Auto Underwriters of America (ADWT) 10QSB/A 2007 Q1 Quarterly report (small business) (amended)

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-QSB/A

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

For the fiscal quarter ended:	Commission file number:
September 30, 2006	0-11582

Auto Underwriters of America, Inc.

(Exact name of registrant as specified in its charter)

California	��	94-2915849
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification No.)

2670 South White Road, Suite 241, San Jose California

(Address of principal executive offices)

95148

(Zip Code)

(408) 270-3587

(Registrant's telephone number, including area code)

Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for at least the past 90 days.

Yes [X] No [  ]

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

Yes [  ] No [X]

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

	Outstanding at
Title of Each Class	November 20, 2006
Common Stock, no par value	6,018,570

Transitional Small Business Disclosure Format

Yes [  ] No [X]

AUTO UNDERWRITERS OF AMERICA, INC.

TABLE OF CONTENTS

		PAGE
PART I.	FINANCIAL INFORMATION
Item 1.	Financial Statements
	Balance Sheet as of September 30, 2006	3
	Statements of Operations for the Three Months Ended September 30, 2006 and 2005	4
	Statements of Cash Flows for the Three Months Ended September 30, 2006 and 2005	5
	Notes to Financial Statements	6 - 7
Item 2.	Management’s Discussion and Analysis of Financial Condition	8 - 11
Item 3.	Controls and Procedures	12
PART II.	OTHER INFORMATION
Item 1.	Legal Proceedings	13
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	13
Item 3.	Default Upon Senior Securities	13
Item 4.	Submission of Matters to a Vote of Security Holders	13
Item 5.	Other Information	13
Item 6.	Exhibits	14

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Part I. Financial Information

As of the date of the Quarterly Report on Form 10-QSB, our independent auditor had not yet compelted its review of the financial statements included herein.

Item 1.  Financial Statements

Auto Underwriters of America, Inc.

Balance Sheet

September 30, 2006

(Unaudited)

Assets:
Cash	$	34,001
Finance receivables, net of allowance of $2,642,145		7,405,146
Accounts receivables		29,280
Inventory		861,790
Prepaid and other assets		70,215
Deferred financing costs		226,758
Property and equipment, net of accumulated depreciation of $29,976		128,262
Total assets	$	8,755,452
Liabilities and stockholders’ equity:
Liabilities:
Accounts payable and accrued liabilities	$	767,851
Drafts payable and floor plan liabilities		216,505
Income taxes payable		-
Notes payable		1,761,944
Advance from related parties		674,995
Deferred sales tax		681,440
Revolving credit facilities		8,527,982
Total liabilities		12,630,717
Commitments and contingencies
Stockholders’ equity:
Preferred stock: no par value: 10,000,000 authorized 423,020 issued or outstanding		909,492
Common stock: no par value: 100,000,000 authorized 6,418,570 issued or outstanding		6,468,364
Retained deficit		(11,253,121	)
Total stockholders’ equity		(3,875,265	)
Total liabilities and stockholder’s equity	$	8,755,452

See Notes to Financial Statements unaudited.

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Auto Underwriters of America, Inc.

Statements of Operations

For the three months ended September 30, 2006 and 2005

(Unaudited)

	2006			2005
Revenues:
Sales	$	862,990		$	5,490,278
Interest income		390,437			535,949
Other		19,972			185,097
Total revenues		1,273,398			6,211,324
Costs and expenses:
Cost of sales		566,397			3,526,713
Selling, general and administrative		602,200			1,220,188
Provision for credit losses		213,267			1,122,379
Discount on sales of receivables		-			78,455
Depreciation and amortization		103,103			15,804
Interest expense		377,744			289,950
Total costs and expenses		1,862,711			6,253,489
Loss before income taxes		(589,313	)		(42,165	)
Provision for income tax benefit (expense)		-			-
Net loss	$	(589,313	)	$	(42,165	)
Loss per share:
Basic and diluted	$	(.09	)	$	(0.01	)
Weighted average number of shares outstanding:
Basic and diluted		6,418,570			6,020,053

See Notes to Financial Statements unaudited.

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Auto Underwriters of America, Inc.

