##### Table of Contents





UNITED STATES SECURITIES AND
    EXCHANGE COMMISSIONWashington, DC
    20549
    Form 10-K
  þ

ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF THE
    SECURITIES EXCHANGE ACT OF 1934For the fiscal year ended
    December 31, 2008o

TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE
    SECURITIES ACT OF 1934   Commission File
    Number: 0-6334
  ASSURANCEAMERICA
    CORPORATION
  NEVADA

87-0281240(State or Other Jurisdiction
    of
    Incorporation or Organization)

(I.R.S. Employer
    Identification No.)5500 Interstate North Pkwy.,
    Suite 600, Atlanta, Georgia(Address of Principal
    Executive Offices)

30328(Zip Code)   Registrants telephone number, including area code:
 (770) 952-0200
  Securities registered under Section 12(b) of the
    Exchange Act:
    None
  Securities registered under Section 12(g) of the
    Exchange Act:
    Common Stock, par value $0.01 per share
  o þ
  o þ
  þ o
  Regulation S-K Form 10-K Form 10-K. o
  Rule 12b-2
  Large
    accelerated
    filer o
    Accelerated
    filer o
    Non-accelerated
    filer o
    Smaller
    reporting
    company þ   Rule 12b-2 o þ
      Documents
    Incorporated By Reference




---



##### 





TABLE OF
    CONTENTS
   
 PageNumberForward Looking Statements


1PART I1.


Description of Business


22.


Description of Property


93.


Legal Proceedings


94.


Submission of Matters to a Vote of Security
    Holders


9PART II5.


Market for Common Equity, Related Stockholder
    Matters and Issuer Purchase of Equity Securities


96.


Selected Financial Data


107.


Managements Discussion and Analysis of
    Financial Condition and Results of Operations


108.


Financial Statements and Supplementary Data


159.


Changes in and Disagreements with Accountants on
    Accounting and Financial Disclosure


159A.


Controls and Procedures


159B.


Other Information


15PART III10.


Directors, Executive Officers, and Corporate
    Governance


1611.


Executive Compensation


1712.


Security Ownership of Certain Beneficial Owners
    and Management and Related Stockholder Matters


1713.


Certain Relationships and Related Transactions
    and Director Independence


1814.


Principal Accounting Fees and Services


18PART IV15.


Exhibits and Financial Statement Schedules


18Signatures


20EX-21.1EX-31.1EX-31.2EX-32.1




---



##### Table of Contents



Forward-Looking
    Statements   1




---



##### Table of Contents



PART I  Item 1.
    BUSINESS  History
    1-for-1
  Who We
    Are
     2




---



##### Table of Contents



Our
    Business
      
        Our
    Industry
   3




---



##### Table of Contents



15-20%
    Our
    Products
    Target
    Market
      Wholesale
    Operations
    Claims
       4




---



##### Table of Contents



Underwriting
    and Customer Service
      Product
    Development and Management
    Information
    Technology
    end-to-end,
         5




---



##### Table of Contents



Retail
    Operations
        Reinsurance
    Reserves
    State
    Insurance Licenses
    Supervision
    and Regulation
   6




---



##### Table of Contents



7




---



##### Table of Contents



Statutory
    Accounting Principles
          available-for-sale,
    Investments
    Competition
      Employees
   8




---



##### Table of Contents



Item 2.
    PROPERTIES  12-year
    Item 3.
    LEGAL
    PROCEEDINGS    Item 4.
    SUBMISSION
    OF MATTERS TO A VOTE OF SECURITY HOLDERS   PART II  Item 5.
    MARKET
    FOR COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER
    PURCHASES OF EQUITY SECURITIES  Over-the-Counter over-the-counter mark-up,
  Bid PricesQuarter Ended

High


Low2008 Fiscal Year:March 31, 2008

$
0.62


$
0.54June 30, 2008

$
0.45


$
0.44September 30, 2008

$
0.50


$
0.21December 31, 2008

$
0.30


$
0.302007 Fiscal Year:March 31, 2007

$
1.75


$
0.80June 30, 2007

$
1.01


$
0.83September 30, 2007

$
1.00


$
0.60December 31, 2007

$
0.75


$
0.36          9




---



##### Table of Contents



ITEM 6.
    SELECTED
    FINANCIAL DATA  Selected
    Quarterly Financial Information
  First


Second


Third


FourthQuarter


Quarter


Quarter


Quarter2008Revenue

$
16,762,090


$
15,538,690


$
15,642,802


$
15,294,183Income (loss) from operations


600,350



(248,937
)


(918,476
)


(4,044,700
)Net income (loss) attributable to common shareholders


381,323



(148,256
)


(618,486
)


(2,829,469
)Diluted net earnings (loss) per share attributable to common
    shareholders


0.006



(0.002
)


(0.010
)


(0.044
)2007Revenue

$
15,167,804


$
14,494,964


$
14,414,713


$
14,301,219Income (loss) from operations


1,152,257



274,720



44,451



(689,179
)Net income (loss) attributable to common shareholders


639,124



120,392



(43,520
)


(440,619
)Diluted net earnings (loss) per share attributable to common
    shareholders


0.010



0.002



(0.001
)


(0.006
)   Item 7.
    MANAGEMENTS
    DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
    OPERATIONS  Results
    of Operations
      Revenues
  Premiums
   10




---



##### Table of Contents



Commission
    and Fee Income
        Net
    Investment Income
    Expenses
  Insurance
    Loss and Loss Adjustment Expenses
   11




---



##### Table of Contents



Other
    Expenses
    Income
    Tax Expense (Benefit)
    Financial
    Condition
   12




