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



For the period ended January 31, 2007



oTRANSITION 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)



Nevada
        95-4583945(State or other jurisdictionof incorporation or organization)
        (IRS EmployerIdentification 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.



xYes
        oNo




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



oYes
        xNo




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



Transitional Small Business Disclosure Format
        oYes
        xNo






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EAUTOCLAIMS, INC.



INDEX TO FORM 10-QSB

____________________________________________



PART I



FINANCIAL INFORMATION





Item 1. Financial Statements
        2Balance Sheets
        3Statements of Operations
        4Statement of Stockholders Deficiency
        5Statements of Cash Flows
        6Notes to Financial Statements
        7Item 2.Managements Discussion and Analysis of Financial Condition and Results of Operations
        10Item 3.Controls and Procedures
        18PART IIOTHER INFORMATIONItem 1.Legal Proceedings
        19Item 2.Unregistered Sales of Equity Securities and Use of Proceeds
        19Item 3.Defaults Upon Senior Securities
        19Item 4.Submission of Matters to a Vote of Security Holders
        19Item 5.Other Information
        19Item 6.Exhibits and Reports on Form 8-K
        20Signatures
        20Certifications






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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, 2006.



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EAUTOCLAIMS, INC.



BALANCE SHEETS



January 31, 2007(unaudited)
        
        July 31, 2006ASSETSCurrent Assets:Cash and cash equivalents
        
        $
        695,119
        
        $
        1,524,239Accounts receivable, less allowance for doubtful accounts of $157,000 and $170,000 respectively
        
        
        581,229
        
        
        561,703Prepaid expenses and other current assets
        
        
        154,373
        
        
        70,630Total current assets
        
        
        1,430,721
        
        
        2,156,572Property and equipment, net of accumulated depreciation
        
        
        641,242
        
        
        672,192Goodwill
        
        
        1,093,843
        
        
        1,093,843Other assets
        
        
        35,800
        
        
        39,848Deferred income tax asset, net of valuation allowance $10,838,000 and $10,499,000 respectivelyTotal Assets
        
        $
        3,201,606
        
        $
        3,962,455LIABILITIES AND STOCKHOLDERS DEFICIENCYCurrent Liabilities:Accounts payable, advanced payments and accrued expenses
        
        $
        4,299,212
        
        $
        4,373,163Current portion of capital lease obligation
        
        
        71,112
        
        
        100,404Total current liabilities
        
        
        4,370,324
        
        
        4,473,567Capital lease obligation
        
        
        3,448
        
        
        22,237Total liabilities
        
        
        4,373,772
        
        
        4,495,804Stockholders Deficiency:Convertible preferred stock  $.001 par value; authorized 5,000,000 sharesNo shares outstandingCommon stock  $.001 par value; authorized 150,000,000 shares, issued 82,270,948 shares and 80,750,105 shares respectively
        
        
        82,271
        
        
        80,750Additional paid-in capital
        
        
        29,013,589
        
        
        28,789,176Accumulated deficit
        
        
        (30,227,276
        )
        
        (29,371,650
        )Treasury Stock, at cost, 198,335 and 137,500 shares respectively
        
        
        (40,750
        )
        
        (31,625
        )Stockholders Deficiency
        
        
        (1,172,166
        )
        
        (533,349
        )Total Liabilities and Stockholders Deficiency
        
        $
        3,201,606
        
        $
        3,962,455






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EAUTOCLAIMS, INC.



STATEMENTS OF OPERATIONS



Three-monthPeriod EndedJanuary 31, 2007
        
        Three-monthPeriod EndedJanuary 31, 2006
        
        Six-monthPeriod EndedJanuary 31, 2007
        
        Six-monthPeriod EndedJanuary 31, 2006(unaudited)
        
        (unaudited)
        
        (unaudited)
        
        (unaudited)Revenue:Collision repairs management
        
        $
        2,642,279
        
        $
        2,683,778
        
        $
        5,838,447
        
        $
        5,532,143Fleet repairs management
        
        
        207,210
        
        
        226,436
        
        
        427,779
        
        
        468,615Fees and other revenue
        
        
        565,450
        
        
        723,842
        
        
        1,168,084
        
        
        1,435,344Gain on sale of building
        
        
        