Statements of Cash Flows

For the three months ended September 30, 2006 and 2005

(Unaudited)

	2006			2005
Operating activities:
Net loss	$	(589,313	)	$	(42,165	)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization		103,103			15,804
Discount on sale of finance receivables		-			78,455
Change in finance receivables, net:
Finance receivables originations and purchased, net of payments		(718,763	)		(3,300,472	)
Provision for credit losses		213,267			1,122,379
Inventory acquired in repossession		474,198			917,865
Subtotal finance receivables		(31,298	)		(1,260,228	)
Changes in operating assets and liabilities:
Deferred financing cost		34,837			(39,375	)
Accounts receivable		17,742			(682,332	)
Inventory		(576,655	)		(588,569	)
Prepaid and other expense		(6,713	)		(20,828	)
Accounts payable and accrued liabilities		(64,312	)		619,994
Deferred sales taxes		(113,550	)		201,554
Income tax payable		-			-
Net cash used in operating activities		(1,226,159	)		(1,717,690	)
Investing activities:
Purchase of property and equipment		-			(3,564	)
Sale (purchase) of finance receivables		-			(170,576	)
Proceeds from sale of finance receivables		-			1,146,174
Net cash provided by investing activities		-			972,034
Financing activities:
Proceeds from (repayments to) related party		2,799			(1,000	)
Proceeds from revolving credit facilities, net		(485,043	)		486,146
Repayments on other notes payable		828,751			(28,252	)
Proceeds from Series A Preferred Stock		909,492			382,500
Net cash provided by financing activities		1,255,999			839,394
Increase (decrease) in cash		29,840			(93,738	)
Cash at beginning of period		4,161			68,112
Cash at end of period	$	34,001		$	161,850
Cash paid for:
Interest	$	377,744		$	289,950
Income tax		-			-

See Notes to Financial Statements unaudited.

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Auto Underwriters of America, Inc.

Notes to Financial Statements

(Unaudited)

NOTE 1 - BASIS OF PRESENTATION

The accompanying unaudited interim financial statements of Auto Underwriters of America, Inc. ("Auto Underwriters") have been prepared in accordance with accounting principles generally accepted in the United States of America and the rules of the Securities and Exchange Commission ("SEC"), and should be read in conjunction with the audited consolidated financial statements and notes thereto contained in Auto Underwriters' Annual Report filed with the SEC on Form 10-KSB. In the opinion of management, all adjustments, consisting of normal recurring adjustments, necessary for a fair presentation of financial position and the results of operations for the interim periods presented have been reflected herein. The results of operations for the interim periods are not necessarily indicative of the results to be expected for the full year. Notes to the financial statements which would substantially duplicate the disclosure contained in the audited consolidated financial statements for fiscal 2006 as reported in the 10-KSB have been omitted.

NOTE 2 - GOING CONCERN

As shown in the accompanying financial statements, Auto Underwriters has incurred recurring losses from operations in 2006 and 2005 and has an accumulated deficit of $11,253,121 as of September 30, 2006. These conditions raise substantial doubt as to Auto Underwriters’ ability to continue as a going concern. The financial statements do not include any ajustments that might result from the outcome of this uncertainty.

NOTE 3 - FINANCE RECEIVABLES

Auto Underwriters originates installment sale contracts from the sale of used vehicles at its dealerships. These installment sale contracts typically include interest rates ranging from approximately 12% to 27% per annum and provide for payments over periods ranging from 18 to 60 months. The components of finance receivables as of September 30, 2006 are as follows:

	2006
Finance receivables	$	9,655,177
Allowance for credit losses		(2,250,031	)
Finance receivables, net	$	7,405,146

Changes in the finance receivables allowance for credit losses for the three months ended September 30, 2006 are as follows:

	2006
Balance at beginning of period	$	2,417,301
Provision for credit losses		213,267
Net charge offs		(854,735	)
Net recoveries		474,198
Balance at end of period	$	2,250,031

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NOTE 4 - REVOLVING CREDIT FACILITIES

Auto Underwriters has a $9,000,000 revolving line of credit (“LOC”) with Oak Rock Financial, LLC, bearing interest at the greater of prime+7% or 15.25% and expires on March 31, 2007. The LOC is secured by all of Auto Underwriters’ assets and a personal validity guarantee by our President. At September 30, 2006, the LOC balance outstanding was $8,527,982.

