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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 and nine-months ended April 30, 2008, were approximately $776,000 and approximately $2.6 million, respectively. This compares to approximately $2.0 million and approximately $7.1 million, respectively, for the three and nine-months ended April 30, 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 and nine-months ended April 30, 2008 were approximately $.8 million and $3.0 million, respectively. This represents decreases of 52% and 34%, respectively, from the approximately $1.7 million and the approximately $4.5 million for the three and nine-months ended April 30, 2007. Payroll and benefit related expenses for the three and nine-months ended April 30, 2008 totaled approximately $.5 million and $1.7 million respectively, compared to approximately $.7 million and $2.4 million, respectively for the three and nine-months ended April 30, 2007. The decrease in payroll expense and overall SG&A expense for the nine-months ended April 30, 2008 is primarily the result of the implementation of staff
reductions, as well as expense reductions associated with new telephone
contracts ($17,000), significant reductions in professional fees ($348,000),
reductions due to settlements of legal issues ($287,000) and reductions due to
curtailment of travel ($31,000).
SG&A expenses also include non-cash charges. These non-cash charges,
excluding depreciation and changes to the bad debt reserve, totaled
approximately $9,000 for the three months ended April 30, 2008. This included
approximately $35,000 of common stock issued to pay fees to directors for
services rendered and to members of management as per their employment
agreements and approximately $1,000 expensed as result of implementing SFAS
123R, which requires expensing of stock options as they become vested, and
amortization of debt discount on notes payable. In addition, a reduction to
non-cash expense of approximately $27,000 was realized as a result of
recognizing the gain on our building sale-leaseback transaction. For the three
month period ended April 30, 2007 the non-cash charges, excluding depreciation
and changes in the bad debt reserve, totaled approximately $85,000. This
included approximately $108,000 of common stock issued to pay fees to directors
and management according to terms of their service. In addition, a charge of
approximately $3,000 was taken as a result of implementing SFAS 123R and
approximately $1,000 was expensed to amortize the debt discount on notes
payable. We also recognized a reduction to non-cash expense of approximately
$27,000 for the three months ended April 30, 2007 as a result of recognizing the
gain on our building sale-leaseback transaction.
For the nine months ended April 30, 2008, non-cash charges, excluding depreciation and changes to the bad debt reserve, totaled approximately $72,000. This included approximately $105,000 for stock issued to directors and management according to agreements for services rendered, approximately $5,000 for amortization on the discount for the notes payable, approximately $26,000 for expensing of stock options according to SFAS 123R and $17,000 for the impairment of assets no longer in service. A reduction to non-cash expense of approximately $81,000 was realized as a result of recognizing the gain on our building sale-leaseback transaction. For the nine months ended April 30, 2007, non-cash charges, excluding depreciation and changes to the bad debt reserve, totaled approximately $254,000. This included approximately $319,000 for stock issued to directors for services rendered and management according to the
terms of their employment agreements. Approximately $15,000 was incurred for expensing of stock options according to SFAS 123R and $1,000 was expensed to amortize the debt discount on notes payable. A reduction to non-cash expense of approximately $81,000 was realized as a result of recognizing the gain on our building sale-leaseback transaction.
Also included in the SG&A is interest expense related primarily to capital leases and notes payable. For the three and nine-months ended April 30, 2008, this interest expense totaled approximately $28,000 and $74,000 respectively, of which approximately $25,000 and $67,000 respectively, was for capital leases and notes payable. This compares to interest expense of approximately $18,000 and $27,000, respectively, for the three and nine-months ended April 30, 2007 of which $15,000 and $24,000, respectively was for capital leases and notes payable. The increase in interest expense was primarily due to the payment of interest on the notes for a full nine months in fiscal 2008 as compared to only two months of interest on notes for the same period in fiscal 2007.
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Depreciation
Depreciation of property and equipment of approximately $108,000 and $325,000 respectively, was recognized in the three and nine-months ended April 30, 2008. This is compared to approximately $110,000 and $337,000 respectively, for the three and nine-months ended April 30, 2007.
Net Income/Loss
For the three and nine-months ended April 30, 2008 net loss totaled approximately $231,000 and $1,317,000, respectively. This amount includes approximately $27,000 and $81,000 respectively, of the gain recognized on our building sale-leaseback transaction and approximately $117,000 and approximately $397,000 respectively, of non-cash charges, including depreciation. Net income for the three and nine-months ended April 30, 2007 was approximately $871,000 and approximately $69,000 respectively, and includes approximately $27,000 and $81,000 respectively of the gain recognized on our building sale-leaseback transaction and approximately $195,000 and approximately $591,000 respectively, of non-cash charges, including depreciation. The net income amounts for three and nine-months ended April 30, 2007 also included approximately $1.8 million of gain on terminated contracts.
