##### Table of Contents





SECURITIES AND EXCHANGE
    COMMISSION
 Washington, D.C.
    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, 2007o

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

30328(Address of Principal Executive
    Offices)

(Zip Code)   Issuers telephone number
    (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. þ
  Rule 12b-2
  Large accelerated filer
    o

Accelerated filer
    o

Non-accelerated filer
    o

Smaller reporting
    company þ(Do not check if a smaller
    reporting company)   Rule 12b-2 o þ
      Documents
    Incorporated By Reference
    o þ




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##### 





TABLE OF
    CONTENTS
   
 PAGENUMBERForward Looking StatementsPART I1.


Description of Business


12.


Description of Property


83.


Legal Proceedings


84.


Submission of Matters to a Vote of Security
    Holders


8PART II5.


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


86.


Selected Financial Data


97.


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, Related Transactions and
    Director Independence


1814.


Principal Accountant Fees and Services


18PART IV15.


Exhibits and Financial Statement Schedules


18Signatures


21EX-21.1 LIST OF SUBSIDIARIESEX-31.1 SECTION 302 CERTIFICATION OF THE CHIEF EXECUTIVE OFFICEREX-31.2 SECTION 302 CERTIFICATION OF THE CONTROLLEREX-32.1 SECTION 906 CERTIFICATION OF THE CHIEF EXECUTIVE OFFICER AND THE CONTROLLER




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Forward-Looking
    Statements   PART I  Item 1.
    BUSINESS  History
    1-for-1
 1




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Who We
    Are
      Our
    Business
      
   2




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Our
    Industry
    15-20%
    Our
    Products
    Target
    Market
   3




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Wholesale
    Operations
    Claims
          Underwriting
    and Customer Service
      Product
    Development and Management
   4




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Information
    Technology
    end-to-end,
            Retail
    Operations
        Reinsurance
   5




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Reserves
    State
    Insurance Licenses
    Supervision
    and Regulation
           6




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Statutory
    Accounting Principles
          available-for-sale,
 7




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Investments
    Competition
      Employees
    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 PURCHASES OF
    EQUITY SECURITIES  Over-the-Counter
 8




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over-the-counter mark-up,
  Bid PricesQuarter Ended

High


Low2006 Fiscal Year:March 31, 2006

$
1.80


$
0.82June 30, 2006

$
1.81


$
1.22September 30, 2006

$
1.25


$
1.00December 31, 2006

$
1.12


$
0.782007 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         ITEM 6.
    SELECTED
    FINANCIAL DATA  Selected
    Quarterly Financial Information
  First


Second


Third


FourthQuarter


Quarter


Quarter


Quarter2007Revenue

$
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
)2006Revenue

$
15,376,950


$
12,986,923


$
13,127,204


$
12,231,765Income from operations


1,198,153



512,474



851,735



149,523Net income attributable to common shareholders


669,971



237,169



699,307



2,703,952Diluted net earnings per share attributable to common
    shareholders


0.010



0.004



0.011



0.041  9




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Item 7.
    MANAGEMENTS
    DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
    OPERATIONS  Results
    of Operations
      Revenues
  Premiums
  year-over-year
    Commission
    and Fee Income
   10




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Net
    Investment Income
    Expenses
  Insurance
    Loss and Loss Adjustment Expenses
      year-over-year
 11




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Other
    Expenses
    Income
    Tax Expense (Benefit)
    Financial
    Condition
         12




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13




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Liquidity
    and Capital Resources
             14




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Off-Balance
    Sheet Arrangements
    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   15




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

Age

Positions HeldGuy W. Millner


72


ChairmanLawrence (Bud) Stumbaugh


67


President and Chief Executive OfficerGregory D. Woods


46


Controller and Acting Chief Financial OfficerMark H. Hain


58


Senior Vice President, General Counsel and SecretaryJoseph J. Skruck


43


President, AssuranceAmerica Managing General Agency, LLC (a
    subsidiary of the Company)Charlie Brock


53


Vice President  Sales, AssuranceAmerica Managing
    General Agency, LLC (a subsidiary of the Company)Scott Nelson


40


Regional Vice President  Product Development,
    AssuranceAmerica Managing General Agency, LLC (a subsidiary of
    the Company)Elise Quadrozzi


