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


**WASHINGTON,
      D.C. 20549**







**FORM
      10-KSB**





(Mark
      One)


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




**oTRANSITION
      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.)


**24040
        Camino Del Avion, # A303, Monarch Beach, CA 92629 USA**
 (Address
        of principal executive offices)


**(949)
        499-6665**
 (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




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




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





The
      issuer’s revenue for the fiscal year ended December 31, 2006 was
      $208,855.




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




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




DOCUMENTS
      INCORPORATED BY REFERENCE:


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


of
      the
      Securities Act of 1933 incorporated herein by reference.





TRANSITIONAL
      SMALL BUSINESS DISCLOSURE FORMAT (CHECK ONE)


YES NO X









**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
      $208,855 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 and
      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. 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 our founder
      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. Our founder
      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. Lundquist
      currently works for us on a full time basis. Mr. Lindholm currently devotes
      approximately two hours per week, but anticipates that he will devote
      significantly more hours if the valve cap starts producing significant revenues.
      Mr. Rhodes currently devotes approximately two hours per week, but
      anticipates that he will devote significantly more hours if the valve cap starts
      producing significant revenues. We anticipate that we will not hire any
      employees in the next six months, unless we generate significant revenues.
      We
      believe our future success depends in large part upon the continued service
      of
      our key senior management personnel and our ability to attract and retain
      managerial personnel.





3





**Item
      2. Description of Property**





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





**Item
      3. Legal Proceedings**





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





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





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






**PART
      II**





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





We
      are a
      reporting company with the Securities and Exchange Commission. The public may
      read and copy any materials filed with the Securities and Exchange Commission
      at
      the Security and Exchange Commission’s Public Reference Room at 450 Fifth Street
      N.W., 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-SEC-0330. The Securities and Exchange Commission maintains
      an Internet site that contains reports, proxy and information statements, and
      other information regarding issuers that file electronically with the Securities
      and Exchange Commission. The address of that site is
      http://www.sec.gov.





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





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





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





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





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





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





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





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





4








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





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





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





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





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





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





·
            a
                description of the nature and level of risk in the market for penny
                stocks
                in both public offerings and secondary
                trading;


·
            a
                description of the broker's or dealer's duties to the customer and
                of the
                rights and remedies available to the customer with respect to violation
                to
                such duties or other requirements of securities'
                laws;


·
            a
                brief, clear, narrative description of a dealer market, including
                "bid"
                and "ask" prices for penny stocks and the significance of the spread
                between the "bid" and "ask" price;


·
            a
                toll-free telephone number for inquiries on disciplinary
                actions;


·
            definitions
                of significant terms in the disclosure document or in the conduct
                of
                trading in penny stocks; and


·
            such
                other information and is in such form (including language, type,
                size and
                format), as the Securities and Exchange Commission shall require
                by rule
                or regulation.





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





·
            the
                bid and offer quotations for the penny
                stock;


·
            the
                compensation of the broker-dealer and its salesperson in the
                transaction;


·
            the
                number of shares to which such bid and ask prices apply, or other
                comparable information relating to the depth and liquidity of the
                market
                for such stock; and


·
            monthly
                account statements showing the market value of each penny stock held
                in
                the customer's account.





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





5





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





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





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





**Critical
      Accounting Policy and Estimates.** Our
      Management's Discussion and Analysis of Financial Condition and Results of
      Operations section discusses our financial statements, which have been prepared
      in accordance with accounting principles generally accepted in the United States
      of America. The preparation of these financial statements requires management
      to
      make estimates and assumptions that affect the reported amounts of assets and
      liabilities at the date of the financial statements and the reported amounts
      of
      revenues and expenses during the reporting period. On an on-going basis,
      management evaluates its estimates and judgments, including those related to
      revenue recognition, accrued expenses, financing operations, and contingencies
      and litigation. Management bases its estimates and judgments on historical
      experience and on various other factors that are believed to be reasonable
      under
      the circumstances, the results of which form the basis for making judgments
      about the carrying value of assets and liabilities that are not readily apparent
      from other sources. Actual results may differ from these estimates under
      different assumptions or conditions. The most significant accounting estimates
      inherent in the preparation of our financial statements include estimates as
      to
      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.





**General** ***.*** **** For the
      year ended December 31, 2006, we have generated $208,855 in revenue from the
      sale of our Air Alert Valve Cap product.





In
      April
      2001, we acquired from Torbjörn B. Lundqvist, our chief executive officer and
      one of our directors, 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. 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. 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.





