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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549



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FORM 10-Q

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



For the period ended October 31, 2008



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



Commission File Number 0-23903



EAUTOCLAIMS, INC.

(Exact name of registrant as specified in charter)



Nevada

        95-4583945(State or other 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



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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 December 31, 2008:  114,479,334 shares



Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of large accelerated filer, accelerated filer and smaller reporting company in Rule 12b-2 of the Exchange Act. (Check one):



Large accelerated filero

        Accelerated filero

        Non-accelerated filero(Do not check if a smaller reporting company)

        Smaller reporting companyx








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EAUTOCLAIMS, INC.



INDEX TO FORM 10-Q

__________________________________________________



PART I



FINANCIAL INFORMATION



Item 1. Financial Statements

        2Balance Sheets

        3Statements of Operations

        4Statement of Stockholders Equity (Deficiency)

        5Statements of Cash Flows

        6Notes to Financial Statements

        7Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations

        13Item 3. Quantitative and Qualitative Disclosures About Market Risk

        19Item 4T.Controls and Procedures

        20PART IIOTHER INFORMATIONItem 1. Legal Proceedings

        21Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

        21Item 3. Defaults Upon Senior Securities

        21Item 4. Submission of Matters to a Vote of Security Holders

        21Item 5. Other Information

        21Item 6. Exhibits

        22Signatures

        22Certifications






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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 accounting principles generally accepted in the United States of America 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-KSB for the year ended July 31, 2008.





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eAUTOCLAIMS, INC.BALANCE SHEETS




October 31, 2008(unaudited)ASSETSCurrent Assets:Cash and cash equivalents

        

        $

        126,838Accounts receivable, less allowance for doubtful accounts of $48,000

        

        

        73,012Prepaid expenses and other current assets

        

        

        118,580Total current assets

        

        

        318,430Property and equipment, net of accumulated depreciation

        

        

        609,003Restricted cash

        

        

        420,000Goodwill

        

        

        1,081,843Other assets

        

        

        30,800Deferred income tax asset, net of valuation allowance of $11,919,000Total Assets

        

        $

        2,460,076LIABILITIES AND STOCKHOLDERS DEFICIENCYCurrent Liabilities:Accounts payable, advanced payments and accrued expenses

        

        $

        2,267,255Notes payable, net of unamortized discount

        

        

        522,864Current portion of capital lease obligation

        

        

        101,028Current portion of deferred gain on building sale

        

        

        108,135Total current liabilities

        

        

        2,999,282Deferred gain on building sale, net of current portion

        

        

        342,434Capital lease obligation

        

        

        72,996Total liabilities

        

        

        3,414,712Stockholders Deficiency:Convertible preferred stock - $.001 par value; authorized 5,000,000 sharesNo shares outstandingCommon stock - $.001 par value; authorized 150,000,000 shares,
issued and outstanding 114,479,334 shares

        

        

        114,479Additional paid-in capital

        

        

        31,488,689Accumulated deficit

        

        

        (32,510,622

        )Treasury Stock, at cost, 238,536 shares

        

        

        (47,182

        )Stockholders Deficiency

        

        

        (954,636

        )Total Liabilities and Stockholders Deficiency

        

        $

        2,460,076






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eAUTOCLAIMS, INC.STATEMENTS OF OPERATIONS




Three-monthPeriod EndedOctober 31, 2008

        

        Three-monthPeriod EndedOctober 31, 2007(unaudited)

        

        (unaudited)Revenue:Collision repairs management

        

        $

        477,927

        

        $

        1,030,430Fleet repairs management

        

        

        180,436

        

        

        200,222Fees and other revenue

        

        

        450,980

        

        

        352,069Total revenue

        

        

        1,109,343

        

        

        1,582,721Expenses:Claims processing charges

        

        

        570,549

        

        

        965,151Selling, general and administrative

        

        

        795,142

        

        

        1,161,256Depreciation and amortization

        

        

        102,099

        

        

        107,613Total expenses

        

        

        1,467,790

        

        

        2,234,020Net loss

        

        $

        (358,447

        )

        $

        (651,299

        )Loss per common share-basic and diluted

        

        $

        (0.00

        )

        $

        (0.01

        )Weighted-average number of common shares outstandingBasic and diluted

        

        

        114,479,334

        

        

        93,796,609






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eAUTOCLAIMS, INC.STATEMENT OF STOCKHOLDERS DEFICIENCY




Three-month period ended October 31, 2008

        

        

        

        


        