47


Senior Vice President  Claims and Underwriting,
    AssuranceAmerica Managing General Agency, LLC (a subsidiary of
    the Company)David Anthony


48


Vice President  Information Technology,
    AssuranceAmerica Managing General Agency, LLC (a subsidiary of
    the Company)Tony Pepsoski


40


Regional Vice President  Product Development,
    AssuranceAmerica Managing General Agency, LLC (a subsidiary of
    the Company)   Biographies
    of Executive Officers
  Guy W. Millner
  Lawrence (Bud) Stumbaugh
  Mark H. Hain
 16




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Joseph J. (Joe) Skruck,
  Charlie Brock Coca-Cola
  Gregory D. Woods
  Elise A. Quadrozzi ,
  David H. Anthony
  Scott M. Nelson
  Tony Pepsoski
  Item 11.
    EXECUTIVE
    COMPENSATION    Item 12.
    SECURITY
    OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND
    RELATED STOCKHOLDER MATTERS   17




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Equity
    Compensation Plan Information
    (a)


(b)


(c)Number of securities


Weighted-


Number of securities remainingto be issued upon


Average


available for future issuanceexercise of


exercise price of


under equity compensationoutstanding options,


outstanding


plans (excluding securitiesPlan Category

warrants and rights


Options


reflected in column (a))Equity compensation plans approved by stockholders(1)


4,946,665


$
0.80



2,239,335Equity compensation plans not approved by stockholders






N/A



Total


4,946,665


$
0.80



2,239,335     (1)
    
    Consists of options granted under the Companys 2000 Stock
    Option Plan.  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        PAGEReport of Independent Registered Public Accounting Firm


F-2Consolidated Balance Sheets as of December 31, 2007 and 2006


F-3Consolidated Statements of Operations for the years ended
    December 31, 2007 and 2006


F-5Consolidated Statements of Changes in Stockholders Equity
    for the years ended December 31, 2007 and 2006


F-6Consolidated Statements of Comprehensive Income for the years
    ended December 31, 2007 and 2006


F-8Consolidated Statements of Cash Flows for the years ended
    December 31, 2007 and 2006


F-9Notes to consolidated financial statements


F-10         18




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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).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 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). 19




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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.  20




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SIGNATURES          By:
    /s/  Lawrence
    Stumbaugh      Name

Title

Date/s/  Lawrence
    StumbaughLawrence
    Stumbaugh

Chief Executive Officer and Director (Principal Executive
    Officer)

Date: March 28, 2008/s/  Gregory
    Dean WoodsGregory
    Dean Woods

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

Date: March 28, 2008/s/  Guy
    W. MillnerGuy
    W. Millner

Chairman of the Board of Directors

Date: March 28, 2008/s/  Donald
    RatajczakDonald
    Ratajczak

Director

Date: March 28, 2008/s/  Quill
    O. HealeyQuill
    O. Healey

Director

Date: March 28, 2008/s/  John
    E. Cay, IIIJohn
    E. Cay, III

Director

Date: March 28, 2008/s/  Kaaren
    J. StreetKaaren
    J. Street

Director

Date: March 28, 2008/s/  Sam
    ZamarripaSam
    Zamarripa

Director

Date: March 28, 2008/s/  John
    RayJohn
    Ray

Director

Date: March 28, 2008  21




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Index to
    Financial Statements
  PAGEReport of Independent Registered Public
    Accounting Firm


F-2Consolidated Balance Sheets as of
    December 31, 2007 and 2006


F-3Consolidated Statements of Operations for the
    years ended December 31, 2007 and 2006


F-5Consolidated Statements of Changes in
    Stockholders Equity for the years ended December 31,
    2007 and 2006


F-6Consolidated Statements of Comprehensive Income
    for the years ended December 31, 2007 and 2006


F-8Consolidated Statements of Cash Flows for the
    years ended December 31, 2007 and 2006


F-9Notes to consolidated financial statements


F-10  F-1




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




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##### Table of Contents



ASSURANCEAMERICA
    CORPORATION AND SUBSIDIARIES
 CONSOLIDATED
    BALANCE SHEETS (AUDITED)  December 31,


December 31,2007


2006AssetsCash and cash equivalents

$
5,511,842


$
8,185,539Short-term investments


642,924



619,843Long-term investments


14,838,738



10,446,830Marketable equity securities


2,563,040



2,055,983Other securities


155,000



155,000Investment income due and accrued


158,981



117,363Receivable from insureds


28,802,125



18,707,773Reinsurance recoverable (including $6,077,396 and $5,130,845 on
    paid losses)


