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

FORM 10-K

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACTOF 1934

For the fiscal year ended:
Commission file number:
June 30, 2006
000-50709
   
NOWAUTO GROUP, INC.
(Exact name of registrant as specified in its charter)
   
Nevada
77-0594821
(State or other jurisdiction
(I.R.S. Employer
of incorporation)
Identification No.)
   
2090 East University, Suite 112, Tempe, Arizona 85281
(address of principal executive offices, including zip code)
   
(480) 990-0007
(Registrant's telephone number, including area code)
 

Indicate by check mark whether the Registrant (1) has filed all reports to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports,) and (2) has been subject to such filing requirements for the past 90 days. Yes x NO o

Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act). Yes o No x

Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of he latest practicable date.
 
Title of Each Class
June 30, 2006
Common Stock, par value $0.001
per share 9,843,046
 

 

NowAuto Group, Inc
 
Consolidated Condensed Balance Sheets
 
Assets
 
   
June 30,
2006
  
June 30,
2005
  
           
Current Assets
          
Cash
    
27,433
   
736,910
  
Accounts Receivable - Net
    
1,582,495
   
48,300
  
Inventory
    
624,898
   
336,386
  
Other Current Assets
    
95,646
   
6,029
  
               
     
2,330,472
   
1,127,625
  
               
Equipment - Net
    
40,733
   
3,920
  
               
Long Term Portion of Notes Receivable
    
2,592,988
       
               
Goodwill
    
1,022,147
   
1,628,482
  
               
     
5,986,340
   
2,760,027
  
               
Liabilities and Stockholders' Equity
               
Liabilities
              
Accounts Payable
    
406,002
   
329,425
 
Taxes Payable
    
391,757
   
117,680
 
Line of Credit
    
2,480,571
       
Accrued Payroll Payable
    
56,303
   
17,455
 
Repossession Accrual
          
118,616
 
Other Loans
    
146,554
   
99,565
 
               
Total Liabilities
    
3,481,186
   
682,741
 
               
Stockholders' Equity
              
Common Stock, authorized
              
100,000,000 shares, $0.001 par value;
              
Issued and outstanding
              
June 30, 2006 - 9,863,045 shares
              
June 30, 2005 - 8,157,661 shares
    
1,005,500
   
8,157
 
               
Paid in Capital
    
3,569,974
   
3,523,117
 
               
Retained Earnings/(Deficit)
    
(2,070,319
)
  
(1,453,988
)
               
Total Stockholder's Equity
    
2,505,154
   
2,077,286
 
               
     
5,986,340
   
2,760,027
 
 

NowAuto Group, Inc
 
Consolidated Condensed Statements of Operations
 
   
Year
Ended
June 30,
2006
  
Year
Ended
June 30,
2005
 
           
           
Income
          
Vehicle & Finance Income
    
11,683,864.65
   
2,092,912
 
               
Cost of Goods Sold
    
8,039,314.50
   
1,960,587
 
               
Gross Profit/Loss
    
3,644,550.15
   
132,325
 
               
Expenses
              
General and Administrative
    
3,191,063.35
   
1,582,313
 
Stock for Services
              
Write off of Reserves
    
213,887.00
       
               
Profit before Income Taxes
    
239,599.80
   
(1,449,988
)
               
Impairment of Goodwill
    
686,867.64
       
Provision for Income Tax
              
               
Net Income (Loss)
    
(447,267.84
)
  
(1,449,988
)
               
Basic and Diluted
              
               
Earnings per Share
              
before Impairment
    
0.02
       
               
Net (Loss) per Common Share
    
(0.05
)
  
(0.15
)
 

NowAuto Group, Inc
 
Consolidated Stockholders' Equity
 
                   
Accumulated
      
           
Paid in
  
Subscriptions
  
Deficit
  
Total
  
   
Shares
  
Amount
  
Capital
  
Receivable
  
(Restated)
  
Equity
  
                           
Balance June 30, 2003
    
319,878
   
320
   
(320
)
              
0
 
                                       
Common Shares Issued to Founders
    
13,333,333
   
13,333
   
(9,333
)
              
4,000
 
Common Shares Subscribed
    
1,333,333
   
1,333
   
998,667
   
(1,000,000
)
        
0
 
                                       
Net (Loss)
                            
(178,405
)
  
(178,405
)
                                       
Balance June 30, 2004
    
14,986,544
   
14,986
   
989,014
   
(1,000,000
)
  
(178,405
)
  
(174,405
)
                                       
Cash received on Subscriptions Receivable
                                      
with additional Shares Issued
    
3,666,667
   
3,667
   
(3,667
)
  
1,000,000
         
1,000,000
 
Common shares issued for cash
    
1,900,001
   
1,900
   
1,548,174
               
1,550,074
 
Common shares issued for acquisition
    
322,042
   
322
   
300,105
               
300,427
 
Common shares canceled
    
(13,333,333
)
  
(13,333
)
  
9,333
               
(4,000
)
Common shares for service
    
615,741
   
616
   
680,157
               
680,773
 
Net (Loss)
                            
(1,449,988
)
  
(1,449,988
)
                                       