---



##### Table of Contents



13




---



##### Table of Contents



Liquidity
    and Capital Resources
            Off-Balance
    Sheet Arrangements
   14




---



##### Table of Contents



Item 8.
    FINANCIAL
    STATEMENTS AND SUPPLEMENTARY DATA    Item 9.
    CHANGES
    IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
    FINANCIAL DISCLOSURE.    Item 9A.
    CONTROLS
    AND PROCEDURES  Form 10-K, Rules 13a-15(e) 15d-15(e)
  Managements
    Annual Report on Internal Control over Financial
    Reporting
  Rules 13a-15(f) 15d-15(f).
      Item 9B.
    OTHER
    INFORMATION  8-K
 15




---



##### Table of Contents



PART III  Item 10.
    DIRECTORS,
    EXECUTIVE OFFICERS, AND CORPORATE GOVERNANCE    Executive
    Officers
    Name

Age

Positions HeldDavid Anthony


49


Vice President  Information Technology, AssuranceAmerica
    Managing General Agency, LLCCharlie Brock


54


Vice President  Sales, AssuranceAmerica Managing
    General Agency, LLCMark H. Hain


59


Executive Vice President, General Counsel and SecretaryGuy W. Millner


72


Chairman and Chief Executive OfficerScott Nelson


41


Regional Vice President Product Development, AssuranceAmerica
    Managing General Agency, LLCTony Pepsoski


41


Regional Vice President  Product Development,
    AssuranceAmerica Managing General Agency, LLCJoseph J. Skruck


44


President and Chief Operating OfficerGregory D. Woods


47


Controller and Acting Chief Financial OfficerAl Yeager


47


Senior Vice President  Claims and Underwriting, AssuranceAmerica
    Managing General Agency, LLC   Biographies
    of Executive Officers
  David H. Anthony
  Charlie Brock Coca-Cola
  Mark H. Hain
  Guy W. Millner
  Scott M. Nelson
 16




---



##### Table of Contents



Tony Pepsoski
  Joseph J. (Joe) Skruck,
  Gregory D. Woods ,
  Al Yeager
  Item 11.
    EXECUTIVE
    COMPENSATION    Item 12.
    SECURITY
    OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND
    RELATED STOCKHOLDER MATTERS    Equity
    Compensation Plan Information
    (c)Number of SecuritiesRemaining Available(a)





for Future IssuanceNumber of Securities


(b)


Under Equityto be Issued Upon


Weighted-Average


Compensation PlansExercise of


Exercise Price of


(Excluding SecuritiesPlan Category

Outstanding Options


Outstanding Options


Reflected in Column (a))Equity compensation plans approved by stockholders(1)


6,230,008


$
0.71



1,219,992Equity compensation plans not approved by stockholders






N/A



Total


6,230,008


$
0.71



1,219,992     (1)
    
    Consists of options granted under the Companys 2000 Stock
    Option Plan. 17




---



##### 



Item 13.
    CERTAIN
    RELATIONSHIPS AND RELATED TRANSACTIONS AND DIRECTOR
    INDEPENDENCE    Item 14.
    PRINCIPAL
    ACCOUNTING FEES AND SERVICES.   PART IV  Item 15.
    EXHIBITS AND
    FINANCIAL STATEMENT SCHEDULES    Financial Statements
     
 PageReport of Independent Registered Public Accounting Firm


F-2Consolidated Balance Sheets as of December 31, 2008 and 2007


F-3Consolidated Statements of Operations for the years ended
    December 31, 2008 and 2007


F-4Consolidated Statements of Changes in Stockholders Equity
    for the years ended December 31, 2008 and 2007


F-5Consolidated Statements of Comprehensive Income for the years
    ended December 31, 2008 and 2007


F-6Consolidated Statements of Cash Flows for the years ended
    December 31, 2008 and 2007


F-7Notes to consolidated financial statements


F-8    Financial Statement Schedules
    Exhibits
  2
.1

Agreement and Plan of Merger and Reorganization dated
    April 1, 2003, by and among the Company, AA Holdings
    Acquisition Sub, Inc., AA Holdings, LLC and AssuranceAmerica
    Corporation (incorporated by reference to Exhibit 2.1 to
    the Companys Current Report on
    Form 8-K
    filed on April 16, 2003).2
.2

Asset Purchase Agreement by and between TrustWay Insurance
    Agencies, LLC, AssuranceAmerica Corporation, Thomas-Cook Holding
    Company and James C. Cook (incorporated by reference to
    Exhibit 2.1 to the Companys Current Report on
    Form 8-K
    dated August 3, 2004).3
.1

Amended And Restated Articles of Incorporation of the Company
    (incorporated by reference to Exhibit 3.1 to the
    Companys Quarterly Report on
    Form 10-QSB
    for the quarter ended September 30, 2003).3
.2

Amendment to Amended and Restated Articles of Incorporation of
    the Company (incorporated by reference to Appendix A to the
    Companys Definitive Proxy Statement filed on
    September 9, 2003).3
.3

By-Laws of the Company (incorporated by reference to the
    Companys Form 10 filed on May 30, 1972).3
.4

Amendment to the Companys By-Laws adopted
    February 14, 2001 (incorporated by reference to
    Exhibit 3ii to the Companys Quarterly Report on
    Form 10-QSB
    for the quarter ended December 31, 2000).3
.5

Amendment to the Companys By-Laws adopted June 26,
    2003 (incorporated by reference to Exhibit 3.4 to the
    Companys Annual Report on
    Form 10-KSB/A
    for the year ended March 31, 2003).3
.6

Amendment to the Companys By-Laws adopted June 15,
    2004 (incorporated by reference to Exhibit 3.6 to the
    Companys Annual Report on
    Form 10-KSB/A
    for the year ended December 31, 2004). 18




