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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

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FORM 10-QSB

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

 

For the period ended January 31, 2007

 

o TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

Commission File Number 0-23903

 

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EAUTOCLAIMS, INC.

(Exact name of registrant as specified in charter)

 

 

 

 

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.

 

 

Indicated by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

 

 

Indicate the number of shares outstanding of each of the Issuer’s classes of common stock, $.001 par value, as of February 28, 2007 was 82,391,549

 

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EAUTOCLAIMS, INC.

 

INDEX TO FORM 10-QSB

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PART I

 

FINANCIAL INFORMATION

 

 

 

 

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EAUTOCLAIMS, INC.

 

 

PART I

 

FINANCIAL INFORMATION

 

 

 

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, 2006.

 

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EAUTOCLAIMS, INC.

 

BALANCE SHEETS

 

 

 

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EAUTOCLAIMS, INC.

 

STATEMENTS OF OPERATIONS

 

 

 

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EAUTOCLAIMS, INC.

 

STATEMENT OF STOCKHOLDERS’ DEFICIENCY

 

 

 

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EAUTOCLAIMS, INC.

 

STATEMENTS OF CASH FLOWS

 

 

 

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EAUTOCLAIMS, INC.

 

NOTES TO FINANCIAL STATEMENTS

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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 January 31, 2007 and its results of operations and cash flows for the three and six month periods ended January 31, 2007 and 2006. Results of operations for the three and six month periods ended January 31, 2007 are not necessarily indicative of the results that may be expected for the year ending July 31, 2007.

 

As shown in the financial statements, the Company has suffered recurring losses from operations, has a stockholders’ deficiency and a working capital deficiency. The Company has been able to raise additional funds from debt and equity offerings and management believes the Company can continue to do so in the future. In addition, the Company has secured a non-cancellable line of equity from a shareholder in the amount of $2,000,000.

 

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 revenue is fixed and determinable and collection is reasonably assured.

 

The Company records revenue gross when the Company is the primary obligor in the arrangements, the Company has latitude in establishing price, the Company control’s 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.

 

Cash and Cash Equivalents

 

Cash and cash equivalents represent cash and short term, highly liquid investments with original maturities of three months or less.

 

Reclassifications

 

The Company has made certain reclassifications to the fiscal 2006 consolidated financial statements, as previously reported, to conform to current classification. These reclassifications did not change net loss as previously reported.

 

Recent Accounting Pronouncements

 

In July 2006, the FASB issued Interpretation No. 48, “Accounting for Uncertainty in Income Taxes, an interpretation of FASB Statement No. 109 (“FIN 48”), which provides criteria for the recognition, measurement, presentation and disclosure of uncertain tax positions. A tax benefit from an uncertain position may be recognized only if it is “more likely than not” that the position is sustainable based on its technical merits. The provisions of FIN 48 are effective for fiscal years beginning after December 15, 2006. The Company does not expect FIN 48 will have a material effect on the Company’s consolidated financial condition or results of operations.

 

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In September 2006, the FASB issued Statement of Financial Accounting Standards No. 157, “Fair Value Measurements”, or SFAS No. 157. SFAS 157 defines fair value, establishes a framework for measuring fair value in generally accepted accounting principles and expands disclosures about fair value measurements. The provisions of this statement are effective for financial statements issued for fiscal years beginning after November 15, 2007 and interim periods within those fiscal years. The Company is currently evaluating the effect that the adoption of SFAS No. 157 will have on their financial statements.

 

Note 2 - Stock Based Compensation

 

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 five or ten years. Compensation expense for stock options is recognized over the vesting period for each separately vesting portion of the stock option award.

 

Effective August 1, 2005, the Company adopted SFAS No. 123R utilizing the modified prospective method. Under the modified prospective method, the provisions of SFAS 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, measured under the original provisions of SFAS 123, “Accounting for Stock Based Compensation”, is recognized in net earnings in the periods after the date of adoption. The compensation cost charged to operations pursuant to SFAS No. 123R was $12,163 and $21,560 for the six months ended January 31, 2007 and 2006, respectively.