6




***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 continue to operate without any source of funds beyond
        our
        revenues, and advances from Mr. Lundqvist, our sole officer, 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 $18,249 represented by accounts receivable, net of allowance for doubtful
        accounts, $8,809 represented by inventor, and $1,447 represented by prepaid
        expenses. Therefore, our total current assets were $35,959 for the year ended
        December 31, 2006. We had net property and equipment of $8,665, making our
        total
        assets $44,624 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.
 
 Total
        current liabilities were $1,909,046 as of December 31, 2006, an increase
        of
        $256,640 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
        liabilitie s
        were
        represented primarily by accrued payroll and advances of $736,886. For the
        year
        ended December 31, 2006, we also had $551,290 represented by accounts payable
        for trade and operations, $14,600 represented by customer advance, $21,310
        representing profit participation payable, $492,321 represented by a loan
        payable to a stockholder, and $92,648 which was represented by profit
        participation advances. This is
        in comparison to the year ended December 31, 2005, our total current liabilities
        were represented primarily by accrued payroll and advances of $647,606. 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. We had negative working
        capital of $1,873,087 as of December 31, 2006, and we had an accumulated
        deficit
        of $2,874,525 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. If we are unable to satisfy our cash
        requirements through either product sales or additional raising of capital,
        we
        may have to cease operations, which could result in a loss to our
        investors.
 
 **Results
        of Operations** **.** During
        the year ended December 31, 2006, we generated $208,855 in revenues as compared
        to $ 148,271 for the prior year. We had cost of sales of $173,106 for the
        year
        ended December 31, 2006, as compared to $92,433 for the year ended December
        31,
        2005, resulting in gross profit of $35,749 for the year ended December 31,
        2006
        as compared to $55,838 for the prior year. Total operating expenses for the
        year
        ended December 31, 2006 were $374,317 compared to total operating expenses
        for the prior year period of $360,720. Our operating expenses consisted
        primarily of general and administrative expenses of $356,986 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 increase of $13,597 in our operating
        expenses resulted primarily from a royalty arrangement of 12% with Mr.
        Lundqvist, which was waived for the previous year. We had a loss from operations
        of $338,568 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 $290,386, compared to a loss of
        $273,674 for the prior period.


7


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


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





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





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





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





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





**Off
      Balance Sheet Arrangements** .
      Inapplicable.





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


8




**Item
      7. Financial Statements**




Report
                  of Independent Registered Accounting Firm
              F-1Balance
                  Sheets as of December 31, 2006 and 2005
              F-2Statements
                  of Operations for the years ended December 31, 2006, 2005 and
                  2004
              F-4Statements
                  of Stockholders’ Deficit for the years ended December 31, 2006, 2005
                  and 2004
              F-5Statements
                  of Cash Flows for the years ended December 31, 2006, 2005 and
                  2004
              F-6Notes
                  to Financial Statements
              F-7








9




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


Registered
      with the Public Company Accounting Oversight Board


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


794
      Broadways Chula
      Vistas CAs 91910


619-623-7799sFax
      619-564-3408sE-mail stan2u@gmail.com









**REPORT
      OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM**





We
      have
      audited the accompanying consolidated balance sheets of Aviation Upgrade
      Technologies Inc. as of December 31, 2006 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. 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 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 2-e, 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, CPA**Stan J.H. Lee, CPA*
              March
                  5, 2007





F-1





**AVIATION
        UPGRADE TECHNOLOGIES INC.**
 **Balance
        Sheet**
   **ASSETS**


**As
                of**
            
            **As
                of******
            
            **December
                31,**
            
            **December
                31,******
            
            **2006**
            
            **2005**CURRENT
                ASSETSCash
            
            $
            7,454
            
            $
            30,598Accounts
                receivable, net of allowance for doubtful accounts
            
            
            18,249
            
            
            8,264Inventory
            
            
            8,809
            
            
            7,734Prepaid
                expenses
            
            
            1,447
            
            
            5,427Total
                Current Assets
            
            
            35,959
            
            
            52,023NET
                PROPERTY & EQUIPMENT
            
            
            8,665
            
            
            25,997OTHER
                ASSETSDeposits
            
            
            -
            
            
            350Total
                Other Assets
            
            
            -
            
            
            350TOTAL
                ASSETS
            
            $
            44,624
            
            $
            78,370






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


F-2


**AVIATION
        UPGRADE TECHNOLOGIES INC.**
 **Balance
        Sheet**
 (continued)


**LIABILITIES
          AND STOCKHOLDERS' EQUITY
          (DEFICIT)**
 **As
                  of**
              
              **As
                  of******
              
              **December
                  31,**
              
              **December
                  31,******
              
              **2006**
              
              **2005**


CURRENT
                LIABILITIESAccounts
                payable - trade and operations
            
