**U.S.
      SECURITIES AND EXCHANGE COMMISSION**


**WASHINGTON,
      D.C. 20549**




**FORM
      10-KSB**


**AMENDMENT
        NO. 1**





(Mark
      One)


**x****ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
      SECURITIES EXCHANGE ACT OF 1934:** For
      the
      fiscal year ended December 31, 2006




**o****TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
      OF THE
      SECURITIES EXCHANGE ACT OF 1934:** For
      the
      transition period from___to___.





Commission
      File Number 0-28347




**AVIATION
      UPGRADE TECHNOLOGIES, INC.**


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




**Nevada**
            **33-0881303**(State
                or other jurisdiction of
              incorporation
                or organization)
            (IRS
                Employer
              Identification
                No.)




14785
        Omicron Drive, Suite 104, San Antonio, TX 78245


(Address
      of principal executive offices)




**(310)
          265-8918**


(Issuer’s
      telephone number)




Securities
      registered pursuant to
      Section 12(b) of the Act:


Title
                of each class
            Name
                of each exchange on which registeredNone
            None




Securities
      registered pursuant to Section 12(g) of the Act:


Common
                stock(Title
                of
                class)




Check
      whether the issuer (1) filed all reports required to be filed by
      Section 13 or 15(d) of the Exchange Act of 1934 during the past 12 months
      (or for such shorter period that the registrant was required to file such
      reports), and (2) As been subject to such filing requirements for the past
      90 days.   YesX  
No




Check
      if
      there is no disclosure of delinquent filers in response to Item 405 of
      Regulation S-B is not contained in this form, and no disclosure will not be
      contained, to the best of registrant’s knowledge, in definitive proxy or
      information statements incorporated by reference in Part III of this Form
      10-KSB or any amendment to this Form 10-KSB. [_]




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





The
        issuer’s revenue for the fiscal year ended December 31, 2006 was
        $179,655.




The
      aggregate market value of the voting stock held by non-affiliates of the issuer
      as of March 28, 2007 was $0.




The
      number of shares of the common stock outstanding as of March 28, 2007 was
      11,457,750




DOCUMENTS
      INCORPORATED BY REFERENCE:


There
      are
      no annual reports to security holders, proxy information statements, or any
      prospectus filed pursuant to Rule 424


of
      the
      Securities Act of 1933 incorporated herein by reference.





TRANSITIONAL
      SMALL BUSINESS DISCLOSURE FORMAT (CHECK ONE)


YES    NO X





1




**PART
      1**





Aviation
      Upgrade Technologies, Inc., a Nevada corporation (“Company,” “we,” or “AUT”),
      filed a Registration Statement on Form 10-SB on December 2, 1999. On
      February 1, 2000, our Registration Statement on Form 10-SB was declared
      effective and we became a reporting company pursuant to the Securities Exchange
      Act of 1934. We did not file any periodic reports or other information with
      the
      Securities and Exchange Commission until March 2001, at which time, we filed
      all
      delinquent quarterly and annual reports for the year ended December 31,
      2000 concurrently. We have filed all quarterly reports for the years ended
      December 31, 2001, 2002, 2003, 2004, 2005 and 2006 on a timely
      basis.





**Item
      1. Description of Business**





**Business
        Development****.** We were incorporated in Nevada on
        January 8, 1999. The Air Alert Valve Cap earned $179,655 in revenues for
        the year ended December 31, 2006. There has not been any bankruptcy filing,
        receivership or any similar proceeding since our inception. There has been
        no
        reclassification, merger or consolidation since our inception. There has
        been no
        purchase or sale of a significant amount of assets that was not in the ordinary
        course of our business.





In
          April 2001, we signed a licensing
          agreement with Torbjörn
          Lundqvist, ourfounder, chief executive
          officer (“CEO”),
          one of ourdirectorsandourmajority
          shareholder, for the worldwide
          marketing rights for an electronic tire valve cap that may be used on airplanes
          but was designed primarily for automobiles. Although the licensing agreement
          includes both airplanes and automobiles,we have elected at
          this time not to
          pursue the aircraft market.  Although we believe the aviation market
          has a lot of potential, our product liability insurance would increase
          significantly to include aircraft parts.  Therefore, for the
          foreseeable future,we have elected to keep our focus on
          the automobile industry. The product provides early warning of low pressure
          in
          tires, which we believe will lead to safer travel in these vehicles and
          better
          fuel efficiency in automobiles. Once the tire is inflated tothe appropriate pressure, the initial
          tightening of the cap onto the valve stem makes the valve cap memorize
          the tire
          pressure. If the pressure in the tire drops by more than approximately
          four
          pounds per square inch, a red LED light will blink to indicate
          the need to check the tire pressure.
          The licensing agreement calls for the reimbursement of research and development
          costs incurred byMr.
          Lundqvistand the payment
          of ongoing costs during the term of the
          agreement.




**Products.*****Air Alert Valve Cap.*** We currently license the
      marketing rights for an electronic tire valve cap that may be used on both
      airplanes and automobiles. The product provides early warning of low pressure
      in
      tires, which we believe will lead to safer travel in these vehicles and better
      fuel efficiency in automobiles. Once the tire is inflated to the appropriate
      pressure, the initial tightening of the cap onto the valve stem makes the valve
      cap memorize the tire pressure. If the pressure in the tire drops by more than
      approximately four pounds per square inch, a red LED light will blink to
      indicate the need to check the tire pressure.




***Air
      Alert Valve Stem***. We are considering developing a new product
      called the Air Alert Valve Stem. We are using the same technology as the Air
      Alert Valve Cap, but the components are baked into a valve stem designed for
      today’s tubeless tires. We have shown the product at a trade show in Las Vegas
      and we had good responses, primarily from tire and automotive
      dealers.





**Manufacturing**.
      After careful evaluation of several contract manufacturers, we have entered
      into
      a contract with Union Power Information Ind. Co., LTD in the City of Shenzhen
      in
      China. Union Power has the capability of producing up to several million Air
      Alert Valve Caps and Air Alert Valve Stems each month. Union Power has
      manufactured the products representing all of our sales made through 2006.
      Our
      contract provides for pricing as follows: $1.40 per unit when produced in bulk
      and $1.45 per unit when produced in 4-packs. Union Power produces in whatever
      volume we specify each month. We pay 60% of the aggregate price on delivery
      and
      the remaining 40% within 60 days. The terms of this arrangement are reviewed
      every six months. We believe that relations with this manufacturer are good,
      though we could locate and engage another manufacturer on similar terms without
      difficulty.





**Marketing****.****
      We believe that our initial primary target market will consist of large fleet
      operators, with a secondary focus on tire dealers. We believe that the potential
      market for the tire valve cap is extremely large. The requirement for a warning
      system to detect tire pressure is currently in effect for new passenger and
      light truck vehicles sold, and should be totally phased in by 2008. This does
      not include the heavy trucks and used vehicles. To our knowledge no other
      country has these requirements.





**Government
      Regulation*****.*******The
      following does not purport to be a summary of all present and proposed federal,
      state and local regulations and legislation relating to the automobile industry.
      The following attempts only to identify those aspects that could affect our
      business. Other existing laws and regulations are in effect in many
      jurisdictions, and state and local requirements are currently the subject of
      a
      variety of judicial proceedings, though there are legislative hearings, and
      administrative and legislative proposals which could also affect our method
      of
      operation.


2




The
      Department of Transportation, the National Highway Traffic Safety Administration
      and other regulatory and administrative agencies have established standards
      for
      automotive and tire products and processes, which require the maintenance of
      certain records and provide for unscheduled inspections of facilities. Our
      products may be considered within the scope of such regulation and in such
      event, we will have to comply with those agency standards. In particular, the
      National Highway Traffic Safety Administration has established standards
      regarding the shape, size, and performance requirements of warning devices,
      as
      well as standards relating to tire manufacturing, maintenance and
      repair.





State,
      local and foreign governments have also adopted regulations relating to the
      manufacture and marketing of automotive and tire products. We cannot guarantee
      that our products will be in material compliance with all applicable
      regulations, which could have a material adverse impact on our business,
      financial conditions and results of operations. Any future violation of, and
      the
      cost of compliance with, these laws and regulations could have a material
      adverse effect on our business, financial condition and results of
      operations.





**Patents*****.*****We
        do not
        presently own any patents, trademarks, concessions or royalties. Mr. Lundqvist
        has obtained a US patent (**US Patent No. 6,629,454 B2)** for the
        Air Alert Valve Cap and filings for patent protection have been made in 29
        other
        countries. Patent protection for the Air Alert Valve Stem has also been filed
        in
        29 countries.




We
      cannot
      guarantee, however, that any patents will be issued for the Air Alert Valve
      Stem
      or that, if issued, the breadth or degree of protection of these patents will
      be
      adequate to protect our interests. In addition, we cannot guarantee that others
      will not independently develop substantially equivalent proprietary information
      or obtain access to our know-how. Further, we cannot guarantee that others
      will
      not be issued patents which may prevent the sale of our products or require
      licensing and the payment of significant fees or royalties by us in order for
      us
      to be able to carry on our business. Finally, we cannot guarantee that the
      products of others will not infringe any patents issued to or licensed by us.
      Defense and prosecution of patent claims can be expensive and time consuming,
      even in those instances in which the outcome is favorable to us. If the outcome
      is adverse, it could subject us to significant liabilities to third parties,
      require us to obtain licenses from third parties or require us to cease our
      marketing activities.





**Competition***.*****Competition
      for the electronic tire valve cap is limited. To our knowledge, there are only
      a
      few mechanical tire valve caps on the market which are sold by several companies
      under different brand names. Our review and testing of these products has
      indicated to us that they are unreliable and inefficient due to their mechanical
      nature. We have not seen any product like the Air Alert Valve Stem. Other
      solutions to the tire pressure problem facing the industry are currently
      directed toward dashboard warning signals, which are significantly more
      expensive than our tire valve cap and valve stem, and therefore, not considered
      direct competition. We anticipate that we will compete on the basis of the
      technical features, quality of our products and price.





**Research
      and Development*****.*******We
      are not currently conducting any research and development activities, other
      than
      those activities related to the licensing agreement for the electronic tire
      valve cap and valve stem. During the license period and any renewal periods,
      we
      will pay fees, expenses and costs related to product development and any
      application fees for patents and trademarks. We have also issued 50,000 shares
      of common stock to one individual as payment for efforts in co-designing the
      valve cap product with Mr. Lundqvist and another 1,000 shares of common
      stock to another individual for the name “Air Alert Valve Cap.”





**Insurance****.**We are currently insured with an aggregate limit policy of $2,000,000
      of product liability insurance for the Air Alert Valve Cap.





**Employees*****.*******We
      have one full time employee and two part time directors/officers.
      Mr. Lundqvist currently works for us on a full time basis.
      Mr. Lindholm currently devotes approximately two hours per week, but
      anticipates that he will devote significantly more hours if the valve cap starts
      producing significant revenues. Mr. Rhodes currently devotes approximately
      two hours per week, but anticipates that he will devote significantly more
      hours
      if the valve cap starts producing significant revenues. We anticipate that
      we
      will not hire any employees in the next six months, unless we generate
      significant revenues. We believe our future success depends in large part upon
      the continued service of our key senior management personnel and our ability
      to
      attract and retain managerial personnel.


3
  **Item
      2. Description of Property**





Our
          corporate headquarters were located in Las Vegas, Nevada until the end
          of March
          2006. Now our corporate headquarters are located in Monarch Beach, California.
          We share the office space with Minitec Marketing Inc, a corporation owned
          by our
          founder  CEO, one of our directors and our majority shareholder,
          Torbjorn Lundqvist. For the year ended December 31, 2006, Minitec has not
          charged any rent. This arrangement is on a month to month term. We do not
          anticipate any difficulty in extending these arrangements


**Item
      3. Legal Proceedings**





There
      are
      no legal actions pending against us nor are any legal actions contemplated
      by us
      at this time.





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





No
      matters were submitted for a vote of the stockholders at any time during the
      fourth quarter of the year ended December 31, 2006.






**PART
      II**





**Item
      5. Market for Common Equity and Related Stockholder
      Matters**





We
        are a
        reporting company with the Securities and Exchange Commission. The public
        may
        read and copy any materials filed with the Securities and Exchange Commission
        at
        the Security and Exchange Commission’s Public Reference Room at 100 F Street, N.
        E. Washington, D.C. 20549. The public may also obtain information on the
        operation of the Public Reference Room by calling the Securities and Exchange
        Commission at 1-800-551-8090. The Securities and Exchange Commission maintains
        an Internet site that contains reports, proxy and information statements,
        and
        other information regarding issuers that file electronically with the Securities
        and Exchange Commission. The address of that site is
        http://www.sec.gov.





We
      participate in the OTC Bulletin Board, an electronic quotation medium for
      securities traded outside of the Nasdaq Stock Market, and prices for our common
      stock are published on the OTC Bulletin Board under the trading symbol "AVUG".
      This market is extremely limited and the prices quoted are not a reliable
      indication of the value of our common stock. As of March 28, 2007, our stock
      has
      not been traded.





All
      our
      filings and reports are available through our web site at:
      http://www.AviationUpgrade.com with a direct link to the SEC web
      site.





As
      of
      March 28, 2007, there were 120 record holders of our common stock.





As
      of
      March 28, 2007, there were 150,000 outstanding warrants to purchase shares
      of
      our common stock. Each warrant entitles the holder the right to purchase an
      additional share of common stock at $2.00 per share. These warrants expire
      seven
      years from the date of issuance.





There
      have been no cash dividends declared on our common stock. Dividends are declared
      at the sole discretion of our Board of Directors.





**Recent
      Sales of Unregistered Securities****.** During the year
      ended December 31, 2006, we issued no unregistered shares of our Common
      Stock.





During
      the fiscal year ended December 31, 2004, we issued unregistered shares of
      our Common Stock in the following transactions:





During
      the three month period ended March 2004, outstanding warrants to purchase 30,466
      shares of common stock were exercised by the holders. The warrants were issued
      as part of a Rule 506 Regulation D offering, exempt under
      Section 4(2) of the Securities Act of 1933. No underwriter was involved in
      the exercise of the warrants.


4




On
      March
      1, 2004, we entered into a Securities Purchase Agreement with an accredited
      investor for the sale of 55,000 shares of common stock for cash consideration
      of
      $50,000. These securities were issued under Section 4(2) of the Securities
      Act of 1933. No underwriter was involved in the sale of these
      securities.





On
      April
      26, 2004, we entered into a Securities Purchase Agreement with an accredited
      investor for the sale of 20,000 shares of common stock for cash consideration
      of
      $20,000. These securities were issued under Section 4(2) of the Securities
      Act of 1933. No underwriter was involved in the sale of these
      securities.





During
      the three month period ended September 30, 2004, AUT entered into Securities
      Purchase Agreements with various accredited investors for the sale of 61,050
      shares of common stock for cash consideration of $55,500. These securities
      were
      issued under Section 4(2) of the Securities Act of 1933. No underwriter was
      involved in the sale of these securities.





During
      the three month period ended December 31, 2004, AUT entered into Securities
      Purchase Agreements with various accredited investors for the sale of 28,875
      shares of common stock for cash consideration of $26,250 and a stock
      subscription of $750. These securities were issued under Section 4(2) of
      the Securities Act of 1933. No underwriter was involved in the sale of these
      securities.





**Equity
      Compensation Plans.** There are no compensation plans under which
      equity securities of the Company are authorized for issuance.





**Penny
      Stock Regulation.** Shares of our common stock are subject to rules
      adopted by the Securities and Exchange Commission that regulate broker-dealer
      practices in connection with transactions in "penny stocks". Penny stocks are
      generally equity securities with a price of less than $5.00 (other than
      securities registered on certain national securities exchanges or quoted on
      the
      Nasdaq system, provided that current price and volume information with respect
      to transactions in those securities is provided by the exchange or system).
      The
      penny stock rules require a broker-dealer, prior to a transaction in a penny
      stock not otherwise exempt from those rules, deliver a standardized risk
      disclosure document prepared by the Securities and Exchange Commission, which
      contains the following:





·
            a
                description of the nature and level of risk in the market for penny
                stocks
                in both public offerings and secondary trading;·
            a
                description of the broker's or dealer's duties to the customer and
                of the
                rights and remedies available to the customer with respect to violation
                to
                such duties or other requirements of securities'
                laws;


·
            a
                brief, clear, narrative description of a dealer market, including
                "bid"
                and "ask" prices for penny stocks and the significance of the spread
                between the "bid" and "ask" price;·
            a
                toll-free telephone number for inquiries on disciplinary
                actions;


·
            definitions
                of significant terms in the disclosure document or in the conduct
                of
                trading in penny stocks; and·
            such
                other information and is in such form (including language, type,
                size and
                format), as the Securities and Exchange Commission shall require
                by rule
                or regulation.