Liquidity and Capital Resources
At April 30, 2008, we had approximately $62,000 in cash and cash equivalents. This is a decrease of approximately $733,000 from July 31, 2007. We have a working capital deficiency of approximately $2.4 million as of April 30, 2008 compared to a deficiency of approximately $2.5 million as of April 30, 2007.
We have a $75,000 line of credit established with a bank. Under the terms of the agreement, we may borrow any amount up to the maximum value of the line and will pay monthly interest at a rate of prime plus 7% on the unpaid balance. As of April 30, 2008, we had no outstanding borrowings against this credit line.
During the period ended April 30, 2008 we have added $100,000 to working capital as a result of receiving a non-interest bearing loan from our Chairman of the Board. We have also received an additional $400,000 for working capital in May 2008 through an equity investment from our Chairman of the Board. We are also currently working on obtaining additional funding through the exercise of outstanding warrants, as well as exploring additional options to secure the required funds. We are also entertaining the sale of our current Business Process Outsourcing and First Notice Of Loss business. We believe that cash generated from operations, will be sufficient to meet our working capital requirements for the next 12 months. This estimate is a forward-looking statement that involves risks and uncertainties. The actual time period may differ materially from that indicated as a result of a number of factors so that we
cannot assure you that our cash resources will be sufficient for anticipated or unanticipated working capital and capital expenditure requirements for this period or that we will be able to generate capital from any future sale of our securities.
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Debt and Contractual Obligations
Our commitments for debt and other contractual arrangements as of April 30, 2008 are summarized as follows:
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Twelve months ending April 30,
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2009
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2010
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2011
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2012
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Thereafter
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Total
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Property lease
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$
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280,000
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$
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288,000
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$
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297,000
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$
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305,000
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$
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181,000
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$
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1,351,000
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Equipment lease
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97,000
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105,000
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8,000
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210,000
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Notes payable
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450,000
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200,000
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650,000
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Employee compensation
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704,000
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225,000
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929,000
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$
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1,531,000
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$
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818,000
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$
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305,000
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$
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305,000
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$
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181,000
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$
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3,140,000
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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.
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.
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ITEM 3.
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CONTROLS AND PROCEDURES
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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 April 30, 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 April 30, 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.
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LEGAL PROCEEDINGS
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In December 2007, Mr. Eric Seidel, former President and CEO, filed a complaint, case number 07013596CT, in the Circuit Court of the Sixth Judicial Circuit for the State of Florida, County of Pinellas Civil Division, in which Mr. Seidel alleged we breached certain provisions of his employment agreement regarding severance payments Mr. Seidel alleged are due him under the terms of his agreement. He was seeking a judgment of $91,580 plus reasonable attorney fees and court costs. We filed an answer to this complaint denying all allegations and filed a counter-claim alleging Mr. Seidel was not entitled to severance payments according to the terms of his departure and was erroneously paid for a period of approximately six months. At Mr. Seidels request we entered into a mediation which was held on April 3, 2008. We reached a settlement with Mr. Seidel for $10,000, agreed to lift
the legend on all his remaining common stock holdings and an agreement for mutual non-disparagement.
ITEM 2.
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UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
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On April 30, 2008 we issued 1,166,667 shares of common stock to three Directors for services rendered in accordance with the approved Board compensation plan.
All such shares were issued pursuant to Section 4.2 of the Securities Act of 1933 and Regulation D promulgated thereunder. Each person to whom shares were issued is an Accredited Investor as defined in Regulation D.
ITEM 3.
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DEFAULTS UPON SENIOR SECURITIES
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None.
ITEM 4.
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SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
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None
ITEM 5.
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OTHER INFORMATION
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None
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Exhibits
Exhibit No.
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Description
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31.1
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Certification of Chief Executive Officer pursuant to Section 302 of The Sarbanes-Oxley Act of 2002.
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31.2
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Certification of Chief Financial Officer pursuant to Section 302 of The Sarbanes-Oxley Act of 2002.
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32.1
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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.
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32.2
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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.
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SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
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Date:
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June 13, 2008
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By:
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/s/ Jeffrey Dickson
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Jeffrey Dickson, President and Chief Executive Officer
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Date:
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June 13, 2008
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By:
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/s/ Larry Colton
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Larry Colton, Chief Financial Officer and
Principal Accounting Officer
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