NOTE 5 - SHORT TERM DEBTS

During fiscal 2006, Auto Underwriters borrowed $990,000 from several investors. These loans are unsecured, bear interest at 9.25%, and are due February 28, 2007. These loans are convertible into660,000 shares of common stock at conversion price of $1.50 per share.

During fiscal 2006, Auto Underwriters borrowed $1,000,000 from several investors. These loans were secured by the Company’s inventory, bearing interest at 10%, and were due September 1, 2006. In August 2006, certain investors elected to convert $700,000 of these loans into 400,000 shares of common stock and five-year stock purchase warrants exercisable for a total of 140,000 shares of the Company’s Common Stock at an exercise price of $1.75 per share. In August 2006, certain investors elected to receive a replacement note with a total balance of $50,000. These replacement notes bear interest at 10%, have a new maturity date of August 31, 2007, and include a five-year stock purchase warrant exercisable for a total of 10,000 shares of the Company’s Common Stock at an exercise price of $1.75. The Company paid $250,000 in cash plus accrued interest to the remaining investors that elected to not convert or extend the term of their loans.

Auto Underwriters analyzed these instruments for derivative accounting consideration under SFAS 133 and EITF 00-19. Auto Underwriters determined the convertible notes were conventional and the warrants met the criteria for classification in stockholders equity under SFAS 133 and EITF 00-19. Therefore, derivative accounting is not applicable for these instruments. Auto Underwriters also analyzed these instruments for Beneficial Conversion Features under EITF 98-5 and EITF 00-27. Because the conversion price exceeds the market trading price of Auto Underwriters’ common stock when the loans were issued, a Beneficial Conversion Feature was not created.

NOTE 6 - EQUITY

During the three months ended September 30, 2006, the Company sold 211,510 units of the Company’s securities at a price of $5.00 per unit. Each unit consists of two shares of the Company’s Series A Convertible Preferred Stock and one warrant to purchase one share of the Company’s common stock exercisable for a period of five years at an exercise price of $5.00.

Auto Underwriters analyzed these instruments for derivative accounting consideration under SFAS 133 and EITF 00-19. Auto Underwriters determined the convertible notes were conventional and the warrants met the criteria for classification in stockholders equity under SFAS 133 and EITF 00-19. Therefore, derivative accounting is not applicable for these instruments. Auto Underwriters also analyzed these instruments for Beneficial Conversion Features under EITF 98-5 and EITF 00-27. Because the conversion price exceeds the market trading price of Auto Underwriters’ common stock when the loans were issued, a Beneficial Conversion Feature was not created.

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

The following discussion should be read in conjunction with our financial statements and notes thereto appearing elsewhere in this report.

Cautionary Statement Regarding Forward-looking Information

This Form 10-QSB/A for the quarter ended September 30, 2006 contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934, including statements regarding, among other items, our growth strategies, anticipated trends in our business and our future results of operation, market conditions in the automobile finance industry and the impact of governmental regulation. These forward-looking statements are based largely on our expectations and are subject to a number of risks and uncertainties, many of which are beyond our control. Actual results could differ materially from these forward-looking statements as a result of, among other things:

•       The creditworthiness of contract obligors;

•       Economic factors affecting delinquencies;

•       Our ability to retain and attract experienced and knowledgeable personnel;

•       Our ability to purchase installment contracts; and

•       Our ability to compete in the consumer finance industry.

In addition, the words “believe,” “may,” “will,” “estimate,” “continue,” “anticipate,” “intend,” “expect,” and similar expressions, as they relate to us, our business or our management, are intended to identify forward-looking statements.

We undertake no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events or otherwise after the date of this Form 10-QSB/A. In light of these risks and uncertainties, the forward-looking events and circumstances discussed in this Form 10-QSB/A may not occur and actual results could differ materially from those anticipated or implied in the forward-looking statements.

Business Overview

Auto Underwriters of America, Inc. began operations in August 1983 under the name Advanced Cellular Technology, Inc. and developed and marketed cellular mobile telephone control units and resold used PBX telecommunications equipment. On December 31, 1990, we suspended operations and remained inactive until December 2002, when we adopted our current name and began our principal operations as a specialty finance company and specialty retailer of used cars and light trucks.

