UNITED
STATES


SECURITIES
AND EXCHANGE COMMISSION


Washington,
D.C. 20549





FORM
10-Q





QUARTERLY
REPORT PURSUANT TO SECTION 13 OR 15(d) OF


THE
SECURITIES EXCHANGE ACTOF 1934





For
      the fiscal quarter ended:
                
                Commission
      file number:December
      31, 2008
                
                000-50709





NOWAUTO
GROUP, INC.





(Exact
name of registrant as specified in its charter)





Nevada
                  77-0594821(State
      or other jurisdiction
                  (I.R.S.
      Employerof
      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 the latest practicable date.





Title
      of Each Class
                          
                          Outstanding
      at December 31, 2008Common
      Stock, par value $0.001 per share
                          
                          9,843,046







NowAuto
Group, Inc
 Consolidated
Balance Sheets
 
 December 31,
                          
                          
                          June 30,2008
                          
                          
                          2008(Unaudited)
                          
                          
                          (Audited)AssetsCurrent
      AssetsCash
                          
                          $
                          47,353
                          
                          
                          $
                          32,508Accounts
      Receivable - Net
                          
                          
                          3,199,040
                          
                          
                          
                          2,742,067Inventory
                          
                          
                          384,832
                          
                          
                          
                          665,338Prepaid
      Expenses
                          
                          
                          21,164
                          
                          
                          
                          44,071Total
      Current Assets
                          
                          
                          3,652,389
                          
                          
                          
                          3,483,984Long
      Term Notes Receivable
                          
                          
                          3,973,257
                          
                          
                          
                          3,375,008Equipment
      – Net
                          
                          
                          68,382
                          
                          
                          
                          84,293Goodwill
                          
                          
                          716,179
                          
                          
                          
                          716,179Total
      Assets
                          
                          $
                          8,410,206
                          
                          
                          $
                          7,659,464Liabilities
      and Stockholders' Equity (Deficit)Current
      LiabilitiesAccounts
      Payable
                          
                          $
                          330,137
                          
                          
                          $
                          431,307Taxes
      Payable
                          
                          
                          413,195
                          
                          
                          
                          8,877Line
      of Credit
                          
                          
                          2,291,132
                          
                          
                          
                          2,102,490Accrued
      Payroll
                          
                          
                          69,112
                          
                          
                          
                          50,604Deferred
      Revenue
                          
                          
                          1,286,074
                          
                          
                          
                          1,085,449Other
      Loans
                          
                          
                          66,579
                          
                          
                          
                          129,440Total
      Current Liabilities
                          
                          
                          4,456,228
                          
                          
                          
                          3,808,168Long
      Term Notes Payable
                          
                          
                          6,520,915
                          
                          
                          
                          5,355,922Commitment
                          
                          
                          0
                          
                          
                          
                          0Total
      Liabilities
                          
                          
                          10,977,143
                          
                          
                          
                          9,164,090Stockholders'
      EquityCommon
      Stock, authorized 1,000,000,000 shares $0.001 par value; Issued and
      OutstandingDecember
      31, 2008 - 9,843,046 shares;less 400,000 Treasury stockJune
      30, 2008 - 9,843,046 shares;less 400,000 Treasury
      stock
                          
                          
                          9,842
                          
                          
                          
                          9,842Treasury
      Stock
                          
                          
                          (17,500
                          )
                          
                          
                          (6,500
                          )Paid
      in Capital
                          
                          
                          4,565,631
                          
                          
                          
                          4,565,631Retained
      Earnings/(Deficit)
                          
                          
                          (7,124,910
                          )
                          
                          
                          (6,073,599
                          )Total
      Stockholder's Equity (Deficit)
                          
                          
                          (2,566,937
                          )
                          
                          
                          (1,504,626
                          )Total
      Liabilities and Stockholder's Equity (Deficit)
                          
                          $
                          8,410,206
                          
                          
                          $
                          7,659,464
  The
accompanying notes are an integral part of these financial
statements.
  