29,327,012



22,563,990Prepaid reinsurance premiums


21,145,161



14,012,481Deferred acquisition costs


2,130,323



800,125Property and equipment (net of accumulated depreciation of
    $2,737,288 and $2,136,512)


2,360,747



2,481,660Other receivables


2,966,287



585,999Prepaid expenses


861,588



273,733Intangibles (net of accumulated amortization of $2,240,233 and
    $1,824,334)


11,368,383



11,114,882Security deposits


86,438



74,140Prepaid income tax


148,677



668,677Deferred tax assets


1,824,453



2,506,503Other assets


361,419



374,365Total assets

$
125,253,138


$
95,744,886 F-3




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December 31,


December 31,2007


2006Liabilities and stockholders equityAccounts payable and accrued expenses

$
7,184,132


$
5,039,900Unearned premium


30,991,565



20,614,781Unpaid losses and loss adjustment expenses


33,660,814



24,904,492Reinsurance payable


25,174,138



16,744,406Provisional commission reserve


2,963,308



2,319,540Notes payable and related party debt


4,482,862



5,797,122Junior subordinated debentures payable


4,968,519



4,961,852Capital lease obligations






265,670Total liabilities


109,425,338



80,647,763Commitments and contingenciesStockholders equityCommon stock, $.01 par value (authorized 120,000,000 and
    80,000,000, outstanding 64,803,881 and 56,072,971)


648,039



560,730Preferred stock, $.01 par value (authorized 5,000,000,
    outstanding 0 and 840,000; liquidation preference $0 and
    $4,200,000)






8,400Surplus-paid in


16,782,588



16,426,292Accumulated deficit


(1,673,332
)


(1,948,711
)Accumulated other comprehensive income:Net unrealized gains on investmentsecurities, net of taxes


70,505



50,412Total stockholders equity


15,827,800



15,097,123Total liabilities and stockholders equity

$
125,253,138


$
95,744,886    F-4




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##### Table of Contents



ASSURANCEAMERICA
    CORPORATION AND SUBSIDIARIES
 CONSOLIDATED
    STATEMENTS OF OPERATIONS (AUDITED)  For the years ended December 31,
  2007


2006Revenue:Gross premiums written

$
88,395,199


$
69,108,965Ceded premiums written


(59,763,971
)


(47,016,892
)Net premiums written


28,631,228



22,092,073Increase in unearned premiums, netof prepaid reinsurance premiums


(3,244,105
)


(1,239,097
)Net premiums earned


25,387,123



20,852,976Commission income


20,870,068



22,232,993Managing general agent fees


10,912,946



9,249,488Net investment income


801,950



727,969Net investment gains onsecurities


34,469



24,445Other fee income


372,146



634,971Total revenue


58,378,702



53,722,842Expenses:Losses and loss adjustment expenses


18,864,642



15,318,922Selling, general, and administrative


36,189,148



33,091,167Stock option expense


333,694



429,351Depreciation and amortization expense


1,185,271



1,030,165Interest expense


1,013,364



1,141,368Total operating expenses


57,586,119



51,010,973Income before provision for income tax expense


792,583



2,711,869Income tax provision (benefit)


517,204



(2,019,730
)Net income before dividends on preferred stock


275,379



4,731,599Dividends on preferred stock






421,200Net income attributable to common stockholders

$
275,379


$
4,310,399Earnings per common shareBasic

$
0.004



0.080Diluted

$
0.004



0.075Weighted average shares outstanding-basic


61,913,645



53,609,956Weighted average shares outstanding-diluted


62,656,305



63,480,814    F-5




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ASSURANCEAMERICA
    CORPORATION AND SUBSIDIARIES
 CONSOLIDATED
    STATEMENTS OF CHANGES IN STOCKHOLDERS EQUITY
    (AUDITED)  For the years ended December 31, 2007 and 2006
  AccumulatedChange in OtherComprehensiveCommon


Preferred





Accumulated


Income, Net ofStock


Stock


Paid in Capital


Deficit


Taxes


TotalBalance, December 31, 2005

$
511,673


$
12,660


$
15,678,015


$
(6,259,110
)