Balance June 30, 2005
    
8,157,662
   
8,157
   
3,523,116
   
0
   
(1,628,393
)
  
1,902,880
 
                                       
Stock Scribed
                      
1,005,500
         
1,005,500
 
Purchase of Global-E Investments
    
1,550,000
   
1,550
   
(1,550
)
              
0
 
Stock for services
    
70,000
   
70
   
30,130
               
30,200
 
Common shares issued for cash
    
65,384
         
8,500
               
8,500
 
                 
1,005,500
   
(1,005,500
)
            
Net (Loss)
                            
(441,926
)
  
(441,926
)
                                       
Balance, June 30, 2006
    
9,843,046
   
9,777
   
4,565,696
   
0
   
(2,070,319
)
  
2,505,154
 
 

NowAuto Group, Inc
 
Consolidated Condensed Stockholders' Equity
 
   
Year
 
Year
 
 
 
ended
 
ended
 
 
 
June 30,
 
June 30,
 
 
 
2006
 
2005
  
           
Operating Activities
          
           
Net Income
    
(441,926
)
  
(1,449,988
)
               
Significant Non-Cash Transactions
              
Goodwill Purchase
          
300,426
 
Shares cancelled
          
1,764,018
 
Common stock for services
    
30,200
   
(4,000
)
Depreciation/Amortization Expense
    
49,613
   
571
 
Changes in assets and liabilities
              
(Increase)/Decrease in Receivables
    
(4,227,953
)
  
(150,435
)
(Increase)/Decrease in Inventory
    
(288,512
)
  
(336,386
)
(Increase)/Decrease in Other Current Assets
    
(89,617
)
  
373,153
 
(Decrease)/Increase in Accounts Payable
    
76,577
   
118,264
 
(Decrease)/Increase in Other Liabilities
    
342,067
       
               
Net Cash (Used) by Operating Activities
    
(4,107,626
)
  
2,065,611
 
               
Investing Activities
              
Purchase of Fixed Assets
    
(121,568
)
  
(4,491
)
Write off Reserves
    
213,887
       
Impairment of Goodwill
    
686,868
   
(1,627,035
)
Purchase of Goodwill
              
               
     
779,186
   
(1,631,526
)
               
Financing Activities
              
Proceeds from sale of stock
          
2,021,779
 
Proceeds from Shareholders loans
          
99,565
 
Stock Subscriptions Sold/Paid
    
1,005,500
       
Common Stock sold
              
Bank loan
    
2,055,389
       
               
               
               
     
3,060,889
   
2,121,344
 
               
Net Increase/(Decrease) in Cash
    
(709,477
)
  
732,288
 
               
Cash, Beginning of Period
    
736,910
       
               
     
27,433
   
732,288
 
               
Significan Non-cash transactions
              
Purchase of Navicom, see notes
              
Merger with Global-E Investments see notes
              
Stock for Services, 50,000 shares @ $0.05
    
25,000
       
Stock for Services, 20,000 shares @ $0.26
    
5,200
       
               
Supplemental Information:
              
Period interest
    
79,455
       
Income Taxes paid
              
 
 
Note 1. ORGANIZATION AND BUSINESS

NowAuto, Inc. (the Company) was organized in the state of Nevada on August 19, 1998 under the name WH Holdings, Inc. On June 8, 2004 the name was changed to Automotive Capital Group, Inc and the Company increased its authorized common stock. On August 31, 2004 the name was changed to NowAuto, Inc.

The Company focuses mainly on the "Buy Here/Pay Here" segment of the used car market. The Company primarily sells 1999 and newer model year used vehicles. Many of the Company's customers have limited financial resources and would not qualify for conventional financing as a result of limited credit histories or past credit problems. As of June 30, 2006, the Company had four operating lots located in metropolitan Phoenix and Tucson, Arizona. The Company also has a wholly owned subsidiary, Navicom GPS, Inc., which markets GPS tracking units.

On July 21, 2005 the Company was purchased by Global-E Investments, Inc. Since Global-E was a non-operating company, this purchase was accounted for as a recapitalization stock exchange reverse acquisition. This means that for legal purposes the continuing entity is Global-E Investments, Inc. and for historically accounting purposes the accounting records of Now Auto will be shown. Global-E Investments has changed its name to NowAuto Group, Inc.

Note 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Principles of Consolidation

The consolidated financial statements include the accounts of NowAuto Group, Inc. and its subsidiary. All significant inter-company accounts and transactions have been eliminated. The Company operates on a June 30 fiscal year.

Use of Estimates

The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amount of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenues and expenses during the period. Actual results could differ from those estimates.

Concentration of Risk

The Company provides financing in connection with the sale of substantially all of its vehicles. Periodically, the Company maintains cash in financial institutions in excess of the amounts insured by the federal government.


Cash Equivalents
 
The Company considers all highly liquid debt instruments purchased with maturities of three months or less to be cash equivalents.


The Company originates installment sale contracts from the sale of used vehicles at its dealerships. Finance receivables are collateralized by vehicles sold and consist of contractually scheduled payments from installment contracts.