Prior
      to
      effecting any transaction in penny stock, the broker-dealer also must provide
      the customer the following:





·
            the
                bid and offer quotations for the penny stock;·
            the
                compensation of the broker-dealer and its salesperson in the
                transaction;


·
            the
                number of shares to which such bid and ask prices apply, or other
                comparable information relating to the depth and liquidity of the
                market
                for such stock; and·
            monthly
                account statements showing the market value of each penny stock held
                in
                the customer's account.





In
      addition, the penny stock rules require that prior to a transaction in a penny
      stock not otherwise exempt from those rules, the broker-dealer must make a
      special written determination that the penny stock is a suitable investment
      for
      the purchaser and receive the purchaser's written acknowledgment of the receipt
      of a risk disclosure statement, a written agreement to transactions involving
      penny stocks, and a signed and dated copy of a written suitably statement.
      These
      disclosure requirements may have the effect of reducing the trading activity
      in
      the secondary market for a stock that becomes subject to the penny stock rules.
      Holders of shares of our common stock may have difficulty selling those shares
      because our common stock will probably be subject to the penny stock
      rules.





5





**Item
      6. Management’s Discussion and Analysis or Plan of
      Operation**





**This
      following information specifies certain forward-looking statements of management
      of the company. Forward-looking statements are statements that estimate the
      happening of future events are not based on historical fact. Forward-looking
      statements may be identified by the use of forward-looking terminology, such
      as
“may”, “shall”, “could”, “expect”, “estimate”, “anticipate”, “predict”,
“probable”, “possible”, “should”, “continue”, or similar terms, variations of
      those terms or the negative of those terms. The forward-looking statements
      specified in the following information have been compiled by our management
      on
      the basis of assumptions made by management and considered by management to
      be
      reasonable. Our future operating results, however, are impossible to predict
      and
      no representation, guaranty, or warranty is to be inferred from those
      forward-looking statements.**





**The
      assumptions used for purposes of the forward-looking statements specified in
      the
      following information represent estimates of future events and are subject
      to
      uncertainty as to possible changes in economic, legislative, industry, and
      other
      circumstances. As a result, the identification and interpretation of data and
      other information and their use in developing and selecting assumptions from
      and
      among reasonable alternatives require the exercise of judgment. To the extent
      that the assumed events do not occur, the outcome may vary substantially from
      anticipated or projected results, and, accordingly, no opinion is expressed
      on
      the achievability of those forward-looking statements. No assurance can be
      given
      that any of the assumptions relating to the forward-looking statements specified
      in the following information are accurate, and we assume no obligation to update
      any such forward-looking statements.**





**Critical
        Accounting Policy and Estimates.**Our Management's Discussion and
        Analysis of Financial Condition and Results of Operations section discusses
        our
        financial statements, which have been prepared in accordance with accounting
        principles generally accepted in the United States of America. The preparation
        of these financial statements requires management to make estimates and
        assumptions that affect the reported amounts of assets and liabilities at
        the
        date of the financial statements and the reported amounts of revenues and
        expenses during the reporting period. On an on-going basis, management evaluates
        its estimates and judgments, including those related to revenue recognition,
        accrued expenses, financing operations, and contingencies and litigation.
        Management bases its estimates and judgments on historical experience and
        on
        various other factors that are believed to be reasonable under the
        circumstances, the results of which form the basis for making judgments about
        the carrying value of assets and liabilities that are not readily apparent
        from
        other sources. Actual results may differ from these estimates under different
        assumptions or conditions. The most significant accounting estimates inherent
        in
        the preparation of our financial statements are based on actual invoices
        received  for the appropriate amounts to accrue for accounting and
        legal expenses. These accounting policies are described at relevant sections
        in
        this discussion and analysis and in the notes to them consolidated financial
        statements included in our Annual Report on Form 10-KSB for the year ended
        December 31, 2006.




**Critical
        Accounting Policies**. We recognize revenues and the related costs
        associated with product sales when persuasive evidence of an arrangement
        exists,
        delivery and acceptance has occurred or service has been rendered, the price
        is
        fixed or determinable, and collection of the resulting receivable is reasonably
        assured.  Amounts invoiced or collected in advance of product delivery
        or providing services are recorded as deferred revenue.  We accrue for
        warranty costs, sales returns, bad debts, and other allowances based on our
        historical experience.




**Estimates.**The
        preparation of financial statements in conformity with generally accepted
        accounting principles requires management to make estimates and assumptions
        that
        affect the reported amounts of assets and liabilities and disclosure of
        contingent assets and liabilities at the date of the financial statements
        and
        the reported amounts of revenues and expenses during the reporting period.
        Actual results could differ from those estimates. In accordance with FASB,
        16
        all adjustments are normal and recurring. See note 2j regarding our revenue
        recognition policy.




**Going
        Concern.**We are attempting to obtain revenues from
        additional product sales, but there is no commitment by any person for future
        purchase of our electronic tire valve cap.  We need significant
        working capital in order to produce sufficient products for sale. In the
        absence
        of significant sales and profits, we will likely seek to raise additional
        funds
        to meet our working capital needs principally through the additional sales
        of
        our securities. However, there is no assurance that we will be able to obtain
        sufficient additional funds when needed, or that such funds, if available,
        will
        be obtainable on terms satisfactory to us.





The
          audit
          report reflects the auditors’ conclusion that substantial doubt about our
          ability to continue as a going concern for a reasonable period of time
          remains. The accompanying financial statements do not include any adjustments
          that might result from the outcome of this uncertainty.




6





We
          do not have any commitments of
          financing from our existing shareholders. Moreover, our directors, other
          than
          Mr. Lundqvist, have not agreed to provide us with loans or advances. At this
          time, we have no
          significant sources of funding.  We believe that Mr. Lundqvist, ourfounder, CEO, one
          of our
          directors and ourmajority
          shareholder, will continue
          to lend us funds as long as
          he retains those positions and a significant percentage of our common
          stock.  We also do not have letters or lines of credit available from
          third parties. We do not have a volume of sales to produce sufficient revenues
          to sustain our operations.
          Moreover, we do not have any
          identifiable sources cash for our operations other than minimal revenues.
          If we
          are unable to raise additional funds from the sale of our equity securities
          to
          fund our ongoing operations, then Mr. Lundqvistmay seek other alternatives including,
          but not necessarily limited to, pursuing a business partner, an acquisition
          that
          would bring in immediate revenues or causing the company to be "go private".
          If
          we are unable to generate sufficient revenues
          to continue operating
          and do not receive further loans or advances from Mr. Lundqvist, we could
          be
          forced to cease operations.





**General*****.******* For
        the year ended December 31, 2006, we have generated $179,655 in revenue from
        the
        sale of our Air Alert Valve Cap product.





In
          April 2001, we acquired from
          Torbjörn B. Lundqvist,
          ourfounder, CEO,one
          of our directorsand majority shareholder,
          the marketing rights to an electronic
          tire valve cap for airplanes and automobilesthat blinks if the
          tire pressure falls
          below an initially calibrated level. The product provides early warning
          of low
          pressure in tires which we believe will lead to safer travel in both these
          types
          of vehicles and better fuel efficiency in automobiles.Once
          the tire is inflated to the
          appropriate pressure, the initial tightening of the cap onto the valve
          stem
          makes the valve cap memorize the tire pressure. If the pressure in the
          tire
          drops by more than approximately four pounds per square inch, a red
          LEDlight
          will blink to indicate the need to
          check the tire pressure. Although the licensing agreement includes both
          airplanes and automobiles, we have elected at this time not to pursue the
          aircraft market.  Although we believe the aviation market has a
          potential
          for additional sales, our product
          liability insurance would increase significantly if we were to include
          the sale
          of aircraft parts.  Therefore, for the foreseeable future, we have
          elected to keep our focus on the automobile industry. The licensing
          agreement
          has a term of five years and
          requires the payment of a license fee equal to 12% of the monthly gross
          profit
          from sales of the tire valve cap. It also requires the reimbursement of
          research
          and development costs incurred byMr. Lundqvistand the payment of ongoing development
          costs during the term of the agreement. In addition, it stipulates the
          issuance
          of 50,000 shares of its common stock to one individual for efforts in
          co-designing the product and 1,000 shares of common stock to another
          individual for naming the product.
          This agreement expired in April 2006 and we are currently operating on
          a month
          to month basis until a new contract is finalized. The new contract is being
          renegotiated under similar terms.





We
      are
      currently developing a new product called the Air Alert Valve Stem. We are
      using
      the same technology and many of the same parts as in the Air Alert Valve Cap
      but
      the components are baked into a valve stem designed for today’s tubeless tires.
      We have shown a mock up of the product at a trade show in Las Vegas, and we
      had
      positive responses primarily from tire and automobile dealers. This product
      is
      anticipated to be released after we have sufficient funds to begin production
      and will be primarily marketed to tire and automobile dealers.





***For
      the fiscal year ended December 31, 2006, compared to the fiscal year ended
      December 31, 2005.***





**Liquidity
        and Capital Resources.**The cash
        on hand as of December 31, 2006 was
        $7,454, as compared to $30,598 as of December 31, 2005. We believe
        thedifference is not
        significant, since our bank account balance varies on a daily basis depending
        on
        what payables are paid and normal and customary fluctuations in our receivables.
        We continue to operate without any source of funds beyond our revenues,
        andadvances from Mr. Lundqvist, ourfounder, CEO,one
        of our directors and our majority
        shareholder, to pay our liabilities, which are increasing steadily as our
        vendors and others continue to support us. We also had $23,062 represented
        by
        accounts receivable, net
        of
        allowance for doubtful accounts, $8,809 represented by inventory, and $1,447
        represented by prepaid expenses. Therefore, our total current assets were
        $40,772 for the year ended December 31, 2006. We had net property and equipmentof
        $8,665, making our total assets
        $49,437 for the year ended December 31, 2006. This is in comparison to the
        year
        ended December 31, 2005, where we had cash of $30,598, accounts receivable,
        net
        of allowance for doubtful accounts of $8,264, inventory of $7,734
        and prepaid expenses of $5,427, for
        total current assets of $52,023. We also had $25,997 represented by net property
        and equipment, and other assets of $350 represented by deposits. Therefore,
        for
        the year ended December 31, 2005, our total assets were$78,370. The difference between our
        year ended December 31, 2006 and the year ended December 31, 2005 is primarily
        due to the depreciation of the tooling and a decrease of cash as of those
        particular dates.  Total
          current liabilities were
          $1,853,870 as ofDecember
          31, 2006, a net increase of $201,464 over the total current liabilities
          of
          $1,652,406 for the year ended December 31, 2005.  For the year ended
          December 31, 2006, our current liabilities were represented primarily by
          accrued
          payroll and expensesof
          $793,836. We also had $521,990
          represented by accounts payable for trade and operations, $14,600 represented
          by
          customer advance, $10,650 representing profit participation payable, $468,970
          represented by a loan payable to a stockholder, and $97,824 which
          was represented by profit
          participation advances. As compared to the prior year, $198,651 of the
          increase
          is represented by short term loans to us from a shareholder.  All
          shareholder loans are from Mr. Lundqvist and/or his privately held marketing
          company.  Mr.
          Lundqvist is
          ourfounder, CEO, one
          of
          our directors andourand majority
          shareholder. There are no set repayment plans to Mr. Lundqvist and the
          interest
          charged to us on these loans is exactly the same interest rate that Mr.
          Lundqvist and/or his
          privately held marketing company pay on the funds loaned to us; these amounts
          represent the amounts in personal loans and lines of credit that Mr. Lundqvist
          has, in his own name, personally borrowed on our behalf, and/or amounts
          that
          hisprivately
          held marketing company has
          borrowed to finance our operations.





7





This
        is
        in comparison to the year ended December 31, 2005, our total current liabilities
        were represented primarily by accrued payroll and advances of $648,790. The
        increase for the current year is due to the fact that Mr. Lundqvist has not
        taken any salary for the year ended December 31, 2006; therefore, we have
        accrued his salary and related expenses. For the year ended December 31,
        2005,
        we also had $628,352 represented by accounts payable for trade and operations,
        $6,085 representing profit participation payable, $270,322 represented by
        a loan
        payable to a stockholder, and $100,041 which was represented by profit
        participation advances. The decrease of $106,362  in accounts payable
        was mainly due to a negotiated debt forgiveness transaction and paying down
        the
        payables to our products supplier, Union Power Information Ind. Ltd in China.
        The increase in the profit participation payable is due to the fact that
        no
        payments have been made even though there have been product sales. The profit
        participation obligation is the result of four different contracts we have
        entered into, all having the same payment terms:  the participant is
        owed a preset royalty payment for each 4-pack of valve caps we
        sell.   Each of these contracts provides that we have no
        financial obligation to the participants unless there are sales.  We
        have a total of $103,000 in profit participation contracts. We had negative
        working capital of $1,813,098 of December 31, 2006, and we had an accumulated
        deficit of $2,814,536 as compared to an accumulated deficit of $2,584,139
        at
        December 31, 2005.





During
        the year ended December 31, 2006, we issued no shares of common stock. Our
        continued ability to operate is dependent upon the raising of additional
        capital
        to produce and market our product and sufficient sales; however, we cannot
        guarantee that additional funds could be raised on terms acceptable to us
        or
        that any level of sales will occur. Our accountants have indicated that we
        have
        significant working capital needs in order to produce sufficient products
        for
        sale. Since we do not have enough sales volume yet to create a positive cash
        flow, we will likely need to raise additional funds to meet our working capital
        needs. However, there is no assurance that we will be able to obtain sufficient
        additional funds when needed.   We have no firm financing
        commitments from any source and no additional lines of credit available.
        If we
        are unable to satisfy our cash requirements through either product sales
        or
        additional  capital-raising efforts, we may have to cease operations,
        which could result in a loss to our investors.





**Profit
        Participation Advances.**In the past, we have entered into six profit
        participation agreements in order to raise capital for operations. In exchange
        for the investment, we share profits on the product by giving the other party
        an
        agreed upon price for every package sold up to a specified amount as defined
        in
        the agreement. The total estimated liability under these agreements is
        $636,000.





Per
        the
        terms of each of these six agreements, we have no obligation to reimburse
        any
        portion of the advances or make any type of payment, unless we have product
        sales. Should we not achieve the necessary sales volume to pay back the original
        amounts advanced in their entirety, no further payment is due. We incur a
        liability under these agreements as we sell product on a per unit basis;
        it is
        not related to our profitability. There are no penalty clauses in these
        agreements. Amounts due under these agreements, if any, are payable
        monthly.




We
        have
        accrued $103,000 of profit sharing advances and this amount is being amortized
        based on the terms of these agreements, the terms of which are detailed below.
        Amortization expense was $2,219 and $1,782 for December 31, 2006 and 2005,
        respectively. We have accrued a liability of $10,650 and $6,085 as of December
        31, 2006 and 2005, respectively, for amounts payable under these agreements.
        No
        amounts have been paid out under these agreements as of December 31, 2006
        and
        2005.