We began our specialty finance company operations in December 2002 to engage in the purchasing and servicing of non-prime installment contracts (“contracts”) generated by automobile dealers in the sale of new and used automobiles and light trucks. We provide financing programs to automobile dealers through our website Autounderwriters.com which allows the dealer to input various fields of information into an online financing application and obtain an automatic credit decision within 30 seconds. Generally our target customers do not meet the credit standards of traditional lenders, such as banks and credit unions, because of the age of the vehicle being financed or the customer’s credit history. Unlike traditional lenders, which look primarily to the credit history of the borrower in making lending decisions and typically finance new automobiles, we are willing to provide financing for purchases made by our customers who have short or impaired credit histories and for used automobiles. In making decisions regarding the financing of a particular contract, we consider several factors related to the borrower: place and length of residence, current and prior job status, history in making installment payments for automobiles, current income and credit history. In addition, we examine the value of the automobile in relation to the purchase price and the term of the contract. 

We began our specialty automotive retailing operations which focuses on the “Buy Here/Pay Here” segment of the used car market in January 2004. We purchase, recondition, sell and finance used vehicles from three dealerships in Houston, Texas that operate under the name Affordable Cars & Trucks. We advertise extensively on television and in

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auto sales magazines emphasizing our multiple locations, wide selection of vehicles, and ability to provide financing to a wide array of customers.

We are still at an early stage in the rollout of our financing programs and retail concept. The primary drivers for future earnings growth will be vehicle unit sales growth from geographic expansion, comparable store sales increases, and interest income from growth in our finance receivable portfolio. During the next two years, we plan to focus our growth primarily on adding stores to new markets in the state of Texas. In addition, in fiscal 2006 we plan to expand our network of automobile dealers that utilize our financing programs in the states we currently service. Over the three-year period, we plan to open new used car stores. We also expect used unit comparable store sales increases, reflecting the multi-year ramp up in sales of newly opened stores as they mature and continued market share gains at stores that have reached mature sales levels. On a combined basis, we expect that new store openings and comparable store used unit increases will drive total used unit growth.

The principal challenges we face in expanding our store and dealer base and meeting our growth targets include:

•       Our ability to procure suitable real estate at reasonable costs. Real estate acquisition will be an increasing challenge as we enter large, multi-store markets.

•       Our ability to build our management team to support the store growth.

•       Our ability to maintain a competitive indirect finance program for franchise and independent dealers.

We staff each newly opened store with an experienced management team, including the general manager, purchasing manager, and business office manager, as well as a number of experienced sales managers and account servicing personnel. We must therefore be continually recruiting, training, and developing managers to support future store openings. If at any time we believe that the rate of store growth is causing our performance to falter, we will slow the growth rate.

Results of Operations

Three months ended September 30, 2006 compared to the three months ended September 30, 2005

Revenues

Total revenues decreased to $1,273,398 for the three month period ending September 30, 2006 compared to the corresponding period ended September 30, 2005 of 6,211,324 principally as a result of the Company’s inability to operate at full capacity because of insufficient capital.

Cost of Sales

Cost of sales as a percentage of automobile and light truck sales was 64.5% or $566,397 for the three month period ending September 30, 2006. During the corresponding period ended September 30, 2005, cost of sales as a percentage of automobile and light truck sales was 64.2% or $3,526,713.

Selling, General and Administrative Expenses

Selling, general and administrative expenses decreased by $617,988 for the three month period ending September 30, 2006 compared to the corresponding period ended September 30, 2005. This decrease was primarily attributable to the reduction in expenses related to staffing andgeneral operating expenses as the Company sought to conserve its resources until such time that it was able to obtain the necessary capital to expand operations.

Interest Expense

Interest expense increased to $377,744 for the three month period ending September 30, 2006 as compared to $289,950 for the corresponding period ended September 30, 2005. The increase in interest expense was primarily due to the increase in borrowings from a line of credit and increased borrowing costs.

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Liquidity and Capital Resources

The following table summarizes our liquidity and capital resources for the three months ended September 30, 2006 and 2005.