---



##### Table of Contents



4
.1

Certificate of Designations Establishing the Powers,
    Preferences, limitations, Restrictions and Relative Rights of
    Series A Convertible Preferred Stock of AssuranceAmerica
    Corporation (incorporated by reference to Exhibit 4.1 to
    the Companys Quarterly Report on
    Form 10-QSB
    for the quarter ended June 30, 2004).4
.2

Amendment to Certificate of Designations Establishing the
    Powers, Preferences, Limitations, Restrictions and Relative
    Rights of Series A Convertible Preferred Stock of
    AssuranceAmerica Corporation (incorporated by reference to
    Exhibit 3.1 to the Companys Current Report on
    Form 8-K
    filed on April 15, 2005).4
.3

Amended and Restated Trust Agreement dated
    December 22, 2005 (incorporated by reference to
    Exhibit 4.1 to the Companys
    Form 8-K
    filed on December 27, 2005).4
.4

Junior Subordinated Indenture dated December 22, 2005
    (incorporated by reference to Exhibit 4.2 to the
    Companys
    Form 8-K
    filed on December 27, 2005).10
.1

Brainworks Ventures, Inc. Stock Option Plan (incorporated by
    reference to Exhibit A to the Companys Definitive
    Proxy Statement filed on October 20, 2000).10
.2

Amendment to the Brainworks Ventures, Inc. Stock Option Plan
    (incorporated by reference to Appendix 3 to the
    Companys Definitive Proxy Statement filed on
    April 11, 2006).10
.3

Promissory Note assumed by the Company to Guy W. Millner dated
    February 10, 2003 (incorporated by reference to
    Exhibit 10.2 to the Companys
    Form 10-KSB/A
    for the year ending December 31, 2004).10
.4

Promissory Note assumed by the Company to Lawrence Stumbaugh
    dated January 3, 2003 (incorporated by reference to
    Exhibit 10.3 to the Companys
    Form 10-KSB/A
    for the year ending December 31, 2004).10
.5

Promissory Note assumed by the Company to Guy W. Millner dated
    August 31, 2002 (incorporated by reference to
    Exhibit 10.4 to the Companys
    Form 10-KSB/A
    for the year ending December 31, 2004).10
.6

Employment Agreement between Agencies and James C. Cook dated
    July 31, 2004 (incorporated by reference to
    Exhibit 10.2 to the Companys Current Report on
    Form 8-K
    dated August 3, 2003).10
.7

Executive Employment Agreement between AssuranceAmerica Managing
    General Agency, LLC and Joseph J. Skruck (incorporated by
    reference to Exhibit 10.1 to the Companys current
    report on
    Form 8-K
    dated March 8, 2006).10
.8

Stock Purchase Agreement (incorporated by reference to
    Exhibit 10.1 to the Companys
    Form 8-K
    filed on April 15, 2005).10
.9

Amendment to Stock Purchase Agreement (incorporated by reference
    to Exhibit 10.1 to the Companys
    Form 8-K
    filed on May 10, 2005).10
.10

Registration Rights Agreement (incorporated by reference to
    Exhibit 10.2 to the Companys
    Form 8-K
    filed on April 15, 2005).10
.11

Description of Executive Bonus Plan (incorporated by reference
    to Exhibit 10.1 of the Companys
    Form 10-QSB
    for the quarter ended June 30, 2005).10
.12

Guarantee Agreement dated December 22, 2005 (incorporated
    by reference to Exhibit 10.2 to the Companys
    Form 8-K
    filed on December 27, 2005).10
.13

Executive Employment Agreement between Sercap Holdings, LLC and
    Lawrence Stumbaugh effective July 10, 2002 and assumed by
    the Company effective April 1, 2003 (incorporated by
    reference to Exhibit 10.12 to the Companys
    Form 10KSB for the year ending December 31, 2005).14
.1

Code of Conduct (incorporated by reference to Exhibit 14.1
    to the Companys Transition Report on
    Form 10-KSB
    for the transition period from April 1, 2003 to
    December 31, 2003).16
.1

Letter on change in certifying accountant as required by
    Item 304(a)(3) (incorporated by reference to
    Exhibit 16.2 to the Companys
    Form 8-K/A
    filed on December 20, 2006)21
.1

List of Subsidiaries31
.1

Certification of Chief Executive Officer Pursuant to
    Section 302 of the Sarbanes-Oxley Act of 2002.31
.2

Certification of Controller Pursuant to Section 302 of the
    Sarbanes-Oxley Act of 2002.32
.1

Certification of Chief Executive Officer and Controller Pursuant
    to Section 906 of the Sarbanes-Oxley Act of 2002.  19




---



##### Table of Contents



SIGNATURES        By:
    /s/  Guy
    W. Millner  
      Name

Title

Date/s/  Guy
    W. Millner     Guy
    W. Millner

Chairman of the Board of Directors,
    Chief Executive Officer and Director
    (Principal Executive Officer)

Date: March 27, 2009/s/  Gregory
    Dean Woods     Gregory
    Dean Woods

Controller and Acting Chief Financial Officer
    (Principal Financial and Accounting Officer)

Date: March 27, 2009/s/  Donald
    Ratajczak     Donald
    Ratajczak

Director

Date: March 27, 2009/s/  Quill
    O. Healey     Quill
    O. Healey

Director

Date: March 27, 2009/s/  John
    E. Cay, III     John
    E. Cay, III

Director

Date: March 27, 2009/s/  Kaaren
    J. Street     Kaaren
    J. Street

Director

Date: March 27, 2009/s/  Sam
    Zamarripa     Sam
    Zamarripa

Director

Date: March 27, 2009/s/  John
    Ray     John
    Ray

Director

Date: March 27, 2009/s/  Lawrence
    Stumbaugh     Lawrence
    Stumbaugh

Director

Date: March 27, 2009  20




---



##### 



Index to
    Financial Statements
   
 PageReport of Independent Registered Public
    Accounting Firm


F-2Consolidated Balance Sheets as of
    December 31, 2008 and 2007


F-3Consolidated Statements of Operations for the
    years ended December 31, 2008 and 2007