        Additional(unaudited)

        

        Common Stock

        

        Paid-in

        

        Accumulated

        

        

        

        StockholdersShares

        

        Amount

        

        Capital

        

        Deficit

        

        Treasury Stock

        

        Equity (Deficiency)Balance at July 31, 2008

        

        114,479,334

        

        $

        114,479

        

        $

        31,488,689

        

        $

        (32,152,175

        )

        $

        (47,182

        )

        $

        (596,189

        )Net loss

        

        

        

        

        

        

        

        

        

        

        (358,447

        )

        

        

        

        

        (358,447

        )Balance at October 31, 2008

        

        114,479,334

        

        

        114,479

        

        

        31,488,689

        

        

        (32,510,622

        )

        

        (47,182

        )

        

        (954,636

        )






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eAUTOCLAIMS, INC.STATEMENTS OF CASH FLOWS




Three-monthPeriod EndedOctober 31, 2008

        

        Three-monthPeriod EndedOctober 31, 2007(unaudited)

        

        (unaudited)Cash flows from operating activities:Net loss

        

        $

        (358,447

        )

        $

        (651,299

        )Adjustments to reconcile net loss to net cash used in operating activities:Depreciation and amortization

        

        

        102,099

        

        

        107,613Non-cash compensation expense

        

        

        

        

        

        33,000Recognition of deferred gain on building sale

        

        

        (27,033

        )

        

        (27,033

        )Bad debts

        

        

        

        

        

        (3,000

        )Amortization of debt discount

        

        

        

        

        

        2,031Vesting of options granted to employees

        

        

        

        

        

        25,232Changes in operating assets and liabilitiesAccounts receivable

        

        

        69,632

        

        

        46,523Prepaid expenses and other assets

        

        

        (29,583

        )

        

        (158,941

        )Accounts payable, advance payments and accrued expenses

        

        

        97,646

        

        

        319,430Net cash used in operating activities

        

        

        (145,686

        )

        

        (306,444

        )Cash flows from investing activities:Purchases of property and equipment

        

        

        (38,179

        )

        

        (72,272

        )Net cash used in investing activities

        

        

        (38,179

        )

        

        (72,272

        )Cash flows from financing activities:Proceeds from exercise of options

        

        

        

        

        

        3,604Proceeds from note payable

        

        

        75,000Principal payments on capital lease

        

        

        (24,350

        )

        

        (56,382

        )Net cash provided by (used) in financing activities

        

        

        50,650

        

        

        (52,778

        )Net decrease in cash and cash equivalents

        

        

        (133,215

        )

        

        (431,494

        )Cash and cash equivalents at beginning of period

        

        

        260,053

        

        

        795,047Cash and cash equivalents at end of period

        

        $

        126,838

        

        $

        363,553Supplemental disclosure of cash flow information:Cash paid during the period for interest

        

        $

        19,611

        

        $

        26,244






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EAUTOCLAIMS, INC.



NOTES TO FINANCIAL STATEMENTS

____________________________________________________________



Note 1Basis of Presentation



The accompanying unaudited financial statements contain all adjustments (consisting only of those of a normal recurring nature) necessary to present fairly the financial position of eAutoclaims, Inc. as of October 31, 2008 and its results of operations and cash flows for the three-month periods ended October 31, 2008 and 2007. Results of operations for the three-month period ended October 31, 2008 are not necessarily indicative of the results that may be expected for the year ending July 31, 2009.



Going Concern



As shown in the financial statements, the Company has suffered recurring losses from operations totaling $358,447 for the three months ended October 31, 2008, and has a stockholders deficiency of $954,636 and a working capital deficiency of $2,680,852 at October 31, 2008. These conditions raise substantial doubt about the Companys ability to continue as a going concern.



The accompanying financial statements have been prepared on a going concern basis which contemplates the realization of assets and the satisfaction of liabilities in the normal course of business. The financial statements do not include any adjustments relating to the recoverability of assets and the satisfaction of liabilities that might be necessary should the Company be unable to continue as a going concern.



The Companys plan and ability to continue as a going concern is primarily dependent upon the ability to grow revenue through existing and new lines of business and attract additional capital through debt or equity financing. There can be no assurance that the Company will be able to grow revenues or secure sufficient additional financing to meet future obligations.



Note 2  Summary of Significant Accounting Policies



Revenue Recognition



The Company derives revenue primarily from collision repairs, glass repairs and fleet repairs. Revenue is recognized when an agreement between the Company and its customer exists, the repair services have been completed, the Companys revenue is fixed and determinable and collection is reasonably assured.