            $
            551,290
            
            $
            628,352Customer
                advance
            
            
            14,600
            
            
            -Profit
                participation payable
            
            
            21,301
            
            
            6,085Accrued
                payroll and related expenses
            
            
            736,886
            
            
            647,606Loan
                payable, stockholder
            
            
            492,321
            
            
            270,322Profit
                participation advances
            
            
            92,648
            
            
            100,041Total
                Current Liabilities
            
            
            1,909,046
            
            
            1,652,406TOTAL
                LIABILITIES
            
            
            1,909,046
            
            
            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
            
            
            11,458Additional
                paid-in capital
            
            
            998,645
            
            
            998,645Retained
                earnings (deficit)
            
            
            (2,874,525
            )
            
            (2,584,139
            )Total
                Stockholders' Equity (Deficit)
            
            
            (1,864,422
            )
            
            (1,574,036
            )TOTAL
                LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
            
            $
            44,624
            
            $
            78,370








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





F-3





**AVIATION
      UPGRADE TECHNOLOGIES, INC.**


**STATEMENTS
      OF OPERATIONS**






**Years
                  Ended**
                **December
                  31,****2006**
              
              **2005**REVENUES
              
              $
              208,855
              
              $
              148,271COST
                  OF SALES
              
              
              173,106
              
              
              92,433GROSS
                  PROFIT
              
              
              35,749
              
              
              55,838OPERATING
                  EXPENSESGeneral
                  and administrative
              
              
              356,986
              
              
              343,389Research
                  and development (Note 8)
              
              
              0
              
              
              0Depreciation
                  expense
              
              
              17,331
              
              
              17,331374,317
              
              
              360,720LOSS
                  FROM OPERATIONS
              
              
              (338,568
              )
              
              (304,882
              )OTHER
                  EXPENSEProfit
                  participation expense
              
              
              (2,346
              )
              
              (1,884
              )Other
                  income
              
              
              0
              
              
              57,878Forgiveness
                  of debt
              
              
              82,014Interest
                  expense
              
              
              (31,486
              )
              
              (24,786
              )Total
                  Other Income & (Expenses)
              
              
              48,182
              
              
              31,208NET
                  LOSS
              
              $
              (290,386
              )
              $
              (273,674
              )BASIC
                  AND DILUTED LOSS PER COMMON SHARE
              
              $
              (0.03
              )
              $
              (0.02
              )WEIGHTED
                  AVERAGE COMMON SHARES OUTSTANDING
              
              
              11,457,750
              
              
              11,457,750


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




F-4





**AVIATION
        UPGRADE TECHNOLOGIES INC.**
 **Statements
        of Stockholders' Equity (Deficit)**





**Common**
            
            **Common**
            
            **Additional**
            
            **Retained****Common**
            
            **Common**
            
            **Shares**
            
            **Stock**
            
            **Paid-in**
            
            **Earnings****Shares**
            
            **Stock**
            
            **Subscribed**
            
            **Subscribed**
            
            **Capital**
            
            **(Deficit)**
            
            **Total**Balance,
                December 31, 2002
            
            
            11,042,418
            
            $
            11,042
            
            
            -
            
            $
            -
            
            $
            764,599
            
            $
            (1,479,437
            )
            
            (703,796
            )Common
                stock issue on warrantexercise
                for $0.10 per share
            
            
            119,116
            
            
            119
            
            
            
            
            
            
            
            
            11,796
            
            
            
            
            
            11,915Common
                  stock issued for $8.75 pershare
            
            
            100,000
            
            
            100
            
            
            
            
            
            
            
            
            66,900
            
            
            
            
            
            67,000Net
                loss for the year endedDecember
                31, 2003
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            (387,429
            )
            
            (387,429
            )Balance,
                December 31, 2003
            
            
            11,261,534
            
            
            11,261
            
            
            -
            
            
            -
            
            
            843,295
            
            
            (1,866,866
            )
            
            (1,012,310
            )Common
                stock issue don warrantexercise
                for $0.10 per share
            
            
            30,466
            
            
            31
            
            
            
            
            
            
            
            
            3,016
            
            
            