F-4Consolidated Statements of Changes in
    Stockholders Equity for the years ended December 31,
    2008 and 2007


F-5Consolidated Statements of Comprehensive Income
    for the years ended December 31, 2008 and 2007


F-6Consolidated Statements of Cash Flows for the
    years ended December 31, 2008 and 2007


F-7Notes to consolidated financial statements


F-8




---



##### Table of Contents



REPORT OF
    INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM           Form 10-K
      F-2




---



##### Table of Contents



ASSURANCEAMERICA
    CORPORATION AND SUBSIDIARIES
  CONSOLIDATED
    BALANCE SHEETS
  December 31,


December 31,2008


2007ASSETSCash and cash equivalents

$
8,287,149


$
5,511,842Short-term investments


652,480



642,924Long-term investments


8,194,572



14,838,738Marketable equity securities


1,776,671



2,563,040Other securities


155,000



155,000Investment income due and accrued


96,186



158,981Receivable from insureds


31,162,658



28,802,125Reinsurance recoverable (including $9,240,200 and $6,077,396 on
    paid losses)


38,987,131



29,327,012Prepaid reinsurance premiums


22,916,150



21,145,161Deferred acquisition costs


2,321,517



2,130,323Property and equipment (net of accumulated depreciation of
    $3,595,679 and $2,737,288)


2,530,352



2,360,747Other receivables


1,655,375



2,966,287Prepaid expenses


608,861



861,588Intangibles (net of accumulated amortization of $2,665,727 and
    $2,240,233)


7,780,959



11,368,383Security deposits


105,060



86,438Prepaid income tax


238,443



148,677Deferred tax assets


3,699,994



1,824,453Other assets


348,472



361,419Total assets

$
131,517,030


$
125,253,138LIABILITIES AND STOCKHOLDERS EQUITYAccounts payable and accrued expenses

$
7,571,998


$
7,184,132Unearned premium


32,907,714



30,991,565Unpaid losses and loss adjustment expenses


42,580,699



33,660,814Reinsurance payable


26,416,490



25,174,138Provisional commission reserve


3,361,045



2,963,308Notes payable and related party debt


1,720,108



4,482,862Junior subordinated debentures payable


4,975,185



4,968,519Total liabilities


119,530,239



109,425,338Commitments and contingenciesSTOCKHOLDERS EQUITYCommon stock, $.01 par value (authorized 120,000,000 and
    80,000,000, outstanding 64,953,881 and 64,803,881)


649,538



648,039Preferred stock, $.01 par value (authorized 5,000,000, no
    shares outstanding)






Surplus-paid in


16,911,635



16,782,588Accumulated deficit


(4,888,220
)


(1,673,332
)Accumulated other comprehensive income (loss):Net unrealized gains (losses) on investment securities, net of
    taxes


(689,162
)


70,505Total stockholders equity


11,983,791



15,827,800Total liabilities and stockholders equity

$
131,517,030


$
125,253,138    F-3




---



##### Table of Contents



ASSURANCEAMERICA
    CORPORATION AND SUBSIDIARIES
  CONSOLIDATED
    STATEMENTS OF OPERATIONS
  For the Years Ended December 31,2008


2007Revenue:Gross premiums written

$
93,281,015


$
88,395,199Ceded premiums written


(64,368,129
)


(59,763,971
)Net premiums written


28,912,886



28,631,228Change in unearned premiums, net of prepaid reinsurance premiums


(145,160
)


(3,244,105
)Net premiums earned


28,767,726



25,387,123Commission income


21,375,128



20,870,068Managing general agent fees


12,505,161



10,912,946Net investment income


670,148



801,950Net investment gains (losses) on securities


(388,226
)


34,469Other fee income


307,828



372,146Total revenue


63,237,765



58,378,702Expenses:Losses and loss adjustment expenses


23,732,727



18,864,642Selling, general, and administrative


38,688,254



36,189,148Stock option expense


49,047



333,694Depreciation and amortization expense


1,287,614



1,185,271Goodwill Impairment


3,374,057



Interest expense


717,829



1,013,364Total operating expenses


67,849,528



57,586,119Income (loss) before income taxes


(4,611,763
)


792,583Income tax provision (benefit)


(1,396,875
)


517,204Net income (loss) attributable to common stockholders

$
(3,214,888
)

$
275,379Earnings (loss) per common shareBasic

$
(0.050
)

$
0.004Diluted

$
(0.050
)

$
0.004Weighted average shares outstanding-basic


64,922,269



61,913,645Weighted average shares outstanding-diluted


64,922,269



62,656,305    F-4




---



##### Table of Contents



ASSURANCEAMERICA
    CORPORATION AND SUBSIDIARIES
  CONSOLIDATED
    STATEMENTS OF CHANGES IN STOCKHOLDERS EQUITY
 For the
    years ended December 31, 2008 and 2007
  AccumulatedChange in OtherComprehensiveCommon


Preferred


Paid in


Accumulated


Income (Loss),Stock


Stock


Capital


Deficit


Net of Taxes


TotalBalance, December 31, 2006

$
560,730


$
8,400


$
16,426,292


$
(1,948,711
)

$
50,412


$
15,097,123Stock issued


3,309







113,292











116,601Stock issuance expenses










(15,090
)