 
 NowAuto
Group, Inc
 Consolidated
Statements of Operations
 
 3 Months
                        
                        
                        3 Months
                        
                        
                        6 months
                        
                        
                        6 monthsEnded
                        
                        
                        Ended
                        
                        
                        Ended
                        
                        
                        EndedDec 31,
                        
                        
                        Dec 31,
                        
                        
                        Dec 31,
                        
                        
                        Dec 31,2008
                        
                        
                        2007
                        
                        
                        2008
                        
                        
                        2007Unaudited
                        
                        
                        Unaudited
                        
                        
                        Unaudited
                        
                        
                        UnauditedIncomeVehicle
      & Finance Income
                        
                        $
                        1,448,379
                        
                        
                        $
                        1,063,650
                        
                        
                        $
                        2,554,605
                        
                        
                        $
                        2,150,189Cost
      of Goods Sold
                        
                        
                        847,005
                        
                        
                        
                        487,529
                        
                        
                        
                        1,571,258
                        
                        
                        
                        1,071,029Gross
      Profit/Loss
                        
                        
                        601,374
                        
                        
                        
                        576,121
                        
                        
                        
                        983,347
                        
                        
                        
                        1,079,160Gross
      Margin
                        
                        
                        41.5
                        %
                        
                        
                        54.2
                        %
                        
                        
                        38.5
                        %
                        
                        
                        50.2
                        %ExpensesSelling
      and Financing Costs
                        
                        
                        525,790
                        
                        
                        
                        412,734
                        
                        
                        
                        997,682
                        
                        
                        
                        948,945General
      and Administrative
                        
                        
                        314,717
                        
                        
                        
                        245,747
                        
                        
                        
                        592,946
                        
                        
                        
                        487,942Loss
      before Interest and Tax
                        
                        
                        (239,135
                        )
                        
                        
                        (82,361
                        )
                        
                        
                        (607,282
                        )
                        
                        
                        (357,728
                        )Interest
                        
                        
                        (221,352
                        )
                        
                        
                        (229,068
                        )
                        
                        
                        (444,029
                        )
                        
                        
                        (445,139
                        )Provision
      for Income Tax
                        
                        
                        0
                        
                        
                        
                        0
                        
                        
                        
                        0
                        
                        
                        
                        0Net
      Loss
                        
                        $
                        (460,487
                        )
                        
                        $
                        (311,429
                        )
                        
                        $
                        (1,051,311
                        )
                        
                        $
                        (802,867
                        )Earnings
      Per Share
                        
                        
                        (0.05
                        )
                        
                        
                        (0.03
                        )
                        
                        
                        (0.11
                        )
                        
                        
                        (0.08
                        )Weighted
      Average Number ofCommon Shares O/S
                        
                        $
                        9,843,046
                        
                        
                        $
                        9,843,046
                        
                        
                        $
                        9,843,046
                        
                        
                        $
                        9,843,046
 
 The
accompanying notes are an integral part of these financial
statements.


NowAuto
Group, Inc
 Consolidated
Stockholders' Equity
 
 Paid
      in
                            
                            
                            Subscriptions
                            
                            
                            Treasury
                            
                            
                            Accumulated
                            
                            
                            TotalShares
                            
                            
                            Amount
                            
                            
                            Capital
                            
                            
                            Receivable
                            
                            
                            Stock
                            
                            
                            Deficit
                            
                            
                            EquityBalance
      June 30, 2005
                            
                            $
                            8,157,662
                            
                            
                            $
                            8,157
                            
                            
                            $
                            3,523,116
                            
                            
                            $
                            0
                            
                            
                            $
                            0
                            
                            
                            $
                            (1,628,393
                            )
                            
                            $
                            1,902,880Stock
      Subscribed
                            
                            
                            
                            
                            
                            
                            
                            
                            
                            
                            
                            
                            
                            
                            1,005,500
                            
                            
                            
                            
                            
                            
                            
                            
                            
                            
                            
