Carbiz 10QSB 2008 Q2 Quarterly report (small business)

Carbiz Inactive 10QSB2008 Q2 Quarterly report (small business)

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 10-QSB

(Mark One)

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

For the quarterly period endedJuly 31, 2007

[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE EXCHANGE ACT

For the transition period from _______________ to _______________

Commission file Number:000-52209

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

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

7405 North Tamiami Trail
Sarasota, Florida 34243
(Address of principal executive offices)

(941) 952-9255
(Issuer's telephone number)

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

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

As of September 6, 2007, 64,684,904 common shares of the issuer were issued and outstanding.

Transitional Small Business Disclosure Format (Check one): Yes [ ] No [X]

CARBIZ INC.

FORM 10-QSB

For the Quarterly Period Ended July 31, 2007

INDEX

NOTE REGARDING FORWARD-LOOKING STATEMENTS

Except for statements of historical fact, certain information contained herein constitutes “forward-looking statements,” within Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). In some cases, you can identify the forward-looking statements by our use of the words such as “may,” “will,” “should,” “could,” “expect,” “plan,” “estimate,” “predict,” “potential,” “continue,” “believe,” “anticipate,” “intend,” “expect,” or the negative or other variations of these words, or other comparable words or phrases.

Such forward-looking statements involve known and unknown risks, uncertainties and other factors which may cause our actual results or achievements to be materially different from any of our future results or achievements expressed or implied by such forward-looking statements. Such factors include, but are not limited to the following:

	(i)	whether we are successful in implementing our business strategy;

	(ii)	our ability to increase revenues in the future and to continue as a going concern;

	(iii)	our ability to obtain additional financing on terms favorable to us, if at all, if our operating revenues fail to increase;

	(iv)	our ability to attract and retain key personnel;

	(v)	the impact on the market price of our common shares of the concentration of common share ownership by our directors, officers and greater than 5% shareholders, which may delay, deter or prevent actions that would result in a change of control;

	(vi)	the significant fluctuation of the market price of our common shares;

	(vii)	costly difficulties we may face in the assimilation of the operations, technologies and products of companies that we may acquire in the future;

	(viii)	the adequacy of our insurance coverage to cover all losses or liabilities that may be incurred in our operations;

	(ix)	our dividend policy;

	(x)	the impact on our financial position, liquidity and results of operations if we underestimate the default risk of sub-prime borrowers;

	(xi)	general economic conditions;

	(xii)	general competition;

	(xiii)	our ability to comply with federal and state government regulations;

	(xiv)	our joint venture arrangements;

	(xv)	potential infringement by us of third parties’ proprietary rights;

	(xvi)	defects in our products;

	(xvii)	litigation exposure related to refund anticipation loans;

	(xviii)	our compliance with privacy laws;

	(xix)	our ability to obtain adequate remedies in the event that our intellectual property rights are violated; and

	(xx)	our ability to develop and market on a timely and cost-effective basis new products that meet changing market conditions.

Although we believe that expectations reflected in these forward-looking statements are reasonable, we cannot guarantee future results, levels of activity, performance, achievements or other future events. Moreover, neither we nor anyone else assumes responsibility for the accuracy and completeness of these forward-looking statements. We are under no duty to update any of these forward-looking statements after the date of this report. You should not place undue reliance on these forward-looking statements.

PART 1 – FINANCIAL INFORMATION

Item 1. Financial Statements

CARBIZ INC.

Condensed Consolidated Balance Sheets

(expressed in U.S. dollars)

		As at			As at
		July 31, 2007			January 31, 2007
		(unaudited)
ASSETS
CURRENT
Cash and cash equivalents	$	91,284		$	67,990
Accounts receivable, net		49,817			48,482
Current portion of notes receivable, net		394,661			274,151
Inventory		145,137			67,785
Prepaids and other assets		120,221			171,350
Deferred costs		8,453			13,309
		809,573			643,067
NOTES RECEIVABLE, NET		147,401			44,887
DEFERRED FINANCING COSTS		818,352			-
DEFERRED COSTS		808			3,706
PROPERTY AND EQUIPMENT		59,550			76,054
	$	1,835,684		$	767,714

LIABILITIES
CURRENT
Accounts payable and accrued liabilities	$	516,053		$	1,232,610
Loan payable
Related party		-			230,000
Line of credit		257,725			-
Current portion of capital leases		8,027			7,662
Current portion of long-term debt		-			180,139
Convertible debenture		472,999			-
Derivative liability		6,796,042			3,415,679
Deferred revenue		121,190			121,239
		8,172,036			5,187,329
DEFERRED REVENUE		5,384			49,805
CAPITAL LEASES		6,617			10,724
LONG-TERM DEBT		-			35,851
		8,184,037			5,283,709
MINORITY INTEREST		205,136			206,170
STOCKHOLDERS' DEFICIENCY
COMMON SHARES		16,274,119			16,274,119
Unlimited shares authorized, 64,224,404 and 64,224,404 common shares
issued and outstanding as at July 31 and January 31, 2007, respectively
ADDITIONAL PAID-IN CAPITAL		6,342,997			6,222,397
OTHER COMPREHENSIVE LOSS		(385,197	)		(385,197	)
ACCUMULATED DEFICIT		(28,785,408	)		(26,833,484	)
		(6,553,489	)		(4,722,165	)
	$	1,835,684		$	767,714

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

CARBIZ INC.

Condensed Consolidated Statements of Operations

(unaudited)

(expressed in U.S. dollars)

		For the three months ended						For the six months ended
		July 31						July 31
		2007			2006			2007			2006


SALES
Software and Consulting Services	$	581,674		$	639,434		$	1,191,653		$	1,197,026
Used Car Sales and Financing		361,717			250,825			632,323			450,991
		943,391			890,259			1,823,976			1,648,017
COST OF SALES
Software and Consulting Services		243,652			237,806			461,803			463,014
Used Car Sales and Financing		275,189			251,531			472,991			463,548
		518,841			489,337			934,794			926,562
GROSS PROFIT		424,550			400,922			889,182			721,455
GAIN ON DEBT FORGIVENESS		-			-			391,337			-
PERSONNEL EXPENSES		288,887			251,831			530,805			499,900
SELLING EXPENSES		116,875			87,851			189,235			181,824
OTHER OPERATING EXPENSES		1,158,221			294,386			1,522,758			627,657
		1,563,983			634,068			1,851,461			1,309,381
OPERATING LOSS		(1,139,433	)		(233,146	)		(962,279	)		(587,926	)

INTEREST AND OTHER EXPENSES		(149,430	)		(96,609	)		(238,937	)		(132,047	)
LOSS ON DERIVATIVE INSTRUMENT		(1,430,363	)		-			(751,742	)		-
MINORITY INTEREST		7,128			13,243			1,034			23,440
NET LOSS FROM
CONTINUING OPERATIONS		(2,712,098	)		(316,512	)		(1,951,924	)		(696,533	)
INCOME FROM
DISCONTINUED OPERATIONS		-			411,591			-			556,783

NET INCOME (LOSS)	$	(2,712,098	)	$	95,079		$	(1,951,924	)	$	(139,750	)
NET INCOME (LOSS) PER SHARE FROM
CONTINUING OPERATIONS	$	(0.04	)	$	(0.01	)	$	(0.03	)	$	(0.02	)
NET INCOME (LOSS) PER SHARE FROM
DISCONTINUED OPERATIONS	$	-		$	0.01		$	-		$	0.01

NET INCOME (LOSS) PER SHARE	$	(0.04	)	$	-		$	(0.03	)	$	-


WEIGHTED AVERAGE NUMBER OF COMMON
SHARES OUTSTANDING		64,224,404			41,136,186			64,224,404			41,105,519

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

CARBIZ INC.

