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

FORM 10-Q
_______________

(Mark One)

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

For the quarterly period ended October 31, 2009

OR

[   ] 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 registrant as specified in its charter)
_______________

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

7115 16^th Street East, Suite 105
Sarasota, Florida 34243
(Address of principal executive offices)

(941) 952-9255
(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 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 the past 90 days. Yes [X]    No [   ]

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if
any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of regulation S-T (Section
229.405) during the preceding 12 months (or for such shorter period that the registrant was required to submit and
post such files). Yes [   ]    No [   ]

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer,
or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting
company” in Rule 12b-2 of the Exchange Act. (Check one):

Large accelerated filer [   ]	Accelerated filer [   ]	Non-accelerated filer [   ]	Smaller reporting company [X]
		(Do not check if a smaller
		reporting company)

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

As of December 15, 2009, 104,560,373 common shares of the Registrant were issued and outstanding.

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CARBIZ INC.

FORM 10-Q

For the Quarterly Period Ended October 31, 2009

INDEX

PART I	Financial Information	1
Item 1.	Financial Statements	1
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	32
Item 3.	Quantitative and Qualitative Disclosures about Market Risk	45
Item 4T	Controls and Procedures	45
PART II	Other Information	46
Item 1.	Legal Proceedings	46
Item 1A	Risk Factors	46
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	46
Item 4.	Submission of Matters to a Vote of Security Holders	46
Item 5.	Other Information	46
Item 6.	Exhibits	46

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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)	our ability to obtain additional financing on terms favorable to us, if at all;
	(ii)	whether we are successful in implementing our business strategy;
	(iii)	our ability to increase revenues in the future and to continue as a going concern;
	(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)	potential infringement by us of third parties’ proprietary rights;
	(xv)	defects in our products;
	(xvi)	our compliance with privacy laws;
	(xvii)	our ability to obtain adequate remedies in the event that our intellectual property rights are violated;
	(xviii)	our ability to develop and market on a timely and cost-effective basis new products that meet changing market conditions, and
	(xix)	the risk factors identified in our most recent Annual Report on Form 10-K, including factors identified under the headings “Description of Business,” “Risk Factors” and “Management’s Discussion and Analysis or Plan of Operation.”

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. Unless otherwise indicated, all dollar amounts expressed herein are in U.S. dollars.

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PART 1 – FINANCIAL INFORMATION

Item 1. Financial Statements

CARBIZ INC.

Condensed Consolidated Balance Sheets

		October 31, 2009			January 31, 2009
		(unaudited)
ASSETS
CURRENT
Cash and cash equivalents	$	312,159		$	674,624
Accounts receivable, net		295,220			85,649
Current portion of notes receivable, net		8,725,777			5,945,345
Current portion net investment in direct
financing and sales-type leases		5,515,229			-
Inventory		2,603,717			2,923,696
Prepaid and other assets		611,541			333,046
		18,063,643			9,962,360
NON-CURRENT
Notes receivable, less current portion		9,452,926			13,999,053
Net investment in direct financing and
sales-type leases, less current portion		2,298,012			-
Deferred financing costs and prepaid interest		3,500,727			625,197
Property plant and equipment, net		679,322			596,415
	$	33,994,630		$	25,183,025
LIABILITIES
CURRENT
Accounts payable and accrued liabilities	$	2,762,208		$	4,527,041
Notes Payable
Line of credit		22,715,232			36,696,175
Inventory floor plan		4,987,453			4,596,590
Short Term		55,070			-
Other Debt		130,075			-
Related party		-			200,000
Current portion of capital lease obligation		-			2,620
Current portion of convertible debentures		680,284			255,113
Derivative liabilities		4,546,874			11,796,217
Deferred revenue		143,756			1,985
		20,686,385			58,075,741
NON-CURRENT
Notes Payable, less current portion		756,771			-
Convertible debenture, less current portion		-			1,855,330
		36,777,723			59,931,071
COMMITMENTS AND CONTIGENCIES		-			-
STOCKHOLDERS' DEFICIENCY
COMMON SHARES		20,818,928			19,364,233
Unlimited shares authorized, 102,520,603 and 87,744,296 common shares
issued and outstanding at October 31, 2009 and January 31, 2009
ADDITIONAL PAID-IN CAPITAL		7,752,847			6,788,937
ACCUMULATED OTHER COMPREHENSIVE LOSS		(385,197	)		(385,197	)
ACCUMULATED DEFICIT		(30,969,671	)		(60,516,019	)
		(2,783,093	)		(34,748,046	)
	$	33,994,630		$	25,183,025

The accompanying notes are an integral part of these condensed consolidated financial statements.
1

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CARBIZ INC.

Condensed Consolidated Statements of Operations

(Unaudited)

		For the three months ended						For the nine months ended
		October 31,						October 31,
		2009			2008			2009			2008
SALES
Used car sales	$	5,776,463		$	12,303,021		$	18,728,265		$	25,712,851
Used car sales from sales type leases		537,844			-			5,219,904			-
Consulting and collection services		93,944			112,449			418,956			1,100,708
Interest and lease income		1,996,279			1,467,773			5,372,162			4,776,903
		8,404,530			13,883,243			29,739,287			31,590,462
COST OF SALES (exclusive of depreciation
included in other operating expenses)
Used car costs		4,732,860			8,139,743			16,264,791			17,659,835
Consulting and collection services		382,135			164,107			1,006,279			819,390
		5,114,995			8,303,850			17,271,070			18,479,225
GROSS PROFIT		3,289,535			5,579,393			12,468,217			13,111,237
OPERATING EXPENSES
Personnel expenses		771,627			640,276			2,084,275			1,934,087
Selling expenses		160,796			272,307			452,671			668,552
Professional fees		313,742			142,221			865,735			804,828
Provision for credit losses		3,046,982			4,729,559			6,422,508			8,863,710
Gain on sale of software assets		-			-			-			(2,514,229	)
Loss on extinguishment of debt		-			1,205,720			-			1,205,720
Other operating expenses		1,184,106			1,075,658			3,628,209			3,340,069
		5,477,253			8,065,741			13,453,398			14,302,737
OPERATING LOSS		(2,187,718	)		(2,486,348	)		(985,181	)		(1,191,500	)
INTEREST AND OTHER EXPENSES		(3,185,259	)		(3,037,922	)		(5,195,410	)		(6,822,286	)
GAIN (LOSS) ON DERIVATIVE
FINANCIAL INSTRUMENTS		3,237,448			(287,417	)		3,172,211			3,758,246
GAIN (LOSS) ON EXTINGUSHIMENT OF DEBT		(7,059	)					33,192,228
LOAN PORTFOLIO PURCHASE
TRANSACTION COSTS		-			-			(637,500	)		-
NET INCOME (LOSS) FOR THE PERIOD	$	(2,142,588	)	$	(5,811,687	)	$	29,546,348		$	(4,255,540	)
NET INCOME (LOSS) PER SHARE:
Basic	$	(0.02	)	$	(0.08	)	$	0.29		$	(0.06	)
Diluted	$	(0.02	)	$	(0.08	)	$	0.13		$	(0.06	)
WEIGHTED AVERAGE SHARES OUTSTANDING
Basic		102,520,603			74,737,369			101,150,545			68,615,340
Diluted		102,520,603			74,737,369			224,800,252			68,615,340

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

2

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CARBIZ INC.

Condensed Consolidated Statements of Cash Flows

(unaudited)

		For the Nine Months Ended
		October 31, 2009			October 31, 2008
NET INFLOW (OUTFLOW) OF CASH RELATED
TO THE FOLLOWING ACTIVITIES:
OPERATING ACTIVITIES
Net Income (Loss)	$	29,546,348		$	(4,255,539	)
Items not affecting cash:
Depreciation of property and equipment		120,771			107,511
Gain on derivative liabilities		(3,172,211	)		(3,758,246	)
Gain on sale of software operations		-			(2,514,229	)
Gain on extinguishment of debt		(33,192,228	)
Loss on extinguishment of debt		-			1,205,720
Amortization of deferred financing costs		435,214			442,306
Amortization of prepaid interest		395,601			-
Amortization of debt discount		746,862			2,544,482
Share-based compensation		182,625			263,959
Provision for credit losses		6,422,508			8,863,710
Net changes in operating assets and liabilities:
Accounts receivable		(238,509	)		(27,905	)
Notes receivable		(2,947,918	)		(9,992,240	)
Net investment in direct financing and sales-type leases		(10,438,641	)		-
Prepaids and other assets		(278,495	)		63,573
Inventory		319,979			(1,111,994	)
Deferred costs		-			2,490
Accounts payable and accrued liabilities		(1,734,676	)		330,985
Deferred revenue		141,771			(48,409	)
NET CASH FLOWS FROM OPERATING ACTIVITIES		(13,690,999	)		(7,883,826	)
INVESTING ACTIVITIES
Proceeds from sale of software operations		-			2,500,000
Acquisition of Star Financial assets		(7,921,997	)		-
Proceeds from sale of notes receivable		2,947,577			-
Acquisition of property and equipment		(193,678	)		(238,328	)
NET CASH FLOWS FROM INVESTING ACTIVITIES		(5,168,098	)		2,261,672
FINANCING ACTIVITIES
Repayment of capital leases		(2,620	)		(6,234	)
Proceeds from line of credit, net		17,493,681			4,863,147
Payments on term loan financing		(16,579,643	)		-
Proceeds under term loan financing		16,685,934			-
Repayment of related party debt		(200,000	)		-
Proceeds from exercise of warrants		1,099,280			182,149
NET CASH FLOWS FROM FINANCING ACTIVITIES		18,496,632			5,039,062
EFFECT OF EXCHANGE RATE CHANGES ON CASH
AND CASH EQUIVALENTS		-			(348	)
INCREASE (DECREASE) IN CASH AND
CASH EQUIVALENTS		(362,465	)		(583,440	)
CASH AND CASH EQUIVALENTS,
BEGINNING OF PERIOD		674,624			1,141,271
CASH AND CASH EQUIVALENTS,
END OF PERIOD	$	312,159		$	557,831

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

3

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CARBIZ INC.

Notes to the Condensed Consolidated Financial Statements

October 31, 2009 and 2008

(unaudited)

1.	BASIS OF PREPARATION AND SUMMARY OF ACCOUNTING POLICIES
	The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States (“GAAP”) for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by GAAP for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation of the results of operations for the periods presented have been included. Operating results for the nine months ended October 31, 2009 and 2008 are not necessarily indicative of the results that may be expected for the fiscal year. The balance sheet at January 31, 2009 has been derived from the audited financial statements at that date, but does not include all of the information and footnotes required by GAAP for complete financial statements.
	Readers should read these condensed consolidated financial statements together with the historical consolidated financial statements of the Company for the years ended January 31, 2009, and 2008, included in our Annual Report on Form 10-K for the year ended January 31, 2009, filed with the Securities and Exchange Commission (“SEC”) on April 24, 2009 (the “Annual Report”).
	References to the Company or Carbiz include the Company’s consolidated subsidiaries. All dollar figures presented in the condensed consolidated financial statements are denominated in U.S. dollars unless otherwise indicated.
	Accounts, notes receivable and net investment in direct financing and sales-type leases
	Accounts receivable, notes receivable and net investment in direct financing and sales-type leases (referred to as “lease receivables”) consist of balances due from customers related to consulting and collections services and the sale or leasing of used automobiles. They are presented in the condensed consolidated balance sheet net of an allowance for credit losses. Accounts receivables typically have terms of net 30 days. Notes and lease receivables have remaining terms ranging from 1 to 60 months and require weekly, bi-weekly or monthly payments. Note receivable interest is calculated weekly based on the outstanding balance and lease receivable interest is imputed in the lease payments.
	Allowance for credit losses and concentration of credit risk
	The allowance reflects the Company’s best estimate of probable losses inherent in the accounts, notes and lease receivables. The Company determines the allowances based on known troubled accounts, historical experience of collections, write-offs and asset recoveries, credit quality of customers and other industry and Company economic considerations.
	The Company initiates steps to pursue collection of payments for notes or lease receivables upon the customer’s first missed payment. Initial steps may include contacting the customer via telephone, performing a field visit to the customer’s work or home, or activating the automobile’s onboard starter disrupt system. When the initial steps are not successful, the Company then takes steps to repossess the automobile. While we have a successful history of recovering automobiles that secure delinquent loans through repossession, as is experienced widely in our industry, we generally are unable to recover a significant amount of value from the ultimate sale of the repossessed vehicle relative to the associated note or lease receivable. This is typically due to the deteriorated condition of the repossessed automobile. During our year ending January 31, 2009, our recovery amount as a percent of our gross write-offs amounted to 12.5% (8.4% for the two year period ended January 31, 2009). We will continue to make attempts to improve recovery percentages; however, we currently anticipate that the recovery percentages that we will experience in the foreseeable future will be consistent with this amount.
	Once the automobile is in the Company’s possession, and the applicable State’s statutory notice period for repossessed accounts has passed, typically 0 to 30 days, the vehicle is liquidated and the associated receivable account is charged off. In situations where the Company has been unable to successfully repossess

4

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CARBIZ INC.

Notes to the Condensed Consolidated Financial Statements

October 31, 2009 and 2008

(unaudited)

1.	BASIS OF PREPARATION AND SUMMARY OF ACCOUNTING POLICIES (continued)
	the automobile, the account is written off immediately. When a customer’s account becomes severely delinquent (usually 14 days for weekly pay accounts, 30 days for bi-weekly pay accounts and 60 days for monthly pay accounts), the Company suspends accrual of interest income. Notes and lease receivables for accounts held in repossession are fully reserved for in the allowance for credit losses.
	The Company maintains an allowance for credit losses on an aggregate basis for the notes and lease receivable portfolio. Management considers the allowance for credit losses to be sufficient to cover estimated losses in the collection of outstanding receivables. The allowance is based primarily upon historical credit loss experience with consideration given to recent credit loss trends, changes in loan characteristics (i.e., average amounts financed and terms of the notes), delinquency levels, collateral values, economic conditions, and underwriting and collection practices. The allowance for credit losses is periodically reviewed by management with any changes reflected in current operations. Although it is at least reasonably possible that events or circumstances could occur in the future that are not presently foreseen which could cause actual credit losses to be materially different from the recorded allowance, the Company believes that it has given appropriate consideration to all relevant factors and has made reasonable assumptions in determining the allowance.
	For accounts where the automobile was repossessed, the difference between the loan or lease balance and the fair value of the repossessed automobile (based on the average wholesale selling price at auction) is charged to the allowance for credit losses. Generally, repossessed automobiles are sold at auction. On average, accounts are approximately 60-90 days past due at the time of write-off. For previously written-off accounts that are subsequently recovered, the amount of such recovery is credited to the allowance for credit losses.
	The Company expenses all costs incurred in connection with the process of initiating, refinancing or restructuring notes or lease receivables to include all costs related to underwriting, securing collateral, closing transactions, processing loan documents, and determining credit worthiness.
	Inventory
	Inventory consists of used vehicles and is stated at the lower of cost or net realizable value. Cost is determined on a specific item basis.
	Net Income (loss) per share
	The Company accounts for income (loss) per share in accordance with Accounting Standards Codification (“ASC”) No. 260 Earnings per Share (pre-Codification Statements of Financial Accounting Standard No. 128, “Earnings per Share” ). Basic (loss) income per share represents our income (loss) divided by the weighted average number of shares of common stock outstanding during each period. It excludes the dilutive effects of potentially issuable common shares such as those related to our convertible debentures, warrants, and employee stock options. Diluted income (loss) per share is calculated by including potentially dilutive share issuances in the denominator and the effects on income of those shares in the numerator. The Company computes the effects on diluted income/loss per share arising from warrants and options using the treasury stock method or, in the case of liability classified derivative warrants, the reverse treasury stock method. The Company computes the effects on diluted income/loss per share arising from convertible securities, such as the convertible debentures, using the if-converted method. Adjustments to income (loss) for interest and derivative income (expense) are necessary to arrive at the numerator for diluted income (loss) per share. The effects arising from potentially dilutive share issuances, if anti-dilutive, are excluded.