Used Car Inventory
 
Inventory consists of used vehicles and is valued at the lower of cost or market on a specific identification basis. Vehicle reconditioning costs are capitalized as a component of inventory. Repossessed vehicles are recorded at fair value, which approximates wholesale value. The cost of used vehicles sold is determined using the specific identification method.

GPS Devices Inventory

The Company purchases all of its GPS devices for sale. These devices are stated at cost.

Equipment

Property and equipment are stated at cost. Expenditures for additions, renewals and improvements are capitalized. Costs of repairs and maintenance are expensed as incurred. Leasehold improvements are amortized over the shorter of the estimated life of the improvement or the lease period. The lease period includes the primary lease term plus any extensions that are reasonably assured. Depreciation is computed principally using the straight-line method generally over the following estimated useful lives:

Furniture, fixtures and equipment
3 to 7 years
Leasehold improvements
5 to 15 years
 
Property and equipment are reviewed for impairment whenever events or changes in circumstances indicate the carrying amount of an asset may not be recoverable. Recoverability of assets to be held and used is measured by a comparison of the carrying amount of an asset to future undiscounted net cash flows expected to be generated by the asset. If such assets are considered to be impaired, the impairment to be recognized is measured by the amount by which the carrying values of the impaired assets exceed the fair value of such assets. Assets to be disposed of are reported at the lower of the carrying amount of fair value less costs to sell.


Sales Tax

The Company pays sales taxes to local and state governmental agencies on vehicles sold. Calculations for sales taxes are made on an accrual basis. Vehicle repossessions are allowed as a deduction from taxable sales in the month of repossession. Customers often make their down payments in periodic increments over a period of four to six weeks. The Company does not report the sale for sales tax purposes until the down payments are fully paid. This is congruent with industry standard and complies with state tax codes. The Company is current with its filings of reports. The Company does owe back sales taxes. Arrangements have been made with all taxing authorities and the company is in full compliance with all of them.

Income Taxes
 
Income taxes are accounted for under the liability method. Under this method, deferred tax assets and liabilities are determined based on differences between financial reporting and tax bases of assets and liabilities and are measured using the enacted tax rates expected to apply in the years in which these temporary differences are expected to be recovered or settled.

Revenue Recognition
 
Revenues from the sale of used vehicles are recognized when the sales contract is signed, the customer has taken possession of the vehicle and, if applicable, financing has been approved.

Revenue from GPS units devices is recognized when a unit has been ordered and shipped. Revenue from access time purchased is recognized ratably over the term of the access contracts. Access terms can vary from one month to 36 months. A Deferred Revenue account is set up for any access time paid for but not yet earned.

Advertising Costs
 
Advertising costs are expensed as incurred and consist principally of radio, television and print media marketing costs. Advertising costs amounted to
$268,024 and $68,647 for the fiscal years ended June 30, 2006 and 2005, respectively.

Earnings per Share
 
Basic earnings per share are computed by dividing net income by the average number of common shares outstanding during the period. Diluted earnings per share takes into consideration the potentially dilutive effect of common stock equivalents, such as outstanding stock options and warrants, which if exercised or converted into common stock would then share in the earnings of the Company.
In computing diluted earnings per share, the Company utilizes the treasury stock method and anti-dilutive securities are excluded.

Stock Option Plans
 
As of June 30, 2006 the Company had no employee stock ownership plan.


Repossession Accrual

The repossession accrual represents the amount of the loss expected to be experienced upon repossession of cars adjusted by the actual loss experienced. The company believes that it is more profitable to keep the customer in the car. Great effort has been made to accomplish this goal and the need for repossession accruals is reduced.

Note 3. FINANCE AND ACCOUNTS RECEIVABLES - NET

Financed Contract Receivable-net
 
The Company originates installment sale contracts from the sale of used vehicles at its lots. These installment sale contracts typically a) include interest rates of 29.99% per annum, b) are collateralized by the vehicle sold and c) provide for payments over a period of 36 months. Currently the Company sells a portion of its contracts to third party finance companies. At June 30, 2005, the Company was not holding any of its own contracts. As of June 30, 2006 the Company was holding financed contracts. These are shown below.

Financed Contracts Receivable
 
$
3,557,142
  
Allowance for doubtful accounts
   
(100,000
)
         
Financed Contracts-net
 
$
3,457,142
  

Accounts Receivable - Net
The Company's subsidiary Navicom maintains a trade accounts receivable and allowance for doubtful accounts as follows:
 
  
June 30,
 
June 30,
  
 
  
2006
 
2005
  
           
Accounts Receivable
 
$
432,071
  
$
341,913
  
Less: Allowance for Doubtful Accounts
   
(7,690
)
  
(13,677
)
 
              
Net Accounts Receivable
 
$
424,381
  
$
328,236
  
               
Total Receivables net
 
$
3,989,213
        
 
Note 4. PROPERTY AND EQUIPMENT

A summary of equipment and accumulated depreciation as follows:

 
  
June 30,
 
June 30,
  
 
  
2006
 
2005
  
           
Furniture, fixtures and Equipment
 
$
27,104
  
$
4,491
  
Leasehold improvements
   
2,624
   
0
  
Computers & Software
    
9,396
        
Less accumulated depreciation
   
(4,747
)
  
