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SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549
   FORM 10-KSB/A (Amendment #1)
 þ ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934. For the fiscal year ended December 31, 2004 o 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
    
    (I.R.S. Employer Identification No.)Incorporation or Organization)
 5500 Interstate North Pkwy., Suite 600, Atlanta, Georgia
    
    30328(Address of Principal Executive Offices)
    
    (Zip Code)
 (770) 933-8911(Issuers Telephone Number, Including Area Code)
 Securities registered under Section 12(b) of the Exchange Act: None Title of each class Securities registered under Section 12(g) of the Exchange Act: Common Stock, Par Value $0.01. Check whether the Issuer: (1) filed all reports required to be filed by Section 13 or 15(d) of
the Exchange Act during the past 12 months (or for such shorter period that the Registrant was
required to file such reports), and (2) has been subject to such filing requirements for the past
90 days. Yes þ No o Check if there is no disclosure of delinquent filers in response to Item 405 of Regulation S-B
contained in this form, and no disclosure will be contained, to the best of Registrants knowledge,
in definitive proxy or information statements incorporated by reference in Part III of this Form
10-KSB or any amendment to this Form 10-KSB. o The Issuers revenues for the fiscal year ended December 31, 2004, were $24.2 million. The aggregate market value of the voting and nonvoting common equity held by persons other
than directors and executive officers of the Registrant as of March 24, 2005, was $4,968,071, based
on a sale price of $0.80 per share. There were 46,577,090 shares of the Registrants common stock outstanding as of December 31,
2004. Transitional Small Business Disclosure Format (check one): Yes o No þ Document Incorporated By Reference None.




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TABLE OF CONTENTS  
 PAGEITEM NUMBER AND CAPTION
    
    NUMBERPART I1. Description of Business
    
    32. Description of Property
    
    63. Legal Proceedings
    
    64. Submission of Matters to a Vote of Security Holders
    
    6PART II5. Market for Common Equity and Related Stockholder Matters
    
    66. Managements Discussion and Analysis or Plan of Operation
    
    77. Financial Statements
    
    98. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
    
    98A. Controls and Procedures
    
    9PART III9. Directors, Executive Officers, Promoters and Control Persons; Compliance with Section 16(a) of the Exchange Act
    
    910. Executive Compensation
    
    1111. Security Ownership of Certain Beneficial Owners and Management
    
    1212. Certain Relationships and Related Transactions
    
    1313. Exhibits, List and Reports on Form 8-K
    
    1414. Principal Accountant Fees and Services
    
    15Signatures
    
    16EX-3.6 AMENDMENT TO THE COMPANY'S BY-LAWSEX-10.2 PROMISSORY NOTE / MILLNEREX-10.3 PROMISSORY NOTE / STUMBAUGHEX-10.4 PROMISSORY NOTE / MILLNEREX-21.1 LIST OF SUBSIDIARIESEX-31.1 SECTION 302 CERTIFICATION OF THE CEOEX-31.2 SECTION 302 CERTIFICATION OF THE CONTROLLEREX-32.1 SECTION 906 CERTIFICATION OF THE CEO & CONTROLLER
  2




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Forward-Looking Statements Statements in this report that are not historical fact are forward-looking statements that are
subject to certain risks and uncertainties that could cause actual events and results to differ
materially from those discussed in this Annual Report. Without limiting the generality of the
foregoing, words such as may, will, expect, believe, anticipate, intend, could,
would, estimate, or continue or the negative, or other variations or comparable terminology
are intended to identify forward-looking statements. The risks and uncertainties include, without
limitation, uncertainties related to estimates and assumptions generally; inflation and other
changes in economic conditions (including changes in interest rates and financial markets); pricing
competition and other initiatives by competitors; ability to obtain regulatory approval for
requested rate changes and the timing thereof; legislative and regulatory developments; risks
related to the nature of the Companys business, such as the adequacy of its reserve for loss and
loss adjustment expense; claims experience; the Companys limited experience in the insurance
industry; ratings by industry services; catastrophe losses; reliance on key personnel; weather
conditions (including the severity and frequency of storms, hurricanes, tornadoes and hail);
changes in driving patterns and loss trends; acts of war and terrorist activities; court decisions
and trends in litigation and health care and auto repair costs; and other matters described from
time to time by the Company in this report, and other filings with the Securities and Exchange
Commission. You are cautioned not to place reliance on these forward-looking statements. In
addition, you should be aware that generally accepted accounting principles prescribe when a
company may reserve for particular risks, including litigation exposures. Accordingly, results for
a given reporting period could be significantly affected if and when a reserve is established for a
major contingency. Reported results may therefore appear to be volatile in certain accounting
periods. 
 PART I 
 Item 1. DESCRIPTION OF BUSINESS AssuranceAmerica Corporation, a Nevada corporation (the Company), (formerly Brainworks
Ventures, Inc.) is an insurance holding company that was originally incorporated in 1969 under the
laws of the state of Utah. AssuranceAmerica Corporation, a Georgia corporation (AssuranceAmerica
Georgia), began the Companys current insurance business in 1998 through its subsidiary, Trustway
Insurance Agencies, LLC (Agencies), (formerly AssetAmerica Insurance Agencies, LLC). Agencies is
comprised of approximately 30 retail insurance agencies that focus on selling nonstandard personal
automobile insurance policies in Florida and Georgia. In 1999, the Company formed another
subsidiary, AssuranceAmerica Managing General Agency LLC (MGA), that until 2003 provided all of
the underwriting, claims and policyholder service functions for the Georgia nonstandard personal
automobile program for Gateway Insurance Company of St. Louis, Missouri. In late 2002, the Company
formed its subsidiary AssuranceAmerica Insurance Company (Carrier), a property and casualty
insurance company that focuses on writing nonstandard automobile business in the states of Georgia
and South Carolina. Carrier began writing business in Georgia in April 2003 and in South Carolina
in December 2003. MGA provides all of the underwriting, policyholder administration and claims
functions for Carrier. The Companys nonstandard personal automobile insurance products provide
customers with coverage for the minimum required statutory limits for bodily injury and property
damage liability arising out of the operation of a motor vehicle. Optional coverages written afford
protection for collision and physical damage to the customers motor vehicles, bodily injury and
property damage caused by an uninsured motorist, medical payments, towing and labor, and accidental
death and dismemberment. The Company utilizes the independent agency system as its primary
distribution channel. Nonstandard personal automobile insurance is usually provided to insureds who are unable to
obtain standard insurance coverage because of their payment history, driving record, age, vehicle
type or other factors. When underwriting standards for preferred and standard companies become more
restrictive, more insureds seek nonstandard coverage and the size of the nonstandard market
increases. MGA markets Carriers policies through more than 500 independent agencies in Georgia and more
than 100 in South Carolina. MGA receives commissions and other administrative fees from Carrier
based upon the amount of gross premiums written. Additionally, MGA receives various fees related to
the insurance transaction which vary according to state insurance laws and regulations. Nonstandard personal automobile insurance consumers typically purchase the statutory minimum
limits of liability insurance required to register their vehicles. Accordingly, the Company
believes the primary factors considered by these consumers are price, and the amount of down
payment required to bind coverage. Because of these purchasing habits, the rate of policy retention
is poor when compared to the retention rate of standard and preferred policies. The success of the
Company, therefore, depends in part on its ability to replace insureds that do not renew their
policies. MGA provides its services solely to Carrier. However, in the future, MGA may seek to provide
its services to other carriers. MGAs and Carriers strategy is to seek continued growth of their
business by:  
    Expanding into additional states;
    Expanding the number of independent agents appointed to sell the Carriers policies;
    Encouraging agents to place a high volume of quality business with MGA and Carrier;
    Continuing to enhance the Companys web-based agency system, allowing agents to sell the
Companys policies in a more efficient and effective manner; and 3




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
    Continuing to explore acquisition opportunities. Agencies is currently located primarily in the State of Florida. Agencies represents
approximately ten carriers, and primarily sells nonstandard personal automobile insurance and
related products. As remuneration for its services, Agencies receives commissions and various fees
associated with the sale of the products of its appointing carriers. In 2004, Agencies acquired one additional agency in the State of Georgia, bringing the number
of offices in Georgia to four, to go with the 27 existing agencies in Florida. Agencies strategy
is to seek continued growth of its business by:  
    opening additional offices currently served by existing local yellow page advertisements;
    enhancing training of branch managers to improve average premium and revenue per office;
    providing additional products for its offices; and
    pursuing acquisition and franchising opportunities. On April, 1, 2003, the Company, then known as Brainworks Ventures, Inc., consummated a merger
with AssuranceAmerica Georgia. To effect the merger, AA Holdings, LLC, a Delaware limited liability
company, merged with and into AssuranceAmerica Georgia for the purpose of converting the limited
liability company into a corporation. Thereafter, pursuant to an Agreement and Plan of Merger and
Reorganization by and among the Company, AAHoldings Acquisition Sub, Inc., AAHoldings, LLC and
AssuranceAmerica Georgia, dated April 1, 2003 (the Merger Agreement), the shareholders of
AssuranceAmerica Georgia exchanged an aggregate of 19,508,902 shares of AssuranceAmerica Georgia
common stock, no par value, on a 1-for-1 basis, for shares of common stock, $0.01 par value, per
share, of the Company (Company Common Stock). Due to an insufficient number of authorized shares
of Company Common Stock, the shareholders of AssuranceAmerica Georgia continued to hold an
aggregate of 23,241,098 shares of Series A Convertible Preferred Stock, no par value, of
AssuranceAmerica Georgia (AssuranceAmerica Georgia Preferred Stock), which stock, pursuant to the
terms of the Merger Agreement, was converted into shares of Company Common Stock, when the
authorized number of shares of Company Common Stock was increased to a number sufficient to
exchange each share of AssuranceAmerica Georgia Preferred Stock for one share of Company Common
Stock. Upon conversion, the former shareholders of AssuranceAmerica Georgia held a total of
42,790,000 shares of Company Common Stock. Such conversion occurred simultaneously with the
increase in the number of authorized shares of Company Common Stock. A special meeting of the
shareholders of the Company was held on June 26, 2003, to vote upon a proposal to increase the
number of authorized shares of Company Common Stock to permit such conversion of the
AssuranceAmerica Preferred Stock. The proposal was approved by the Companys shareholders. The Merger Agreement also effected a change in the executive officers of the Company and a
majority change in the Board of Directors of the Company. As of April 1, 2003, Marc Schwartz and
Cole Walker resigned from their positions as directors and executive officers of the Company.
Donald Ratajczak remained as the sole member of the Board of Directors of the Company. To fill
these vacancies on the Board, Guy W. Millner and Lawrence Stumbaugh were appointed by Dr. Ratajczak
as Directors of the Company. On April 1, 2003, Mr. Stumbaugh was appointed as President and Chief
Executive Officer of the Company by the Board of Directors. As a result of the merger, the Company ceased its historical business in order to focus upon
the insurance business of AssuranceAmerica-Georgia. State Insurance Licenses The Companys insurance company and agency subsidiaries operate under licenses issued by
various insurance authorities. These licenses may be of perpetual duration or renewable
periodically, provided the holder continues to meet applicable regulatory requirements. The
licenses govern the kinds of insurance coverages that may be written in the issuing state. Such
licenses are normally issued only after the filing of an appropriate application and the
satisfaction of prescribed criteria. All licenses that are material to the Companys businesses are
in good standing. Insurance Regulation The Companys insurance subsidiaries are generally subject to regulation and supervision by
insurance departments of the jurisdiction in which they are domiciled or licensed to transact
business. The nature and extent of such regulation and supervision varies from jurisdiction to
jurisdiction. Generally, an insurance company is subject to a higher degree of regulation and
supervision in its state of domicile. State insurance departments have broad administrative power
relating to licensing insurers and agents, regulating premium charges and policy forms,
establishing reserve requirements, prescribing statutory accounting methods and the form and
content of statutory financial reports, and regulating the type and amount of investments
permitted. Rate regulation varies from file and use to prior approval to mandated rates. Insurance departments are charged with the responsibility of ensuring that insurance companies
maintain adequate capital and surplus and comply with a variety of operational standards. Insurance
companies are generally required to file detailed annual and other reports with the insurance
department of each jurisdiction in which they conduct business. Insurance departments are
authorized to make periodic and other 4