Condensed Consolidated Statements of Cash Flows

(unaudited)

(expressed in U.S. dollars)

		For the Six Months Ended
		July 31, 2007			July 31, 2006
NET INFLOW (OUTFLOW) OF CASH RELATED
TO THE FOLLOWING ACTIVITIES
OPERATING
Net income (loss)	$	(1,951,924	)	$	(139,750	)
Items not affecting cash
Depreciation of property and equipment		38,642			43,300
Minority interest		(1,034	)		23,440
Loss on disposal of assets					71,662
Loss on derivative financial instruments		751,742			-
Gain on debt forgiveness		(391,337	)		-
Amortization of deferred finaning costs		33,818			-
Amortization of debt discount		89,912			-
Stock-based compensation		120,600			-
Provision for bad debts		(11,085	)		-

Net changes in non-cash operating assets and liabilities
Accounts receivable		(966	)		8,407
Notes Receivable		(212,308	)		235,708
Prepaids and other assets		30,295			(14,558	)
Inventory		(77,352	)		(33,961	)
Deferred costs		7,754			26,108
Accounts payable and accrued liabilities		(355,220	)		(101,532	)
Deferred revenue		(44,470	)		(123,431	)
NET CASH FLOWS FROM OPERATING ACTIVITIES		(1,972,933	)		(4,607	)
INVESTING
Acquisition of property and equipment		(22,138	)		(7,524	)
NET CASH FLOW FROM INVESTING ACTIVITIES		(22,138	)		(7,524	)
FINANCING
Repayment of capital leases		(3,742	)		(4,111	)
Proceeds from line of credit		257,725			-
Repayment long-term debt		(215,990	)		(73,899	)
Repayment of related party debt		(230,000	)		-
Proceeds from Trafalgar debenture, including derivative components		2,412,051			-
Payment of deferred financing costs		(446,087	)		-
Issuance of share capital		-			5,668
NET CASH FLOWS FROM FINANCING ACTIVITIES		1,773,957			(72,342	)
EFFECT OF EXCHANGE RATE CHANGES ON CASH
AND CASH EQUIVALENTS		244,408			(5,404	)
INCREASE (DECREASE) IN CASH AND
CASH EQUIVALENTS		23,294			(89,877	)
CASH AND CASH EQUIVALENTS,
BEGINNING OF PERIOD		67,990			119,735
CASH AND CASH EQUIVALENTS,
END OF PERIOD	$	91,284		$	29,858

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

CARBIZ INC.

Notes to the Condensed Consolidated Financial Statements

July 31, 2007 and 2006

(unaudited)

1.	ORGANIZATION AND BUSINESS

	Carbiz Inc. (the “Company”) was incorporated pursuant to the provisions of the Business Corporations Act of Ontario (“OBCA”) under the name “Data Gathering Capital Corp.” on March 31, 1998. On September 1, 1999, the Company changed its name by articles of amendment under the OBCA to Carbiz.com Inc., and then changed its name again on July 15, 2003 to Carbiz Inc. As of October 3, 2006, the Company’s common shares are quoted on the United States Over the Counter Bulletin Board. Prior to such date, the Company’s common shares were traded on the TSX Venture Exchange (“TXSV”), formerly the Canadian Venture Exchange (“CDNX”).

	In the opinion of management, all adjustments, consisting of normal recurring adjustments, have been made in the July 31, 2007 and 2006 financial statements, which are necessary for a fair financial statement presentation. The results for the six months ended July 31, 2007 and 2006 are not necessarily indicative of financial operations for the full year. These financial statements are combined and condensed. For further information, refer to the financial statements and footnotes in the Company’s audited financial statements for the year ended January 31, 2007 which are included in the Company’s Form 10KSB filed with the U.S. Securities and Exchange Commission (the “SEC) on April 20, 2007 (“January 31, 2007 Form 10KSB”).

	References to the Company typically include the Company’s consolidated subsidiaries and joint venture. The Company’s operations are principally conducted through its two operating subsidiaries, Carbiz USA, Inc., a Delaware corporation, and Carbiz Auto Credit, Inc. (“CAC”), and a joint venture, Carbiz Auto Credit JV1, LLC (“JV1”). Collectively, Carbiz Inc., Carbiz USA, Inc., CAC , and JV1 are referred to herein as “Carbiz” or the “Company”.

	All dollar figures presented in this report are denominated in U.S. dollars unless otherwise indicated.

	The Company is in the business of developing, marketing, distributing and supporting software and Internet products for the automotive sales finance industry. The Company also previously supplied a seasonal lead generation product that facilitates tax-refund loans which are primarily used for down payments on car loans. The assets associated with this business segment, however, were sold on May 16, 2006. During the six months ended July 31, 2007, the Company operated two CAC dealerships and a third location under its JV1 joint venture, all of which sell and finance used automobiles.

	Going concern assumption

	While these financial statements have been prepared on the basis of accounting principles applicable to a going concern, several adverse conditions and events cast substantial doubt upon the validity of this assumption.

	The Company has incurred losses in the current year (exclusive of the loss on derivative instruments and gain on debt forgiveness) and in each of the past several years. In addition, the Company has a working capital deficiency (excluding derivative liability) of $(566,421) as at July 31, 2007. This deficiency grows to $(7,362,463) when you include the derivative liability of $6,796,042. The Company’s continued existence is dependent upon its ability to achieve profitable operations and to obtain additional financing. The Company has expanded operations in its existing CAC dealerships and expects to open new dealerships with the proceeds available under its new line of credit (see Note 5). The Company believes that the new CAC dealerships, combined with its existing software and consulting businesses will improve its operating cash flows going forward. However, there can be no assurance that the Company will achieve profitable operations or that financing efforts will be successful.

	If the going concern assumption were not appropriate to these financial statements, then adjustments would be necessary in the carrying values of assets and liabilities, the reported net loss and the balance sheet classifications used.

CARBIZ INC.

Notes to the Condensed Consolidated Financial Statements

July 31, 2007 and 2006

(unaudited)

2.	SUMMARY OF ACCOUNTING POLICIES

	Inventory

	Inventory consists of used vehicles and is related to the CAC operations. Inventory is stated at the lower of cost or net realizable value. Cost is determined on a specific item basis.

	Deferred finance costs

	Deferred financing costs related to the convertible debentures and line of credit discussed in Notes 4 and 5 and are amortized over the respective terms of the debt to which the costs related. Future amortization of these costs is expected to be as follows:

Periods ending July 31
2008	$	350,455
2009		240,356
2010		86,217
2011		86,217
2012		55,107
	$	818,352

Earnings per share

Earnings per share are based on the weighted average number of common shares outstanding (basic) adjusted, to the extent they are dilutive, for outstanding stock options and stock purchase warrants (diluted). The calculation of diluted earnings per share excludes any potential conversion of warrants or options that would increase earnings per share or decrease loss per share.

The weighted average number of common shares outstanding (basic) for the six months ended July 31, 2007 does not include 3,400,000 non-vested restricted shares issued for the 2007 Incentive Stock Plan, 30,000,000 shares pledged in support of the Trafalgar Debentures (as defined in Note 4 herein), 8,438,041 common share options outstanding, or the warrants outstanding which are summarized in Note 6 herein because these instruments are priced in excess of market. Diluted net income per share for the period, including these securities, was no different than the basic net income per share.

Stock-based compensation

Effective, February 1, 2006, the Company adopted Statement of Financial Accounting Standards (“SFAS”), No. 123(R), “Share-Based Payment,” (“SFAS 123R”). This statement is a revision of SFAS 123 and supersedes Accounting Principle Board Opinion No. 25, “Accounting for Stock Issued to Employees,” (“APB Opinion 25”). SFAS 123R requires all stock options to be recognized in the financial statements based on their fair values. The Company adopted SFAS 123R using the modified prospective method, which requires application of the standard to all options granted, modified, repurchased or cancelled on or after February 1, 2006, and to all options granted that were unvested as of February 1, 2006.

No stock options were granted during the six months ended July 31, 2007.

