UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q [ X ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the period ended October 31, 2005 [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 Commission File Number 0-23903 EAUTOCLAIMS, INC. (Exact name of registrant as specified in charter) Nevada 95-4583945 ------ ---------- (State or other jurisdiction (IRS Employer of incorporation or organization) Identification No.) 110 East Douglas Road, Oldsmar, Florida 34677 --------------------------------------- ----- (Address of principal executive offices) (Zip Code) Registrant's telephone Number, including area code: (813) 749-1020 Securities registered pursuant to Section 12(b) of the Exchange Act: None Indicate by check whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. [ X ] Yes [ ] No Indicate by check whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act). [ ] Yes [ X ] No Indicate the number of shares outstanding of each of the Issuer's classes of common stock, $.001 Par Value, as of November 30, 2005 was 65,780,764. EAUTOCLAIMS, INC. INDEX TO FORM 10-Q -------------------------------------------------------------------------------- PART I FINANCIAL INFORMATION Item 1. Financial Statements 2 Balance Sheets 3 Statements of Operations 4 Statement of Stockholders' Deficiency 5 Statements of Cash Flows 6 Notes to Financial Statements 7 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 12 Item 3. Quantitative and Qualitative Disclosures About Market Risk 21 Item 4. Controls and Procedures 21 PART II OTHER INFORMATION Item 1. Legal Proceedings 22 Item 2. Changes in Securities and Use of Proceeds 19 Item 3. Defaults Upon Senior Securities 21 Item 4. Submission of Matters to a Vote of Security Holders 19 Item 5. Other Information 19 Item 6. Exhibits and Reports on Form 8-K 20 Signatures 21 Certifications 22 EAUTOCLAIMS, INC. PART I FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS. The financial statements of eAutoclaims, Inc. (the "Company") included herein were prepared, without audit, pursuant to rules and regulations of the Securities and Exchange Commission. Because certain information and notes normally included in financial statements prepared in accordance with generally accepted accounting principles were condensed or omitted pursuant to such rules and regulations, these financial statements should be read in conjunction with the financial statements and notes thereto included in the financial statements of the Company as included in the Company's Form 10-K for the year ended July 31, 2005. 2 EAUTOCLAIMS, INC. BALANCE SHEETS ----------------------------------------------------------------------------------------------------------------------------- October 31, 2005 July 31, 2005 (unaudited) ----------------------------------------------------------------------------------------------------------------------------- ASSETS Current Assets: Cash $ 392,897 $ 306,280 Accounts receivable, less allowance for doubtful accounts of $225,000 and $208,000 respectively 941,933 742,237 Due from related parties - 6,231 Prepaid expenses and other current assets 135,431 88,290 ----------------------------------------------------------------------------------------------------------------------------- Total current assets 1,470,261 1,143,038 Property and equipment, net of accumulated depreciation 828,270 857,440 Goodwill 1,093,843 1,093,843 Other assets 25,800 25,800 Deferred income tax asset, net of valuation allowance $10,001,000 and $9,841,000 respectively ----------------------------------------------------------------------------------------------------------------------------- Total Assets $ 3,418,174 $ 3,120,121 ============================================================================================================================= LIABILITIES AND STOCKHOLDERS' DEFICIENCY Current Liabilities: Accounts payable, advanced payments and accrued expenses $ 4,798,425 $ 4,701,483 Note payable 500,000 - Current portion of capital lease obligation 92,547 86,642 Convertible debenture 275,000 ----------------------------------------------------------------------------------------------------------------------------- Total current liabilities 5,390,972 5,063,125 Capital lease obligation 99,871 108,979 ----------------------------------------------------------------------------------------------------------------------------- Total liabilities 5,490,843 5,172,104 ----------------------------------------------------------------------------------------------------------------------------- Stockholders' Deficiency: Convertible preferred stock - $.001 par value; authorized 5,000,000 shares No shares outstanding Common stock - $.001 par value; authorized 100,000,000 shares, issued and outstanding 64,557,431 shares and 59,488,026 shares respectively 64,558 59,488 Additional paid-in capital 26,026,511 25,081,358 Accumulated deficit (28,163,738) (27,192,829) ----------------------------------------------------------------------------------------------------------------------------- Stockholders' Deficiency (2,072,669) (2,051,983) ----------------------------------------------------------------------------------------------------------------------------- Total Liabilities and Stockholders' Deficiency $ 3,418,174 $ 3,120,121 ============================================================================================================================= 3 ----------------------------------------------------------------------------------------------------------------- EAUTOCLAIMS, INC. STATEMENTS OF OPERATIONS ----------------------------------------------------------------------------------------------------------------- Three-month Three-month Period Ended Period Ended October 31, 2005 October 31, 2004 (unaudited) (unaudited) ----------------------------------------------------------------------------------------------------------------- Revenue: Collision repairs management $2,753,654 $3,269,607 Glass repairs 94,711 161,088 Fleet repairs management 242,179 134,749 Other revenue 711,502 554,352 ----------------------------------------------------------------------------------------------------------------- Total revenue 3,802,046 4,119,796 ----------------------------------------------------------------------------------------------------------------- Expenses: Claims processing charges 2,687,349 3,200,486 Selling, general and administrative 1,478,493 1,330,271 Depreciation and amortization 122,284 134,584 ----------------------------------------------------------------------------------------------------------------- Total expenses 4,288,126 4,665,341 ----------------------------------------------------------------------------------------------------------------- Net loss $ (486,080) $ (545,545) Adjustment to net loss to compute loss per common share: Preferred stock dividends $ (16,128) Dividend to unit holders (475,829) ----------------------------------------------------------------------------------------------------------------- Net loss applicable to common stock $ (961,909) $ (561,673) ================================================================================================================= Loss per common share - basic and diluted $ (0.02) $ (0.02) ================================================================================================================= Weighted-average number of common shares outstanding-basic and diluted 63,358,825 35,361,541 ================================================================================================================= 4 ----------------------------------------------------------------------------------------------------------------------------------- EAUTOCLAIMS, INC. STATEMENT OF STOCKHOLDERS' DEFICIENCY ----------------------------------------------------------------------------------------------------------------------------------- Three month period ended October 31, 2005 (unaudited) Additional Common Stock Paid-in Accumulated Stockholders' Shares Amount Capital Deficit Deficiency ----------------------------------------------------------------------------------------------------------------------------------- Balance at July 31, 2005 $59,488,026 $59,488 $25,081,358 ($27,192,829) ($2,051,983) Issuance of common stock upon exercise of options 200,000 200 1,800 2,000 Issuance of common stock for interest 5,651 6 898 904 Issuance of common stock for services 625,001 625 118,625 119,250 Dividends issued to unit holders in the form of warrants and shares 2,162,860 2,163 473,666 (475,829) 0 Issuance of common stock upon exercise of warrants 357,143 357 56,786 0 57,143 Conversion of convertible note to equity 1,718,750 1,719 273,281 0 275,000 