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examinations of regulated insurers financial condition and operations to monitor financial
stability of the insurers and to ensure adherence to statutory accounting principles and compliance
with state insurance laws and regulations. Insurance holding company laws enacted in many jurisdictions grant to insurance authorities
the power to regulate acquisitions of insurers and certain other transactions and to require
periodic disclosure of certain information. These laws impose prior approval requirements for
certain transactions between regulated insurers and their affiliates and generally regulate
dividend and other distributions, including management fees, loans, and cash advances, between
regulated insurers and their affiliates. Under state insolvency and guaranty laws, regulated insurers can be assessed or required to
contribute to state guaranty funds to cover policyholder losses resulting from the insolvency of
other insurers. Insurers are also required by many states, as a condition of doing business in the
state, to provide coverage to certain risks which are not insurable in the voluntary market. These
assigned risk plans generally specify the types of insurance and the level of coverage which must
be offered to such involuntary risks, as well as the allowable premium. Many states also have
involuntary market plans which hire a limited number of servicing carriers to provide insurance to
involuntary risks. These plans, through assessments, pass underwriting and administrative expenses
on to insurers that write voluntary coverages in those states. Insurance companies are generally required by insurance regulators to maintain sufficient
surplus to support their writings. Although the ratio of writings to surplus that the regulators
will allow is a function of a number of factors, including the type of business being written, the
adequacy of the insurers reserves, the quality of the insurers assets and the identity of the
regulator, the annual net premiums that an insurer may write are generally limited in relation to
the insurers total policyholders surplus. Thus, the amount of an insurers surplus may, in
certain cases, limit its ability to grow its business. The National Association of Insurance
Commissioners also has developed a risk-based capital (RBC) program to enable regulators to
carry-out appropriate and timely regulatory actions relating to insurers that show signs of weak or
deteriorating financial condition. RBC is a series of dynamic surplus-related formulas which
contain a variety of factors that are applied to financial balances based on a degree of certain
risks, such as asset, credit and underwriting risks. Many states have laws and regulations that limit an insurers ability to exit a market. For
example, certain states limit an automobile insurers ability to cancel or non-renew policies.
Furthermore, certain states prohibit an insurer from withdrawing one or more lines of business from
the state, except pursuant to a plan that is approved by the state insurance department. The state
insurance department may disapprove a plan that may lead to market disruption. Laws and regulations
that limit cancellation or non-renewal of policies and that subject program withdrawals to prior
approval requirements may restrict an insurers ability to exit unprofitable markets. Regulation of insurance constantly changes as real or perceived issues and developments arise.
Some changes may be due to economic developments, such as changes in investment laws made to
recognize new investment vehicles; other changes result from such general pressures as consumer
resistance to price increases and concerns relating to insurer rating and underwriting practices
and solvency. In recent years, legislation and voter initiatives have been introduced, and in some
areas adopted, which deal with use of non-public consumer information, use of financial
responsibility and credit information in underwriting, insurance rate development, rate
determination and the ability of insurers to cancel or non-renew insurance policies, reflecting
concerns about consumer privacy, coverage, availability, prices and alleged discriminatory pricing.
In addition, from time to time, the United States Congress and certain federal agencies investigate
the current condition of the insurance industry to determine whether federal regulation is
necessary. In some states, the automobile insurance industry has been under pressure in past years from
regulators, legislators or special interest groups to reduce, freeze, or set rates to or at a level
that are not necessarily related to underlying costs, including initiatives to roll back automobile
and other personal lines rates. This kind of activity has affected adversely, and in the future may
affect adversely, the profitability and growth of the automobile insurance business in those
jurisdictions, and may limit the ability to increase rates to compensate for increases in costs.
Adverse legislative and regulatory activity limiting the ability to price automobile insurance
adequately, or affecting the insurance operations adversely in other ways, may occur in the future.
The impact of these regulatory changes on the Company cannot be predicted. Statutory Accounting Principles The Companys results are reported in accordance with accounting principles generally accepted
in the United States of America (GAAP), which differ in certain respects from amounts reported
under statutory accounting principles (SAP) prescribed by insurance regulatory authorities.
Primarily, under GAAP:  1.
    Commissions, premium taxes and other variable costs incurred in connection with writing
new and renewal business are capitalized and amortized on a pro rata basis over the period
in which the related premiums are earned, rather than expensed as incurred, as required by
SAP.2.
    Certain assets are included in the consolidated balance sheets, but are non-admitted and
charged directly against statutory surplus under SAP. These assets consist primarily of
premium receivables that are outstanding over 90 days, federal deferred tax assets in excess
of statutory limitations, furniture, equipment, application computer software, leasehold
improvements and prepaid expenses.3.
    Amount related to ceded reinsurance, such as prepaid reinsurance premiums and reinsurance
recoverables, are shown gross, rather than netted against unearned premium reserves and loss
and loss adjustment expenses reserves, respectively, as required by SAP. 5




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4.
    Fixed-maturity securities, which are classified as available-for-sale, are reported at
current market values, rather than at amortized cost, or the lower of amortized cost or
market, depending on the credit quality of the specific security, as required by SAP. Equity
securities are reported at quoted market values, which may differ from the NAIC market
values as required by SAP.5.
    Both current and deferred taxes are recognized in the income statement for GAAP, while
deferred taxes are posted directly to surplus for SAP. Investments The Company employs a conservative approach to investment and capital management intended to
ensure that there is sufficient capital to support all of the insurance premium that can be
profitably written. The Companys portfolio is invested primarily in short-term and
intermediate-term, investment-grade fixed-income securities. Competition MGA and Carrier currently compete with many national, regional and local writers. The
insurance underwriting and agency business are highly competitive. The Company believes that
insurers and agents generally compete on the basis of price, coverages, consumer recognition,
claims handling, customer service, payment terms, financial stability and geographic coverage. Many
competitors are national in scope, larger, and better capitalized than the Company. Some
competitors have broad distribution networks of employed agents. Smaller regional insurance
companies and local agents also compete vigorously at the local level. The Company believes its
focus on the nonstandard automobile market gives it a competitive advantage together with
competitive prices, payment terms, and emphasis on customer service. Employees As of December 31, 2004, the Company had approximately 200 employees, all of whom were
full-time. 
 Item 2. DESCRIPTION OF PROPERTY The corporate headquarters of the Company are located at RiverEdge One, Suite 600, 5500
Interstate North Parkway, Atlanta, Georgia 30328. The Company currently leases its office space at
the RiverEdge One facility under a 12-year lease that commenced on May 1, 2003. The Companys agencies are all located in leased locations throughout Florida and Georgia
under short to medium term commercial leases. The Company believes these facilities to be
sufficient for its current and future needs. 
 Item 3. LEGAL PROCEEDINGS The Company is not a party to any pending legal proceedings other than routine litigation that
is incidental to its business. 
 Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS There were no matters submitted for a vote of security holders during the fourth quarter of
2004. 
 PART II 
 Item 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS The Company Common Stock is quoted on the Over-the-Counter Bulletin Board (OTC-BB) under the
symbol ASAM.OB There is currently a very limited trading market for the Company Common Stock. The
following sets forth, for the respective periods indicated, the high and low bid prices of the
Company Common Stock in the over-the-counter market, as reported and summarized by the OTC-BB. Such
prices are based on inter-dealer bid and asked prices, without retail mark-up, mark-down,
commissions or adjustments, and may not represent actual transactions. BID PRICESQUARTER ENDED
    
    $HIGH
    
    
    $LOW2003 Fiscal Year:March 31, 2003
    
    
    .31
    
    
    
    .21June 30, 2003
    
    
    1.25
    
    
    
    .30September 30, 2003
    
    
    .65
    
    
    
    .10December 31, 2003
    
    
    1.25
    
    
    
    .902004 Fiscal Year:March 31, 2004
    
    
    1.15
    
    
    
    .51June 30, 2004
    
    
    1.60
    
    
    
    .55September 30, 2004
    
    
    1.01
    
    
    
    .55December 31, 2004
    
    
    1.01
    
    
    
    .55
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The Company has never declared or paid cash dividends on the Company Common Stock and
currently intends to retain any future earnings for the operation and expansion of its business.
Any determination to pay cash dividends on the Companys Common Stock will be at the discretion of
the Board of Directors of the Company and will be dependent on the Companys financial condition,
results of operations, contractual restrictions, capital requirements, business prospects and such
other factors as the Companys Board of Directors deems relevant. Additionally, the payment of
dividends or distributions from Carrier to the Company is restricted by the insurance laws and
regulations of South Carolina. At March 25, 2005, there were approximately 761 holders of record of the Company Common Stock. 
 Item 6. MANAGEMENTS DISCUSSION AND ANALYSIS OR PLAN OF OPERATION Financial Condition Investments and cash as of December 31, 2004, increased approximately $2.3 million over
investments and cash as of December 31, 2003. The increase was primarily due to the continued
growth of Carrier. The Carrier began writing policies in South Carolina in 2004. The Companys
investments of $3.3 million are in money market accounts and a US treasury bill. Management
believes the trade-off between higher yields and risk avoidance is appropriate for an early growth
company. Premiums receivable as of December 31, 2004, increased approximately $0.8 million compared to
December 31, 2003. The increase is directly related to Carriers entry into the state of South
Carolina and represents amounts due from Carriers insureds. The Companys policy is to write off
receivable balances immediately upon cancellation, and the Company does not consider an allowance
for doubtful accounts to be necessary. Reinsurance recoverable as of December 31, 2004, increased approximately $5.9 million, to
approximately $10.5 million. The increase is directly related to the Carriers continued growth.
Carrier maintains a quota-share reinsurance treaty with its reinsurers in which it cedes 70% of
both premiums and losses. The $10.5 million represents the reinsurers portion of losses and loss
adjustment expense. All amounts are considered current. Prepaid reinsurance premiums as of December 31, 2004, increased approximately $1.2 million
compared to prior year end. The increase results from the Carriers continued growth in 2004 from
its entry into a new state, and represents premiums ceded to its reinsurer which have not been
fully earned. Property and equipment net of depreciation increased approximately $0.15 million as of
December 31, 2004. The majority of the increase is attributable to the purchase of computer
software and hardware at its corporate headquarters and leasehold improvements in its agencies. Deferred acquisition costs increased approximately $0.10 million at December 31, 2004,
compared to December 31, 2003. The increase results from the Carriers continued growth in 2004.
The amount represents agents commission and other variable expenses associated with acquiring the
insurance policies that are being deferred to coincide with the earning of the related policy
premiums. Accounts payable and accrued expense as of December 31, 2004, increased approximately $0.4
million to approximately $2.9 million. Approximately $1.0 million of the balance represents the
Companys liability for premium taxes. The majority of the balance of the increase represents
commissions payable to the company agents and other expenses accrued but not paid. Intangible assets as of December 31, 2004, increased approximately $2.1 million compared to
the balance as of December 31, 2003. This increase is directly related to the Companys acquisition
of an insurance agency in Georgia. Unearned premium as of December 31, 2004 increased approximately $2.0 million compared to
December 31, 2003, and represents premiums written but not earned. This is a result of (i) the
premium growth in the Carrier attributed to premiums written in South Carolina and (ii) Carriers
commencement of operations in April 2003, resulting in only nine months of operating activity in
2003 compared to twelve months in 2004. Unpaid losses and loss adjustment expenses increased approximately $6.2 million as of December
31, 2004, compared to December 31, 2003. This amount represents management estimates of future
amounts needed to pay claims and related expenses and is the result of Carriers operations. Reinsurance payable as of December 31, 2004 increased approximately $1.1 million,
compared to the balance at December 31, 2003. The amount represents premiums owed to the Companys
reinsurer. Carrier maintains a quota-share reinsurance treaty with its reinsurers in which it cedes
70% of both premiums and losses. Long term debt as of December 31, 2004, increased approximately $0.4 million, compared
to December 31, 2003. The change results from payment of $0.7 million to the Companys Chairman
related to the promissory note payable to him and as a result of the purchase of a Georgia
insurance agency, the Company issued a promissory note in the amount of $1.1 million. Liquidity and Capital Resources Net cash provided by operating activities for the 12 months ended December 31, 2004, was $1.7
million compared to net cash provided by 7