During the six months ended July 31, 2007, the Company recognized stock-based compensation expense of $56,000 as a result of new options issued on January 19, 2007. See Note 12(e) to the January 31, 2007 Form 10-KSB.

In addition, on January 25, 2007, the Company awarded 3,400,000 common shares as restricted stock to certain directors, officers, and key employees of the Company. During the six months ended July 31, 2007 the Company recognized stock-based compensation expense of $64,600 as a result of this restricted stock transaction. See Note 11 to the January 31, 2007 Form 10KSB.

CARBIZ INC.

Notes to the Condensed Consolidated Financial Statements

July 31, 2007 and 2006

(unaudited)

2.	SUMMARY OF ACCOUNTING POLICIES (continued)

	Stock-based compensation(continued)

	Total options outstanding and vested at July 31, 2007 were with a weighted average exercise price of $0.23 per share and a weighted average life of 1.8 years. In addition, non-vested options of 5,600,000 were outstanding at July 31, 2007 with an exercise price of $0.13 per share and life of 4.5 years. The Company expects to record a total of an additional $376,456 of compensation expense during periods subsequent to July 31, 2007 for non-vested options as of that date. The intrinsic value of all options outstanding and vested at July 31, 2007 was $655,056.

	Derivative Instruments

	We review the terms of our convertible debt and equity instruments to determine whether there are embedded derivative instruments, including the embedded conversion option, that are required to be bifurcated and accounted for separately as a derivative financial instrument. In circumstances where the convertible instrument contains more than one embedded derivative instrument, including the conversion option, that is required to be bifurcated, the bifurcated derivative instruments are accounted for as a single, compound derivative instrument. Also, in connection with the sale of convertible debt and equity instruments, we may issue freestanding options or warrants that may, depending on their terms, be accounted for as derivative instrument liabilities, rather than as equity.

	For derivative financial instruments that are accounted for as liabilities, the derivative instrument is initially recorded at its fair value and is then re-valued at each reporting date, with changes in the fair value reported as charges or credits to operations. We estimate fair values of derivative financial instruments using various techniques (and combinations thereof) that are considered to be consistent with the objective of measuring fair value. In selecting the appropriate technique, we consider, among other factors, the nature of the instrument, the market risks that it embodies and the expected means of settlement.

	For less complex derivative instruments, such as freestanding warrants, we generally use the Black-Scholes- Merton option valuation model because it embodies all of the requisite assumptions (including trading volatility, estimated terms and risk free rates) necessary to fair value these instruments. For complex derivative instruments, such as embedded conversion options, we generally use the Flexible Monte Carlo valuation technique because it embodies all of the requisite assumptions (including credit risk, interest-rate risk and exercise/conversion behaviors) that are necessary to fair value these more complex instruments. Estimating fair values of derivative financial instruments requires the development of significant and subjective estimates that may, and are likely to, change over the duration of the instrument with related changes in internal factors and external market indicators. In addition, option based techniques are highly volatile and sensitive to changes in our trading market price which has a high-historical volatility. Since derivative financial instruments are initially and subsequently carried at fair values, our income reflects the volatility in these estimate and assumption changes.

3.	CONVERTIBLE DEBENTURES – 2004

	On September 1, 2006 the Company’s SB-2 registration statement was declared effective by the U.S. Securities and Exchange Commission (SEC). Effective October 3, 2006, the approximately US$1,406,529 of debenture financing which closed on April 6, 2006 (described in Note 9(a) of the January 31, 2007 Form 10KSB) and accumulated interest of $76,805 were converted into 13,842,027 common shares, 14,472,753 Class A Common Share Purchase Warrants and 7,236,355 Class B Common Share Purchase Warrants (the “Conversion”).

	The 14,472,753 Class A Common Share Purchase Warrants related to 13,124,494 debenture principal, 717,533 debenture interest, and 630,723 penalty interest warrants. The 7,236,372 Class B Common Share Purchase Warrants related to 6,562,247 debenture principal, 358,766 debenture interest, and 315,342 penalty interest warrants. Each class A common share purchase warrant and each class B common share purchase

CARBIZ INC.

Notes to the Condensed Consolidated Financial Statements

July 31, 2007 and 2006

(unaudited)

3.	CONVERTIBLE DEBENTURES – 2004 (continued)

	warrant is exercisable for one common share expiring from October 6, 2009 through April 6, 2011, quantities summarized in Note 6(e) herein, and an exercise price of CDN$0.12.

4.	CONVERTIBLE DEBENTURES - TRAFALGAR

	On February 28, 2007 the Company sold $2,500,000 Secured Convertible Debentures to Trafalgar Capital Specialized Investment Fund, Luxembourg (“Trafalgar”) and (“Trafalgar Debentures”). Of this amount, $1,000,000 was released upon execution (March 2, 2007), $750,000 was released after the Company filed a Registration Statement on Form SB-2 (April 17, 2007) and the $750,000 balance was released on June 27, 2007. The Trafalgar Debentures bear an interest rate of 12% compounded monthly from the date of issuance until the Company filed the Registration Statement (April 17, 2007), 10% compounded monthly from the date the registration was filed until it becomes effective, and 8% per annum thereafter until the Trafalgar Debentures are paid in full. The Company responded to initial SEC comments and filed an amended Registration Statement on July 9, 2007 and a second amendment on August 30, 2007.

	The Trafalgar Debentures are convertible at Trafalgar’s option into common shares of the Company at a price per share equal to the lesser of (i) US$0.22 or (ii) 85% of the lowest daily closing bid price of the Company’s common shares, as quoted by Bloomberg, L.P. for the five trading days immediately preceding the date of conversion. The Trafalgar Debentures are secured by a pledge of 30,000,000 common shares of the Company. These shares are held in escrow, not considered issued and outstanding and, therefore, they are not considered in earnings per share calculation. See Note 2 herein.

	As mentioned above, the filing of the Company’s Registration Statement resulted in the release of the second tranche of funding ($750,000 on April 17, 2007), and the third tranche ($750,000 on June 27, 2007) provided, further, that failure by the Company to have it declared effective could result in the Company having to pay liquidated damages to Trafalgar.

	In addition, the Company issued to Trafalgar warrants to purchase up to an aggregate of 2,500,000 common shares of the Company at a strike price of US$0.15 per share, exercisable over the next 5 years.

	When we evaluated the Trafalgar Debentures and warrants, we concluded that equity classification was not appropriate under EITF 00-19, “Accounting for Derivative Financial Instruments Indexed to, and Potentially Settled in, a Company’s Own Stock”. Accordingly we allocated proceeds from the debentures to the detachable warrants, the compound derivative embedded in the convertible debenture, and the convertible debenture itself in the amounts of $562,500, $1,657,833, and $355,685 respectively, based upon the fair values of these financial instruments. The compound derivatives arising from bifurcation comprises (i) the embedded conversion option, (ii) mandatory redemption feature, (iii) equity-interest payments, and (iv) cash payable puts. Because the aggregate fair values of these derivative instrument liabilities exceeded the gross proceeds, we recognized a day-one derivative loss amounting to $101,058. At July 31, 2007 the Company had incurred: (a) $376,083 of deferred financing costs and amortized $34,081 to interest expense on a straight line basis; (b) $90,833 of prepaid interest was deducted by Trafalgar and $58,541 amortized to interest expense; (c) $89,912 of debt discount was amortized to interest expense leaving a debenture balance of $472,999; (d) the warrants were revalued at fair value of $460,500 (see Note 6 herein) with a resulting loss on derivative instrument of $195,750; and (e) the compound derivative revalued at fair value of $1,521,360 (see Note 6 herein) with a resulting gain on derivative instrument of $315,482.

CARBIZ INC.