The Company records revenue gross for collision and fleet repairs and for certain glass repairs. This occurs when the Company is the primary obligor in its arrangements, the Company has latitude in establishing price, the Company controls what services are provided and where the services will take place, the Company has discretion in supplier selection, the Company is involved in the determination of product or service specifications and the Company has credit risk.



The Company records revenue net of repair costs for certain glass repairs. Revenue is recorded 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.



The Company records revenue generated from a co-marketing agreement net of the repair costs because in the agreement the Company is performing a fee for service. The party to the agreement sells and markets the Companys services to the insurance companies, who are its customers and it collects the revenue and pays the repair shop.



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The Company derives revenue from the sale of estimating software to shops within the Companys repair shop network. Since the Company only resells and does not service the estimating software, the revenue and cost of revenue from the transaction is recognized on the date of shipment.



Cash and Cash Equivalents



Cash and cash equivalents represent cash and short-term, highly liquid investments with original maturities of three months or less.The Company places its temporary cash investments with high credit quality financial institutions. At times such investments may be in excess of the Federal Deposit Insurance Corporation (FDIC) insurance limit.



Accounts Receivable



Accounts receivable are reported at their outstanding unpaid principal balances reduced by an allowance for doubtful accounts. The Company estimates doubtful accounts based on historical bad debts, factors related to specific customers ability to pay and current economic trends. The Company writes off accounts receivable against the allowance when a balance is determined to be uncollectible. The Company believes that the concentration of credit risk in its trade receivables, with respect to its limited customer base, is substantially mitigated by its credit evaluation process. The Company does not require collateral.



Fair Value



The carrying value of accounts receivable, accounts payable and accrued expenses are reasonable estimates of their fair value because of short-term maturity. The fair value of the notes payable are approximately equal to  their principal amount.



Warranty



The Company provides a warranty on the repairs performed at its network shops and an accrual of $10,000 has been established as of October 31, 2008 for estimated future warranty costs. This accrual amount is reviewed periodically and adjusted as necessary based on factors including historical warranty expense and current economic trends.



Advertising Expense



The Company expenses costs for advertising as they are incurred. In the three-months ended October 31, 2008, the Company had no expenses for advertising. For the three-months ended October 31, 2007, $863 was expensed for advertising.



Property and Equipment



Property and equipment are stated at cost. Additions and improvements to property and equipment are capitalized. Maintenance and repairs are expensed as incurred. When property is retired or otherwise disposed of, the cost and related accumulated depreciation are removed from the accounts and any resulting gain or loss is recognized in operations. Depreciation is computed on the straight-line method over the estimated useful lives of the assets or the lease term.



The costs of software developed for internal use, including web site development costs, incurred during the preliminary project stage are expensed as incurred. Direct costs incurred during the application development stage are capitalized. Costs incurred during the post implementation/operation stage are expensed as incurred. Capitalized software development costs are amortized on a straight-line basis over their estimated useful lives.



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Impairment



The Company identifies and records impairment on long-lived assets, including goodwill, when events and circumstances indicate that such assets have been impaired. The Company periodically evaluates the recoverability of its long-lived assets based on expected undiscounted cash flows, and recognizes impairment, if any, based on expected discounted cash flows. At October 31, 2008 no such impairment existed.



Income Taxes



Deferred income tax assets and liabilities are recognized for the estimated future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective income tax bases. Deferred income tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. A valuation allowance is established when necessary to reduce deferred tax assets to the amount expected to be realized.



In July 2006, the Financial Accounting Standards Board (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 Company adopted the provisions of FIN 48 effective August 1, 2007. The adoption of FIN 48 did not have a material effect on the Companys financial condition or results of operations.



The Company recognizes interest and penalties, if any, related to uncertain tax positions in selling, general and administrative expenses. No interest and penalties related to uncertain tax positions were accrued at October 31, 2008.



Use of Estimates in Financial Statements



The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of thefinancial statements and the reported amounts of revenue and expenses during the reporting period. Actual results could differ from those estimates.



Recent Accounting Pronouncements



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 adopted SFAS No. 157 effective August 1, 2008. The adoption of SFAS No. 157 did not have any effect on the Companys financial statements.



In February 2007, the FASB issued Statement of Financial Accounting Standards No. 159, The Fair Value Option for Financial Assets and Financial Liabilities, or SFAS No. 159. SFAS No. 159 permits entities to choose to measure many financial instruments and certain other items at fair value. The Company adopted SFAS No. 159 effective August 1, 2008. The adoption of SFAS No. 159 did not have any effect on the Companys financial statements.