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operating activities of $2.2 for the same period of 2003. The decrease is primarily the result
of Carriers commencement of operations in April 2003, which resulted in a higher initial growth of
cash flow as opposed to 2004 when the book of business began to mature. Agencies also experienced
greater operating losses in 2004 than 2003 which partially contributed to the decrease. Investing activities for the 12 month period ended December 31, 2004 consisted of the purchase
of all of the assets of a Georgia insurance agency. Also, the Carrier purchased investments to
comply with various Department of Insurance requirements for issuance of Certificates of Authority. Financing activities for the 12 month period ended December 31, 2004, included payments of
accrued interest of $0.7 million to the Companys Chairman and the issuance of preferred stock
resulting in additional capital of approximately $2.1 million. The Companys liquidity and capital needs have been met in the past through premium,
commission, and fee income and loans from its Chairman and Chief Executive Officer. The Companys
debt consists of unsecured promissory notes payable to its Chairman and Chief Executive Officer.
The promissory notes carry an interest rate of 8% per annum and provide for the repayment of
principal beginning in December 2004. As a result of the acquisition of the Georgia agency, the
Company has an unsecured promissory note payable to the President of the Agencies. The promissory
note carries an interest rate of 8% and provides for the repayment of principal in three equal
installments beginning July 2005. On June 30, 2004, the Company closed a private placement of equity of approximately $1.2
million. The Company issued 240,000 shares of Series A Preferred Stock with a semi-annual dividend
of $0.20 per share. The Company issued an additional 186,000 shares of Series A Preferred on August
13, 2004, for $0.9 million. The growth of the Company has and will continue to strain its liquidity and capital resources.
The Carrier is required by the state of South Carolina to maintain minimum Capital and Surplus of
$3.0 million. As of December 31, 2004, Carriers Capital and Surplus was approximately $3.5
million. Results of Operations The Company reported a net loss of approximately $50,000 for the 12 month ended December 31,
2004, compared to a net loss of approximately $1.2 million for the 12 month ended December 31,
2003. The Companys 2004 improved results are primarily due to improved loss and loss adjustment
expenses (Loss Ratio) in the Carrier. The Carriers actual Loss Ratio for 2004 was approximately
74% compared to approximately 80% in 2003. The Carrier also entered the State of South Carolina
which generated approximately $6.5 million in premiums, resulting in more fee and commission
revenue than 2003, offset in part by the Agencies results which were affected by the opening of
four new offices which have not generated revenues sufficient to cover their expenses. In addition,
the hurricane activity during September 2004 caused the closing of several locations for a number
of days resulting in a decline in revenue for the period. Gross premiums written for the 12-month period ended December 31, 2004, were
approximately $30.6 million. Carrier commenced operations in April 2003. As a result, in 2003
Carrier recorded approximately $17.4 million in written premiums. The Company cedes approximately
70% of its gross premiums written to its reinsurer and the amount ceded for the 12 months ended
December 31, 2004, was approximately $20.8 million. The Companys net earned premium, after
deducting reinsurance, was approximately $9.0 million for the 12 month ended December 31, 2004 and
compares to approximately $3.5 million for 2003. Commission income for the period ending December 31, 2004 increased compared to December 31,
2003, by approximately $1.4 million. The Carrier pays MGA commission on the 30% of premium which
the Carrier retains and is subsequently eliminated upon consolidation. The amount eliminated was
approximately $2.3 million for the year ended December 31, 2004. Agencies receive commissions from
the carriers whose policies they sell. Commission rates vary between carriers and are applied to
written premium to determine commission income. Managing general agent fees for the 12 months ended December 31, 2004, was approximately $3.3
million, or an increase of approximately $0.7 million when compared to the same period of 2003. The
increase was generated by an increase in the number of policies sold. Other fee income decreased approximately $40,000 for the twelve month period ended December
31, 2004 compared to the same period in 2003. Agencies collect fees for various services performed
and for additional products sold to insureds. Hurricane activity in the state of Florida during
September 2004 caused the closing of several offices for a number of days resulting in a decline in
fee income. In addition, Agencies have begun to write more direct bill policies which have a lower
potential for fee income. After deducting reinsurance, losses and loss adjustment expenses were approximately $4.9
million for the 12 months ended December 31, 2004. Carrier commenced operations in April 2003,
therefore, the loss and loss adjustment expense was less in 2003. As a percentage of earned
premiums, this amount decreased for the twelve month period ended December 31, 2004 as opposed to
the same period in 2003. The amount represents actual payments made and changes in estimated future
payments to be made to or on behalf of its policyholders, including the expenses associated with
settling claims. 8




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##### Table of Contents



Other operating expenses, including selling and general, depreciation and amortization, and
interest increased approximately $3.8 million for the 12 month period ended December 31, 2004, when
compared to the same period of 2003. This increase is partially due to costs of the Carrier for a
twelve month period in 2004 as opposed to 2003. The Carrier and MGA also experience proportionate
increases in selling costs as the premiums written increased. Agencies experienced increased costs
associated with the opening of four new stores in 2004. 
 Item 7. FINANCIAL STATEMENTS The Companys consolidated financial statements (see Index to Financial Statements attached
hereto) for the fiscal year ended December 31, 2004, as well as the fiscal year ended December 31,
2003, together with the notes thereto, have been audited by the independent accounting firm of
Miller Ray Houser & Stewart, LLP, whose opinion thereto is included herein, which is included in
this Report beginning at page F-1 hereof. 
 Item 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE During the fiscal year ended December 31, 2004, there was no disagreement with the Companys
accountants on any matter of accounting principles or practices or financial statement disclosure
required to be disclosed pursuant to Item 304 of Regulation S-B. 
 Item 8A. CONTROLS AND PROCEDURES As of the end of the period covered by this Annual Report on Form 10-KSB/A, the Companys
Chief Executive Officer and its Controller carried out an evaluation of the effectiveness of the
design and operation of the Companys disclosure controls and procedures (as defined Rules
13a-15(e) and 15d-15(e) promulgated under the Securities Exchange Act of 1934 (the Exchange
Act)). Based upon that evaluation, the Companys Chief Executive Officer and Controller have
concluded that the Companys disclosure controls and procedures are effective to ensure that
information required to be disclosed by the Company in the reports that it files or submits under
the Exchange Act is accumulated and communicated to the Companys management, including its
principal executive officer and principal financial officer, as appropriate to allow timely
decisions regarding required disclosure and are effective to ensure that such information is
recorded, processed, summarized and reported within the time periods specified in the Securities
and Exchange Commissions rules and forms. There were no significant changes in the Companys
internal controls or in other factors that could significantly affect those controls subsequent to
the date of their evaluation. 
 PART III 
  Item 9.  DIRECTORS, EXECUTIVE OFFICERS, PROMOTORS AND CONTROL PERSONS; COMPLIANCE WITH SECTION 16(a)
OF THE EXCHANGE ACT The following table sets forth the names and ages as of April 29, 2005, of the current members
of our Board of Directors. Name
    
    Age
    
    Position HeldGuy W. Millner
    
    
    69
    
    
    Chairman of the Board of DirectorsLawrence (Bud) Stumbaugh
    
    
    64
    
    
    Director, Chief Executive Officer & PresidentDonald Ratajczak
    
    
    62
    
    
    DirectorQuill O. Healey
    
    
    65
    
    
    DirectorJohn E. Cay III
    
    
    59
    
    
    DirectorKaaren J. Street
    
    
    58
    
    
    DirectorSam Zamarripa
    
    
    52
    
    
    Director
 Meetings and Committees of the Board Our Board of Directors held four meetings during the year ended December 31, 2004. Each
Director attended 75% or more of the aggregate number of meetings held by the Board of Directors
and the Committee, if any, on which such Director served. The Board of Directors has a standing
Compensation Committee. The Compensation Committee is composed of Mr. Healey, Chairman, Mr. Cay
and Mr. Ratajczak. The Compensation Committee met once in 2004. The Compensation Committee is
responsible for overseeing the compensation and benefits of our management and employees. Our
Board does not have a standing Audit Committee. During the period ending December 31, 2004, the
entire Board of Directors performed the function of an Audit Committee. Because approximately 81% of our outstanding common stock is beneficially held by two
individuals, our Board of Directors feels that it is appropriate not to have to have a standing
Nominating Committee. Each of the members of our Board of Directors participates in the
consideration of Director nominees. Messrs. Healey, Cay, and Zamarripa, and Ms. Kaaren J. Street
are independent directors, as defined in Rule 303A of the New York Stock Exchange Listed Company
Manual. Messrs. Millner and Stumbaugh serve as our Chairman and President and Chief Executive
Officer, 9




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##### Table of Contents



respectively, and Mr. Ratajczak served as our Chief Executive Officer until June 2003. As a result,
Messrs. Millner, Stumbaugh and Ratajczak would not be considered independent directors. Our Board
of Directors does not have a charter relating to the nomination of Directors. Our Board of
Directors does not consider nominees for Director submitted by shareholders. Our Directors are expected to attend each annual shareholders meeting, but are not required to
do so. Last year, Messrs. Millner, Stumbaugh, Healey, Cay and Ratajczak attended our annual
shareholders meeting. Executive Officers The following table sets forth the name, age and position of each of our executive officers. Name
    
    Age
    
    Positions HeldGuy W. Millner
    
    
    69
    
    
    ChairmanLawrence (Bud) Stumbaugh
    
    
    64
    
    
    President and Chief Executive OfficerRenee A. Pinczes
    
    
    42
    
    
    Chief Financial Officer, Senior Vice
President and SecretaryJoseph J. Skruck
    
    
    40
    
    
    President, AssuranceAmerica Managing
General Agency, LLC (a subsidiary of the
Company)James C. Cook
    
    
    40
    
    
    President, Trustway Insurance Agencies,
LLC (a subsidiary of the Company)
 Biographies of Directors and Officers Guy W. Millnerhas served as the Chairman of the Board since June 2003. Mr. Millner served as
Chairman of AA Holdings, LLC, the predecessor of the Company, from 1998 to 2003. From 1961 to 1999,
Mr. Millner served as Chairman of Norrell Corporation, a leading provider of staffing and
outsourcing solutions. Lawrence (Bud) Stumbaughhas served as our President and Chief Executive Officer and on our
Board of Directors since June 2003. He served as President and Chief Executive Officer of AA
Holdings, LLC from 1998 to 2003. Prior to joining AA Holdings, LLC, Mr. Stumbaugh was President and
Chief Executive Officer of Lawmark International Corporation. Donald Ratajczakhas served on our Board of Directors since 2000. Dr. Ratajczak previously
served as the Chairman of our Board of Directors and our Chief Executive Officer from May 2000 to
June 2003. From May 2000 to November 2000, Dr. Ratajczak also served as our President. From July
1973 to June 2000, he served as a professor and Director of Economic Forecasting Center at the J.
Mack Robinson College of Business Administration at Georgia State University. Dr. Ratajczak also
currently serves on the Board of Directors of the following organizations: Crown Crafts, Inc., a
textile manufacturing company; T.B.C. Corporation, a tire distribution company, Ruby Tuesday, Inc.,
a food service company and Regan Holdings, an insurance marketing company. He is a consulting
economist for Morgan, Keegan & Co., a broker/dealer company and a trustee for C.I.M. High Yield, a
bond fund company. Quill O. Healeyhas served on our Board of Directors since June 2003 and is Managing Partner
of Healey Investments, L.P. He retired as Chairman of Marsh, USA in 2001, after serving in that
capacity since 1998. John E. Cay IIIhas served on our Board of Directors since June 2003. He has served as
Chairman and Chief Executive Officer of Palmer & Cay, Inc., a risk management and benefits
consulting firm, since 1972. Sam Zamarripahas served on our Board of Directors since August 2004. He is a State Senator
and Mr. Zamarripa has also been a managing partner of Heritage Capital Advisors, an investment
banking services firm, for the last five years. Mr. Zamarripa is the director nominee requested by
the majority holder of the Preferred Stock. Kaaren J. Streethas served on our Board of Directors since November 2004. She has been the
President of K Street Associates, Inc., a business development and consulting firm since 2003.
From August 2001 to August 2003, Ms. Street served as the Associate Deputy Administrator for
Entrepreneurial Development, for the U.S. Small Business Administration. Prior to 2001, Ms. Street
served as Vice-President of Enterprise Florida, Inc., a public private partnership responsible for
economic development and international trade in Florida. Renee A. Pinczeshas served as our Chief Financial Officer, Senior Vice President and
Secretary since March 2005. Prior to joining the company in March 2005, she spent 7 years with
PRG-Schultz International as Vice President-Operations and Vice President-Strategic Planning and
Analysis. 10




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##### Table of Contents



Joseph J. (Joe) Skruckhas served as the President and Chief Operating Officer of
AssuranceAmerica Managing General Agency, LLC, an insurance subsidiary of the Company, since
January 2002. He served as Senior Vice-President of Sun States Insurance Group from 1998 through
2001. James C. (Jim) Cookhas served as the President of Trustway Insurance Agencies, LLC, an
insurance subsidiary of the Company, since July 2004. For more than five years prior to joining
AssuranceAmerica, he served as President of Thomas-Cook Holding Company, an insurance agency. SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE Section 16(a) of the Securities Exchange Act of 1934, as amended, requires our Directors,
executive officers and persons who own beneficially more than 10% of a registered class of our
equity securities to file with the Securities and Exchange Commission (the SEC) initial reports
of ownership and reports of changes in ownership of such securities. Directors, executive officers
and greater than 10% shareholders are required by SEC regulations to furnish us with copies of all
Section 16(a) reports they file. To the best of our knowledge, the Section 16(a) filing requirements applicable to our
Directors, executive officers and greater than 10% beneficial owners were complied with during the
year ended December 31, 2004; provided, however that (i) one Form 3 was filed late on February 4,
2005, by Ms. Street; (ii) one Form 4 to report a grant of an option to purchase common stock and
one Form 4 to report the receipt of common stock as a bonus were reported late on February 4, 2005,
by Mr. Skruck, (iii) one Form 3 to report ownership of stock and one Form 4 to report a grant of an
option to purchase common stock was filed late on February 4, 2005, by Mr. Cook and (iv) one Form 4
to report the disposition of shares by gift was reported late on April 19, 2005 by Mr. Millner. Code of Ethics The Company has adopted a code of ethics that applies to its principal executive officer,
principal financial officer, principal accounting officer or controller and its executive officers. 
 Item 10. EXECUTIVE COMPENSATION The following table sets forth the cash and non-cash compensation we awarded or paid for
services rendered during the year ended December 31, 2004, to our Chief Executive Officer and to
the two most highly compensated executive officers other than the Chief Executive Officer whose
annual compensation exceeded $100,000 (the Named Executive Officers). Summary Compensation Table AnnualCompensation (2)Year Ended December
    