$



$
9,943,238Stock issued


6,457







398,516











404,973Stock issuance expenses










(41,250
)










(41,250
)Conversion of preferred to common stock


42,600



(4,260
)


(38,340
)










Stock option expense










429,351











429,351Change in value of
    available-for-sale
    securities, net of taxes


















50,412



50,412Preferred dividends paid














(421,200
)






(421,200
)Net income














4,731,599







4,731,599Balance, 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


$
15,827,800  F-6




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##### Table of Contents



Share
    Activity
    (in thousands)
  2007


2006Common stockIssuedAt beginning of year


56,073



51,167Issued


331



646Converted from preferredstock


8,400



4,260At end of year


64,804



56,073Preferred stockIssuedAt beginning of year


840



1,266Converted to preferredstock


(840
)


(426
)At end of year






840    F-7




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##### Table of Contents



ASSURANCEAMERICA
    CORPORATION AND SUBSIDIARIES
 CONSOLIDATED
    STATEMENTS OF COMPREHENSIVE INCOME (AUDITED)  For the years ended December 31,
  2007


2006Net income

$
275,379


$
4,731,599Other comprehensive income:Change in unrealized gains of investments:Unrealized gains arising during the year


66,618



105,104Reclassification adjustment for realizedgains recognized during the year


(34,469
)


(24,445
)Net change in unrealized gains


32,149



80,659Deferred income tax effect on abovechanges


(12,056
)


(30,247
)Other comprehensive income


20,093



50,412Comprehensive income

$
295,472


$
4,782,011    F-8




---



##### Table of Contents



ASSURANCEAMERICA
    CORPORATION AND SUBSIDIARIES
 CONSOLIDATED STATEMENTS OF CASH FLOWS
    (AUDITED)
  For the Years Ended December 31, 2007 and 2006
  2007


2006Cash flows from operating activities:Net income

$
275,379


$
4,731,599Adjustments to reconcile net income to netcash provided by operating activities:Net investment gains


(34,469
)


(24,445
)Depreciation and amortization


1,205,226



1,036,832Stock-based compensation


333,694



429,351Loss on disposal of property and equipment


137,928



18,602Deferred tax provision (benefit)


669,994



(2,183,791
)Changes in assets and liabilities:Investment income due and accrued


(41,618
)


(36,213
)Receivables


(12,474,640
)


(3,367,517
)Prepaid expenses and other assets


(587,207
)


(77,439
)Unearned premiums


10,376,784



4,040,308Unpaid loss and loss adjustment expenses


8,756,322



9,794,618Reinsurance payable


8,429,732



6,506,325Reinsurance recoverable


(6,763,022
)


(7,773,891
)Prepaid reinsurance premiums


(7,132,680
)


(2,801,211
)Accounts payable and accrued expenses


2,146,202



(2,424,942
)Prepaid income taxes


520,000



(668,677
)Deferred acquisition costs


(1,330,197
)


(1,586
)Provisional commission reserve


643,768



615,161Net cash provided by operating activities


5,131,196



7,813,084Cash flows from investing activities, net of effect of agency
    acquisitions:Purchases of property and equipment, net


(786,387
)


(1,490,247
)Proceeds from sales, maturities and calls of investments


2,842,020



4,226,387Purchases of investments


(7,745,206
)


(8,704,104
)Cash paid for acquisition of agencies, net of cash acquired


(400,000
)


(361,700
)Net cash used by investing activities, net of effect of
    agency acquisitions


(6,089,573
)


(6,329,664
)Cash flows from financing activities:Repayments of notes payable


(1,551,160
)


(1,954,746
)Preferred dividends paid






(421,200
)Proceeds from capital lease obligations






108,739Repayments of capital lease obligations


(265,671
)


(63,224
)Stock issued net of expenses


101,511



363,723Net cash used by financing activities


(1,715,320
)


(1,966,708
)Net decrease in cash and cash equivalents


(2,673,697
)


(483,288
)Cash and cash equivalents, beginning of period


8,185,539



8,668,827Cash and cash equivalents, end of period

$
5,511,842


$
8,185,539      F-9




---



##### Table of Contents



ASSURANCEAMERICA
    CORPORATION AND SUBSIDIARIES
 Notes to
    Consolidated Financial Statements
    December 31, 2007 and 2006  (1)
    Description
    of Business    (2)
    Summary
    of Significant Accounting Policies  Basis
    of Consolidation and Presentation
    Estimates
        Recognition
    of Revenues
    Fair
    Value of Financial Instruments
   F-10