 

A summary of the status of the company’s options for the six months ended January 31, 2007 is as follows:

 

 

Note 3 - 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 January 31, 2007 and 2006, 25,468,664 and 29,980,455 options and warrants, respectively, were excluded from the diluted loss per share computation, as their effect would be anti-dilutive.

 

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Note 4 - Equity Transactions

 

During the six months ended January 31, 2007 the Company issued a total of 1,341,857 shares of common stock in exchange for services. Of this total, 121,858 shares were issued to members of management in accordance with the terms of their employment contracts. A total of $17,623 was charged to expense during this period, which was approximately equal to the fair market value of the shares at the time of issuance. The Company also issued a total of 1,219,999 shares of common stock to our four outside directors and Chairman of the Board in exchange for their services. Of this total, 781,250 shares were issued for services to be rendered for fiscal year 2007. These shares are being expensed over the year as they are earned. During the six months ended January 31, 2007 the Company expensed $62,500, or 390,625 shares, which was approximately equal to the fair market value of the shares when earned. In addition, a total of 251,249 shares were issued to these same directors for services rendered during the six months ended January 31, 2007. A total of $38,750 was charged to expense during this time period, which was approximately equal to the fair market value of these shares when earned. Also included in the above total are 187,500 shares, worth $30,000 at fair market value, which were issued to the new Chairman of the Board on January 15, 2007.

 

During the six months ended January 31, 2007 a total of 239,821 shares of common stock were issued to five employees as a result of the exercise of outstanding options, all with a strike price of $0.01. A total of 60,835 shares were sold back to us by three senior managers who delivered these shares to satisfy tax withholding requirements. These shares were valued at $9,125 which represents the fair value of the shares at the time of surrender.

 

Note 5 - Subsequent Event

 

On February 27, 2007 a total of 160,802 shares of common stock were issued to an employee as a result of the exercise of outstanding stock options. These options had an exercise price of $0.01. A total of 40,201 shares were sold back to the Company by this employee, who delivered the shares to satisfy tax withholding requirements. The shares were valued at $6,432 which represents the fair value of the shares at the time of surrender.

 

On February 14, 2007 the Company authorized a standby Letter of Credit to be issued in the amount of $730,000 for the benefit of Fireman’s Fund Insurance Company as required under the terms of our contract with this new client. The Letter of Credit has been secured with a CD in the same amount.

 

During the month of February 2007 the Company has raised a total of $300,000 from multiple investors under a debt offering which is currently still in process. Under the terms of the offering, the Company is authorized to raise up to $2 million in unit increments of $100,000.

 

On March 9, 2007 the Company was notified by Sentry Insurance that they would be vacating our operating platform as of April 5, 2007.

 

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The statements contained in this Report on Form 10-QSB, 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-QSB. 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-QSB will prove to be accurate.

 

General

 

We 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.

 

We control 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 2500 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 our 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.

 

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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 provide the requested services and pay us a fee for 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 accounted for 83% and 84% of the revenue for the three and six months ended January 31, 2007. We are paid a fee 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 and six months ended January 31, 2007, 17% and 16% 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 taking first notice of loss reports, fees from service partners (ASP fees) and subrogation income.

 

We have focused more resources on marketing products where we serve in the capacity of an Application Service Provider (ASP). Our 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.

 

Our AuditPro product is a rules-based estimate auditing application that has been well received by existing clients and prospects, which has allowed us 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. Our financial statements 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.

 

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Revenue recognition

 

We derive revenue primarily from collision repairs, glass repairs and fleet repairs. Revenue is recognized when an agreement between us and our customer exists, the repair services have been completed, our revenue is fixed and determinable and collection is reasonably assured.