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In December 2007, the FASB issued Statement of Financial Accounting Standards No. 141(R), Business Combinations, or SFAS No. 141(R). This statement establishes principles and requirements for how the acquirer of a business recognizes and measures in its financial statements the identifiable assets acquired, the liabilities assumed, and any non-controlling interest in the acquiree. SFAS No. 141(R) also provides guidance for recognizing and measuring the goodwill acquired in the business combination and determines what information to disclose to enable users of the financial statements to evaluate the nature and financial effects of the business combination. The provisions of SFAS No. 141(R) applies prospectively to business combinations for which the acquisition date is on or after the beginning of the first annual reporting period beginning on or after December 15, 2008. The Company will adopt
this statement, as applicable, in its fiscal year beginning August 1, 2009.



In December 2007, the FASB issued Statement of Financial Accounting Standards No. 160, Non-controlling Interests in Consolidated Financial Statements-An Amendment to Accounting Research Bulletin (ARB) No. 51, or SFAS No. 160. This statement amends ARB No. 51, Consolidated Financial Statements, to establish accounting and reporting standards for the non-controlling interest in a subsidiary and for the deconsolidation of a subsidiary. This statement also amends certain of ARB No. 51s consolidation procedures for consistency with the requirements of SFAS No. 141(R). In addition, SFAS No. 160 also includes expanded disclosure requirements regarding interests of the parent and its non-controlling interest. The provisions of SFAS No. 160 are effective for financial statements issued for fiscal years beginning after December 15, 2008. The Company will adopt this statement, as
applicable, in its fiscal year beginning August 1, 2009.



In March 2008, the FASB issued Statement of Financial Accounting Standards No. 161, Disclosures about Derivative Instruments and Hedging Activities, an amendment of FASB Statement No. 133, or SFAS 161. This statement is intended to improve transparency in financial reporting by requiring enhanced disclosures of an entitys derivative instruments and hedging activities and their effects on the entitys financial position, financials performance, and cash flows. SFAS 161 applies to all derivative instruments within the scope of SFAS 133, Accounting for Derivative Instruments and Hedging Activities as well as related hedging items, bifurcated derivatives, and non derivative instruments that are designated and qualify as hedging instruments. Entities with instruments subject to SFAS 161 must provide more robust qualitative disclosures and expanded quantitative disclosures. SFAS
161 is effective prospectively for financial statements issued for fiscal years and interim periods beginning after November 15, 2008, with early application permitted. The Company is currently evaluating the effects, if any, that SFAS 161 will have on its financial statements.



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 Statement of Financial Accounting Standards No. 123R, Share Based Payment (SFAS No. 123R) utilizing the modified prospective method. Under the modified prospective method, the measurement 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. During the three-months ended October 31, 2008 the Company had no compensation cost charged to operations pursuant to SFAS No. 123R for employee stock options as compared to $25,232 for the three-months ended October 31, 2007.



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The fair value for options is estimated at the date of grant using a Black-Scholes option-pricing model. The Company did not issue any options for the three-months ended October 31, 2008. Assumptions for the options issued for the three-months ended October 31, 2007 were as follows. The risk-free interest rate was derived from the U.S. Treasury yield curve in effect at the time of the grant and was assumed to be 3.89%. The volatility factor was determined based on an independent study and the assumed market volatility was 45%. The assumed dividend yield was 0% and an expected option life was assumed to be four years. The assumption for the expected life is based on evaluations of historical and expected future exercise behavior.



The Black-Scholes option-pricing model was developed for use in estimating the fair value of traded options that have no vesting restrictions and are fully transferable. In addition, option-pricing models require the input of highly subjective assumptions including the expected stock price volatility. Because the Companys employee stock options have characteristics significantly different from those of traded options and because changes in the subjective input assumptions can materially affect the fair value estimate, in managements opinion the existing models do not necessarily provide a reliable single measure of the fair value of its employee stock options.



In accordance with Emerging Issues Task Force Issue No. 96-18, Accounting for Equity Instruments That Are Issued to Other Than Employees for Acquiring, or In Conjunction with Selling, Goods or Services, the Company measures the fair value of the equity instruments issued to non-employees using the stock price and other measurement assumptions as of the earlier of the date at which a commitment for performance by the counterparty to earn the equity instruments is reached, or the date at which the counterpartys performance is complete.