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##### Table of Contents



ASSURANCEAMERICA CORPORATION AND SUBSIDIARIES
 Notes to Consolidated Financial
    Statements(Continued)
 December 31, 2007 and 2006
    Deferred
    Acquisition Costs
    Contingencies
  and/or
  Start-Up
    Costs
  Start-up
  Cash
    and Cash Equivalents
    Property
    and Equipment
      December 31, 2007


December 31, 2006Furniture and equipment

$
1,406,473


$
1,337,210Computer equipment


1,642,114



1,457,834Computer software


1,016,864



769,488Leasehold improvements


1,032,584



1,053,640Less: accumulated depreciation


(2,737,288
)


(2,136,512
)$
2,360,747


$
2,481,660  F-11




---



##### Table of Contents



ASSURANCEAMERICA CORPORATION AND SUBSIDIARIES
 Notes to Consolidated Financial
    Statements(Continued)
 December 31, 2007 and 2006
  Amortization
    of Intangible Assets
  1 2
    December 31, 2007


December 31, 2006Goodwill

$
9,188,991


$
8,763,566Non-compete clause


781,500



760,000Renewal list


3,418,125



3,195,650Restrictive covenants


220,000



220,00013,608,616



12,939,216Less accumulated amortization


(2,240,233
)


(1,824,334
)$
11,368,383


$
11,114,882     2008

$
425,0022009

$
382,5152010

$
348,7772011

$
347,2772012

$
344,082     Advertising
    Stock
    Options
   F-12




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##### Table of Contents



ASSURANCEAMERICA CORPORATION AND SUBSIDIARIES
 Notes to Consolidated Financial
    Statements(Continued)
 December 31, 2007 and 2006
  Income
    Taxes
      (3)
    Investments  available-for-sale available-for-sale
  available-for-sale
        December 31, 2007


December 31, 2006Short-term investments and bankcertificates of deposit

$
642,924


$
619,843U.S. Treasury securities andobligations of U.S. governmentcorporations and agencies


7,058,831



4,773,194Obligations of states andpolitical subdivisions


6,245,337



4,110,076Corporate debt securities


1,534,570



1,563,560Marketable equity securities


2,563,040



2,055,983Total

$
18,044,702


$
13,122,656  F-13




---



##### Table of Contents



ASSURANCEAMERICA CORPORATION AND SUBSIDIARIES
 Notes to Consolidated Financial
    Statements(Continued)
 December 31, 2007 and 2006
  available-for-sale
  Gross


GrossYears to Maturity

Amortized Cost


Unrealized Gains


Unrealized Losses


Fair ValueWithin one year

$
777,246


$



$
984


$
776,262One to five years


2,061,648



8,696



66



2,070,278Five to ten years


2,109,702



41,453



41,587



2,109,568Over ten years


9,890,759



62,862



70,991



9,882,630Total

$
14,839,355


$
113,011


$
113,628


$
14,838,738   available-for-sale
  Gross


GrossSecurity type  December 31, 2007

Amortized Cost


Unrealized Gains


Unrealized Losses


Fair 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   Gross


GrossSecurity type  December 31, 2006

Amortized Cost


Unrealized Gains


Unrealized Losses


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

$
5,295,497


$



$
22,460


$
5,273,037Obligations of states and political subdivisions


4,045,076



70,010



5,010



4,110,076Corporate debt securities


1,582,363







18,803



1,563,560Marketable equity securities


1,999,061



70,611



13,689



2,055,983Total

$
12,921,997


$
140,621


$
59,962


$
13,002,656      F-14




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##### Table of Contents



ASSURANCEAMERICA CORPORATION AND SUBSIDIARIES
 Notes to Consolidated Financial
    Statements(Continued)
 December 31, 2007 and 2006
    Less Than Twelve Months


Over Twelve MonthsGross


Estimated


Gross


EstimatedUnrealized


Market


Unrealized


MarketLosses


Fair Value


Losses


Fair ValueDecember 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


$
4,383,699December 31, 2006:U.S. Treasury and government agencies

$
1,399


$
851,788


$
21,061


$
3,817,510Obligations of state and political entities


5,010



528,172







Corporate debt securities


14,229



1,041,484



4,574



526,650Equity Securities


13,689



479,886







$
34,327


$
2,901,330


$
25,635


$
4,344,160     (4)
    Losses
    and Loss Adjustment Expenses      December 31, 2007