    
    
    
    
    
    
    
    
    
    
    
    Other AnnualName & Principal Position (1)
    
    
    31,
    
    
    Salary ($)
    
    
    
    Bonus ($)
    
    
    
    Compensation (3)Lawrence Stumbaugh, President & CEO
    
    
    2004
    
    
    
    155,683
    
    
    
    
    
    
    
    
    
    16,3222003
    
    
    
    175,000
    
    
    
    
    
    
    
    
    
    Robert J. Cormican, Sr. VP, CFO &
    
    
    2004
    
    
    
    136,778
    
    
    
    
    8,970
    (3)
    
    
    
    Secretary
    
    
    2003
    
    
    
    135,000
    
    
    
    
    
    
    
    
    
    Joseph J. Skruck, President of
    
    
    2004
    
    
    
    127,231
    
    
    
    
    7,995
    (3)
    
    
    
    AssuranceAmerica Managing General
    
    
    2003
    
    
    
    105,885
    
    
    
    
    10,000
    
    
    
    
    Agency, LLC, a subsidiary of the
Company
   (1)
    
    Mr. Stumbaugh was appointed President and Chief Executive Officer effective April 1, 2003.
Mr. Cormican was appointed Senior Vice President, Chief Financial Officer and Secretary
effective April 1, 2003 and resigned effective February 11, 2005. Mr. Skruck was appointed
President of AssuranceAmerica Managing General Agency, LLC, effective April 1, 2003.(2)
    
    In accordance with the rules of the Securities and Exchange Commission, the compensation set
forth in the table does not include medical, group life insurance or other benefits that are
available to all salaried employees and certain perquisites and other benefits, securities or
property that do not exceed the lesser of $50,000 or 10% of the officers salary and bonus
shown in the table.(3)
    
    Amounts shown consist of certain perquisites, none of which had a value exceeding 25% of the
total value of all perquisites provided. 11




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##### Table of Contents



(4)
    
    The fair market value of stock bonuses awarded on December 31, 2004, to Messrs. Cormican and
Skruck was $0.65 per share. Option Grants In The Last Fiscal Year During the year ended December 31, 2004, we did not grant options to any of the Named
Executive Officers. Year-End Option Values None of the Named Executive Officers exercised any stock options during the year ended
December 31, 2004. The following table provides information regarding the value of exercisable and
unexercisable stock options held as of December 31, 2004, by each Named Executive Officer. Number of Securities Underlying
    
    
    Value of UnexercisedUnexercised Options at
    
    
    In-the-Money Options atDecember 31, 2004
    
    
    December 31, 2004 (1)Name
    
    Exercisable
    
    
    Unexercisable
    
    
    Exercisable
    
    
    UnexercisableLawrence Stumbaugh
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Robert J. Cormican
    
    
    90,000
    
    
    
    360,000
    
    
    $
    36,000
    
    
    $
    144,000Joseph J. Skruck
    
    
    90,000
    
    
    
    360,000
    
    
    $
    36,000
    
    
    $
    144,000
   (1)
    
    The value of unexercised, in-the-money options is based on the closing price of our
common stock on December 31, 2004, which was $0.65. Director Compensation Generally, our Directors are granted an option to purchase 50,000 shares of our common stock
(exercisable over five years at fair market value on the date of the grant) upon their initial
election to the Board of Directors. Annually, except as noted, each Director may choose between an
award of 20,000 shares of our common stock or $2,500 per quarter. We reimburse each non-officer
director for travel expenses related to attendance at Board and committee meetings. For the year ended December 31, 2004, Guy W. Millner and Lawrence Stumbaugh were not
compensated in their capacity as Directors. Donald Ratajczak and John E. Cay III each accepted a
grant of 20,000 shares of our common stock in lieu of cash compensation for their service for the
year ended December 31, 2004. Quill O. Healey and Kaaren J. Street elected to receive cash
compensation of $10,000 (four quarters) and $2,500 (one quarter), respectively, as remuneration for
their service for the year ended December 31, 2004. Sam Zamarripa, as the Director representative
of the majority holder of the Preferred Stock, serves without compensation from the Company. 
 Item 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT The following table provides information concerning beneficial ownership of our common stock
as of April 29, 2005, by: (i) each shareholder that we know owns more than 5% of our outstanding
common stock; (ii) each of our Named Executive Officers; (iii) each of our Directors; and (iv) all
of our Directors and executive officers as a group. The following table lists the applicable percentage of beneficial ownership based on
50,425,540 shares of common stock outstanding as of April 29, 2005 and 942,000 shares of convertible
preferred shares outstanding on April 29, 2005. Except where noted, the persons or entities named have
sole voting and investment power with respect to all shares shown as beneficially owned by them. Number of Shares
    
    
    
    Percentage ofBeneficially Owned
    
    
    
    Ownership (%)Name of Beneficial Owner
    
    
    Common
    
    
    
    Preferred
    
    
    
    Common
    
    
    
    PreferredGuy W. Millner (1)
    
    
    
    35,789,653
    (2)
    
    
    
    
    
    
    
    
    70.98
    
    
    
    
    Lawrence (Bud) Stumbaugh (1)
    
    
    
    5,089,347
    (3)
    
    
    
    
    
    
    
    
    10.09
    
    
    
    
    Donald Ratajczak
    
    
    
    476,832
    (4)
    
    
    
    
    
    
    
    
    *
    
    
    
    
    Quill O. Healey
    
    
    
    33,332
    (5)
    
    
    
    
    
    
    
    
    *
    
    
    
    
    
 12




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##### Table of Contents



Number of Shares
    
    
    
    Percentage ofBeneficially Owned
    
    
    
    Ownership (%)Name of Beneficial Owner
    
    
    Common
    
    
    
    Preferred
    
    
    
    Common
    
    
    
    PreferredJohn E. Cay III
    
    
    
    86,666
    (7)
    
    
    
    
    
    
    
    
    *
    
    
    
    
    Kaaren J. Street
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Sam Zamarripa
    
    
    
    
    
    
    
    
    6,800
    (6)
    
    
    
    
    
    
    
    
    1.50Robert J. Cormican
    
    
    
    12,300
    
    
    
    
    
    
    
    
    
    *
    
    
    
    
    Joseph J. Skruck
    
    
    
    192,300
    (8)
    
    
    
    
    
    
    
    
    *
    
    
    
    
    James C. Cook
    
    
    
    1,320,000
    (12)
    
    
    
    
    
    
    
    
    2.62
    
    
    
    
    Steve Speir (9)
    
    
    
    .3,600,000
    
    
    
    
    
    
    
    
    
    7.14
    
    
    
    
    Heritage Assurance
Partners, L.P.(11)
    
    
    
    7,680,000
    (10)
    
    
    
    768,000
    
    
    
    
    13.22
    (10)
    
    
    
    81.53Directors & executive
officers as a group (10
persons)
    
    
    
    43,000,430
    
    
    
    
    6,800
    
    
    
    
    84.38
    
    
    
    
    1.50
   *
    
    Less than 1.0%.(1)
    
    The beneficial owners address is RiverEdge One, Suite 600, 5500 Interstate North
Parkway, Atlanta, Georgia 30328.(2)
    
    Includes indirect beneficial ownership by Mr. Millner of 2,119,500 shares of our common
stock held by MI Holdings, Inc, a corporation controlled by Mr. Millner.(3)
    
    Includes 5,000 shares of our common stock held by Mr. Stumbaughs spouse as custodian
for her son under the Georgia Transfers to Minors Act.(4)
    
    Includes options and warrants to purchase 300,532 shares of our common stock exercisable
within 60 days.(5)
    
    Consists of an option to purchase our common stock exercisable within 60 days.(6)
    
    Consists of Preferred Stock owned by Mr. Zamarripas spouse.(7)
    
    Includes an option to purchase 16,666 shares of common stock exercisable within 60 days.(8)
    
    Includes an option to purchase 180,000 of common stock exercisable within 60 days.(9)
    
    Mr. Speirs address is 6348 Highway 85, Riverdale, Georgia 30274.(10)
    
    Consists of common shares into which the Preferred Stock is currently convertible into at
the conversion ratio of 10 shares of common for each share of preferred.(11)
    
    According to a Schedule 13G, filed August 23, 2004, on behalf of Heritage Fund Advisors,
LLC (HFA), Heritage Assurance Partners, L.P. (HAP), and John F. Ray, (the Schedule
13G), HFA and HAP have shared voting and dispositive power with respect to these shares and
John F. Ray disclaims any beneficial ownership of such shares. According to the Schedule 13G,
HAPs address is 3353 Peachtree Road, Suite 1040, Atlanta, Georgia 30326.(12)
    
    Owned by Thomas-Cook Holding Company, a corporation controlled by Mr. Cook. Equity Compensation Plan Information The following table provides information as of December 31, 2004, with respect to the
Companys compensation plans under which equity securities are authorized for issuance: (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)
    
    
    3,302,918
    
    
    $
    1.45
    
    
    
    1,697,082Equity compensation plans not
approved by stockholders
    
    
    0
    
    
    
    N/A
    
    
    
    0Total
    
    
    3,302,918
    
    
    $
    1.45
    
    
    
    1,697,082
   (1)
    
    Consists of options granted under the Companys 2000 Stock Option Plan. 
 Item 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS John E. Cay, III, who serves on our Board of Directors, is the Chairman and Chief Executive
Officer of Palmer & Cay, Inc., an insurance, risk-management and employee benefits consulting firm.
We use his firm to design our corporate insurance program, as well as to provide brokerage 13




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##### Table of Contents



services for the placement of all insurance coverages. Palmer & Cay receives commissions and fees
from the carriers who bear the risk in exchange for premiums paid. We paid Palmer & Cay, Inc.
approximately $190,066 in 2003 and $203,767 in 2004 for insurance premiums under this program. In the past, our Chairman, Mr. Millner, and our Chief Executive Officer, Mr. Stumbaugh have
loaned us approximately $6.2 million and $0.3 million, respectively. We incurred interest on the
Promissory Note to our Chairman, Mr. Millner, of $518,330 in 2004 and $517,373 in 2003. An
additional $700,000 payment of accrued and unpaid interest was made to Mr. Millner in 2004. We
made payments of accrued and unpaid interest on the Promissory Note to Mr. Stumbaugh, our Chief
Executive Officer, of $26,352 in 2004 and $24,000 in 2003. Outstanding amounts under the
Promissory Notes held by Messrs. Millner and Stumbaugh accrue interest at an annual rate of 8%.
The Note to Mr. Stumbaugh requires annual principal payments of $100,000 beginning December, 2004;
however, the December 2004 payment was deferred until 2005. The Notes to Mr. Millner require
annual principal payment of the greater of $500,000 or 25% of Free Cash Flow (net income after tax
plus non cash items minus working capital) beginning in December, 2004; the December 2004 payment
has been deferred until 2005. The Promissory Notes are not secured by any of our assets. In July 2004, we purchased substantially all of the assets of Thomas-Cook Holding Company (TCHC),
which was controlled by James C. Cook, President of Trustway Insurance Agencies, LLC, a subsidiary
of the Company. Pursuant to the Agreement, as consideration, for the purchased assets, we paid
TCHC $462,000 in cash, issued TCHC a Promissory Note in the amount of $1,078,000, and issued TCHC
1,320,000 shares of our common stock. The principal amount of the Promissory Note is payable in
three equal installments on each of August 1, 2005, August 1, 2006 and August 1, 2007. Outstanding
amounts under the Promissory Note accrue interest at an annual rate of 8%. We are required to make
payments of accrued and unpaid interest on outstanding amounts under the Promissory Note on a
quarterly basis. We incurred $35,933 of interest on this Promissory Note in 2004. 
 Item 13. EXHIBITS AND REPORTS ON FORM 8-K (A) EXHIBITS ExhibitNumber
    
    Exhibit2.1
    
    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, Thomas-Cook Holding Company (incorporated by reference to Exhibit 2.1, 10.1, and 10.2
to the Companys Current Report on Form 8K 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 Annual Report on Form 10-KSB/A for the year ended March 31, 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, 2004.4.1
    
    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).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
    
    Promissory Note assumed by the Company to Guy W. Millner dated February 10, 2003.10.3
    
    Promissory Note assumed by the Company to Lawrence Stumbaugh dated January 3, 2003.
 14




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##### Table of Contents



ExhibitNumber
    
    Exhibit10.4
    
    Promissory Note assumed by the Company to Guy W. Millner dated August 31, 2002.10.5
    
    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, 2004).14.1
    
    Code of Conduct (incorporated by
reference to Exhibit 14.1 to the Companys Annual Report on Form 10-KSB for the year ended March 31, 2003).21.1
    
    List of Subsidiaries.31.1
    
    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.
 (B) REPORTS ON FORM 8-K The Company filed the following Current Reports on Form 8-K during the quarter ended
December 31, 2004: Current Report on Form 8-K filed on October 15, 2004, to report the Companys pro forma
consolidated balance sheets as of March 31, 2004 and June 30, 2004, and pro forma consolidated
statements of operations for the three months ended March 31, 2004, and for the six months ended
June 30, 2004, which reflect the assets acquired from Thomas-Cook Holding Company. 
 Item 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES Principal Accountant- Audit And Non-Audit Fees Aggregate fees for professional services rendered by Miller Ray Houser & Stewart LLP, our
principal accountants, during the periods indicated below are as follows: Transition Period Ended
    