While
        each of the profit participation agreements is similar in the nature, only
        the
        amount of returns due under each agreement varies, i.e., the rate of return
        differs. The maximum payable under the agreements, per the terms of each
        agreement, is $636,000, based on unit sales, as follows:




**Advance**
              **Maximum
                  Possible Return**Agreements
                  1 through 4
              $50,000
                  (aggregate)
              $100,000
                  (aggregate)Agreement
                  5
              $20,000
              $36,000Agreement
                  6
              $33,000
              $500,000**TOTAL**
              $103,000
              $636,000





**Results
        of Operations.** During the year ended December 31, 2006, we
        generated $179,655 in revenues as compared to $148,271 for the prior year.
        The
        increase was mainly from establishing a new distribution point in Asia. We
        had
        cost of sales of $143,806 for the year ended December 31, 2006, as compared
        to
        $92,433 for the year ended December 31, 2005, resulting in gross profit of
        $35,849 for the year ended December 31, 2006 as compared to $55,838 for the
        prior year. The decrease in the gross profit is a result of more of the sales
        being made through wholesale channels and the lesser margins associated with
        using wholesale channels. Total operating expenses for the year ended
        December 31, 2006 were $314,427 compared to total operating expenses for
        the prior year period of $360,720. Our operating expenses consisted primarily
        of
        general and administrative expenses of $297,096 for the year ended December
        31,
        2006 as compared to $343,389 for the prior year. Our deprecation expense
        was
        $17,331 for both years. The decrease of $46,320 in our operating expenses
        resulted primarily from a decrease in consulting fees of $49,450 . We had
        a loss
        from operations of $278,578 for the year ended December 31, 2006 as compared
        to
        $304,882 for the prior year. After accounting for other expenses, then, for
        the
        year ended December 31, 2006, our net loss was $230,396, compared to a loss
        of $273,674 for the prior period. Our interest expense
        rose to $31,487 by the year ended December 31, 2006 due to the increased
        loan
        amounts as compared to $24,786 for the prior year. We depreciate our equipment
        using a 3-year schedule, since that schedule most closely reflects the life
        span
        of the tooling we have. This is the only depreciation schedule we currently
        use.
        In fiscal 2005, the item we termed “other income” has been renamed “forgiveness
        of debt” for the year ended 2006, to better describe the source of that
        negotiated settlement we recognized as income (Refer to Note 15 of the attached
        financial statements).




8





**Statement
        of Cash Flows.**During
        the year ended December 31, 2006,
        we used net cash of $222,142 in operating activities, as compared to $116,714
        for the prior year. The increase was mainly from an increase in loans from
        Mr.
        Lundqvist, ourfounder,CEO,
        oneof our directors and
        our majority
        shareholder,which directly contributed in the
        increase in accounts payable, which increased from $38,875 for the year ended
        December 31, 2005 as compared to $106,362 for the year ended December
        31, 2006.  We
        also had an increase in accounts receivable to $14,798 for the year ended
        December 31, 2006, as compared to $8,246 for the year ended December 31,
        2005.  Our increase in accrued payroll and other liabilities was
        $92,230 for the year ended December
        31, 2006 as compared to $192,016 for
        the prior year.


We
        had a
        refund of a security deposit of $350 during the year ended December 31,
        2006  resulting in the same amount in net cash; we had  no
        such line item in the prior year.





For
        the
        year ended December 31, 2006 we had $198,648 in advances from a stockholder,
        i.e., Mr. Lundqvist, as described herein, which constituted our net cash
        provided by financing activities.  This is compared to $138,350 for
        the prior year, which with a common stock subscription for $750 resulted
        in
        $139,100 net cash provided by financing activities. The increase is due to
        continuing requirements for operating funds, since our production does not
        allow
        us to generate sufficient revenues.  With the net decrease in cash of
        $23,144 for the year ended December 31, 2006, we had cash of $7,454 at the
        end
        of the year, as compared to a net cash increase of $22,386, for cash at year
        end
        of $30,598.  The decrease in cash is due directly to our inability to
        generate sufficient revenues to operate profitably.





**Plan
      of Operation For Next 12 Months****.**With regard to
      the tire valve cap, we believe that our primary target market will consist
      of
      major vehicle fleets with a secondary focus on retailers and tire stores and
      manufacturers. With regard to the valve stem we believe our primary target
      is
      tire and automobile dealers as well as auto and tire manufacturers. We believe
      that the potential market for both the tire valve cap and the valve stem are
      large. The requirement for a warning system to detect low tire pressure is
      currently under consideration in the automobile industry. On October 10, 2000,
      Congress passed the Transportation Recall Enhancement, Accountability and
      Documentation Act, which specified that legislation would be developed
      concerning a low tire pressure warning for motor vehicles. The latest final
      rule
      issued in April 2005 by the National Highway Transportation Safety
      Administration (NHTSA) states that all new vehicles shall have a tire pressure
      monitoring system by 2008.




Competition
      for the electronic tire valve cap is limited. To our knowledge, there are only
      a
      few mechanical tire valve caps on the market which are sold by several companies
      under different brand names. Our review and testing of these products has
      indicated to us that they are unreliable and inefficient due to their mechanical
      nature. We have not seen any product like the Air Alert Valve Stem. Other
      solutions to the tire pressure problem facing the industry are currently
      directed toward interior warning signals which are significantly more expensive
      than our tire valve cap and valve stem, and therefore, not considered direct
      competition. We anticipate that we will compete on the basis of the technical
      features, quality of our products and price.





Our
      plan
      of operation is wholly dependent on our ability to generate revenues from the
      sale of our tire pressure monitoring products. During the first half of 2003,
      we
      visited several potential contract manufacturers in China and Taiwan and after
      careful evaluation we have entered into a contract with Union Power Information
      Ind. Co., LTD in the City of Shenzhen in China. Union Power has the capability
      of producing up to several million Air Alert Valve Caps each month. Union Power
      has indicated that it will help us meet any orders we may receive by providing
      favorable terms of payment if those orders come from qualified major U.S.
      retailers. Union Power is currently manufacturing the Air Alert Valve Stem
      for
      us.





Notwithstanding
      any assistance from Union Power, we will need to raise additional capital to
      market, promote and sell the tire valve cap product. Such additional capital
      may
      be raised through public or private financing as well as borrowings and other
      sources. We cannot guarantee that additional funding will be available on
      favorable terms, if at all.





We
      are
      not currently conducting any research and development activities, other than
      those activities related to the production of the electronic tire valve cap
      and
      valve stem.





Mr. Lundqvist
      is our only employee. The loss of Mr. Lundqvist could have a material
      adverse effect upon our operations.





**Off
      Balance Sheet Arrangements**. Inapplicable.





**Forward
      Looking Statements****.** This Form 10-KSB contains
      forward-looking statements within the meaning of the Private Securities
      Litigation Reform Act of 1995. Our forward-looking statements involve known
      and
      unknown risks, uncertainties and other factors which may cause our actual
      results, performance or achievements to be materially different from any future
      results, performance or achievements expressed or implied by such
      forward-looking statements. Factors that could cause actual results to differ
      materially from the forward looking statements include, but are not limited
      to,
      risks associated with lack of significant operating history, international,
      national and local general economic and market conditions; our ability to
      sustain, manage or forecast growth; new business development, adverse publicity;
      competition; changes in business strategy or development plans; business
      disruptions; the ability to attract and retain talented personnel; the ability
      to protect technology; and other factors referenced in this report. Given these
      uncertainties, readers are cautioned not to place undue reliance on such
      forward-looking statements. Management disclaims any obligation to
      forward-looking statements contained herein to reflect any change in our
      expectation with regard thereto or any change in events, conditions,
      circumstances or assumptions underlying such statements.


9




**Item
      7. Financial Statements**




Reports
                of Independent Registered Accounting Firms
            F-1Balance
                Sheets as of December 31, 2006 and 2005
            F-2Statements
                of Operations for the years ended December 31, 2006 and
                2005
            F-3Statements
                of Stockholders’ Deficit for the years ended December 31, 2006 and
                2005
            F-4Statements
                of Cash Flows for the years ended December 31, 2006 and
                2005
            F-5Notes
                to Financial Statements
            F-6


10




**Stan
      J.H. Lee, CPA**


Registered
      with the Public Company Accounting Oversight Board


2160
      North Central Rd. Suite 203sFort LeesNJ
      07024


794
      BroadwaysChula
      VistasCAs91910


619-623-7799sFax
      619-564-3408sE-mailstan2u@gmail.com





**REPORT
        OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM**
  We
              have
              audited the accompanying consolidated balance sheets (restated) of
              Aviation
              Upgrade Technologies Inc. as of December 31, 2006 and the related statements
              of
              operations (restated) , changes in stockholders’ equity (restated) and cash
              flows (restated) for the year then ended.  These financial statements
              are the responsibility of the Company’s management.  Our
              responsibility is to express an opinion on these financial statements
              based on
              our audit. The financial statements of Aviation Upgrade Technologies
              as of
              December 31, 2005, were audited by other auditors whose report dated
              January 17,
              2006, expressed an unqualified opinion on those statements.  Their
              report included an explanatory paragraph regarding going
              concern.
 
 We
              conducted our audits in accordance with the standards of the Public
              Company
              Accounting Oversight Board (United States). Those standards require
              that we plan
              and perform the audit to obtain reasonable assurance about whether
              the financial
              statements are free of material misstatement. An audit includes examining,
              on a
              test basis, evidence supporting the amount and disclosures in the financial
              statements. An audit also includes assessing the accounting principles
              used and
              significant estimates made by management, as well as evaluating the
              overall
              financial statement presentation. We believe that our audits provide
              a
              reasonable basis for our opinion.
  In
              our
              opinion, the financial statements( restated) referred to above present
              fairly,
              in all material respects, the financial position of the Company as
              of December
              31, 2006, and the results of its operations and its cash flows for
              the year then
              ended in conformity with U.S. generally accepted accounting
              principles.
 
 The
              accompanying financial statements have been prepared assuming that
              the Company
              will continue as a going concern.  As discussed in Note 16, the
              Company in the past has shown significant operating losses that raise
              substantial doubt about its ability to continue as a going
              concern.  The accompanying financial statements do not include any
              adjustments that might result from the outcome of this
              uncertainty.


/s/
                  Stan J.H.
                  Lee, CPAStan
                  J.H. Lee, CPAAugust
                    31, 2007


F-1




**A**
                  **C**
                  **I**
                  **ARMANDO
                      C. IBARRA**
                    **Certified Public Accountants**
                    **A
                      Professional Corporation**
 Armando
                      C. Ibarra, C.P.A.
                    Members
                        of the California Society of Certified Public
                        AccountantsArmando
                      Ibarra, Jr., C.P.A., JD
                    Members
                        of the American Institute of Certified Public
                        AccountantsRegistered
                        with the Public Company Accounting Oversight Board
  
 To
            the
            Board of Directors
 Aviation
            Upgrade Technologies
 
 
 **REPORT
            OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM**
 
 We
            have
            audited the accompanying balance sheet of Aviation Upgrade Technologies as
            of December 31, 2005 and the related statements of operations, changes
            in
            stockholders’ equity and cash flows for the year then ended.  These
            financial statements are the responsibility of the Company’s
            management.  Our responsibility is to express an opinion on these
            financial statements based on our audit.
 
 We
            conducted our audit in accordance with the standards of the Public Company
            Accounting Oversight Board (United States). Those standards require that
            we plan
            and perform the audit to obtain reasonable assurance about whether the
            financial
            statements are free of material misstatement. An audit includes examining,
            on a
            test basis, evidence supporting the amount and disclosures in the financial
            statements. An audit also includes assessing the accounting principles
            used and
            significant estimates made by management, as well as evaluating the overall
            financial statement presentation. We believe that our audit provide a
            reasonable
            basis for our opinion.
 
 In
            our
            opinion, the financial statements referred to above present fairly, in
            all
            material respects, the financial position of the Company as of December
            31,
            2005, and the results of its operations and its cash flows for the year
            then
            ended in conformity with U.S. generally accepted accounting
            principles.
 
 The
            accompanying financial statements have been prepared assuming that the
            Company
            will continue as a going concern.  As discussed in Note 2d, the
            Company in the
            past has shown significant operating losses that raise substantial doubt
            about
            its ability to continue as a going concern.The accompanying
            financial statements do not include any adjustments that might result
            from the
            outcome of this uncertainty.
 
 /s/
                      ARMANDO C.
                      IBARRA, C.P.A. – APCARMANDO
                      C.
                      IBARRA, C.P.A. – APC
 January
            17, 2006
 
 **371
            “E” Street, Chula Vista, CA 91910**
 **Tel:
            (619)
            422-1348                                                                         Fax:
            (619) 422-1465**
  F-1A


**AVIATION
          UPGRADE TECHNOLOGIES INC.**
 **Balance
          Sheets**
  **ASSETS****As
                      of**
                  
                  
                  **As
                      of**
                  
                  
                  **As
                      of****December
                      31,**
                  
                  
                  **December
                      31,**
                  
                  
                  **December
                      31,****2006**
                  
                  
                  **2006**
                  
                  
                  **2005****(as
                      previously reported)**
                  
                  
                  **(Restated)****CURRENT
                      ASSETS**Cash
                  
                  $
                  7,454
                  
                  
                  $
                  7,454
                  
                  
                  
                  30,598Accounts
                      receivable, net of allowance for doubtful accounts
                  
                  
                  18,249
                  
                  
                  
                  23,062
                  
                  
                  
                  8,264Inventory
                  
                  
                  8,809
                  
                  
                  
                  8,809
                  
                  
                  
                  7,734Prepaid
                      expenses
                  
                  
                  1,447
                  
                  
                  
                  1,447
                  
                  
                  
                  5,427Total
                      Current Assets
                  
                  
                  35,959
                  
                  
                  
                  40,772
                  
                  
                  
                  52,023NET
                      PROPERTY & EQUIPMENT
                  
                  
                  8,665
                  
                  
                  
                  8,665
                  
                  
                  
                  25,997OTHER
                      ASSETSDeposits
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  350Total
                      Other Assets
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  350TOTAL
                      ASSETS
                  
                  $
                  44,624
                  
                  
                  $
                  49,437
                  
                  
                  
                  78,370**LIABILITIES
                      AND STOCKHOLDERS' EQUITY (DEFICIT)**CURRENT
                      LIABILITIESAccounts
                      payable - trade and operations
                  
                  $
                  551,290
                  
                  
                  $
                  526,292
                  
                  
                  
                  628,352Advance
                      from a customer
                  
                  
                  14,600
                  
                  
                  
                  14,600
                  
                  
                  
                  -Profit
                      participation payable
                  
                  
                  21,301
                  
                  
                  
                  10,650
                  
                  
                  
                  6,085Accrued
                      payroll and related expenses
                  
                  
                  736,886
                  
                  
                  
                  739,836
                  
                  
                  
                  647,606Loan
                      payable, stockholder
                  
                  
                  492,321
                  
                  
                  
                  468,970
                  
                  
                  
                  270,322Profit
                      participation advances, net of amortization
                  
                  
                  92,648
                  
                  
                  
                  97,824
                  
                  
                  
                  100,041Total
                      Current Liabilities
                  
                  
                  1,909,046
                  
                  
                  
                  1,858,172
                  
                  
                  
                  1,652,406TOTAL
                      LIABILITIES
                  
                  
                  1,909,046
                  
                  
                  
                  1,858,172
                  
                  
                  
                  1,652,406COMMITMENTS
                      AND CONTINGENCIES
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -STOCKHOLDERS'
                      EQUITY (DEFICIT)Common
                      stock ( $0.001 par value, 100,000,000 sharesauthorized;
                      11,457,750 and 11,261,534 shares issued andoutstanding
                      as of December 31, 2006 and 2005, respectively)
                  
                  
                  11,458
                  
                  
                  
                  11,458
                  
                  
                  
                  11,458Additional
                      paid-in capital
                  
                  
                  998,645
                  
                  
                  
                  998,645
                  
                  
                  
                  998,645Retained
                      earnings (deficit)
                  
                  
                  (2,874,525
                  )
                  
                  
                  (2,818,838
                  )
                  
                  
                  (2,584,139
                  )Total
                      Stockholders' Equity (Deficit)
                  
                  
                  (1,864,422
                  )
                  
                  
                  (1,808,735
                  )
                  
                  
                  (1,574,036
                  )TOTAL
                      LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
                  
                  $
                  44,624
                  
                  
                  $
                  49,437
                  
                  
                  
                  78,370


**See
      the accompanying notes to these financial statements.**





F-2




**AVIATION
          UPGRADE TECHNOLOGIES INC.**
 **Statements
          of Operations**
   **Year
                      Ended**
                  ****
                  ****
                  **Year
                      Ended**
                  ****
                  ****
                  **Year
                      Ended**
                  ********
                  ****
                  **December
                      31,**
                  ****
                  ****
                  **December
                        31,**
                  ****
                  ****
                  **December
                      31,**
                  ********
                  ****
                  **2,006**
                  ****
                  ****
                  **2,006**
                  ****
                  ****
                  **2005**
                  ********
                  ****
                  **(
                      as previously reported)**
                  ****
                  ****
                  **(
                      Restated)**
                  ****
                  ****REVENUESSales
                  
                  $
                  208,855
                  
                  
                  $
                  179,655
                  
                  
                  $
                  148,271Total
                      Revenues
                  
                  
                  208,855
                  
                  
                  