December 31, 2006Case basis

$
4,200,577


$
3,510,978IBNR


6,210,621



3,960,369Total

$
10,411,198


$
7,471,347  F-15




---



##### Table of Contents



ASSURANCEAMERICA CORPORATION AND SUBSIDIARIES
 Notes to Consolidated Financial
    Statements(Continued)
 December 31, 2007 and 2006
    2007


2006Balance at January 1

$
24,904,492


$
15,109,874Less reinsurance recoverables on unpaid losses


17,433,145



10,576,912Net balance at January 1


7,471,347



4,532,962Add Losses and LAE incurred, net, related to:Current year


19,087,643



15,159,788Prior years


(223,000
)


159,134Net Losses and LAE incurred in the current year


18,864,642



15,318,922Deduct Losses and LAE paid, net, related to:Current year


11,348,794



9,437,032Prior years


4,576,000



2,943,505Net claim payments in the current year


15,924,794



12,380,537Net balance at December 31


10,411,198



7,471,347Plus reinsurance recoverables on unpaid losses


23,249,616



17,433,145Balance at December 31

$
33,660,814


$
24,904,492     (5)
    Reinsurance       F-16




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##### Table of Contents



ASSURANCEAMERICA CORPORATION AND SUBSIDIARIES
 Notes to Consolidated Financial
    Statements(Continued)
 December 31, 2007 and 2006
    2007


2006Premiums written:Direct

$
86,829,481


$
68,825,601Assumed


1,565,717



283,364Ceded


59,763,970



47,016,892Net

$
28,631,228


$
22,092,073Premiums earned:Direct

$
76,834,157


$
64,768,234Assumed


1,184,255



300,423Ceded


52,631,289



44,215,681Net

$
25,387,123


$
20,852,976Losses and loss adjustment expenses incurred:Direct

$
59,626,954


$
51,008,247Assumed


856,571



413Ceded


41,618,883



35,689,738Net

$
18,864,642


$
15,318,922The impact of reinsurance on the balance sheets as of December
    31 is as follows:Unpaid losses and loss adjustment expense:Direct

$
33,391,172


$
24,904,492Assumed


269,642



Ceded


23,249,616



17,433,145Net

$
10,411,198


$
7,471,347Unearned premiums:Direct

$
30,495,191


$
20,499,867Assumed


496,374



114,914Ceded


21,145,161



14,012,481Net

$
9,846,404


$
6,602,300     Contingent
    Reinsurance Commission and Provisional Commission
    Reserve
   F-17




---



##### Table of Contents



ASSURANCEAMERICA CORPORATION AND SUBSIDIARIES
 Notes to Consolidated Financial
    Statements(Continued)
 December 31, 2007 and 2006
      Policy Year

Amount2005

$
3,1622006


1,339,4992007


1,620,647Total

$
2,963,308   (6)
    Long-Term
    Debt  Notes
    Payable, Related Party
    Other
    Notes Payable
    Junior
    Subordinated Debentures
   F-18




---



##### Table of Contents



ASSURANCEAMERICA CORPORATION AND SUBSIDIARIES
 Notes to Consolidated Financial
    Statements(Continued)
 December 31, 2007 and 2006
    Scheduled
    Maturities
    Amount2008

$
2,907,8112009


1,057,2002010


519,5182011


2012


2013 and thereafter


5,013,908Total

$
9,451,381   (7)
    Income
    Taxes    December 31,2007


2006Current

$
(152,790
)

$
164,061Reversal of prior year valuation allowance






(2,266,000
)Deferred


669,994



82,209Total provision for income taxes

$
517,204


$
(2,019,730
)  F-19




---



##### Table of Contents



ASSURANCEAMERICA CORPORATION AND SUBSIDIARIES
 Notes to Consolidated Financial
    Statements(Continued)
 December 31, 2007 and 2006
    2007


2006Income before income taxes

$
792,583


$
2,711,869Income tax expense at statutory rate

$
269,478


$
922,035Tax effect of:Tax exempt interest income


(67,485
)