        
        
        756,943
        
        
        
        
        
        756,943Total revenue
        
        
        3,414,939
        
        
        4,390,999
        
        
        7,434,310
        
        
        8,193,045Expenses:Claims processing charges
        
        
        2,340,378
        
        
        2,458,586
        
        
        5,182,511
        
        
        5,145,935Selling, general and administrative
        
        
        1,502,575
        
        
        1,814,826
        
        
        2,880,518
        
        
        3,293,319Depreciation and amortization
        
        
        114,991
        
        
        113,867
        
        
        226,907
        
        
        236,151Total expenses
        
        
        3,957,944
        
        
        4,387,279
        
        
        8,289,936
        
        
        8,675,405Net income (loss)
        
        $
        (543,005
        )
        $
        3,720
        
        $
        (855,626
        )
        $
        (482,360
        )Adjustment to net loss to compute loss per common share:Preferred stock dividendsDividend to unit holders
        
        
        
        
        
        
        
        
        
        
        
        (475,829
        )Net loss applicable to common stock
        
        $
        (543,005
        )
        $
        3,720
        
        $
        (855,626
        )
        $
        (958,189
        )Loss per common share - basic andBasic
        
        $
        (0.01
        )
        $
        0.00
        
        $
        (0.01
        )
        $
        (0.01
        )Diluted
        
        $
        (0.01
        )
        $
        0.00
        
        $
        (0.01
        )
        $
        (0.01
        )Weighted-average number of common shares outstandingBasic
        
        
        81,983,348
        
        
        65,794,075
        
        
        81,758,666
        
        
        64,576,450Diluted
        
        
        81,983,348
        
        
        75,292,746
        
        
        81,758,666
        
        
        64,576,450






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EAUTOCLAIMS, INC.



STATEMENT OF STOCKHOLDERS DEFICIENCY



Six month period ended January 31, 2007(unaudited)
        
        
        
        
        
        AdditionalCommon Stock
        
        Paid-in
        
        Accumulated
        
        
        
        StockholdersShares
        
        Amount
        
        Capital
        
        Deficit
        
        Treasury Stock
        
        DeficiencyBalance at July 31, 2006
        
        80,750,105
        
        80,750
        
        28,789,176
        
        (29,371,650
        )
        (31,625
        )
        (533,349
        )Issuance of common stock upon exercise of options
        
        178,986
        
        179
        
        2,219
        
        
        
        
        
        2,398Purchase of Treasury Stock
        
        
        
        
        
        
        
        
        
        (9,125
        )
        (9,125
        )Issuance of common stock for services
        
        1,341,857
        
        1,342
        
        210,031
        
        
        
        
        
        211,373Vesting of options granted to employees
        
        
        
        
        
        12,163
        
        
        
        
        
        12,163Net Loss
        
        
        
        
        
        
        
        (855,626
        )
        
        
        (855,626
        )Balance at January 31, 2007
        
        82,270,948
        
        82,271
        
        29,013,589
        
        (30,227,276
        )
        (40,750
        )
        (1,172,166
        )






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EAUTOCLAIMS, INC.



STATEMENTS OF CASH FLOWS



Six-monthPeriod EndedJanuary 31, 2007
        
        Six-monthPeriod EndedJanuary 31, 2006(unaudited)
        
        (unaudited)Cash flows from operating activities:Net loss
        
        $
        (855,626
        )
        $
        (482,360
        )Adjustments to reconcile net loss to net cash used inoperating activities:Depreciation and amortization
        
        
        226,907
        
        
        236,151Gain on sale of building
        
        
        
        
        
        (756,943
        )Common stock issued for services
        
        
        211,373
        
        
        346,401Common stock issued for interest
        
        
        
        
        
        904Bad debts
        
        
        (13,000
        )
        
        (15,000
        )Stock based compensation expense
        
        
        12,163
        
        
        21,560Changes in operating assets and liabilitiesAccounts receivable
        
        
        (6,526
        )
        
        (25,131
        )Prepaid expenses and other current assets
        
        
        (79,695
        )
        