                            1,005,500Purchase
      of Global-E Investments
                            
                            
                            1,550,000
                            
                            
                            
                            1,550
                            
                            
                            
                            (1,550
                            )
                            
                            
                            
                            
                            
                            
                            
                            
                            
                            
                            
                            
                            
                            
                            0Stock
      for services
                            
                            
                            50,000
                            
                            
                            
                            50
                            
                            
                            
                            24,950
                            
                            
                            
                            
                            
                            
                            
                            
                            
                            
                            
                            
                            
                            
                            
                            25,000Stock
      for services
                            
                            
                            20,000
                            
                            
                            
                            20
                            
                            
                            
                            5,180
                            
                            
                            
                            
                            
                            
                            
                            
                            
                            
                            
                            
                            
                            
                            
                            5,200Common
      shares issued for cash
                            
                            
                            26,923
                            
                            
                            
                            27
                            
                            
                            
                            3,473
                            
                            
                            
                            
                            
                            
                            
                            
                            
                            
                            
                            
                            
                            
                            
                            3,500Common
      shares issued for cash
                            
                            
                            38,461
                            
                            
                            
                            38
                            
                            
                            
                            4,962
                            
                            
                            
                            
                            
                            
                            
                            
                            
                            
                            
                            
                            
                            
                            
                            5,000Subscribtions
      received
                            
                            
                            
                            
                            
                            
                            
                            
                            
                            
                            1,005,500
                            
                            
                            
                            (1,005,500
                            )Net
      (Loss)
                            
                            
                            
                            
                            
                            
                            
                            
                            
                            
                            
                            
                            
                            
                            
                            
                            
                            
                            
                            
                            
                            
                            (441,926
                            )
                            
                            
                            (441,926
                            )Balance,
      June 30, 2006
                            
                            
                            9,843,046
                            
                            
                            
                            9,842
                            
                            
                            
                            4,565,631
                            
                            
                            
                            0
                            
                            
                            
                            0
                            
                            
                            
                            (2,070,319
                            )
                            
                            
                            2,505,154Net
      Loss
                            
                            
                            
                            
                            
                            
                            
                            
                            
                            
                            
                            
                            
                            
                            
                            
                            
                            
                            
                            
                            
                            
                            (2,286,402
                            )
                            
                            
                            (2,286,402
                            )Balance
      June 30, 2007
                            
                            
                            9,843,046
                            
                            
                            
                            9,842
                            
                            
                            
                            4,565,631
                            
                            
                            
                            0
                            
                            
                            
                            0
                            
                            
                            
                            (4,356,721
                            )
                            
                            
                            218,752Treasury
      Stock Receivable
                            
                            
                            
                            
                            
                            
                            
                            
                            
                            
                            
                            
                            
                            
                            
                            
                            
                            
                            (6,500
                            )
                            
                            
                            
                            
                            
                            
                            (6,500
                            )Net
      Loss
                            
                            
                            
                            
                            
                            
                            
                            
                            
                            
                            
                            
                            
                            
                            
                            
                            
                            
                            
                            
                            
                            
                            (1,716,878
                            )
                            
                            
                            (1,716,878
                            )Balance
      June 30, 2008
                            
                            
                            9,843,046
                            
                            
                            
                            9,842
                            
                            
                            
                            4,565,631
                            
                            
                            
                            0
                            
                            
                            
                            (6,500
                            )
                            
                            
                            (6,073,599
                            )
                            
                            
                            (1,504,626
                            )Treasury
      Stock Receivable
                            
                            
                            
                            
                            
                            
                            
                            
                            
                            
                            
                            
                            
                            
                            
                            
                            
                            
                            (11,000
                            )
                            
                            
                            
                            
                            
                            
                            (11,000
                            )Net
      Loss
                            
                            
                            
                            
                            
                            
                            
                            
                            
                            
                            
                            
                            
                            
                            
                            
                            
                            
                            
                            
                            
                            
                            (1,051,311
                            )
                            
                            
                            (1,051,311
                            )Balance
      December 31, 2008
                            
                            $
                            9,843,046
                            
                            
                            $
                            9,842
                            
                            
                            $
                            4,565,631
                            
                            
                            $
                            0
                            
                            
                            $
                            (17,500
                            )
                            
                            $
                            (7,124,910
                            )
                            
                            $
                            (2,566,937
                            )
 
 The
accompanying notes are an integral part of these financial
statements.
  