Issuance of warrants in conjunction with note payable 9,000 (9,000) 0 Vesting of options granted to employees 11,097 11,097 Net Loss (486,080) (486,080) ----------------------------------------------------------------------------------------------------------------------------------- Balance at October 31, 2005 $64,557,431 $64,558 $26,026,511 ($28,163,738) ($2,072,669) =================================================================================================================================== 5 -------------------------------------------------------------------------------------------------------------------- EAUTOCLAIMS, INC. STATEMENTS OF CASH FLOWS -------------------------------------------------------------------------------------------------------------------- Three-month Three-month Period Ended Period Ended October 31, 2005 October 31, 2004 (unaudited) (unaudited) -------------------------------------------------------------------------------------------------------------------- Cash flows from operating activities: Net loss $ (486,080) $ (545,545) Adjustments to reconcile net loss to net cash used in operating activities: Depreciation and amortization 122,284 134,584 Common stock issued for services 119,250 73,701 Common stock issued for interest 904 5,792 Bad debts 17,000 14,000 Vesting of options granted to employees 11,097 Changes in operating assets and liabilities Accounts receivable (216,696) (29,804) Prepaid expenses and other current assets (47,141) (23,461) Accounts payable, advance payments and accrued expenses 96,942 289,322 -------------------------------------------------------------------------------------------------------------------- Net cash used in operating activities (382,440) (81,411) Cash flows from investing activity: Purchases of property and equipment (73,547) (71,438) Proceeds from related parties 6,231 5,960 -------------------------------------------------------------------------------------------------------------------- Net cash used in investing activity (67,316) (65,478) Cash flows from financing activities: Proceeds from exercise of warrants 57,143 Proceeds from exercise of options 2,000 Proceeds from note payable 500,000 Principal payments on capital lease (22,770) (3,912) Principal payments on shareholder loans (21,859) -------------------------------------------------------------------------------------------------------------------- Net cash provided by (used in) financing activities 536,373 (25,771) -------------------------------------------------------------------------------------------------------------------- Net increase (decrease) in cash 86,617 (172,660) Cash at beginning of period 306,280 415,549 -------------------------------------------------------------------------------------------------------------------- Cash at end of period $ 392,897 $ 242,889 ================================================================================================================== Supplemental disclosure of cash flow information: Cash paid during the period for interest $ 13,463 $ 9,751 ================================================================================================================== Supplemental disclosure of noncash investing and financing activities: ================================================================================================================== Conversion of debentures to common stock $ 275,000 $ 25,000 ================================================================================================================== Equipment acquired by capital lease $ 19,567 ================================================================================================================== Shares and warrants issued to unit holders $ 475,829 ================================================================================================================== Fair value of warrants issued in conjunction with bridge loan $ 9,000 ================================================================================================================== Conversion of preferred stock and accrued dividends for common stock $ 232,106 ================================================================================================================== Accrued dividends on preferred stock $ 16,128 ================================================================================================================== 6 EAUTOCLAIMS, INC. NOTES TO FINANCIAL STATEMENTS ------------------------------------------------------------------------------ Note 1 - Basis of presentation The accompanying unaudited financial statements contain all adjustments (consisting only of those of a normal recurring nature) necessary to present fairly the financial position of eAutoclaims, Inc. as of October 31, 2005 and its results of operations and cash flows for the three-month periods ended October 31, 2005. Results of operations for the three-month period ended October 31, 2005 are not necessarily indicative of the results that may be expected for the year ending July 31, 2006. The Company derives revenue primarily from collision repairs, glass repairs and fleet repairs. Revenue is recognized when an agreement between the Company and its customer exists, the repair services have been completed, the Company's revenue is fixed and determinable and collection is reasonably assured. The Company records revenue gross when the Company is the primary obligor in its arrangements, the Company has latitude in establishing price, the Company controls what services are provided and where the services will take place, the Company has discretion in supplier selection, the Company is involved in the determination of product or service specifications and the Company has credit risk. The Company records revenue net when situations occur whereby the supplier (not the Company) is the primary obligor in an arrangement, the amount the Company earns is fixed or the supplier (and not the Company) has credit risk. In December 2004, the Financial Accounting Standards Board ("FASB") issued Statement of Financial Accounting Standards No. 123R (revised 2004), "Share-Based Payment" which revised Statement of Financial Accounting Standards No. 123, "Accounting for Stock-Based Compensation". This statement supersedes APB Opinion No. 25, "Accounting for Stock Issued to Employees." The revised statement addresses the accounting for share-based payment transactions with employees and other third parties, eliminates the ability to account for share-based compensation transactions using APB 25 and requires that the compensation costs relating to such transactions be recognized in the statement of operations. The revised statement has been implemented for the Company effective August 1, 2005. The implementation of FAS No. 123R had the following effect on the statement of operations for three-month period ended October 31, 2005 2005 ---------- Net loss before stock option expense $(474,983) Deduct stock option expense (11,097) ---------- Net loss as reported $(486,080) ========== There is no impact on the basic or diluted earnings per share reported on the statement of operations. 7 Note 1 - Basis of presentation (continued) For the 2005 fiscal year the Company accounted for its employee incentive stock option plans using the intrinsic value method in accordance with the recognition and measurement principles of Accounting Principles Board Opinion No 25, "Accounting for Stock Issued to Employees." Had the Company determined compensation expense based on the fair value at the grant dates for those awards consistent with the method of SFAS 123, the Company's net income (loss) per share would have been increased to the following pro forma amounts: Three-month period ended October 31, 2004 ---------- Net loss as reported $(545,545) Deduct total stock based employee compensation expense determined under fair value based methods for all awards (16,733) ---------- Pro forma net loss $(562,278) ========== Basic and diluted net loss per share as reported $(.02) Pro forma and diluted basic loss per share $(.02) Effective August 1, 2005, the Company adopted FAS No. 123R utilizing the modified prospective method. FAS No. 123R requires the recognition of stock-based compensation expense in the financial statements. Under the modified prospective method, the provisions of FAS No. 123R apply to all awards granted or modified after the date of adoption. In addition, the unrecognized expense of awards not yet vested at the date of adoption, determined under the original provisions of FAS 123, "Accounting for Stock Based Compensation", shall be recognized in net earnings in the periods after the date of adoption. Stock based compensation