Note 3  Restricted Cash



At October 31, 2008, the Company had $420,000 in a certificate of deposit as collateral for a Letter of Credit issued to satisfy a contractual requirement with a client. According to the terms of the agreement, the client has the right to draw on the Letter of Credit if the client elects to terminate the contract, which has approximately 15 months remaining on the original three-year term, in the event the Company fails to meet certain service levels and performance requirements. Failure to meet these performance requirements does not automatically invoke the contract termination. The Company also has the ability to reduce further or terminate the Letter of Credit when certain financial benchmarks are attained.



Note 4  Notes Payable



At October 31, 2008 the Company had a total of $522,864 in the form of unsecured notes payable to multiple investors and for amounts drawn on a line of credit the Company has with its bank. Of this total, $250,000 is due to investors on notes that expire in February and March, 2009 and $200,000 is due on a note that expires in September, 2009. These notes require payment of monthly interest of 12% and full repayment of the principal on the maturity dates of the notes. In addition to the interest, the terms of the agreements require that, in the event of default of the principal repayment, each investor would be issued shares of the Companys common stock in an amount equal to 450,000 shares for each $50,000 invested and additional warrants equal to 30% of the amount invested. Under these terms, if a default occurred, the Company would be required to issue a total of 4,050,000 shares and 135,000 additional
new three-year warrants with an exercise price equal to eighty percent (80%) of the average closing price per share of the Companys common stock for a period of ten (10) consecutive business days ending immediately prior to the date which causes a default.



In accordance with Accounting Principles Board Opinion No. 14, Accounting for Convertible Debt and Debt Issued with Stock Purchase Warrants (APB 14), proceeds received from the sale of debt with detachable stock purchase warrants should be allocated to both debt and warrants based on their relative fair value, with the portion allocable to the warrants to be accounted for as Additional Paid in Capital and reduce the carrying value of debt. In order to determine the fair value of the warrants, the Company employed several valuation models to arrive at a value of $5,156 for the warrants. This amount was amortized to interest expense over the initial twelve-month term of the notes. At October 31, 2008, the discount on the notes had been amortized in full.



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During the three-months ended October 31, 2008, the Company borrowed $75,000 from its bank under an established line of credit, which represents the total amount available. Under the terms of the agreement, the Company pays interest at a rate of prime plus 7% on the unpaid balance. At October 31, 2008, the Company had borrowings of $72,864 against the credit line.



Note 5  Segment Information



The Company currently operates only within the United States. Substantially, all of the Companys revenue
 generating operations have similar economic characteristics, including the nature of the products and services sold; the type and class of clients for products and services; the methods
used to deliver products and services and regulatory environments.



Note 6  Stock Based Compensation



A summary of the status of the Companys options for the three-months ended October 31, 2008 is as follows:





Shares

        

        Weighted Average exercise Price

        

        RemainingLifeBalance at beginning of period

        

        1,299,774

        

        $

        0.36Granted

        

        0

        

        $

        0.00Cancelled or Expired

        

        (75,000

        )

        $

        0.34Exercised

        

        0

        

        $

        0.00Outstanding at end of period

        

        1,224,774

        

        $

        0.36

        

        2.54




At October 31, 2008, intrinsic value of outstanding options was $2,033.



In accordance with Emerging Issues Task Force No. 96-18, Accounting for Equity Instruments That Are Issued to Other Than Employees for Acquiring, or In Conjunction with Selling, Goods or Services, the Company measures the fair value of the equity instruments issued to non-employees using the stock price and other measurement assumptions as of the earlier of the date at which a commitment for performance by the counterparty to earn the equity instruments is reached, or the date at which the counterpartys performance is complete.



Note 7Per share calculations



Basic loss per share is computed as 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. For the three-month periods ended October 31, 2008 and 2007, during which the Company reported a loss, 21,630,886 and 16,401,095, respectively, ofoptions and warrants were excluded from the diluted loss per share computation, as their effect would be anti-dilutive. Additionally, as of October 31, 2008 and 2007, there were no convertible securities outstanding.