 

We record revenue on a gross basis in the areas of collision and fleet repairs. We also record revenue on a gross basis in certain glass repair transactions. Revenue is recorded at gross in these areas when:

 

 

We record revenue net of the repair costs in certain glass transactions when the supplier, not us, is the primary obligor in an arrangement, the amount we earn is fixed or the supplier has credit risk. This occurs when the repair has been performed before it is referred to us. When we receive 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 we are 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 we pay 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 Audatex (formerly the ADP Claims Services Group) will be recorded net of the repair costs because in the agreement we are performing a fee for service. The insurance company is the customer of Audatex, who will be collecting the revenue and paying the shop.

 

We maintain an allowance for doubtful accounts for losses that we 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 January 31, 2007 the allowance for doubtful accounts was approximately $157,000.

 

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Accounting for income taxes

 

We record a valuation allowance to reduce our 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 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 $10,838,000 at January 31, 2007. The deferred tax asset consists mainly of net operating losses previously not 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

 

We identify and record impairment on long-lived assets, including goodwill, when events and circumstances indicate that such assets have been impaired. We periodically evaluate the recoverability of our long-lived assets based on expected undiscounted cash flows, and recognize impairment, if any, based on expected discounted cash flows. Factors we consider important which could trigger an impairment review include the following:

 

 

Management’s Operating Plan

 

During the second quarter of our current fiscal year there were changes in conditions with existing accounts and new business which all involve timing issues. We have taken specific actions to ensure the future growth in the claims processing business. We continue to focus much of our effort in making the migration to the larger insurance company market; however the migration of our marketing change presents a timing differential between the new business coming on and the loss of some existing claims flow. The Letter Of Intent with Fireman’s Fund Insurance Company executed in the first quarter has resulted in a signed three year contract The expansion of services announced in the first quarter with CNA is now being implemented. During the second quarter we were alerted to the fact that some existing business with a well established and long term account would be migrating to another platform.

 

The timing issue develops as the business coming off our platform will and is happening now. The new business scheduled by contract to increase the revenue base will come on in the last quarter of this fiscal year. While the increase in revenue is far greater than any current loss of existing revenue, the timing difference will leave the company with less revenue and more expense during the transition. This will create a temporary decrease in revenue with a one time increase in restructuring expense.

 

In anticipation of this gap the company took steps to reduce direct expense during this period of months where revenue decreases. We reduced staff by 22 people creating a reduction in salary and benefit costs of approximately $623,000 annually. We also integrated our programmable audit tool into the primary application which allows us to avoid having to re-key data which in effect substantially increases productivity.

 

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Specifically, management is taking the following actions that are expected to positively impact our financial position in fiscal 2007:

 

 

 

 

 

 

 

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Results of Operations

 

For the six and three-months ended January 31, 2007 compared to the six and three-months ended January 31, 2006.

 

Revenue

 

Total revenue for the six months ended January 31, 2007 was approximately $7.4 million. This equals the $7.4 million in revenue reported for the six months ended January 31, 2006, after excluding the gain on the sale of the building, which occurred in the second quarter of fiscal 2006. For the three months ended January 31, 2007, total revenue was $3.4 million compared to $3.6 million for the three months ended January 31, 2006, after excluding the gain on the sale of the building. During the six months ended January 31, 2007 we derived 44% and 18% of our revenue from two customers. The contract with our largest customer automatically renewed for a period of one year in April 2006. The business associated with this client was sold by the client to a third party and we subsequently assigned the agreement to this new entity. While we have been working with the new owner to create a new contract, we have experienced a reduction in claims volume of approximately 23% in the second quarter of fiscal 2007 compared to the first quarter. On March 9, 2007 we were notified that this client will migrate their business off of our platform entirely in the third quarter of fiscal 2007. Although we continue in discussion with this client, we cannot guarantee that we will obtain a new agreement, or that any new contract will be on more favorable terms.