(15,090
)Conversion of preferred to common stock


84,000



(8,400
)


(75,600
)










Stock option expense










333,694











333,694Change in value of available-for-sale securities, net of taxes


















20,093



20,093Net income














275,379







275,379Balance, December 31, 2007


648,039







16,782,588



(1,673,332
)


70,505



15,827,800Stock issued


1,699







79,800











81,499Stock retired


(200
)






200











Stock option expense










49,047











49,047Change in value of available-for-sale securities, net of taxes


















(759,667
)


(759,667
)Net income














(3,214,888
)






(3,214,888
)Balance, December 31, 2008

$
649,538


$



$
16,911,635


$
(4,888,220
)

$
(689,162
)

$
11,983,791   Share Activity

2008


2007(In thousands)Common stockIssuedAt beginning of year


64,804



56,073Issued


170



331Retired


20



Converted from preferred stock






8,400At end of year


64,954



64,804Preferred stockIssuedAt beginning of year






840Converted to common stock






(840
)At end of year






    F-5




---



##### Table of Contents



ASSURANCEAMERICA
    COPORATION AND SUBSIDIARIES
  CONSOLIDATED
    STATEMENTS OF COMPREHENSIVE INCOME
  For the Years EndedDecember 31,2008


2007Net income (loss)

$
(3,214,888
)

$
275,379Other comprehensive (loss):Change in unrealized (losses) gains of investments:Unrealized (losses) gains arising during the year


(1,603,693
)


66,618Reclassification adjustment for realized losses and (gains)
    recognized during the year


388,226



(34,469
)Net change in unrealized realized (losses) and gains


(1,215,467
)


32,149Deferred income tax benefit and (expense) effect on above changes


455,800



(12,056
)Other comprehensive income (loss)


(759,667
)


20,093Comprehensive income (loss)

$
(3,974,555
)

$
295,472    F-6




---



##### Table of Contents



ASSURANCEAMERICA
    CORPORATION AND SUBSIDIARIES
  CONSOLIDATED
    STATEMENTS OF CASH FLOWS
  For the Years EndedDecember 31,2008


2007Cash flows from operating activities:Net income (loss)

$
(3,214,888
)

$
275,379Adjustments to reconcile net income to net cash provided by
    operating activities:Net investment losses (gains)


388,226



(34,469
)Goodwill impairment


3,374,057



Depreciation and amortization


1,287,614



1,205,226Stock-based compensation


49,047



333,694Loss on disposal of property and equipment


3,454



137,928Deferred tax provision (benefit)


(1,419,741
)


669,994Changes in assets and liabilities:Investment income due and accrued


62,795



(41,618
)Receivables


(1,049,621
)


(12,474,640
)Prepaid expenses and other assets


247,053



(587,207
)Unearned premiums


1,916,149



10,376,784Unpaid loss and loss adjustment expenses


8,919,885



8,756,322Reinsurance payable


1,242,352



8,429,732Reinsurance recoverable


(9,660,119
)


(6,763,022
)Prepaid reinsurance premiums


(1,770,989
)


(7,132,680
)Accounts payable and accrued expenses


387,864



2,146,202Prepaid income taxes


(89,766
)


520,000Deferred acquisition costs


(191,194
)


(1,330,197
)Provisional commission reserve


397,737



643,768Net cash provided by operating activities


879,915



5,131,196Cash flows from investing activities, net of effect of agency
    acquisitions:Purchases of property and equipment, net


(1,206,894
)


(786,387
)Proceeds from sales, maturities and calls of investments


10,861,877



2,842,020Purchases of investments


(5,023,135
)


(7,745,206
)Cash paid for acquisition of agencies, net of cash acquired


(55,200
)


(400,000
)Net cash provided (used) by investing activities, net of
    effect of agency acquisitions


4,576,648



(6,089,573
)Cash flows from financing activities:Repayments of notes payable


(3,039,005
)


(1,551,160
)Proceeds from notes payable


276,250



Repayments of capital lease obligations






(265,671
)Stock issued, net of expenses


81,499



101,511Net cash used by financing activities


(2,681,256
)


(1,715,320
)Net increase (decrease) in cash and cash equivalents


2,775,307



(2,673,697
)Cash and cash equivalents, beginning of period


5,511,842



8,185,539Cash and cash equivalents, end of period

$
8,287,149


$
5,511,842      F-7




---



##### Table of Contents



ASSURANCEAMERICA
    CORPORATION AND SUBSIDIARIES
  Notes
    to Consolidated Financial Statements
 December 31, 2008 and 2007
  (1)
    Description
    of Business    (2)
    Summary
    of Significant Accounting Policies  Basis
    of Consolidation and Presentation
    Estimates
        New
    Accounting Standards Adopted
    instrument-by-instrument
 F-8




---



##### Table of Contents



ASSURANCEAMERICA
    CORPORATION AND SUBSIDIARIES
  Notes to
    Consolidated Financial
    Statements  (Continued)
    Recognition
    of Revenues
    Fair
    Value of Financial Instruments
    Deferred
    Acquisition Costs
    Contingencies
  and/or
  Cash
    and Cash Equivalents
    Property
    and Equipment
   F-9




---



##### Table of Contents



ASSURANCEAMERICA
    CORPORATION AND SUBSIDIARIES
  Notes to
    Consolidated Financial
    Statements  (Continued)
    December 31,


December 31,2008


2007Furniture and equipment

$
1,474,203


$
1,406,473Automobile


35,263



Computer equipment


1,759,029



1,642,114Computer software


1,671,628



1,016,864Leasehold improvements


1,185,908



1,032,584Less: accumulated depreciation


(3,595,679
)