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|ITEM  2. | MANAGEMENTS
DISCUSSION AND ANALYSIS OR PLAN OF OPERATIONS
|-------- | ----------------------------------------------------------



The statements contained in this Report on Form 10-Q, that are not purely historical,
 are forward-looking information and statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934.
 These include statements regarding our expectations, intentions, or strategies regarding future matters. All forward-looking statements included in this document are based
 on information available to us on the date hereof. It is important to note that our actual results could differ materially from those projected in such forward-looking statements contained in this Form 10-Q. The
forward-looking statements contained herein are based on current expectations that involve numerous risks and uncertainties. Assumptions relating to the foregoing involve judgments regarding, among other things, our
ability to secure financing or investment for capital expenditures,
future economic and competitive market conditions, and future business decisions. All these matters are difficult or impossible to predict accurately and many of which may be beyond our control. Although we believe
that the assumptions underlying our forward-looking statements are reasonable, any of the assumptions could be inaccurate and, therefore, there can be no assurance that the forward-looking statements included in this
 Form 10-Q will prove to be accurate.



General



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 a 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.



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.



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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 from repair facilities that are members of our provider network. The revenues generated from the vehicle repair facilities through our provider network accounted for approximately 59% of the revenue for the three-months ended October 31, 2008. 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. For the three-months ended October 31, 2008, approximately 41% of the revenue has been received from claims processing fees and other revenue. Other revenue consists mostly of the sale of estimating software, license fees, fees from taking first notice of loss reports, fees from service partners (ASP fees) and subrogation income.



We are currently focused on transitioning the company to more of a technology provider and less of an outsourcing business model. The majority of our resources will evolve to marketing products and web services 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, eAuto Remarketing and several custom applications for automotive collision and auto glass industry repair providers.



Our AuditPro product is a rules-based estimate auditing application which contributes to 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.



We are in the process of adding technology solutions for the financial services industry relevant to repossessed collateral disposal and lease turn-ins. The product, known as eAuto Total Repossession and Remarketing, is a complete solution for automobile loan originators that provides a live portal for these customers to take non-performing loans that go into default from the initial repossession of the asset all the way to the final remarketing. We anticipate the introduction of the product to the marketplace in the first calendar quarter of 2009.



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.



Revenue recognition



The Company derives revenue primarily from collision repairs, glass repairs and fleet repairs. Revenue is recognized when an agreement between the Company and its customer exists, the repair services have been completed, the Companys revenue is fixed and determinable and collection is reasonably assured.



The Company records revenue gross for collision and fleet repairs and for certain glass repairs. This occurs when the Company is the primary obligor in its arrangements, the Company has latitude in establishing price, the Company controls what services are provided and where the services will take place, the Company has discretion in supplier selection, the Company is involved in the determination of product or service specifications and the Company has credit risk.



The Company records revenue net of repair costs for certain glass repairs. Revenue is recorded 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.



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The Company records revenue generated from a co-marketing agreement net of the repair costs because in the agreement the Company is performing a fee for service. The party to the agreement sells and markets the Companys services to the insurance companies, who are its customers and it collects the revenue and pays the repair shop.



The Company derives revenue from the sale of estimating software to shops within the Companys repair shop network. Since the Company only resells and does not service the estimating software, the revenue and cost of revenue from the transaction is recognized on the date of shipment.



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 October 31, 2008 the allowance for doubtful accounts was approximately $48,000.



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 $11,919,000 as of
October 31, 2008. 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 or our plans for their use.




Managements Operating Plan



We continue to pursue our growth strategy, the main points of which are outlined below, and have achieved success in fiscal 2008 in certain specific areas. We have also completed the stand alone version of our Audit Pro estimating tool and anticipate deploying this product to several new clients. We continue to explore additional opportunities and strategic alliances with other partners, both in the insurance industry and in compatible industries, including financial institution markets. We believe that these markets will provide significant opportunities for revenue growth beginning in fiscal 2009.



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Specifically, the main points of our growth strategy are as follows:





        Grow direct sales channel.






        Grow the number of Tier One insurance providers for stand alone AuditPro.






        Open the financial institution markets using eAuto Total Repossession and Remarketing.






        Expand our offerings of newly enhanced applications and tools to our existing client base on an ASP transactional or monthly license fee basis.






        Explore possible new or additional strategic partners in the industry, or in compatible industries, who have a large client base and represent additional new sales with a short sales cycle and acquisition cost.






        Convert our core application to a more scalable program language with a universal interface.






        Roll out higher margin product lines. Management continues to make progress in building our operating margins by focusing on higher margin products and 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 Audit Pro, a programmatic electronic estimate auditing tool. We
released a stand alone version of Audit Pro in the third quarter of fiscal 2008 which functions as a rules based application that can be bolted onto any existing policy management software or integrated with newly developed claims modules. 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, automobile auction companies, whole car remarketing companies and any other institutional facility that requires a scrubbed damage estimate.