5

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CARBIZ INC.

Notes to the Condensed Consolidated Financial Statements

October 31, 2009 and 2008

(unaudited)

1.	BASIS OF PREPARATION AND SUMMARY OF ACCOUNTING POLICIES (continued)
	The numerators and denominators for the calculation of net income (loss) per share are as follows:

			Three months ended						Nine months ended
			2009			2008			2009			2008
	Net income (loss) (numerator for basic)	$	(2,142,588	)	$	(5,811,687	)	$	29,546,348		$	(4,255,540	)
	Basic denominator:
	Weighted average shares outstanding		102,520,603			74,737,369			101,150,545			68,615,340
	Net income per common share-basic	$	(0.02	)	$	(0.08	)	$	0.29		$	(0.06	)
	Diluted numerator:
	Net income (loss)		($2,142,588	)		($5,811,687	)	$	29,546,348			($4,255,540	)
	Adjustments to net income (loss)		-			-			(120,456.00	)		-
	Adjusted net income (loss)		($2,142,588	)		($5,811,687	)	$	29,425,892			($4,255,540	)
	Diluted denominator:
	Weighted average shares outstanding		102,520,603			74,737,369			101,150,545			68,615,340
	Effect of diluted securities
	Convertible Debentures		-			-			110,084,993			-
	Stock Options		-			-						-
	Warrants (Equity)		-			-			290,332			-
	Derivative Liabilities		-			-			13,274,382			-
	Adjusted weighted average shares		102,520,603			74,737,369			224,800,252			68,615,340
	Net income (loss) per common
	share-diluted	$	(0.02	)	$	(0.08	)	$	0.13		$	(0.06	)

Adjustments to net income (loss) to arrive at the diluted numerator consist of interest on convertible debt. The effects of 6,760,558 stock options, 1,432,294 common stock warrants, and 41,250,089 shares indexed to the derivative liabilities outstanding have been excluded from dilutive securities for the nine months ended October 31, 2009, as their effect would be anti-dilutive. In addition, 8,488,041 options and 6,708,318 shares indexed to the derivative liabilities outstanding have been excluded from dilutive securities for the nine months ended October 31, 2008.

Derivative financial instruments

Derivative financial instruments, as defined in Accounting Standards Codification (“ASC”) No. 815-10-15-83, Derivatives and Hedging (pre-Codification Statements of Financial Accounting Standard No. 133, Accounting for Derivative Financial Instruments and Hedging Activities), consist of financial instruments or other contracts that contain a notional amount and one or more underlying variables (e.g. interest rate, security price or other variable), require no initial net investment and permit net settlement. Derivative financial instruments may be free-standing or embedded in other financial instruments. Further, derivative financial instruments are initially, and subsequently, measured at fair value and recorded as liabilities or, in rare instances, assets.

6

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CARBIZ INC.

Notes to the Condensed Consolidated Financial Statements

October 31, 2009 and 2008

(unaudited)

1.	BASIS OF PREPARATION AND SUMMARY OF ACCOUNTING POLICIES (continued)
	The Company generally does not use derivative financial instruments to hedge exposures to cash-flow, market or foreign-currency risks. However, the Company has entered into certain other financial instruments and contracts, such as debt financing arrangements and freestanding warrants with features that are either not afforded equity classification, embody risks not clearly and closely related to host contracts, or may be net- cash settled by the counterparty. These instruments are required to be carried as derivative liabilities, at fair value, in the Company’s consolidated financials.
	Fair value of financial assets and liabilities
	The Company measures the fair value of financial assets and liabilities based on guidance of Accounting Standards Codification (“ASC”) No. 820, Fair Value Measurements and Disclosures (pre-Codification Statements of Financial Accounting Standards No. 157, Fair Value Measurements), which defines fair value, establishes a framework for measuring fair value, and expands disclosures about fair value measurements.
	The Company adopted the provisions of ASC 820 for financial assets and liabilities, as well as for any other assets and liabilities that are carried at fair value on a recurring basis. The adoption of the provisions of ASC 820 did not materially impact the Company’s consolidated financial position and results of operations.
	ASC 820-10-35-2 defines fair value as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. ASC 820-10-50 describes three levels of inputs that may be used to measure fair value as follows:

	Level 1 -	quoted prices in active markets for identical assets or liabilities;
	Level 2 -	significant other observable inputs based on market data obtained from sources independent of the reporting entity;
	Level 3 -	inputs that are unobservable (for example cash flow modeling inputs based on assumptions).

Fair values of derivative warrants are generally determined using the Black-Scholes-Merton valuation technique. Significant assumptions are as follows: Market prices – we use our quoted market prices; Term – we use the remaining contractual term of the contract; Volatility – we use our historical trading volatility for periods consistent with the remaining term of the contract; Risk-Free Rate – we use currently published yields on zero-coupon U.S. Government Securities with maturities consistent with the remaining term of the contract.

Fair values for the compound embedded derivatives are determined using the Monte Carlo valuation technique, because that technique embodies all of the assumptions (including credit risk, interest-rate risk and exercise/conversion behaviors) that are necessary to fair value complex, compound derivative instruments. Significant assumptions are determined as follows: Trading market values—we use our published trading market values; Term—we use the remaining contractual terms of the debentures; Volatility—we use our historical trading volatility for periods consistent with the remaining terms; Interest Risk—we adjust the contractual coupon rates to give effect to both (i) the trend in the market indicator over a historical period consistent with the remaining term and (ii) the historical fluctuations in the prime lending rate over each period; Credit Risk—we use credit-risk adjusted bond yield curves from publicly available surveys in categories of credit risk (as published by Standard & Poors and Moodys) we consider similar to our credit risk, with is speculative to highly speculative; and Exercise/Conversion behavior—we establish assumptions (quantified as a percentage that the conversion price is in the money) regarding the likelihood that the investor will convert currently or hold to maturity.

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CARBIZ INC.

Notes to the Condensed Consolidated Financial Statements

October 31, 2009 and 2008

(unaudited)

1.	BASIS OF PREPARATION AND SUMMARY OF ACCOUNTING POLICIES (continued)
	The following table summarizes the level of inputs used to measure certain financial instruments at fair value on a recurring basis as of October 31, 2009:

			Fair Value Measurements Using
			Level 1			Level 2			Level 3			Total
	Compound Embedded Derivative		-			-		$	2,843,448		$	2,843,448
	Warrant Derivatives		-		$	1,703,426			-			1,703,426
		$	-		$	1,703,426		$	2,843,448		$	4,546,874

The following represents a reconciliation of the changes in fair value of financial instruments measured at fair value on a recurring basis using significant unobservable inputs (Level 2 and 3) during the following periods.

			Three Months			Nine Months
			Ended			Ended
			October 31, 2009			October 31, 2009
	Beginning balance	$	7,807,054		$	11,796,217
	Issuances:
	Issuance of warrants					3,647,015
	Conversions and cancellations :
	Private Placement Financing conversion (Note 5)					(70,068	)
	Trafalgar Financing extinguishment (Note 5)					(6,614,201	)
	Trafalgar Financing conversion					(129,351	)
	Exercise of warrants					(887,795	)
	Private Placement Financing redemption (Note 5)		(22,732	)		(22,732	)
	Total		(22,732	)		(7,724,147	)
	Fair value adjustments :
	Compound embedded derivatives		(1,761,067	)		(994,360	)
	Warrant derivatives		(1,476,381	)		(2,177,851	)
	Total		(3,237,448	)		(3,172,211	)
	Balance at October 31, 2009	$	4,546,874		$	4,546,874

8

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CARBIZ INC.

Notes to the Condensed Consolidated Financial Statements

October 31, 2009 and 2008

(unaudited)

1.	BASIS OF PREPARATION AND SUMMARY OF ACCOUNTING POLICIES (continued)
	Revenue recognition
	The Company’s revenue is primarily derived from the sale and leasing of used automobiles, and the sale of consulting and collections services to dealers in the automobile industry:
	(1)	Used automobile sales:
		The Company recognizes revenue on the sale of automobiles upon execution of the sales contract, the customer taking possession of the automobile, and financing having been approved. Customers are required to meet certain underwriting guidelines in order to obtain financing of the automobile through the Company.
	(2)	Used automobile leases:
		The Company recognizes revenue on the lease of automobiles upon execution of the lease contract, the customer taking possession of the automobile, and lease financing having been approved. Customers are required to meet certain underwriting guidelines in order to obtain lease financing of the automobile through the Company. The Company accounts for leases as a “sales-type lease”.
	(3)	Consulting and collections services
		The Company generates revenue from the sale of consulting and collections services. These fees include charges for training seminars, performance group seminars, consulting engagements and collection and skip tracing services to the automobile industry. Revenue is recognized when a signed contract has been executed, the services have been delivered, fees are fixed or determinable, collectability is reasonable assured and when all significant obligations have been fulfilled. Therefore, for services that extend over a period of time, revenue is recognized ratably over the term of the contract.

Lease transactions

To qualify for financing under the new DSC financing agreement, the Company converted a number of existing finance note receivables to lease receivables, in February 2009. All Company financed receivables were eligible for the February 2009 conversion. Since the Company aggregates its receivables to determine the allowance for credit losses, there is no overall adjustment in the credit quality of the Company’s receivables. The Company considered these transactions to be “direct financing leases” and accounted for the leases including the minimum lease payments and the unguaranteed residual value as the gross investment in the lease. The difference between this gross investment and the cost or carrying amount was recorded as unearned income. The unearned income and initial direct costs will be amortized to income over the lease term so as to produce a constant periodic rate of return on the net investment in the lease.

Any new leases are considered “sales-type leases” and the minimum lease payments and the residual value of the underlying auto are considered in the fair value. The revenue recognition for sales-type leases involves recognizing both a profit element and a financing element over the term of the lease.

The estimated residual value is reviewed by management quarterly. If the review results in a lower residual estimate than had been previously established, management will then make a determination as to whether the decline is other than temporary. If the decline is judged to be other than temporary, an adjustment will be made to the residual value. The resulting reduction in the net investment will be recognized as a loss in the period in which the estimate is changed. Management determined no such adjustments were needed during the quarter ended July 31, 2009.

9

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CARBIZ INC.

Notes to the Condensed Consolidated Financial Statements

October 31, 2009 and 2008

(unaudited)

1.	BASIS OF PREPARATION AND SUMMARY OF ACCOUNTING POLICIES (continued)
	Transfer of Financial Assets
	The Company has sold portions of its previously generated and recently acquired financed note receivable portfolio. All portfolio sales during this period have met the requirements for a sale and the Company did not retain the right to service or collect those loans.
	During the nine months ended October 31, 2009, the Company sold approximately $2.95 million of notes receivable for cash. The sale resulted in an immaterial gain.
	Use of estimates
	In preparing the Company’s consolidated financial statements in accordance with GAAP, management is required to make estimates and assumptions that affect the reported amount of assets, liabilities, and the disclosure of contingent liabilities at the dates of the consolidated financial statements and the reported amounts of revenues and expenses during the reporting periods. Actual results could differ from those estimates. Estimates are used when accounting for items and matters such as the allowance for credit losses, accrued liabilities, share-based payments, derivative liabilities and contingencies.
	Deferred finance costs
	Deferred finance costs include the fair value of warrants issued to an existing lender in conjunction with the issuance of the Wells Fargo Preferred Credit line of credit. They will be amortized over the term of the respective financing arrangement. Approximate future amortization of deferred finance costs is as follows as of October 31, 2009:

Prepaid interest

Prepaid interest included the initial interest recorded in conjunction with the issuance of the Wells Fargo Preferred Credit line of credit and is amortized over the term of the respective financing arrangement. Such amount was determined by comparing the cost of the acquired portfolio and other assets to the fair value of such assets acquired, and the difference was recognized as prepaid interest (see Note 8). Approximate future amortization of prepaid interest is as follows as of October 31, 2009:

Share-Based Compensation

The Company uses the fair-value method to determine compensation for all arrangements under which employees and others receive shares of stock or equity instruments. The fair value of each option award is estimated on the date of grant using the Black-Scholes valuation model that uses assumptions for expected volatility, expected dividends, expected term, and the risk-free interest rate. Expected volatilities are based

10

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CARBIZ INC.

Notes to the Condensed Consolidated Financial Statements

October 31, 2009 and 2008

(unaudited)

1.	BASIS OF PREPARATION AND SUMMARY OF ACCOUNTING POLICIES (continued)
	on the historical volatility of the Company’s common stock over the expected term of the options. The expected term of options granted to employees is derived using the “simplified method” which computes expected terms as the average of the sum of the vesting term plus the contract term. The risk-free interest rate is based on the U.S. Treasury yield rates in effect at the time of grant for the period of the expected term.
	Subsequent events
	Management has considered all subsequent events through the date of filing of the report with the SEC in connection with the preparation of these condensed consolidated financial statements.
	Effect of recent accounting pronouncements
	In August 2009, the FASB issued ASU No. 2009-03, SEC Update — Amendments to Various Topics Containing SEC Staff Accounting Bulletins. This ASU updated cross-references to Codification text. The adoption of ASU 2009-03 will not have a material impact on our condensed financial statements.
	In August 2009, the FASB issued ASU No. 2009-04, Accounting for Redeemable Equity Instruments — Amendment to Section 480-10-S99. This ASU represents an update to Section 480-10-S99, Distinguishing Liabilities from Equity, per Emerging Issues Task Force Topic D-98, “Classification and Measurement of Redeemable Securities.” The adoption of ASU 2009-04 will not have a material impact on our condensed financial statements.
	In August 2009, the FASB ASU No. 2009-05, Fair Value Measurements and Disclosures (Topic 820) — Measuring Liabilities at Fair Value. This Accounting Standards Update amends Subtopic 820-10, Fair Value Measurements and Disclosures - Overall, to provide guidance on the fair value measurement of liabilities. The adoption of ASU 2009-05 is not expected to have a material impact on our condensed financial statements.
	In September 2009, the FASB issued ASU No. 2009-07, Technical Corrections to SEC Paragraphs. This Accounting Standards Update corrected SEC paragraphs in response to comment letters. The adoption of ASU 2009-07 will not have material impact on our condensed financial statements.
	In September 2009, the FASB issued ASU No. 2009-08, Earnings Per Share Amendments to Section 260-10- S99. This Codification Update represents technical corrections to Topic 260-10-S99, Earnings per Share, based on EITF Topic D-53, Computation of Earnings Per Share for a Period that Includes a Redemption or an Induced Conversion of a Portion of a Class of Preferred Stock and EITF Topic D-42, The Effect of the Calculation of Earnings per Share for the Redemption or Induced Conversion of Preferred Stock. The adoption of ASU 2009-08 will not have material impact on our condensed financial statements.
	In September 2009, the FASB issued ASU No. 2009-09, Accounting for Investments-Equity Method and Joint Ventures and Accounting for Equity-Based Payments to Non-Employees. This Accounting Standards Update represents a correction to Section 323-10-S99-4, Accounting by an Investor for Stock-Based Compensation Granted to Employees of an Equity Method Investee. Section 323-10-S99-4 was originally entered into the Codification incorrectly. The adoption of ASU 2009-09 will not have material impact on our condensed financial statements.
	In September 2009, the FASB issued ASU No. 2009-12, Fair Value Measurements and Disclosures (Topic 820), Investments in Certain Entities that Calculate Net Asset Value per Share (or Its Equivalent). This Accounting Standards Update amends Subtopic 820-10, Fair Value Measurements and Disclosures Overall, to provide guidance on the fair value measurement of investments in certain entities that calculate net asset value per share (or its equivalent). The adoption of ASU 2009-12 will not have material impact on our condensed financial statements.