(2,737,288
)$
2,530,352


$
2,360,747   Amortization
    of Intangible Assets
  1 2
    December 31,


December 31,2008


2007Goodwill

$
6,027,061


$
9,188,991Non-compete clause


781,500



781,500Renewal list


3,418,125



3,418,125Restrictive covenants


220,000



220,00010,446,686



13,608,616Less accumulated amortization


(2,665,727
)


(2,240,233
)$
7,780,959


$
11,368,383     2009

$
382,5152010

$
348,7772011

$
347,2772012

$
344,0822013

$
302,207    F-10




---



##### Table of Contents



ASSURANCEAMERICA
    CORPORATION AND SUBSIDIARIES
  Notes to
    Consolidated Financial
    Statements  (Continued)
  Advertising
    Stock
    Options
    Income
    Taxes
      (3)
    Investments         F-11




---



##### Table of Contents



ASSURANCEAMERICA
    CORPORATION AND SUBSIDIARIES
  Notes to
    Consolidated Financial
    Statements  (Continued)
    December 31,


December 31,2008


2007Short-term investments and bank certificates of deposit

$
652,480


$
642,924U.S. Treasury securities and obligations of U.S. government
    corporations and agencies


2,987,148



7,058,831Public Utilities


455,894



Obligations of states and political subdivisions


2,451,827



6,245,337Corporate debt securities


2,299,703



1,534,570Marketable equity securities


1,776,671



2,563,040Total

$
10,623,723


$
18,044,702     Gross


GrossAmortized


Unrealized


Unrealized


FairYears to Maturity

Cost


Gains


Losses


ValueWithin one year

$



$



$



$
One to five years


2,331,939



19,165



9,166



2,341,938Five to ten years


2,171,309



13,524



226,240



1,958,593Over ten years


4,163,561



32,633



302,153



3,894,041Total

$
8,666,809


$
65,322


$
537,559


$
8,194,572     Gross


GrossAmortized


Unrealized


Unrealized


FairSecurity Type  December 31, 2008

Cost


Gains


Losses


ValueU.S. Treasury securities and obligations of U.S. government
    corporations and agencies

$
2,923,748


$
63,432


$
32


$
2,987,148Obligations of states and political subdivisions


2,741,027







289,200



2,451,827Public utilities


468,846







12,952



455,894Corporate debt securities


2,533,188



1,890



235,375



2,299,703Marketable equity securities


2,407,093



26,870



657,292



1,776,671Total

$
11,073,902


$
92,192


$
1,194,851


$
9,971,243   Gross


GrossAmortized


Unrealized


Unrealized


FairSecurity Type  December 31, 2007

Cost


Gains


Losses


ValueU.S. Treasury securities and obligations of U.S. government
    corporations and agencies

$
7,011,785


$
48,096


$
1,050


$
7,058,831Obligations of states and political subdivisions


6,253,419



62,909



70,991



6,245,337Corporate debt securities


1,574,151



2,006



41,587



1,534,570Marketable equity securities


2,449,615



276,851



163,426



2,563,040Total

$
17,288,970


$
389,862


$
277,054


$
17,401,778  F-12




---



##### Table of Contents



ASSURANCEAMERICA
    CORPORATION AND SUBSIDIARIES
  Notes to
    Consolidated Financial
    Statements  (Continued)
         Less Than Twelve Months


Over Twelve MonthsGross


Estimated


Gross


EstimatedUnrealized


Market


Unrealized


MarketLosses


Fair Value


Losses


Fair ValueDecember 31, 2008:U.S. Treasury and government agencies

$
32


$
499,375


$



$
Obligations of state and political entities










289,200



2,451,827Public Utilities


12,952



455,894







Corporate debt securities


117,966



1,417,330



117,409



422,818Equity Securities


426,646



1,104,712



230,646



298,142$
557,596


$
3,477,311


$
637,255


$
3,172,786December 31, 2007:U.S. Treasury and government agencies

$
98


$
177,246


$
952


$
1,098,391Obligations of state and political entities


1,912



513,580



69,079



2,674,489Corporate debt securities










41,587



497,750Equity Securities


148,909



903,485



14,517



113,069$
150,919


$
1,594,311


$
126,135


$
4,383,699     (4)
    Fair
    Value Disclosures     F-13




---



##### Table of Contents



ASSURANCEAMERICA
    CORPORATION AND SUBSIDIARIES
  Notes to
    Consolidated Financial
    Statements  (Continued)
      Significant


SignificantOther


OtherQuoted Prices in


Observable


UnobservableActive Markets


Inputs


Inputs(Level 1)


(Level 2)


(Level 3)Description:Available for sale securities

$
2,987,148


$
5,207,424


$
Marketable equity securities


1,776,671







Total

$
4,763,819


$
5,207,424


$
   (5)
    Losses
    and Loss Adjustment Expenses      December 31,


December 31,2008


2007Case basis

$
4,561,487


$
4,200,577IBNR


8,272,281



6,210,621Total

$
12,833,768


$
10,411,198  F-14




---



##### Table of Contents



ASSURANCEAMERICA
    CORPORATION AND SUBSIDIARIES
  Notes to
    Consolidated Financial
    Statements  (Continued)
     2008


2007Balance at January 1

$
33,660,814


$
24,904,495Less reinsurance recoverables on unpaid losses


(23,249,616
)


(17,433,145
)Net balance at January 1


10,411,198



7,471,350Add losses and LAE incurred, net, related to:Current year


22,979,727



19,087,642Prior years


753,000



(223,000
)Net losses and LAE incurred in the current year


23,732,727



18,864,642Deduct losses and LAE paid, net, related to:Current year


(13,060,000
)