 

For the three months ended January 31, 2007, collision repair management revenue, including glass repair revenue, decreased 2% to $2.64 million compared to $2.68 million for the three months ended January 31, 2006. This decrease is primarily due to reduced claims volume from our largest client. For the six months ended January 31, 2007, collision repair management revenue, including glass repair revenue, increased 6% to $5.8 million compared to $5.5 million for the six-months ended January 31, 2006. The increase in revenue over the six month period is a combination of increased shop utilization of our network shops by consumers associated with our core clients, as well as increased revenue earned from repairs processed for clients acquired as a result of the Audatex 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 six-months ended January 31, 2007 we earned over $440,000 in net revenue from clients acquired as a result of the agreement with Audatex. This additional revenue resulted in the gross margin percent for collision management to increase from 14% to 18% for the six-months ended January 31, 2007, not including fees.

 

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Fleet repair revenue decreased by approximately $19,000 from approximately $226,000 for the three months ended January 31, 2006 to approximately $207,000 for the three months ended January 31, 2007. For the six months ended January 31, 2007, fleet revenue was approximately $428,000 compared to approximately $469,000 for the six months ended January 31, 2006. This decrease is primarily the result of the loss of our second largest customer in fiscal 2007 as well as fewer claims being reported by existing customers in the current fiscal year.

 

For the three and six months ended January 31, 2007, fees and other revenue decreased approximately $158,000 and approximately $267,000 respectively, as compared to the three and six months ended January 31, 2006. This decrease is primarily the result of earning less revenue this year from current clients for taking first notice of loss reports. In the three and six months ended January 31, 2006 we earned approximately $108,000 and $175,000, respectively, of additional revenue from our clients by taking increased numbers of first notice loss reports as a result of damages sustained by consumers due to the hurricanes of 2005. The sales of estimatic software also decreased by approximately $5,000 and $53,000, respectively for the three and six months ended January 31, 2007 as compared to the three and six months ended January 31, 2006.

 

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 and six months ended January 31, 2007, were approximately $2.3 million and $5.18 million, respectively, or 69% and 70%, respectively, of total revenue. This compares to approximately $2.5 million and $5.15 million, respectively, or 68% and 69%, respectively, of total revenue for the three and six months ended January 31, 2006. Claims processing charges are primarily the costs of collision repairs paid by us to our collision repair shop network.

 

We are dependent upon our third party collision repair shops for insurance claims repairs. We currently have approximately 2,500 affiliated repair facilities in our 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 and six months ended January 31, 2007 were approximately $1.5 million and $2.9 million, respectively, which represents a 17% and 12% decrease, respectively from the approximately $1.8 million and $3.3 million for the three and six months ended January 31, 2006. Payroll and benefit related expenses for the three and six months ended January 31, 2007 totaled approximately $1.0 million and $2.0 million respectively, compared to approximately $1.1 million and $2.1 million, respectively, for the three and six months ended January 31, 2006. The decrease is primarily the result of decreases in health care costs, telephone expense, and costs incurred for outside consulting services. We incurred higher rent expense in the three and six months ended January 31, 2007 as a result of our new lease agreement.

 

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SG&A expenses also include non-cash charges, excluding depreciation, of approximately $58,000 and $224,000 for the three and six month periods ended January 31, 2007. For the three and six month periods ended January 31, 2007 these non-cash charges included approximately $52,000 and $212,000, respectively, of common stock issued to pay fees to directors and management according to terms of their employment contracts. Approximately $6,000 and $12,000, respectively, was expensed as result of implementing SFAS 123R, which requires expensing of stock options as they become vested. For the three and six month periods ending January 31, 2006 the non-cash charges included approximately $238,000 and $369,000, respectively, of non cash charges. This included approximately $227,000 and $346,000 respectively, of common stock issued to pay fees to directors, and management according to terms of their contracts and approximately $1,000 of common stock issued in the first quarter of 2006 for accrued interest associated with the conversion of debt. In addition, a charge of approximately $11,000 and $22,000 respectively, was taken as a result of implementing SFAS123R.

 

Also included in the SG&A is interest expense related to capital leases. For the three and six months ended January 31, 2007, this interest expense totaled approximately $4,000 and $9,000 respectively. This compares to interest expense on capital leases of approximately $18,000 and $31,000 respectively, for the three and six months ended January 31, 2006.