11

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CARBIZ INC.

Notes to the Condensed Consolidated Financial Statements

October 31, 2009 and 2008

(unaudited)

2.	LIQUIDITY AND MANAGEMENT’S PLANS
	As of October 31, 2009, the Company had $312,159 in cash and cash equivalents. During the nine month period ended October 31, 2009, we decreased our accounts payable and accrued liabilities $1.8 million which totaled $2.7 million at October 31, 2009. The Company has incurred significant net losses and negative cash flows from operations in each of the two years ended January 31, 2009; however, during the nine months ended October 31, 2009, the Company recorded $29.5 million of net income, which includes a $33.2 million gain on the extinguishment of debt. As of October 31, 2009, the Company had a stockholders’ deficit of $2.8 million versus a deficit of $34.7 million at January 31, 2009.
	During the nine months ended October 31, 2009, we issued 980,392 shares of common stock at a conversion price of $0.0765 in a Trafalgar convertible debenture conversion
	In January 2009, the Company executed another debenture modification agreement with Trafalgar which terms were effective on February 20, 2009 (“February 2009 modification”). The February 2009 modification was made pursuant to the Company modifying the terms of the Company’s other debt arrangements including the revolving line-of-credit, term and floor plan notes payable, which were also effective February 20, 2009 (See Notes 4 an 5). Pursuant to the February 2009 modification, Trafalgar revised the payment terms related to certain of the convertible debentures. Debenture principal and interest payments are due as follows: $250,000 in March 2009; $50,000 per month April 2009 through December 2009; $100,000 per month January 2010 through August 2010; and the remaining balance of approximately $5.1 million in September 2010, as long as the Company holds $10 million of consumer notes that are not in default from its BHPH business and cash on hand exceeds its payables by at least $1 million. A further modification was made by Trafalgar which allowed the Company to further modify the terms of the its loan agreements with DSC.
	In February 2009, the Company completed a restructuring of floor plan and line of credit debt held by SWC Services LLC (SWC) with Dealer Services Corporation (DSC). The restructured debt agreement provided the Company with a maximum credit facility of $19.5 million for floor plan and lease financing. Although the Company had approximately $43.3 million of outstanding notes payable as of January 31, 2009, effective February 20, 2009, the Company was only obligated to repay $12.0 million of this amount due to the debt restructuring. The $12.0 million is payable in installments over 24 months through February 2011 and is included in the aforementioned new credit facility.
	On June 15, 2009, the Company obtained a revolving line of credit with Wells Fargo Preferred Capital for up to $20 million that will finance up to 55% of the Company’s eligible financed notes receivable. The revolving line of credit is a 2 year commitment and interest is payable monthly.
	During the nine months ending October 31, 2009, a board member warrant holder exercised 11,762,351 common stock warrants with proceeds to the company of $1,099,280.
	In August 2009, the Company was unable to make its monthly curtailment payment due under the DSC term loan. The Company negotiated a deferral of that payment to DSC by agreement to a deferral fee of approximately $350,000, or about $100 per car securitizing the term loan. Subsequent to that agreement, DSC ceased funding new inventory on the floor plan line of credit. This cessation prevented the Company from replacing sold vehicles and had a severe adverse effect on the Company’s sales, portfolio growth and cash flow. As a further result of the reduction of the Company’s sales and cash flow, the Company was forced to negotiate a deferral of two additional monthly curtailment payments on its DSC term loan in September and October 2009. The cost of each monthly deferral was approximately $350,000. The deferral costs were added to the basis of the loan and recorded as interest in the Statement of Operations. These additional charges caused the effective interest rate of the DSC debt to be approximately 40%.
	The Company continues to operate at a greatly reduced sales rate due to the lack of inventory financing, which is absolutely crucial to the continuing operations of the Company. During subsequent discussions with DSC, it has become clear that DSC does not intend to restore normal funding to the Company under any circumstances and, as a result, the Company is engaged in a vigorous search to find a suitable replacement

12

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CARBIZ INC.

Notes to the Condensed Consolidated Financial Statements

October 31, 2009 and 2008

(unaudited)

2.	LIQUIDITY AND MANAGEMENT’S PLANS (continued)
	credit facility. However, the continuing worldwide financial and credit crises have strained investor liquidity and contract credit markets, which will likely make the cost of raising funds through the debt or equity markets more expensive or make those markets unavailable. If additional financing is raised by the issuance of securities, control of the Company may change and/or our shareholders may suffer significant dilution. However, there can be no assurance that financing efforts will be successful, and if a suitable replacement credit facility is not found, the future viability of the Company is in doubt.
3.	ACCOUNTS RECEIVABLE, NOTES RECEIVABLE AND NET INVESTMENT IN DIRECT FINANCING AND SALES-TYPE LEASES
	The average net balance of outstanding note receivables and investment in direct financing and sales-type leases were approximately $30.6 million and $33.3 million during the nine months ended October 31, 2009 and 2008, respectively. The Company earned approximately $5.4 million and $4.8 million of interest and lease income on note and lease receivables with an average yield of 23.40% and 19.12% during the nine months ended October 31, 2009 and 2008, respectively. Those amounts have been included as interest and lease income within revenues in these Condensed Consolidated Financial Statements. The Company paid an average effective global interest rate of 26.1% and 12.7% to finance the notes receivable and net investment in direct financing and sales-type lease balances during both the nine months ended October, 31 2009 and 2008. The reason for the increase in the global effective interest rate is the fees charged by DSC for deferring three months of principal and interest payments.

13

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CARBIZ INC.

Notes to the Condensed Consolidated Financial Statements

October 31, 2009 and 2008

(unaudited)

3.	ACCOUNTS RECEIVABLE, NOTES RECEIVABLE AND NET INVESTMENT IN DIRECT FINANCING AND SALES-TYPE LEASES (continued)
	Accounts, notes receivable and investment in direct financing and sales-type leases consist of the following:

						Accounts Held			Accounts
						in			Delinquent >90
			Active Accounts			Repossession			Days			Total
	Accounts receivable	$	214,230					$	109,928		$	324,158
	Less: Allowance for credit losses		-						(28,938	)		(28,938	)
		$	214,230		$	-		$	80,990		$	295,220
	Notes receivable	$	22,565,436		$	739,380		$	967,429		$	24,272,245
	Less: Allowance for credit losses		(4,386,733	)		(739,380	)		(967,429	)		(6,093,542	)
		$	18,178,703		$	-		$	-		$	18,178,703
	Investment in direct financing
	and sales-type leases	$	9,348,187		$	665,464		$	424,991		$	10,438,642
	Less: Allowance for credit losses		(1,534,946	)		(665,464	)		(424,991	)		(2,625,400	)
		$	7,813,241		$	-		$	-		$	7,813,241
	Notes receivable, net :
	Current	$	8,725,777								$	8,725,777
	Non-current		9,452,926									9,452,926
		$	18,178,703		$	-		$	-		$	18,178,703
	Investment in direct financing
	and sales-type leases, net
	Current	$	5,515,229								$	5,515,229
	Non-current		2,298,012									2,298,012
		$	7,813,241		$	-		$	-		$	7,813,241

			Number of Accounts as of						October 31, 2009
	Accounts Receivable		45			-			18			63
	Notes		2,766			170			129			3,065
	Leases		1,363			123			55			1,541

Notes receivable and net investment in direct financing and sales-type leases have an average remaining portfolio life of 25 and 17 months, respectively.

14

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CARBIZ INC.

Notes to the Condensed Consolidated Financial Statements

October 31, 2009 and 2008

(unaudited)

3.	ACCOUNTS RECEIVABLE, NOTES RECEIVABLE AND NET INVESTMENT IN DIRECT FINANCING AND SALES-TYPE LEASES (continued)
	The components of the net investment in direct financing and sales-type leases at October 31, 2009 are as follows:

	Total future minimum lease payments	$	10,715,036
	Unguaranteed residual value		2,636,219
	Unearned income		(2,912,613	)
	Gross net investment in direct financing and sales-type leases		10,438,642
	Loss allowance for credit losses		(2,625,400	)
	Net investment in direct financing and sales type leases	$	7,813,241

The average remaining life for the lease portfolio is 17 months, and the future expected maturities are approximately $5.5 million during this year and $2.3 million the following year.

Allowance for credit loss activity is as follows for the nine months ended October 31, 2009

			Used Car Sales			Consulting and
			and Leases			Collections			Total
	February 1, 2009	$	6,250,031		$	1,093		$	6,251,124
	Provision for credit losses		1,589,046						1,589,046
	Write-offs of gross notes receivable		(2,085,775	)					(2,085,775	)
	Loss on notes sold		(451,415	)					(451,415	)
	Fair value of repossessed vehicles		327,131						327,131
	Recoveries of notes receivable		3,744						3,744
	Reserve Adjustment		1,724,201						1,724,201
	April 30, 2009	$	7,356,963		$	1,093		$	7,358,056
	Provision for credit losses		1,763,898			22,582			1,786,480
	Write-offs of gross notes receivable		(2,529,663	)					(2,529,663	)
	Loss on notes sold		(313,554	)					(313,554	)
	Fair value of repossessed vehicles		201,358						201,358
	Recoveries of notes receivable		280,872						280,872
	Star Portfolio Purchase Reserve		1,879,224						1,879,224
	July 31, 2009	$	8,639,098		$	23,675		$	8,662,773
	Provision for credit losses		3,041,719			5,263			3,046,982
	Write-offs of gross notes receivable		(3,581,853	)					(3,581,853	)
	Loss on notes sold		(204,079	)					(204,079	)
	Fair value of repossessed vehicles		478,570						478,570
	Recoveries of notes receivable		345,487						345,487
	October 31, 2009	$	8,718,942		$	28,938		$	8,747,880

15

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CARBIZ INC.

Notes to the Condensed Consolidated Financial Statements

October 31, 2009 and 2008

(unaudited)

4.	CREDIT FACILITIES
	Dealer Services Corporation
	On January 16, 2009, the Company entered into an Asset Purchase Agreement with Dealer Services Corporation (“DSC”) and the Chapter 7 Trustee of SWC Services LLC (“SWC Trustee”). Pursuant to the agreement, DSC agreed to purchase all of the rights and interest of SWC under the Company’s loan agreement with SWC for $12 million.
	In connection therewith, DSC agreed to forgive all of the outstanding balance due by the Company under the SWC Loan Agreement in excess of $12,000,000. On February 20, 2009, the Asset Purchase Agreement was consummated when the Company had a total balance of approximately $43.3 million outstanding under the SWC credit facilities. DSC forgave approximately $31.3 million worth of that debt and executed a $14 million new credit facility (“New Loan Agreement”), $12 million of which represented the then remaining balance due under the SWC Loan Agreement.
	Pursuant to that New Loan Agreement, the Company had to convert a number of outstanding notes receivable due by the Company from consumers into closed-end leases. The Company delivered to DSC a set of conversion documents, consisting of a signed closed-end lease and a bill of sale for each vehicle.
	The Company incurred costs of approximately $4.6 million in connection with the conversion of these notes receivable, which included customer incentives, sales tax payments, and license and title fees.
	All of the financial covenants contained in the SWC loan agreement have been deleted from the New Loan Agreement and replaced by an obligation for the Company to maintain a minimum of $3,500,000 of accounts receivable. As was the case under the previous loan agreement, the obligation of the Company and its operating subsidiaries to pay all amounts due under the New Loan Agreement is secured by a pledge to DSC of all of the assets of the Company and its operating subsidiaries. The Company also paid DSC a loan origination fee of $120,000 and a commitment fee of $250,000 in addition to issuing DSC warrants to purchase 9,718,289 shares of the Company’s common stock at a purchase price of $.03 per share. The warrants will expire on February 28, 2014.
	The Company has agreed to enter into a registration rights agreement on or before December 31, 2010, pursuant to which the Company will be required to register for resale by DSC the shares to be issued to DSC under the warrants, and to use its commercially reasonable efforts to obtain all necessary consents to enter into such agreement.
	Pursuant to the warrants issued to DSC in connection with the New Loan Agreement, the issuance of warrants to Ross Quigley on February 20, 2009 would have required the Company to increase the 9,718,289 shares issuable under the existing DSC Warrant to 10,222,604 shares and reduce the exercise price for all of the shares issuable from $0.03 per share to $0.02852 per share. However, with the consent of DSC, in lieu of these modifications, the Company issued additional warrants to DSC to purchase up to an additional 750,000 shares of the Company’s common stock at an exercise price of $0.08 per share. The warrants will expire on February 20, 2014.
	Both of the DSC warrants were valued at February 20, 2009 using the Black-Scholes Option Pricing Model, resulting in a fair value of $1,286,000 for the $0.03 warrants and $100,000 for the $0.08 warrants. Significant assumptions included: trading market value—$0.14; volatility—133.49%; term—5.0 years; and, risk free rate—1.81%. The aggregate fair value of $1,386,000 was included in a component of the consideration extended for purposes of computing the gain on extinguishment of SWC debt.
	In connection with entering into the Asset Purchase Agreement and the New Loan Agreement, Trafalgar Capital Specialized Investment Fund, Luxembourg, the holder of the Company’s convertible debentures (see note 5), consented to the execution and delivery of the New Loan Agreement, which consent was required by a subordination and inter-creditor agreement with Trafalgar.

16

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CARBIZ INC.

Notes to the Condensed Consolidated Financial Statements

October 31, 2009 and 2008

(unaudited)

4.	CREDIT FACILITIES (continued)
	On February 25, 2009, the Company, its operating subsidiaries and DSC further amended and restated the New Loan Agreement to provide for the inclusion of five new Carbiz subsidiaries in the credit facility. Four of these subsidiaries have been formed to carry out the business of the Company in Indiana and one has been formed to carry out the business of the Company in Nebraska. Under this amendment and the promissory notes executed by the operating subsidiaries thereunder, the amount of available credit was expanded from $14 million to $19.5 million.
	As with the New Loan Agreement, Trafalgar also consented to this amendment since such consent was similarly required by the Trafalgar subordination and inter-creditor agreement.
	Since all of the aforementioned events relate directly to the debt forgiveness, all of the costs associated therewith have been recognized as an adjustment of the gain on debt extinguishment, as follows:

The DSC debt has an effective interest rate of approximately 40.84%, and principal and interest are payable monthly. The effective interest rate is higher when compared to previous quarters because DSC agreed to allow the Company to defer payment of three principal and interest payments. DSC charged a per car fee for the deferral. This provided some additional cash flow to the Company. Amounts due to DSC are collateralized by all of the assets of the Company and its subsidiaries and the Chairman of the Board’s stock in the Company.