(11,348,794
)Prior years


(8,250,147
)


(4,576,000
)Net claim payments in the current year


(21,310,147
)


(15,924,794
)Net balance at December 31


12,833,768



10,411,198Plus reinsurance recoverables on unpaid losses


29,746,931



23,249,616Balance at December 31

$
42,580,699


$
33,660,814     (6)
    Reinsurance       F-15




---



##### Table of Contents



ASSURANCEAMERICA
    CORPORATION AND SUBSIDIARIES
  Notes to
    Consolidated Financial
    Statements  (Continued)
    2008


2007Premiums written:Direct

$
92,214,798


$
86,829,482Assumed


1,066,217



1,565,717Ceded


(64,368,129
)


(59,763,971
)Net

$
28,912,886


$
28,631,228Premiums earned:Direct

$
90,020,278


$
76,834,157Assumed


1,344,589



1,184,255Ceded


(62,597,140
)


(52,631,289
)Net

$
28,767,726


$
25,387,123Losses and loss adjustment expenses incurred:Direct

$
77,033,851


$
59,626,954Assumed


1,175,763



856,571Ceded


(54,476,887
)


(41,618,883
)Net

$
23,732,727


$
18,864,642     Unpaid losses and loss adjustment expense:Direct

$
42,353,968


$
33,391,172Assumed


226,731



269,642Ceded


(29,746,931
)


(23,249,616
)Net

$
12,833,768


$
10,411,198Unearned premiums:Direct

$
32,689,711


$
30,495,191Assumed


218,003



496,374Ceded


(22,916,150
)


(21,145,161
)Net

$
9,991,564


$
9,846,404     Contingent
    Reinsurance Commission and Provisional Commission
    Reserve
   F-16




---



##### Table of Contents



ASSURANCEAMERICA
    CORPORATION AND SUBSIDIARIES
  Notes to
    Consolidated Financial
    Statements  (Continued)
      Policy Year

Amount2006

$
16,6342007


1,664,6362008


1,679,775Total

$
3,361,045   (7)
    Long-Term
    Debt  Notes
    Payable, Related Party
    Other
    Notes Payable
    Junior
    Subordinated Debentures
   F-17




---



##### Table of Contents



ASSURANCEAMERICA
    CORPORATION AND SUBSIDIARIES
  Notes to
    Consolidated Financial
    Statements  (Continued)
    Scheduled
    Maturities
    Amount2009

$
1,076,9772010


527,6632011


56,8732012


58,5952013 and thereafter


4,975,185Total

$
6,695,293   (8)
    Income
    Taxes    December 31,2008


2007Current

$
22,866


$
(152,790
)Net operating loss carryforward utilized (generated)


(579,000
)


238,000Deferred


(840,741
)


431,994Total provision for income taxes

$
(1,396,875
)

$
517,204     2008


2007Income (loss) before income taxes

$
(4,611,763
)


792,583Income tax expense at statutory rate


(1,567,999
)


269,478Tax effect of:Tax exempt interest income


(51,446
)


(67,485
)Incentive stock option expense


16,676



113,456Goodwill


319,568



State taxes, net of federal tax benefit


(126,393
)


55,268Other, net


12,719



146,487Total income tax expense (benefit)

$
(1,396,875
)

$
517,204  F-18




---



##### Table of Contents



ASSURANCEAMERICA
    CORPORATION AND SUBSIDIARIES
  Notes to
    Consolidated Financial
    Statements  (Continued)
    2008


2007Deferred income tax assets:Discounting of loss reserves

$
277,000


$
217,000Federal operating loss carry-forward


1,392,000



813,000Amortization of intangibles


1,615,000



703,000Unearned premium reserves


749,000



738,000Unearned commission reserves






225,000Capital losses carryforward


145,000



Unrealized losses on securities available for sale


413,000



Other






1,000Gross deferred tax assets


4,591,000



2,697,000Deferred income tax liabilities:Deferred acquisition costs


871,000



800,000Depreciation


21,000



30,000Unrealized gains on securities available for sale






43,000Gross deferred tax liabilities


892,000



873,000Net deferred tax assets

$
3,699,000


$
1,824,000      F-19




---



##### Table of Contents



ASSURANCEAMERICA
    CORPORATION AND SUBSIDIARIES
  Notes to
    Consolidated Financial
    Statements  (Continued)
    Expires 2018

$
124,903Expires 2019


572,863Expires 2020


920,162Expires 2021


124,456Expires 2022


166,999Expires 2024


241,662Expires 2025


17,487Expires 2028


1,541,003$
3,709,535   Accounting for Uncertainty in
    Income Taxes  an interpretation of FASB 109
    (9)
    Capital
    Stock  Preferred
    Stock
    Common
    Stock
    Stock-Based
    Compensation
   F-20




---



##### Table of Contents



ASSURANCEAMERICA
    CORPORATION AND SUBSIDIARIES
  Notes to
    Consolidated Financial
    Statements  (Continued)
        2008

2007Expected volatility

107% - 111%

106% - 120%Weighted average volatility

108%

113%Risk-free interest rate

2.64% - 4.07%

2.00% - 2.80%Expected term (in years)

5.0

5.0Expected forfeitures

8.0%

10.6%     2008


2007Weighted





WeightedNumber of


Average


Number of


AverageOptions Outstanding

Shares


Exercise Price


Shares


Exercise PriceBeginning of year


4,946,665


$
0.80



5,347,225


$
0.85Add (deduct):Granted


2,161,943


$
0.38



2,451,000


$
0.87Exercised


(50,000
)

$
0.25



(314,000
)

$
0.44Forfeited


(778,600
)

$
0.78



(2,437,560
)

$
0.88Expired


(50,000
)