consists primarily of stock options. Stock options are granted to employees at exercise prices equal to the fair market value of the Company's stock at the dates of grant. Stock options generally vest over three years and have a term of ten years. Compensation expense for stock options is recognized over the period for each separately vesting portion of the stock option award. The fair value for options issued prior to August 1, 2005 was estimated at the date of grant using a Black-Scholes option-pricing model. The risk free rate was derived from the U.S. Treasury yield curve in effect at the time of the grant. The volatility factor was determined based on a study done by an independent securities valuation firm. The Black-Scholes option-pricing model was developed for use in estimating the fair value of traded options that have no vesting restrictions and are fully transferable. In addition, option-pricing models require the input of highly subjective assumptions including the expected stock price volatility. Because the Company's employee stock options have characteristics significantly different from those of traded options and because changes in the subjective input assumptions can materially affect the fair value estimate, in management's opinion the existing models do not necessarily provide a reliable single measure of the fair value of its employee stock options. 8 Note 1 - Basis of presentation (continued) A summary of the status of the company's options for the three months ended October 31, 2005 is as follows: Aggregate Weighted Remaining Intrinsic Shares Avg Price Life Value --------- --------- --------- --------- Balance at beginning of year 5,197,042 $0.37 Granted 37,500 $0.21 Cancelled or Expired (99,718) $1.06 Exercised (200,000) $0.18 Outstanding at end of period 4,934,824 $0.37 6.8 461,643 Note 2 - Per share calculations Basic loss per share is computed as net loss available to common stockholders' divided by the weighted- average number of common shares outstanding for the period. Diluted loss per share reflects the potential dilution that could occur from common shares issuable through stock-based compensation including stock options, restricted stock awards, warrants and convertible securities. As of October 31, 2005 and 2004, 32,156,776 and 19,753,245 options and warrants, respectively, were excluded from the diluted loss per share computation, as their effect would be anti-dilutive. Note 3 - Note Payable The Company entered into temporary financing through a $500,000 bridge loan from an investor in order to secure additional working capital. The loan, which is secured by the purchase option the Company has on its Oldsmar facility, accrues interest at 15% per annum. Interest and principal will be paid in full from the proceeds of the sale of the Oldsmar facility at the closing date. In the event the building sale does not take place, the Company has 120 days to replace the current buyer. After that time, the holder of the note has the right to the purchase option on the building as collateral. The Company retains the rights to the net profits on any sale to any new buyer after repayment of the note according to the above terms. Note 4 - Equity Transactions As part of the provisions of the sales of equities in March through May of 2004 there is a requirement to meet certain claims volume targets under the ADP Co-Marketing Agreement. If we fail to meet those targets, up to 100% of the original Units (as defined in that document) would have to be issued to those 2004 investors for no additional consideration (True up). In order to help resolve this open issue, in December 2004 we offered the 2004 investors 50% of the total potential True up Units in exchange for releasing the Company from the remaining target volume commitment. On August 1, 2005, the Company evaluated the claims volume that it had received from customers generated by the ADP Claims Service Group Co-marketing agreement 9 Note 4 - Equity Transactions (continued) as specified in the subscription agreements from the 2004 capital raise. In accordance with those agreements, the Company did not meet the minimum volume requirements and therefore had to issue 2,162,860 Units (one share of common stock and one, 3-year, $0.16 warrant to purchase a common share) to the investors who did not accept our December 2004 offer. Issuing these units resulted in the Company recording a stock dividend of approximately $476,000. On August 12, 2005 an investor exercised warrants to purchase 357,143 shares of common stock with a strike price of $0.16 per share. The Company received $57,143 from this transaction. On August 15, 2005 the holder of the convertible debenture converted the note into 1,718,750 shares of the Company's common stock. In addition, interest on the note from the end of July 2005 until August 15, 2005 was paid to the holder of the note with 5,651 shares of the Company's common stock. During the three months ended October 31, 2005 the Company issued a total of 625,001 shares of common stock in exchange for services. A total of 200,000 shares of stock were issued to an officer as a result of a modification to his employment contract. A total of $30,000 was charged to expense during this time period, which was approximately equal to the fair market value of the shares at the time of issuance. The Company issued 425,001 shares of common stock to three non-employee directors in exchange for their services. Of this total, 357,144 shares were issued for services to be rendered for fiscal year 2006. These shares are being expensed over the year as they are earned. During the three months ended October 31, 2005 the Company expensed $18,750, or 89,286 shares, which was approximately equal to the fair market value of the shares when earned. In addition, a total of 67,857 shares were issued to these same directors for services rendered during the three months ended October 31, 2005. A total of $14,250 was charged to expense during this time period, which was approximately equal to the fair market value of these shares when earned. On October 17, 2005 a director exercised options to purchase 200,000 shares of the Company's common stock, with an exercise price of $0.01. In October 2005, the Company issued 200,000 warrants with a strike price of $0.20 to an investor for providing the Company with bridge loan financing and an additional 250,000 warrants with a strike price of $0.20 were issued to two finders for helping to facilitate the transaction. The Company valued these warrants at $0.02 each, utilizing a warrant valuation provided by an independent investment banker, and recorded a charge of $9,000 for these warrants during the period ended October 31, 2005. In accordance with the Financial Accounting Standards No. 123R (revised 2004), "Accounting for Stock-Based Compensation", the Company expensed $11,097 during the three months ended October 31, 2005, representing the cost of stock options that would have vested during this period. Additionally, options to purchase 99,718 shares of common stock were canceled. 10 Note 5 - Subsequent Event During the month of November 2005 an officer and director exercised options to purchase 100,000 shares of common stock with an exercise price of $0.01. Also in November, two officers and a consultant exercised options to purchase a total of 370,000 shares of common stock with an exercise price of $0.01. Additionally in November, this same consultant exercised options to purchase 20,000 shares of common stock with an exercise price of $0.15 and 33,333 options with an exercise price of $0.13. On November 8, 2005 the Board voted to adjust the strike price from $0.35 to $0.16 on 1,000,000 warrants owned by an investor, who is also a director, in order to match the strike price of other investor's warrants issued under the anti-dilution provisions of their agreements. On November 8, 2005 the Board of Directors gave approval for the Company to issue 1,000,000 shares of the Company's common stock to the Chairman of the Board to compensate him for his past services and his role as Chairman. In addition, the Board also approved future compensation for the Chairman of the Board to include the same annual retainer of $25,000 to be paid in shares of the Company's common stock as well as the same quarterly stock compensation currently paid to other non-employee directors. On November 29, 2005 an investor exercised warrants to purchase 300,000 shares of common stock with a strike price of $0.16 per share. The Company received $48,000 from this transaction. On November 29, 2005 the Company issued 400,000 shares of common stock in the name of its current landlord as part of an agreement to facilitate the