 
 NowAuto
Group, Inc
 Consolidated
Statements of Cash Flows
 
 6
      Months
                          
                          
                          6
      MonthsEnded
                          
                          
                          EndedDecember
      31,
                          
                          
                          December
      31,2008
                          
                          
                          2007(Unaudited)
                          
                          
                          (Unaudited)Operating
      ActivitiesNet
      Income (Loss)
                          
                          $
                          (1,051,310
                          )
                          
                          $
                          (804,367
                          )Adjustments to
      reconcile Net Loss to Net Cash used
      in Operating ActivitiesDepreciation/Amortization
      Expense
                          
                          
                          5,951
                          
                          
                          
                          5,362(Increase)/Decrease
      in Receivables
                          
                          
                          (1,099,880
                          )
                          
                          
                          (74,717
                          )(Increase)/Decrease
      in Inventory
                          
                          
                          301,506
                          
                          
                          
                          (232,373
                          )(Increase)/Decrease
      in Other Current Assets
                          
                          
                          38,062
                          
                          
                          
                          8,879(Decrease)/Increase
      in Accounts Payable
                          
                          
                          267,344
                          
                          
                          
                          28,196(Decrease)/Increase
      in Other Liabilities
                          
                          
                          0
                          
                          
                          
                          348,832Net
      Cash Provided by Operating Activities
                          
                          
                          (487,017
                          )
                          
                          
                          84,179Net
      cash provided by operating activities
                          
                          
                          (1,538,328
                          )
                          
                          
                          (720,188
                          )Investing
      Activities(Increase)/Decrease
      in Purchase of Fixed Assets
                          
                          
                          0
                          
                          
                          
                          (3,677
                          )(Increase)/Decrease
      in Long Term Notes Receivable
                          
                          
                          0
                          
                          
                          
                          18,442Disposal
      of Assets
                          
                          
                          9,961
                          
                          
                          
                          0Net
      Cash provided by (used in) Investing Activities
                          
                          
                          9,961
                          
                          
                          
                          14,765Financing
      Activities(Decrease)/Increase
      in Deferred Revenue
                          
                          
                          200,625
                          
                          
                          
                          0Proceeds
      from issuance of debt
                          
                          
                          1,353,635
                          
                          
                          
                          767,210(Decrease)/Increase
      in Commitment
                          
                          
                          0
                          
                          
                          
                          (86,859
                          )(Decrease)/Increase
      in Treasury Stock
                          
                          
                          (11,000
                          )
                          
                          
                          0Net
      cash provided by Financing Activities
                          
                          
                          1,543,260
                          
                          
                          
                          680,351Net
      Increase/(Decrease) in Cash
                          
                          
                          14,893
                          
                          
                          
                          (25,072
                          )Cash,
      Beginning of Period
                          
                          
                          32,461
                          
                          
                          
                          66,786Cash,
      End of Period
                          
                          $
                          47,354
                          
                          
                          $
                          41,714Supplemental
      Information:Period
      interest
                          
                          
                          222,677
                          
                          
                          
                          229,068Income
      Taxes paid
                          
                          
                          0
                          
                          
                          
                          0
 
 The
      accompanying notes are an integral part of these financial
      statements.




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 September 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 are 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.









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 yearsLeasehold
      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 and leased. For sales contracts, 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. For
lease agreements, sales tax is paid when funds are received from the customer.
Therefore, leases are reported for sales tax purposes in the period the lease is
signed. There is no allowable deduction for vehicle repossessions. The Company
is current with its filings of reports.