(571
)
Net Equipment
 
$
34,377
  
$
3,920
  
 

 

Note 5. GOODWILL (Including Recent Purchases)

During the fiscal year ending June 30, 2005, the Company purchased the rights to three used car lots and its subsidiary Navicom Corporation. Details of these purchases are in a subsequent note. The company performed an analysis of its booked Goodwill compared to the present value of projected future profits for the next five years. Based on that analysis the recorded Goodwill will hold its value. The recorded Goodwill on June 30, 2006 was as follows:

Year Ending June 30,
 
2006
  
2005
  
 
          
Navicom purchase
 
$
214,401
  
$
214,401
  
Mesa Lot Purchase
   
498,028
   
498,028
  
Tucson Lot Purchase
   
164,318
   
164,318
  
Sunburst Lot Purchase
   
4,000
    
751,735
  
               
Total
 
$
880,747
  
$
1,628,482
  

In the above figures the purchase of the Sunburst lot is included in the Goodwill amount as of June 30, 2005.

On July 7, 2005 the depreciable portion of the purchase price listed above, $350,000, was reallocated to equipment and furniture.

Impairment
 
The company has selected the final quarter as its period to evaluate the goodwill for impairment on an annual basis. Certain significant events have occurred that focused attention on Sunburst goodwill.

Sunburst’s auction business was the key reason for its acquisition. It was expected to be a profitable alternative means of disposing of vehicles not eligible for finance (BHPH) sales. Since the acquisition of Sunburst, a number of events have converged which adversely affected the goodwill of the Sunburst lot, including but not limited to the following:
 
1)  
The auction proceeds did not achieve the expected results in terms of cash flow and profitability. While the Company devoted considerable capital and advertising to expand the auction, the results still failed to achieve the Company’s expectations.
   
2)  
The Company determined that the Sunburst auction was becoming a drain on capital, advertising and labor, thus inhibiting profitability and growth of its BHPH business.
   
3)  
The Sunburst staff inherited in the acquisition did not perform to expectations [NOTE: none of those employees are still with the company]
 
As a result, the Company elected to change the way it disposes of vehicles not eligible for finance sales, focus on it core competency of BHPH sales and reduce redundant and burdensome cost. Therefore, goodwill for the Sunburst lot has been reduced by $395,000 bringing its value to $0.

In June of 2006, the landlord of the Sunburst lot announced that he had an offer to sell the land. In view of the events discussed above, the company decided to decline to exercise its lease option to stay. Therefore, the under-performing Sunburst auction was closed down. Certain fixed assets that could not be legally or practically removed were abandoned. The lot was moved to a new location. These events resulted in a write off of fixed assets for $231,518 to impairment and a reduction of overhead of $338,364 per year. However, the company believes that the new location will be as productive in financed sales as the old lot had been.

Note 6. INCOME TAXES

The provision for income taxes for the fiscal quarters ended June 30, 2006 and 2005 were as follows below. A valuation account has been set up in the amount of the deferred asset.
 

Quarter ended March 31,
 
2006
 
2005
  
Provision for income taxes:
          
Current taxes payable
 
$
0
  
$
0
  
Change in the deferred tax asset
              
(net of the valuation account)
   
0
   
0
  
               
Total
 
$
0
  
$
0
  

 
Note 7. STOCKHOLDERS' EQUITY

Common Stock

NowAuto, Inc. (the Company) was organized in the state of Nevada on August 19, 1998 under the name WH Holdings, Inc. On June 8, 2004 the name was changed to Automotive Capital Group, Inc and the Company increased its authorized common stock to 100,000,000 shares with a par value of $0.001 and as of June 30, 2004 had 44,959,633 common shares issued and outstanding that includes 4,000,000 shares issued for $1,000,000 subscriptions receivable for a 504 offering. On August 31, 2004 the name was changed to NowAuto, Inc.


During the twelve months ended June 30, 2005 the Company issued an additional 1,000,000 common shares in receipt of $1,000,000 cash payment for the subscriptions receivable executed during the prior period 504 offering.

During the period ended June 30, 2005 the Company issued and additional ,000,000 shares for $1,000,000 cash in a second 504 offering.

On October 19, 2004 the Company issued 430,126 shares valued at $86,025 to assume a 100% interest in a used auto dealership and the receipt of a non complete agreement.

On September 3, 2004, 2005 the company issued 536,002 common shares valued at $214,401 to purchase its wholly owned subsidiary Navicom Corporation.

In November, 2004 the Company authorized issue of 1,500,000 common shares valued at $330,000 to its CEO for professional services.

On February 4, 2005 the Company issued 500,000 restricted common shares in a private placement for $450,075 cash.

On February 16, 2005 Company issued 50,000 common shares to the founder for services and the surrender of 40,000,000 shares that where immediately cancelled.

On May 6, 2005 the Company issued 297,223 shares for services rendered to the company valued at $350,723.

On June 21, 2005 the Company issued 200,000 common shares in a private placement for $100,000 cash.

During the quarter ended September 30, 2005 the Company received $1,005,500 as stock subscriptions through private placements.