                  179,655
                  
                  
                  
                  148,271COST
                      OF REVENUES
                  
                  
                  173,106
                  
                  
                  
                  143,806
                  
                  
                  
                  92,433GROSS
                      PROFIT
                  
                  
                  35,749
                  
                  
                  
                  35,849
                  
                  
                  
                  55,838OPERATING
                      COSTSOperating
                      expenses
                  
                  
                  356,986
                  
                  
                  
                  301,398
                  
                  
                  
                  343,389Depreciation
                      expense
                  
                  
                  17,331
                  
                  
                  
                  17,331
                  
                  
                  
                  17,331Total
                      Operating Costs
                  
                  
                  374,317
                  
                  
                  
                  318,729
                  
                  
                  
                  360,720OPERATING
                      INCOME (LOSS)
                  
                  
                  (338,568
                  )
                  
                  
                  (282,880
                  )
                  
                  
                  (304,882
                  )OTHER
                      INCOME & (EXPENSES)Profit
                      participation expense
                  
                  
                  (2,346
                  )
                  
                  
                  (2,346
                  )
                  
                  
                  (1,884
                  )Other
                      income - Forgiveness of debt
                  
                  
                  82,014
                  
                  
                  
                  82,014
                  
                  
                  
                  57,878Interest
                      expense
                  
                  
                  (31,486
                  )
                  
                  
                  (31,487
                  )
                  
                  
                  (24,786
                  )Total
                      Other Income & (Expenses)
                  
                  
                  48,182
                  
                  
                  
                  48,181
                  
                  
                  
                  31,208NET
                      INCOME (LOSS)
                  
                  $
                  (290,386
                  )
                  
                  $
                  (234,699
                  )
                  
                  $
                  (273,674
                  )BASIC
                      EARNINGS (LOSS) PER SHARE
                  
                  $
                  (0.03
                  )
                  
                  
                  (0.02
                  )
                  
                  $
                  (0.02
                  )WEIGHTED
                      AVERAGE NUMBER OFCOMMON
                      SHARES OUTSTANDING
                  
                  
                  11,457,750
                  
                  
                  
                  11,457,750
                  
                  
                  
                  11,457,750


**See
      the accompanying notes to these financial statements.**


F-3


**AVIATION
          UPGRADE TECHNOLOGIES INC.**
 **Statements
          of Stockholders' Equity (Deficit)**
   **Common**
                    
                    
                    **Common**
                    
                    
                    **Common**
                    
                    
                    **Common**
                    
                    
                    **Additional**
                    
                    
                    **Retained**
                    
                    
                    **Total****Shares**
                    
                    
                    **Stock**
                    
                    
                    **Shares**
                    
                    
                    **Stock**
                    
                    
                    **Paid-in**
                    
                    
                    **Earnings****Subscribed**
                    
                    
                    **Subscribed**
                    
                    
                    **Capital**
                    
                    
                    **(Deficit)**Balance,  January
                        1, 2005
                    
                    
                    11,456,925
                    
                    
                    
                    11,457
                    
                    
                    
                    825
                    
                    
                    
                    1
                    
                    
                    
                    998,645
                    
                    
                    
                    (2,310,465
                    )
                    
                    
                    (1,300,362
                    )Common
                        stock subscription
                    
                    
                    825
                    
                    
                    
                    1
                    
                    
                    
                    (825
                    )
                    
                    
                    (1
                    )
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    -Net
                        loss for the year endedDecember
                        31, 2005
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    (273,674
                    )
                    
                    
                    (273,674
                    )Balance,  December
                        31, 2005
                    
                    
                    11,457,750
                    
                    
                    $
                    11,458
                    
                    
                    
                    -
                    
                    
                    $
                    -
                    
                    
                    $
                    998,645
                    
                    
                    $
                    (2,584,139
                    )
                    
                    $
                    (1,574,036
                    )Net
                        loss for the year endedDecember
                        31, 2006(Restated)
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    (234,699
                    )
                    
                    
                    (234,699
                    )Balance,  December
                      31, 2006(Restated)
                    
                    
                    11,457,750
                    
                    
                    $
                    11,458
                    
                    
                    
                    -
                    
                    
                    $
                    -
                    
                    
                    $
                    998,645
                    
                    
                    $
                    (2,818,838
                    )
                    
                    $
                    (1,808,735
                    )




**See
      the accompanying notes to these financial statements.**




F-4





**AVIATION
        UPGRADE TECHNOLOGIES
        INC.**


**Statements
        of Cash Flows**






**Year
                    Ended**
                ****
                ****
                **Year
                    Ended**
                ****
                ****
                **Year
                    Ended**
                ********
                ****
                **December
                    31,**
                ****
                ****
                **December
                    31,**
                ****
                ****
                **December
                    31,**
                ********
                ****
                **2006**
                ****
                ****
                **2006**
                ****
                ****
                **2005**
                ********
                ****
                **(
                    as previously
                    reported)**
                ****
                ****
                **(Restated)**
                ****
                ****CASH
                    FLOWS FROM OPERATING ACTIVITIESNet
                    income (loss)
                
                $
                (290,386
                )
                
                $
                (234,699
                )
                
                $
                (273,674
                )Adjustments
                    to reconcile net loss to net cash provided (used in)by
                    operating activities:Depreciation
                    expense
                
                
                17,332
                
                
                
                17,332
                
                
                
                17,331Amortization
                    of profit participation advances
                
                
                (7,393
                )
                
                
                (2,217
                )
                
                
                (1,782
                )Changes
                    in operating assets and liabilities:(Increase)
                    decrease in accounts receivable
                
                
                (9,985
                )
                
                
                (14,798
                )
                
                
                (8,264
                )(Increase)
                    decrease in prepaid expenses
                
                
                3,980
                
                
                
                3,980
                
                
                
                564(Increase)
                    decrease in inventory
                
                
                (1,075
                )
                
                
                (1,075
                )
                
                
                (7,695
                )Increase
                    (decrease) in accounts payable
                
                
                (77,062
                )
                
                
                (102,060
                )
                
                
                (38,875
                )Increase
                    (decrease) in customer advance
                
                
                14,600
                
                
                
                14,600
                
                
                
                -Increase
                    (decrease) in profit participation payable
                
                
                15,216
                
                
                
                4,565
                
                
                
                3,665Increase
                    (decrease) in accrued payroll and payroll related
                    liabilities
                
                
                89,280
                
                
                
                92,230
                
                
                
                192,016*Net
                    Cash Provided by (Used in) Operating Activities*
                
                
                (245,493
                )
                
                
                (222,142
                )
                
                
                (116,714
                )CASH
                    FLOWS FROM INVESTING ACTIVITIESPurchase
                    of property and equipment
                
                
                -
                
                
                
                -
                
                
                
                -Refund
                    of deposits
                
                
                350
                
                
                
                350
                
                
                
                -*Net
                    Cash Provided by (Used in) Investing Activities*
                
                
                350
                
                
                
                350
                
                
                
                -CASH
                    FLOWS FROM FINANCING ACTIVITIESLoans
                    from stockholder
                
                
                221,999
                
                
                
                198,648
                
                
                
                138,350Common
                    stock subscribed
                
                
                -
                
                
                
                -
                
                
                
                750*Net
                    Cash Provided by (Used in) Financing Activities*
                
                
                221,999
                
                
                
                198,648
                
                
                
                139,100*Net
                    Increase (Decrease) in Cash*
                
                
                (23,144
                )
                
                
                (23,144
                )
                
                
                22,386*Cash
                    at Beginning of Year*
                
                
                30,598
                
                
                
                30,598
                
                
                
                8,212*Cash
                    at End of Year*
                
                $
                7,454
                
                
                $
                7,454
                
                
                
                30,598*Supplemental  Cash
                    Flow Disclosures:*Cash
                    paid during year for interest
                
                $
                31,486
                
                
                $
                31,487
                
                
                
                24,786Cash
                    paid during year for taxes
                
                $
                -
                
                
                $
                -
                
                
                
                -







**See
      the accompanying notes to these financial statements.**


F-5




**AVIATION
          UPGRADE TECHNOLOGIES, INC.**
 **NOTES
          TO CONSOLIDATED FINANCIAL STATEMENTS**
 **AS
          OF DECEMBER 31, 2006**
  
 **NOTE
          1. 2006 RESTATEMENT**
 
 On
          August
          6, 2007, we amended Aviation Upgrade Technologies Inc.’s Annual Report in Form
          10-K for the year ended December 31, 2006, to amend and restate financial
          statements for the year 2006 with respect to the correction of errors in
          previously-issued financial statements.
 
 The
          first
          errors were restoring of  receivable from a customer which was
          previously written-off as advertising allowance in the amount of $4,813
          as
          result of ultra-conservative application of write-off policy but later
          determined to be reasonably collectible as of the report issue
          date.
 
 The
          second errors were recording of a duplicated sales invoice in the previously
          reported financial statement which was discovered by the Company in the
          course
          of a regular review of accounting report in the amount of $29,200 causing
          overstatement of sales. The same error was made in recording of cost of
          sales by
          the related amount rendering no effect to the gross profit.
  The
            third
            errors were attributable to a change in accounting estimate as result
            of
            recalculated license fee based on gross profit rather than on sales giving
            rise
            to difference of $19,046 and later-management decision of not recognizing
            12%
            license fee ($4,302) to make the accounting treatment consistent with
            the prior
            years, on the basis of immateriality and restatement of year 2005 rendering
            impractical or unjustifiably expensive.
  The
            fourth errors were accounting error in calculation and estimation of
            expense
            accrual affecting both expense items in the statement of operations and
            corresponding accounts payable and accrued payroll and related expenses
            accounts. They consist of decrease in accounts payable – trade and operations in
            the amount of $29,300 for legal and professional expense, decrease of
            $10,651 in
            profit participation payable and profit participation expense, increase
            of
            $2,950 in accrued payroll and payroll expense and increase of $5,176
            in profit
            participation advances and corresponding amortization expense.
  Effects
            of the restatement by line item follows;
 
 Statements
            of Financial Position, Balance sheet
 Statements
            of Operations
 Statement
            of Stockholders’ Equity (Deficit)
 Statements
            of Cash Flows


F-6


**AVIATION
            UPGRADE TECHNOLOGIES INC.**
 **Statement
              of Financial Position  ( Supplement to Footnote
              1)**
 ASSETS**As
                        of**
                    **December
                      31,**
                  
                  
                  **As
                        of**
                    **December
                      31,**
                  
                  
                  **Change**
                    **in******
                  
                  **2006**
                  
                  
                  **2006**
                  
                  
                  **Dollar******
                  
                  **(
                      As previously reported)**
                  
                  
                  **(Restated)**
                  
                  
                  **Increase****(Decrease)**Line
                      itemCURRENT
                    ASSETS1
                  
                  Accounts
                      receivable, net of allowance for doubtful accounts
                  
                  $
                  18,249
                  
                  
                  $
                  23,062
                  
                  
                  $
                  4,8132
                  
                  Total
                      Current Assets
                  
                  
                  35,959
                  
                  
                  
                  40,772
                  
                  
                  
                  4,8133
                  
                  TOTAL
                      ASSETS
                  
                  $
                  44,624
                  
                  
                  $
                  49,437
                  
                  
                  $
                  4,813LIABILITIES
                      AND STOCKHOLDERS' EQUITY (DEFICIT)CURRENT
                      LIABILITIES4
                  
                  Accounts
                      payable - trade and operations
                  
                  $
                  551,290
                  
                  
                  $
                  526,292
                  
                  
                  $
                  (24,998
                  )5
                  
                  Profit
                      participation payable
                  
                  
                  21,301
                  
                  
                  
                  10,650
                  
                  
                  
                  (10,651
                  )6
                  
                  Accrued
                      payroll and related expenses
                  
                  
                  736,886
                  
                  
                  
                  739,836
                  
                  
                  
                  2,9507
                  
                  Loan
                      payable, stockholder
                  
                  
                  492,321
                  
                  
                  
                  468,970
                  
                  
                  
                  (23,351
                  )8
                  
                  Profit
                      participation advances, net of amortization
                  
                  
                  92,648
                  
                  
                  
                  97,824
                  
                  
                  
                  5,1769
                  
                  Total
                      Current Liabilities
                  
                  
                  1,909,046
                  
                  
                  
                  1,858,172
                  
                  
                  
                  (50,874
                  )10
                  
                  TOTAL
                      LIABILITIES
                  
                  
                  1,909,046
                  
                  
                  
                  1,853,870
                  
                  
                  
                  (55,176
                  )STOCKHOLDERS'
                      EQUITY (DEFICIT)11
                  
                  Retained
                      earnings (deficit)
                  
                  
                  (2,874,525
                  )
                  
                  
                  (2,818,838
                  )
                  
                  
                  55,68712
                  
                  Total
                      Stockholders' Equity (Deficit)
                  
                  
                  (1,864,422
                  )
                  
                  
                  (1,808,735
                  )
                  
                  
                  55,68713
                  
                  TOTAL
                      LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
                  
                  $
                  44,624
                  
                  
                  $
                  49,437
                  
                  
                  $
                  4,813


F-7


**AVIATION
            UPGRADE TECHNOLOGIES INC.**
 **Statements
              of Operations ( Supplement to Footnote 1)**
 **Year
                      Ended**
                  
                  
                  **Year
                      Ended**
                  
                  
                  **Change****December
                      31,**
                  
                  
                  **December
                      31,**
                  
                  
                  **in******
                  ****
                  ****
                  ****
                  **2006**
                  ****
                  ****
                  **2006**
                  ****
                  ****
                  **Dollar******
                  ****
                  ****
                  ****
                  **(
                      As previously reported)**
                  ****
                  ****
                  **(Restated)**
                  ****
                  ****
                  **Increase**
                    **(Decrease)**Line
                        itemREVENUES1
                  
                  Sales
                  
                  $
                  208,855
                  
                  
                  $
                  179,655
                  
                  
                  $
                  (29,200
                  )2
                  
                  Total
                      Revenues
                  
                  
                  208,855
                  
                  
                  
                  179,655
                  
                  
                  
                  (29,200
                  )3
                  
                  COST
                      OF REVENUES
                  
                  
                  173,106
                  
                  
                  
                  143,806
                  
                  
                  
                  (29,300
                  )4
                  
                  GROSS
                      PROFIT
                  
                  
                  35,749
                  
                  
                  
                  35,849
                  
                  
                  
                  100OPERATING
                      COSTS5
                  
                  Operating
                      expenses
                  
                  
                  356,986
                  
                  
                  
                  297,096
                  
                  
                  
                  (59,890
                  )6
                  
                  Total
                      Operating Costs
                  
                  
                  374,317
                  
                  
                  
                  314,427
                  
                  
                  
                  (59,890
                  )7
                  
                  OPERATING
                      INCOME (LOSS)
                  
                  
                  (338,568
                  )
                  
                  
                  (278,578
                  )
                  
                  
                  59,9908
                  
                  NET
                      INCOME (LOSS)
                  
                  $
                  (290,386
                  )
                  
                  $
                  (230,397
                  )
                  
                  $
                  59,989BASIC
                      EARNINGS (LOSS) PER SHARE
                  
                  $
                  (0.03
                  )
                  
                  
                  (0.02
                  )WEIGHTED
                      AVERAGE NUMBER OFCOMMON
                      SHARES OUTSTANDING
                  
                  
                  11,457,750
                  
                  
                  
                  11,457,750


F-8


**AVIATION
              UPGRADE TECHNOLOGIES INC.**
 **Statements
              of Stockholders' Equity (Deficit) ( Supplement to Footnote
              1)**
   **As
                          of**
                      
                      
                      **As
                          of**
                      
                      
                      **Change****December
                          31,**
                      
                      
                      **December
                          31,**
                      
                      
                      **in****2006**
                      
                      
                      **2006**
                      
                      
                      **Dollar******
                      ****
                      **As
                          previously
                          Reported**
                      ****
                      ****
                      **Restated**
                      ****
                      ****
                      **Increase**
                          **(Decrease)**Line
                          item1
                      
                      Retained
                        Earnigns ( Deficit)
                      
                      
                      (290,386
                      )
                      
                      
                      (230,397
                      )
                      
                      
                      59,9892
                      
                      Total
                        Stockholders' Equity ( Deficit)
                      
                      $
                      (1,864,422
                      )
                      
                      $
                      (1,804,433
                      )
                      