        (50,203
        )Accounts payable, advance payments and accrued expenses
        
        
        (73,951
        )
        
        92,964Net cash used in operating activities
        
        
        (578,355
        )
        
        (631,657
        )Cash flows from investing activity:Purchases of property and equipment
        
        
        (195,957
        )
        
        (141,687
        )Proceeds from sale of building
        
        
        
        
        
        819,634Proceeds from related parties
        
        
        
        
        
        6,231Net cash (used in) provided by investing activity
        
        
        (195,957
        )
        
        684,178Cash flows from financing activities:Proceeds from exercise of warrants
        
        
        
        
        
        219,429Proceeds from exercise of options
        
        
        2,398
        
        
        14,974Purchase of treasury stock
        
        
        (9,125
        )Principal payments on capital lease
        
        
        (48,081
        )
        
        (46,773
        )Net cash (used in) provided by financing activities
        
        
        (54,808
        )
        
        187,630Net (decrease) increase in cash and cash equivalents
        
        
        (829,120
        )
        
        240,151Cash and cash equivalents at beginning of period
        
        
        1,524,239
        
        
        306,280Cash and cash equivalents at end of period
        
        $
        695,119
        
        $
        546,431Supplemental disclosure of cash flow information:Cash paid during the period for interest
        
        $
        8,725
        
        $
        31,031Supplemental disclosure of noncash investing and financing activities:Conversion of debentures to common stock
        
        $
        
        
        
        275,000Equipment acquired by capital lease
        
        $
        
        
        
        19,567Shares and warrants issued to unit holders
        
        $
        
        
        
        475,829Fair value of warrants issued in conjunction with bridge loan
        
        $
        
        
        
        9,000






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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:



January 31, 2007Shares
        
        WeightedAvg Price
        
        RemainingLife
        
        AggregateIntrinsic ValueBalance at beginning of year
        
        3,274,254
        
        $
        0.32Granted
        
        112,500
        
        $
        0.15Cancelled or Expired
        
        (369,333
        )
        $
        0.57Exercised
        
        (239,821
        )
        $
        0.01Outstanding at end of period
        
        2,777,600
        
        $
        0.31
        
        2.34
        
        125,125




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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ITEM 2.
        MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS




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 are the primary obligor in the arrangements. We are responsible for the quality of the repair and must satisfy the customer if the body shop fails to repair the vehicle properly.



        We have latitude in establishing price. The price is established based on our audit of the repair estimate submitted by the repair facility. The repair facility cannot begin the repair until an agreed upon price for the repair is established between the facility and us.



        We control what is repaired with our contracted shops, as we audit the estimate submitted by the repair facility. We must agree that the repair is reasonable and necessary before the repair facility is allowed to proceed with the work being requested.



        We have discretion in supplier selection. Through the use of software, we prioritize which repair facility is used based on the efficiency and effectiveness of the repair facility.



        We have credit risk. We are responsible to pay the repair facility even if the customer does not pay for the repair.




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:




        Significant negative industry trends



        Significant underutilization of the assets



        Significant changes in how we use the assets of our plans for their use.




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:




        We have executed a three (3) year contract with Firemens Fund Insurance Company (FFIC). FFIC is working in good faith to use our core services of our outsourced Guaranteed Repair Network (GRN) and a full suite of ASP tools. While there is no guarantee, and we must meet certain conditions set forth by FFIC, we expect this account will roll out before the end of the fourth quarter of fiscal year 2007.





        While we have focused much of our efforts over the past two years on the building of clients through the Audatex Co-Marketing Agreement for our Collision Management product, we continue to market our services to the insurance industry through our direct sales channel. We continue to make sales progress in this area. One specific new client is a meaningful size carrier who entered into an annual contract on an ASP basis and has now agreed to use our GRN network of shops. While this rollout is in its early stages and there are no guarantees the client will expand the program, the early results have been very positive. The potential sales volume and the full revenues of our direct sales channel model would make this accounts contribution to profit the most material of all current clients under contract, including our clients from the Audatex Co-Marketing
Agreement.