    
    Fiscal Year EndedDecember 31, 2003
    
    
    December 31, 2004Audit Fees
    
    $
    84,398
    
    
    $
    92,002Audit-Related Fees
    
    
    0
    
    
    
    0Tax Fees
    
    
    12,000
    
    
    
    12,000All Other Fees
    
    
    0
    
    
    
    0Total
    
    $
    96,398
    
    
    $
    104,002
 Audit Fees. This category includes the aggregate fees billed for professional services
rendered for the audits of our consolidated financial statements for our transition period ended
December 31, 2003, and our fiscal year ended December 31, 2004, for the reviews of the financial
statements included in our quarterly reports on Form 10-QSB during 2004 and 2003, and for services
that are normally provided by Miller Ray Houser & Stewart, LLP in connection with statutory and
regulatory filings or engagements for the relevant fiscal years. Audit-Related Fees. This category includes the aggregate fees billed in each of the last two
fiscal years for assurance and related services by Miller Ray Houser & Stewart, LLP that are
reasonably related to the performance of the audits or reviews of the financial statements and are
not reported under Audit Fees, as noted above. Tax Fees.This category includes the aggregate fees billed in each of the last two fiscal
years for Federal and State tax preparation services by Miller Ray Houser & Stewart, LLP. All Other Fees. No fees were billed in either of the last two fiscal years for products and
services provided by Miller Ray Houser & Stewart, LLP that are not reported under Audit Fees,
Audit-Related Fees, or Tax Fees, as noted above. Our Board of Directors reviews and pre-approves audit and non-audit services performed by
Miller Ray Houser & Stewart, LLP, our independent auditors, as well as the fee charged for such
services, on a case-by-case basis. Our Board of Directors has considered and determined the fees charged for services other than
Audit Fees discussed above are compatible with maintaining independence by Miller Ray Houser &
Stewart, LLP. All of the audit and non-audit services provided by our independent auditors were
pre-approved by our Board of Directors. 15




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##### Table of Contents



SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, as
amended, the Registrant has caused this report to be signed on its behalf by the undersigned,
thereunto duly authorized. REGISTRANT:ASSURANCEAMERICA CORPORATIONDate: April 29, 2005
    
    By:
    
    /s/ Lawrence StumbaughLawrence Stumbaugh, Chief Executive Officer
 Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been
signed below by the following persons on behalf of the Registrant and in the capacities and on the
dates indicated. Name
    

Title
    
    Date/s/
    
    Lawrence Stumbaugh
    
    Chief Executive Officer and Director
    
    Date: April 29, 2005Lawrence Stumbaugh
    
    (Principal Executive Officer)/s/
    
    Renee A. Pinczes
    
    Chief Financial Officer
    
    Date: April 29, 2005Renee A. Pinczes
    
    (Principal Financial and Accounting Officer)/s/
    
    Guy W. Millner
    
    Chairman of the Board of Directors
    
    Date: April 29, 2005Guy W. Millner/s/
    
    Donald Ratajczak
    
    Director
    
    Date: April 29, 2005Donald Ratajczak/s/
    
    Quill O. Healey
    
    Director
    
    Date: April 29, 2005Quill O. Healey/s/
    
    John E. Cay , III
    
    Director
    
    Date: April 29, 2005John E. Cay, III/s/
    
    Kaaren J. Street
    
    Director
    
    Date: April 29, 2005Kaaren J. Street/s/
    
    Sam Zamarripa
    
    Director
    
    Date: April 29, 2005Sam Zamarripa
 16




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##### Table of Contents



ASSURANCEAMERICA CORPORATION AND SUBSIDIARIES Index to Financial Statements PAGEReport of Independent Public Accountants Financial statements:
    
    F-2Consolidated balance sheets as of December 31, 2004 and 2003
    
    F-3Consolidated statements of operations for the years ended December 31, 2004 and 2003
    
    F-3Consolidated statements of changes in stockholders equity for the years ended December 31, 2004 and 2003
    
    F-4Consolidated statements of cash flows for the years ended December 31, 2004 and 2003
    
    F-5Notes to consolidated financial statements
    
    F-6
 F-1




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##### Table of Contents



Report of Independent Public Accountants The Board of Directors and Stockholders
AssuranceAmerica Corporation We have audited the accompanying consolidated balance sheets of AssuranceAmerica Corporation (a
Nevada corporation) and subsidiaries as of December 31, 2004 and 2003, and the related consolidated
statements of operations, stockholders equity and cash flows for the years then ended. These
financial statements are the responsibility of the Companys management. Our responsibility is to
express an opinion on these financial statements based on our audits. We conducted our audits in accordance with the standards of the Public Company Accounting Oversight
Board (United States). Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the consolidated financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements. An audit also includes assessing the accounting principles
used and significant estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the consolidated financial statements referred to above present fairly, in all
material respects, the financial position of AssuranceAmerica Corporation and subsidiaries as of
December 31, 2004 and 2003, and the results of their operations and their cash flows for the years
then ended in conformity with accounting principles generally accepted in the United States of
America. Miller Ray Houser & Stewart LLP
Atlanta, Georgia
March 15, 2005 F-2




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##### Table of Contents



ASSURANCEAMERICA CORPORATION 
 CONSOLIDATED BALANCE SHEETS
 December 31,
    
    
    December 31,2004
    
    
    2003AssetsShort term investments
    
    $
    400,000
    
    
    $
    300,000Cash and cash equivalents
    
    
    7,059,188
    
    
    
    5,455,553Long term investments
    
    
    599,808
    
    
    
    Investment Income due and accrued
    
    
    734
    
    
    
    20,971Receivable from insured
    
    
    5,170,840
    
    
    
    4,335,712Reinsurance recoverable(including $3,084,838 and $1,490,219 on paid losses)
    
    
    10,543,775
    
    
    
    4,639,626Prepaid reinsurance premium
    
    
    5,291,830
    
    
    
    4,048,201Deferred acquisition costs
    
    
    224,842
    
    
    
    124,505Property and equipment (net of accumulated depreciation of $1,097,131 and $830,078)
    
    
    1,185,081
    
    
    
    1,035,975Due from related party
    
    
    30,783
    
    
    
    30,783Other receivables
    
    
    245,677
    
    
    
    Prepaid expenses
    
    
    52,260
    
    
    
    139,965Intangibles(net of accumulated amortization of $1,198,396 and $1,097,563)
    
    
    5,399,789
    
    
    
    3,322,122Security deposits
    
    
    89,158
    
    
    
    70,016Total assets
    
    $
    36,293,765
    
    
    $
    23,523,429Liabilities and Stockholders EquityAccounts payable and accrued expenses
    
    $
    2,904,640
    
    
    $
    2,519,084Unearned premium
    
    
    7,833,189
    
    
    
    5,861,592Unpaid losses and loss adjustment expenses
    
    
    10,655,625
    
    
    
    4,499,152Reinsurance payable
    
    
    4,936,933
    
    
    
    3,879,340Provisional commission reserve
    
    
    1,060,883
    
    
    
    1,007,333Debt, related party
    
    
    7,376,279
    
    
    
    7,004,658Dividends payable
    
    
    
    
    
    
    Capital lease obligations
    
    
    265,545
    
    
    
    130,320Total liabilities
    
    
    35,033,094
    
    
    
    24,901,479Stockholders equityCommon stock, .01 par value (authorized 80,000,000, outstanding 46,577,090)
    
    
    465,771
    
    
    
    452,111Preferred Stock, 0.01 par value (authorized 5,000,000, outstanding 426,000)
    
    
    4,260
    
    
    
    Surplus-paid in
    
    
    8,872,943
    
    
    
    6,118,644Accumulated deficit
    
    
    (8,082,303
    )
    
    
    (7,945,805
    )Total stockholders equity
    
    
    1,260,671
    
    
    
    (1,378,050
    )Total liabilities and stockholders equity
    
    $
    36,293,765
    
    
    $
    23,523,429
 See accompanying notes and report of independent accountants. ASSURANCEAMERICA CORP 
 CONSOLIDATED STATEMENTS OF OPERATIONS
 For the years ended December 31,
    
    2004
    
    
    2003Revenue:Gross premiums written
    
    $
    30,556,941
    
    
    $
    17,377,713Gross premiums ceded
    
    
    (20,783,807
    )
    
    
    (12,082,097
    )Net premiums written
    
    
    9,773,134
    
    
    
    5,295,616Increase in unearned premiums, net of prepaid reinsurance premiums
    
    
    (727,968
    )
    
    
    (1,813,390
    )Net premiums earned
    
    
    9,045,166
    
    
    
    3,482,226Commission income
    
    
    10,921,633
    
    
    
    9,552,622Managing general agent fees
    
    
    3,341,575
    
    
    
    2,618,638Net investment income
    
    
    30,709
    
    
    
    24,290Other Fee Income
    
    
    848,314
    
    
    
    892,201Total revenue
    
    
    24,187,397
    
    
    
    16,569,977Expenses:Losses and loss adjustment expenses
    
    
    4,928,243
    
    
    
    2,370,835Selling, general, and administrative
    
    
    18,386,844
    
    
    
    14,626,687Depreciation and amortization expense
    
    
    339,993
    
    
    
    243,056Interest Expense
    
    
    580,615
    
    
    
    541,373Total operating expenses
    
    
    24,235,695
    
    
    
    17,781,951Loss before provision for income tax expense
    
    
    (48,298
    )
    
    
    (1,211,974
    )Income Tax Provision
    
    
    
    
    
    
    Net Loss
    
    
    (48,298
    )
    
    
    (1,211,974
    )Dividends on preferred stock
    
    
    85,200
    
    
    
    
 F-3




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##### Table of Contents



For the years ended December 31,
    
    2004
    
    
    2003Net loss attributable to common stockholders
    

    ($   133,498
    )
    

    ($   1,211,974
    )Earnings per common shareBasic
    
    
    (0.003
    )
    
    
    (0.05
    )Diluted
    
    
    (0.003
    )
    
    
    (0.05
    )Weighted average shares outstanding-basic
    
    
    45,771,315
    
    
    
    23,701,638Weighted average shares outstanding-diluted
    
    
    45,771,315
    
    
    
    23,701,638
 See accompanying notes and report of independent accountants. ASSURANCEAMERICA CORPORATION 
 CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS
 EQUITY
 For the years ended December 31, 2004 and 2003 Members
    
    
    Common
    
    
    Preferred
    
    
    Paid in
    
    
    Accumulateddeficit
    
    
    Stock
    
    
    Stock
    
    
    Capital
    
    
    Deficit
    
    
    TotalBalance, December 31, 2002
    
    ($
    236,831
    )
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    ($
    236,831
    )Acquisition and recapitalization
    
    
    236,831
    
    
    
    450,611
    
    
    
    
    
    
    
    6,039,389
    
    
    
    (6,736,831
    )
    
    
    (10,000
    )Stock issued in lieu of compensation
    
    
    
    
    
    
    1,500
    
    
    
    
    
    
    
    36,000
    
    
    
    
    
    
    
    37,500Capital contribution
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    43,255
    
    
    
    
    
    
    
    43,255Net Loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (1,211,974
    )
    
    
    (1,211,974
    )Balance, December 31, 2003
    
    
    
    
    
    
    452,111
    
    
    
    
    
    
    
    6,118,644
    
    
    
    (7,948,805
    )
    
    
    (1,378,050
    )Stock issued -
    
    
    
    
    
    
    13,660
    
    
    
    4,260
    
    
    
    2,781,829
    
    
    
    
    
    
    
    2,799,749Stock issuance expenses -
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (27,530
    )
    
    
    
    
    
    
    (27,530
    )Preferred dividends paid -
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (85,200
    )
    
    
    (85,200
    )Net loss -
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (48,298
    )
    
    
    (48,298
    )Balance, December 31, 2004
    
    $
    
    
    
    $
    465,771
    
    
    $
    4,260
    
    
    $
    8,872,943
    
    
    $
    (8,082,303
    )
    
    $
    1,260,671
 See accompanying notes and report of independent accountants. F-4




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##### Table of Contents



ASSURANCEAMERICA CORPORATION 
 CONSOLIDATED STATEMENTS OF CASH FLOWS For the Years Ended December 31, 2004 and 2003 2004
    
    
    2003Cash flows from operating activities:Net loss
    
    ($
    48,298
    )
    
    ($
    1,211,974
    )Adjustments to reconcile net income (loss) to net cash provided by operating activities:Depreciation and amortization
    
    
    339,993
    
    
    
    243,056Changes in assets and liabilities:Receivables
    
    
    (835,128
    )
    
    
    (4,335,712
    )Prepaid expenses and other assets
    
    
    (7,285,513
    )
    
    
    (8,409,712
    )Unearned premiums and other payables
    
    
    9,239,213
    
    
    