                      
                      59,989




F-9




**AVIATION
            UPGRADE TECHNOLOGIES INC.**
 **Statements
            of Cash Flows( Supplement to Footnote 1)**







**Year
                    Ended**
                
                
                **Year
                    Ended**
                
                
                **Change****December
                    31,**
                
                
                **December
                    31,**
                
                
                **in******
                ****
                ****
                **2006**
                ****
                ****
                **2006**
                ****
                ****
                **Dollar******
                ****
                ****
                ****
                **(
                    As previously reported)**
                ****
                ****
                **(Restated)**
                ****
                ****
                **Increase**
                    **(Decrease)**Line
                      ItemCASH
                    FLOWS FROM OPERATING ACTIVITIES1
                
                Net
                    income (loss)
                
                $
                (290,386
                )
                
                $
                (230,397
                )
                
                
                59,9892
                
                Amortization
                    of profit participation advances
                
                
                (7,393
                )
                
                
                (2,217
                )
                
                
                5,1763
                
                (Increase)
                    decrease in accounts receivable
                
                
                (9,985
                )
                
                
                (14,798
                )
                
                
                (4,813
                )4
                
                Increase
                    (decrease) in accounts payable
                
                
                (77,062
                )
                
                
                (106,362
                )
                
                
                (29,300
                )5
                
                Increase
                    (decrease) in profit participation payable
                
                
                15,216
                
                
                
                4,565
                
                
                
                (10,651
                )6
                
                Increase
                    (decrease) in accrued payroll and payroll related
                    liabilities
                
                
                89,280
                
                
                
                92,230
                
                
                
                2,9507
                
                *Net
                    Cash Provided by (Used in) Operating Activities*
                
                
                (245,493
                )
                
                
                (222,142
                )
                
                
                23,351CASH
                    FLOWS FROM FINANCING ACTIVITIES8
                
                Loans
                    from stockholder
                
                
                221,999
                
                
                
                198,648
                
                
                
                (23,351
                )9
                
                *Net
                    Cash Provided by (Used in) Financing Activities*
                
                
                221,999
                
                
                
                198,648
                
                
                
                (23,351
                )*Net
                    Increase (Decrease) in Cash*
                
                
                (23,144
                )
                
                
                (23,144
                )
                
                
                0*Cash
                    at Beginning of Year*
                
                
                30,598
                
                
                
                30,598
                
                
                
                0*Cash
                    at End of Year*
                
                $
                7,454
                
                
                $
                7,454*Supplemental  Cash
                    Flow Disclosures:*Cash
                    paid during year for interest
                
                $
                31,486
                
                
                $
                31,487Cash
                    paid during year for taxes
                
                $
                -
                
                
                $
                -




F-10




**AVIATION
        UPGRADE TECHNOLOGIES, INC.**
 **NOTES
        TO CONSOLIDATED FINANCIAL STATEMENTS**
 **AS
        OF DECEMBER 31, 2006**


**NOTE
        2. ORGANIZATION AND DESCRIPTION OF BUSINESS**





Aviation
      Upgrade Technologies, Inc. ("AUT" or the "Company") was incorporated under
      the
      laws of the State of Nevada on January 8, 1999.





Since
      2001, the Company is engaged in wholesale to retail outlets and retail sale
      via
      mail order of an electronic tire valve cap for automobiles that blinks if the
      tire pressure falls below an initially calibrated level. The product provides
      early warning of low pressure in tires that we believe will lead to safer travel
      and better fuel efficiency. Once the tire is inflated to the appropriate
      pressure, the initial tightening of the cap onto the valve stem makes the valve
      cap memorize the tire pressure. If the pressure in the tire drops by more than
      approximately four pounds per square inch, a red LED light will blink to
      indicate the need to check the tire pressure.




**NOTE
        3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES**





**a.
      Principles of Consolidation**




The
      accompanying consolidated financial statements include the accounts of Aviation
      Upgrade Technologies, Inc. (“AUT”), an operating company and Automotive Upgrade
      Technologies, Inc., a Delaware non-operating wholly owned subsidiary
      company.





**b.
      Accounting Method**





The
      Company's policy is to use the accrual method of accounting to prepare and
      present financial statements, which conforms to generally accepted accounting
      principles ("GAAP'). The company has elected a December 31,
      year-end.





**c.
      Cash Equivalents**





The
      Company considers all highly liquid investments with maturity of three months
      or
      less when purchased to be cash equivalents.





**d.****Critical
        Accounting Policies and Estimates**





Critical
        Accounting Policies and Estimates





The
        Company recognizes revenues and the related costs associated with product
        sales
        when persuasive evidence of an arrangement exists, delivery and acceptance
        has
        occurred or service has been rendered, the price is fixed or determinable,
        and
        collection of the resulting receivable is reasonably assured. Amounts invoiced
        or collected in advance of product delivery or providing services are recorded
        as deferred revenue.





F-11




**AVIATION
        UPGRADE TECHNOLOGIES, INC.**
 **NOTES
        TO CONSOLIDATED FINANCIAL STATEMENTS**
 **AS
        OF DECEMBER 31, 2006**






The
        Company accrues for warranty costs, sales returns, bad debts, and other
        allowances based on its historical experience.





Estimates





The
      preparation of financial statements in conformity with generally accepted
      accounting principles requires management to make estimates and assumptions
      that
      affect the reported amounts of assets and liabilities and disclosure of
      contingent assets and liabilities at the date of the financial statements and
      the reported amounts of revenues and expenses during the reporting period.
      Actual results could differ from those estimates. In accordance with FASB 16
      all
      adjustments are normal and recurring. See note 2j regarding the Companies
      revenue recognition policy.





**e.
      Basis of Presentation and Considerations Related to Continued Existence (Going
      Concern)**





The
      Company is attempting to obtain revenues from additional product sales, but
      there is no commitment by any person for future purchase of the Company's
      electronic tire valve cap. The Company has significant working capital needs
      in
      order to produce sufficient products for sale. Moreover, in the absence of
      significant sales and profits, the Company will likely seek to raise additional
      funds to meet its working capital needs principally through the additional
      sales
      of its securities. However, there is no assurance that the Company will be
      able
      to obtain sufficient additional funds when needed, or that such funds, if
      available, will be obtainable on terms satisfactory to the Company.




These
      circumstances raise substantial doubt about the Company's ability to continue
      as
      a going concern. The accompanying financial statements do not include any
      adjustments that might result from the outcome of this uncertainty.





**f.**  **Accounts
      Receivable**





The
      Company presents accounts receivable net of allowances for doubtful
      accounts.





**g.
      Inventory**





Inventories
      are stated at the lower of cost or market with cost determined using the
      first-in, first-out (FIFO) method.





**h.
      Property and Equipment**





Property
      and equipment are recorded at cost and depreciated by the straight-line method
      over the expected useful lives of the assets. Expenditures for normal
      maintenance and repairs are charged to operations and significant improvements
      are capitalized. The estimated useful life for the tooling and equipment costs
      is 3 years.





**i.
      Production Design and Development Costs**





All
      tooling, equipment and molds used for production are capitalized and amortized
      over a 3 years period.




**j.
      Concentrations**





As
        discussed in Note 13, the Company has a concentration of risk in the form
        of one
        major customer and one major supplier. The Company is attempting to mitigate
        its
        sales risk with the introduction of new products and the expansion of its
        sales
        and business. While primarily one source of supply is utilized, other sources
        are available should the Company have to change suppliers. A change in
        suppliers, however, could cause a delay in shipping and a possible loss of
        sales
        and could be at less favorable terms. This would affect operating results
        adversely.





**k.
      Common Stock Issued for Services Rendered**





AUT
        periodically issues common stock for services rendered. Common stock issued
        is
        valued at the estimated fair market value, as determined by management and
        the
        board of directors of the Company. Management and the board of directors
        consider, recent stock offering prices and other factors in determining fair
        market value for purposes of valuing the common stock. No common stock was
        issued for services during the year ended December 31, 2006.





F-12


**AVIATION
        UPGRADE TECHNOLOGIES, INC.**
 **NOTES
        TO CONSOLIDATED FINANCIAL STATEMENTS**
 **AS
        OF DECEMBER 31, 2006**




**l.
      Revenue Recognition and Deferred Revenue**





The
      Company recognizes revenue on product sales at the time ownership and risk
      of
      loss passes to the customer. Shipments from the Company's warehouse are via
      express carriers such as Federal Express, and the sale is recognized upon
      customer acceptance. Shipments from the Company's factory are direct to the
      customer via common carrier, FOB the factory, ownership and risk of loss pass
      to
      the customer at this point, and the sale is recognized. Freight billed to
      customers is considered sales revenue and the related freight cost is considered
      cost of sales.





**m.
      Income Taxes**




The
        Company accounts for income taxes under Statement of Financial Accounting
        Standards No. 109 ("SFAS 109"), "Accounting for Income Taxes." Under SFAS
        109,
        deferred tax assets and liabilities are recognized for the future tax
        consequences attributable to differences between the financial statement
        carrying amounts of existing assets and liabilities and their respective
        tax
        bases. Deferred tax assets and liabilities are measured using enacted tax
        rates
        expected to apply to taxable income in the years in which those temporary
        differences are expected to be recovered or settled. A valuation Allowance
        is
        provided for significant deferred tax assets when it is more likely than
        not
        that the asset will not be recovered.





**n.
      Warranties**





The
      Company provides a one-year manufacturer's warranty covering product defects.
      Accruals for product warranties are estimated based upon current product
      performance trends and are recorded at the time revenue is
      recognized.





Warranty
                liability at beginning of year
            
            $
            800Warranty
                product cost during 2006
            
            
            (0
            )Additional
                warranty accrual during 2005
            
            
            0Warranty
                liability at end of year
            
            $
            800





**o.
      Derivative Instruments and Hedging Activities**





The
      Company has adopted Statement of Financial Accounting Standards No. 133 ("SFAS
      133"), "Accounting for Derivative Instruments and Hedging Activities." SFAS
      133
      establishes accounting and reporting standards for derivative instruments,
      including certain derivative instruments embedded in other contracts, and for
      hedging activities. It requires that an entity recognize all derivatives as
      either assets or liabilities on the balance sheet at their fair value. This
      statement, as amended by SFAS 137, is effective for financial statements for
      all
      fiscal quarters of all fiscal years beginning after June 15, 2000. The adoption
      of this SFAS 133 has not materially impacted the Company's results of
      operations, financial position or cash flows, as it currently does not engage
      in
      any derivative or hedging activities.





**p.
      Research and Development**





Research
        and development costs related to the tire valve cap are charged to operations
        as
        incurred. The Company had no research and developments costs for the years
        ended
        December 31, 2006 and, 2005.





**q.
      Employment Agreement**





On
      May
      31, 2000, AUT entered into an employment agreement with Mr. Lundqvist to employ
      him as its Chief Executive Officer. The agreement, which has an initial term
      of
      two years, provides for an annual base salary of $140,000 effective June 1,
      2000, adjustable annually at the discretion of the board of directors. Among
      other provisions, the agreement also provides for an annual cash salary
      incentive equal to 3% of adjusted net profits beginning with the year ended
      December 31, 2001. The "adjusted net profit" shall be the net profit of the
      Company before federal and state income taxes, determined in accordance with
      accounting principles generally accepted in the United States of America by
      the
      Company's independent accounting firm and adjusted to exclude: (i) any incentive
      salary payments paid pursuant to this employment agreement; (ii) any
      contributions to pension and/or profit sharing plans; (iii) any extraordinary
      gains or losses; (iv) any refund or deficiency of federal and state income
      taxes
      paid in a prior year; and (v) any provision for
      federal or state income taxes made in prior years which is subsequently
      determined to be unnecessary. The maximum incentive salary payable for any
      given
      year may not exceed 400% of the then applicable base salary.





F-13


**AVIATION
        UPGRADE TECHNOLOGIES, INC.**
 **NOTES
        TO CONSOLIDATED FINANCIAL STATEMENTS**
 **AS
        OF DECEMBER 31, 2006**






**NEW
      ACCOUNTING PRONOUNCEMENTS:**





In
      February 2006, the Financial Accounting Standards Board ("FASB") issued
      Statement of Financial Accounting Standard ("SFAS") No. 155, "Accounting for
      Certain Hybrid Financial Instruments--an amendment of FASB Statements No. 133
      and 140" ("SFAS No. 155"). The provisions of SFAS No. 155 will be effective
      for
      all financial instruments acquired, issued, or subject to a re-measurement
      (new
      basis) event occurring after the beginning of an entity's first fiscal year
      that
      begins after September 15, 2006. The fair value election provided for in
      paragraph 4(c) of this Statement may also be applied upon adoption of this
      Statement for hybrid financial instruments that had been bifurcated under
      paragraph 12 of Statement 133 prior to the adoption of this Statement. Earlier
      adoption is permitted as of the beginning of an entity's fiscal year, provided
      the entity has not yet issued financial statements, including financial
      statements for any interim period, for that fiscal year. SFAS No. 155 amends
      FASB SFAS No. 133, "Accounting for Derivative Instruments and Hedging
      Activities" ("SFAS No. 133"), and SFAS No. 140, "Accounting for Transfers and
      Servicing of Financial Assets and Extinguishments of Liabilities" ("SFAS No.
      140"). SFAS No. 155 resolves issues addressed in SFAS No. 133 Implementation
      Issue No. D1, "Application of Statement 133 to Beneficial Interests in
      Securitized Financial Assets". This Statement: a) permits fair value
      e-measurement for any hybrid financial instrument that contains an embedded
      derivative that otherwise would require bifurcation, b) clarifies which
      interest-only strips and principal-only strips are not subject to the
      requirements of SFAS No.133, c) establishes a requirement to evaluate interests
      n securitized financial assets to identify interests that are freestanding
      derivatives or that are hybrid financial instruments that contain an embedded
      derivative requiring bifurcation, d) clarifies that concentrations of credit
      risk in the form of subordination are not embedded derivatives, and e) amends
      SFAS No.140 to eliminate the prohibition on a qualifying special purpose entity
      from holding a derivative financial instrument that pertains to a beneficial
      interest other than another derivative financial instrument. The Company is
      currently evaluating the impact of adopting SFAS No. 155.





In
      March
      2006, the FASB issued SFAS No. 156, "Accounting for Servicing of Financial
      Assets--an amendment of FASB Statement No. 140" ("SFAS No. 156"). An entity
      shall adopt this Statement as of the beginning of its first fiscal year that
      begins after September 15, 2006. Earlier adoption is permitted as of the
      beginning of an entity's fiscal year, provided the entity has not yet issued
      financial statements, including interim financial statements, for any period
      of
      that fiscal year. The effective date of this Statement is the date that an
      entity adopts the requirements of this Statement. SFAS No. 156 amends SFAS
      No.
      140, "Accounting for Transfers and Servicing of Financial Assets and
      Extinguishments of Liabilities", with respect to the accounting for separately
      recognized servicing assets and servicing liabilities. This Statement: a)
      requires an entity to recognize a servicing asset or servicing liability each
      time it undertakes an obligation to service a financial asset by entering into
      a
      servicing contract in any of the following situations, b) requires all
      separately recognized servicing assets and servicing liabilities to be initially
      measured at fair value, if practicable, c) permits an entity to choose between
      two subsequent measurement methods for each class of separately recognized
      servicing assets and servicing liabilities, d) at its initial adoption, permits
      a one-time reclassification of available-for-sale securities to trading
      securities by entities with recognized servicing rights, without calling into
      question the treatment of other available-for-sale securities under SFAS No.
      115, provided that the available-for-sale securities are identified in some
      manner as offsetting the entity's exposure to changes in fair value of servicing
      assets or servicing liabilities that a servicer elects to subsequently measure
      at fair value, and e) requires separate presentation of servicing assets and
      servicing liabilities subsequently measured at fair value in the statement
      of
      financial position and additional disclosures for all separately recognized
      servicing assets and servicing liabilities. The Company is currently evaluating
      the impact of adopting SFAS No. 156.




In
      July
      2006, the FASB issued FASB Interpretation No. 48 ("FIN 48"), "Accounting for
      Uncertainty in Income Taxes - an interpretation of FASB Statement No. 109".
      FIN
      48 requires that the Company recognize in the consolidated financial statements
      the impact of a tax position that is more likely than not to be sustained upon
      examination based on the technical merits of the position. The provisions of
      FIN
      No. 48 will be effective for the Company beginning in the March 2007 quarter,
      with the cumulative effect of the change in accounting principle recorded as
      an
      adjustment to opening retained earnings. The Company is currently evaluating
      the
      impact of adopting FIN No. 48.