In August 2009, the Company was unable to make its monthly curtailment payment due under the DSC term loan. The Company negotiated a deferral of that payment to DSC by agreement to a deferral fee of approximately $350,000, or about $100 per car securitizing the term loan. Subsequent to that agreement, DSC ceased funding new inventory on the floor plan line of credit. This cessation prevented the Company from replacing sold vehicles and had a severe adverse effect on the Company’s sales, portfolio growth and cash flow. As a further result of the reduction of the Company’s sales and cash flow, the Company was forced to negotiate a deferral of two additional monthly curtailment payments on its DSC term loan in September and October 2009. The cost of each monthly deferral was approximately $350,000. The deferral costs were added to the basis of the loan and recorded as interest in the Statement of Operations. These additional charges caused the effective interest rate of the DSC debt to be approximately 40.84% .

The Company continues to operate at a greatly reduced sales rate due to the lack of inventory financing, which is absolutely crucial to the continuing operations of the Company. During subsequent discussions with DSC, it has become clear that DSC does not intend to restore normal funding to the Company under any circumstances and, as a result, the Company is engaged in a vigorous search to find a suitable replacement credit facility. However, the continuing worldwide financial and credit crises have strained investor liquidity and contract credit markets, which will likely make the cost of raising funds through the debt or equity markets more expensive or make those markets unavailable. If additional financing is raised by the issuance of securities, control of the Company may change and/or our shareholders may suffer significant dilution. However, there can be no assurance that financing efforts will be successful, and if a suitable replacement credit facility is not found, the future viability of the Company is in doubt.

17

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CARBIZ INC.

Notes to the Condensed Consolidated Financial Statements

October 31, 2009 and 2008

(unaudited)

4.	CREDIT FACILITIES (continued)
	Wells Fargo Preferred Capital
	On June 15, 2009, all of the Company's subsidiaries that are borrowers under the New Loan Agreement with DSC, entered into an amendment to the New Loan Agreement , which permits the Company's subsidiaries to enter into the Well Fargo Loan Agreement (the "WF Loan Agreement") and grant Wells Fargo Preferred Capital ("Wells Fargo") a security interest in their personal property.
	All of the Company's direct and indirect subsidiaries entered into the WF Loan Agreement dated June 15, 2009 with Wells Fargo Preferred Capital, Inc. Under the WF Loan Agreement, Wells Fargo committed to loan the Company up to (i) $15,000,000 through and including December 31, 2009, (ii) $17,000,000 commencing January 1, 2010 through and including March 31, 2010 and (iii) $20,000,000 thereafter. The purpose of the credit facility is to finance receivables generated by the Company from the sales of used vehicles. The Company may borrow up to 55% of the outstanding amount due under eligible receivables, as defined in the WF Loan Agreement, other than receivables acquired from Star Financial Services (“Star” see Note 8). With respect to the receivables acquired from Star Financial Services in June 2009, they may borrow up to 95% of the amount outstanding under such receivables through the 60th day following the date of the WF Loan Agreement and 90% thereafter.
	In order to obtain the consent of DSC to the WF Loan Agreement, DSC requested that the Company issue to DSC warrants to purchase an additional 30,781,800 shares of Company common stock at a purchase price of $0.08 per share at any time until June 15, 2014. The Company's board of directors approved such issuance, finding that the WF Loan Agreement was necessary for the future growth of the Company.
	In connection with entering into the WF Loan Agreement, Wells Fargo entered into an Inter-creditor Agreement with DSC and a Subordination and Inter-creditor Agreement with Trafalgar Capital Specialized Investment Fund, Luxembourg and the Star note holders.
	The WF Loan Agreement is subject to certain borrowing limitations, and includes certain financial and restrictive covenants, including but not limited to covenants requiring the maintenance of minimum Earnings Before Interest, Tax, Depreciation and Amortization (EBITDA) and debt to equity ratios. The credit facility will expire on June 30, 2011.
	The covenant requiring a minimum EBITDA ratio became effective as of September 2009. Due to the reduced level of inventory and sales during the quarter, the Company was not able to meet that covenant. and has received a verbal waiver of the EBITDA covenant from Wells Fargo for the periods of September and October 2009.
	Loans bear interest at an annual rate equal to the three-month London Interbank Offered Rate plus 3.35%, (3.95% at October 31, 2009) and an unused line fee of 0.25% per annum is charged on the unused portion of the credit facility on a monthly basis. The Company must pay Wells Fargo an administrative fee of $1,000 per month. The WF debt has an effective interest rate of approximately 12.00%, and interest is payable monthly.
	Amounts due to Wells Fargo under the WF Loan Agreement are secured by a security interest in all of the personal property of the Company and its subsidiaries, and guaranteed by the Company under a Guaranty Agreement.
	The Company’s initial draw under the WF Loan Agreement was $10,303,665, of which $8,153,665 was used to pay the indebtedness of Star to Wells Fargo.

18

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CARBIZ INC.

Notes to the Condensed Consolidated Financial Statements

October 31, 2009 and 2008

(unaudited)

4.	CREDIT FACILITIES (continued)
	The balance outstanding under the DSC, Wells Fargo and other debt obligations at October 31, 2009 are comprised of the following:

		Current			Non-Current
WF line of credit	$	12,205,092		$	-
DSC line of credit		10,509,510			-
DSC inventory floor plan		4,987,453			-
Short term notes		55,070			-
Other debt		130,705			756,771
Total	$	27,887,830		$	756,771

The total Wells Fargo line of credit and DSC line of credit have been classified as current liability on the Condensed Consolidated Balance Sheet as a result of DSC’s cessation of funding of the Company’s inventory floor plan.

5.	CONVERTIBLE DEBENTURES
	Convertible debentures consist of the following as of October 31, 2009 and January 31, 2009:

1. Trafalgar Convertible Debentures

On February 28, 2007 the Company issued 12.0%, face value $2,500,000 Secured Convertible Debentures (“February Trafalgar Debenture”) to Trafalgar Capital Specialized Investment Fund, Luxembourg (“Trafalgar”). The face value of the February Trafalgar Debenture amounted to $2,286,400 and $2,821,877 as of October 31, 2009 and January 31, 2009, respectively. Interest is payable quarterly and the principal balance is payable on September 30, 2010. In connection with the issuance of these debentures, the Company also issued detachable warrants to Trafalgar that are indexed to 2,500,000 shares of common stock, have a strike price of $0.15 and a term of five years.

On August 31, 2007 the Company issued 12.0%, face value $1,000,000 Secured Convertible Debentures to Trafalgar (“August Trafalgar Debenture”). The face value of the August Trafalgar Debenture amounted to $1,000,000 and $1,178,127 as of October 31, 2009 and January 31, 2009, respectively. Interest is payable quarterly and the principal balance is payable on September 30, 2010. In connection with the issuance of these debentures, the Company also issued detachable warrants to Trafalgar that are indexed to 2,000,000 shares of common stock, have strike prices of $0.15 for 1,000,000 warrants and $0.22 for 1,000,000, and a term of three years.

On September 26, 2007 the Company issued 11.0%, face value $1,500,000 Secured Convertible Debentures (“September Trafalgar Debenture”) to Trafalgar. The face value of the September Trafalgar Debenture

19

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CARBIZ INC.

Notes to the Condensed Consolidated Financial Statements

October 31, 2009 and 2008

(unaudited)

5.	CONVERTIBLE DEBENTURES (continued)
	amounted to $1,500,000 and $1,817,182 as of October 31, 2009 and January 31, 2009, respectively. Interest is payable quarterly and the principal balance is payable on September 30, 2010. In connection with the issuance of these debentures, the Company also issued detachable warrants to Trafalgar that are indexed to 2,000,000 shares of common stock, have strike prices ranging from $0.01 to $0.20, and a term of three years.
	The face values above give effect to conversion, capitalization of interest and, as discussed further below, modifications. The Trafalgar Debentures are secured by all tangible and intangible assets of the Company, but are subordinate in priority to the DSC and Wells Fargo credit facilities.
	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. Trafalgar has the option to require the Company to redeem the debentures for cash in the event of defaults and certain other contingent events, including events related to the common stock into which the instruments are convertible, registration and listing (and maintenance thereof) of the Company’s common stock and filing of reports with the Securities and Exchange Commission (the “Default Put”). In addition, the Company extended registration rights to Trafalgar that requires registration of the shares underlying the warrants and the continuing effectiveness of the registration statement under which shares are registered; the Company would be required to pay monthly liquidating damages of 2.0% (capped at 15%) for defaults under this provision.
	In the evaluation of the Trafalgar Debentures, the Company concluded that the conversion feature was not afforded the exemption as a conventional convertible instrument as defined in ASC 815-40-25-41, Application of Additional Criteria to Conventional Convertible Debt and Other Hybrid Instruments (pre- Codification Emerging Issues Task Force Consensus No. 05-02, Meaning of "Conventional Convertible Debt Instrument" in Issue No. 00-19), due to the variable conversion price; and it did not otherwise meet the conditions for equity classification set forth in ASC 815-40-25-7 through 815-40-25-10, Additional Conditions Necessary for Equity Classification (pre-Codification EITF 00-19, Accounting for Derivative Financial Instruments Indexed to, and Potentially Settled in, a Company’s Own Stock). Since equity classification is not available for the conversion feature, the Company was required to bifurcate the embedded conversion feature and carry it as a derivative liability, at fair value in accordance with ASC 815, Derivatives and Hedging (pre-Codification Statements of Financial Accounting Standard No. 133, Accounting for Derivative Financial Instruments and Hedging Activities). The Company also concluded that the Default Put required bifurcation because, while puts on debt instruments are generally considered clearly and closely related to the host, the Default Put is indexed to certain events, noted above, that are not associated with debt instruments. The Company combined all embedded features that required bifurcation into one compound derivative instrument that is carried as a component of derivative liabilities.
	The Company evaluated the detachable warrants for purposes of classification under ASC 480-10, Distinguishing Liabilities from Equity (pre-Codification SFAS 150, Accounting for Certain Financial Instruments with Characteristics of both Liabilities and Equity). The warrants did not embody any of the conditions for liability classification under the ASC 480-10 context. The warrants were then evaluated under ASC 815. The warrants did not meet the conditions for equity classification set forth in ASC 815-40-25-7 through 815-40-25-10. Therefore, the warrants are required to be classified as liabilities at fair value under ASC 815.

20

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CARBIZ INC.

Notes to the Condensed Consolidated Financial Statements

October 31, 2009 and 2008

(unaudited)

5.	CONVERTIBLE DEBENTURES (continued)
	Based upon the accounting conclusions above, the allocation of the basis arising from each of the Trafalgar Debentures financing transactions is summarized in the table below:

			February			August			September
			Trafalgar			Trafalgar			Trafalgar
			Debentures			Debentures			Debentures			Total
	Deferred finance costs	$	310,164		$	125,169		$	187,620		$	622,953
	Penalty expense		-			-			40,000			40,000
	Prepaid interest		90,833			20,000			27,500			138,333
	Derivative liabilities:
	Compound derivative		(1,655,432	)		(752,941	)		(1,308,073	)		(3,716,446	)
	Warrants		(562,500	)		(380,200	)		(495,250	)		(1,437,950	)
	Convertible debentures		(383,087	)		-			-			(383,087	)
	Day-one derivative loss		101,058			133,141			303,371			537,570
	Financing proceeds	$	2,098,964		$	854,831		$	1,244,832		$	4,198,627

2. Modifications

The Convertible Debentures were originally sold to Trafalgar during the fiscal year ended January 31, 2008 and modified and extended a number of times during fiscal year ended January 31, 2009.

On September 15, 2008, the Company entered into a debenture modification agreement (September 2008 Modification), which modified the principal and interest payment schedules and effective interest rates for certain of the outstanding secured convertible debentures.

Although the contractual interest rates of 8%, 10% and 11% were not revised pursuant to the September 2008 Modification, the modified terms of the debentures include additional interest payments of amounts which provide for an internal rate of return to Trafalgar of 20% on the debentures over their outstanding term. The additional interest payments are due upon maturity of the debentures.

In addition, pursuant to the September 2008 Modification agreement, the Company issued 2,500,000 shares of the Company’s common stock to Trafalgar in exchange for the cancellation of 6.5 million outstanding common stock warrants previously held by Trafalgar. The Company also issued 4,000,000 shares to Trafalgar as a forbearance fee for delay of payments due under the convertible debentures.

More recently, a further modification effective on February 20, 2009 (“February 2009 modification”) was made allowing the Company to modify the terms of the Company’s other debt arrangements including the revolving line-of-credit, term and floor plan notes payable, which were also effective February 20, 2009 (see Note 4). In the February 2009 modification, Trafalgar (i) capitalized $203,890 of interest and (ii) extended the maturity dates of all three of the debentures to September 30, 2010. A further modification was made by Trafalgar to subordinate its indebtedness which allowed the Company to further modify the terms of its loan agreements with DSC. (see Note 4). As a result of these modifications, the effective borrowing rate, as computed pursuant to ASC 470-60-55-10, Determining Whether the Creditor Granted a Concession (pre-Codification EITF 02-04, Determining Whether a Debtor’s Modification or Exchange of Debt Instruments is within the Scope of SFAS 15 Troubled Debt Restructurings), increased from approximately 12.0% to 14.0% . As a result of an increase in the effective borrowing rate and other qualitative considerations, including the principal purpose of the modifications being related to establishing the DSC borrowing arrangement, the modifications did not constitute a troubled debt restructuring.

21

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CARBIZ INC.

Notes to the Condensed Consolidated Financial Statements

October 31, 2009 and 2008

(unaudited)

5.          CONVERTIBLE DEBENTURES (continued)

The Company accounted for the modifications to the debentures based on the provisions of ASC 470-50, Debt Modifications and Extinguishments (pre-Codification EITF 96-19, Debtors Accounting for Modification or Exchange of Debt Instruments), which establishes the criteria to determine if substantial modifications of the terms of the debt instruments have occurred. The revisions to the terms of debentures were considered substantial when considering both the change in the present value of cash flows and the change in the fair value of the embedded conversion feature, as defined, and therefore for accounting purposes the debentures have been accounted for as debt extinguishments and the revised debentures recorded at fair value on the date of execution of the February 2009 Modification. The Company recorded a gain on modification of debt of $8,780,189, as a result of these transactions.

The amount of gain was computed as follows:

The fair value of the modified debentures represents the present value of the future cash flows. The credit risk adjusted market rate used for purposes of present value amounted to 14.0% and was based upon current corporate bond rates for issues with similar credit risks as those of the Company. The reallocation of the fair value is required first to the derivatives, because those are required to be carried at fair value. Since the fair value was insufficient to record both the derivative and debt, a day-one loss has been reflected in our statement of operations as a component, and reduction of, the gain on extinguishment. Accordingly, the net gain includes the $9,051,142 gain on extinguishment less the $270,952 day-one derivative loss.

During the nine months ended October 31, 2009, the Company issued 11,073,419 and 1,599,494 shares of common stock in connection with the exercise of warrants and the conversions of convertible debentures, respectively, and $888,310 and $199,419 of related derivative liability related thereto was credited to equity.

3. Private Placement October 1, 2007 Convertible Debentures

On October 1, 2007, the Company completed an 11.0%, face value $800,000 financing with a group of investors (“Purchasers”), all of which are related parties, by issuing to them debentures with a face amount of $800,000 and which have an original maturity date of December 1, 2010 (“October Debentures”). Interest on the October Debentures is payable monthly. The principal is payable December 1, 2010.

The October Debentures are convertible at the Purchaser’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.