    14,240,084Accounts payable and accrued expenses
    
    
    385,555
    
    
    
    1,839,278Deferred acquisition costs
    
    
    (100,337
    )
    
    
    (124,505
    )Security deposits
    
    
    (19,142
    )
    
    
    (21,175
    )Net cash provided by operating activities
    
    
    1,676,343
    
    
    
    2,219,340Cash flows from investing activities:Purchases of property and equipment
    
    
    (199,464
    )
    
    
    (457,612
    )Purchase of investments
    
    
    (699,808
    )
    
    
    (257,000
    )Acquisition of agency
    
    
    (462,000
    )
    
    
    Net cash used by investing activities
    
    
    (1,361,272
    )
    
    
    (714,612
    )Cash flows from financing activities:(Repayments) proceeds from related party debt, net
    
    
    (706,379
    )
    
    
    3,422,782Advances to related party
    
    
    
    
    
    
    (12,595
    )Preferred dividends paid
    
    
    (85,200
    )
    
    
    Repayments on capital lease obligations
    
    
    (32,077
    )
    
    
    (7,311
    )Stock issuance
    
    
    2,112,220
    
    
    
    80,755Purchase of members interest
    
    
    
    
    
    
    (80,000
    )Net cash provided by financing activities
    
    
    1,288,564
    
    
    
    3,403,631Net increase in cash and cash equivalents
    
    
    1,603,635
    
    
    
    4,908,359Cash and cash equivalents, beginning of period
    
    
    5,455,553
    
    
    
    547,194Cash and cash equivalents, end of period
    
    $
    7,059,188
    
    
    $
    5,455,553
 See note 15 for supplemental cash flow information. See accompanying notes and report of independent accountants. F-5




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##### Table of Contents



ASSURANCEAMERICA CORPORATION & SUBSIDIARIES 
 Notes to Consolidated Financial Statements December 31, 2004 and 2003  (1)
    Description of BusinessAssuranceAmerica Corporation, a Nevada corporation (the Company) is an insurance holding
company comprised of AssuranceAmerica Insurance Company (Carrier), AssuranceAmerica Managing
General Agency, LLC (MGA), and Trustway Insurance Agencies, LLC (Agencies), each
wholly-owned. The Company solicits and underwrites nonstandard private passenger automobile
insurance.(2)
    Summary of Significant Accounting PoliciesBasis of Consolidation and PresentationThe accompanying consolidated financial statements include the accounts and operations of the
Company. All material intercompany accounts and transactions have been eliminated. The
consolidated financial statements have been prepared in conformity with generally accepted
accounting principles (GAAP). The preparation of the financial statements in conformity with GAAP
requires management to make estimates and assumptions that affect the amounts reported in the
financial statements and the actual results could differ from these estimates.InvestmentsAll of the Companys investment securities have been classified as available-for-sale because all
of the Companys securities are available to be sold in response to the Companys liquidity
needs, changes in market interest rates and asset-liability management strategies, among other
reasons. Investments available-for-sale are stated at fair value on the balance sheet. Unrealized
gains and losses are excluded from earnings and are reported as a component of other
comprehensive income within shareholders equity, net of related deferred income taxes.A decline in the fair value of an available-for-sale security below cost that is deemed other
than temporary results in a charge to income, resulting in the establishment of a new cost basis
for the security. For the years ended December 31, 2004 and December 31, 2003, there are no
unrealized losses.Premiums and discounts are amortized or accreted, respectively, over the life of the related
fixed maturity security as an adjustment to yield using a method that approximates the effective
interest method. Dividends and interest income are recognized when earned. Realized gains and
losses are included in earnings and are derived using the specific-identification method for
determining the cost of securities sold.Cash and Cash EquivalentsCash and Cash equivalents include cash demand deposits, money market accounts, and bank
certificates of deposit with a maturity of less than three months.Recognition of RevenuesInsurance premiums are recognized pro rata over the terms of the policies. The unearned portion
of premiums is included in the Consolidated Balance Sheet as a liability for unearned premium.
Commission income is recognized in the period the insurance policy is written and is reduced by
an estimate for future cancellations. Installment and other fees are recognized in the periods
the services are rendered.Deferred Acquisition CostsDeferred acquisition costs (DAC) include premium taxes and commissions incurred in connection
with writing business. These costs are deferred and amortized over the period in which the
related premiums are earned. The Company does not consider anticipated investment income in
determining the recoverability of these costs. Based on current indications, management believes
that these costs will be fully recoverable and, accordingly, no reduction in DAC has been
recognized. ASSURANCEAMERICA CORPORATION & SUBSIDIARIES Notes to Consolidated Financial Statements, Continued  Leased Property Under Capital LeaseLeased property under capital lease is recorded as a capital asset and amortized on a straight-line
basis over the estimated useful life of the property. F-6




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##### Table of Contents



The property and the related lease obligation are disclosed on the balance sheet. Property And Equipment Property and equipment is recorded at cost and depreciated on a straight-line basis. The estimated
useful lives used for depreciation purposes are: furniture and leasehold improvements  5 to 7
years; equipment  3 to 5 years; automobiles  5 years; software currently in service  3 to 10
years. Improvements, additions and major renewals which extend the life of an asset are
capitalized. Repairs are expensed in the year incurred. Losses And Loss Adjustment Expenses The estimated liabilities for losses and loss adjustment expenses (LAE) include the accumulation
of estimates for losses for claims reported prior to the balance sheet dates, estimates (based upon
actuarial analysis of historical data) of losses for claims incurred but not reported and for the
development of case reserves to ultimate values, and estimates of expenses for investigating,
adjusting and settling all incurred claims. Amounts reported are estimates of the ultimate costs of
settlement, net of estimated salvage and subrogation. These estimated liabilities are subject to
the outcome of future events, such as changes in medical and repair costs as well as economic and
social conditions that impact the settlement of claims. Management believes that, given the
inherent variability in any such estimates, the aggregate reserves are within a reasonable and
acceptable range of adequacy. The methods of making such estimates and for establishing the
resulting reserves are reviewed and updated quarterly and any adjustments resulting therefrom are
reflected in current operations. Reinsurance In the normal course of business, the Company seeks to reduce its overall risk levels by obtaining
reinsurance from other insurance enterprises or reinsurers. Reinsurance premiums and reserves on
reinsured business are accounted for on a basis consistent with those used in accounting for the
original policies issued and the terms of the reinsurance contracts. Reinsurance contracts do not relieve the Company from its obligations to policyholders. The Company
periodically reviews the financial condition of its reinsurers to minimize its exposure to losses
from reinsurer insolvencies. Reinsurance assets include balances due from other insurance companies under the terms of
reinsurance agreements. Amounts applicable to ceded unearned premiums, ceded loss payments and
ceded claims liabilities are reported as assets in the accompanying balance sheets. The Company
believes the fair value of its reinsurance recoverables approximates their carrying amounts. Contingent Reinsurance Commission The Companys reinsurance contract provides ceding commissions for premiums written which are
subject to adjustment. The amount of ceding commissions is determined by the loss experience for
the reinsurance agreement term. The reinsurer provides commissions on a sliding scale with maximum
and minimum achievable levels. The reinsurer provides the Company with the provisional commissions.
The Company has recognized the commissions based on the current loss experience for the policy year
premiums. This results in establishing a liability for the excess of provisional commissions
retained compared to amounts recognized, which is subject to variation until the ultimate loss
experience is determinable. Stock-Based Compensation The Company has adopted SFAS No. 123, Accounting for Stock-Based Compensation (SFAS 123). The
provisions of SFAS 123 allow companies to either expense the estimated fair value of employee stock
options or to continue to follow the intrinsic value method set forth in Accounting Principles
Board (APB) Opinion No.25, Accounting for Stock Issued to Employees (APB No. 25), but
disclose the pro forma effects on net income had the fair value of the options been expensed. The
Company has elected to apply APB No.25 in accounting for its employee stock option plan. Income Taxes Income taxes are accounted for under the asset and liability method. Deferred tax assets and
liabilities are recognized for the future tax consequences attributable to differences between the
financial statement carrying amounts of existing assets and liabilities and their respective tax
bases, and operating loss and tax-credit carry forwards. Deferred tax assets and liabilities are
measured using enacted tax rates expected to apply to taxable income in the years in which those
temporary differences are expected to be recovered or settled. The effect on deferred tax assets
and liabilities of a change in tax rates is recognized in income in the period that includes the
enactment date. Use of Estimates The preparation of the consolidated financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that affect the
reported financial statement balances as well as the disclosure of contingent assets and
liabilities. Actual results could differ materially from those estimates used. F-7




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##### Table of Contents



Similar to other property and casualty insurers, the Companys liability for unpaid losses and loss
adjustment expenses, although supported by actuarial projections and other data is ultimately based
on managements reasoned expectations of future events. Although considerable variability is
inherent in these estimates, management believes that this liability is adequate. Estimates are
reviewed regularly and adjusted as necessary. Such adjustments are reflected in current operations.
In addition, the realization of the Companys deferred income tax assets is dependent on generating
sufficient future taxable income. It is reasonably possible that the expectations associated with
these accounts could change in the near term and that the effect of such changes could be material
to the consolidated financial statements. Risk The following is a description of the most significant risks facing the Company and how it
mitigates those risks:  (I)
    LEGAL/REGULATORY RISKS  the risk that changes in the regulatory environment in
which an insurer operates will create additional expenses not anticipated by the insurer
in pricing its products. That is, regulatory initiatives designed to reduce insurer
profits, restrict underwriting practices and risk classifications, mandate rate
reductions and refunds, and new legal theories or insurance company insolvencies through
guaranty fund assessments may create costs for the insurer beyond those recorded in
financial statements. The Company attempts to mitigate this risk by monitoring proposed
regulatory legislation and by assessing the impact of new laws. As the Company writes
business only in two states, it is more exposed to this risk than some of its more
geographically balanced competitors.(II)
    CREDIT RISK  the risk that issuers of securities owned by the Company will
default or that other parties, including reinsurers to whom business is ceded, which owe
the Company money, will not pay. The Company attempts to minimize this risk by adhering
to a conservative investment strategy, maintaining reinsurance agreements with
financially sound reinsurers, and by providing for any amounts deemed uncollectible.(III)
    INTEREST RATE RISK  the risk that interest rates will change and cause a
decrease in the value of an insurers investments. To the extent that liabilities come
due more quickly than assets mature, an insurer might have to sell assets prior to
maturity and potentially recognize a gain or a loss. Amortization of Intangible Assets Intangible assets consist of noncompetition agreements and goodwill. Intangible assets are stated
at cost. Effective January 1, 2002, the Company adopted the Financial Accounting Standards Board
(FASB)s Statement of Financial Accounting Standards (SFAS) No. 142, Goodwill and Other
Intangible Assets. SFAS requires that goodwill and certain intangibles with indefinite lives no
longer be amortized, but instead tested for impairment at least annually. Based upon it most recent
analysis, the Company believes that no impairment of Goodwill exists at December 31, 2004 and 2003.
The noncompetition agreements were amortized on a straight-line basis varying from 2 1/2 years to 5
years. Amortization expense for the years ended December 31, 2004 and 2003 was $100,833 and $0,
respectively. Advertising Advertising costs are expensed as incurred. Expense for the years ended December 31, 2004 and 2003
was $787,307 and $675,815, respectively.  (3)
    InvestmentsSecurities with a carrying value of $874,808 and $175,000 were pledged by one of the Companys
subsidiaries under requirements of regulatory authorities as of December 31, 2004 and 2003,
respectively.A summary of investments is as follows: December 31, 2004
    
    
    December 31, 2003Short Term Bank CDs
    
    $
    400,000
    
    
    $
    300,000US Treasury Bill
    
    $
    599,808
    
    
    $
    
  (4)
    Property and EquipmentA summary of property and equipment is as follows: 2004
    
    
    2003Furniture and equipment
    
    $
    305,687
    
    
    $
    301,656Computer equipment
    
    
    1,029,394
    
    
    
    769,496Computer software
    
    
    432,285
    
    
    
    425,550Telephone systems
    
    
    44,167
    
    
    
    27,362Leasehold improvements
    
    
    470,679
    
    
    
    341,989Less: accumulated depreciation
    
    
    (1,097,131
    )
    
    
    (830,078
    )$
    1,185,081
    
    
    $
    1,035,975
 F-8




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##### Table of Contents



Depreciation expense was $239,160 and $243,056 in 2004 and 2003, respectively.(5)
    Reinsurance The Company reinsures (cedes) a portion of its written premiums on a quota-share basis to
nonaffiliated insurance companies in order to limit its loss exposure. The impact of reinsurance on
the financial statements is as follows: 2004
    
    
    2003Premiums written:Direct
    
    
    30,556,941
    
    
    
    17,377,713Ceded
    
    
    20,783,807
    
    
    
    12,082,097Net
    
    
    9,773,134
    
    
    
    5,295,616Premiums earned:Direct
    
    
    28,585,344
    
    
    
    11,516,120Ceded
    
    
    19,540,178
    
    
    
    8,033,894Net
    
    
    9,045,165
    
    
    