(31,395
)Incentive stock option expense


113,456



Utilization of net operating loss carry-forwards






(482,460
)Reversal of prior year valuation allowance






(2,266,000
)State taxes, net of federal tax benefit


55,268



22,328Other, net


146,487



(184,238
)Total income tax expense

$
517,204


$
(2,019,730
)     2007


2006Deferred income tax assets:Discounting of loss reserves

$
217,000


$
188,000Federal operating loss carry-forward


813,000



1,051,000Amortization of intangibles


703,000



781,000Unearned premium reserves


738,000



495,000Unearned commission reserves


225,000



220,000Other


1,000



161,000Gross deferred tax assets

$
2,697,000


$
2,896,000Deferred income tax liabilities:Deferred acquisition costs


800,000



300,000Depreciation


29,547



59,497Unrealized gains on securitiesavailable for sale


43,000



30,000Gross deferred tax liabilities


872,547



389,497Net deferred tax assets

$
1,824,453


$
2,506,503    F-20




---



##### Table of Contents



ASSURANCEAMERICA CORPORATION AND SUBSIDIARIES
 Notes to Consolidated Financial
    Statements(Continued)
 December 31, 2007 and 2006
      Expires 2018

$
124,903Expires 2019


572,863Expires 2020


920,162Expires 2021


124,456Expires 2022


166,999Expires 2024


241,662Expires 2025


17,487$
2,168,532   Accounting for Uncertainty in
    Income Taxes  an interpretation of FASB 109
      (8)
    Capital
    Stock  Preferred
    Stock
   F-21




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##### Table of Contents



ASSURANCEAMERICA CORPORATION AND SUBSIDIARIES
 Notes to Consolidated Financial
    Statements(Continued)
 December 31, 2007 and 2006
    Common
    Stock
    Stock-Based
    Compensation
    one-for-one
      2007

2006Expected volatility

106%-120%

111%-119%Weighted average volatility

113%

112%Risk-free interest rate

2.00%-2.80%

1.90%-2.40%Expected term (in years)

5.0

5.0  F-22




---



##### Table of Contents



ASSURANCEAMERICA CORPORATION AND SUBSIDIARIES
 Notes to Consolidated Financial
    Statements(Continued)
 December 31, 2007 and 2006
    2007


2006Weighted





WeightedNumber of


Average


Number of


AverageOptions Outstanding

Shares


Exercise Price


Shares


Exercise PriceBeginning of year


5,347,225


$
0.85



4,215,628


$
0.97Add (deduct):Granted


2,451,000


$
0.87



2,431,315


$
1.10Exercised


(314,000
)

$
0.44



(45,650
)

$
0.33Forfeited


(2,437,560
)

$
0.88



(1,014,150
)

$
0.86Expired


(100,000
)

$
4.35



(239,918
)

$
5.56End of year


4,946,665


$
0.80



5,347,225


$
0.85Exercisable, end of year


1,524,883


$
0.57



1,394,782


$
0.76           For the Twelve Months Ended December 31,2007


2006Net income attributable to common stockholders,as reported

$
275,379


$
4,310,399Compensation effect, net of tax effect


(131,588
)


(214,692
)Pro forma net income (loss)

$
143,791


$
4,095,707Basic and diluted net income attributableto common stockholdersAs reported  Basic

$
0.004


$
0.080Pro forma  Basic

$
0.002


$
0.076As reported  Diluted

$
0.004


$
0.075Pro forma  Diluted

$
0.002


$
0.065  F-23




---



##### Table of Contents



ASSURANCEAMERICA CORPORATION AND SUBSIDIARIES
 Notes to Consolidated Financial
    Statements(Continued)
 December 31, 2007 and 2006
    Options Outstanding


Options ExercisableNumber of shares


4,946,665



1,524,883Weighted average exercise price

$
0.80


$
0.57Aggregate intrinsic value

$
326,600


$
278,040Weighted average remaining contractual term


4.43 years



1.92 years     Options Outstanding


Options ExercisableWeightedAverage


Weighted





WeightedRemaining


Average





AverageNumber


Contractual


Exercise


Number of


ExerciseRange of Exercise Prices

of Shares


Life


Price


Shares


Price< $1.00


3,806,665



4.59 years


$
0.64



1,435,383


$
0.50$1.00 < $3.00


1,140,000



3.87 years


$
1.31



89,500


$
1.634,946,665



4.43 years


$
0.80



1,524,883


$
0.57   (9)
    Risk         F-24




---



##### Table of Contents



ASSURANCEAMERICA CORPORATION AND SUBSIDIARIES
 Notes to Consolidated Financial
    Statements(Continued)
 December 31, 2007 and 2006
  Concentration
    of Risk
    Concentration
    of Credit Risk
      Regulatory
    Requirements and Restrictions
  premium-to-surplus
       F-25