Auto Underwriters of America, Inc

(unaudited)

	Three Months ended September 30,
	2006			2005
Operating activities:
Net income (loss)	$	(589,313	)	$	(42,165	)
Depreciation and amortization		103,103			15,804
Discount on sale of loans		-			78,455
Changes in finance receivables, net:		(31,298	)		(1,260,228	)
Changes in operating assets and liabilities:		(708,651	)		(509,556	)
Net cash used in operating activities		(1,226,159	)		(1,717,690	)
Cash provided by investing activities:		-			972,034
Cash provided by financing activities:		1,255,999			839,394
Increase (decrease) in cash	$	29,840		$	93,738

Our primary use of working capital was the funding of the origination and purchase of contracts and inventory. The contracts were financed substantially through borrowings on the revolving line of credit. The line of credit is secured primarily by contracts, and available borrowings are based on a percentage of qualifying contracts. We have also funded a portion of our working capital needs through the issuance of Series A Convertible Preferred Stock.

We believe that borrowings available under the line of credit as well as cash flow from operations and, if necessary, the issuance of additional subordinated debt, or the sale of additional securities, will be sufficient to meet our short-term funding needs.

Critical Accounting Policies

The preparation of financial statements in conformity with generally accepted accounting principles in the United States of America requires us to make estimates and assumptions in determining 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 reported period. Actual results could differ from our estimates. We believe the most significant estimate made in the preparation of the accompanying consolidated financial statements relates to the determination of our allowance for credit losses. Below is a discussion of our accounting policy concerning such allowance. Other accounting policies are disclosed in the footnotes of our consolidated financial statements which are included in our annual report on Form 10-KSB for the year ended June 30, 2005.

We maintain an allowance for credit losses at a level we consider sufficient to cover anticipated losses in the collection of our finance receivables. The allowance for credit losses is determined based upon a review of historical, recent credit losses, and the finance receivable portfolio. The allowance for credit losses is periodically reviewed by management with any changes reflected in current operations. It is at least reasonably possible that actual credit losses may be materially different from the recorded allowance for credit losses.

Seasonality

Our automobile sales and finance business is seasonal in nature. In such business, the second fiscal quarter (October through December) is historically the slowest period for vehicle sales. The third fiscal quarter (January

10

through March) is historically the busiest time for vehicle sales as many of our customers use income tax refunds as a down payment on the purchase of a vehicle.

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Item 3. Controls and Procedures

Under the supervision and with the participation of our management, including our principal executive officer (PEO) and principal financial officer (PFO), we conducted an evaluation of the effectiveness of the design and operation of our disclosure controls and procedures, as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934 (the “Exchange Act”). Based on this evaluation, our management, including our PEO and our PFO, concluded that our disclosure controls and procedures were not effective as of September 30, 2006, to ensure that information required to be disclosed by us in the reports filed or submitted by us under the Exchange Act (i) is recorded, processed, summarized and reported within the time periods specified in SEC rules and forms, and (ii) is accumulated and communicated to our management, including our PEO and our PFO, as appropriate, to allow timely decisions regarding required disclosure. We identified a deficiency that existed in the design or operation of our internal control over financial reporting that we consider to be “material weakness.” The Public Company Accounting Oversight Board has defined a material weakness as a “significant deficiency or combination of significant deficiencies that results in more than a remote likelihood that a material misstatement of the annual or interim financial statements will not be prevented or detected.” The deficiency in our internal control related to our inability to prepare and report our financial information within the time periods as specified in SEC rules and forms. We are in the process of improving our internal control over financial reporting in an effort to remediate this deficiency through improved supervision and training of our accounting staff. This deficiency has been disclosed to our Board of Directors. Additional effort is needed to fully remedy these deficiencies and we are continuing our efforts to improve and strengthen our control processes and procedures.

There has been no change in our internal control over financial reporting during the quarter ended September 30, 2006 that has materially affected, or is reasonably likely to materially affect our internal control over financial reporting.