In
      September 2006, the FASB issued SFAS No. 157, "Fair Value Measurements" ("SFAS
      No. 157"). SFAS No. 157 is effective for financial statements issued for fiscal
      years beginning after November 15, 2007, and interim periods within those fiscal
      years. Earlier application is encouraged, provided that the reporting entity
      has
      not yet issued financial statements for that fiscal year, including any financial
      statements for an interim period within that fiscal year. The Company is
      currently evaluating the impact of adopting SFAS No. 157.





F-14




**AVIATION
      UPGRADE TECHNOLOGIES, INC.**


**NOTES
      TO CONSOLIDATED FINANCIAL STATEMENTS**


**AS
      OF DECEMBER 31, 2006**





In
      September 2006, the FASB issued SFAS No. 158, "Employers' Accounting for Defined
      Benefit Pension and Other Postretirement Plans" ("SFAS No. 158"). SFAS No.158
      provides different effective dates for the recognition and related disclosure
      provisions and for the required change to a fiscal year-end measurement date.
      Also, the effective date of the recognition and disclosure provisions differs
      for an employer that is an issuer of publicly traded equity securities from
      one
      that is not. For purposes of this Statement, an employer is deemed to have
      publicly traded equity securities if any of the following conditions is met:
      a)
      the employer has issued equity securities that trade in a public market, which
      may be either a stock exchange (domestic or foreign) or an over-the-counter
      market, including securities quoted only locally or regionally, b) the employer
      has made a filing with a regulatory agency in preparation for the sale of any
      class of equity securities in a public market, or c) the employer is controlled
      by an entity covered by (a) or (b). An employer with publicly traded equity
      securities shall initially apply the requirement to recognize the funded status
      of a benefit plan and the disclosure requirements as of the end of the fiscal
      year ending after December 15, 2006. Application as of the end of an earlier
      fiscal year is encouraged; however, early application shall be for all of an
      employer's benefit plans. The requirement to measure plan assets and benefit
      obligations as of the date of the employer's fiscal year-end statement of
      financial position (paragraphs 5, 6, and 9) shall be effective for fiscal years
      ending after December 15, 2008, and shall not be applied retrospectively.
      Earlier application is encouraged; however, early application shall be for
      all
      of an employer's benefit plans. An employer with publicly


traded
      equity securities shall initially apply the requirement to recognize the funded
      status of a benefit plan (paragraph 4) and the disclosure requirements
      (paragraph 7) as of the end of the fiscal year ending after December 15, 2006.
      The Company is currently evaluating the impact of adopting SFAS No.
      158.





In
        February 2007, the FASB issued SFAS No. 159 , The Fair Value Option for
        Financial Assets and Financial Liabilities—Including an amendment of FASB
        Statement No. 115.




This
        Statement is effective as of the beginning of an entity’s first fiscal year that
        begins after November 15, 2007. Early adoption is permitted as of the beginning
        of a fiscal year that begins on or before November 15, 2007, provided the
        entity
        also elects to apply the provisions of FASB Statement No. 157, Fair Value
        Measurements




This
        Statement applies to all entities, including not-for-profit organizations.
        Most
        of the provisions of this Statement apply only to entities that elect the
        fair
        value option. However, the amendment to FASB Statement No. 115, Accounting
        for
        Certain Investments in Debt and Equity Securities, applies to all entities
        with
        available-for-sale and trading securities. Some requirements apply differently
        to entities that do not report net income.




**Impact
        of New Accounting Standards**





The
        Company does not expect the adoption of recently issued accounting
        pronouncements to have a significant impact on the Company's results of
        operations, financial position, or cash flow.




**NOTE
            4. LICENSING AGREEMENT**
  In
            April
            2001, AUT acquired from Torbjörn B. Lundqvist, the Company’s founder, CEO, one
            of its directors, and its majority shareholder, the marketing rights
            to the
            electronic tire valve cap. The licensing agreement has a term of five
            years and
            requires the payment of a license fee equal to 12% of the monthly gross
            profit
            from sales of the tire valve cap. It also requires the reimbursement
            of research
            and development costs incurred by its founder and the payment of ongoing
            development costs during the term of the agreement, In addition, it stipulates
            the issuance of 50,000 shares of its common stock to one individual for
            efforts
            in co-designing the product and 1,000 shares of common stock to another
            individual for naming the product, all shares of which were issued in
            2001. The
            agreement was renewed on a month-to-month basis under the identical terms
            and
            conditions in 2006. Mr. Lundqvist waived the amount due on the licensing
            agreement in 2006 and 2005 in line with identical accounting treatment
            of prior
            years. Amounts waived is $4,302 in 2006, and $6,651 in 2005, which are
            considered to be immaterial to the financial statements. The 2006 amount
            was
            waived in 2007 and will not be recorded retroactively. The royalty obligation
            was recorded in 2006 as an expense and an account payable. Subsequently
            in the
            first quarter of fiscal 2007, the waiver was recorded as a debit to accounts
            payable and a credit for the capital contribution.


F-15


**AVIATION
          UPGRADE TECHNOLOGIES, INC.**
 **NOTES
          TO CONSOLIDATED FINANCIAL STATEMENTS**
 **AS
          OF DECEMBER 31, 2006**
    **NOTE
          5. PROFIT PARTICIPATION ADVANCES**





The
        Company has entered into six profit participation agreements in order to
        raise
        capital for operations. In exchange for the investment, the Company shares
        profits on the product by giving the other party an agreed upon price for
        every
        package sold up to a specified amount as defined in the agreement. The total
        estimated liability under these agreements is $636,000.




Per
      the
      terms of each of these six agreements, the Company has no obligation to
      reimburse any portion of the advances or make any type of payment, unless it
      has
      product sales. Should the Company not achieve the necessary sales volume to pay
      back the original amounts advanced in their entirety, no further payment is
      due.
      The Company incurs a liability under these agreements as it sells product on
      a
      per unit basis, it is not related to the profitability of the Company. There
      are
      no penalty clauses in these agreements. Amounts due under these agreements,
      if
      any, are payable monthly.




The
        Company has accrued $103,000 of profit sharing advances and this amount is
        being
        amortized based on the terms of these agreements, the terms of which are
        detailed below. Amortization expense was $ 2,346 and $ 1,884  for
        December 31, 2006 and 2005, respectively. The Company has accrued a liability
        of
        $10,650 and $6,085 as of December 31, 2006 and 2005, respectively, for amounts
        payable under these agreements. No amounts have been paid out under these
        agreements as of December 31, 2006 and 2005.





While
      each of the profit participation agreements is similar in the nature, only
      the
      amount of returns due under each agreement varies, i.e., the rate of return
      differs. The maximum payable under the agreements, per the terms of each
      agreement, is $636,000, based on unit sales, as follows:




**Advance**
            **Maximum
                Possible Return**Agreements
                1 through 4
            $50,000
                (aggregate)
            $100,000
                (aggregate)Agreement
                5
            $20,000
            $36,000Agreement
                6
            $33,000
            $500,000**TOTAL**
            $103,000
            $636,000




**NOTE
        6. WARRANTS**





In
        July
        2003, the Company entered into a stock purchase agreement, which included
        warrants to purchase 150,000 shares of common stock at $2.00 per share. These
        warrants are exercisable at the option of the warrant holder and expire seven
        years from the date of issuance. No warrants were issued during the year
        ended
        December 31, 2006. All warrants were issued in connection with the sale of
        stock, and therefore, no expense was recorded for their
        issuance.





The
      following represents a summary of the warrants outstanding as of December 31,
      2006 and 2005:





**2006**
            
            
            **2005****Wtd
                Avg**
            
            
            
            
            
            **Wtd
                Avg****Shares**
            
            
            **Ex
                Price**
            
            
            **Shares**
            
            
            **Ex
                Price**Outstanding,
                beginning of year
            
            
            150,000
            
            
            $
            2.00
            
            
            
            150,000
            
            
            $
            2.00Granted
            
            
            0
            
            
            
            0
            
            
            
            0
            
            
            
            0Exercised
            
            
            0
            
            
            
            0
            
            
            
            0
            
            
            
            0Expired/forfeited
            
            
            0
            
            
            
            0
            
            
            
            0
            
            
            
            0Outstanding,
                end of year
            
            
            150,000
            
            
            $
            2.00
            
            
            
            150,000
            
            
            $
            2.00Weighted
                average fair value of warrants granted
            
            
            $
            0
            
            
            
            
            
            
            $
            0




The
      outstanding warrants at December 31, 2006 and 2005 are all held by
      stockholders.





F-16




**AVIATION
        UPGRADE TECHNOLOGIES, INC.**
 **NOTES
        TO CONSOLIDATED FINANCIAL STATEMENTS**
 **AS
        OF DECEMBER 31, 2006**





**NOTE
        7. PROPERTY & EQUIPMENT**




Property
        and equipment are recorded at cost and depreciated by the straight-line method
        over the expected useful lives of the assets. Expenditures for normal
        maintenance and repairs are charged to operations and significant improvements
        are capitalized. The estimated useful life for the tooling and equipment
        costs
        is 3 years.





**December
                31,**
            
            
            **December
                31,****2006**
            
            
            **2005**Tooling
            
            $
            50,500
            
            
            $
            50,500Equipment
            
            
            1,494
            
            
            
            1,494$
            51,994
            
            
            $
            51,994Less
                Accumulated Depreciation
            
            
            (43,329
            )
            
            
            (25,997
            )**Net
                Property and Equipment**
            
            $
            8,665
            
            
            $
            25,997





**NOTE
        8. BASIC & DILUTED INCOME / (LOSS) PER COMMON
        SHARE**





Basic
        gain (loss) per common share has been calculated based on the weighted average
        number of shares of common stock outstanding during the period. Diluted gain
        (loss) per common share has been calculated based on the weighted average
        number
        of shares of common outstanding during the period.  There were no
        shares of  preferred stock or warrants issued during the
        period.





The
        Company excluded the outstanding 150,000 warrants, granted prior to the year
        ending December 31, 2005 in its calculation of the denominator for the diluted
        loss per share calculations, since (a) the Company experienced a loss from
        operations and (b) including the warrants in the denominator would result
        in an
        artificially inflated result, i.e., a smaller loss per share.





**December
                  31,**
              
              
              **December
                  31,****2006**
              
              
              **2005****(Restated)**Numerator
                  for basic and diluted loss per share – Net Loss
              
              $
              (234,699
              )
              
              $
              (273,674
              )Denominator
                  for basic loss per share  -  Weighted average shares
                  outstanding
              
              
              11,457,750
              
              
              
              11,457,750Basic
                  loss per share
              
              $
              (0.02
              )
              
              $
              (0.02
              )




**NOTE
        9. OPERATING LEASE**





The
        Company’s headquarters relocated from Las Vegas, NV during 2006 to Fallbrook ,
        CA and is currently on a month to month arrangement until a more suitable
        location is located and signing a lease will be in the best interest of the
        company.




**NOTE
        10. INCOME TAXES**




Income
        taxes are provided in accordance with Statement of Financial Accounting
        Standards No. 109 (SFAS 109), Accounting for Income Taxes. A deferred tax
        asset
        or liability is recorded for all temporary differences between financial
        and tax
        reporting and net operating loss carryfowards. Deferred tax expense (benefit)
        results from the net change during the year of deferred tax assets and
        liabilities.


F-17


**AVIATION
        UPGRADE TECHNOLOGIES, INC.**
 **NOTES
        TO CONSOLIDATED FINANCIAL STATEMENTS**
 **AS
        OF DECEMBER 31, 2006**


At
        December 31, 2006 the Company has significant operating and capital losses
        carryfoward. The tax benefits resulting for the purposes have been estimated
        as
        follows:


**December
                  31,**
                **2006**Beg.
                  Retained Earnings
              
              $
              (2,584,139
              )Net
                  Income (Loss) for Year ended 12/31/06 - restated
              
              
              (234,699
              )Ending
                  Retained Earnings
              
              $
              (2,818,838
              )Gross
                  income tax benefit
              
              $
              948,567Valuation
                  allowance
              
              
              (948,567
              )Net
                  income tax benefit
              
              $
              0




The
        net
        operating loss expires twenty years from the date the loss was incurred.
        In
        accordance with SFAS 109 paragraph 18 the Company has reduced its deferred
        tax
        benefit asset by a valuation allowance due to negative evidence that has
        caused
        the Company to feel it is more likely than not that some portion or all of
        the
        deferred tax asset will not be realized. No portion of the valuation allowance
        will be allocated to reduce goodwill or other noncurrent intangible asset
        of an
        acquired entity. There are no temporary differences or carryforward tax effects
        that would significantly affect the Companies deferred tax asset.


Utilization
      of the net operating losses and credit carryforwards may be subject to a
      substantial annual limitation due to the “change in ownership” provisions of the
      Internal Revenue Code of 1986. The annual limitation may result in the
      expiration of net operating losses and credits before utilization. None of
      the
      valuation allowance recognized was allocated to reduce goodwill or other
      noncurrent intangible assets of an acquired entity or directly to contributed
      capital.




**NOTE
        11. STOCKHOLDERS' DEFICIT**





Holders
      of the common stock do not have preemptive rights to purchase additional shares
      of common stock or other subscription rights. The common stock carries no
      conversion rights and is not subject to redemption or to any sinking fund
      provisions. All shares of common stock are entitled to share equally in
      dividends from sources legally available. Therefore, when and if dividends
      are
      declared by the board of directors and, upon liquidation or dissolution of
      the
      company, whether voluntary or involuntary, to share equally in the assets of
      the
      Company available for distribution to stockholders. The board of directors
      is
      authorized to issue additional shares of common stock on such terms and
      conditions and for such consideration as the Board may deem appropriate without
      further stockholder action. Each holder of common stock is entitled to one
      vote
      per share, either in person or by proxy, on all matters that may be voted on
      by
      the owners thereof at meetings of the stockholders. Since the shares of common
      stock do not have cumulative voting rights, the holders of more than 50% of
      the
      shares voting for the election of directors that can elect all the directors
      and, in such event, the holders of the remaining shares will not be able to
      elect any person to the board of directors.




Most
      of
      the Company's common stock is held by insiders and persons who acquired shares
      in private offerings. These are "restricted securities" as that term is defined
      in Rule 144 promulgated under the Securities Act. The Company has not declared
      or paid any dividends on its common stock to date, and there is no assurance
      that the Company will ever be able to pay dividends in the future.





On
      July
      3, 2003, the Company entered into a securities purchase agreement with two
      investors for the sale of $100,000 of units to purchase common stock, warrants
      and a participation in the sale of the valve cap products for cash consideration
      of $100,000. These securities were issued under Section 4(2) of the Securities
      Act of 1933. No underwriter was involved in the sale of these
      securities.





During
      the year ended December 31, 2003, outstanding warrants to purchase 119,116
      shares of common stock were exercised by the holders for cash consideration
      of
      $11,915. The warrants were issued as part of a Rule 506 Regulation D offering,
      exempt under Section 4(2) of the Securities Act of 1933. No underwriter was
      involved in the exercise of the warrants.





In
      February 2004, outstanding warrants to purchase 30,466 shares of common stock
      were exercised by the holders. The warrants were issued as part of a Rule 506
      Regulation D offering, exempt under Section 4(2) of the Securities Act of 1933.
      No underwriter was involved in the exercise of the warrants.





On
      March
      1, 2004, we entered into a Securities Purchase Agreement with an accredited
      investor for the sale of 55,000 shares of common stock for cash consideration
      of
      $50,000. These securities were issued under Section 4(2) of the Securities
      Act
      of 1933. No underwriter was involved in the sale of these
      securities.





F-18


**AVIATION
        UPGRADE TECHNOLOGIES, INC.**
 **NOTES
        TO CONSOLIDATED FINANCIAL STATEMENTS**
 **AS
        OF DECEMBER 31, 2006**


On
      April
      26, 2004, we entered into a Securities Purchase Agreement with an accredited
      investor for the sale of 20,000 shares of common stock for cash consideration
      of
      $20,000. These securities were issued under Section 4(2) of the Securities
      Act
      of 1933. No underwriter was involved in the sale of these
      securities.





During
      the three month period ended September 30, 2004, AUT entered into Securities
      Purchase Agreements with various accredited investors for the sale of 61,050
      shares of common stock for cash consideration of $55,500. These securities
      were
      issued under Section 4(2) of the Securities Act of 1933. No underwriter was
      involved in the sale of these securities.