sale of the building. The shares will be a part of the building sale transaction and will be delivered to the landlord at the closing date. 11 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The statements contained in this Report on Form 10-Q, that are not purely historical, are forward-looking information and statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. These include statements regarding our expectations, intentions, or strategies regarding future matters. All forward-looking statements included in this document are based on information available to us on the date hereof. It is important to note that our actual results could differ materially from those projected in such forward-looking statements contained in this Form 10-Q. The forward-looking statements contained herein are based on current expectations that involve numerous risks and uncertainties. Assumptions relating to the foregoing involve judgments regarding, among other things, our ability to secure financing or investment for capital expenditures, future economic and competitive market conditions, and future business decisions. All these matters are difficult or impossible to predict accurately and many of which may be beyond our control. Although we believe that the assumptions underlying our forward-looking statements are reasonable, any of the assumptions could be inaccurate and, therefore, there can be no assurance that the forward-looking statements included in this form 10-Q will prove to be accurate. General eAutoclaims provide Internet based collision claims services for automobile insurance companies, Managing General Agents (MGA) and third party claims administrators (TPA) and self-insured automobile fleet management companies. Our business strategy is to use the Internet to streamline and lower the overall costs of automobile repairs and the claims adjustment expenses of our clients. We believe that our proprietary web-based software products and services make the management of collision repairs more efficient by controlling the cost of the repair and by facilitating the gathering and distribution of information required in the automobile repair process. eAutoclaims controls the vehicle repair process from the reporting of the accident through the satisfactory repair of damage. We bring together and coordinate the activities of the insurance company, its insured, and the various parties involved in evaluating a claim, negotiating the cost of the repair, and performing necessary repair services. We have contracted with approximately 2700 body shops throughout the United States to repair vehicles. These shops, referred to as our "provider network," provide us 10% to 15% discount on the vehicle repair because of the volume of repairs we provide to them. Because we audit every line of every repair estimate and because we share a portion of the volume discount with our customer, we are able to lower the average cost being paid by our customer. Our product, eJusterSuite, provides both outsourcing and ASP (application service provider) solutions. The outsourcing solution requires eAuto personnel to audit and coordinate the vehicle repair. The ASP solution allows the customer to use our technology independent of our personnel; thereby, providing a solution for the largest insurance companies that already have the staff to process and control the claims process, while paying us a fee for every transaction that is run through our system. The ASP model provides margin without the associated personnel and operating costs. eJusterSuite also builds in service partners that can provide the needed services such as Independent adjustors, car rentals, tow trucks and accident reporting by only clicking an Icon that is added to the screen of the customer's desk top in the current system. The system automatically provides the service partner the information already in our system via the Internet. The service partner will systematically provided the requested services and pay us a fee for 12 each assignment they receive through our system. This process significantly reduces the customers' time and cost to process claims as well as reduces the number of mistakes that occur in a manual process. In many cases it also reduces the cost of the service partner to obtain and process the transaction, even after paying our transaction fee. This revenue provides additional margin without the additional personnel and operation costs. For our outsourcing customers, we approve all repair shops for inclusion in our network and determine which repair shop will ultimately perform the repairs. We receive a discount, ranging from 10% to 15%, from repair facilities that are members of our provider network. The revenues generated from the vehicle repair facilities through our provider network accounts for 81% of the revenue for the three-months ended October 31, 2005. We are paid on a per claims basis from our insurance and fleet company customers for each claim that we process through our system. These fees vary from $10 to $65 per claim depending upon the level of service required. For the three-months ended October 31, 2005, 19% of the revenue has been received from claims processing fees and other income. Other income consists mostly of the sale of estimating software, fees from service partners (ASP fees) and subrogation income. eAutoclaims has focused more resources on marketing products whereas eAutoclaims serves in the capacity of an Application Service Provider (ASP). eAutoclaims applications are user-friendly, customizable to meet the client's unique workflow, and are scalable. The applications currently offered under the ASP category include eJusterSuite, AuditPro, the Appraisal Management System, eDataTransfer and several custom applications for automotive collision and auto glass industry repair providers. eAutoclaims recently released AuditPro, a rules-based estimate auditing application that has been well received by existing clients and prospects, which has allowed eAutoclaims to grow our high margin ASP revenue. Large carriers can use AuditPro as a stand-alone model that can be integrated within their organization without the need for significant initial cost and without materially changing their internal workflow Critical Accounting Policies Our discussion and analysis of our financial condition and the results of our operations are based upon our financial statements and the data used to prepare them. The Company's financials have been prepared in accordance with accounting principles generally accepted in the United States. On an ongoing basis we re-evaluate our judgments and estimates including those related to revenues, bad debts, long-lived assets, and income taxes. We base our estimates and judgments on our historical experience, knowledge of current conditions and our beliefs of what could occur in the future considering available information. Actual results may differ from these estimates under different assumptions or conditions. Our estimates are guided by observing the following critical accounting policies. Revenue recognition The Company derives revenue primarily from collision repairs, glass repairs and fleet repairs. Revenue is recognized when an agreement between the Company and its customer exists, the repair services have been completed, the Company's revenue is fixed and determinable and collection is reasonably assured. 13 The Company records revenue gross in the areas of collision and fleet repairs. It also records at gross in certain glass repair transactions. Revenue is recorded at gross in these areas when: o The Company is the primary obligor in its arrangements. The Company is responsible for the quality of the repair and must satisfy the customer if the body shop fails to repair the vehicle properly. o The Company has latitude in establishing price. The price is established based on the Company's audit of the repair estimate submitted by the repair facility. The repair facility cannot begin the repair until an agreed upon price is established between the facility and the Company for the repair. o The Company controls what is repaired with their contracted shops, as they audit the estimate submitted by the repair facility. The Company must agree that the repair is reasonable and necessary before the repair facility is allowed to proceed with the work being requested. o The Company has discretion in supplier selection. Through the use of software, the Company prioritizes which repair facility is used based on the efficiency and effectiveness of the repair facility, and o The Company has credit risk. The Company is responsible to pay the repair facility even if the customer does not pay for the repair. The