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PART II.OTHER INFORMATION

ITEM 1.	LEGAL PROCEEDINGS
	Not Applicable
ITEM 2.	UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS.
	During the quarter ended September 30, 2006, we issued the following securities in private transactions pursuant to an exemption from the registration requirements provided by Section 4(2) of the Securities Act of 1933, as amended, and Rule 506 of Regulation D promulgated thereunder:

Purchaser and Recipient of Securities	Date	Terms of Exercise if Convertible	Title of Security	Number Sold or Granted	Consideration Received
Group of Accredited Investors	Various Dates	$2.50	Units(1)	211,510	$1,057,549
Group of Accredited Investors	8/23/2006	(2)	(2)	(2)	(2)

(1)

During the three months ended September 30, 2006, the Company sold 211,510 units of the Company’s securities at a price of $5.00 per unit. Each unit consists of two shares of the Company’s Series A Convertible Preferred Stock and one warrant to purchase one share of the Company’s common stock exercisable for a period of five years at an exercise price of $5.00 (the “Investor Warrants”). The offer and sale was conducted on behalf of the Company by a NASD-licensed broker-dealer who served as managing dealer (the “Managing Dealer”) and received a sales commission of 7%, an investment banking and marketing fee of 4% and a nonaccountable expense allowance of 3% of the gross proceeds of $1,057,549. The Managing Dealer also received a warrant to purchase 1,000,000 shares of the Company’s Common Stock, exercisable for a period of 5 years at $1.00 per share. The Managing Dealer will also receive (i) a cash commission of 7% of the total funds received by the Company upon exercise of the Investor Warrants, and (ii) warrants, exercisable for a period of 5 years at an exercise price of $2.50 per share, to purchase the number of shares of Common Stock of the Company equal to 7% of the total number of shares of Common Stock issued by the Company upon exercise of the Investor Warrants. The terms of the Series A Convertible Preferred Stock, including but not limited to its rights and preferences, are set forth in the Certificate of Determination of Preferences of Series A Convertible Preferred Stock attached as Exhibit 3.2 to the Company’s Form 8-K filed under Item 5.03 on September 7, 2006.

(2)

During fiscal 2006, Auto Underwriters borrowed $1,000,000 from several investors. These loans were secured by the Company’s inventory, bearing interest at 10%, and were due September 1, 2006. In August 2006, certain investors elected to convert $700,000 of these loans into 400,000 shares of common stock and five-year stock purchase warrants exercisable for a total of 140,000 shares of the Company’s Common Stock at an exercise price of $1.75 per share. In August 2006, certain investors elected to receive a replacement note with a total balance of $50,000. These replacement notes bear interest at 10%, have a new maturity date of August 31, 2007, and include a five-year stock purchase warrant exercisable for a total of 10,000 shares of the company’s Common Stock at an exercise price of $1.75.  The Company paid $250,000 in cash plus accrued interest to the remaining investors that elected to not convert or extend the term of their loans.  The Company has agreed to pay a NASD-licensed broker dealer a fee of $32,000 for their assistance in completing this transaction.

ITEM 3.	DEFAULT UPON SENIOR SECURITIES
	Not Applicable
ITEM 4.	SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
	Not Applicable
ITEM 5.	OTHER INFORMATION
	During the fiscal years ended June 30,2005 and 2006, we sold certain non-prime installment contracts to an unaffiliated finance company, We are currently engaged in a dispute with the finance company concerning these installment contracts and money owed. We do not believe that the finance company has been properly crediting the residual payments due to us on the installment contracts, while the finance company believes that we have not met our obligations to repurchase certain defaulted installment contracts. We are currently in discussions with the finance company to resolve this dispute without the need for litigation. As a result of this dispute, the Company has charged-off its receivable balance due from this finance company of approximately $1,100,000 on June 30, 2006 and have maintained a payable of approximately $152,000 for future repurchases.

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ITEM 6.	EXHIBITS
31.1	Principal Executive Officer Certification under Section 302 of the Sarbanes-Oxley Act of 2002
31.2	Principal Financial Officer Certification under Section 302 of the Sarbanes-Oxley Act of 2002
32.1	Principal Executive Officer Certification under Section 906 of the Sarbanes-Oxley Act of 2002
32.2	Principal Financial Officer Certification under Section 906 of the Sarbanes-Oxley Act of 2002

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SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities and Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

Auto Underwriters of America, Inc.

By:   /s/ Dean Antonis

Dean Antonis

President and Treasurer (Principal Executive,

Financial and Accounting Officer)

Dated: November 21, 2006

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