            
            
            3,047Common
                stock issued under SecuritiesPurchase
                Agreement
            
            
            164,925
            
            
            165
            
            
            825
            
            
            1
            
            
            152,334
            
            
            
            
            
            152,500Net
                loss for the year endedDecember
                31, 2004
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            (443,599
            )
            
            (443,599
            )Balance,
                December 31, 2004
            
            
            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
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            (290,386
            )
            
            (290,386
            )Balance,
                December 31, 2006
            
            
            11,457,750
            
            $
            11,458
            
            
            -
            
            $
            -
            
            $
            998,645
            
            $
            (2,874,525
            )
            $
            (1,864,422
            )






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




F-5





**AVIATION
      UPGRADE TECHNOLOGIES INC.**


**Statements
      of Cash Flows**






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






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


F-6
  **AVIATION
        UPGRADE TECHNOLOGIES**
 **NOTES
        TO THE FINANCIAL STATEMENTS**
 **AS
        OF DECEMBER 31, 2006**


***NOTE
      1. 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
      2. 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.** **Estimates
      and Adjustments**





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





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





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





F-7




**AVIATION
      UPGRADE TECHNOLOGIES**


**NOTES
      TO THE FINANCIAL STATEMENTS**


**AS
      OF DECEMBER 31, 2006**







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 12, 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 years 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.





**m.** **Income
      Taxes**





F-8




**AVIATION
      UPGRADE TECHNOLOGIES**


**NOTES
      TO THE FINANCIAL STATEMENTS**


**AS
      OF DECEMBER 31, 2006**








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 such 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 recognized research and developments costs of $0, $0,
      $71,501 and $8,082 for the years ended December 31, 2006, 2005, 2004 and 2003
      ,
      respectively.





**q.** **Employment
      Agreement**





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





F-9




**AVIATION
      UPGRADE TECHNOLOGIES**


**NOTES
      TO THE 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.


F-10
  **AVIATION
        UPGRADE TECHNOLOGIES**
 **NOTES
        TO THE FINANCIAL STATEMENTS**
 **AS
        OF DECEMBER 31, 2006**







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.





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.





***NOTE
      3. LICENSING AGREEMENT***





In
      April
      2001, AUT acquired from Torbjörn B. Lundqvist, our Chief Executive Officer and
      one of our directors, 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.




***NOTE
      4. 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 investor 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.


F-11
  **AVIATION
        UPGRADE TECHNOLOGIES**
 **NOTES
        TO THE FINANCIAL STATEMENTS**
 **AS
        OF DECEMBER 31, 2006**




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 $ 7,393 and $ 1,782 for December 31,
      2006 and 2005, respectively. The Company has accrued a liability of $ 21,301
      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
      5. 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, 2005. 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




F-12


**AVIATION
        UPGRADE TECHNOLOGIES**
 **NOTES
        TO THE FINANCIAL STATEMENTS**
 **AS
        OF DECEMBER 31, 2006**






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




***NOTE
      6. PROPERTY & EQUIPMENT***




Property
      is stated at cost. Additions, renovations, and improvements are capitalized.
      Maintenance and repairs, which do not extend asset lives, are expensed as
      incurred. Depreciation is provided on a straight-line basis over the estimated
      useful lives ranging from 27.5 years for commercial rental properties, 5 years
      for tenant improvements, and 5 - 7 years on furniture and
      equipment.





**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
      7. 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 and preferred stock outstanding during the period. The
      variance between basic and diluted weighted average is the addition of preferred
      stock in the calculation of diluted weighted average per share.





**December
                31,**
            
            **December
                31,****2006**
            
            **2005**Net
                income (loss) from operations
            
            $
            (290,386
            )
            $
            (273,674
            )Basic
                income / (loss) per share
            
            $
            (0.03
            )
            $
            (0.02
            )Weighed
                average number of shares outstanding
            
            
            11,457,750
            
            
            11,457,750




***NOTE
      8. OPERATING LEASE***





The
      Company’s headquarters relocated from Las Vegas, NV during 2006 to Monarch
      Beach, 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.





F-13


**AVIATION
        UPGRADE TECHNOLOGIES**
 **NOTES
        TO THE FINANCIAL STATEMENTS**
 **AS
        OF DECEMBER 31, 2006**






***NOTE
      9. INCOME TAXES***





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





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




**December
                31,**
              **2006**Beg.
                Retained Earnings
            
            $
            (2,584,139
            )Net
                Income (Loss) for Year ended 12/31/05
            
            
            (290,386
            )Ending
                Retained Earnings
            
            $
            (2,874,525
            )Gross
                income tax benefit
            
            $
            948,593Valuation
                allowance
            
            
            (948,593
            )Net
                income tax benefit
            
            $
            -





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
      10. 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.