Notes to the Condensed Consolidated Financial Statements

July 31, 2007 and 2006

(unaudited)

4.	CONVERTIBLE DEBENTURES – TRAFALGAR (continued)

	The convertible debentures are payable interest only through January 2008 and thereafter in monthly installments through February 2009, at which time the then remaining $700,000 balance is due. Annual principal maturities are as follows:

5.	LINE OF CREDIT FINANCING

	On March 23, 2007, Carbiz USA, Inc., Carbiz Auto Credit, Inc. and Carbiz Auto Credit JV1, LLC, as borrowers and Carbiz, Inc., as guarantor, entered into a Loan and Security Agreement (the “Loan Agreement”) with Colossus Capital Fund, L.P (the “Credit Facility”). The Credit Facility has a maximum commitment of $10 million, and expires on March 23, 2011. The initial amount of the Credit Facility is $5 million. The amount may be increased to $10 million at the option of the Company. The Credit Facility is secured by a first priority interest in all the existing and after acquired tangible and intangible assets of the Company. The Credit Facility may be used to finance the Company’s working capital needs.

	Advances under the Credit Facility are limited to the lesser of (A) the total amount of the Credit Facility or (B) the lesser of (i) 58% of the outstanding balance of all Eligible Receivables (as defined in the Loan Agreement), or (ii) 100% of the Company’s cost basis in the Eligible Receivables. All borrowings accrue interest at 15% per annum and upon the occurrence and during the continuance of an event of default, the interest rate will be increased by 6% per annum.

	Under the Loan Agreement, the Company was required:

	(i)	to pay a facility commitment fee of $75,000;

	(ii)	to pay a second facility commitment fee of $75,000 if the Company elects to increase the amount of the credit facility to $10,000,000;

	(iii)	to pay an asset management fee of $5,000 per quarter, which will increase to $10,000 per quarter upon increase of the amount of the Credit Facility to $10 million;

	(iv)	to pay an unused facility fee of 0.50%, payable month in arrears, on the difference between (A) the total amount of the Credit Facility and (B) the actual average daily amount outstanding for the month; and

	(v)	to pay a termination fee if the Credit Facility is fully repaid and terminated prior to the maturity date. Such termination fee may range from 4.0% to 1.0% of the total amount of the Credit Facility.

In addition, the Credit Facility contains customary financial covenants and provides for customary events of default. At July 31, 2007 the Company had total outstanding borrowings under the Credit Facility of $257,725.

At July 31, 2007 interest expense from commencement of the facility through July 31, 2007 was $12,917 and the Company had incurred approximately $446,087 of deferred financing costs which will be amortized on a straight line basis over the sixty month life of the line of credit.

CARBIZ INC.

Notes to the Condensed Consolidated Financial Statements

July 31, 2007 and 2006

(unaudited)

6.	DERIVATIVE LIABILITIES

	(a) 2004 Debenture Conversion Warrants

	Evaluation of criteria under EITF Issue No. 00-19 resulted in the determination that the Company’s outstanding warrants issued upon conversion of the 2004 Debentures (See Note 3 herein) should be classified as a derivative liability. In accordance with EITF 00-19, warrants which are determined to be classified as derivative liabilities are marked to market each reporting period, with a corresponding non-cash gain or loss reflected in the current period.

	(b) Agent Warrants

	As described in Note 9(a) and (e) of the January 31, 2007 Form 10KSB, the Company had engaged an agent for the 2004 Convertible Debenture financing. Accordingly, the Company also issued as of October 3, 2006 438,100 common share purchase warrants, with each warrant exercisable for one common share until October 3, 2011 at an exercise price of CDN$0.23, and 438,100 common share purchase warrants, with each warrant exercisable for one common share until October 3, 2011 at an exercise price of CDN$0.22. These 876,200 warrants were determined to be derivative liabilities.

	(c) Private Placement Warrants - 2006

	As a result of an unregistered sale of equity securities in September, 2006 the Company issued 2,400,000 of share purchase warrants for two years at an exercise price of $0.15. Concurrently, related party debt held by two directors of the Company was converted to common shares and the Company issued 1,565,464 share purchase warrants under the same terms. These 3,965,464 warrants were determined to be derivative liabilities.

	(d) Trafalgar Debenture Warrants and Embedded Compound Derivative – 2007

	As described in Note 4 herein, the Company issued 2,500,000 share purchase warrants for five years and an embedded compound derivative in conjunction with the Trafalgar Debenture financing and these instruments were determined to be derivative liabilities.

	(e) Total Warrants and Compound Derivative Liability

	As of July 31, 2007 the Company had derivative liability as follows:

	Warrants		Amount
2004 Conversion Warrants expiring October 6, 2009	10,339,567	$	1,911,333
2004 Conversion Warrants expiring October 10, 2010	11,055,264		2,074,044
2004 Conversion Warrants expiring April 6, 2011	314,276		61,747
2006 Private Placement Warrants expiring September 5, 2008	3,965,464		603,574
2004 Agent Warrants expiring October 6, 2011	876,200		163,485
2007 Trafalgar Warrants expiring February 28, 2012	2,500,000		460,500
2007 Trafalgar Embedded Derivative	-		1,521,360

	29,050,771	$	6,796,042

This derivative liability is adjusted quarterly based on a value model discussed in Note 2 herein and any changes in fair value are recorded as gain or loss on derivative financial instruments in the consolidated statements of operations.

CARBIZ INC.

Notes to the Condensed Consolidated Financial Statements

July 31, 2007 and 2006

(unaudited)

7.	CASH FLOW INFORMATION

	(a) Supplemental Information

		Six months ended
		July 31, 2007		July 31, 2006
Cash paid during the period for Interest	$	113,915	$	88,219

	(b) Supplemental non-cash information

	During the six months ended July 31, 2006, the Company extended certain convertible debentures which were treated as an extinguishment and re-issuance of debt in the amount of $1,396,305 and as such have not been included in the statements of cash flows. See Note 9(a) to the January 31, 2007 Form 10KSB. During the six months ended July 31, 2007, the Company issued $2,500,000 of Convertible Debentures in which $400,997 of proceeds were allocated to and capitalized as deferred financing costs.

	During the six months ending July 31, 2007, the Company negotiated the settlement of a $466,337 trade payable which resulted in a gain on debt forgiveness of $391,337.

8.	RELATED PARTY TRANSACTIONS

	On February 28, 2005, the Company entered into a joint venture agreement (JV1) with a member of the Company's Board of Directors (the “JV1 Agreement”). The purpose of this joint venture is to add five additional CAC centers in the state of Florida over five years. Under the JV1 Agreement, the Company will contribute its intellectual property and permanent, non-exclusive license agreements in exchange for a 50% share of the joint venture. The director/joint venture partner contributed $500,000 for the remaining 50% share. In April 2005, JV1 signed a five-year lease for the premises of the first center, at a price of $31,200 annually.

	The Company accounts for the joint venture using FASB Interpretation No. 46, “Consolidation of Variable Interest Entities”.The primary objectives of this interpretation are to provide guidance on the identification of entities for which control is achieved through means other than through voting rights (“variable interest entities”) and how to determine when and which business enterprise (the “primary beneficiary”) should consolidate the variable interest entity. Because the joint venture is operated as a CAC location and is fully integrated under the daily control and management of the Company, the Company is, under this guidance, the “primary beneficiary”. Accordingly operational revenue and expenses, and all assets and liabilities are fully consolidated. The 50% share of the joint venture not owned by the Company is presented on the Minority Interest line item on the Consolidated Balance Sheets. A Summary of 100% of the joint venture revenues and expenses and assets are listed below:

		Six Months Ended
		July 31, 2007			July 31, 2006
Sales	$	272,884		$	120,574
Cost of sales		210,558			103,581
Gross Profit		62,325			16,993
Operating Expenses (1)		64,393			63,409
Operating Income (Loss)	$	(2,068	)	$	(46,416	)
Depreciation		(557	)		(464	)
Net Income (Loss)	$	(2,625	)	$	(46,880	)
Total Assets	$	427,671		$	450,781

During the fourth quarter of the fiscal year ended January 31, 2007 the Company borrowed $230,000 on a short term, informal, non-interest bearing basis from a company owned by a significant stockholder. The amount was paid off in June 2007 with some of the proceeds from Trafalgar – Tranche # 3.