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 $14,274 and $22,053
for the three months ended December 31, 2007 and 2008,
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
December 31, 2008 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
vehicle. Great effort was made to accomplish this goal. The Company is currently
reviewing these efforts for their effectiveness and revising the approach to be
more proactive rather than reactive.





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 up to 29.99% per annum, b) are collateralized by the vehicle sold and c)
provide for payments over a period of 39 months. As of December 31, 2008 the
Company was holding financed contracts. These are shown below.





December 31,
                      
                      
                      June
      30,2008
                      
                      
                      2008Financed
      Contracts Receivable
                      
                      $
                      6,398,813
                      
                      
                      $
                      5,267,915Allowance
      for doubtful accounts
                      
                      
                      (77,226
                      )
                      
                      
                      (33,491
                      )Financed
      Contracts-net
                      
                      $
                      6,322,356
                      
                      
                      $
                      5,234,424





During
the Quarter ending June 30, 2007, the Company began leasing as well as selling
vehicles. This has two immediate advantages. First, all sales tax on sale
contracts is due and payable when the down payment is fully satisfied even
though the cash flow generated from the sale is spread over approximately 36 to
39 months. Sales tax on leases is due only on monies received spreading the
obligation evenly with the cash flow. Secondly, the vehicle is titled
differently making it a little easier should the Company need to retake
possession of the vehicle.





Accounting
for leases is different though the results are very similar to sale contracts.
The principle balance of sales contracts is recorded as Notes Receivable. The
agreed sale price of the vehicle is the revenue recognized. According to
Generally Accepted Accounting Principles (GAAP) as stated in SFAS No. 13, the
Company recognizes its leases as sales-type capital leases. In this case, the
total remaining payments plus residual value is recorded as Notes Receivable.
Interest is recorded as Deferred Revenue and recognized as appropriate during
the lease period. The present value of the annuity due on the monthly payment is
the recognized revenue. This amount tends to be lower than the sales price. The
cost of the vehicle minus the present value of the residual value is recognized
as the cost of sales. These differences will initially have a negative affect on
gross margin. In the long term, it will increase the amount of interest
income.





In the
past, sales tax was not booked until payment was received and thus the tax was
due. As a result of the conversion into different software during the three
months ending December 31, 2009, sales tax is now recognized in a different
manor. The full amount of the tax is recorded as a payable with a corresponding
increase to Lease Receivables. This also means that Lease Receivables reflects
the total payments to be paid thru out the lease period as stated on the lease
contract.







Note
4.  PROPERTY AND EQUIPMENT





A summary
of equipment and accumulated depreciation as follows:





December 31,
                        
                        
                        June 30,2008
                        
                        
                        2008Furniture,
      fixtures and Equipment
                        
                        $
                        30,620
                        
                        
                        $
                        41,622Leasehold
      improvements
                        
                        
                        26,693
                        
                        
                        
                        58,235Computers
      & Software
                        
                        
                        44,427
                        
                        
                        
                        18,100Less
      accumulated depreciation
                        
                        
                        (33,358
                        )
                        
                        
                        (33,664
                        )Net
      Equipment
                        
                        $
                        68,382
                        
                        
                        $
                        84,293





Note
5.    GOODWILL





During
the fiscal year ending June 30, 2005, the Company purchased the rights to three
used car lots and its subsidiary Navicom Corporation. 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 December 31, 2008 was as
follows:





Quarter Ending December 31,
                        
                        2008
                        
                        
                        2007$
                        716,179
                        
                        
                        $
                        716,179





Note
6.  INCOME TAXES





The
provision for income taxes for the fiscal quarters ended December 31, 2008 and
2007 were as follows below. A valuation account has been set up in the amount of
the deferred asset.





Quarter ended December 31,
                            
                            2007
                            
                            
                            2008Provision
      for income taxes:Current
      taxes payable
                            
                            $
                            0
                            
                            
                            $
                            0Change
      in the deferred tax asset (net of the valuation account)
                            
                            
                            0
                            
                            
                            
                            0Total
                            
                            $
                            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. On August 31, 2004 the name was
changed to NowAuto, Inc.