During
      the three month period ended December 31, 2004, AUT entered into Securities
      Purchase Agreements with various accredited investors for the sale of 28,875
      shares of common stock for cash consideration of $26,250 and a stock
      subscription of $750. These securities were issued under Section 4(2) of the
      Securities Act of 1933. No underwriter was involved in the sale of these
      securities. The $750 stock subscription was collected on January 14,
      2005.




**NOTE
        12. RELATED PARTY TRANSACTIONS**





Since
        its
        inception, AUT has not generated sufficient working capital to cover the
        cost of
        its operations. Therefore, its founder and Chief Executive Officer has provided
        working capital and substantially all its assets. All amounts advanced to
        AUT
        have been recorded as expenses of the Company in the period they were incurred,
        and the amount owing is reflected in accounts payable with a total outstanding
        of$ 468,970and $270,322 as of December 31, 2006 and
        2005, respectively.




The
            Company has $739,836 in payroll
            and related expenses payable as of December 31, 2006, of which substantially
            all
            is owed to Mr. Lundqvist, the Company’s
            founder, CEO, one of its directors
            and its majority
            stockholder. In addition, during the year ended December 31, 2006, the
            Company’s
            loan payable to Mr. Lundqvist increased
            by $221,999 to$492,321. The increase
            was
            due to additional funds loan to the Company from Mr. Lundqvist’s
            privately-held marketing
            company.  Mr. Lundqvist's privately-held marketing company passes
            through the interest on these advances to the Company.  The interest
            ranges from nine and one quarter percent (9.25%) to twenty-eight and
            ninety-nine
            one hundredths
            percent (28.99%). For the year
            ended December 31, 2006, the total interest paid on all such advances
            was
            $31,486.


In
        accordance with the valve cap licensing agreement AUT has entered into with
        its
        founder and Chief Executive Officer, the Company incurred no research and
        development costs in connection with the development of the tire valve cap
        for
        the years ended December 31, 2006 and 2005.





Mr.
          Lundqvist holds a significant portion of the Company’s shares and agreed to
          waive the royalty payments, calculated as 12% of Company gross profit,
          owed him
          to benefit the Company and relieve the Company of the burden of owing that
          sum.
          During the years that Mr. Lundqvist waived those royalties, the Company
          did not
          record the royalties as liabilities, so that the forgiveness of the royalty
          amounts does not offset any accounts. In 2005 and 2006, royalties of $6,651
          and
          $4,302 respectively, were incurred and were waived. These transactions
          were not
          recorded because the amounts were not considered to be material to the
          financial
          statements. The 2006 amount was waived in 2007 and will not be recorded
          retroactively.


**NOTE
        13. MAJOR CUSTOMERS/SUPPLIERS**




During
        the year ended December 31, 2006, the Company had sales of
        $179,655divided among wholesale and retail customers.
        17.5****% of the sales was retail mostly generated from media
        exposure and purchased directly from the company’s web site (12%) or by
        telephone orders (5.5%). The larges wholesale customers where PLIN Corporation16
        %, covering the Asian market, and the larger domestic wholesalers were, Pilot
        Automotive 13%, Brookstone 8%, Vehicle Light 7%, Griot’s Garage
        6%.




During
      the year ended December 31, 2006 the Company purchased all (100%) of its cost
      of
      goods sold from one supplier in China. At December 31, 2006, the amount due
      to
      the supplier included in accounts payable was $56,470.




**NOTE
        14. STOCKHOLDERS’ EQUITY**





The
      stockholders’ equity section of the Company contains the following classes of
      capital stock as of December 31, 2006:





Common
      stock, $0.001 par value; 100,000,000 shares authorized; 11,457,750 shares issued
      and outstanding.




**NOTE
          15.  FORGIVEN
          DEBT**
 The
              forgiven debt was negotiated with
              some of the Company’screditors who are not shareholders and
              were not ever shareholders.Thosecreditors
              were willing to settle the
              amount owed for a guaranteed payment from the Company of approximately
              10% of
              the amount due, instead of waiting to try to collect the fullamount at an
              unspecified future time.
              Amounts of forgiven debts as presented in the Statement of Operations
              were
              $82,014 in 2006and $57,878
              in 2005.




**NOTE
          16.  GOING CONCERN**
  The
          accompanying financial statements have been prepared assuming that the
          Company
          will continue as a going concern. The Company’s financial position and operating
          results raise substantial doubt about the Company’s ability to continue. The
          Company has had insufficient operating revenue or profit since
          inception.
  The
          ability of the Company to continue as a going concern is dependent upon
          developing sales and obtaining additional capital and financing. The financial
          statements do not include any adjustments that might be necessary if the
          Company
          is unable to continue as a going concern.
  The
          Company’s auditors have concluded that substantial doubt about the Company’s
          ability to continue as a going concern remains for a reasonable period
          of
          time.




F-19




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




Effective
      January 6, 2006, we dismissed Lesley Thomas Schwarz & Postma ("LTSP") which
      audited the their financial statements for the fiscal years ended December
      31,
      2003 and 2004, and engaged Armando C. Ibarra, CPA to act as our independent
      chartered accountants. The reports of LTSP for these fiscal years did not
      contain an adverse opinion, or disclaimer of opinion and were not qualified
      or
      modified as to audit scope or accounting principles except as described herein.
      The report of LTSP for these fiscal years was qualified with respect to
      uncertainty as to our ability to continue as a going concern. During our two
      most recent fiscal years and the period from the end of the most recently
      completed fiscal year through January 6, 2006, the date of dismissal, there
      were
      no disagreements with LTSP on any matter of accounting principles or practices,
      financial statement disclosure or auditing scope or procedures, which
      disagreements, if not resolved to the satisfaction of LTSP would have caused
      it
      to make reference to such disagreements in its reports




Our
      financial statements for the year ended December 31, 2005, were audited by
      Armando C. Ibarra, CPA. LTSP was not involved in any way with the audit of
      the
      financial statements for the year ended December 31, 2005. We have authorized
      LTSP to discuss any matter relating to us and our operations with Armando C.
      Ibarra, CPA.




The
      change in our auditors was recommended and approved by the board of directors
      since we do not have an audit committee.




During
      the two most recent fiscal years and subsequent interim period prior to that
      dismissal, we did not consult with Armando C. Ibarra, CPA regarding the
      application of accounting principles to a specified transaction, either
      completed or proposed, or the type of audit opinion that might be rendered
      on
      our financial statements, or any matter that was the subject of a disagreement
      or a reportable event as defined in the regulations of the Securities and
      Exchange Commission.




Effective
      February 28, 2007, we dismissed our independent auditor, Chang G. Park (“Park”),
      as Park had been engaged to review our financial statements only for the period
      ended September 30, 2006. Park had been our independent auditor from November
      16, 2006 to February 28, 2007. Our financial statements for the fiscal year
      ended December 31, 2005 were audited by the auditing firm, Ibarra, our
      independent auditing firm prior to Park. Ibarra’s firm declined to stand for
      reappointment in November 2006, as previously reported.




On
      February 28, 2007, we engaged Stan J.H. Lee, CPA (“Lee”) to act as our
      independent chartered accountants.




Park
      provided no reports as to any fiscal year end, due to the short timeframe of
      its
      engagement, nor did Park give any adverse opinion, or disclaimer of opinion
      and
      had no reportable qualification or modification as to audit scope or accounting
      principles except as described herein. As of the date of that dismissal, during
      our two most recent fiscal years and the period from the end of the most
      recently completed fiscal year through February 28, 2007, the date of Park’s
      dismissal, there were no disagreements with Park on any matter of accounting
      principles or practices, financial statement disclosure or auditing scope or
      procedures, which disagreements, if not resolved to the satisfaction of Park
      would have caused it to make reference to such disagreements in its
      reports.




Our
      financial statements for the year ended December 31, 2006, were audited by
      Lee.
      Park was not involved in any way with the audit of the financial statements
      for
      the year ended December 31, 2006. We have authorized Lee to discuss any matter
      relating to us and our operations with Park.




The
      change in our auditors was recommended and approved by the board of directors
      since we do not have an audit committee.




During
      the two most recent fiscal years and subsequent interim period, we did not
      consult with Lee regarding the application of accounting principles to a
      specified transaction, either completed or proposed, or the type of audit
      opinion that might be rendered on our financial statements, or any matter that
      was the subject of a disagreement or a reportable event as defined in the
      regulations of the Securities and Exchange Commission.





11




**Item
      8a. Controls and Procedures.**




Evaluation
      of Disclosure Controls and Procedures. An evaluation was performed by our
      Chief Executive Officer/Chief Financial Officer of the effectiveness of the
      design and operation of our disclosure controls and procedures. Based upon
      that
      evaluation, our Chief Executive Officer/Chief Financial Officer concluded that
      as of December 31, 2006, our disclosure controls and procedures were
      effective and designed to ensure that material information relating to us would
      be made known to him by others.




There
      have been no significant changes in our internal controls or in other factors
      that could significantly affect the internal controls subsequent to the last
      day
      they were evaluated.




**Item
      8b. Other Information**




No
      information is required to be disclosed in reports on Form 8-K which was not
      previously reported, except that in March 2006, we moved our corporate offices
      to 24040 Camino Del Avion, # A303, Monarch Beach, CA 92629, Telephone number
      (949)499-6555.






**PART
      III**




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




We
      are
      dependent on the efforts and abilities of certain of our senior management.
      The
      interruption of the services of key management could have a material adverse
      effect on our operations, profits and future development, if suitable
      replacements are not promptly obtained. We anticipate that we will enter into
      employment agreements with each of our key executives. We cannot guarantee
      that
      each executive will remain with us during or after the term of his or her
      employment agreement. In addition, our success depends, in part, upon our
      ability to attract and retain other talented personnel. Although we believe
      that
      our relations with our personnel are good and that we will continue to be
      successful in attracting and retaining qualified personnel, we cannot guarantee
      that we will be able to continue to do so. Our officers and directors will
      hold
      office until their resignations or removal.




Our
      directors and principal executive officers are as specified on the following
      table:





**Name**
            **Age**
            **Position**Torbjörn
                B. Lundqvist
            54
            Chairman,
                Chief Executive Officer / Chief Financial OfficerDick
                G. Lindholm
            57
            Vice
                President, DirectorWilliam
                S. Rhodes
            57
            President,
                Director




**Torbjörn
        B. Lundqvist.**Mr.
        Lundqvist, our founder, has been our chief executive officer and the chairman
        of
        our board of directors, and our majority shareholder since our inception.
        Mr.
        Lundqvist has been primarily responsible for the formation and development
        to
        date of Aviation Upgrade Technologies, Inc. Mr. Lundqvist has had vast
        experience in international business. His strength is managing and developing
        new ventures and ideas. Mr. Lundqvist was born in Helsinki, Finland in 1952.
        After serving as a transportation officer during his mandatory service in
        the
        Finnish army, he owned and managed several companies in Finland, including
        companies involved in remodeling and manufacturing. Since 1982,
        Mr. Lundqvist has been owner and president of Minitec Marketing, Inc. which
        is an import and export firm. Among other things, Minitec Marketing, Inc.
        invented, patented and manufactured a Power Take Out for 4-wheel drive GM
        vehicles. This product allows the user to divert some of the power from the
        vehicles engine and use it for other purposes than powering the vehicle itself,
        e.g. external devices like snow blowers, generators, and pumps. The product
        was
        developed to suit a niche market in Finland. Since 1989 he has also been
        owner
        and president of Minitec Motors, Inc., USA, a car dealership specializing
        in
        exporting cars to niche markets where a slight modification of the vehicle
        would
        put it in a lower tax bracket when imported to that particular niche market.
        Mr. Lundqvist is not an officer or director of any other reporting
        company.




**Dick
      G. Lindholm.** Mr. Lindholm has been our vice president and one of our
      directors since December 1999. Mr. Lindholm is known in the Scandinavian
      aviation circles as a problem solver and skillful negotiator, including
      experience dealing with clients, suppliers and labor unions. He has over thirty
      years’ aviation experience, primarily in rotorcraft. He has thirty years flying
      experience with over 8,000 flying hours. From 1976 until 1985, he was president
      of Helikopteripalvelu, the leading helicopter company in Finland. From 1985
      until 1993, he held various duties as a pilot for Helikopter Service A/S. From
      1993 until 1997, he was managing director
      of Helifyg AB, the leading helicopter operator in Sweden. From 1997 to March
      1999, he was area manager, Nordic Countries, of Helicopter Service A/S, which
      at
      the time was the world’s largest helicopter company in terms of revenues. From
      March to November 1999, Mr. Lindholm has been vice president of business
      development for Copter Action Oy, Finland. Since December 1999, Mr. Lindholm
      has
      been vice president of flight operations for SHT AB of Finland, a company
      responsible for development of the helicopter emergency medical service in
      the
      country. Mr. Lindholm was born in 1950 and resides in Espoo, Finland. Mr.
      Lindholm is not an officer or director of any other reporting
      company.





12




**William
      S. Rhodes.** Mr. Rhodes has been our president and one of our directors
      since August 2000. Mr. Rhodes has spent most of his career in commercial
      aircraft, military aircraft and third party aircraft maintenance.
      Mr. Rhodes has been intimately involved in the managing, planning and
      production of commercial aircraft modification and maintenance of transport
      aircraft for twenty-three years. His maintenance management experience has
      been
      with air carriers including American, Continental, Hawaiian, United, and U.S.
      Air. During the period 2000 through 2001, Mr. Rhodes has been working with
      AUT.
      From 1997 to 2000, Mr. Rhodes was the General Manager and Senior Vice President
      of administration for Santa Barbara Aerospace, Inc., which repairs and maintains
      aircraft, and Director of Programs for Avtel Services, Inc., which maintains
      and
      repairs aircraft. His career includes the day-to-day management in Department
      of
      Defense contracts with NAVAIR and ARL for a period of fifteen years including
      mission specific requirements for the secretary of defense and chief of naval
      operations. Mr. Rhodes has held positions with aircraft corporations including
      Beech Aircraft, Garrett Aviation, Tracor Aviation, Rogerson Aircraft and Dynair.
      These positions have ranged from program manager to senior vice president in
      technical and administrative management fields. Mr. Rhodes is a currently
      licensed A&P whose aviation work experience started in the U.S. Marines in
      1968, and education is in engineering and business administration. Mr. Rhodes
      currently resides in San Bernardino County, California. Mr. Rhodes is not an
      officer or director of any other reporting company.





There
      is
      no family relationship between any of our officers or directors. There are
      no
      orders, judgments, or decrees of any governmental agency or administrator,
      or of
      any court of competent jurisdiction, revoking or suspending for cause any
      license, permit or other authority to engage in the securities business or
      in
      the sale of a particular security or temporarily or permanently restraining
      any
      of our officers or directors from engaging in or continuing any conduct,
      practice or employment in connection with the purchase or sale of securities,
      or
      convicting such person of any felony or misdemeanor involving a security, or
      any
      aspect of the securities business or of theft or of any felony. Nor are any
      of
      the officers or directors of any corporation or entity affiliated with us so
      enjoined.




**Board
      of Director Meetings and Committees**




The
      Board
      of Directors regularly maintains communication throughout the year regarding
      our
      operations and status. During the fiscal year ended December 31, 2006,
      there were no formal meetings of the board of directors. Due to the small size
      of our Board of Directors, the whole board acts as the Audit Committee. Due
      to
      our lack of resources, we have not determined whether we have an audit committee
      financial expert. We also do not have a separate nominating committee due to
      the
      small size of our board.




**Code
      of Ethics**




We
      have
      adopted a Code of Ethics for Financial Professionals which Code of Ethics will
      be provided to any person without charge, upon request to Aviation Upgrade
      Technologies, Inc., 24040 Camino Del Avion, # A303, Monarch Beach, CA 92629,
      Attention: Torbjörn Lundqvist, CEO.




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




Section
      16(a) of the Securities Exchange Act of 1934, as amended, requires our officers
      and directors and those persons who beneficially own more than 10% of the
      outstanding shares of our common stock to file reports of securities ownership
      and changes in such ownership with the Securities and Exchange Commission (“the
      Commission”). Officers, directors and greater than 10% beneficial owners are
      also required by rules promulgated by the Commission to furnish us with copies
      of all Section 16(a) forms they file.