Company records revenue net of the repair costs in certain glass transactions when the supplier, not the Company, is the primary obligor in an arrangement, the amount the Company earns is fixed or the supplier has credit risk. This occurs when the repair has been performed before it is referred to the Company. When the Company receives notice of the transaction, we call the glass repair facility to ask them to become part of our network and to negotiate a better price on the repair. If the Company is able to negotiate a better price for the customer we keep a portion of the added discount. In that situation the revenue is recorded net of the repair costs even though the Company pays for the entire claim and are reimbursed by the insurance company, since we did not have the risk of loss and are not responsible for the repair. The revenue generated from a co-marketing agreement with the ADP Claims Services Group (ADP) will be recorded net of the repair costs because in the agreement the Company is performing a fee for service. The insurance company is the customer of ADP, who will be collecting the revenue and paying the shop. The Company maintains an allowance for doubtful accounts for losses that they estimate will arise from the customers' inability to make required payments. Collectability of the accounts receivable is estimated by analyzing historical bad debts, specific customer creditworthiness and current economic trends. At October 31, 2005 the allowance for doubtful accounts was approximately $225,000. Accounting for income taxes The Company records a valuation allowance to reduce its deferred tax assets to the amount that is more likely than not to be realized. While we consider historical levels of income, expectations and risks associated with estimates of future taxable income and ongoing prudent and feasible tax planning strategies in assessing the need for the valuation allowance, in the event that we 14 determine that we would be able to realize deferred tax assets in the future in excess of the net recorded amount an adjustment to the deferred tax asset would increase income in the period such determination was made. Likewise, should we determine that we would not be able to realize all or part of the net deferred tax asset in the future, an adjustment to the deferred tax asset would be charged to income in the period such determination was made. We have recorded valuation allowances against our deferred tax assets of $10,001,000 at October 31, 2005. The valuation allowance consists mainly of net operating losses previously realized and stock compensation currently not deductible. The valuation allowance was necessary because the use of these deductions is not reasonably assured since the company has not reached profitability. Valuation of long-lived assets The Company identifies and records impairment on long-lived assets, including goodwill, when events and circumstances indicate that such assets have been impaired. The Company periodically evaluates the recoverability of its long-lived assets based on expected undiscounted cash flows, and recognizes impairment, if any, based on expected discounted cash flows. Factors we consider important which could trigger an impairment review include the following: o Significant negative industry trends o Significant underutilization of the assets o Significant changes in how we use the assets of our plans for their use. At each balance sheet date, the Company evaluates the period of amortization of intangible assets. The factors used in evaluating the period of amortization include: (i) current operating results, (ii) projected future operating results, and (iii) any other material factors that effect the continuity of the business. No charge for impairment of these assets was considered to be necessary as of October 31, 2005. Management's Operating Plan Management has taken specific actions to mitigate the effects of the events of fiscal 2005, which included the loss of revenue from our first and second largest customers and the longer than expected time taken to implement the national Sales and Marketing efforts associated with the ADP Co-Marketing agreement. Although this delay resulted in the company incurring additional expenses for carrying support personnel, we have recently seen sales efforts net results in new pilots, and more specifically the rollout of Continental Casualty Company (C N A Insurance) that began in late July 2005 and the utilization of our shop network by C N A that began in late October 2005. Specifically, management is taking the following actions that are expected to positively impact the Company's financial position in fiscal 2006: o ADP Co-Marketing Agreement - Management continues to focus on the sales development of the ADP Co-Marketing Agreement, which is part of the Company's Special Markets Division. The most material development is the early rollout of a, Continental Casualty Company (C N A Insurance), a top 20 insurance carrier that is described above. Once the national rollout is completed, the Company would expect a meaningful improvement in its operating results, as this new client would become one of the largest clients of eAutoclaims in a very short period. 15 The Company was also notified in September 2005 that it had been selected by a second top 20 insurance client through the ADP Co-marketing agreement. Although the process is still in the early stages, the Company expects rollout to be completed in the first half of fiscal 2006 and meaningful revenues to be produced by the completion of the third quarter of fiscal 2006. Since August 2004 the ADP agreement has produced over a dozen signed pilot agreements with insurance Companies or third party administrators, and has produced four annual agreements after the pilot periods were completed. In addition, other than the two top 20 insurance clients listed above, there are other accounts in the sales cycle that are expected to mature into new accounts. While there are no guarantees that these pilot agreements will mature into annual or multi-year contracts, maturing these accounts past the pilot stage would produce significant claims volume. The Company would share the associated revenues with ADP Claims Services Group. o Rolling out Higher Margin Product Lines - Management is leveraging internally developed ASP/technologies that will allow other companies in related industries to significantly reduce labor costs and improve operating efficiencies, as is the case with the Company's recently announced new product "Audit Pro", a programmatic electronic estimate auditing tool. Many of these technologies have already been implemented in the Company's operating processes and have shown themselves to be of significant value. By modifying the interface to these technologies, the Company can produce significant click fee revenue without adding significant operating costs. The target market for these technologies will include a wide range of organizations, including the largest (tier 1) insurance companies. The Company's management believes this additional product line will result in a greater growth in high volume, high margin revenues that will have a meaningful impact to the Company's bottom-line. While there are no guarantees these transactions or that the new business will mature, management believes this will be a growth market for the Company in the future. o Raising Additional Capital - The Company has an option to purchase the building it is currently leasing and the associated land for $2,950,000. In September 2005 the Company entered into an agreement to sell its Oldsmar facility, while remaining in the facility under a new favorable long term lease to be signed concurrent with the closing of the sale. The due diligence period has passed successfully and the closing is expected to take place in December 2005 as part of a simultaneous closing process whereby the Company purchases the facility from the current landlord under the purchase option provided for in the Company's current lease agreement and subsequently sells the facility to a third party buyer. The completed transaction is expected to net the Company a significant profit. In anticipation of the completing of the building sale transaction, the Company completed a bridge loan in October 2005 for $500,000. The principal and interest associated with this loan will be paid in full from the proceeds of the building sale at time of closing. The company is currently reviewing additional options in the event the sale closing takes longer than expected. Based on the early results of the ADP Co-Marketing agreement and the expansion of the Company's ASP/Technology sales, we expect to need the extra staff we are currently carrying on our payroll. However, there are no guarantees this new expected business will materialize; therefore the Company has developed a contingency plan in the event these events do not occur. If necessary, the Company would reduce staff positions currently being carried for the expected new business from the ADP Co-Marketing agreement. In addition, our management team would also take a second round of salary reductions ranging from 5% to 15%. The senior management team would once again take the highest percentage reductions. 