In addition, the Company issued to the Purchasers warrants to purchase up to an aggregate of 1,066,667 common shares at any time until September 26, 2010, with 266,666 shares subject to purchase at US$0.01 per share, 266,667 shares at US$0.10 per share, 266,667 shares at US$0.15 per share and 266,667 shares subject to purchase at US$0.22 per share.

22

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CARBIZ INC.

Notes to the Condensed Consolidated Financial Statements

October 31, 2009 and 2008

(unaudited)

5.	CONVERTIBLE DEBENTURES (continued)
	In the evaluation of the Private Placement Debentures, the Company concluded that the conversion feature was not afforded the exemption as a conventional convertible instrument as defined in ASC 815-40-25-41 due to the variable conversion price; and it did not otherwise meet the conditions for equity classification set forth in ASC 815-40-25-7 through 815-40-25-10. Since equity classification is not available for the conversion feature, the Company was required to bifurcate the embedded conversion feature and carry it as a derivative liability, at fair value in accordance with ASC 815.
	The Company evaluated the warrants for purposes of classification under ASC 480-10. The warrants did not embody any of the conditions for liability classification under the ASC 480-10 context. The warrants were then evaluated under ASC 815. The warrants did meet the conditions for equity classification set forth in ASC 815-40-25-7 through 815-40-25-10. Therefore, the warrants were recorded upon inception in accordance with ASC 470-20-25-2, Debt Instruments with Detachable Warrants (pre-Codification Accounting Principles Board Opinion No. 14 Accounting for Convertible Debt and Debt Issued with Stock Purchase Warrants), at a relative fair value of $133,814.
	Based upon the accounting conclusions above, the allocation of the basis arising from the Private Placement Debentures financing transactions is summarized in the table below:

The face value of the October debentures amounted to $77,000 at January 31, 2009 after giving effect to conversions. On February 20, 2009, $50,000 of the principal was converted into the Company’s Common Stock. The Company redeemed, in cash, the remaining $27,000 of outstanding principal and accrued interest on October 27, 2009. The Company was also required to pay a redemption premium of 15% as specified in the original debenture agreement. The Company accounted for the redemption of the remaining balance based on the provisions of ASC 470-50, Debt Modifications and Extinguishments. Since the carrying value of the debentures and the embedded conversion feature on the date of redemption was less than the amount paid to redeem the note, the Company recorded a loss on extinguishment of debt of $7,059 as a result of the redemption.

The amount of the loss was computed as follows:

The loss on extinguishment is calculated by subtracting the carrying value of debentures prior to the redemption from the redemption price.

23

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CARBIZ INC.

Notes to the Condensed Consolidated Financial Statements

October 31, 2009 and 2008

(unaudited)

6.	DERIVATIVE LIABILITIES
	Fair values of derivative liabilities as of October 31, 2009 and January 31, 2009 were as follows:

			October 31, 2009						January 31, 2009
						Number of						Number of
						Indexed						Indexed
			Balance			Common Shares			Balance			Common Shares
	Compound Embedded Derivatives associated with:
	Convertible debentures, $5,000,000 original
	face value; due September 2010	$	2,843,448			109,404,393		$	10,589,144			100,267,353
	Convertible debentures, $800,000 original
	face value; due December 2010		-			-			70,374			1,425,538
	Warrant Liabilities Expiring:
	October 2009		-			-			445,622			9,212,400
	October 2010		7,103			382,796			623,893			11,055,264
	April 2011		8,748			314,276			17,737			314,294
	October 2011		16,258			876,200			49,447			876,200
	February 2014		455,436			10,468,289			-			-
	June 2014		1,215,881			30,781,800			-			-
		$	4,546,874			152,227,754		$	11,796,217			123,151,049

Information and significant assumptions embodied in the Company’s valuations (including ranges for certain assumptions during the subject periods that instruments were outstanding) as of October 31, 2009 are illustrated in the following tables:

		Compound
		Embedded Derivative
	$4,786,400 face value secured convertible debentures due September 30, 2010:
	Conversion price	$0.055
	Volatility	113.32% – 272.01%
	Equivalent term (years)	0.082 – 0.889
	Credit-risk adjusted yield	8.90%
	Interest-risk adjusted rate	12.00% – 14.25%
	Dividends	--

Information and significant assumptions embodied in the Company’s valuations related to the Private Placement Financing as of October 27, 2009 (prior to the redemption) are illustrated in the following table:

$27,000 face value secured convertible debentures due December 1, 2010:

	Conversion price	$0.055
	Volatility	44.46% – 283.07%
	Equivalent term (years)	0.092 – 0.966
	Credit-risk adjusted yield	8.90% – 9.67%
	Interest-risk adjusted rate	11.00% – 14.85%
	Dividends	--

Derivative liabilities are adjusted quarterly to their estimated fair values and any changes in fair value are recorded as gain (loss) on derivative liabilities in the condensed consolidated statements of operations.

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CARBIZ INC.

Notes to the Condensed Consolidated Financial Statements

October 31, 2009 and 2008

(unaudited)

6.	DERIVATIVE LIABILITIES (continued)
	Gain (loss) on derivative liabilities consists of the following:

			Three Months Ended						Nine Months Ended
			October 31,						October 31,
			2009			2008			2009			2008
	Compound embedded derivatives	$	1,761,067		$	(1,000,140	)	$	994,360		$	(247,627	)
	Warrant derivatives		1,476,381			712,723			2,177,851			4,005,873
		$	3,237,448		$	(287,417	)	$	3,172,211		$	3,758,246

7.	STOCKHOLDERS’ EQUITY
	Stock options and incentive stock grants
	Stock option activity for the nine months ended October 31, 2009 is as follows:

			Number Of			Weighted Average
			Options			Exercise Price (*)
	Outstanding, February 1, 2009		7,421,891			$0.15
	Options granted during the period		-			-
	Options cancelled during the period		(1,184,000	)		0.28
	Options exercised during the period		-			-
	Outstanding, October 31, 2009		6,237,891			$0.14

(*) The 1998 series of options were denominated in Canadian dollars. For purpose of this schedule the exercise prices have been converted into U.S. dollars based on the foreign exchange rate as at the end of the period.

At October 31, 2009, the outstanding stock options had no aggregate intrinsic value.

Stock options outstanding and exercisable as of October 31, 2009 are as follows:

(*) The 1998 series of options were denominated in Canadian dollars. For purpose of this schedule the exercise prices have been converted into U.S. dollars based on the foreign exchange rate as at the end of the period.

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CARBIZ INC.

Notes to the Condensed Consolidated Financial Statements

October 31, 2009 and 2008

(unaudited)

7.	STOCKHOLDERS’ EQUITY (continued)
	During the nine months ended October 31, 2009 and 2008, the Company recognized share-based compensation expense of $75,600 and $63,891, respectively for stock options granted to employees, and $96,900 and $96,900, respectively, for incentive stock granted to employees and directors and $10,125, and $64,168, respectively of expense for stock previously granted to consultants for services rendered under a contract with a term which required the amortization of the total expense.
	A summary of the Company’s non-vested stock options as of October 31, 2009, and changes during the nine months then ended, is summarized as follows:

At October 31, 2009, the options had a weighted average grant date fair value of $0.09 and no intrinsic value.

As of October 31, 2009, there was approximately $223,720 of unrecognized compensation cost related to non-vested stock options granted. These costs will be expensed over the next two years and three months.

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 of which 1,360,000 shares have been vested as of October 31, 2009.

Warrants

The Company has granted warrants to purchase shares of common stock. Warrants outstanding, related activity during the period, details of prices and warrants exercisable at October 31, 2009 are as follows:

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CARBIZ INC.

Notes to the Condensed Consolidated Financial Statements

October 31, 2009 and 2008

(unaudited)

7.	STOCKHOLDERS’ EQUITY (continued)

As of October 31, 2009, of the 54,500,697 total warrants outstanding, 11,677,336 are classified as equity and 42,823,361 are classified as liabilities.

The derivative classification and accounting for the Company’s warrants is based upon ASC 815 Derivatives and Hedging (preCodificiation EITF 00-19 Accounting for Derivative Financial Instruments Indexed to, and

Potentially Settled in, a Company’s Own Stock), which sets forth eight conditions for classification of warrants in stockholders’ equity; otherwise the warrants require liability classification and fair value measurement pursuant to ASC 815 (pre-Codification SFAS 133) and, commencing on February 1, 2009, ASC 815 (pre-Codification EITF 07-05 Determining Whether an Instrument (or Embedded Feature) Is Indexed to an Entity's Own Stock). Warrants are evaluated under these conditions upon inception and as of the close of each reporting period. See Note 6 Derivative Liabilities for information associated with our warrants that are classified as liabilities.

Conversion of Trafalgar convertible debentures

During the nine months ended October 31, 2009, the Company issued 980,392 shares of common stock at a conversion price of $0.0765 in a Trafalgar Convertible Debenture conversion.

Conversion of October 1, 2007 related party convertible debentures

On February 19, 2009, a holder of certain of the Company’s October 1, 2007 convertible debentures converted $50,000 of principal and $8,196 of accrued interest due under the debentures into 619,102 shares of common stock of the Company. The conversion price was $0.094. The holder is the spouse of a member of the board of directors.

Exercise of related party warrants

On February 16, 2009, 11,073,419 shares of common stock were issued upon exercise of outstanding warrants. The Company received proceeds of $996,578 based on the CDN$0.12 warrant exercise price.

On February 16, 2009, the Company issued 289,332 shares of common stock upon exercise of outstanding warrants. The Company received proceeds of $33,273 at exercise prices of $0.01 (72,333 shares), $0.10 (72,333 shares), $0.15 (72,333 shares) and $0.20 (72,333 shares).

The warrant holder is a member of the board of directors of the Company.

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CARBIZ INC.

Notes to the Condensed Consolidated Financial Statements

October 31, 2009 and 2008

(unaudited)

7.	STOCKHOLDERS’ EQUITY (continued)
	Unregistered shares issued to officers and directors for directors fees
	On March 24, 2009the board of directors authorized the fees payable to directors for their services during the fiscal year ended January 31, 2009 to be paid in shares of common stock. Accordingly, on March 24, 2009 the Company issued 1,687,500 unregistered common shares valued at $0.08 per share aggregating $135,000 in payment of this liability, recorded at January 31, 2009.
	Unregistered shares issued under cross marketing agreement
	On March 24, 2009, the Company issued 125,562 unregistered common shares valued at $0.08 per share aggregating $10,125 to Dealer Services Corporation as partial consideration for execution of a cross marketing agreement for marketing and training services to be provided for a lease-here pay-here funding program.
	Additional warrants issued to DSC
	On June 15, 2009, the Company issued to DSC warrants to purchase 30,781,800 shares of the Company’s stock at a purchase price of $0.08 per share. The warrants will expire on June 15, 2014. The Company has agreed to enter into registration rights agreements covering the shares subject to the warrants similar to the registration rights agreements the Company agreed to enter into in connection with the warrants previously issued to DSC. See Note 4. The fair value of these warrants on date of issuance was $2,247,071 which was charged to deferred financing costs at that time and is being amortized over the remaining term of the DSC credit facility. The previously issued warrants were charged as an adjustment of the gain on debt extinguishment. See Note 4. These warrants were also considered to be derivative liabilities and are adjusted quarterly to their estimated fair values. See Note 6.
	Expired warrants
	During October 2009, approximately 8,811,467 of the 2004 Warrants expired without being exercised. The weighted average exercise price of the expired warrants was approximately $0.11.
8.	STAR FINANCIAL PORTFOLIO ACQUISITION
	On June 15, 2009, the Company completed its purchase of a loan portfolio comprising approximately 1,500 automobile and light truck loans, with a face value of $9,738,862 and an estimated net realizable value of $6,598,187, from Star Financial Services (“Star”). Consideration for the purchase consisted of the assumption of face value $8,153,665 notes payable due by Star to Wells Fargo Preferred Capital, Inc. (“WFPC”) under a line of credit arrangement, which amount was secured by the purchased portfolio, and up to $2,067,534 in other indebtedness to Star’s principals, which amount was subject to adjustment for estimated loan loss allowances. The final, adjusted other indebtedness assumed amounted to $756,771.
	Contemporaneously with the above purchase, and as a pre-negotiated condition precedent to completing the purchase, the Company entered into the Wells Fargo loan agreement, terms of which are discussed in Note 4. As a result of the negotiations with Wells Fargo Preferred Credit to accomplish the purchase, the Company received significant reductions in future interest on drawings on the Wells Fargo loan agreement (currently 3.95% compared to market rates which range from 12% to 20%). The terms of the purchase agreement provided for the assumption of Star’s Wells Fargo line of credit balance and repayment through drawings under the Wells Fargo loan agreement upon closing, which was accomplished.
	The Company accounted for the purchase as an asset acquisition, at cost, by first allocating the total consideration for the purchase between the purchase of assets from Star and the future interest reductions arising from the Wells Fargo loan agreement, characterized as prepaid interest. The consideration was then

28

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CARBIZ INC.

Notes to the Condensed Consolidated Financial Statements

October 31, 2009 and 2008

(unaudited)

8.	STAR FINANCIAL PORTFOLIO ACQUISITION (continued)
	allocated to the assets acquired from Star (other than cash) based upon their relative fair values. The following table illustrates these allocations:

			Star Asset			Wells Fargo Loan
			Purchase			Agreement			Total
	Assets acquired:
	Loan portfolio	$	6,598,187		$	-		$	6,598,187
	Other assets, including $231,666 in cash		241,666			-			241,666
	Prepaid interest		-			2,070,582			2,070,582
		$	6,839,853		$	2,070,582		$	8,910,436
	Consideration:
	Assumption of credit line	$	6,083,083		$	2,070,582		$	8,153,665
	Assumption of other indebtedness		756,771			-			756,771
		$	6,839,853		$	2,070,582		$	8,910,436

The loan portfolio is valued at its estimated net realizable value. The prepaid interest represents the value of the negotiated interest rate reductions expected in future periods, and will be amortized into interest expense over the term of the Wells Fargo loan agreement using the effective interest method.

Certain expenses of the purchase and Wells Fargo loan agreement, amounting to $637,500, were expensed since the allocation of the purchase consideration above resulted in the assets initial carrying values closely approximating fair values of the assets acquired.

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CARBIZ INC.

Notes to the Condensed Consolidated Financial Statements

October 31, 2009 and 2008

(unaudited)

9.	SEGMENT INFORMATION
	The Company operates and manages its business in two segments, which are its used car sales and leasing segment (“CarBiz Auto Credit”) and consulting and collections services offered to independent car dealerships (“Consulting and Collections”). For the previous period, the Consulting and Collections segment was named Software and Other Products.

	Three months ended October 31,					2009
						Consulting and
			Carbiz Auto Credit			Collections			Total
	Sales	$	8,310,586		$	93,944		$	8,404,530
	Cost of Sales		4,732,860			382,135			5,114,995
	Gross Profit		3,577,726			(288,191	)		3,289,535
	Other Operating Expenses (1)		5,286,154			147,649			5,433,803
	Loss from Operations, before Depreciation
	and Other Income (Expense)	$	(1,708,428	)	$	(435,840	)		(2,144,268	)
	Depreciation & Amortization								43,450
	Other Income (Expense)								45,130
	Net Income							$	(2,142,588	)
	Total Assets	$	33,699,410		$	295,220		$	33,994,630

						2008
						Software and Other
			Carbiz Auto Credit			Products			Total
	Sales	$	13,770,794		$	112,449		$	13,883,243
	Cost of Sales		8,139,743			164,107			8,303,850
	Gross Profit		5,631,051			(51,658	)		5,579,393
	Other Operating Expenses (1)		7,295,604			742,304			8,037,908
	Loss from Operations, before Depreciation
	and Other Income (Expense)	$	(1,664,553	)	$	(793,962	)		(2,458,515	)
	Depreciation & Amortization								27,833
	Other Income (Expense)								(3,325,339	)
	Net Loss							$	(5,811,687	)
	Total Assets	$	29,573,964		$	3,314,012		$	32,887,976

(1) Excluding depreciation and amortization, which is shown separately

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CARBIZ INC.