        Expansion of Sales Staff  We have recently expanded our direct sales staff and plan to further increase our sales force in the market place. We did this through the sales rep channel on an hourly rate rather than build in another layer of fixed expense. With the recent success of adding new larger clients and the improvement of our balance sheet; we believe we will have greater success in the direct sales channel.





        Expansion of CNA Insurance Companys business in the second quarter of fiscal year 2007. This Co-Marketing Account with Audatex was rolled out during the past fiscal year. The account recently agreed to expand its business with us by adjusting the method by which our outsourced services are offered. This change is expected to allow the account to mature to its full potential with our expanded service.





        We are exploring possible new or additional strategic partners in the industry who have a large client base and represent additional new sales with a short sales cycle & acquisition cost.





        Rolling out Higher Margin Product Lines  We continue to make progress in building our operating margins by focusing on higher margin products. While future reports on margin will be influenced by the revenue recognition related to the Audatex Co-Marketing Agreement or with other possible partners, the greatest impact to the margin is expected to be from the sales of higher margin products. We are 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 our Audit Pro product, a programmatic electronic estimate auditing tool. Many of these technologies have already been implemented in our operating processes and have shown themselves to be of significant value. By modifying the interface to these technologies,
we 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. We believe this additional product line will result in a greater growth in high volume, high margin revenues that will have a meaningful impact to our bottom-line. While there are no guarantees that these transactions or new business will mature, we believe this will be a growth market for us in the future.




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
        Expansion of Product Offering  We are exploring new product lines to offer to existing and new clients that are congruent to our business model. We are exploring partnering options to reduce market entrance expenses to ensure a quicker return on investment. This gives us the opportunity to expand our relationship with existing clients by integrating new products into the current mix, thereby expanding and adding revenue streams, while at the same time allowing us the opportunity of increasing the value of our customer relationship.





        Reduction in Direct Processing Expense  We have recently begun an initiative into automating additional parts of our processing business. We expect the end result will be a net reduction in direct expense.




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:



Years ending January 31,2008
        
        2009
        
        2010
        
        2011
        
        2012
        
        Thereafter
        
        TotalProperty lease
        
        269,000
        
        278,000
        
        286,000
        
        295,000
        
        303,000
        
        258,000
        
        1,689,000Equipment lease
        
        71,000
        
        3,000
        
        
        
        
        
        
        
        
        
        74,000Employee compensation
        
        332,000
        
        43,000
        
        
        
        
        
        
        
        
        
        375,000672,000
        
        324,000
        
        286,000
        
        295,000
        
        303,000
        
        258,000
        
        2,138,000






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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.





ITEM 3.
        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 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





ITEM 1.
        LEGAL PROCEEDINGS




None





ITEM 2.
        REGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS.




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.



Issuer Purchases of Equity SecuritiesPeriod
        
        (a) Total Numberof Shares (or Units)Purchased
        
        (b) Average PricePaid per Share(or Unit)
        
        (c) Total Number ofShares or Units Purchasedas Part of Publicly AnnouncedPlans or Programs
        
        (d) Maximum Number (orapproximate Dollar Value)of Shares (or units) that MayYet be Purchased Under thePlans or ProgramsNovember 1- 31, 2006
        
        22,483
        
        0.15
        
        
        
        December 1 - 31, 2006
        
        
        
        
        
        
        
        January 1 - 31, 2007
        
        
        
        
        
        
        
        Total
        
        22,483
        
        0.15
        
        
        
        


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



ITEM 3.
        DEFAULTS UPON SENIOR SECURITIES




None.





ITEM 4.
        SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS




None





ITEM 5.
        OTHER INFORMATION




None



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ITEM 6.
        EXHIBITS AND REPORTS ON FORM 8-K




(a)
        ExhibitsExhibit No.
        Description31.1
        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-KItem 5.02
        New CEO and Chairman of the Board, dated January 15, 2007






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:
        March 16, 2007
        
        By:
        /s/ Jeffrey DicksonJeffrey Dickson, President andChief Executive OfficerDate:
        March 16, 2007
        
        By:
        /s/ Larry ColtonLarry Colton, Chief Financial Officer andPrincipal Accounting Officer






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