CARBIZ INC.

Notes to the Condensed Consolidated Financial Statements

July 31, 2007 and 2006

(unaudited)

9.	SEGMENT INFORMATION FOR CONTINUING OPERATIONS

	The Company operates and manages its business in three segments, which are its used car sales and financing segment (“Carbiz Auto Credit” or “CAC”), its used car sales and financing joint venture (“JV1”), and various software and consulting services offered to independent car dealerships (“Software and Other Products”). Approximately 99% of the Company’s revenue is generated in the United States. In addition almost all of the Company’s assets are located in the U.S. A fourth business segment, TaxMax, a tax preparation service, was sold on May 16, 2006. The Company has eliminated TaxMax from the segment information. See Note 10 herein.

	CAC purchases automobiles through auctions and sells them to end users at three car lots located in the State of Florida. When required, the Company will also finance these sales with loans that are generally 80 weeks in length.

	Software and Other Products consists of new sales and recurring monthly revenues for software products, and new sales and recurring monthly revenues of consulting products, and other related revenue from credit bureau fees, supply sales and forms programming.

CARBIZ INC.

Notes to the Condensed Consolidated Financial Statements

July 31, 2007 and 2006

(unaudited)

9.	SEGMENT INFORMATION FOR CONTINUING OPERATIONS (continued)

Three months ended July 31		2007
		Carbiz Auto						Software and
					JV1						Total
		Credit						Other
Sales	$	223,340		$	138,377		$	581,674		$	943,391
Cost of Sales		160,099			115,090			243,652			518,841
Gross Profit		63,241			23,287			338,022			424,550
Operating Expenses (1)		99,576			38,099			1,414,216			1,551,891
Income (Loss) From Segments	$	(36,335	)	$	(14,812	)	$	(1,076,194	)		(1,127,341	)
Depreciation & Amortization											(12,093	)
Total Operating Income (Loss)										$	(1,139,434	)
					-
Total Assets	$	(584,986	)	$	427,671		$	1,993,000		$	1,835,685

		2006
Sales	$	193,198		$	57,627		$	639,434		$	890,259
Cost of Sales		196,415			55,116			237,806			489,337
Gross Profit		(3,217	)		2,511			401,628			400,922
Operating Expenses (1)		56,814			28,811			528,812			614,437
Income (Loss) From Segments	$	(60,031	)	$	(26,300	)	$	(127,184	)		(213,515	)
Depreciation & Amortization											(19,631	)
Total Operating Income (Loss)										$	(233,146	)
Total Assets	$	(407,053	)	$	450,781		$	855,428		$	899,156

Six months ended July 31		2007
		Carbiz Auto						Software and
					JV1						Total
		Credit						Other
Sales	$	359,439		$	272,884		$	1,191,654		$	1,823,976
Cost of Sales		262,433			210,558			461,803			934,794
Gross Profit		97,007			62,325			729,850			889,182
Operating Expenses (1)		141,454			64,393			1,998,310			2,204,157
Income (Loss) From Segments	$	(44,447	)	$	(2,068	)	$	(1,268,460	)		(1,314,975	)
Depreciation & Amortization											(38,641	)
Gain on Debt Forgiveness											391,337
Total Operating Income (Loss)										$	(962,279	)
Total Assets	$	(584,986	)	$	427,671		$	1,993,000		$	1,835,685

		2006
Sales	$	330,417		$	120,574		$	1,197,026		$	1,648,017
Cost of Sales		359,967			103,581			463,014			926,562
Gross Profit		(29,550	)		16,993			734,012			721,455
Operating Expenses (1)		89,552			63,409			1,113,120			1,266,081
Income (Loss) From Segments	$	(119,102	)	$	(46,416	)	$	(378,708	)		(544,626	)
Depreciation & Amortization											(43,300	)
Total Operating Income (Loss)										$	(587,926	)
		(407,053	)	$	450,781		$	855,428		$	899,156
Total Assets	$	(60,758	)	$	481,113		$	1,149,008		$	1,569,363

CARBIZ INC.

Notes to the Condensed Consolidated Financial Statements

July 31, 2007 and 2006

(unaudited)

10.	DISCONTINUED OPERATIONS

	On May 16, 2006 the Company completed the sale of its TaxMax business to Tax Refund Services, Inc. located in Tampa, Florida. The proceeds of $442,000 received from the sale will be primarily used to expand CAC operations. The book value of the assets sold was $20,575, therefore, the Company realized a gain of $421,425 on the disposition. No reserves for disposition were deemed appropriate prior to the sale.

	In accordance with SFAS No. 144, “Accounting for the Impairment or Disposal of Long-Lived Assets” (“SFAS 144”), the financial results of the TaxMax business have been presented as discontinued operations on the financial statements for all periods presented. The former segment had revenue of $253,004 for the period beginning February 1, 2006 through May 16, 2006. The operating income for this period was $135,358 plus a gain on disposal of $421,425.

11.	SUBSEQUENT EVENTS

	On August 3, 2007 a warrant holder exercised 460,500 of the 2004 Conversion warrants resulting in approximately $52,500 of proceeds. The warrant holder is the spouse of an executive officer of the company.

	On August 24, 2007 the Company issued warrants for 1,000,000 common shares at $0.15. The warrants expire on February 28, 2011. Fair value at date of issuance using the Black-Scholes-Merton formula was approximately $140,000. These warrants were determined to be derivative liabilities.

	On September 10, 2007 the company sold an additional $1,000,000 of Secured Convertible Debentures to Trafalgar under terms similar to the previous issue.

Item 2. Management’s Discussion and Analysis or Plan of Operation

Overview

This Management’s Discussion and Analysis (MD&A) should be read in conjunction with the Company’s interim condensed consolidated financial statements as of July 31, 2007 and the audited consolidated January 31, 2007 statements and notes reported in US dollars and in accordance with United States generally accepted accounting principles (“GAAP”).

Our revenue has been derived from two sources, which include:

Software product and support sales and business model consulting services– through initial software license fees and subsequent support agreements, which provide monthly maintenance fees as well as through a combination of one-time consulting fees and monthly business analysis services.
Direct auto sales and related financing (Carbiz Auto Credit centers)– through our self provided on-site specialty finance business, which includes company owned locations as well as locations owned by our joint venture.

Historically, we have been a software company that has also offered tax return processing services for, and business model consulting services to, the North American automobile industry. In May 2004, we decided to enter the direct automobile sales market utilizing our own software and business model consulting products by opening our first “credit center” in Palmetto, Florida, which is a used car dealership that offers financing on-site to customers with poor credit. We opened our second credit center in St. Petersburg, Florida in November 2004, and we opened our third credit center, a joint venture location, in Tampa, Florida in May 2006. Further, on May 16, 2006, we sold our TaxMax business to Tax Refund Services Inc. of Tampa, Florida. As a part of such asset sale, we agreed to enter into a non-competition agreement and, therefore, we do not intend to provide tax return processing services in the future.

Rather than continuing to focus our resources only on our software and consulting businesses, it is our intent to expand and further diversify our business operations by opening additional credit centers in the future. Some of these credit centers will be wholly-owned by us and others may be joint venture arrangements, such as with Carbiz Auto Credit JV1, LLC, or by acquisition of existing operations.