No shares
have been issued since June 30, 2006.









Note
8.    NAVICOM





The
Company has two segments, its cars sales and its GPS unit sales (Navicom).
Currently, Navicom is in the process of changing its product brand and business
model. Great effort has been made to seek products with more cost effective
feature sets that will better serve its customers. At this time, Navicom has
minimal activity only serving NowAuto Group.





Note
9.   STOCK OPTIONS AND WARRANTS





Currently
the Company has no outstanding options or warrants.





Note
10.  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 December 31, 2008, the aggregate rentals
due under such leases, including renewal options that are reasonably assured,
are as follows:





2008
                        
                        $
                        182,7412009
                        
                        $
                        155,1922010
                        
                        $
                        155,1922011
                        
                        $
                        155,1922012
                        
                        $
                        155,192





Note
11.  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. Theodore Valenzuela serves as the COO. He receives an annual salary
of $128,000. The other officer currently receives salary of less than
$100,000.





Note
12. CONTRACT FINANCING





During
the quarter ended September 30, 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.





Note
13. TREASURY STOCK





In the
quarter ending June 30, 2008 and September 30, 2008, the Company repurchased
stock from a shareholder. These shares are still in transit and are therefore
still reported as being outstanding.





Note
14.  THE EFFECT OF RECENTLY ISSUED ACCOUNTING STANDARDS





Below is
a listing of the most recent accounting standards SFAS 160-162 and their effect
on the Company.









Statement
No. 160 - Noncontrolling Interests in Consolidated Financial Statements—an
amendment of ARB No. 51


A
noncontrolling interest, sometimes called a minority interest, is the portion of
equity in a subsidiary not attributable, directly or indirectly, to a parent.
The objective of this Statement is to improve the relevance, comparability, and
transparency of the financial information that a reporting entity provides in
its consolidated financial statements by establishing accounting and reporting
standards. While the Company does present consolidated financial statements,
there are currently no minority interests.





Statement
No. 162 - The Hierarchy of Generally Accepted Accounting Principles


Prior to
the issuance of Statement 162, GAAP hierarchy was defined in the American
Institute of Certified Public Accountants (AICPA) Statement on Auditing
Standards (SAS) No. 69, The Meaning of Present Fairly in Conformity With
Generally Accepted Accounting Principles. SAS 69 has been criticized because it
is directed to the auditor rather than the entity. Statement 162 addresses these
issues by establishing that the GAAP hierarchy should be directed to entities
because it is the entity (not its auditor) that is responsible for selecting
accounting principles for financial statements that are presented in conformity
with GAAP.





SFAS No.
13 - Accounting for Leases is used to determine the method of accounting for
leases. (See Note 3)





Note
16. GOING CONCERN





The
accompanying financial statements have been prepared assuming that we will
continue as a going concern. We sustained a material loss in the year ended June
30, 2005. This loss continued December 31, 2008. This raised substantial doubt
about our 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 our profitability by increasing the margins on cars
sold. They have also hired new finance and accounting personnel to better track
our profitability and negotiate selling contracts. Additionally, we may need to
attract capital investors to continue in existence. No assurance can be made
that these investors will be forthcoming.









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-Q 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 December 31, 2008 the Company had three 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 sales and collections. The Company is responsible
for its own collections through its internal collection department with
supervisory involvement of the corporate office.  In the past year the
Company implemented new and stricter underwriting criteria at the store level.
In addition the Company implemented stricter contract criteria which, in the
short term, resulted in higher repossessions and charge-off accounts. In
addition, credit losses are also imparted, to some degree, by economic
conditions in the markets in which the Company serves. In recent months, adverse
economic conditions have had a negative impact on collection results. While the
Company believes that most significant factor affecting credit losses is the
proper execution (or lack therefore) of its business practices, the Company also
believes that current economic conditions have had a negative impact on its
operations and 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. 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.