Based
      solely on our review of the copies of such forms received by us, or written
      representations from certain reporting persons, we believe that during the
      year
      ended December 31, 2006, our executive officers, directors, and greater than
      10%
      stockholders complied with all applicable filing requirements.




**Item
      10. Executive Compensation**




13




**Summary
      Compensation Table****-**The following table sets
      forth the total compensation earned by our most highly compensated officers
      for
      the previous two years.




**Name
                and**
              **Position**
            **Year**
              **Ended**
            **Salary**
              **$**
            **Bonus**
              **$**
            **Stock**
              **Awards**
              **$**
            **Option
                Awards**
              **$**
            **Non-Equity**
              **Incentive
                Plan Compensation**
              **$**
            **Nonqualified**
              **Deferred
                Compensation Earnings**
              **$**
            **All
                Other Compensation**
              **$**
            **Total**
              **$**Torbjörn
                B. Lundqvist,
              Chairmanand
                CEO
            2006
            $140,000
              (1)
            0
              (3)
            0
            0
            0
            0
            $7,232
              (2)
            $147,232
              (1)2005
            $140,000
                (1)
            0
            0
            0
            0
            0
            $6,794
              (2)
            $146,794
              (1)Dick
                G. Lindholm,
              Vice
                President
            2006
            $0
            0
            0
            0
            0
            0
            0
            $02005
            $0
            0
            0
            0
            0
            0
            0
            $0William
                S. Rhodes,
              President
            2006
            $0
            0
            0
            0
            0
            0
            0
            $02005
            $0
            0
            0
            0
            0
            0
            0
            $0


_________________________


(1)
      Salary accrued but not paid


(2)
      Medical insurance premiums


(3) Royalty
        obligation accrued but not paid for 2006 are $4,302




**Option/SAR
      Grants in Last Fiscal Year****.**Inapplicable.




**Director
      Compensation****.**Board members are currently serving
      without cash compensation. Each director holds office until his successor is
      elected and qualified or until his earlier resignation in the manner provided
      in
      our Bylaws. We have not secured “key man” or liability insurance coverage for
      our officers and directors.




**Name**
            **Fees
                Earned**
              **or
                Paid**
              **in
                Cash**
            **Stock**
              **Awards**
              **$**
            **Option**
              **Awards**
              **$**
            **Non-Equity**
              **Incentive
                Plan Compensation**
              **$**
            **Non-Qualified**
              **Deferred
                Compensation Earnings $**
            **All
                Other**
              **Compensation**
              **$**
            **Total**
              **$**Torbjörn
                B. Lundqvist
            0
            0
            0
            0
            0
            0
            0Dick
                G. Lindholm
            0
            0
            0
            0
            0
            0
            0William
                S. Rhodes
            0
            0
            0
            0
            0
            0
            0




**Employment
      contracts****.********On
      May 31, 2000, we entered into an employment agreement with Mr. Lundqvist to
      employ him as our chief executive officer. The agreement, which has an initial
      term of two years, provided for an annual base salary of $140,000 effective
      June 1, 2000, adjustable annually at the discretion of the board of
      directors. Among other provisions, the agreement also provides for an annual
      cash salary incentive equal to 3% of adjusted net profits beginning with the
      year ended December 31, 2001. The “adjusted net profit” shall be our net
      profit before federal and state income taxes, determined in accordance with
      generally accepted accounting principles by our independent accounting firm
      and
      adjusted to exclude:




·
            any
                incentive salary payments paid pursuant to this employment
                agreement;·
            any
                contributions to pension and/or profit sharing
                plans;




14




·
            any
                extraordinary gains or losses;·
            any
                refund or deficiency of federal and state income taxes paid in a
                prior
                year; and


·
            any
                provision for federal or state income taxes made in prior years which
                is
                subsequently determined to be
                unnecessary.




The
      maximum incentive salary payable for any given year may not exceed 400% of
      the
      then applicable base salary. The salary payable to Mr. Lundqvist has been
      accrued since November 2002 and is reflected in accrued payroll on our Balance
      Sheet.




**Long-Term
      Incentive Plans****.** We do not have any agreements or
      plans in which we provide any type of retirement, pension, or similar benefits
      for our directors or executive officers. We do not have any type of material
      bonus or profit sharing plans pursuant to which we have agreed to pay any cash
      or non-cash compensation to our directors or executive officers.




**Equity
      Compensation Plan****.**There are no compensation plans
      under which our equity securities are authorized for issuance.




**Outstanding
      Equity Awards at Fiscal Year-end****.**As of the year
      ended December 31, 2006, the following named executive officers had the
      following unexercised options, stock that has not vested, and equity incentive
      plan awards:




**Option
                Awards**
            
            **Stock
                Awards****Name**
            
            **Number
                of Securities Underlying Unexercised Options**
              **#
                Exercisable**
            **#
                Un-**
              **exercisable**
            **Equity
                Incentive**
              **Plan
                Awards: Number of**
              **Securities
                Underlying Unexercised**
              **Options**
            **Option**
              **Exercise**
              **Price**
            **Option**
              **Expiration**
              **Date**
            
            **Number
                of Shares or**
              **Units
                of**
              **Stock
                Not**
              **Vested**
            **Market
                Value**
              **of
                Shares or Units Not**
              **Vested**
            **Equity
                Incentive**
              **Plan
                Awards:**
              **Number
                of**
              **Unearned
                Shares, Units**
              **or
                Other**
              **Rights
                Not**
              **Nested**
            **Value
                of Unearned Shares, Units**
              **or
                Other**
              **Rights
                Not Vested**Torbjörn
                B. Lundqvist,
              CEO
            
            0
            0
            0
            0
            0
            
            0
            0
            0
            0Dick
                G. Lindholm,
              Vice
                President
            
            0
            0
            0
            0
            0
            
            0
            0
            0
            0William
                S. Rhodes, President
            
            0
            0
            0
            0
            0
            
            0
            0
            0
            0




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




The
      following table sets forth certain information regarding the beneficial
      ownership of our common stock as of March 28, 2007 by each person or entity
      known by us to be the beneficial owner of more than 5% of the outstanding shares
      of common stock, each of our directors and named executive officers, and all
      of
      our directors and executive officers as a group.




**Title**
              **of
                Class**
            
            **Name
                and Address of**
              **Beneficial
                Owner**
            
            **Amount
                and Nature of**
              **Beneficial
                Owner**
            
            **Percent**
              **of
                Class**Common
                Stock
            
            Torbjörn
                B. Lundqvist,
              24040
                Camino Del Avion, #303
              Monarch
                Beach, CA 92629
            
            9,572,300
                shares, chief executive
              officer,
                chief financial officer,
              chairman
                of board of directors
            
            83.5%Common
                Stock
            
            Dick
                G. Lindholm
              24040
                Camino Del Avion, #303
              Monarch
                Beach, CA 92629
            
            235,000
                shares, vice president, director
            
            2.1%Common
                Stock
            
            William
                S. Rhodes*
              P.O.
                Box 10746
              San
                Bernardino, California 92423
            
            10,000
                shares, president, director
            
            0.1%Common
                Stock
            
            All
                directors and named
              executive
                officers as a group
            
            9,817,300
                shares
            
            85.7% _________________________


*
      William
      S. Rhodes is the beneficial owner of 10,000 shares of common stock through
      his
      spouse Lyn Rhodes.




15





Beneficial
      ownership is determined in accordance with the rules of the Securities and
      Exchange Commission and generally includes voting or investment power with
      respect to securities. In accordance with Securities and Exchange Commission
      rules, shares of our common stock which may be acquired upon exercise of stock
      options or warrants which are currently exercisable or which become exercisable
      within 60 days of the date of the table are deemed beneficially owned by the
      optionees. Subject to community property laws, where applicable, the persons
      or
      entities named in the table above have sole voting and investment power with
      respect to all shares of our common stock indicated as beneficially owned by
      them.





**Changes
      in Control.**Our****management is not aware of any
      arrangements which may result in “changes in control” as that term is defined by
      the provisions of Item 403(c) of Regulation S-B.




**Equity
      Compensation Plan Information.**There are no compensation plans under
      which our equity securities are authorized for issuance.





**Item
      12. Certain Relationships and Related Transactions**





**Conflicts
      related to other business activities****.** The persons
      serving as our officers and directors have existing responsibilities and, in
      the
      future, may have additional responsibilities, to provide management and services
      to other entities in addition to us. As a result, conflicts of interest between
      us and the other entities may occur from time to time.





In
      addition to serving as our chief executive officer and chairman of our board
      of
      directors, Mr. Lundqvist is the president and a director of Minitec Marketing,
      Inc., a California corporation and an importer and exporter of products. Minitec
      Marketing, Inc. has not conducted any operations in the last two years. Mr.
      Lundqvist currently devotes approximately 4% of his time to Minitec Marketing,
      Inc. Mr. Lundqvist is the president and a director of Minitec Motors, Inc.,
      a
      California corporation. Mr. Lundqvist currently devotes approximately 1% of
      his
      time to Minitec Motors, Inc. We do not believe that we have any conflicts of
      interest with the business or industry of Minitec Marketing, Inc., other than
      Mr. Lundqvist’s duty to provide management and services.





In
      addition to serving as our officers and directors, Mr. Rhodes and Mr. Lindholm
      currently devote a significant portion of their time to other companies. Mr.
      Lindholm currently devotes approximately ten hours per week, but anticipates
      that he will devote significantly more hours if the valve cap starts producing
      significant revenues. Mr. Rhodes currently devotes approximately two hours
      per
      week, but anticipates that he will devote significantly more hours if the valve
      cap starts producing significant revenues. We do not believe that we have any
      conflicts of interest with the business or industry of those companies, other
      than their duties to provide management and services.





We
      will
      attempt to resolve any such conflicts of interest in our favor. Our officers
      and
      directors are accountable to us and our shareholders as fiduciaries, which
      requires that such officers and directors exercise good faith and integrity
      in
      handling our affairs. A shareholder may be able to institute legal action on
      our
      behalf or on behalf of that shareholder and all other similarly situated
      shareholders to recover damages or for other relief in cases of the resolution
      of conflicts in any manner prejudicial to us.





**Related
        party transactions**Mr.
        Lundqvist, our founder, CEO, one of our directors and our majority shareholder,
        provides substantially all the assets used by us, through Minitec Marketing,
        Inc., his privately held marketing company. We have reimbursed this entity
        for
        the cost of the services it has paid on behalf of AUT.




We
          entered into a license agreement with Torbjörn B. Lundqvist, to license the
          marketing rights for the tire valve technology. During the years ended
          December
          31, 2005, 2004 and 2003, we incurred $0, $71,501 and $8,082 for research
          and
          development costs in connection with the licensing agreement. During the
          license
          period and any renewal period, we will pay fees, expenses and costs related
          to
          product development and any application for patents and trademarks. The
          license
          agreement also specifies that we will enter into a manufacturing agreement
          with
          Torbjörn B. Lundqvist. However, no terms of the manufacturing agreement have
          been negotiated.





The
          licensing agreement had a term of five years beginning in 2001 and requires
          the
          payment of a license fee equal to 12% of the monthly gross profit from
          sales of
          the tire valve cap. The agreement was renewed on a month-to-month basis
          under the identical terms and conditions in 2006.  Mr. Lundqvist
          waived the amount due on the licensing agreement in 2006 and 2005 in line
          with
          identical accounting treatment of prior years. Amounts waived are $ 4,302
          in
          2006 and $6,651 in 2005, which are considered to be immaterial to the financial
          statements. The 2006 amount was waived during 2007 and will not be recorded
          retroactively.


16








Mr.
          Lundqvist was issued 10,000,000 shares of our common stock in exchange
          for
          services relating to founding and organizing the business, which were valued
          at
          $10,000. In addition, during the period ended December 31, 1999, Mr.
          Lundqvist, our founder, CEO, one of our directors and our majority shareholder,
          paid for various goods and performed services relating to our operations.
          Those
          goods included office supplies of $2,000. Those services of $8,000 provided
          by
          Mr. Lundqvist were for services as our promoter including founding and
          organizing the business.




**Director
      Independence.**Members of our Board of Directors are not independent as
      that term is defined by defined in Rule 4200(a)(15) of the Nasdaq
      Marketplace Rules.


**Item
      13.
      Exhibits**




**Exhibit**
            **Description**3.1
            Certificate
                of Incorporation of the Company(1)3.2
            Bylaws
                of the Company(1)10.1
            Employment
                Agreement (2)31.1
            Rule
                13a-14(a)/15d-14(a) Certificate of Chief Executive Officer31.2
            Rule
                13a-14(a)/15d-14(a) Certificate of Chief Financial
                Officer32.1
            Certification
                Pursuant to 18 U.S.C. §1350 of Chief Executive Officer32.2
            Certification
                Pursuant to 18 U.S.C. §1350 of Chief Financial
                Officer


_________________________


(1)Previously
      filed
      on December 2, 1999, as exhibit to the Registration Statement on Form
      10-SB.


(2)Previously
      filed
      in March 2002 as exhibit to the 2001 Annual Report on Form 10-KSB.





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





Armando
      C. Ibarra CPA, 371 E Street, Chula Vista, CA 91910 was selected by our Board
      of
      Directors as our as independent accountants to audit our books, records and
      accounts for the fiscal year 2005. Stan J.H. Lee, CPA 794 Broadway, Chula Vista,
      CA 91910 was selected by our Board of Directors as our as independent
      accountants to audit our books, records and accounts for the fiscal year
      2006.





**Audit
      and Non-Audit Fees**





For
      the
      years ended December 31, 2006 and 2005 aggregate fees for professional services
      rendered to the Company were as follows:





**Services
                Provided**
            
            **2006**
            
            
            **2005**Audit
                Fees
            
            $
            18,225
            
            
            $
            25,327Audit
                Related Fees
            
            $
            0
            
            
            $
            0Tax
                Fees
            
            $
            0
            
            
            $
            828All
                Other Fees
            
            $
            0
            
            
            $
            0**Total**
            
            $
            18,225
            *
            
            $
            25,327


_________________________


*Of
      the
      2006 totals: $15,725 by Armando C. Ibarra CPA and $2,500 by Chang G. Park
      CPA.





*Audit
      Fees.* The aggregate fees billed for the years ended December 31, 2006 and
      2005 were for the audits of our financial statements and reviews of our interim
      financial statements included in our annual and quarterly reports.





*Audit
      Related Fees.* There were no fees billed for the years ended December 31,
      2006 and 2005 for the audit or review of our financial statement that are not
      reported under *Audit Fees*.





*Tax
      Fees.* The aggregate fees billed for the years ended December 31, 2006 and
      2005 were for professional services for tax compliance, tax advice and tax
      planning.





*All
      Other Fees.* There were no other fees billed for the years ended December
      31, 2006 and 2005.





17




Audit Committee Pre-Approval Policies and
      Procedures





Due
      to
      the small size of our Board of Directors, the whole board acts as the Audit
      Committee.





The
      Board
      of Directors has implemented pre-approval policies and procedures related to
      the
      provision of audit and non-audit services. Under these procedures, the Board
      of
      Directors pre-approves both the type of services to be provided by its
      independent auditing firm and the estimated fees related to these
      services.





During
      the approval process, the Board of Directors considers the impact of the types
      of services and the related fees on the independence of the auditor. The
      services and fees must be deemed compatible with the maintenance of the
      auditor's independence, including compliance with SEC rules and
      regulations.




Throughout
      the year, the Board of Directors will review any revisions to the estimates
      of
      audit and non-audit fees initially approved.




**SIGNATURES**





In
        accordance with Section 13(a) or 15(d) of the Exchange Act, the registrant
        has
        caused this amended report to be signed on its behalf by the undersigned,
        thereunto duly authorized.




**Aviation
                  Upgrade Technologies, Inc.**Date: September
                  14,
                  2007
              By:
              /s/ Alexander
                L.
                WeisAlexander
                L. WeisChairman,
                Chief Executive Officer and Director




In
        accordance with the Exchange Act, this amended report has been signed by
        the
        following persons on behalf of the registrant and in the capacities and on
        the
        dates indicated.




Signature
              
              Title
              
              Date/s/
                  Alexander L.
                  Weis
              
              Chairman,
                      Chief Executive Officer and Director
              
              September 14,
                    2007Alexander
                    L. Weis/s/
                  Robert
                  Patterson
              
              Chief
                    Financial Officer
              
              September 14,
                    2007Robert
                    Patterson








18