In terms of our existing software and consulting businesses, we believe that our Independent Dealer Accounting (IDA) software and the related consulting will drive our software revenue and consulting services growth in the near term. To date, it has been installed in over 30 dealerships, with continuing interest on the part of independent dealers. We believe that there is an industry-wide movement towards the adoption of standardized accounting procedures and financial reporting within the independent dealer population, which consists of non-franchise automotive dealers, as a result of efforts by NIADA (National Independent Automobile Dealer Association) and NABD (National Alliance of Buy Here-Pay Here Dealers). We have worked closely with both of these associations during the development of our IDA software, and have received the “Approved Vendor for Standardized Accounting” designation from NIADA, a designation that indicates to the dealer community that IDA operates properly in producing appropriate audit trails, transaction processing, and financial reporting as defined by NIADA. Although NIADA approval is not required for a company to market its products to independent automobile dealers, we believe that the NIADA “Approved Vendor” designation will provide additional market acceptance of IDA as a specific accounting solution for independent dealers throughout North America.

Critical Accounting Policies

Revenue Recognition

Our revenue is derived from the sale of licenses, services and commissions, the sale of products to dealers in the automobile industry and sale of used vehicles. We recognize revenue in accordance with Statement of Position 97-2, “Software Revenue Recognition,” issued by the American Institute of Certified Public Accountants in October 1997 as amended by Statement of Position 98-9 issued in December 1998 for all software or software related revenue. For all non-software or non-software related revenue, we recognize revenue in accordance with Securities and Exchange Commission Staff Accounting Bulletin 104, “Revenue Recognition,” which was preceded by Staff Accounting Bulletin 101, “Revenue Recognition in Financial Statements.” For contracts involving multiple deliverables, where the deliverables are governed by more than one authoritative accounting standard, we generally apply the Financial Accounting Standards Board Emerging Issues Task Force Issue No. 00-21, “Revenue Arrangements with Multiple Deliverables” to determine whether deliverables should be accounted for separately.

We derive our revenue through the licensing of software products and providing related services, including installation, training and support and our Carbiz Auto Credit Buy Here-Pay Here business. Our revenue from licenses is recognized upon the execution of a license agreement, when the licensed product has been delivered, fees are fixed or determinable, collection is probable and when all significant obligations have been fulfilled. Related services revenue is recognized when a signed contract has been executed, the services have been delivered, and obligations have been fulfilled. We also sell and finance used automobiles. The sale of vehicles is recognized once the customer takes delivery and title has passed to the customer. In the case of financing of sold vehicles, the interest is recognized over the term of the loan, which is generally 80 weeks, based on the principal outstanding at the time.

Use of Estimates

In preparing our financial statements in accordance with generally accepted accounting principles, our management is required to make estimates and assumptions that affect the reported amount of assets, liabilities, and the disclosure of contingent 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. Estimates are used when accounting for items and matters such as the allowance for doubtful accounts, deferred revenue and related costs and contingencies.

Stock-Based Compensation

Effective February 1, 2006, we adopted Statement of Financial Accounting Standards (“SFAS”), No. 123(R), “Share-Based Payment,” (“SFAS 123R”). This statement is a revision of SFAS 123 and supersedes Accounting Principles Board Opinion No. 25, “Accounting for Stock Issued to Employees,” (“APB Opinion 25”). SFAS 123R requires all stock options to be recognized in the financial statements based on their fair values. We adopted SFAS 123R using the modified prospective method, which requires application of the standard to all options granted, modified, repurchased or cancelled on or after February 1, 2006, and to all options granted that were unvested as of February 1, 2006.

Derivative Liability

We account for warrants and other embedded features issued in connection with financing arrangements in accordance with Emerging Issues Task Force (“EITF”) Issue No. 00-19, “Accounting for Derivative Financial Instruments, Indexed to, and Potentially Settled in, a Company’s Own Stock” (EITF 00-19). Pursuant to EITF 00-19, an evaluation of specifically identified conditions is made to determine whether the fair value of warrants issued is required to be classified as a derivative liability. The fair value of such instruments classified as derivative liabilities is adjusted for changes in fair value at each reporting period, and the corresponding non-cash gain or loss is recorded in current period earnings.

Three Months ended July 31, 2007 compared to the Three Months ended July 31, 2006

Three months ended July 31, 2007 compared to the three months ended July 31, 2006

				% of					% of
		July 2007		Revenue			July 2006		Revenue
Revenue	$	943,391		100.0		$	890,259		100.0
Cost of sales	$	518,841		55.0		$	489,337		54.9
Gross profit	$	424,550		45.0		$	400,922		45.0
Gain on debt forgiveness	$	-				$	-
Operating expenses	$	1,563,983		165.8		$	634,068		71.2
Operating income (loss)	$	(1,139,393	)	(120.8	)	$	(233,146	)	(26.2	)
Interest expense	$	(149,429	)	15.8		$	(35,438	)	10.9
Gain (loss) on derivative instruments	$	(1,430,363	)	161.4		$	-
Minority interest income (loss)	$	7,128		0.8		$	13,243		1,5
Net income (loss) from continuing operations	$	(2,712,098	)	(297.2	)	$	(316,512	)	(35.6	)
Net income (loss) from discontinued operations	$			0.0		$	411,591		46.2
NET INCOME (LOSS)	$	(2,712,098	)	(297.2	)	$	95,079		10.7
Income (loss) per common share	$					$	(0.01	)
Total assets	$	1,835,684				$	899,156
Long-term liabilities	$	12,001				$	76,385

Revenue

In the three months ended July 31, 2007, our revenues from continuing operations increased by $53,132 compared to our three-month revenue during the previous period ended July 31, 2006. This increase was primarily due to a increase of $110,892 in sales by our Carbiz Auto Credit operating unit during the first three months of 2007 when compared to the first three months of 2006. Carbiz Auto Credit generated sales of $361,717, including $223,340 from our Company-owned locations and $138,377 from our joint venture location during the three months ended July 31, 2007.

Cost of Sales

Our cost of sales expense increased by $29,504 for the three months ended July 31, 2007, compared to same period ended July 31, 2006. Carbiz Auto Credit operations cost of sales increased by $23,658, including a decrease in costs of $36,316 from our Company-owned locations and an increase of $59,974 from our joint venture location during the three months ended July 31, 2007, and all other parts of the operation increased cost of sales by $5,846 during the three months ended July 31, 2007. We anticipate that our cost of sales expense will continue to increase as we open additional Carbiz Auto Credit centers in the future.

Expenses

For the three months ended July 31, 2007, our operating expenses increased by $929,915 compared to the same period ended July 31, 2006. The Carbiz Auto Credit operating expenses increased by $51,509, including an increase of $49,499 from our Company-owned locations and and increase of $9,010 from our joint venture location during the three months ended July 31, 2007, while operating expenses for other segments increased by $885,405 during the three months ended July 31, 2007. This increase was primarily due to the effect of changes in the exchange rate for the Canadian Dollar during the period as a result of the large debenture liability balances carried on the Company’s books in Canadian Dollars. Legal expenses related to the preparation and closing of the convertibal debenture and credit facility were also incurred during the period.

We have not been investing significant amounts in fixed assets over the past two years. This fact is reflected in the decrease in depreciation and amortization expenses by $7,267 for the three months ended July 31, 2007 as compared to the same period ended July 31, 2006.

Interest Expense

Our interest expense increased by $149,428 for the three months ended July 31, 2007, compared to the same period ended July 31, 2006. Although existing long term debt was retired during the period, the increase is due to the interest paid on the convertible debenture and the credit facility.

Software Sales, Support and Consulting

This segment of our business consists of new sales and recurring monthly revenue for software products and new sales, new sales and recurring monthly revenue of consulting products, and other related products including revenue from credit bureau fees, supply sales, and forms programming. Our total software, consulting and other sales during the three months ended July 31, 2007 decreased by $57,760 over the prior period ended July 31, 2006.

TaxMax

TaxMax was our tax preparation and refund division. The seasonal nature of our TaxMax business meant that the significant impact of return preparation operations was recognized during the first quarter.