F-14


**AVIATION
        UPGRADE TECHNOLOGIES**
 **NOTES
        TO THE FINANCIAL STATEMENTS**
 **AS
        OF DECEMBER 31, 2006**


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.





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
      11. 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 $ 492,321
      and
      $ 270,322 as of December 31, 2006 and 2005, respectively.





F-15


**AVIATION
        UPGRADE TECHNOLOGIES**
 **NOTES
        TO THE FINANCIAL STATEMENTS**
 **AS
        OF DECEMBER 31, 2006**







The
      Company has $ 142,894 in payroll and related expenses payable as of December
      31,
      2006, of which substantially all is owed to the Chief Executive Officer and
      majority stockholder. In addition, during the year ended December 31, 2006,
      AUT
      loan payable to stockholder increased by $ 221,999. A balance of $ 492,321
      is
      payable as of December 31, 2006. The increase in loan payable, stockholder
      (Mr.
      Lundqvist's) was money given directly from Mr. Lundqvist privately held
      marketing company. Mr. Lundqvist's privately held marketing company passes
      through the interest on these advances to the Company which ranges from nine
      and
      one quarter percent (9.25%) to twenty-eight and ninety-nine one hundredths
      percent (28.99%). Interest paid on all advances to totaled $ 31,486 for the
      year
      ended December 31, 2006.





In
      accordance with the valve cap licensing agreement AUT has entered into with
      its
      founder and Chief Executive Officer, the Company incurred $ 0, $0, $71,501,
      $8,082 and $33,136 during the years ended December 31, 2006, 2005, 2004 and
      2003
      , respectively, for research and development costs in connection with the
      development of the tire valve cap.




***NOTE
      12. MAJOR CUSTOMERS/SUPPLIERS***





During
      the year ended December 31, 2006, the Company had sales of $208,855 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
      13. STOCKHOLDERS’ EQUITY***





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





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




F-16





**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 effective and designed to ensure that
      material information relating to us would be made known to him by
      others.





10




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





**Item
      8b. Other Information**





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






**PART
      III**





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





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





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





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





**Torbjörn
      B. Lundqvist.** Mr.
      Lundqvist has been our chief executive officer and the chairman of our board
      of
      directors 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.





11




**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.




12




**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)
      Incentive payments accrued but not paid for 2006 are $23,348





**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**
              **C****ompensation**
              **$**
            **Total**
              **$**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.





13




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





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





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





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





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





**Title****of****Class**
            **Name
                and Address****of****Beneficial
                Owner**
            **Amount
                and Nature****of
                Beneficial Owner**
            **Percent****of
                Class**Common
                Stock
            Torbjörn
                B. Lundqvist,
              24040
                Camino Del Avion, #303
              Monarch
                Beach, CA 92629
            9,572,300
                shares, chief executive
              officer,chief
                financial officer,
              chairman
                of boardof
                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.





14




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




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





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





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





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





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





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





**Related
      party transactions** **.** Mr.
      Lundqvist, our chief executive officer and director and principal 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, our chief executive officer. However, no terms of the
      manufacturing agreement have been negotiated.





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 chief executive officer and director and principal 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.




15




**Item
      13. Exhibits**




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


_________________________


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


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





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





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





**Audit
      and Non-Audit Fees**





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





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


_________________________


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





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





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





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





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





**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.


16




**SIGNATURES**





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




**Aviation
              Upgrade Technologies, Inc.**Date: March
              29, 2007
            By:
            /s/ Torbjörn
              B. LundqvistTorbjörn
              B. LundqvistChairman
              and Chief Executive Officer






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




**Signatures**
            
            **Title**
            
            **Date**/s/ Torbjörn
              B. Lundqvist
            
            Chairman,
                Chief Executive Officer
            
            March
                  29, 2007Torbjörn
                B. Lundqvist
            
            (principal
                    executive officer)and Chief
                  Financial
                    Officer (principal financial
                  officer)
                    and Director/s/ Dick
              G. Lindholm
            
            Director
            
            March
                29, 2007Dick
                G. Lindholm/s/ William
              S. Rhodes
            
            Director
            
            March
                29, 2007William
                S. Rhodes






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