “-
      Management’s Discussion and Analysis of Financial Condition and Results of
      Operations - Debt and Credit Sources - Currency Contracts”.








**Item
      4.**  **Controls
      and Procedures**





Under
      the supervision and with the participation of management, including our
      principal executive officer and principal financial officer, the Company has
      evaluated the effectiveness of the design and operation of its disclosure
      controls and procedures as of June 30, 2006 and, based on their evaluation,
      the
      principal executive officer and principal financial officer have concluded
      that
      these controls and procedures are effective. There were no changes in internal
      controls or in other factors that could significantly affect these controls
      during the quarter.





Disclosure
      controls and procedures are the Company’s controls and other procedures that are designed
      to ensure that information required to be disclosed by the Company in the
      reports that it files or submits under the Securities Exchange Act of 1934,
      as
      amended (the “Exchange Act”), is recorded, processed, summarized and reported,
      within the time periods specified in the Securities and Exchange Commission’s
      rules and forms. Disclosure controls and procedures include, without limitation,
      controls and procedures designed to ensure that information required to be
      disclosed in the reports that the Company files under the Exchange Act is
      accumulated and communicated to management, including the principal executive
      officer and principal financial officer, as appropriate to allow timely
      decisions regarding required disclosure.





**PART
      II. OTHER INFORMATION AND SIGNATURE**








**Item
      1.**  **Legal
      Proceedings**





From
      time to time, we are subject to routine legal proceedings incidental to the
      operation of our business. The outcome of any threatened or pending proceedings
      is not expected to have a material adverse effect on our financial condition,
      operating results or cash flows, based on our current understanding of the
      relevant facts. The Company maintains insurance coverage against claims in
      an
      amount that it believes to be adequate.








**Item
      1A.** **Risk
      Factors**





Not
      Applicable





16
 **ADVANCED
            ACCESSORY HOLDINGS CORPORATION**





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





None








**Item
      3.**  **Defaults
      Upon Senior Securities**





None








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





None





**Item
      5.**  **Other
      Information**





None








**Item
      6.**  **Exhibits**





Exhibit
                10.1
            Amendment
                No. 1 to the Purchase Agreement, dated July 13, 2006, by and among
                CHAAS
                Acquisitions, LLC, Advanced Accessory Holdings Corporation, AAS
                Acquisitions, LLC, Valley Industries, LLC and Thule
                AB.





Exhibit
                31.1
            Certification
                of Chief Executive Officer Pursuant to Rules 13a-14 and 15d-14, as
                Adopted
                Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002





Exhibit
                31.2
            Certification
                of Chief Financial Officer Pursuant to Rules 13a-14 and 15d-14, as
                Adopted
                Pursuant to Section 302 of the Sarbanes-Oxley Act of
                2002





Exhibit
                32.1
            Certification
                of Chief Executive Officer Pursuant to 18 U.S.C. Section 1350, as
                Adopted
                Pursuant To Section 906 of the Sarbanes-Oxley Act Of 2002





Exhibit
                32.2
            Certification
                of Chief Financial Officer Pursuant to 18 U.S.C. Section 1350, as
                Adopted
                Pursuant To Section 906 of the Sarbanes-Oxley Act Of 2002








17
 **ADVANCED
            ACCESSORY HOLDINGS CORPORATION**
  SIGNATURE





Pursuant
      to the requirements of the Securities Exchange Act of 1934, the Registrant
      has
      duly caused this report to be signed on its behalf by the undersigned thereunto
      duly authorized.











**ADVANCED
                ACCESSORY HOLDINGS CORPORATION**Date:
                August 18, 2006
            /s/
                Ronald J. GardhouseRonald
                J. GardhouseChief
                Financial Officer(Principal
                Financial Officerand
                Authorized Signatory)








18
 **ADVANCED
          ACCESSORY HOLDINGS CORPORATION**
 
 **EXHIBIT
          INDEX**











Exhibit
            Description10.1
            Amendment
                No. 1 to the Purchase Agreement, dated July 13, 2006, by and among
                CHAAS
                Acquisitions, LLC, Advanced Accessory Holdings Corporation, AAS
                Acquisitions, LLC, Valley Industries, LLC and Thule AB.31.1
            Certification
                of Chief Executive Officer Pursuant to Rules 13a-14 and 15d-14, as
                Adopted
                Pursuant to Section 302 of the Sarbanes-Oxley Act of 200231.2
            Certification
                of Chief Financial Officer Pursuant to Rules 13a-14 and 15d-14, as
                Adopted
                Pursuant to Section 302 of the Sarbanes-Oxley Act of
                200232.1
            Certification
                of Chief Executive Officer Pursuant to 18 U.S.C. Section 1350, as
                Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of
                200232.2
            Certification
                of Chief Financial Officer Pursuant to 18 U.S.C. Section 1350, as
                Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of
                2002