16 Results of Operations --------------------- For the three months ended October 31, 2005 compared to the three-months ended October 31, 2004. Revenue Total revenue for the three-months ended October 31, 2005 was $3.8 million, which is a 8% decrease from the $4.1 million of revenue for the three-months ended October 31, 2004. Collision repair management revenue decreased 16% to $2.8 million for the three-months ended October 31, 2005 from $3.3 million for the three-months ended October 31, 2004. During the three months ended October 31, 2005 we derived 50% and 10% of our revenue from two customers. The decrease in revenue is partially the result of a reduction by consumers in the usage of network shops. Also included in the collision management revenue is the revenue earned through repairs processed for clients acquired as a result of the ADP Co-Marketing agreement. As previously stated, this revenue is recorded at net, which significantly reduces the amount of gross revenue reported, although the overall gross margin is increased as a result of not having to pay the shops for the work performed. During the three months ended October 31, 2005 we earned over $110,000 in net revenue from clients acquired as a result of the agreement with ADP. This additional revenue resulted in the gross margin percent for collision management to increase from 10% to 13%, not including fees. The Company anticipates meaningful growth in new clients based on these favorable early results of its co-marketing agreement with ADP Claims Services Group. However, because of the competitive nature of our business and the uncertainty of bringing on enough business to offset the loss of business, we may be unable to replace revenues quickly enough to sustain profitability. However, the company's management will cut expenses in the event we are unable to obtain profitability. Glass repair revenues decreased by approximately $66,000 from approximately $161,000 for the three months ended October 31, 2004 to approximately $95,000 for the three months ended October 31, 2005. This decrease is primarily due to the reduction in claim volume for our existing customers. The Company continues to pursue additional glass customers as the glass repair business complements our core business and allows our customers to use a single source for all their repair needs. Other revenue increased by approximately $158,000 from approximately $554,000 for the three months ended October 31, 2004 to approximately $712,000 for the three months ended October 31, 2005. This increase is primarily a result of revenue earned from taking first notice loss reports for clients as a result of damages sustained by consumers due to the hurricanes of 2005. A total of $136,000 of additional revenue was earned as a result of this activity for the three months ended October 31, 2005 over the same period in 2004. Revenue earned from the sale of estimatic software increased from approximately $200,000 for the three months ended October 31, 2004 to approximately $218,000 for the three months ended October 31, 2005. Claims Processing Charges Claims processing charges include the costs of collision and glass repairs paid to repair shops within our repair shop network. Claims processing charges for the three-months ended October 31, 2005 was approximately $2.7 million. This was 71% of total revenue, compared to approximately $3.2 million, or 78% of total revenue for the three-months ended October 31, 2004. Claims processing charges are primarily the costs of collision repairs paid by the Company to its collision repair shop network. The decrease in claims processing charges as a 17 percentage of total revenue is a result of the change in the product mix with a higher percentage of higher margin products as compared to lower margin products. This also includes the growth in click fees, which are fees charged when a client uses our technology that has little to no associate cost of sale. We are dependent upon our third party collision repair shops for insurance claims repairs. eAutoclaims currently has approximately 2,700 affiliated repair facilities in its network for claims repairs. We electronically and manually audit individual claims processes to their completion using remote digital photographs transmitted over the Internet. However, if the number of shops or the quality of service provided by collision repair shops fall below a satisfactory level leading to poor customer service, this could have a harmful effect on our business. Selling, General And Administrative (SG&A) Expenses SG&A expense is mainly comprised of salaries and benefits, facilities related expenses, telephone and internet charges, legal and other professional fees, and travel expenses. SG&A expenses for the three-months ended October 31, 2005 totaled $1.5 million compared to $1.3 million for the three-months ended October 31, 2004. The increase in SG&A expenses of approximately $150,000 is primarily due to increases in payroll and benefit related expenses. Payroll and benefit related expenses for the three-months ended October 31, 2005 and 2004 totaled approximately $990,000 and $864,000 respectively, which is approximately a 15% increase. This increase is primarily the result of increases in health care costs, non-cash compensation expenses as provided for in management contracts and of increasing staff in preparation for the significant new business expected to be forthcoming as a result of new clients acquired through the ADP Co-Marketing Agreement. SG&A expenses also include non-cash charges of approximately $165,000 for the three-month period ended October 31, 2005. These non-cash charges include approximately $89,000 of common stock issued to pay fees to directors, approximately $64,000 of common stock that is to be issued to management according to terms of their contracts and approximately $1,000 of common stock issued for accrued interest associated with the conversion of debt. In addition, a charge of approximately $11,000 was taken as a result of implementing FAS123R (revised 2004), which requires expensing of stock options as they become vested. The non-cash charges for the three-month period ended October 31, 2004 include approximately $50,000 of common stock issued to pay fees to directors, approximately $25,000 of common stock issued in exchange for legal services and approximately $6,000 of common stock issued for accrued interest associated with the conversion of debt. Also included in the SG&A is interest expense related to capital leases. This interest expense totals approximately $13,000 for the three-months ended October 31, 2005 compared to approximately $10,000 for the three-months ended October 31 2004. Depreciation Depreciation of property and equipment of approximately $122,000 was recognized in the three-month period ended October 31, 2005. This is compared to approximately $135,000 for the three-month periods ended October 31, 2004. Net Income/Loss Net loss for the three-months ended October 31, 2005 totaled approximately $486,000 compared to a net loss of approximately $545,000 for the three-month period ended October 31, 2004. These amounts include non-cash expenses of approximately $305,000 and $230,000, respectively. 