On November 1, 2005 the Company authorized the 50,000 shares of restricted common sock for consulting services. For the quarter ended March 31, 2006 the Company authorized 20,000 shares of restricted common stock for consulting services.

NOTE 8. COMPANY ACQUSITIONS

Navicom Corporation
 
On September 3, 2004 The Company issued 536,002 shares valued at $214,401 to purchase Navicom Corporation. Listed below is the balance sheet of Navicom at the date of purchase:
 

Assets
      
 
      
Cash
 
$
1,689
  
Accounts Receivable
   
26,223
  
Furniture & Fixtures
   
1,551
  
 
        
Total Assets
 
$
29,463
  


 
 

Liabilities and Stockholders Equity
      
Accounts Payable
 
$
11,744
  
Payroll
   
908
  
Sales Tax Payable
   
364
  
Loan
   
15,000
  
         
Total Liabilities
   
28,016
  
         
Net Equity
   
1,447
  
Total Liabilities and
        
Stockholders Equity
 
$
29,463
  

NowAuto Mesa Car Lot
 
On October 18, 2004 the Company assumed the lease and lot operations of a used car lot located in Mesa, Arizona. The Company issued 430,126 shares of common stock valued at $86,025 and $412,003 accounts receivable in the form of auto financing contracts for a total purchase price of $498,028.

NowAuto Tucson Car Lot
 
The Company assumed the lease of a used car lot located in Tucson, Arizona during May 2005. The Company issued $164,318 worth of accounts receivable in the form of auto financing contracts for the purchase.

Sunburst Lot
 
On January 17, 2005 the Company agreed to purchase the lot lease and name use (Sunburst) from Sunburst Car Company, Inc. The agreement was revised and finalized on March 30, 2005 and the Company paid $751,735 cash as described below. The Company took possession of the lot on July 7, 2005.

Equipment & fixtures
 
$
250,000
  
Leasehold Improvement
   
100,000
  
No Compete Covenant
   
5,000
  
Goodwill
   
375,000
  
Escrow Costs
   
1,735
  
 
        
Total Investment
 
$
751,735
  

Note 9. SEGMENT REPORTING

The Company has two segments, its cars sales and its GPS unit sales (Navicom).
Following is an analysis of these segments for the three months ended June 30, 2006.


 
 
Cars
 
GPS Units
 
Total
  
Sales
 
$
2,651,686
  
$
74,902
  
$
2,726,588
  
Costs of Goods Sold
   
1,551,166
   
85,218
   
1,636,384
  
Gross Profit
 
$
1,100,520
  
$
(10,316
)
$
1,090,204
  


Note 10. STOCK OPTIONS AND WARRANTS

Currently the Company has no outstanding options or warrants.

Note 11. COMMITMENTS AND CONTINGENCIES

Facility Leases

The Company leases certain car lots and office facilities under various operating leases. Lot leases are generally for periods from one to three years and may contain multiple renewal options. As of June 30, 2006, the aggregate rentals due under such leases, including renewal options that are reasonably assured, are as follows:
 
2006
 
$
237,679
  
2007
   
253,983
  
2008
   
253,983
  
2009
   
253,983
  
2010
   
253,983
  

Note 12. RELATED PARTY TRANSACTIONS

Shareholders have advanced the Company funds to cover operational expenses. These were demand notes and currently carried no interest. At December 31, 2005, $350,000 was converted to a note payable with 6% interest. This note is secured by the assets of the corporation. The total notes payable to Company shareholders are $164,955.98 at March 31, 2006 and $99,565 at June 30, 2005. These notes have now been fully satisfied through transfer of customer’s contracts.

Beginning during the quarter the Company began utilizing a flooring company which previously has been utilized for purchase of contracts. This finance company is owned by the same shareholder that has loaned funds to the Company as mentioned in the previous paragraph.

Note 13. THE EFFECT OF RECENTLY ISSUED ACCOUNTING STANDARDS

Below is a listing of the most recent accounting standards SFAS 150-154 and their effect on the Company.

Statement No. 150 Accounting for Certain Financial Instruments with Characteristics of both Liabilities and Equity (Issued 5/03)

This Statement establishes standards for how an issuer classifies and measures certain financial instruments with characteristics of both liabilities and equity.


 

Statement No. 151 Inventory Costs-an amendment of ARB No. 43, Chapter 4 (Issued 11/04)

This statement amends the guidance in ARB No. 43, Chapter 4, Inventory Pricing, to clarify the accounting for abnormal amounts of idle facility expense, freight, handling costs, and wasted material (spoilage). Paragraph 5 of ARB 43, Chapter 4, previously stated that "...under some circumstances, items such as idle facility expense, excessive spoilage, double freight and re-handling costs may be so abnormal ass to require treatment as current period charges...." This Statement requires that those items be recognized as current-period charges regardless of whether they meet the criterion of "so abnormal." In addition, this Statement requires that allocation of fixed production overheads to the costs of conversion be based on the normal capacity of the production facilities.

Statement No. 152 Accounting for Real Estate Time-Sharing Transactions (an amendment of FASB Statements No. 66 and 67)

This Statement amends FASB Statement No. 66, Accounting for Sales of Real Estate, to reference the financial accounting and reporting guidance for real estate time-sharing transactions that is provided in AICPA Statement of Position (SOP) 04-2, Accounting for Real Estate Time-Sharing Transactions.