        Develop and deploy specialized niche programs that will require us to manage loss reserves on fleet generated risks.






        Expand market driven offerings. We are exploring new and innovative ways to offer our shop network to the general public.






        Reduce direct processing expense. We continue to review all aspects of our business processes and make changes where applicable, either through automation or consolidation of duties, which will achieve the desired result of reducing direct expense or increasing efficiencies.




Results of Operations



For the three-months ended October 31, 2008 compared to the three-months ended October 31, 2007.



Revenue



Total revenue for the three-months ended October 31, 2008 was approximately $1.1 million compared to the approximately $1.6 million in revenue reported for the three-months ended October 31, 2007. During the three-months ended October 31, 2008 we derived 64% of our revenue from four customers combined. The decrease in total revenue in the first quarter of fiscal 2009, as compared to the first quarter of fiscal 2008, was due primarily to the reduction in revenue experienced as a result of the wind down of clients associated with our co-marketing agreement, the loss of certain smaller clients and reductions due to fewer claims being processed by current clients.



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For the three-months ended October 31, 2008, collision repair management revenue, including glass repair revenue, was approximately $.5 million compared to $1 million for the three-months ended October 31, 2007. This decrease in revenue is the result of circumstances previously described above.



Fleet repair revenue decreased by approximately $20,000 from approximately $200,000 for the three months ended October 31, 2007 to approximately $180,000 for the three months ended October 31, 2008. The decrease in fiscal 2009 is due to fewer claims being processed through normal business fluctuations from our existing fleet customers.



For the three months ended October 31, 2008, fees and other revenue increased approximately $98,000 as compared to the three months ended October 31, 2007. The net increase is primarily the result of license fees received from a client which were not received during the same period in fiscal 2008 offsetting the lower transaction fee revenue received in fiscal 2009 as a result of the loss of fee revenue associated with the claims processed as collision management revenue and described above.



Claims Processing Charges



Claims processing charges include the costs of collision, fleet and glass repairs paid to repair shops within our repair shop network. Claims processing charges for the three-months ended October 31, 2008, were approximately $570,000. This compares to approximately $965,000 for the three-months ended October 31, 2007. Claims processing charges are primarily the costs of collision repairs paid by us to our collision repair shop network and the increase or decrease of these costs is a function of the increase or decrease of the repair and fleet revenues earned during the period.



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-months ended October 31, 2008 were approximately $800,000. This represents a decrease of approximately 32% from the approximately $1.2 million for the three-months ended October 31, 2007. Payroll and benefit related expenses for the three-months ended October 31, 2008 totaled approximately $500,000 compared to approximately $700,000 for the three-months ended October 31, 2007. The decrease in payroll expense is primarily the result of the implementation of staff reductions relating to the reduction in revenues described above. Additional expense reductions were realized in: travel ($21,000), significant reductions in professional fees ($77,000), reductions of board compensation ($52,000) and the
remainder ($50,000) a result of reductions of miscellaneous expenses.



SG&A expenses also include non-cash charges. For the three-months ended October 31, 2008 these non-cash charges netted to approximately $75,000 which includes $102,000 for depreciation expense and a reduction to non-cash expense of approximately $27,000 as a result of recognizing the gain on our fiscal year 2006 building sale-leaseback transaction. For the three-months ended October 31, 2007 these non-cash charges netted to approximately $138,000. These non-cash charges included approximately $108,000 for depreciation expense, $33,000 of common stock issued to pay fees to directors for services rendered during the period, approximately $25,000 expensed as result of implementing SFAS 123R, which requires expensing of stock options as they become vested and approximately $2,000 amortized for the discount on the notes payable. In addition, reductions to non-cash expense of approximately $27,000 was realized
for the three months ended October 31, 2007 as a result of recognizing the gain on our fiscal year 2006 building sale-leaseback transaction and approximately $3,000 for the change in the allowance for doubtful accounts.



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Also included in the SG&A is interest expense related primarily to capital leases and notes payable. For the three-months ended October 31, 2008, this interest expense totaled approximately $20,000 of which approximately $18,000 was for capital leases and notes payable. This compares to interest expense of approximately $26,000 for the three-months ended October 31, 2007 of which $17,000 was for notes payable.