As a result of a continued decline in TaxMax revenue over a three-year period and a desire to focus both management and cash resources on the higher growth areas of our business, subsequent to the fiscal year end management decided to enter into an agreement to sell the TaxMax business. The sale was the result of an unsolicited offer and was completed during May 2007 to Tax Refund Services, Inc. of Tampa, FL. The $442,000 cash generated from the sale of TaxMax was used primarily for further expansion of the Carbiz Auto Credit business. The net income from the sale of TaxMax as well as the net income generated from the discontinued operations are now shown as such on the Statement of Operations.

Carbiz Auto Credit

The fastest growing segment of our business continues to be our Carbiz Auto Credit specialty consumer finance business. Carbiz operates three facilities in Florida called “Carbiz Auto Credit,” that originate, underwrite, fund and collect auto loans to customers with credit difficulties. The scalable business model leverages our industry expertise and proprietary underwriting and collection processes.

We believe that the results from our Palmetto and St. Petersburg corporate locations and Tampa joint venture location for the year ended January 31, 2007 have indicated a strong consumer demand for the finance product in that market, as well as reinforcing the effectiveness of our system for operations, marketing, underwriting and collections.

The increase in sales activity during the three months ended July 31, 2007 was the result of a increase in inventory levels at all three locations due to an increase in cash available for the purchase of inventory as a result of the convertible debenture and credit facility.

Six Month Financial Information

The following summary of selected financial information for the six months ended July 31, 2007 and 2006 is derived from, and should be read in conjunction with, and is qualified in its entirety by reference to, our interim financial statements, including the notes thereto, for periods ended July 31, 2007 and 2006.

Six months ended July 31, 2007 compared to the six months ended July 31, 2006

				% of					% of
		July 2007		Revenue			July 2006		Revenue
Revenue	$	1,823,976		100.0		$	1,648,017		100.0
Cost of sales	$	934,794		51.2		$	926,562		56.2
Gross profit	$	889,182		48.8		$	721,455		43.8
Gain on debt forgiveness	$	391,337		21.5		$	-		-
Operating expenses	$	2,242,798		123.0		$	1,309,381		79.5
Operating income (loss)	$	(962,279	)	(52.8	)	$	(587,926	)	(35.7	)
Interest expense	$	(238,937	)	13.1		$	(132,047	)	8.0
Gain (loss) on derivative instruments	$	(751,742	)	(45.2	)	$	-		-
Minority interest income (loss)	$	1,034		0.1		$	23,440		1.4
Net income (loss) from continuing operations	$	(1,951,924	)	(112.0	)	$	(696,533	)	(43.3	)
Net income (loss) from discontinued operations	$	-		-		$	556,783		33.8
NET INCOME (LOSS)	$	(1,951,924	)	(112.0	)	$	(139,750	)	(8.5	)
Income (loss) per common share	$	(0.03	)			$	(0.01	)
Total assets	$	1,835,684				$	899,156
Long-term liabilities	$	12,001				$	76,385

Revenue

In the six months ended July 31, 2007, our revenues from continuing operations increased by $175,959 compared to our six-month revenue during the previous period ended July 31, 2006. This increase was due to an increase of $181,332 in sales by our Carbiz Auto Credit operating unit and I decrease of $5,372 in sales by our software and consulting division during the six months ended July 31, 2007 when compared to the same period ended July 31, 2006. Carbiz Auto Credit generated sales of $632,723, including $359,439 from our Company-owned locations and $272,884 from our joint venture location during the six months ended July 31, 2007.

We continued throughout the period to eliminate non-performing products, such as several older pre-Windows software products including our GoldKey Buy Here-Pay Here program and our TurboCAT F&I program. As of January 31, 2007, a majority of users of those products have replaced the discontinued product with our higher priced, higher margin products, which will result in a positive impact on future revenues. The decision to stop support for a specific product is made on the basis of the size of the remaining user population, the recurring revenue generated by that product, and the cost and difficulty of maintaining a technical support staff for the product.

Cost of Sales

Our cost of sales expense increased by $8,232 for the six months ended July 31, 2007, compared to the same period ended July 31, 2006. Carbiz Auto Credit operations cost of sales increased by $9,443, including a decrease in costs of $97,534 from our Company-owned locations and an increase of $106,997 from our joint venture location during the six months ended July 31, 2007, and all other parts of the operation decreased cost of sales by $1,211 during the six months ended July 31, 2007. The decrease in cost of sales in our Company-owned locations even though sales increased was the result of a decrease in direct bad debt charge off expense compared to the same period ended July 31, 2006, while the increase in cost of sales in our joint venture location was the direct result of additional sales compared to the same period ended July 31, 2006. We anticipate that our cost of sales expense will increase in direct proportion to increased auto sales as we open additional Carbiz Auto Credit centers in the future.

Gain on debt forgiveness

During the six months ending July 31, 2007, the Company negotiated the settlement of a $466,337 trade payable which resulted in a gain on debt forgiveness of $391,337.

Expenses

For the six months ended July 31, 2007, our operating expenses increased by $933,417 compared to the same period ended July 31, 2006. The Carbiz Auto Credit operating expenses increased by $52,886, including an increase of $51,902 from our Company-owned locations and an increase of $984 from our joint venture location during the six months ended July 31, 2007, while operating expenses for other segments increased by $885,190 during the six months ended July 31, 2007. While overall operating expenses increased primarily due to currency exchange expense and legal expense, personnel expense and selling expense increased by a total of $46,532 as a result of increased advertising and additional staff at all locations.

We have not been investing significant amounts in fixed assets over the past two years. This fact is reflected in the decrease in depreciation and amortization expenses by $4,658 for the six months ended July 31, 2007 as compared to the same period ended July 31, 2006.

Interest Expense

Our interest expense increased by $106,890 for the six months ended July 31, 2007, compared to the same period ended July 31, 2006, as a result of the closing of the convertible debenture and the line of credit. We anticipate our interest expense will increase over this and subsequent years related to the Trafalgar Debentures and as we draw down on our credit facility with Colossus Capital Fund, L.P.

Gain/Loss on Derivative Instruments

For the six months ended July 31, 2007, we incurred a non-cash loss of $843,242 as a result of the fair value adjustment of outstanding derivative instruments. See Note 2 herein. For the same period ended July 31, 2006, we did not incur any similar non-cash expenses.

Software Sales, Support and Consulting

This segment of our business consists of new sales and recurring monthly revenue for software products and consulting products, and other related products including revenue from credit bureau fees, supply sales, and forms programming. Our total software, consulting and other sales during the six months ended July 31, 2007 decreased by $5,372 over the prior period ended July 31, 2006.

Due to the announcement that effective at the end of the 2006 calendar year, we would no longer support one of our DOS-based programs, all users of that program committed to the change to our current product, and all of those installations were completed during the period. We believe that our existing user base is remaining stable while new, incremental software sales should continue to add customers for consulting services. We believe the overall trend also indicates continuing growth of recurring revenue.

Software sales provide opportunities for us to introduce our consulting services to business clients. While our software products facilitate data accumulation and reporting, our consulting services help to interpret the data and provide advice, as well as industry benchmarks, to help dealers improve results. Our consulting focuses on implementing a data tracking product that automates some data analysis, creates a recurring revenue stream and facilitates additional consulting services.

We offer two levels of consulting services targeted mainly to the dealer who provides self-funded, on-site auto financing (Buy Here-Pay Here). The standard package includes unlimited manager training, unlimited “800” number technical support, a monthly benchmarking report of composite data from dealerships using our system, and one training conference per year. The premier package also includes a weekly faxed performance report based on download and analysis of the client’s data. Our consultants provide telephone consultation to discuss the report and provide guidance on areas where improvements could be made. We also may provide customized trend analysis on specialized issues. Also included in the premier package are two or three on-site visits each year by our consultant. Each visit includes a top-to-bottom audit of sales, operations, procedures, marketing activities, inventories, computer systems and financial results.