18 Liquidity and Capital Resources At October 31, 2005, we had approximately $393,000 in cash. This is an increase of approximately $87,000 from July 31, 2005. We have a working capital deficiency of approximately $3.9 million. The primary source of our working capital during the three-month period ended October 31, 2005, was from cash generated by operations and the $500,000 bridge loan we obtained in advance of the sale of our Oldsmar facility. However, there is no assurance that we will be able to continue to provide cash through operations. As described in management's operating plan above, we expect to net a significant profit form the sale of our Oldsmar facility. The Company is also reviewing additional financing options in the event the sale of the facility takes longer than expected. We believe that cash generated from operations, the sale of our facility and additional financing will be sufficient to meet our working capital requirements for the next 12 months. This estimate is a forward-looking statement that involves risks and uncertainties. The actual time period may differ materially from that indicated as a result of a number of factors so that we cannot assure that our cash resources will be sufficient for anticipated or unanticipated working capital and capital expenditure requirements for this period. Debt and Contractual Obligations Our commitments for debt and other contractual arrangements as of October 31, 2005 are summarized as follows: Years ending October 31, ---------------------------------------------------------- 2006 2007 2008 Total ---------------------------------------------------------- Property lease 227,000 19,000 246,000 Equipment lease 93,000 94,000 6,000 193,000 Note payable 500,000 500,000 Employee compensation 592,000 829,000 1,421,000 ---------------------------------------------------------- 1,412,000 942,000 6,000 2,360,000 ========================================================== The Company leases equipment and facilities under non-cancelable capital and operating leases expiring on various dates through 2008. The main operating lease consists of a 5-year lease for 30,000 square feet of a 62,000 square foot facility. The Company has an option to buy the entire facility with the associated land for $2,950,000. In September 2005 the Company entered into an agreement to sell the facility, while remaining in the facility under a new favorable long term lease to be signed concurrent with the closing of the sale. After a due diligence period, the closing is expected to take place within 95 days from the effective date of the agreement and will be part of a simultaneous closing process whereby the Company purchases the facility from the current landlord under the purchase option provided for in the Company's current lease agreement and subsequently sells the facility to a third party buyer. 19 As of October 31, 2005 the Company owed $500,000 on a bridge loan we obtained in advance of the sale of our Oldsmar facility. The loan bears interest at the rate of 15% per annum and the principal and interest will be paid in full out of the proceeds from the sale of our facility at the time of closing. The holder of the note has the right to the purchase option on the building as collateral in the event the building sale does not take place. The Company retains the rights to the net profits on any sale to any new buyer after repayment of the note according to the above terms. In May 2005, the Company entered into a new two year employment agreement with its President and Chief Executive Officer. The agreement specifies an annual base salary of $170,000, representing a voluntary pay cut in base taken by the CEO. If the Company generates positive cumulative EBITDA (which excludes non-cash compensatory and equity charges under GAAP) of greater than $50,000 for any three consecutive months, the base salary will be increased to $200,000. The CEO will be entitled to receive a quarterly bonus equal to 3% of the Company's EBITDA as computed under GAAP, which may be paid in cash or shares of the Company's common stock, at the CEO's election. The CEO shall also be entitled to receive an option to purchase 25,000 shares of the Company's common stock, exercisable at the fair market price, for each month the Company has net income before taxes and extraordinary items, as computed in accordance with GAAP. These options vest over the remaining term of the employment agreement. The individual is entitled to a $750 per month automobile allowance and a $1000 per month personal allowance. The contract requires the Company to issue the CEO 1,000,000 shares of the Company's common stock. If the individual loses his position for any reason other than for cause during the term of the agreement, he will receive a lump sum payment equal to two (2) times the current base salary. If the Company does not employ the individual beyond the expiration term of the agreement, he will receive his monthly base salary for the next twelve months. At the election of the individual, any compensation including severance or termination payments, may be made one-half (1/2) in cash and one-half (1/2) in the Company's shares valued at 75% of the average closing price over the 30 trading days preceding the termination date. Any shares issued shall be registrable under a form S-8 and shall have "piggyback" registration rights. In addition, in May 2005 the Company entered into employment agreements ranging in length from eighteen to twenty-four months with all four of the Company's senior executives that total $72,000 to $125,000 annually. This represents voluntary base pay cuts taken by all of the previously contracted executives. These executives also receive automobile allowances ranging from $400 to $700 per month and will receive 10,000 shares of the Company's common stock each month, not to exceed 200,000 shares each. In October 2005, the contract of one executive was modified increasing his salary to $125,000 per year and requiring the company to issue 200,000 additional shares of registered stock to this executive. If the contracts of all executives are not renewed they receive severance packages of six months of their annual compensation. Inflation We believe that the impact of inflation and changing prices on our operations since the commencement of our operations has been negligible. Seasonality The Company typically experiences a slow down in revenue during November and December each year. Consumers tend to delay repairing their vehicles during the holidays. 20 ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK Currently, we do not have any significant market risk. Market risk is the potential loss arising from adverse change in market rates in prices such as foreign currency exchange and interest rates. We do not have any foreign currency exchange rate exposure. We do not have any long-term debt from financial institutions. We do not hold any derivatives or other financial instruments for trading or speculative purposes. Our financial position is not affected by fluctuations in currency against the U.S. dollar since all of our sales and assets occur within the United States. ITEM 4. CONTROLS AND PROCEDURES a) Evaluation of disclosure controls and procedures. Under the supervision and with the participation of our management, including our principal executive officer and principal financial officer, we conducted an evaluation of the effectiveness of the design and operations of our disclosure controls and procedures, as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as of October 31, 2005. Based on this evaluation, our principal executive officer and principal financial officer concluded that our disclosure controls and procedures were effective such that the material information required to be included in our Securities and Exchange Commission ("SEC") reports is recorded, processed, summarized and reported within the time periods specified in SEC rules and forms relating to eAutoclaims, Inc., and was made known to them by others within those entities, particularly during the period when this report was being prepared. b) Changes in internal controls over financial reporting. In addition, there were no significant changes in our internal control over financial reporting that could significantly affect these controls during the quarter ended October 31, 2005. We have not identified any significant deficiency or materials weaknesses in our internal controls, and therefore there were no corrective actions taken. 