$
0.25



(100,000
)

$
4.35End of year


6,230,008


$
0.66



4,946,665


$
0.80Exercisable, end of year


2,070,400


$
0.71



1,524,883


$
0.57      F-21




---



##### Table of Contents



ASSURANCEAMERICA
    CORPORATION AND SUBSIDIARIES
  Notes to
    Consolidated Financial
    Statements  (Continued)
      For the Twelve Months Ended December 31,2008


2007Net income attributable to common stockholders, as reported

$
(3,214,888
)

$
275,379Compensation effect, net of tax effect


(1,698,215
)


(131,588
)Pro forma net income (loss)

$
(4,913,103
)

$
143,791Basic and diluted net income
    attributable to common stockholdersAs reported  Basic

$
(0.050
)

$
0.004Pro forma  Basic

$
(0.076
)

$
0.002As reported  Diluted

$
(0.050
)

$
0.004Pro forma  Diluted

$
(0.076
)

$
0.002     Options

OptionsOutstanding

ExercisableNumber of shares

6,230,008

2,070,400Weighted average exercise price

$0.66

$0.71Aggregate intrinsic value

$103,820

$24,500Weighted average remaining contractual term

8.36 years

1.99 years     Options Outstanding


Options ExercisableWeightedAverage


Weighted





WeightedRemaining


Average





AverageNumber of


Contractual


Exercise


Number of


ExerciseRange of Exercise Prices

Shares


Life


Price


Shares


Price$.21 < $1.00


5,205,008



8.75 years


$
0.54



1,814,400


$
0.60$1.00 < $1.81


1,025,000



6.35 years


$
1.30



256,000


$
1.476,230,008



8.36 years


$
0.66



2,070,400


$
0.71   (10)
    Risk    LEGAL/REGULATORY RISKS 
 F-22




---



##### Table of Contents



ASSURANCEAMERICA
    CORPORATION AND SUBSIDIARIES
  Notes to
    Consolidated Financial
    Statements  (Continued)
    CREDIT RISK 
  INTEREST RATE RISK 
  Concentration
    of Risk
    Concentration
    of Credit Risk
      Regulatory
    Requirements and Restrictions
       F-23




---



##### Table of Contents



ASSURANCEAMERICA
    CORPORATION AND SUBSIDIARIES
  Notes to
    Consolidated Financial
    Statements  (Continued)
      (11)
    Commitments
    and Contingencies  Operating
    Leases
    Year Ending December 31,

Amount2009


1,694,1552010


1,554,7632011


1,373,3442012


1,180,048Thereafter


1,925,030$
7,707,340     Defined
    Contribution Plan
   F-24




---



##### Table of Contents



ASSURANCEAMERICA
    CORPORATION AND SUBSIDIARIES
  Notes to
    Consolidated Financial
    Statements  (Continued)
  Legal
    Proceedings
    (12)
    Business
    Combinations            (13)
    Net
    Income (Loss) Per Share   F-25




---



##### Table of Contents



ASSURANCEAMERICA
    CORPORATION AND SUBSIDIARIES
  Notes to
    Consolidated Financial
    Statements  (Continued)
    2008


2007Stock options


6,230,008



2,931,665     AverageShares


Per ShareNet Income (Loss)


Outstanding


AmountFor the year ended December 31, 2008:Net loss  basic

$
(3,214,888
)


64,922,269


$
(0.050
)Effect of dilutive stock options






Net loss  diluted

$
(3,214,888
)


64,922,269


$
(0.050
)For the year ended December 31, 2007:Net income  basic

$
275,379



61,913,645


$
0.004Effect of dilutive stock options






742,660Net income  diluted

$
275,379



62,656,305


$
0.004   (14)
    Related
    Party Transactions         F-26




---



##### Table of Contents



ASSURANCEAMERICA
    CORPORATION AND SUBSIDIARIES
  Notes to
    Consolidated Financial
    Statements  (Continued)
    (15)
    Supplemental
    Cash Flow Information  2008


2007Cash paid (received) during the year:Interest

$
717,829


$
1,013,364Income tax refund

$
(5,205
)

$
(672,793
)             2008


2007Fair value of assets acquired

$
210,628


$
669,400Cash paid to Sellers


(55,200
)


(400,000
)Liabilities assumed

$
155,428


$
269,400   (16)
    Recent
    Accounting Pronouncements       F-27




---



##### Table of Contents



ASSURANCEAMERICA
    CORPORATION AND SUBSIDIARIES
  Notes to
    Consolidated Financial
    Statements  (Continued)
  purchase method
            (17)
    Subsequent
    Event    (18)
    Segment
    Reporting   F-28




---



##### Table of Contents



ASSURANCEAMERICA
    CORPORATION AND SUBSIDIARIES
  Notes to
    Consolidated Financial
    Statements  (Continued)
    MGA


TrustWay


AAIC


Company


Eliminations


Consolidated(In thousands)2008RevenuesExternal customer

$
27,329


$
6,711


$
29,198


$



$



$
63,238Intersegment


6,796



2,903



3,115



2,797



(15,611
)


IncomeSegment pretax income(loss)


4,522



(8,411
)


(779
)


56







(4,612
)AssetsSegment assets

$
7,729


$
5,087


$
114,608


$
22,476


$
(18,383
)

$
131,5172007RevenuesExternal customer

$
26,562


$
5,554


$
26,263


$



$



$
58,379Intersegment


6,713



3,938



3,010



2,970



(16,631
)


IncomeSegment pretax income(loss)


1,302



(3,791
)


3,911



(629
)






793AssetsSegment assets

$
8,416


$
8,504


$
108,353


$
23,943


$
(23,963
)

$
125,253  F-29