    3,482,226Losses and loss adjustment expenses incurred:Direct
    
    
    22,158,061
    
    
    
    9,268,200Ceded
    
    
    15,509,149
    
    
    
    6,487,740Net
    
    
    6,648,912
    
    
    
    2,780,460Unpaid losses and loss adjustment expense:Direct
    
    
    10,655,627
    
    
    
    4,499,152Ceded
    
    
    7,458,939
    
    
    
    3,149,406Net
    
    
    3,196,688
    
    
    
    1,349,746Unearned premiums:Direct
    
    
    7,833,189
    
    
    
    5,861,591Ceded
    
    
    5,291,830
    
    
    
    4,048,201Net
    
    
    2,541,359
    
    
    
    1,813,390
   
    
    The Companys Carrier did not begin operations until April 1, 2003The Company received approximately $5,403,789 in commissions on premiums ceded during 2004. Had
all of the Companys reinsurance agreements been canceled at December 31, 2004, the Company would
have returned approximately $1,375,876 in reinsurance commissions to its reinsurers and its
reinsurers would have returned approximately $5,291,830 in unearned premiums to the Company.  (6)
    Unpaid Losses and Loss Adjustment ExpensesThe liability for unpaid losses and loss adjustment expenses is determined on an individual case
basis for all incidents reported. The liability also includes amounts for uncollected expenses,
anticipated future claim development and losses incurred but not reported (IBNR). A summary of unpaid losses and loss adjustment expenses is as follows: 2004
    
    
    2003Case basis
    
    $
    1,650,429
    
    
    $
    742,998IBNR
    
    
    1,546,258
    
    
    
    606,747Total
    
    $
    3,196,687
    
    
    $
    1,349,745
   
    
    The Companys carrier did not begin operation until April 1, 2003  (7)
    Regulatory Requirements and RestrictionsTo retain its certificate of authority, the South Carolina Insurance Code requires that the
Carrier maintain capital and surplus at a minimum of $3.0 million. At December 31, 2004, the
Carriers capital and surplus was $3,529,564. Further, the Carrier is required to adhere to a
prescribed net premium-to-surplus ratio. For the year ended December 31, 2004, the Carrier was in
compliance with this requirement.Under South Carolina Insurance Code, the Carrier must receive prior regulatory approval to pay a
dividend in an amount exceeding ten percent F-9




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##### Table of Contents



(10%) of policyholder surplus or net income, minus realized capital gains, whichever is greater.The Company is required to comply with NAIC risk-based capital (RBC) requirements. RBC is a
method of measuring the amount of capital appropriate for an insurance company to support its
overall business operations in light of its size and risk profile. NAICs RBC standards are used
by regulators to determine appropriate regulatory actions relating to insurers who show signs of
weak or deteriorating condition. As of December 31, 2004, based upon calculations using the
appropriate NAIC formula, the carrier total adjusted capital is in excess of ratios which would
require any form of regulatory action.The NAIC has developed Insurance Regulatory Information Systems (IRIS) ratios to assist state
insurance departments in identifying companies, which may be developing performance or solvency
problems, as signaled by significant changes in the companies operations. Such changes may not
necessarily result from any problems with an insurance company, but may merely indicate changes
in certain ratios outside the ranges defined as normal by the NAIC. When an insurance company has
four or more ratios falling outside the NAICs defined usual ranges, state regulators may
investigate to determine the reasons for the variance and whether corrective action is warranted.
As of December 31, 2004, the carrier was outside NAICs usual ranges with respect to its IRIS
tests on three out of twelve ratios.(8)
    Commitments and ContingenciesOperating LeasesThe Company has entered into operating leases primarily for office space and certain
equipment. These leases are classified as operating leases. The future minimum rental payments
required under long-term non-cancelable leases are summarized as follows: Year EndingDecember 31,
    
    Amount2005
    
    $
    689,7872006
    
    
    571,4102007
    
    
    459,7722008
    
    
    301,4892009
    
    
    285,000Thereafter
    
    
    1,671,000$
    3,978,458
  Rent expense totaled $899,693 and $716,189 for 2004 and 2003, respectively. The Company has
sub-leased part of its premises for the period April 28, 2003 to August 31, 2005 with rental
income of $6,148 per month for the first year, $6,233 per month for the second year and $6,317
per month for the remaining period of the lease.In 2004, the Company paid to a third party 0.4% of written premium for the use of their software.
This agreement was amended in 2005 to a monthly amount of $8,000. The agreement is subject to a
5% annual increase and is renewable at the option of the Company. The expense for 2004 was
$138,606.Provisional Commission ReserveThe Company has received commissions from its reinsurers based on the current loss experience for
the Treaty year premiums. The following is a summary of the Companys liability for excess
provisional commissions received: Treaty Year
    
    Amount2001
    
    
    -0-2002 #1
    
    
    -0-2002 #2
    
    
    -0-2003 #1
    
    
    -0-2003 #2
    
    
    471,0792004 #1
    
    
    589,804Total
    
    $
    1,060,883
  (9)
    Long-Term DebtThe Company has various notes payable to related parties totaling to $7,376,279 at year end.The annual maturities of principal payable on long-term debt are as follows: F-10




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##### Table of Contents



Year EndingDecember 31,
    
    Amount2005
    
    $
    1,801,8302006
    
    
    1,459,3332007
    
    
    1,459,3342008
    
    
    1,000,0002009
    
    
    500,000Thereafter
    
    
    1,155,782$
    7,376,279
  The Companys debt consists of unsecured promissory notes payable to its Chairman and Chief
Executive Officer. The promissory notes carry an interest rate of 8% per annum and provide for
the repayment of principal beginning in December 2004. As a result of the acquisition of the
Georgia agency, the Company has an unsecured promissory note payable to the President of
Agencies. The promissory note carries an interest rate of 8% and provides for the repayment of
principal in three equal installments beginning July 2005.(10)
    Related Party TransactionsOne of the Companys directors is the Chief Executive Officer of Palmer & Cay, Inc., an
insurance brokerage firm that handles the Companys corporate insurance. Insurance premiums paid
to the firm amounted to approximately $60,199 and $56,877 for the years ending December 31, 2004
and 2003, respectively.(11)
    Net Income (Loss) Per ShareBasic and diluted loss per common share is computed using the weighted average number of common
            shares outstanding during the period. Stock options and warrants have not been included in the
diluted loss per share calculations as their inclusions would have been antidilutive. Potential
common shares not included in the calculations of net loss per share for the year ended December
31, 2004 and 2003 are as follows: 2004
    
    
    2003Warrants
    
    
    245,000
    
    
    
    245,000Stock Options
    
    
    3,058,000
    
    
    
    1,994,0003,303,000
    
    
    
    2,239,000
  (12)
    Stock Based CompensationThe Companys 2000 Stock Option Plan provides for the granting of stock options to officers, key
employees, valued directors, consultants, independent contractors and other agents at the
discretion of the Board of Directors. Options become exercisable at various dates and are issued
with exercise prices no less than the Fair Market Value of the Common Stock at the time of the
grant (or in the case of a ten-percent-or-greater stockholder, 110 percent of Fair Market
Value.)The aggregate number of common shares authorized under the plan is currently 5,000,000. Prior to
the merger with AssuranceAmerica Corporation, a Georgia corporation, the Company had issued
options to purchase 948,918 shares of common stock and AssuranceAmerica had issued options to
purchase 1,300,000 shares of common stock. In connection with such merger, the outstanding
options to purchase shares of AssuranceAmerica common stock were exchanged on a one-for-one
basis for options to purchase shares of the Companys common stock under the Companys 2000
Stock Option Plan. A summary of all employee stock option activity during the years ended
December 31 follows: 2004
    
    
    2003Weighted
    
    
    
    
    
    
    WeightedNumber of
    
    
    Average
    
    
    Number of
    
    
    AverageOptions Outstanding
    
    Shares
    
    
    Exercise Price
    
    
    Shares
    
    
    Exercise PriceBeginning of year
    
    
    2,238,918
    
    
    $
    1.93
    
    
    
    2,248,918
    
    
    $
    2.01Add (deduct):Granted
    
    
    1,090,000
    
    
    $
    0.50
    
    
    
    250,000
    
    
    $
    0.25Exercised
    
    
    (6,000
    )
    
    $
    0.25
    
    
    
    
    
    
    
    Cancelled
    
    
    (20,000
    )
    
    $
    4.25
    
    
    
    (260,000
    )
    
    $
    0.96End of year
    
    
    3,302,918
    
    
    $
    1.45
    
    
    
    2,238,918
    
    
    $
    1.93Exercisable, end of year
    
    
    1,173,550
    
    
    $
    3.39
    
    
    
    908,918
    
    
    $
    4.39
  The following employee stock options were outstanding or exercisable as of December 31, 2004: F-11




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##### Table of Contents



Options Outstanding
    
    
    Options ExercisableWeightedAverage
    
    
    Weighted
    
    
    
    
    
    
    WeightedRemaining
    
    
    Average
    
    
    
    
    
    
    AverageRange of Exercise
    
    Number
    
    
    Contractual
    
    
    Exercise
    
    
    Number of
    
    
    ExercisePrices
    
    of Shares
    
    
    Life
    
    
    Price
    
    
    Shares
    
    
    Price< $1.00
    
    
    2,414,000
    
    
    4.40 years
    
    $
    0.36
    
    
    
    284,632
    
    
    $
    0.25$1.00 < $3.00
    
    
    100,000
    
    
    0.28 years
    
    $
    1.13
    
    
    
    100,000
    
    
    $
    1.13$3.00 < $4.00
    
    
    210,000
    
    
    0.35 years
    
    $
    3.26
    
    
    
    210,000
    
    
    $
    3.26$4.00 < $5.00
    
    
    9,000
    
    
    0.35 years
    
    $
    4.67
    
    
    
    9,000
    
    
    $
    4.67$5.00 < $6.50
    
    
    569,918
    
    
    1.51 years
    
    $
    5.38
    
    
    
    569,918
    
    
    $
    5.383,302,918
    
    
    3.51 years
    
    $
    1.45
    
    
    
    1,173,550
    
    
    $
    3.39
 The Company has adopted SFAS No. 123, Accounting for Stock-Based Compensation (SFAS 123.) The
provisions of SFAS 123 allow companies to either expense the estimated fair value of stock options
awarded or to continue to follow the intrinsic value method set forth in Accounting Principles
Board (APB) Opinion No. 25, Accounting for Stock Issued to Employees (APB No. 25,) but
disclose the pro forma effects on net income had the fair value of the options been expensed. The
Company has elected to apply APB No. 25 in accounting for its stock option plan, including stock
awards to non-employee directors. For the twelve months endingDecember 31,2004
    
    
    2003Net income (loss) as reported
    
    $
    (48,298
    )
    
    $
    (1,211,974
    )Compensation effect
    
    
    (82,270
    )
    
    
    (42,746
    )Pro forma net income (loss)
    
    $
    (130,568
    )
    
    $
    (1,254,720
    )Basic and diluted net income attributable to common stockholdersAs reported
    
    
    (0.003
    )
    
    
    (0.05
    )Proforma
    
    
    (0.003
    )
    
    
    (0.05
    )
  The weighted-average fair value of options granted during the twelve months ended December 31,
2004, estimated on the date of grant using the Black-Scholes option-pricing model, was $0.1813.
The weighted average fair value of options granted during 2003, estimated on the date of grant
using the Black-Scholes option-pricing model, was $0.1607. The fair value of options granted is
estimated on the date of grant using the following assumptions: December 31, 2004
    
    
    December 31, 2003Expected volatility
    
    
    40
    %
    
    
    80
    %Risk-free interest rate
    
    
    1.15
    %
    
    
    1.5
    %Expected life (in years)
    
    
    5.0
    
    
    
    5.0
  The total fair value of the options granted during the years ended December 31, 2004 and 2003
was computed to be $197,617 and $213,731, respectively, which would be amortized over the
vesting period of the options. F-12




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##### Table of Contents



(13)
    Capital LeasesThe Companys property under capital leases, which is included in property and equipment is
summarized as follows: Property and equipment
    
    $
    265,545Less: accumulated depreciation
    
    
    (-0-
    )$
    265,545
  Amortization of leased assets is included in depreciation expense.Future minimum lease payments under capital leases at December 31, 2004 are as follows: Year EndingDecember 31,
    
    Amount2005
    
    $
    63,9892006
    
    
    63,9892007
    
    
    63,9892008
    
    
    63,9892009
    
    
    63,989319,945Less amount representing interest
    
    
    54,400Present value of future minimum leasePayments
    
    $
    265,545
  (14)
    Income TaxesDeferred income taxes arise from temporary differences resulting from income and expense items
reported for financial reporting and tax purposes in different periods and the estimated future
tax effects of carry-forwards. The Company has established a 100% valuation allowance for its net
deferred tax assets due to the uncertainty regarding the realization of these deferred income tax
assets, including its net operating loss carry-forwards.At December 31, 2004, the Company has net operating loss carry forwards for U.S. federal and
state income tax purposes of approximately $4,995,000 which expire in varying amounts beginning
in the year 2015. Utilization of the net operating losses carried forward will be limited under
Section 382 of the Internal Revenue Code as the Company experienced an ownership change greater
than 50%. Accordingly, certain net operating losses may not be realizable in future years due to
this limitation. F-13