Notes to the Condensed Consolidated Financial Statements

October 31, 2009 and 2008

(unaudited)

9.	SEGMENT INFORMATION (continued)

	Nine months ended October 31,					2009
						Consulting and
			Carbiz Auto Credit			Collections			Total
	Sales	$	29,320,331		$	418,956		$	29,739,287
	Cost of Sales		16,264,791			1,006,279			17,271,070
	Gross Profit		13,055,540			(587,323	)		12,468,217
	Other Operating Expenses (1)		12,936,565			396,062			13,332,627
	Loss from Operations, before Depreciation
	and Other Income (Expense)	$	118,975		$	(983,385	)		(864,410	)
	Depreciation & Amortization								120,771
	Other Income (Expense)								30,531,529
	Net Income							$	29,546,348
	Total Assets	$	33,699,410		$	295,220		$	33,994,630

						2008
						Software and Other
			Carbiz Auto Credit			Products			Total
	Sales	$	30,489,754		$	1,100,708		$	31,590,462
	Cost of Sales		17,659,835			819,390			18,479,225
	Gross Profit		12,829,919			281,318			13,111,237
	Other Operating Expenses (1)		12,873,267			116,239			12,989,506
	Loss from Operations, before Depreciation
	and Other Income (Expense)	$	(43,348	)	$	165,079			121,731
	Depreciation & Amortization								107,511
	Other Income (Expense)								(4,269,760	)
	Total Operating Loss							$	(4,255,540	)
	Total Assets	$	29,573,964		$	3,314,012		$	32,887,976

(1) Excluding depreciation and amortization, which is shown separately

10.	INCOME TAXES
	As of October 31, 2009, the Company had net operating loss carry-forwards (NOLs) of approximately $26.7 million (expiring from 2010 through 2030) and $13.7 million (expiring 2010 through 2017) in the United States and Canada, respectively. The use of the United States NOLs may be limited in any given year as a result of previous changes in ownership. The Company recorded a gain on the extinguishment of debt of approximately $33.2 million during the three months ended April 30, 2009. The $24.4 million of U.S. gain on debt extinguishment has been excluded from income for income tax purposes based on Internal Revenue Code Section 108. As of February 1, 2011, the Company will be required to reduce certain U.S. tax attributes which will include the reduction of available NOLs. The Company expects available U.S. NOLs to be reduced by approximately $24.4 million. The $8.8 million of Canadian gain on debt extinguishment is not includable in Canadian income and has been treated as a permanent item.
	As a result of the above, no income taxes are expected to result from fiscal 2010 operations.

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

The following Management’s Discussion and Analysis of Financial Condition and Results of Operations contains forward-looking statements concerning our revenues, operating results, and financial condition. Such forward-looking statements include our intent to open additional credit centers in the future; our expectations regarding the future revenues for, and the market acceptance of, our consulting service, and our expectations regarding future expense levels related to our credit center business and interest expenses. The following discussion should also be read in conjunction with the Company’s interim Condensed Consolidated Financial Statements as of October 31, 2009 and the January 31, 2009 audited Consolidated Financial Statements included in our January 31, 2009 Form 10-K.

Overview

The financial services industry is facing unprecedented challenges in the face of the current national and global economic crisis. The overall U.S. economy is experiencing significantly reduced business activity as a result of, among other factors, disruptions in the financial markets during the past year. Carbiz has been further challenged by the credit crisis due to our primary lender, SWC Services LLC (SWC), filing bankruptcy in October 2008, which decreased our access to operating cash flow during the period from October 2008 through February 2009. Accordingly, these financing constraints negatively impacted our planned expansion and funding budgets during the first part of our 2010 fiscal year. In response to SWC’s bankruptcy filing, on January 16, 2009, Carbiz Inc. and its operating subsidiaries entered into amended financing arrangements among Dealer Services Corporation (DSC), the trustee for SWC and certain guarantors to the SWC Loan Agreement. The agreement provided for the transfer of SWC’s interests in the Loan Documents to DSC with the terms subject to the Trustee’s receipt of a final order of the United States Bankruptcy Court for the Northern District of Illinois. The agreement also provided that DSC would forgive approximately $31.3 million of a total of approximately $43.3 million outstanding debt previously due to SWC and to additionally provide future inventory floor plan financing of up to $7.5 million and used car lease funding up to $14 million.

On June 15, 2009, we entered into a loan and security agreement with Wells Fargo Preferred Capital, Inc. Wells Fargo committed to initially loan Carbiz up to $15 million to finance receivables generated by Carbiz from the sale of used vehicles and provides for a 55% advance rate on those receivables. The loan has a stated interest rate of the 3 month LIBOR plus 3.35% . The line of credit will increase to $17 million on January 1, 2010, and to $20 million on March 31, 2010 and will terminate on June 30, 2011. These new credit facilities will help expand our portfolio and provide us access to cash.

In August 2009, the Company was unable to make its monthly curtailment payment due under the DSC term loan. The Company negotiated a deferral of that payment to DSC by agreement to a deferral fee of approximately $350,000, or about $100 per car securitizing the term loan. Subsequent to that agreement, DSC ceased funding new inventory on the floor plan line of credit. This cessation prevented the Company from replacing sold vehicles and had a severe adverse effect on the Company’s sales, portfolio growth and cash flow. As a further result of the reduction of the Company’s sales and cash flow, the Company was forced to negotiate a deferral of two additional monthly curtailment payments on its DSC term loan in September and October 2009. The cost of each monthly deferral was approximately $350,000. The deferral costs were added to the basis of the loan and recorded as interest in the Statement of Operations. These additional charges caused the effective interest rate of the DSC debt to be approximately 40%.

The Company continues to operate at a greatly reduced sales rate due to the lack of inventory financing, which is absolutely crucial to the continuing operations of the Company. During subsequent discussions with DSC, it has become clear that DSC does not intend to restore normal funding to the Company under any circumstances and, as a result, the Company is engaged in a vigorous search to find a suitable replacement credit facility. However, the continuing worldwide financial and credit crises have strained investor liquidity and contract credit markets, which will likely make the cost of raising funds through the debt or equity markets more expensive or make those markets unavailable. If additional financing is raised by the issuance of securities, control of the Company may change and/or our shareholders may suffer significant dilution. However, there can be no assurance that financing efforts

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will be successful, and if a suitable replacement credit facility is not found, the future viability of the Company is in doubt.

Critical Accounting Policies

Revenue recognition

The Company’s revenue is primarily derived from the sale and leasing of used automobiles, and the sale of consulting and collections services to dealers in the automobile industry:

(1)	Used automobile sales:
	The Company recognizes revenue on the sale of automobiles upon execution of the sales contract, the customer taking possession of the automobile, and financing having been approved. Customers are required to meet certain underwriting guidelines in order to obtain financing of the automobile through the Company.
(2)	Used automobile leases:
	The Company recognizes revenue on the lease of automobiles upon execution of the lease contract, the customer taking possession of the automobile, and lease financing having been approved. Customers are required to meet certain underwriting guidelines in order to obtain lease financing of the automobile through the Company. The Company accounts for leases as a “sales-type lease”.
(3)	Consulting and collections services
	The Company generates revenue from the sale of consulting and collections services. These fees include charges for training seminars, performance group seminars, consulting engagements and collection and skip tracing services to the automobile industry. Revenue is recognized when a signed contract has been executed, the services have been delivered, fees are fixed or determinable, collectability is reasonable assured and when all significant obligations have been fulfilled. Therefore, for services that extend over a period of time, revenue is recognized ratably over the term of the contract.

Lease transactions

To qualify for financing under the new DSC financing agreement, the Company converted a number of existing finance note receivables to lease receivables, in February 2009. All Company financed receivables were eligible for the February 2009 conversion. Since the Company aggregates its receivables to determine the allowance for credit losses, there is no overall adjustment in the credit quality of the Company’s receivables. The Company considered these transactions to be “direct financing leases” and accounted for the leases including the minimum lease payments and the unguaranteed residual value as the gross investment in the lease. The difference between this gross investment and the cost or carrying amount was recorded as unearned income. The unearned income and initial direct costs will be amortized to income over the lease term so as to produce a constant periodic rate of return on the net investment in the lease.

Any new leases are considered “sales-type leases” and the minimum lease payments and the residual value of the underlying auto are considered in the fair value. The revenue recognition for sales-type leases involves recognizing both a profit element and a financing element over the term of the lease.

The estimated residual value is reviewed by management quarterly. If the review results in a lower residual estimate than had been previously established, management will then make a determination as to whether the decline is other than temporary. If the decline is judged to be other than temporary, an adjustment will be made to the residual value. The resulting reduction in the net investment will be recognized as a loss in the period in which the estimate is changed. Management determined no such adjustments were needed during the quarter ended July 31, 2009.

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Transfer of Financial Assets

The Company has sold portions of its previously generated and recently acquired financed note receivable portfolio. All portfolio sales during this period have met the requirements for a sale and the Company did not retain the right to service or collect those loans.

During the nine months ended October 31, 2009, the Company sold approximately $2.95 million of notes receivable for cash. The sale resulted in an immaterial gain.

Use of estimates

In preparing the Company’s consolidated financial statements in accordance with GAAP, management is required to make estimates and assumptions that affect the reported amount of assets, liabilities, and the disclosure of contingent liabilities at the dates of the consolidated financial statements and the reported amounts of revenues and expenses during the reporting periods. Actual results could differ from those estimates. Estimates are used when accounting for items and matters such as the allowance for credit losses, accrued liabilities, share-based payments, derivative liabilities and contingencies.

Deferred finance costs

Deferred finance costs include the fair value of warrants issued to an existing lender in conjunction with the issuance of the Wells Fargo Preferred Credit line of credit. They will be amortized over the term of the respective financing arrangement. Approximate future amortization of deferred finance costs is as follows as of October 31, 2009:

Prepaid interest

Prepaid interest included the initial interest recorded in conjunction with the issuance of the Wells Fargo Preferred Credit line of credit and is amortized over the term of the respective financing arrangement. Such amount was determined by comparing the cost of the acquired portfolio and other assets to the fair value of such assets acquired, and the difference was recognized as prepaid interest (see Note 8). Approximate future amortization of prepaid interest is as follows as of October 31, 2009:

Share-Based Compensation

The Company uses the fair-value method to determine compensation for all arrangements under which employees and others receive shares of stock or equity instruments. The fair value of each option award is estimated on the date of grant using the Black-Scholes valuation model that uses assumptions for expected volatility, expected dividends, expected term, and the risk-free interest rate. Expected volatilities are based on the historical volatility of the Company’s common stock over the expected term of the options. The expected term of options granted to employees is derived using the “simplified method” which computes expected terms as the average of the sum of the

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vesting term plus the contract term. The risk-free interest rate is based on the U.S. Treasury yield rates in effect at the time of grant for the period of the expected term.

Derivative instruments

The Company generally does not use derivative financial instruments to hedge exposures to cash-flow, market or foreign-currency risks. However, the Company has entered into certain other financial instruments and contracts, such as debt financing arrangements and freestanding warrants with features that are either not afforded equity classification, embody risks not clearly and closely related to host contracts, or may be net-cash settled by the counterparty. These instruments are required to be carried as derivative liabilities, at fair value, in the Company’s consolidated financials.

The Company estimates fair values of derivative financial instruments using the Black-Scholes-Merton or the Monte Carlo Simulation valuation technique, because that technique embodies all of the assumptions (including credit risk, interest risk, stock price volatility and conversion behavior estimates) that are necessary to fair value complex compound derivative 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 and external market factors. In addition, option-based techniques are highly volatile and sensitive to changes in the Company’s trading market price which has high-historical volatility. Since derivative financial instruments are initially and subsequently carried at fair values, the Company’s income will reflect the volatility in these estimate and assumption changes.

Allowance for credit losses and concentration of credit risk

The allowance reflects the Company’s best estimate of probable losses inherent in the accounts, notes and lease receivables. The Company determines the allowances based on known troubled accounts, historical experience of collections, write-offs and asset recoveries, credit quality of customers and other industry and Company economic considerations.

The Company initiates steps to pursue collection of payments for notes or lease receivables upon the customer’s first missed payment. Initial steps may include contacting the customer via telephone, performing a field visit to the customer’s work or home, or activating the automobile’s onboard starter disrupt system. When the initial steps are not successful, the Company then takes steps to repossess the automobile. While we have a successful history of recovering automobiles that secure delinquent loans through repossession, as is experienced widely in our industry, we generally are unable to recover a significant amount of value from the ultimate sale of the repossessed vehicle relative to the associated note or lease receivable. This is typically due to the deteriorated condition of the repossessed automobile. During our year ending January 31, 2009, our recovery amount as a percent of our gross write-offs amounted to 12.5% (8.4% for the two year period ended January 31, 2009). We will continue to make attempts to improve recovery percentages; however, we currently anticipate that the recovery percentages that we will experience in the foreseeable future will be consistent with this amount.

Once the automobile is in the Company’s possession, and the applicable State’s statutory notice period for repossessed accounts has passed, typically 0 to 30 days, the vehicle is liquidated and the associated receivable account is charged off. In situations where the Company has been unable to successfully repossess the automobile, the account is written off immediately. When a customer’s account becomes severely delinquent (usually 14 days for weekly pay accounts, 30 days for bi-weekly pay accounts and 60 days for monthly pay accounts), the Company suspends accrual of interest income. Notes and lease receivables for accounts held in repossession are fully reserved for in the allowance for credit losses.

The Company maintains an allowance for credit losses on an aggregate basis for the notes and lease receivable portfolio. Management considers the allowance for credit losses to be sufficient to cover estimated losses in the collection of outstanding receivables. The allowance is based primarily upon historical credit loss experience with consideration given to recent credit loss trends, changes in loan characteristics (i.e., average amounts financed and terms of the notes), delinquency levels, collateral values, economic conditions, and underwriting and collection practices. The allowance for credit losses is periodically reviewed by management with any changes reflected in

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current operations. Although it is at least reasonably possible that events or circumstances could occur in the future that are not presently foreseen which could cause actual credit losses to be materially different from the recorded allowance, the Company believes that it has given appropriate consideration to all relevant factors and has made reasonable assumptions in determining the allowance.

For accounts where the automobile was repossessed, the difference between the loan or lease balance and the fair value of the repossessed automobile (based on the average wholesale selling price at auction) is charged to the allowance for credit losses. Generally, repossessed automobiles are sold at auction. On average, accounts are approximately 60-90 days past due at the time of write-off. For previously written-off accounts that are subsequently recovered, the amount of such recovery is credited to the allowance for credit losses.

The Company expenses all costs incurred in connection with the process of initiating, refinancing or restructuring notes or lease receivables to include all costs related to underwriting, securing collateral, closing transactions, processing loan documents, and determining credit worthiness.

