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


**WASHINGTON,
      D.C. 20549**


**FORM
      10-KSB**


**AMENDMENT
      NO. 2**




(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)




**(210)
      677-6000**


(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.   Yes x No o




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. o




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


*As
      of August 16, 2007, the registrant became a shell
      company.





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 o NO x





**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, our  founder
      , chief executive officer (“CEO”), one of our directors and our majority
      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 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. The licensing
      agreement calls for the reimbursement of research and development costs incurred
      by Mr. Lundqvist and 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.





**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 .




3




**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.





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.




4




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.





**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.**




5




**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.





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, our founder, CEO, one of our directors and our
      majority 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.
      Lundqvist  may 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.




6




**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, our founder, CEO, one of our
      directors and majority shareholder, the marketing rights to an electronic tire
      valve cap for airplanes and automobiles that 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
      LED light 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 by Mr. Lundqvist
      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. 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 the difference 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, and advances from Mr.
      Lundqvist, our founder, 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 equipment
      of $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 of December 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 expenses of
      $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 our founder, CEO, one of our directors and our and 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
      his privately 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, our founder, CEO, one of 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.




9




**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.


10
  **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


11







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


Registered
      with the Public Company Accounting Oversight Board


2160
      North Central Rd. Suite 203 s Fort
      Lee s NJ
      07024


794
      Broadway s Chula
      Vista s CA s 91910


619-623-7799 s Fax
      619-564-3408 s E-mail stan2u@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


12




**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**





13




**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.**




14




**AVIATION
        UPGRADE TECHNOLOGIES INC.**
 **Statements
        of Operations**
  **Year
                  Ended**
              
              **Year
                  Ended**
              
              **Year
                  Ended****December
                  31,**
              
              **December
                  31,**
              
              **December
                  31,****2006**
              
              **2006**
              
              **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.**
 
 15
  **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.**
  16
  **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.**
 
 17
  **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
  18
 **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
  19
  **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
  20
  **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
  21
  **AVIATION
        UPGRADE TECHNOLOGIES INC.**
 **Statements
        of Cash Flows( Supplement to Footnote 1)**
  **Year**Ended
                **December****31,**
              
              
              **Year**Ended
                **December
                  31,**
              
              
              **Change****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
              
              $
              -
              
              
              $
              -
  22
  **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.
 
 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.
  23
 
 **AVIATION
        UPGRADE TECHNOLOGIES, INC.**
 **NOTES
        TO CONSOLIDATED FINANCIAL STATEMENTS**
 **AS
        OF DECEMBER 31, 2006**
 
 **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.
 
 **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.
  24
  **AVIATION
        UPGRADE TECHNOLOGIES, INC.**
 **NOTES
        TO CONSOLIDATED FINANCIAL STATEMENTS**
 **AS
        OF DECEMBER 31, 2006**
 **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.
 
 25
  **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.
 
 
  **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.
  27
 
 **AVIATION
        UPGRADE TECHNOLOGIES, INC.**
 **NOTES
        TO CONSOLIDATED FINANCIAL STATEMENTS**
 **AS
        OF DECEMBER 31, 2006**
  **OTE
        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.
 
 28
 
 **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 carryforwards. Deferred tax expense (benefit)
        results from the net change during the year of deferred tax assets and
        liabilities.
  29
  **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
        carryforward. 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.
  30
  **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  $
        468,970  and
        $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 $179,655  divided
        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:
  31
 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’s creditors who are not
        shareholders and were not ever shareholders. Those creditors 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
        full amount at an unspecified future time. Amounts of forgiven debts as
        presented in the Statement of Operations were $82,014 in 2006 and $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.
  32
  **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.
 
 **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 ineffective and even though they were designed
        to
        ensure that material information relating to us would be made known to him
        by
        others, those disclosure controls and procedures did not serve that
        function.
  33
  The
        disclosure controls and procedures in effect at the time did not serve to
        identify certain errors as set forth in the restated financial statements.
        The
        difficulties arose when we changed our independent auditor at the same time
        that
        we had a change in our internal accounting staff, and were compounded by
        an
        entry that was double-counted in our internal accounting program. Since the
        errors have been encountered, we have revised our procedures and added a
        system
        for double-checking all entries. Therefore, we believe that similar errors
        will
        not occur in the future, and that our disclosure controls and procedures
        will be
        effective in future reporting periods.
 
 **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.
  34
  **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**
  **Summary
        Compensation Table** **-** The
        following table sets forth the total compensation earned by our most highly
        compensated officers for the previous two years.
  35
  **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,
                Chairman
                  and 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;·
              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.
  36
  **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.
  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.
  37
 **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.
 
 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.
  38
 **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.
 
 **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.
  39
  **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: October
                  22, 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, Chief Financial Officer, and
                  Director
              
              October
                  22, 2007Alexander
                  L. Weis
  40