Net Income/Loss



For the three-months ended October 31, 2008 net loss totaled approximately $358,000. This amount includes approximately $27,000 of the gain recognized on our fiscal year 2006 building sale-leaseback transaction and approximately $102,000 of non-cash charges representing depreciation. For the three months ended October 31, 2007 net loss totaled approximately $651,000. This amount includes approximately $27,000 of the gain recognized on our fiscal year 2006 building sale-leaseback transaction and approximately $165,000 on non-cash charges, including depreciation.



Liquidity and Capital Resources



At October 31, 2008, we had approximately $126,000 in cash and cash equivalents. This is a decrease of approximately $133,000 from July 31, 2008. We have a working capital deficiency of approximately $2.7 million as of October 31, 2008 compared to a deficiency of approximately $2.3 million as of October 31, 2007. Other than working capital generated from operations, our primary source of working capital during the three-months ended October 31, 2008 was from borrowings against the line of credit we had established with our bank. During the period ended October 31, 2008 we borrowed a total of $75,000 against this line of credit, which represented the total amount available to us. At October 31, 2008 we had a balance due on the credit line of $72,864.



We have invested considerable time and resources in the development of our application for the financial services business sector and we expect to receive cash from operations as we deploy this product throughout the remainder of calendar 2009. If revenues grow they will provide working capital, but because revenue growth is not guaranteed, we continue to analyze options for additional financing, including the exercise of outstanding warrants, issuance of additional debt, issuance of additional equity securities and the potential sale or licensing of our Business Process Outsourcing business. We cannot assure you that we will be able to raise such funds or that such funds will be available to us on favorable terms. If we raise additional funds through the issuance of our securities, such securities may have rights, preferences or privileges senior to those of the rights of our common stock and our stockholders
may experience additional dilution. If we are unable to generate sufficient revenue from operations or obtain additional funding when required, we could be forced to curtail or possibly cease operations. 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 you that our cash resources will be sufficient for anticipated or unanticipated working capital and capital expenditure requirements for this period.





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Debt and Contractual Obligations



Our commitments for debt and other contractual arrangements as of October 31, 2008 are summarized as follows:





Twelve months ending October 31,2009

        

        2010

        

        2011

        

        2012

        

        2013

        

        TotalProperty lease

        

        $

        358,000

        

        $

        292,000

        

        $

        301,000

        

        $

        310,000

        

        $

        26,000

        

        $

        1,287,000Equipment lease

        

        

        104,000

        

        

        66,000

        

        

        4,000

        

        

        

        

        

        

        

        

        174,000Notes payable

        

        

        523,000

        

        

        

        

        

        

        

        

        

        

        

        

        

        

        523,000Employee compensation

        

        

        499,000

        

        

        65,000

        

        

        

        

        

        

        

        

        

        

        

        564,000$

        1,484,000

        

        $

        423,000

        

        $

        305,000

        

        $

        310,000

        

        $

        26,000

        

        $

        2,548,000




We lease equipment and facilities under non-cancelable capital and operating leases expiring on various dates through 2013. 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 2008, including applicable taxes, is $23,005 per month and increases 3% each year through the remaining life of the lease. During fiscal year 2008 we reached an agreement with our landlord whereby we deferred payment of $11,500 per month of our monthly rental until May, 2010. A total of $69,000, representing six months of deferred rent, is included in the schedule above.



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. | QUANTITATIVE
AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
|-------- | ----------------------------------------------------------



Not applicable.



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|ITEM  4T. | CONTROLS AND PROCEDURES
|--------- | -----------------------



a) Evaluation of disclosure controls and procedures.



Under the supervision and with the participation of our management, including our principal executive officer and principal financial officer, we conducted an evaluation of the effectiveness of the design and operations of our disclosure controls and procedures, as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as of October 31, 2008. 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 October 31, 2008. We have not identified any significant deficiency or material weakness 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.

        UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS




None.



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




Exhibits



Exhibit No.

        Description




31.1

        Certification of Chief Executive Officer pursuant to Section 302 of The Sarbanes-Oxley Act of 2002.




31.2

        Certification of Chief Financial Officer pursuant to Section 302 of The Sarbanes-Oxley Act of 2002.




32.1

        Certification of Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of The Sarbanes-Oxley Act of 2002.




32.2

        Certification of Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of The Sarbanes-Oxley Act of 2002.




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:

        January 21, 2009

        

        By:

        /s/ Jeffrey DicksonJeffrey Dickson, President and Chief Executive Officer




Date:

        January 21, 2009

        

        By:

        /s/ Larry ColtonLarry Colton, Chief Financial Officer andPrincipal Accounting Officer






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