This Statement also amends FASB Statement No. 67, Accounting for Costs and Initial Rental Operations of Real Estate Projects, states that the guidance for (a) incidental operations and (b) costs incurred to sell real estate projects does not apply to real estate time-sharing transactions. The accounting for those operations and costs are subject to the guidance in SOP 04-2.

Statement No. 153 Exchanges of Non-monetary Assets (an amendment of APB Opinion No. 29)

The guidance in APB Opinion No. 29, Accounting for Non-monetary Transactions, is based on the principle that exchanges of non-monetary assets should be measured based on the fair value of the assets exchanged. The guidance in that Opinion, however, includes certain exceptions to the principle. This Statement amends Opinion 29 to eliminate the exception for non-monetary exchanges of similar productive assts and replaces it with a general exception for exchanges of non-monetary assets that do not have commercial substance. A non-monetary exchange has commercial substance if the future cash flows of the entity are expected to change significantly as a result of the exchange.

Statement No. 154 - Accounting Changes and Error Corrections (a replacement of APB Opinion No. 20 and FASB Statement No. 3)



 

This Statement replaces APB Opinion No. 20, Accounting Changes, and FASB Statement No. 3, Reporting Accounting Changes in Interim Financial Statements, and changes the requirements for the accounting for and reporting of a change in accounting principle. This Statement applies to all voluntary changes in accounting principle. It also applies to changes required by an accounting pronouncement in the unusual instance that the pronouncement does not include specific transition provisions. When a pronouncement includes specific transition provisions, those provisions should be followed.

The adoption of these new Statements is not expected to have a material effect on the Company's current financial position, results or operations, or cash flows.

Note 14. GOING CONCERN

The accompanying financial statements have been prepared assuming that the company will continue as a going concern. The Company sustained a material loss in the year ended June 30, 2005. This loss has continued through June 30, 2006. This raised substantial doubt about the Company's ability to continue as a going concern. The financial statements do not include any adjustments that might result from this uncertainty.

Management has made efforts to improve the profitability of the Company by increasing the margins on cars sold. They have also hired new finance and accounting personnel to better track the Company's profitability and negotiate selling contracts. Investor funds have been solicited to maintain cash flows until the Company becomes profitable. The quarter ended December 31, 2005 reflected a substantial net loss. The Company did report a profit for the year ended June 30, 2006; however, the Company needs to attract equity investors to continue in existence. No assurance can be made that these investors will be forthcoming.

Note 15. Compensation of Officers

Scott Miller, CEO entered into an agreement with the company on January 20, 2005 for $250,000 as a retention bonus. The company has been unable to honor the full agreement. Currently, Mr. Miller receives a salary of $130,000 per year. He drives a company-owned vehicle most of the time as does other company management. The other officers currently receive salaries of less than $100,000.

Note 16. Contract Financing

During the quarter ended March 31, 2006 the Company initiated relations with a new finance company to finance installment contracts from customers. The monies advanced are based upon the contract price and vary per car. The individual car is used as collateral for the advanced funds. Substantially all of the installment contracts financed requires the Company's customers to make their monthly payments via ACH (automatic account withdrawal). The Company pays a variable interest rate over the Prime Rate for its financing. The finance company receives all of the payments from the customers, removes its portion (interest and principal) and then makes the remainder available for the Company to pull from when needed. The Company retains ownership of these contracts and is active in the collection of delinquent accounts from these contracts. The Company also has contracts, which it administers itself.


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

The following discussion should be read in conjunction with the Company's consolidated financial statements and notes thereto appearing elsewhere in this report.

Forward-looking Information

The Private Securities Litigation Reform Act of 1995 provides a "safe harbor" for certain forward-looking statements. Certain information included in this Quarterly Report on Form 10-QSB contains, and other materials filed or to be filed by the Company with the Securities and Exchange Commission (as well as information included in oral statements or other written statements made or to be made by the Company or its management) contain or will contain, forward-looking statements within the meaning of Section 21E of the Securities Exchange Act of 1934, as amended, and Section 27A of the Securities Act of 1933, as amended. The words "believe," "expect," "anticipate," "estimate," project" and similar expressions identify forward-looking statements, which speak only as of the date the statement was made. The Company undertakes no obligation to publicly update or revise any forward-looking statements. Such forward-looking statements are based upon management's current plans or expectations and are subject to a number of uncertainties and risks that could significantly affect current plans, anticipated actions and the Company's future financial conditions and results. As a consequence, actual results may differ materially from those expressed in any forward-looking statements made by or on behalf of the Company as a result of various factors. Any forward-looking statements are made pursuant to the Private Securities Litigation Reform Act of 1995 and, as such, speak only as of the date made.

Overview

Since 2004, NowAuto Group, Inc., a Nevada corporation (the "Company") is a publicly held retailer focused on the "Buy Here/Pay Here" segment of the used vehicle market. The Company generally sells 1999 and newer model-year used vehicles and provides financing for substantially all of its customers. Many of the Company's customers have limited financial resources and would not qualify for conventional financing as a result of limited credit histories or past credit problems. As of June 30, 2006 the Company has four stores, all of which are located in the State of Arizona.
 