Three Month Financial Information

The following summary of selected financial information for the three month period ended October 31, 2009 and 2008 is derived from, and should be read in conjunction with, and is qualified in its entirety by reference to, our Condensed Consolidated Financial Statements, including the notes thereto as of and for periods ended October 31, 2009 and 2008.

Three months ended October 31, 2009 compared to the three months ended October 31, 2008

		October			Percentage			October			Percentage
		31, 2009			of Sales			31, 2008			of Sales
Sales	$	8,404,530			100.0%		$	13,883,243			100.0%
Cost of sales		5,114,995			60.9%			8,303,850			59.8%
Gross profit		3,289,535			39.1%			5,579,393			40.2%
Operating expenses		5,477,253			65.2%			8,065,741			58.1%
Operating income (loss)		(2,187,718	)		-26.0%			(2,486,348	)		-17.9%
Interest expense		(3,185,259	)		-37.9%			(3,037,922	)		-21.9%
Gain (loss) on derivative instruments		3,237,448			63.3%			(287,417	)		-3.5%
Loss on extinguishment of debt		(7,059	)		-0.1%			-			0.0%
Net Income	$	(2,142,588	)		-25.5%		$	(5,811,687	)		-41.9%
Income (loss) per common
share
Basic	$	(0.02	)				$	(0.08	)
Diluted	$	(0.02	)				$	(0.08	)

Revenue

In the three months ended October 31, 2009, our revenues decreased by approximately $5.5 million compared to the same period ended October 31, 2008. This decrease was primarily due to a drop in used car sales and leases caused by our inability to fund replacement inventory and the deteriorating U.S. economy. We are currently looking for a supplement to our current floor plan lines.

Total revenue from car sales and leases during the three months ended October 31, 2009 was $6.3 million compared to $12.3 million during the three months ended October 31, 2008, an decrease of 53%. This was a result of weak sales and lack of inventory.

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Total revenue from consulting and collection services during the three months ended October 31, 2009 was $93,944 compared to $112,449 during the three months ended October 31, 2008, a decrease of $18,505. The small decrease relates the loss of clients due to the decline of the economy.

Interest and lease income for the three months ended October 31, 2009 increased by $528,506 compared to the previous year’s three month period. This increase is due to the increased portfolio size and the addition of the Star Financial portfolio.

Cost of Sales

Our overall cost of sales expense decreased by $3.1 million for the three months ended October 31, 2009, compared to the previous year’s three month period. Used car costs decreased by $3.4 million due to reduced sales and leases. Our consulting and collections cost of sales increased by $218,028 during the three months ended October 31, 2009 due to the increase in the collections department staff and a new California collections office opened this quarter in support of the acquired Star Portfolio.

Expenses

For the three months ended October 31, 2009, our personnel expenses increased by $131,351 compared to the previous year’s three month period. This was due to an increase in corporate staff positions and managerial positions. Selling expenses decreased for the three months ended October 31, 2009 by $111,511 due to a planned reduction in advertising spending. Professional fees increased by $171,521, due the increased need for legal review. Other operating expenses increased by $108,448 during the three month period ended October 31, 2009, mostly due to the increased cost of consumable goods and rent expense.

Interest Expense

Our interest expense and other expenses decreased by $147,337 for the three months ended October 31, 2009, compared to the previous year’s three month period, due to the lower amount of outstanding debt. The outstanding debt was $28.6 million in the current year as compared to $41.3 million in the prior. Interest expense associated with convertible debenture financings is recognized based on the effective interest method, and interest expense is therefore expected to increase due to increased carrying values.

Gain/Loss on Derivative Instruments

For the three months ended October 31, 2009, we incurred a non-cash gain of $3.5 million as a result of the fair value adjustment of outstanding derivative instruments which is based primarily on fluctuations in our stock price. During the three months ended October 31, 2008, we incurred a non-cash loss of $287,417. We expect gains and losses on derivative instruments in the future while the convertible debentures, the host instrument of the derivative liabilities, and related warrants remain outstanding.

Provision for credit losses

As of October 31, 2009, the total Carbiz Auto Credit loan portfolio was approximately $24.2 million and the net investment in lease receivables was approximately $10.5 million. The allowance for doubtful accounts at the same date was approximately $6.1 million for the vehicle loan portfolio, and $2.6 million for lease portfolio, a total of $8.7 million. The provision for credit losses decreased by $1.7, mostly attributable to large blocks of consumer notes written off in the prior year.

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Nine Month Financial Information

The following summary of selected financial information for the nine months ended October 31, 2009 and 2008 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 October 31, 2009 and 2008.

Nine months ended October 31, 2009 compared to the nine months ended October 31, 2008

		October			Percentage			October			Percentage
		31, 2009			of Sales			31, 2008			of Sale
Sales	$	29,739,287			100.0%		$	31,590,462			100.0%
Cost of sales		17,271,070			58.1%			18,479,225			58.5%
Gross profit		12,468,217			41.9%			13,111,237			41.5%
Operating expenses		13,453,398			45.2%			14,302,737			45.3%
Operating income (loss)		(985,181	)		-3.3%			(1,191,500	)		-3.8%
Interest expense		(5,195,410	)		-17.5%			(6,822,286	)		-21.6%
Gain (loss) on derivative instruments		3,172,211			10.7%			3,758,246			11.9%
Gain on extinguishment of debt		33,192,228			111.6%			-			0.0%
Transaction costs		(637,500	)		-2.1%			-			0.0%
Net income	$	29,546,348			99.4%		$	(4,255,540	)		-13.5%
Income (loss) per common
share
Basic	$	0.29					$	(0.06	)
Diluted	$	0.13					$	(0.06	)

Revenue

In the nine months ended October 31, 2009, our revenues decreased by approximately $1.9 million compared to the same period ended October 31, 2008. This decrease was due to lower vehicle sales and a reduction of software and consulting revenue caused by the sale of the software assets.

Total revenue from car sales and leases during the nine months ended October 31, 2009 was $23.9 million compared to $25.7 million during the nine months ended October 31, 2008, a decrease of 7.5% . This was a result of weak sales and lack of inventory.

Total revenue from consulting and collection services during the nine months ended October 31, 2009 was $418,956 compared to $1,100,708 during the nine months ended October 31, 2008, a decrease of $681,752. The decrease was due to the sale of the software assets during the prior period.

Interest and lease income for the nine months ended October 31, 2009 increased by $595,259 compared to the previous year’s nine month period. This increase is due to the increased portfolio size and the addition of the for Star Financial portfolio.

Cost of Sales

Our overall cost of sales expense decreased by $1.2 million for the nine months ended October 31, 2009, compared to the previous year’s nine month period. Used car costs decreased by $1.4 million due to reduced automobile sales and leases. Our consulting and collections cost of sales increased by $186,889 during the nine months ended October 31, 2009 due to the increase in the collections department staff and a new California collections office opened this quarter.

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Expenses

For the nine months ended October 31, 2009, our personnel expenses increased by $150,188 compared to the previous year’s nine month period. This was due to an increase in corporate staff positions and managerial positions. Selling expenses decreased for the nine months ended October 31, 2009 by $215,881 due to a planned reduction in advertising spending. Professional fees increased by $60,907, due the increased need for legal review for the Star Financial transaction and the DSC credit facility agreements. Other operating expenses increased by $288,140 during the nine month period ended October 31, 2009, mostly due to the increased cost of consumable goods and rent expense.

Interest Expense

Our interest expense and other expenses decreased by $1.6 million for the nine months ended October 31, 2009, compared to the previous year’s nine month period, due to the lower amount of outstanding debt . The outstanding debt was approximately $28.6 million in the current year as compared to $41.3 million in the prior. Interest expense associated with convertible debenture financings is recognized based on the effective interest method, and interest expense is therefore expected to increase due to increased carrying values.

Gain/Loss on Derivative Instruments

For the nine months ended October 31, 2009, we incurred a non-cash gain of $3.2 million as a result of the fair value adjustment of outstanding derivative instruments which is based primarily on fluctuations in our stock price. During the nine months ended October 31, 2008 we incurred a non-cash gain of $3.8 million. We expect gains and losses on derivative instruments in the future while the convertible debentures, the host instrument of the derivative liabilities, and related warrants remain outstanding.

Gain on extinguishment of debt

During the nine months ended October 31, 2009, we had a $33.2 million gain on extinguishment of debt. $24.4 million of the extinguishment gain came from the DSC debt forgiveness of $31.4, less the cost of converting our financed receivables to leases of approximately $4.6 million, the fair value of the DSC warrants issued, of approximately $1.4 million, the write off of deferred financing costs of approximately $600,000 and the additional DSC origination and commitment fees of $370,000. The remaining $8.8 million gain on debt extinguishment was derived from a modification of the Trafalgar debenture agreement. There was a $7,059 loss on debt extinguishment that was included with the extinguishment gain during the nine months ended October 31, 2009. There was no such gain in the nine months ended October 31, 2008.

Gain on sale of Software assets

Through June 30, 2008, this segment of our business consisted of new sales and monthly revenue for software products and new sales and other related products including revenue from credit bureau fees, supply sales, and forms programming, and new sales and monthly revenue for consulting products. The software operation of this segment was sold on July 2, 2008. As of July 2, 2008, our ongoing revenue stream has consisted of new sales and monthly revenue from consulting products, training products, Buy Here-Pay Here performance groups, seminars, other one time dealer assistance, and supply sales. In the beginning of fiscal year 2010, the Company opened a collection facility at the corporate headquarters to provide collection services to both our own stores and independent car dealerships.

Provision for credit losses

As of October 31, 2009, the total Carbiz Auto Credit loan portfolio was approximately $24.2 million and the net investment in lease receivables was approximately $10.5 million. The allowance for doubtful accounts at the same date was approximately $6.1 million for the vehicle loan portfolio, and $2.6 million for lease portfolio, a total of

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$8.7 million. The provision for cedit losses decreased by $1.7, mostly attributable to large blocks of consumer notes written off in the prior year.

Significant Financing Arrangements

Trafalgar Secured Subordinated Debenture Financings

January 2009 and subsequent modifications

In January 2009, the Company executed another debenture modification agreement with Trafalgar which terms were effective on February 20, 2009 (the “February 2009 modification”). The February 2009 modification was made pursuant to the Company modifying the terms of the Company’s other debt arrangements including the revolving line-of-credit, term and floor plan notes payable, which were also effective February 20, 2009. Pursuant to the February 2009 modification, Trafalgar revised the payment terms related to certain of the convertible debentures. Debenture principal and interest payments are due as follows: $250,000 in March 2009; $50,000 per month April 2009 through December 2009; $100,000 per month January 2010 through August 2010; and the remaining balance of approximately $5,100,000, in September 2010, as long as the Company holds $10 million of consumer notes that are not in default from its BHPH business and cash on hand exceeds its payables by at least $1 million. A further modification was made by Trafalgar which allowed the Company to further modify the terms of the its loan agreements with DSC.

Additional Unsecured Subordinated Debenture Financing

On February 19, 2009, a holder of certain of the Company’s October 1, 2007 convertible debentures converted $50,000 principal and $8,196 of accrued interest due under the debentures into 619,102 shares of common stock of the Company. The conversion price was $0.094. The holder is the spouse of a member of the board of directors. On February 16, 2009, 11,073,419 shares of common stock were issued upon exercise, by a Company director, of outstanding warrants issued as part of the previously reported October 6, 2004 sale of convertible debentures. The Company received proceeds of $996,578 based on the CDN$ 0.12 warrant exercise price. On February 16, 2009, the Company issued 289,332 shares of common stock upon exercise of outstanding warrants issued as part of the October 1, 2007 convertible debenture financing. The Company received proceeds of $33,273 at exercise prices of $0.01 (72,333 shares), $0.10 (72,333 shares), $0.15 (72,333 shares), and $0.20 (72,333 shares). The warrant holder was a member of the board of directors.

Senior Credit Facilities

Dealer Services Corporation

On January 16, 2009, we entered into an Asset Purchase Agreement with Dealer Services Corporation (“DSC”) and the bankruptcy Trustee of SWC Services LLC (“Trustee”), pursuant to which DSC agreed to purchase and the Trustee agreed to transfer and assign to DSC all of the rights and interest of SWC under the Loan Agreement and the other documents entered into by us and the various guarantors in connection with the SWC Loan Agreement (collectively, the “Loan Documents”).

The Asset Purchase Agreement provided that, in consideration for the transfer to DSC of SWC’s rights in the Loan Documents, DSC would pay to the Trustee the sum of $12,000,000. The final order was effective on February 20, 2009, and $12,000,000 was paid to the Trustee, and upon receipt of such amount the Trustee transferred to DSC its liens and encumbrances in and to our automobile inventory.

The Asset Purchase Agreement also provided that the Loan Agreement would be amended, effective as of February 20, 2009, pursuant to the terms of the Third Amended and Restated Loan and Security Agreement by and between us, DSC and the other parties thereto (the “New Loan Agreement”). The New Loan Agreement substantially revised the terms of the Loan Agreement, and provided that DSC would forgive all of the outstanding balance due under the SWC Loan Agreement in excess of $12,000,000. At February 20, 2009, there was a total balance of approximately $43.3 million borrowed under the SWC credit facilities. The forgiveness of such amount resulted in us recognizing

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income in the our fiscal year 2010 for both financial reporting and federal income tax purposes in the amount of the difference between the amount owed as of the closing date and $12,000,000, less the amount of any costs incurred. We incurred normal transaction costs including commitment fees and legal costs related to the restructuring of current notes receivable as required under the New Loan Agreement. For tax purposes it is anticipated that we will apply IRC Section 108 to the gain associated with the forgiveness of SWC debt in fiscal year 2010. We believe that we have net operating loss carry forwards (NOLs) available that will be adequate to absorb any remaining taxable income. However, as a consequence of using IRC Section 108, these NOLs will most likely be reduced to zero in the year following the transaction. There may also be other adjustments that we must make that would have the effect of deferring any potential income tax liabilities. We believe that beyond the reduction of the NOLs that these other adjustments will not have a material impact on our consolidated financial position.

As DSC primarily provides financing to automobile dealers who lease automotive vehicles to consumers, the New Loan Agreement provided that we had to convert a number of outstanding notes receivable due from consumers who have purchased vehicles from us into closed-end leases or pay a substantial penalty to DSC. Under the New Loan Agreement, we delivered to DSC a set of conversion documents, consisting of a signed closed-end lease and a bill of sale for each vehicle, with respect to vehicles with an aggregate Floor Plan Value (as defined below) of approximately $9,000,000. We incurred costs of approximately $4.6 million in connection with the conversion of these notes receivable, including incentives to borrowers under the notes receivables. The New Loan Agreement provided us with floor plan financing, and generally provides that all advances borrowed to purchase vehicles must be repaid ratably over a two-year period, or upon the sale of the associated vehicle. For loans which are converted to closed-end leases, the two years will commence on the date of conversion. The total credit limit under the New Loan Agreement, as amended, is $19,500,000, which includes the $12,000,000 paid to the Trustee under the Asset Purchase Agreement. The interest rate for all advances under the floor plan facility, including the amount paid to the Trustee for our inventory of vehicles and all vehicles subject to the conversion documents, will be variable, based upon published rates of DSC.