 

Depreciation

 

Depreciation of property and equipment of approximately $115,000 and $227,000 respectively, was recognized in the three and six months ended January 31, 2007. This is compared to approximately $114,000 and $236,000 respectively, for the three and six months ended January 31, 2006.

 

Net Income/Loss

 

Net loss for the three and six months ended January 31, 2007 totaled approximately $543,000 and $856,000, respectively. Net income for the three months ended January 31, 2006 was approximately $4,000, which includes a gain on the sale of the Oldsmar facility of approximately $756,000. Net loss for the six months ended January 31, 2006 was approximately $482,000, which also includes the $756,000 gain on the sale of the building. Included in these numbers are non-cash expenses of approximately $172,000 and $450,000 including depreciation charges, for the three and six months ended January 31, 2007. This is compared to $403,000 and $691,000 of non-cash charges, including depreciation, for the three and six months ended January 31, 2006.

 

Liquidity and Capital Resources

 

At January 31, 2007, we had approximately $.7 million in cash. This is a decrease of approximately $.8 million from July 31, 2006. We have a working capital deficiency of approximately $2.9 million compared to a deficiency of approximately $3.4 million as of January 31, 2006. The primary source of our working capital during the six-months ended January 31, 2007 was from cash generated by operations.

 

As previously stated in our operating plan, we anticipate that certain timing differences will create a temporary decrease in revenue over the next several months, which will result in a temporary reduction in cash from operations over the same time period. In order to bridge this temporary gap, we believe that we will require additional funding in order to meet our working capital requirements over the next 12 months. We are currently working on obtaining additional funding through issuance of one year notes, as well as exploring additional options to secure the required funds. 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 or that we will be able to generate capital from any future sale of our securities.

 

Debt and Contractual Obligations

 

Our commitments for debt and other contractual arrangements as of January 31, 2007 are summarized as follows:

 

 

 

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We lease equipment and facilities under non-cancelable capital and operating leases expiring on various dates through 2012. The main operating lease consists of a 7-year lease for 30,000 square feet of a 62,000 square foot facility. This lease runs through December 2012. Our rent for 2007, including applicable taxes, is $22,336 per month and increases 3% each year through the remaining life of the lease.

 

Inflation

 

We believe that the impact of inflation and changing prices on our operations since the commencement of our operations has been negligible.

 

Seasonality

 

We typically experience a slow down in revenue during November and December each year. Consumers tend to delay repairing their vehicles during the holidays.

 

 

 

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 January 31, 2007. 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.

 

Our management, including the principal executive officer and principal financial officer, does not expect that our disclosure controls and procedures will prevent all error and fraud. A control system, no matter how well conceived and operated, can only provide reasonable, not absolute, assurance that the objectives of the control system are met. Further, the design of a control system must reflect the fact that there are resource constraints, and the benefits of controls must be considered relative to their costs. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within the Company have been detected. These inherent limitations include the realities that judgments in decision-making can be faulty, and that breakdowns can occur because of simple error or mistake. Additionally, controls can be circumvented by the individual acts of some persons, collusion of two or more people, or by management override of the control. The design of any system of controls also is based in part upon certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions.

 

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 January 31, 2007. We have not identified any significant deficiency or materials weaknesses in our internal controls, and therefore there were no corrective actions taken.

 

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PART II - OTHER INFORMATION

 

 

 

None

 

 

 

During the period ended January 31, 2007 we issued 106,252 shares of common stock to four Directors and the Chairman of the Board for services rendered in accordance with the approved Board compensation plan. We also issued 187,500 shares to our new Chairman of the Board as compensation for accepting the role of Chairman and for assisting us in securing additional funding.

 

These shares were purchased from employees of eAutoclaims who surrendered the shares to the Company to satisfy their minimum tax withholding requirements.

 

 

None.

 

 

 

None

 

 

 

None

 

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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.

 

 

 

 

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