 
The market for used vehicle sales in the United States is significant. Used vehicle retail sales typically occur through franchised new vehicle dealerships that sells used vehicles, or independent used vehicle dealerships. The Company operates in the "Buy Here/Pay Here" segment of the independent used vehicle sales and finance market. Buy Here/Pay Here dealers sell and finance used vehicles to individuals with limited credit histories or past credit problems. Buy Here/Pay Here dealers typically offer their customers certain advantages over more traditional financing sources, such as broader and more flexible credit terms, attractive payment terms, including scheduling payments on a weekly or bi-weekly basis to coincide with a customer's payday, and the ability to make payments in person, an important feature to individuals who may not have checking accounts. In turn, interest rates on vehicle loans provided by the Company are generally higher than those offered to individuals who purchase from other new or used vehicle dealers or who have better credit histories.

The Company's primary focus is on collections. The Company is responsible for its own collections through its internal collection department with supervisory involvement of the corporate office. For the three months ended June 30, 2006 estimated credit losses as a percentage of contracts were 14%. The Company intends to increase the focus of store management on credit quality and on collections. In addition to the experience of store management and the seasoning of the customer base, credit losses are also impacted, to some degree, by economic conditions in the markets in which the Company serves. In recent months, energy costs have risen at a rate much faster than the general rate of inflation. While the Company believes the most significant factor affecting credit losses is the proper execution (or lack thereof) of its business practices, the Company also believes that higher energy and fuel costs have a negative impact on collection results.

Hiring, training and retaining qualified personnel are critical to the Company's success. The number of trained managers the Company has at its disposal will limit the rate at which the Company adds new stores. Excessive turnover, particularly at the store manager level, could impact the Company's ability to add new stores. During the twelve months ended June 30, 2006 the Company added resources to train and develop personnel. The Company expects to continue to invest in the development of its workforce.

The Company also offers GPS tracking services through its NaviCom GPS, Inc. subsidiary that allows users, including vehicle dealers and others, to locate, track and monitor motor vehicles and other personal property. Originally organized as a reseller of GPS products for the Company's Buy Here/Pay Here operations and a small group of external customers, NaviCom GPS, Inc. specializes in tracking and monitoring solutions for fleet management, law enforcement and finance applications as well as tracking vehicles.




Twelve Months Ended June 30, 2006 vs. Twelve Months Ended June 30, 2005

For the quarter ended June 30, 2005 the Company was just beginning and did not have any significant sales. As such, a comparison with the quarters would be ineffectual. The discussion below focuses on the twelve months ended June 30, 2006 vs. the twelve months ended June 30, 2005.

Revenue from financed vehicles generally fall in a price range of $7,000 to $9,000. Vehicle sales represented 78% of revenue for the period and NaviCom GPS, Inc. 2%.

The Company's gross profit as a percentage of sales during the twelve months ended June 30, 2006 was 31% vs. 6% for the period ended June 30, 2005.

General and administrative expenses as a percentage of sales were 27% for the twelve months ended June 30, 2006 and 75% for the period ended June 30, 2005. Regulatory oversight expenses may affect this as the Company grows.

Financial Condition
 
The following sets forth the major balance sheet accounts of the Company as of the dates specified.
 

 
  
6/30/06
 
6/30/05
  
Accounts Receivable (net)
   
4,175,483
   
48,300
  
Inventory
   
624,898
   
336,386
  
Equipment
   
40,733
   
3,920
  
Goodwill
   
928,747
   
1,628,482
  
Accounts Payable
   
406,001
   
329,425
  
Taxes Payable
   
391,757
   
117,980
  

As of June 30, 2005 the Company held no contracts. During the quarter ended September 30, 2005 management made the decision to begin its own financing. This accounts for the increase in accounts receivable. Inventory rose as a result of increased sales. The Company had no significant increase in equipment purchase for the quarter. The increase noted is actually a transfer of assets. The Sunburst lot was purchased on July 7, 2005. As of that date $350,000 in fixed assets was transferred from other assets to equipment and depreciation was initiated. The increase in accounts payable was a result of increased volume of business and strained cash flow.



Liquidity and Capital Resources

During the twelve months ended June 30, 2006 the Company had investment equity infusions to shore up the lack of cash flow. The Company has not had any investments since September 30, 2005. Since the middle of August 2005 the company has also kept most of its contracts as opposed to selling the contracts to third parties. This has put a severe strain on the cash flow of the Company and has made it difficult to pay normal overhead expenses on an ongoing basis. During the three month period ended March 31, 2006 the Company executed a finance agreement with an independent finance company to fund the Company's installment contracts. Without a source to finance or purchase the contracts the Company has only as its cash flow cash sales from its weekly auction and monthly payments from its contracts receivable portfolio. Currently, this cash flow stream is not adequate to meet weekly overhead cash needs.

Critical Accounting Policies

The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires the Company to make estimates and assumptions in determining the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from the Company's estimates. The Company believes the most significant estimate made in the preparation of the accompanying consolidated financial statements relates to the determination of is allowance for doubtful accounts, which is discussed below.