Carbiz Auto Credit

The fastest growing segment of our business continues to be our Carbiz Auto Credit specialty consumer finance business. We operate three facilities in Florida called “Carbiz Auto Credit,” that originate, underwrite, fund and

collect auto loans to customers with credit difficulties. The scalable business model leverages our industry expertise and proprietary underwriting and collection processes.

We believe that the results from our Palmetto and St. Petersburg corporate locations and Tampa joint venture location for the year ended January 31, 2007 have indicated a strong consumer demand for the finance product in that market, as well as reinforce the effectiveness of our system for operations, marketing, underwriting and collections.

The increase in sales activity during the six months ended July 31, 2007 was the result of an increase in inventory levels at all three locations due to a increase in cash available for the purchase of inventory after the closing and funding of the Trafalgar Debenture and the Credit Facility.

As of the period-ended July 31, 2007, the total Carbiz Auto Credit loan portfolio was $610,776. The allowance for doubtful accounts at the same date was $68,345. The allowance for doubtful accounts is established through the allocation of 100% of any repossessions in process plus 8% of the remaining portfolio balance. All loans are made at an interest rate of 14.95% APR, with no loans made without complete documentation and verification of employment and references. While our underwriting procedures do not take credit score into account, a credit bureau report is done on each customer. While the range of scores varies widely, the average credit score of our customers is approximately 500.

Liquidity and Capital Resources

As of January 31, 2007 and July 31, 2007, we had $67,990 and $91,284, respectively, in cash and cash equivalents. During thesix months ended July 31, 2007, we decreased our accounts payable and accrued liabilities by $716,557, which totaled $516,053 at July 31, 2007. During the six months ended July 31, 2007, we made debt repayments and capital lease payments totaling $449,732, which includes $215,990 paid to retire long term debt and $230,000 to retire short term debt to a related party. We have continued to rely on private placements to meet our cash flow requirements. Operationally, we have not generated the necessary revenue to cover our operating expenses.

On February 28, 2007, we sold an aggregate of $2,500,000 secured convertible debentures to an investor, of which we have received $2,500,000 of gross proceeds as of the date of this report.

On March 23, 2007, we closed a credit facility with Colossus Capital Fund, L.P. that has a maximum commitment of $10 million and expires on March 23, 2011. The initial amount of the credit facility is $5 million, of which $257,725 was borrowed at July 31, 2007. The amount may be increased to $10 million at the option of Carbiz.

We used proceeds from the borrowings primarily to finance our operating loss and expand our Carbiz Auto Credit operations.

As of July 31, 2007, payments due by us over the next five fiscal years for operating and capital leases, and long-term debt are as follows:

		Less Than One		One to Three		Three to		Greater
		Year		Years		Five Years		than Five		Total
Operating Leases	$	195,370	$	214,131	$	384	$	-	$	409,885
Capital Leases		8,027		6,617		-		-		14,644
Long-Term Debt		625,000		1,875,000		-		-		2,500,000
Interest (1)		234,375		109,369		-		-		343,744
	$	1,062,772	$	2,205,117	$	384	$	-	$	3,268,273

(1)

Does not include our credit facility with Colossus Capital Fund, L.P. that has a maximum commitment of $10 million and expires on March 23, 2011. The initial amount of the credit facility is $5 million. The amount may be increased to $10 million at the option of Carbiz. At July 31, 2007, we had total outstanding borrowings under the credit facility of $257,725.

Should our operating revenues fail to increase to provide sufficient cash flow to fund operations, we may require additional financing. Based on six month results and an assumption of meeting business projections for the

remainder of the fiscal year, our current cash flow from operations and our cash on hand are expected to be sufficient to fund our operations untilJanuary 2008. Actual results that vary from projections may require the need for additional cash during that period. Our ability to arrange such financing in the future will depend in part upon the prevailing capital market conditions as well as our business performance. There can be no assurance that we will be successful in our efforts to arrange additional financing, if needed, on terms satisfactory to us or at all. The failure to obtain adequate financing could result in a substantial curtailment of our operations. If additional financing is raised by the issuance of securities, control of Carbiz may change and/or our shareholders may suffer significant dilution.

Off-Balance Sheet Arrangements

As of July 31, 2007, we do not have any off-balance sheet arrangements.

Item 3. Controls and Procedures

Disclosure Controls

Under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer, we evaluated the effectiveness of the design and operation of our disclosure controls and procedures (as defined in Rule 13a-15(e) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”)) as of the end of the period covered by this report (the “Evaluation Date”). Based upon that evaluation, the Chief Executive Officer and Chief Financial officer concluded that, as of the Evaluation Date, our disclosure controls and procedures were operating effectively to ensure that information required to be disclosed by us in reports that we file or submit under the Exchange Act, is recorded, summarized and reported within the time periods specified in the rules and forms of the Securities and Exchange Commission, and accumulated and communicated to management, including the Chief Executive Officer and Chief Financial officer, to allow timely decisions regarding required disclosures.

Internal Control Over Financial Reporting

Our management is responsible for establishing and maintaining adequate internal control over financial reporting to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. No changes in our internal control over financial reporting occurred during our most recent fiscal quarter that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

Notwithstanding the foregoing, because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that our disclosure controls and procedures will detect or uncover every situation involving the failure of persons within our company and our subsidiaries to disclose material information otherwise required to be set forth in our periodic reports. Our disclosure controls and procedures are designed to provide reasonable assurance of achieving their objective of ensuring that information required to be disclosed in the reports that we file or submit under the Exchange Act is communicated to management, including the Chief Executive Officer and Chief Financial Officer, to allow timely decisions regarding required disclosure.

PART II – OTHER INFORMATION

Item 1. Legal Proceedings

None.

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

None

Item 3. Defaults Upon Senior Securities

None.

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

Our Annual & Special Meeting of Shareholders was held at the Hyatt Sarasota at 1000 Boulevard of the Arts, Sarasota, Florida on June 22, 2007 at 5:00 p.m. Our shareholders voted on three items, with results as indicated:

(1)	The election of ten directors to serve until the next annual meeting of shareholders:

Director	No. of Shares	No. of Shares	No. of Shares
	Voted For	Voted Against	Withheld
Carl Ritter	41,296,275	-	200
Ross Quigley	41,296,275	-	200
Richard Lye	41,296,275	-	200
Theodore Popel	41,296,275	-	200
Stanton Heintz	41,296,275	-	200
Christopher Bradbury	41,296,275	-	200
Wallace Weylie	41,296,275	-	200
Vernon Haverstock	41,296,275	-	200
Gene Tomsic	41,296,275	-	200
Brandon Quigley	41,296,275	-	200

(2)	The appointment of Aidman, Piser & Company, Certified Public Accountants as Auditor of the Corporation until the next annual General Meeting.

No. of Shares	No. of Shares		No. of
Voted For	Voted Against	No. of Abstentions	Broker Non-Votes
41,296,275	-	200	-

(3)	To approve our stock option plan.

No. of Shares	No. of Shares		No. of
Voted For	Voted Against	No. of Abstentions	Broker Non-Votes
39,183,519	50,366	2,062,590	-

Item 5. Other Information

None.

Item 6. Exhibits

The following exhibits are filed (or incorporated by reference herein) as part of this Form 10-QSB:

	Exhibit
	Number	Description
	31.1	Certification of Chief Executive Officer pursuant to Rule 13a-14(a)
	31.2	Certification of Chief Financial Officer pursuant to Rule 13a-14(a)
	32.1	Certification of Chief Executive Officer pursuant to 18 U.S.C. Section 1350
	32.2	Certification of Chief Financial Officer pursuant to 18 U.S.C. Section 1350

SIGNATURES

In accordance with the requirements of the Exchange Act, the registrant has caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

	CARBIZ INC.



Date: September 14, 2007	/s/ Carl Ritter
	Carl Ritter
	Chief Executive Officer
	(principal executive officer)

Year ending July 31

Less unamortized discount

(2,027,091