---



##### Table of Contents



ASSURANCEAMERICA CORPORATION AND SUBSIDIARIES
 Notes to Consolidated Financial
    Statements(Continued)
 December 31, 2007 and 2006
    (10)
    Commitments
    and Contingencies  Operating
    Leases
    Year Ending December 31,

Amount2008

$
1,736,5802009


1,501,9262010


1,399,6462011


1,280,0992012


1,093,259Thereafter


1,826,624$
8,838,134       Capital
    Leases
    Defined
    Contribution Plan
    Legal
    Proceedings
    (11)
    Business
    Combination   F-26




---



##### Table of Contents



ASSURANCEAMERICA CORPORATION AND SUBSIDIARIES
 Notes to Consolidated Financial
    Statements(Continued)
 December 31, 2007 and 2006
           F-27




---



##### Table of Contents



ASSURANCEAMERICA CORPORATION AND SUBSIDIARIES
 Notes to Consolidated Financial
    Statements(Continued)
 December 31, 2007 and 2006
      (12)
    Net
    Income Per Share    2007


2006Warrants






80,000Stock options


2,931,665



2,799,7252,931,665



2,879,725     Average Shares


Per ShareNet Income


Outstanding


AmountFor the year ended December 31, 2007:Net income  basic

$
275,379



61,913,645



0.004Effect of dilutive stock warrants and options






742,660Net income  diluted

$
275,379



62,656,305



0.004For the year ended December 31, 2006:Net income  basic

$
4,310,399



53,609,956



0.080Effect of common shares issued upon conversion of preferred


421,200



8,400,000Effect of dilutive stock warrants and options






1,470,858Net income  diluted

$
4,731,599



63,480,814



0.075   (13)
    Related
    Party Transactions   F-28




---



##### Table of Contents



ASSURANCEAMERICA CORPORATION AND SUBSIDIARIES
 Notes to Consolidated Financial
    Statements(Continued)
 December 31, 2007 and 2006
            (14)
    Supplemental
    Cash Flow Information  2007


2006Cash paid (received) during the year:Interest

$
1,013,364


$
1,121,691Income tax payment (refund)


(672,793
)


832,738          F-29




---



##### Table of Contents



ASSURANCEAMERICA CORPORATION AND SUBSIDIARIES
 Notes to Consolidated Financial
    Statements(Continued)
 December 31, 2007 and 2006
        2007


2006Fair value of assets acquired

$
669,400


$
3,253,536Cash paid to Sellers


(400,000
)


(1,257,411
)Liabilities assumed

$
269,400


$
1,996,125   (15)
    Recent
    Accounting Pronouncements       instrument-by-instrument
  (16)
    Reclassification    (17)
    Segment
    Reporting   F-30




---



##### Table of Contents



ASSURANCEAMERICA CORPORATION AND SUBSIDIARIES
 Notes to Consolidated Financial
    Statements(Continued)
 December 31, 2007 and 2006
    MGA


TrustWay


AAIC


Company


Eliminations


Consolidated(In thousands)2007RevenuesExternal customer

$
6,561


$
5,554


$
26,263


$



$



$
58,378Intersegment


6,713



3,938



3,010



2,970



(16,631
)


IncomeSegment pretax income(loss)


1,302



(3,792
)


3,911



(629
)






792AssetsSegment assets


8,416



8,504



108,353



23,943



(23,963
)


125,253   MGA


TrustWay


AAIC


Company


Eliminations


Consolidated(In thousands)2006RevenuesExternal customer

$
22,477


$
9,641


$
21,600


$
5


$



$
53,723Intersegment


5,391



2,502



2,409



2,186



(12,488
)


IncomeSegment pretax income (loss)


2,394



(1,433
)


2,979



(1,228
)






2,712AssetsSegment assets


5,262



11,153



75,294



24,670



(20,634
)


95,745  F-31