TEMPE, Ariz. — NowAuto Group recently reported results for its fiscal first quarter, saying that a change from sales to leases impacted results, as some of the lease revenue is deferred.

More specifically, the company indicated that it earned $1.1 million in revenue, posting a net loss of $0.05 per diluted share. This is compared to revenue of about $1.7 million and a net profit of $0.02 per diluted share in the previous year.

Officials also said gross margin increased from 45 percent to 46 percent, reflecting increased finance income and higher margin sales.

In addition to the deferment that occurred due to the transition from sales to leases, the company also explained that it experienced lower volume, which impacted its bottom line.

Charge-offs and defaults remained high as economic conditions continued to be more difficult than expected, executives said. However, net contract receivables increased 12 percent over the prior year.

In spite of the challenges faced by NowAuto, the company pointed out that it did achieve a slight operating profit in the first quarter.

"The present condition of the subprime and below subprime auto market has certainly impacted our industry and our company," said Scott Miller, chief executive officer. "While our emphasis is always on collections, our challenge in the current environment is to aggressively work with our customers to maintain active contracts.

"In recent weeks we have re-contracted and redeemed a record number of accounts in order to avoid charge-offs wherever possible. Increases in staple goods, especially fuel, have placed a strain on our customers," he continued.

Miller went on to say, "Our commitment to customers and shareholders alike is that NowAuto will do whatever it can to maintain productive contracts without placing imprudent demands on our customers."

The company also touched on the topic of immigration, indicating that due to recent state legislation concerning undocumented aliens and potential penalties upon businesses that employ them, it has witnessed, and will continue to see, a reduction in the subprime and below subprime auto and credit customer base.

While not affecting NowAuto's work force, this reduced customer demographic has already adversely impacted the company's results and officials said there is ongoing potential for this trend to continue.

"The higher sales season begins in a couple of months and we are making all preparations for it by increasing inventory levels, emphasizing more fuel economic vehicles, increasing our investment in vehicle conditioning and maintenance and creating innovative finance programs to fit our customers' budgets," noted Faith Forbis, chief financial officer.

Meanwhile, Tino Valenzuela, chief operating officer, added, "The company feels that is conditioning and maintaining our vehicles, both before as well as after the sale is critical to reducing charge-offs.

"We are excited to announce the opening of our new-vehicle conditioning center that opens Dec. 1, 2007. While this will serve our customers by providing lower-cost vehicle maintenance and repair, we expect this part of our business to be a profit center by the end of fiscal 2008," stated Valenzuela.

"As previously announced, we have taken significant strides in identifying an acquirer," Miller pointed out. "Within the last month we have been introduced to a number of candidates and have been performing due diligence and preliminary negotiations with several.

"While it remains premature to announce any specifics, we expect to be in a position to make a public announcement in coming weeks. Consummation of a transaction however, if there indeed is one, will not likely occur until later in fiscal 2008. Our goal is to find the candidate that offers to our shareholders the best prospects for the future," Miller concluded.