In August 2009, the Company was unable to make its monthly curtailment payment due under the DSC term loan. The Company negotiated a deferral of that payment to DSC by agreement to a deferral fee of approximately $350,000, or about $100 per car securitizing the term loan. Subsequent to that agreement, DSC ceased funding new inventory on the floor plan line of credit. This cessation prevented the Company from replacing sold vehicles and had a severe adverse effect on the Company’s sales, portfolio growth and cash flow. As a further result of the reduction of the Company’s sales and cash flow, the Company was forced to negotiate a deferral of two additional monthly curtailment payments on its DSC term loan in September and October 2009. The cost of each monthly deferral was approximately $350,000. The deferral costs were added to the basis of the loan and recorded as interest in the Statement of Operations. These additional charges caused the effective interest rate of the DSC debt to be approximately 40.84% .

The Company continues to operate at a greatly reduced sales rate due to the lack of inventory financing, which is absolutely crucial to the continuing operations of the Company. During subsequent discussions with DSC, it has become clear that DSC does not intend to restore normal funding to the Company under any circumstances and, as a result, the Company is engaged in a vigorous search to find a suitable replacement credit facility. However, the continuing worldwide financial and credit crises have strained investor liquidity and contract credit markets, which will likely make the cost of raising funds through the debt or equity markets more expensive or make those markets unavailable. If additional financing is raised by the issuance of securities, control of the Company may change and/or our shareholders may suffer significant dilution. However, there can be no assurance that financing efforts will be successful, and if a suitable replacement credit facility is not found, the future viability of the Company is in doubt.

All of the financial covenants contained in the prior Loan Agreement have been deleted from the New Loan Agreement and replaced by an obligation for us to maintain a minimum of $3,500,000 of accounts receivable. As was the case under the previous Loan Agreement, the obligation to pay all amounts due under the New Loan Agreement is secured by a pledge to DSC of all of our assets. Also, Carl Ritter, our Chief Executive Officer, has pledged his shares of our Company’s common stock (3,944,112 shares) to DSC as additional collateral.

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In connection with entering into the New Loan Agreement, we paid DSC a loan origination fee of $120,000 and a commitment fee of $250,000. In addition, on February 20, 2009, we issued to DSC warrants to purchase 9,718,289 shares of the Company’s common stock at a purchase price of $.03 per share, which was the share price in late December/early January when the Company and DSC began negotiating the terms of the New Loan Agreement. The warrants will expire on February 28, 2014. We have agreed to enter into a registration rights agreement on or before December 31, 2010, pursuant to which we will be required to register for resale by DSC the shares to be issued to DSC under the warrant, and to use our commercially reasonable efforts to obtain all necessary consents to enter into such agreement.

In connection with entering into the Asset Purchase Agreement and the New Loan Agreement, we, DSC and Trafalgar Capital Specialized Investment Fund, Luxembourg (“Trafalgar”), entered into a Fifth Amendment To and Reaffirmation Of Subordination and Inter-creditor Agreement, dated January 14, 2009, amending the Subordination and Inter-creditor Agreement between Trafalgar and DSC, as SWC’s assignee of that agreement. Under the Fifth Amendment, Trafalgar consented to the execution and delivery of the New Loan Agreement.

In connection with the closing of the Asset Purchase Agreement and the New Loan Agreement, the Company requested that Ross Quigley, a director and significant shareholder of the Company, exercise certain warrants previously issued to him to purchase 11,073,419 shares of Company common stock at CDN$.12 per share, 72,333 shares at US$.20 per share, 72,333 shares at US$.15 per share, 72,333 shares at US$.10 per share and 72,333 shares at US$.01 per share, in order to provide additional equity financing to the Company. As a condition to such purchase, Mr. Quigley requested that the Company issue to him an additional warrant to purchase up to 10 million shares of Company common stock at any time prior to February 20, 2014 for US$.08 per share (the “New Quigley Warrant”) and, upon approval of the transaction by the Board of Directors, the Company agreed to issued such warrant to Mr. Quigley. On February 20, 2009, Mr. Quigley delivered $750,000 of the $1,029,861 to exercise the warrants to the Company. The remaining balance of $279,861 was paid on March 13, and the Company issued 11,362,751 shares of common stock to Mr. Quigley.

Under the warrant issued to DSC in connection with the New Loan Agreement (the “Existing DSC Warrant”), the issuance of the New Quigley Warrant would have required the Company to increase the 9,718,289 shares issuable under the Existing DSC Warrant to 10,222,604 shares and reduce the exercise price for all of the shares issuable under the Existing DSC Warrant from $0.03 per share to $0.02852 per share. However, DSC agreed that in lieu of the Company increasing the number of shares issuable under the Existing DSC Warrant and reducing the exercise price for all of the shares issuable under the Existing DSC Warrant, the Company could issue to DSC a new warrant to purchase up to 750,000 shares of Company common stock at any time prior to February 20, 2014 for $.08 per share (the “New DSC Warrant”). The Company has issued such warrant to DSC.

On February 25, 2009, the Company, its operating subsidiaries and DSC further amended and restated the New Loan Agreement pursuant to the terms of the Fourth Amended and Restated Loan and Security Agreement (the “Fourth Loan Agreement”).

The Fourth Loan Agreement provides for the inclusion of five new Carbiz subsidiaries in the credit facility. Four of these subsidiaries have been formed to carry out the business of the Company in Indiana, and one has been formed to carry out the business of the Company in Nebraska. Under the Fourth Loan Agreement and the promissory notes executed by the operating subsidiaries thereunder, the amount of available credit was expanded from $14 million to $19.5 million.

In connection with entering into the Fourth Loan Agreement, the Company, DSC and Trafalgar entered into a Sixth Amendment To and Reaffirmation Of Subordination and Inter-creditor Agreement, dated February 23, 2009, amending the Subordination and Inter-creditor Agreement between Trafalgar and DSC. Under the Sixth Amendment, Trafalgar consented to the execution and delivery of the Fourth Loan Agreement and the performance of the terms thereof.

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Wells Fargo

On June 15, 2009, all of the Company's direct and indirect subsidiaries (the "Borrowers") entered into the WF Loan Agreement dated June 15, 2009 with Wells Fargo Preferred Capital, Inc. Under the WF Loan Agreement, Wells Fargo committed to loan the Borrowers up to (i) $15,000,000 through and including December 31, 2009, (ii) $17,000,000 commencing January 1, 2010 through and including March 31, 2010 and (iii) $20,000,000 thereafter. The purpose of the credit facility is to finance receivables generated by the Company from the sales of used vehicles. The Borrowers may borrow up to 55% of the outstanding amount due under eligible receivables, as defined in the WF Loan Agreement, other than receivables acquired from Star Financial Services in June 2009. With respect to the receivables acquired from Star, they may borrow up to 95% of the amount outstanding under such receivables through the 60th day following the date of the WF Loan Agreement and 90% thereafter.

The WF Loan Agreement is subject to certain borrowing limitations, and includes certain financial and restrictive covenants, including but not limited to covenants requiring the maintenance of minimum EBITDA and debt to equity ratios. The credit facility will terminate on June 30, 2011. The covenant requiring a minimum EBITDA ratio became effective as of September 2009. Due to the reduced level of inventory and sales during the quarter, the Company was not able to meet that covenant. and has received a verbal waiver of the EBITDA covenant from Wells Fargo for the periods of September and October 2009.

Loans will bear interest at an annual rate equal to the three-month London Interbank Offered Rate plus 3.35%, (3.95% at October 31, 2009) and an unused line fee of 0.25% per annum is charged on the unused portion of the credit facility on a monthly basis. The Company must pay Wells Fargo an administrative fee of $1,000 per month. The WF debt has an effective interest rate of approximately 12.00%, and interest are payable monthly.

Amounts due to Wells Fargo under the WF Loan Agreement are secured by a security interest in all of the personal property of the Borrowers, and guaranteed by the Company under a Guaranty Agreement.

The Borrowers initial draw under the WF Loan Agreement was $10,303,665, of which $8,153,665 was used to pay the indebtedness of Star to WF.

The total Wells Fargo debt outstanding at October 31, 2009 was $12,205,092.

Liquidity and Capital Resources

As of October 31, 2009, the Company had $312,159 in cash and cash equivalents. During the nine month period ended October 31, 2009, we decreased our accounts payable and accrued liabilities $1.8 million which totaled $2.7 million at October 31, 2009. The Company has incurred significant net losses and negative cash flows from operations in each of the two years ended January 31, 2009, however, during the nine months ended October 31, 2009, the Company recorded $29.5 million of net income, which includes a $33.2 million gain on the extinguishment of debt. As of October 31, 2009, the Company had a stockholders’ deficit of $2.8 million versus a deficit of $34.7 million at January 31, 2009.

During the nine months ended October 31, 2009, we issued approximately 980,392 shares of common stock at a conversion price of $0.0765 in a Trafalgar convertible debenture conversion. Approximately $19,000 of the payment was charged to interest expense, and the remaining amount went to several of the financial instrument’s derivative components. Accordingly, no future cash will be required to pay off this portion of the debentures.

In January 2009, the Company executed another debenture modification agreement with Trafalgar which terms are effective on February 20, 2009 (“February 2009 modification”). The February 2009 modification was made pursuant to the Company modifying the terms of the Company’s other debt arrangements including the revolving line-of-credit, term and floor plan notes payable, which were also effective February 20, 2009 (See Note 5). Pursuant to the February 2009 modification, Trafalgar revised the payment terms related to certain of the convertible debentures. Debenture principal and interest payments are due as follows: $250,000 in March 2009; $50,000 per month April 2009 through December 2009; $100,000 per month January 2010 through August 2010; and the remaining balance of approximately $5.1 million in September 2010, so long as the Company holds consumer notes

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that are not in default from its BHPH business which have an aggregate balance of at least $10 million and only if cash on hand that exceeds its payables by at least $1 million.

In February 2009, the Company completed a restructuring of floor plan and line of credit debt held by SWC Services LLC (SWC) with Dealer Services Corporation (DSC). The restructured debt agreement provides the Company with a maximum credit facility of $19.5 million for floor plan and lease financing. Although the Company had approximately $43.3 million of outstanding notes payable as of January 31, 2009, effective February 20, 2009, the Company was only obligated to repay $12.0 million of this amount due to the debt restructuring. The $12.0 million is payable in installments over the next 24 months and is included in the aforementioned new credit facility. During the current quarter, the Company was able to defer three of the monthly payments to DSC to provide some additional cash flow. DSC will receive a fee for each car on the term loan line as consideration for the deferral.

On June 15, 2009, the Company obtained a revolving line of credit with Wells Fargo Preferred Capital for up to $20 million that will finance up to 55% of the Company’s eligible financed notes receivable. The revolving line of credit is a 2 year commitment and interest is payable monthly.

During the nine months ending October 31, 2009, a board member warrant holder exercised 11,762,351 common stock warrants with proceeds to the company of $1,099,280.

We have incurred significant net losses and negative cash flows from operations, although the gain on debt restructuring during the nine months ending October 31, 2009 offset this trend and decreased our stockholders’ deficit. At October 31, 2009, we had a stockholders’ deficit of $2.7 million versus $34.7 million at January 31, 2009. As a result of our previous lack of financial liquidity and negative stockholders’ equity, there is substantial doubt about our ability to continue as a “going concern”.

In August 2009, the Company was unable to make its monthly curtailment payment due under the DSC term loan. The Company negotiated a deferral of that payment to DSC by agreement to a deferral fee of approximately $350,000, or about $100 per car securitizing the term loan. Subsequent to that agreement, DSC ceased funding new inventory on the floor plan line of credit. This cessation prevented the Company from replacing sold vehicles and had a severe adverse effect on the Company’s sales, portfolio growth and cash flow. As a further result of the reduction of the Company’s sales and cash flow, the Company was forced to negotiate a deferral of two additional monthly curtailment payments on its DSC term loan in September and October 2009. The cost of each monthly deferral was approximately $350,000. The deferral costs were added to the basis of the loan and recorded as interest in the Statement of Operations. These additional charges caused the effective interest rate of the DSC debt to be approximately 40%.

The Company continues to operate at a greatly reduced sales rate due to the lack of inventory financing, which is absolutely crucial to the continuing operations of the Company. During subsequent discussions with DSC, it has become clear that DSC does not intend to restore normal funding to the Company under any circumstances and, as a result, the Company is engaged in a vigorous search to find a suitable replacement credit facility. However, the continuing worldwide financial and credit crises have strained investor liquidity and contract credit markets, which will likely make the cost of raising funds through the debt or equity markets more expensive or make those markets unavailable. If additional financing is raised by the issuance of securities, control of the Company may change and/or our shareholders may suffer significant dilution. However, there can be no assurance that financing efforts will be successful, and if a suitable replacement credit facility is not found, the future viability of the Company is in doubt.

As of October 31, 2009, payments due by us over the next five fiscal years for operating and capital leases, and long-term debt are approximately as follows:

		Less Than One			One to Three			Three to Five			Greater than
		Year			Years			Years			Five Years			Total
Operating Leases	$	1,534,645		$	1,873,390		$	1,111,263		$	1,508,139		$	6,027,437
Long-Term Debt		1,665,601												16,665,601
Convertible Debentures		680,285												680,285
	$	3,545,964		$	17,207,957		$	1,111,263		$	1,508,139		$	23,373,323

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Off-Balance Sheet Arrangements

     As of October 31, 2009, we do not have any off-balance sheet arrangements.

Item 3. Quantitative and Qualitative Disclosures about Market Risk

     Not required

Item 4T. 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 last day 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. Disclosure controls and procedures include without limitations, controls and procedures designed to ensure that information required to be disclosed by an issuer in the reports that it files or submits under the exchange Act is accumulated and communicated to the issuer’s management, included the Certifying Officers, 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 accounting principles generally accepted in the United States. There were no changes in our internal control over financial reporting during our most recent quarter that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

Limitations on the Effectiveness of Internal Controls

Readers are cautioned that our management does not expect that our disclosure controls and procedures or our internal control over financial reporting will necessarily prevent all fraud and material error. An internal control system, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within the Company have been detected. The design of any system of controls also is based in part upon certain assumptions about the likelihood of future events, and there can be no assurance that any control design will succeed in achieving its stated goals under all potential future conditions. Over time, controls may become inadequate because of changes in conditions, or the degree of compliance with the policies or procedures may deteriorate.

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PART II – OTHER INFORMATION

Item 1. Legal Proceedings

We are not aware of any material legal proceedings against us nor are we currently a party to any material legal proceedings.

Item 1A. Risk Factors.

The Company’s senior lender has ceased providing funds to the Company, and the Company’s failure to obtain new financing will affect its ability to continue its operations.

The Company’s primary lender, Dealer Services Corporation, has ceased funding advances under the Loan Agreement between it and the Company. Without such funds, the Company is unable to replenish its vehicle inventories at its dealerships and, as a result, revenues from the sales of vehicles have declined substantially and are expected to continue to decline until new financing can be obtained.

The Company’s ability to continue its operations is dependent upon its ability to obtain new financing to replace the Company’s credit facilities with DSC. The Company is presently considering financing alternatives. However, the recent worldwide financial and credit crises have strained investor liquidity and contracted credit markets, which will likely make the cost of raising funds through the debt or equity markets more expensive or make those markets unavailable. If additional financing is raised by the issuance of securities, control of the Company may change and/or our shareholders may suffer significant dilution. However, there can be no assurance that financing efforts will be successful and, even if the Company does obtain necessary financing, that the Company will achieve profitable operations. The Company is unlikely to be able to continue its operations if it is unable to obtain new financing in the very near future.

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

None.

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

None

Item 5. Other Information

None.

Item 6. Exhibits

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

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

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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: December 15, 2009	/s/ Carl Ritter
	Carl Ritter
	Chief Executive Officer
	(principal executive officer)

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