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##### Table of Contents



The provision for federal and state income taxes for the years ended are as follows: December 31,2004
    
    
    2003Current
    
    $
    
    
    
    $
    Deferred
    
    
    
    
    
    
    
    
    
    
    Total provision for income taxes
    
    $
    
    
    
    $
    
  The Companys total deferred tax assets and deferred tax liabilities are as follows: December 31,2004
    
    
    2003Total deferred tax assets
    
    $
    2,093,000
    
    
    $
    1,586,600Total deferred tax (liability)
    
    
    (214,600
    )
    
    
    (108,700
    )Total income tax benefit
    
    
    1,878,400
    
    
    
    1,477,900Less valuation allowance
    
    
    (1,878,400
    )
    
    
    (1,477,900
    )$
    
    
    
    $
    
  The Company has unused net operating loss carry forwards available to offset future taxable
income as follows: Expires 2015
    
    $
    260,473Expires 2016
    
    
    645,872Expires 2017
    
    
    794,848Expires 2022
    
    
    1,008,921Expires 2023
    
    
    1,014,886$
    3,725,000
  (15)
    Supplemental Cash Flow Information 2004
    
    
    2003Cash paid during the year:Interest
    
    $
    580,615
    
    
    
    189,500Income Taxes
    
    
    
    
    
    
    
  During the year ended December 31, 2004 and 2003, the Company granted shares of 20,000 each to
two of its Board of Directors members as compensation for services.On August 1, 2004, the Company purchased Thomas-Cook Holding Company. As part of the purchase
agreement, the Company issued a note payable in the amount of $1,078,000. The Company also
issued stock as a part of the purchase agreement with an agreed upon value of $660,000.In 2004, the agencies also replaced its existing copier agreement with a new agreement. The
amount capitalized under the capital lease obligation was $265,545; see note 13 for more
detailed information.During the year ended December 31, 2003, the Company granted one of its officers 150,000 shares
valued at $37,500 as a part of salary compensation.(16)
    Defined Contribution PlanThe Companys employees participate in the AssetAmerica 401(k) defined contribution retirement
plan (an affiliated company). Under the plan, the Company can elect to make discretionary
contributions. The company did not make contributions in 2004 and 2003. The plan currently does
not match employee contributions. The eligibility requirements are 21 years of age, 6 months of
service and full time employment.(17)
    Recent Accounting PronouncementsIn December, 2004 the Financial Accounting Standards Board (FASB) published Statement of
Financial Standards No. 123 (revised 2004) Share-Based Payment (SFAS 123R). The provisions
of SFAS 123R become generally accepted accounting principles beginning with the first interim or
annual period after June 15, 2005. Such provisions will affect the way that the Company accounts
for stock-based compensation plans and will result in increased compensation expense of a
presently indeterminable amount being included in the Companys results of operations after the
effective date of such provisions. F-14




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##### Table of Contents



(18)
    Changes in Accounting for Goodwill and other Intangible AssetsIntangible Assets include the following: 2004
    
    
    2003Goodwill
    
    
    5,108,185
    
    
    
    3,809,685Non compete clause
    
    
    610,000
    
    
    
    610,000Renewal list
    
    
    660,000
    
    
    
    Restrictive covenants
    
    
    220,000
    
    
    
    6,598,185
    
    
    
    4,419,685Less:Accumulated amortization
    
    
    (1,198,396
    )
    
    
    (1,097,563
    )5,399,789
    
    
    
    3,322,122
  The estimated aggregate amortization expense for each of the succeeding five fiscal years is: 2005
    
    $
    242,0002006
    
    
    196,1672007
    
    
    132,0002008
    
    
    132,0002009
    
    
    77,000Total
    
    $
    779,167
  (19)
    Concentration of Credit RiskFinancial instruments that potentially subject the company to significant concentrations of
credit risk consist principally of cash. The company maintains cash and cash equivalents with
various financial institutions. The Companys policy is to maintain balances with high credit
quality financial institutions. The company has not sustained material credit losses from
instruments held at financial institutions.The Company maintains a relationship with two reinsurers. The Company performs periodic
evaluations of the relative credit standing with each of these companies.(20)
    Selected Unaudited Quarterly Financial Information First
    
    
    Second
    
    
    Third
    
    
    FourthQuarter
    
    
    Quarter
    
    
    Quarter
    
    
    Quarter2004Revenue
    
    
    6,045,807
    
    
    
    5,944,693
    
    
    
    5,984,869
    
    
    
    6,212,028Gross Profit
    
    
    225,770
    
    
    
    (126,001
    )
    
    
    (132,808
    )
    
    
    (15,259
    )Net income attributable to common shareholders
    
    
    225,770
    
    
    
    (126,001
    )
    
    
    (166,108
    )
    
    
    (67,159
    )Diluted net earnings per share attributable to common shareholders
    
    
    0.005
    
    
    
    (0.003
    )
    
    
    (0.004
    )
    
    
    (0.001
    )2003Revenue
    
    
    4,320,783
    
    
    
    3,267,396
    
    
    
    4,450,611
    
    
    
    4,531,187Gross Profit
    
    
    19,141
    
    
    
    (326,379
    )
    
    
    (238,843
    )
    
    
    (665,893
    )Net income attributable to common shareholders
    
    
    19,141
    
    
    
    (326,379
    )
    
    
    (238,843
    )
    
    
    (665,893
    )Diluted net earnings per share attributable to common shareholders
    
    
    0.001
    
    
    
    (0.010
    )
    
    
    (0.005
    )
    
    
    (0.028
    )
  (21)
    Subsequent EventsOn January 19, 2005, the Company acquired Cannon Insurance Agency, Inc. and E&S Insurance
Services, Inc., pursuant to an Asset Purchase Agreement. Pursuant to the agreement, as
consideration for the purchased assets, the Company issued to the sellers an aggregate of
3,600,000 shares of the Companys common stock.(22)
    ReclassificationCertain reclassifications have been made to the 2003 financial statements to conform to the 2004
presentations.(23)
    Preferred StockOn June 30, 2004, the Company issued 240,000 shares of its Series A Convertible Preferred Stock
for an aggregate consideration of $1.2 million. On August 13, 2004, the Company issued an
additional 186,000 of Series A Convertible Preferred Stock for approximately $0.9 million. The
Series Convertible Stock pays a semi-annual dividend of $0.20 per share. Each share of preferred
stock is convertible into ten shares of common stock.(24)
    Fair Value of Financial Instruments F-15




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##### Table of Contents



The carrying amounts of the Companys financial instruments, including cash and cash
equivalents, accounts receivable, accounts payable, and accrued liabilities, approximate fair
value because of their short maturities. The carrying amounts of the Companys capital lease
obligations approximate fair value because of these obligations based upon managements best
estimates of interest rates that would be available for similar debt obligations as December 31,
2004 and 2003.(25)
    Business CombinationAs reported in the Current Report on Form 8-K filed by AssuranceAmerica Corporation (the
Company) on August 3, 2004, the Company purchased all of the assets of Thomas Cook Holding
Company (the Seller.) The Company acquired the Seller as part of managements strategy to
increase its agency operation through acquisitions. The financial statements contain the results
of operations of the Seller from the purchase date of the entity August 1, 2004. In
consideration for the purchase of the assets of the Seller, the Company paid $462,000 in cash,
issued the Seller a promissory note in the amount of $1,078,000, and issued to Seller 1,320,000
shares of the Companys common stock. For purposes of the acquisition, management valued the
common stock at $0.50 per share based upon a number of factors including (i) the shares are
restricted and therefore are not freely tradable, (ii) even if not restricted, the volume of
trading is very low, and (iii) the Companys private placement of convertible preferred stock in
2004, valued the common stock at $0.50 per share, the conversion price.As part of the total purchase price, the Company assigned $220,000 to restrictive covenants
amortized over a two year period. The Company assigned approximately $660,000 to the purchased
book of business amortized over a five year period. The Company assigned $1,298,000 to Goodwill
which is being valued in accordance with FAS 142 and is expected to be deducted for income tax
purposes over the next 15 years.The pro forma statement of operations of the Company and the Seller for the periods ended
December 31, 2004 and 2003 are presented to give effect to the acquisition of Sellers assets as
if it had occurred at the beginning of those periods.The pro forma statement of operations should be read in conjunction with the historical
financial statements. The pro forma financial statements are not intended to be representative
or indicative of the Company that would have been reported had the acquisition of the Sellers
assets been completed as of the date presented, and should not be taken as representative of the
future consolidated results of operations or financial condition of the company. (Unaudited) Proforma Statement of OperationsFor the periods ended December 31, 2004 and 2003 2004
    
    
    
    
    
    
    
    
    
    
    20032004
    
    
    Jan-July
    
    
    2004
    
    
    2003
    
    
    Jan-Dec
    
    
    2003(in thousands)
    
    Company
    
    
    Seller
    
    
    Total
    
    
    Company
    
    
    Seller
    
    
    TotalRevenue
    
    
    24,187
    
    
    
    502
    
    
    
    24,689
    
    
    
    16,570
    
    
    
    1,009
    
    
    
    17,579Net (loss) income
    
    
    (133
    )
    
    
    175
    
    
    
    42
    
    
    
    (1,212
    )
    
    
    142
    
    
    
    (1,070
    )Earnings per share
    
    
    (0.003
    )
    
    
    0.004
    
    
    
    0.001
    
    
    
    (0.026
    )
    
    
    0.003
    
    
    
    (0.023
    )
  (26)
    Segment ReportingThe Companys subsidiaries are each unique operating entities performing a separate business
function. AssuranceAmerica Insurance Company (Carrier), a property and casualty insurance
company focuses on writing nonstandard automobile business in the state of Georgia and South
Carolina. AssuranceAmerica Managing General Agency (MGA), markets Carriers policies through
more than 500 independent agencies in Georgia and 100 in South Carolina. MGA receives
commissions and other administrative fees related to the insurance transaction, which vary
according to state insurance laws and regulations. Trustway Insurance Agencies (Agencies) is
comprised primarily of approximately 30 retail insurance agencies that focus on selling
nonstandard automobile policies and related coverages in Georgia and Florida.The Company evaluates profitability based on pretax income. Pretax income for each segment is
defined as the revenues less the segments operating expenses including depreciation and
interest.Following are operating results for the Companys various segments: MGA
    
    
    Agencies
    
    
    Carrier
    
    
    Company(in thousands)
    
    2004
    
    
    2003
    
    
    2004
    
    
    2003
    
    
    2004
    
    
    2003
    
    
    2004
    
    
    2003Revenues from external
customers
    
    
    8,120
    
    
    
    6,851
    
    
    
    6,991
    
    
    
    6,212
    
    
    
    9,076
    
    
    
    3,483
    
    
    
    
    
    
    
    Intersegment revenues
    
    
    2,278
    
    
    
    1,125
    
    
    
    
    
    
    
    
    
    
    
    764
    
    
    
    434
    
    
    
    811
    
    
    
    844Interest expense
    
    
    39
    
    
    
    45
    
    
    
    283
    
    
    
    267
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Depreciation and amortization
    
    
    175
    
    
    
    151
    
    
    
    165
    
    
    
    91
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Segment income(loss)
    
    
    (7
    )
    
    
    (1,325
    )
    
    
    (283
    )
    
    
    124
    
    
    
    783
    
    
    
    128
    
    
    
    (541
    )
    
    
    (139
    )Segment assets
    
    
    1,598
    
    
    
    1,206
    
    
    
    6,679
    
    
    
    4,533
    
    
    
    29,569
    
    
    
    18,895
    
    
    
    6,088
    
    
    
    2,174
 F-16




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##### Table of Contents



(in thousands)
    
    2004
    
    
    2003RevenueTotal revenue for reportable segments
    
    
    28,040
    
    
    
    18,949Elimination of intersegment revenue
    
    
    (3,853
    )
    
    
    (2,403
    )Total consolidated revenues
    
    
    24,187
    
    
    
    16,546Profit and lossTotal loss for reportable segments
    
    
    (48
    )
    
    
    (1,212
    )Loss before tax provision
    
    
    (48
    )
    
    
    (1,212
    )AssetsTotal assets for reportable segments
    
    
    43,935
    
    
    
    26,808Elimination of intersegment balances
    
    
    (7,641
    )
    
    
    (3,285
    )Total consolidated assets
    
    
    36,294
    
    
    
    23,523
  (27)
    Acquisition and recapitalizationOn April 1, 2003, the Company merged with Brainworks Ventures, Inc. (Brainworks), a Nevada
corporation. The combination was effected through an exchange of common stock whereby the former
shareholders of the Company exchanged all of their shares in the Company for 42,790,000 newly
issued shares of the common stock of Brainworks.The combination was accounted for as an acquisition of Brainworks by the Company and as a
recapitalization of the Company whereby retained earnings of the Company were carried forward
after the merger. F-17