21 PART II - OTHER INFORMATION ITEM 1. LEGAL PROCEEDINGS None ITEM 2. CHANGE IN SECURITIES AND USE OF PROCEEDS. As part of the provisions of the sales of equities in March through May of 2004 there is a requirement to meet certain claims volume targets under the ADP Co-Marketing Agreement. If we fail to meet those targets, up to 100% of the original Units (as defined in that document) would have to be issued to those 2004 investors for no additional consideration (True up). In order to help resolve this open issue, in December 2004 we offered the 2004 investors 50% of the total potential True up Units in exchange for releasing the Company from the remaining target volume commitment. On August 1, 2005, the Company evaluated the claims volume that it had received from customers generated by the ADP Claims Service Group Co-marketing agreement as specified in the subscription agreements from the 2004 capital raise. In accordance with those agreements, the Company did not meet the minimum volume requirements and therefore had to issue 2,162,860 Units (one share of common stock and one, 3-year, $0.16 warrant to purchase a common share) to the investors who did not accept our December 2004 offer. Issuing these units resulted in the Company recording a stock dividend of approximately $476,000. On August 12, 2005 an investor exercised warrants to purchase 357,143 shares of common stock with a strike price of $0.16 per share. The Company received $57,143 from this transaction. On August 15, 2005 the holder of the convertible debenture converted the note into 1,718,750 shares of the Company's common stock. In addition, interest on the note from the end of July 2005 until August 15 was paid to the holder of the note with 5,651 shares of the Company's common stock. During the three months ended October 31, 2005 the Company issued a total of 625,001 shares of common stock in exchange for services. A total of 200,000 shares of stock were issued to an officer as a result of a modification to his employment contract. A total of $30,000 was charged to expense during this time period, which was approximately equal to the fair market value of the shares at the time of issuance. The Company issued 425,001 shares of common stock to three non-employee directors in exchange for their services. Of this total, 357,144 shares were issued for services to be rendered for fiscal year 2006. These shares are being expensed over the year as they are earned. During the three months ended October 31, 2005 the Company expensed $18,750, or 89,286 shares, which was approximately equal to the fair market value of the shares when earned. In addition, a total of 67,857 shares were issued to these same directors for services rendered during the three months ended October 31, 2005. A total of $14,250 was charged to expense during this time period, which was approximately equal to the fair market value of these shares when earned. On October 17, 2005 a director exercised options to purchase 200,000 shares of the Company's common stock, with an exercise price of $0.01. In October 2005, the Company issued 200,000 warrants with a strike price of $0.20 to an investor for providing the Company with bridge loan financing and an 22 additional 250,000 warrants with a strike price of $0.20 were issued to two finders for helping to facilitate the transaction. The Company valued these warrants at $0.02 each, utilizing a previous warrant valuation model provided by an independent investment banker, and recorded a charge of $9,000 for these warrants during the period ended October 31, 2005. In accordance with the Financial Accounting Standards No. 123 (revised 2004), "Accounting for Stock-Based Compensation", the Company expensed $11,097 during the three months ended October 31, 2005, representing the cost of stock options that would have vested during this period. Additionally, options to purchase 99,718 shares of common stock were canceled. During the month of November 2005 an officer and director exercised options to purchase 100,000 shares of common stock with an exercise price of $0.01. Also in November, two officers and a consultant exercised options to purchase a total of 370,000 shares of common stock with an exercise price of $0.01. Additionally in November, this same consultant exercised options to purchase 20,000 shares of common stock with an exercise price of $0.15 and 33,333 options with an exercise price of $0.13. On November 8, 2005 the Board voted to adjust the strike price from $0.35 to $0.16 on 1,000,000 warrants owned by an investor, who is also a director, in order to match the strike price of other investor's warrants issued under the anti-dilution provisions of their agreements. On November 8, 2005 the Board of Directors gave approval for the Company to issue 1,000,000 shares of the Company's common stock to the Chairman of the Board to compensate him for his past services and his role as Chairman. In addition, the Board also approved future compensation for the Chairman of the Board to include the same annual retainer of $25,000 to be paid in shares of the Company's common stock as well as the same quarterly stock compensation currently paid to other non-employee directors. On November 29, 2005 an investor exercised warrants to purchase 300,000 shares of common stock with a strike price of $0.16 per share. The Company received $48,000 from this transaction. On November 29, 2005 the Company issued 400,000 shares of common stock in the name of its current landlord as part of an agreement to facilitate the sale of the building. The shares will be a part of the building sale transaction and will be delivered to the landlord at the closing date. ITEM 3. DEFAULTS UPON SENIOR SECURITIES None. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS None. ITEM 5. OTHER INFORMATION None 23 ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K (a) Exhibits Exhibit No. Description 31.1 Certification of Chief Executive Officer pursuant to Section 302 of The Sarbanes-Oxley Act of 2002. 31.2 Certification of Chief Financial Officer pursuant to Section 302 of The Sarbanes-Oxley Act of 2002. 32.1 Certification of Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of The Sarbanes-Oxley Act of 2002. 32.2 Certification of Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of The Sarbanes-Oxley Act of 2002. (b) Reports on Form 8-K Item 1.01/2.03/7.01 - Announced close on bridge loan financing Item 7.01/8.01- Appointment of Chief Operating Officer/Executive Vice President SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. Date: 12/14/05 By: /s/ Eric Seidel --------------- --------------------------------------------- Eric Seidel, President and Chief Executive Officer Date: 12/14/05 By: /s/ Larry Colton --------------- --------------------------------------------- Larry Colton, Chief Financial Officer 24 EXHIBIT 31.1 CERTIFICATIONS I, Eric Seidel, certify that: 1. I have reviewed this quarterly report on Form 10Q of eAutoclaims, Inc. 2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; 3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; 4. The registrant's other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have: a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; c) Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and d) Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and 5. The registrant's other certifying officers and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors: a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting. Date: 12/14/05 /s/ Eric Seidel ----------------------- ----------------------------------- President and C.E.O. 25 EXHIBIT 31.2 CERTIFICATIONS I, Larry Colton certify that: 1. I have reviewed this quarterly report on Form 10Q of eAutoclaims, Inc. 2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; 3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; 4. The registrant's other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have: a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; c) Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and d) Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and 5. The registrant's other certifying officers and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors: a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting. Date: 12/14/05 /s/ Larry Colton ---------------------------- ----------------------------------- Chief Financial Officer 26 EXHIBIT 32.1 CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002 In connection with the Quarterly Report of eAutoclaims, Inc. (the "Company") on Form 10-Q for the period ending October 31, 2005 as filed with the Securities and Exchange Commission on December 14, 2005 (the "Report"), I, Eric Seidel, the President and CEO of the Company, certify, pursuant to 18 U.S.C. ss. 1350, as adopted pursuant to ss. 906 of the Sarbanes-Oxley Act of 2002, that: 1. The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and 2. The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of eAutoclaims, Inc. /s/ Eric Seidel -------------------------- Print Name: Eric Seidel Title: President & CEO December 14, 2005 EXHIBIT 32.2 27 CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002 In connection with the Quarterly Report of eAutoclaims, Inc. (the "Company") on Form 10-Q for the period ending October 31, 2005 as filed with the Securities and Exchange Commission on December 14, 2005 (the "Report"), I, Larry Colton, the Chief Financial Officer of the Company, certify, pursuant to 18 U.S.C. ss. 1350, as adopted pursuant to ss. 906 of the Sarbanes-Oxley Act of 2002, that: 1. The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and 2. The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of eAutoclaims, Inc. /s/ Larry Colton Print Name: Larry Colton Title: Chief Financial Officer December 14, 2005 28