The Company maintains an allowance for doubtful accounts on an aggregate basis at a level it considers sufficient to cover estimated losses in the collection of its finance receivables. The allowance for doubtful accounts is based primarily upon recent historical credit loss experience, with consideration given to trends in the industry, delinquency levels, collateral values, economic conditions and collections practices. The allowance for doubtful accounts 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 for credit losses, the Company believes that it has given appropriate consideration to all factors and has made reasonable assumptions in determining the allowance for doubtful accounts.

Recent Accounting Pronouncements

In December 2004, The Financial Accounting Standards Board ("FASB") issued Statement of Financial Accounting Standards 123R, "Share-Based Payment" (SFAS 123R), which is a revision of SFAS 123. SFAS 123R supersedes APB Opinion No. 25. Generally, the approach in SFAS 123R is similar to the approach described in SFAS 123, except that SFAS 123R requires all share-based payments to employees, including grants of employee stock options, to be recognized in the income statements based on fair values. Pro forma disclosure is no longer an alternative under SFAS 123R. SFAS 123R was originally issued with the implementation required for interim and annual periods beginning after June 15, 2005. One April 15, 2005 the Securities and Exchange Commission delayed the required effective date of SFAS 123R to the beginning of the first fiscal year that begins after June 15, 2005.

 
The Company has a policy of immediate compliance with all new accounting standards. It has complied with these new requirements since the beginning of its prior fiscal year, July 1, 2004.

Seasonality

The Company's vehicle sales and finance business is seasonal in nature. The period October through December is historically the slowest period for vehicle sales. Many of the Company's operating expenses such as administrative personnel, rent and insurance are fixed and cannot be reduced during period of decreased sales. Conversely, the period January through May is historically the busiest time for vehicle sales as many of the Company's customers use income tax refunds as down payment on the purchase of a vehicle.

Item 3. Quantitative And Qualitative Disclosures about Market Risk

As of March 31, 2006 the Company had obtained long term institutional financing in the form of collateral debt, and as such the Company's earnings are impacted by interest paid. Interest rates charged by the Company on the vehicles financed by the Company are fixed and are below lending rate regulations in the State of Arizona.

Item 4. Controls and Procedures

The Company's management has evaluated the effectiveness of the design and operation of its financial and operating controls and procedures as of the end of the period covered by this annual report on Form 10-K, and, based on their evaluation have concluded that these controls and procedures were not effective as a result of weakness in the information technology ("IT") controls.

During the twelve months ended June 30, 2006 the Company made a number of improvements in the IT area including (i) hiring a seasoned chief accountant; (ii) installing new software programs specific to the Company's business; and (iii) improving operational reporting procedures and controls. While the Company's management believes improvements have been made, as of the end of June 30, 2006 this new system is not totally functional. The Company intends to be totally operational by the end of the June 30, 2007 quarter.
 
 
PART II
Other Information

Item 1.
Legal Proceedings
 
None

Item 6.
Exhibits
  
     
 
31.1
Rule 13a-14(a) certification
 
31.2
Rule 13a-14(a) certification
 
32.1
Rule Section 1350 certification

Exhibit Index

31.1.
Rule 13a-14(a) certification
31.2.
Rule 13a-14(a) certification
32.1.
Rule Section 1350 certification
 
 

MOORE & ASSOCIATES, CHARTERED
 ACCOUNTANTS AND ADVISORS
 PCAOB REGISTERED



CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM


We consent to the use, in the statement on Form 10KSB of Now Auto Inc, of our report dated October 12, 2006 on our audit of the financial statements of Now Auto Inc as of June 30, 2006 and 2005, and the related statements of operations, stockholders’ equity and cash flows for the years then ended, and the reference to us under the caption “Experts.”




/s/ Moore & Associates, Chartered
Moore & Associates Chartered
Las Vegas, Nevada
October 12, 2006









2675 S. Jones Blvd. Suite 109, Las Vegas, NV 89146 (702)253-7511 Fax (702)253-7501
 
 

MOORE & ASSOCIATES, CHARTERED
 ACCOUNTANTS AND ADVISORS
PCAOB REGISTERED

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Board of Directors
Now Auto Inc.
Las Vegas, Nevada

We have audited the accompanying balance sheet of Now Auto Inc. as of June 30, 2006 and 2005, and the related statements of operations, stockholders’ equity and cash flows for the years ended June 30, 2006 and 2005. These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements based on our audits.

We conducted our audits in accordance with standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Now Auto Inc as of June 30, 2006 and 2005 and the results of its operations and its cash flows for the years ended June 30, 2006 and 2005, in conformity with accounting principles generally accepted in the United States of America.

The accompanying financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 14 to the financial statements, the Company’s recurring losses raise substantial doubt about its ability to continue as a going concern. Management’s plans concerning these matters are also described in Note 14. The financial statements do not include any adjustments that might result from the outcome of this uncertainty.
 

 
Moore & Associates Chartered
Las Vegas, Nevada
October 12, 2006


2675 S. Jones Blvd. Suite 109, Las Vegas, NV 89146 (702) 253-7511 Fax (702) 253-7501