Three Months Ended December
31, 2008 vs. Three Months Ended December 31,  2007





Revenue
for the quarter ended December 31, 2008 was $1,448,379 versus revenue of
$1,063,650 for the quarter ended December 31, 2007. The increase in revenue is
attributed to a successful sales promotion that reduced the amount of the
required down payment. There was no reduction in price or financing
criteria.





The
Company's gross profit as a percentage of sales during the quarter ending
December 31, 2008 was 41.5% vs. 54.2% for the quarter ended December 31, 2007.
Old inventory was liquidated at local auctions during the quarter and this has
reduced margins. Interest earnings remain strong.





During
the year ended June 30, 2007, the Company experienced higher than normal
increase in bad debt expense due to higher than normal repossessions. While the
Company believes that proper execution (or lack thereof) of its business
practices is the most significant factor affecting credit losses, the Company
also believes that general economic conditions, including but not limited to
higher energy, fuel costs, and the troubled credit market adversely affected
collection efforts and resulted in higher than normal vehicle repossessions
during the year ended June 30, 2007. While the quarter ended December 31, 2008
showed an improvement in bad debt expense, the Company expects that current
economic conditions will continue for the foreseeable future and higher than
normal repossessions may be experienced.





General
and administrative expenses as a percentage of sales were 45% for the three
months ended December 31, 2008 versus 42% for the three months ended December
31, 2007. Interest expense has increased substantially as a result of line of
credit financing (See Note 12) increasing administrative costs. Furthermore,
because the Company now retains its own contracts, it created a collections
department thereby increasing financing expenses. The Company has also become
more cost-effective in other areas.





Financial
Condition


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





December 2008
                  
                  
                  June 2008Accounts
      Receivable (net)
                  
                  
                  6,322,356
                  
                  
                  
                  6,117,075Inventory
                  
                  
                  384,832
                  
                  
                  
                  665,338Equipment
                  
                  
                  68,382
                  
                  
                  
                  84,293Goodwill
                  
                  
                  716,179
                  
                  
                  
                  716,179Accounts
      Payable
                  
                  
                  330,137
                  
                  
                  
                  431,307Taxes
      Payable (see Note 3)
                  
                  
                  413,195
                  
                  
                  
                  0Deferred
      Revenue
                  
                  
                  1,286,074
                  
                  
                  
                  1,085,449





The
increase in Taxes Payable and Accounts Receivable is due in part to a change in
accounting procedure. (See Note 3). The decrease in Inventory is due to
liquidation of bad inventory.





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 December 31, 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 September 30, 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 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, and 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.





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
September 30, 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 within lending rate regulations in the State of
Arizona.





The
Company generally finances vehicles on behalf of high risk borrowers with poor
credit histories. A portion of these loans become delinquent and require
repossession of the vehicles. Charges in the company’s delinquency expense
caused by changes in economic conditions or other factors could increase the
Company’s bad debt charge-offs and provision for losses which would adversely
affect profitability. Moreover, increased credit losses could substantially
reduce the Company’s working capital and limit operations.





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-Q, and, based on their
evaluation have concluded that these controls and procedures, while improved
over last year, are not effective in part due to a weakness in the information
technology ("IT") controls.





During
the twelve months ended June 30, 2006 we made a number of improvements in the IT
area including (i) hiring a seasoned chief accountant; (ii) installing new
software programs specific to our business; and (iii) improving operational
reporting procedures and controls. During the year ended June 30, 2008 we
decided to convert to a more robust system that will better support auto leasing
and the expanding service shop department. This conversion was started in the
three months ending September 30, 2008 and was nearly complete by the end of the
quarter ending December 31, 2008. The final piece will be in place by the end of
the three months ending March 31, 2009.







PART
II
 Other
Information
 
 Item
      1.
              Legal
      Proceedings
 None
 
 Item
      6.
              Exhibits
 
 31.1
                Rule
      13a-14(a) certification31.2
                Rule
      13a-14(a) certification32.1
                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