UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, DC 20549

FORM 10-Q

(Mark one)

þ		QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended June 30, 2008

o		TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (D) OF THE EXCHANGE ACT OF 1934

For the transition period from                      to                     

AssuranceAmerica Corporation

(Exact name of smaller reporting company as specified in its charter)

Nevada (State of Incorporation)		87-0281240 (IRS Employer ID Number)
5500 Interstate North Parkway, Suite 600 (Address of principal executive offices)		30328 (Zip Code)

(770) 952-0200
(Issuer’s telephone number, including area code)

     Check whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act of 1934 during the preceding 12 months (or 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

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

     Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). YES o NO þ

There were 64,953,881 shares of the Registrant’s $.01 par value Common Stock outstanding as of August 8, 2008.

 

 

ASSURANCEAMERICA CORPORATION
Index to Form 10-Q

		Page
PART I — FINANCIAL INFORMATION
Item 1 Financial Statements
Consolidated Balance Sheets as of June 30, 2008 and December 31, 2007			3
Consolidated Statements of Operations for the Three Months and Six Months Ended June 30, 2008 and June 30, 2007			4
Consolidated Statements of Comprehensive Income for the Three Months and Six Months Ended June 30, 2008 and June 30, 2007			5
Consolidated Statements of Cash Flows for Six Months ended June 30, 2008 and June 30, 2007			6
Notes to Consolidated Financial Statements			7
Item 2 Management’s Discussion and Analysis of Financial Condition and Results of Operations			13
Item 3 Quantitative and Qualitative Disclosures about Market Risk			17
Item 4 Controls and Procedures			19
PART II — OTHER INFORMATION
Item 1 — Legal Proceedings			N/A
Item 1A Risk Factors			19
Item 2 Unregistered Sales of Equity Securities			23
Item 3 — Defaults Upon Senior Securities			N/A
Item 4 — Submission of Matters to A Voted Security			24
Item 5 Other Information			N/A
Item 6 Exhibits			25
Signatures			26
EX-31.1 SECTION 302, CERTIFICATION OF THE CEO
EX-31.2 SECTION 302, CERTIFICAITON OF THE CFO
EX-32.1 SECTION 906, CERTIFICATION OF THE CEO AND CFO

PART I — FINANCIAL INFORMATION

Item 1. Financial Statements

ASSURANCEAMERICA CORPORATION
CONSOLIDATED BALANCE SHEETS

		June 30, 2008				December 31, 2007
		(Unaudited)				Audited
Assets
Cash and cash equivalents		$	6,044,502			$	5,511,842
Short-term investments			648,842				642,924
Long-term investments, available for sale at fair value			11,841,161				14,838,738
Marketable equity securities			2,250,077				2,563,040
Other securities			155,000				155,000
Investment income due and accrued			137,532				158,981
Receivable from insureds			32,058,755				28,802,125
Reinsurance recoverable (including $9,208,742 and $6,077,396 on paid losses)			35,045,048				29,327,012
Prepaid reinsurance premiums			24,820,898				21,145,161
Deferred acquisition costs			2,588,925				2,130,323
Property and equipment (net of accumulated depreciation of $3,163,469 and $2,737,288)			2,782,894				2,360,747
Other receivables			2,934,808				2,966,287
Prepaid expenses			1,272,643				861,588
Intangibles (net of accumulated amortization of $2,453,068 and $2,240,233)			11,160,905				11,368,383
Security deposits			94,687				86,438
Prepaid income tax			77,299				148,677
Deferred tax assets			1,996,814				1,824,453
Other assets			354,945				361,419
Total assets		$	136,265,735			$	125,253,138
Liabilities and stockholders’ equity
Accounts payable and accrued expenses		$	7,900,961			$	7,184,132
Unearned premium			35,583,369				30,991,565
Unpaid losses and loss adjustment expenses			37,297,399				33,660,814
Reinsurance payable			29,889,441				25,174,138
Provisional commission reserve			2,567,237				2,963,308
Notes payable, related party			2,257,093				4,482,862
Junior subordinated debentures payable			4,971,852				4,968,519
Total liabilities			120,467,352				109,425,338
Commitments and contingencies
Stockholders’ equity
Common stock, .01 par value (authorized 120,000,000, outstanding 64,903,881 and 64,803,881)			649,039				648,039
Surplus-paid in			16,882,405				16,782,588
Accumulated deficit			(1,440,265	)			(1,673,332	)
Accumulated other comprehensive income:
Net unrealized gains (losses) on investment securities, net of taxes			(292,796	)			70,505
Total stockholders’ equity			15,798,383				15,827,800
Total liabilities and stockholders’ equity		$	136,265,735			$	125,253,138

See accompanying notes to consolidated financial statements.

ASSURANCEAMERICA CORPORATION
(Unaudited) CONSOLIDATED STATEMENTS OF OPERATIONS

		Three Months								Six Months
		Ended June 30th,								Ended June 30th,
		2008				2007				2008				2007
Revenue:
Gross premiums written		$	21,451,687			$	21,924,755			$	49,167,865			$	48,429,852
Gross premiums ceded			(14,781,936	)			(14,753,864	)			(34,041,341	)			(32,677,659	)
Net premiums written			6,669,751				7,170,891				15,126,524				15,752,193
Increase in unearned premiums, net of prepaid reinsurance premiums			590,686				(765,617	)			(916,068	)			(3,799,704	)
Net premiums earned			7,260,437				6,405,274				14,210,456				11,952,489
Commission income			5,059,629				5,079,224				11,383,582				11,803,789
Managing general agent fees			2,946,188				2,663,271				6,117,832				5,238,232
Net investment income			190,868				213,153				389,813				393,803
Net investment gains (losses) on securities			(28,965	)			24,442				(56,723	)			26,239
Other fee income			112,332				109,600				257,618				248,216
Total revenue			15,540,489				14,494,964				32,302,578				29,662,768
Expenses:
Losses and loss adjustment expenses			5,533,872				4,761,339				11,134,151				8,866,971
Selling, general and administrative expenses			9,723,892				8,791,856				19,720,912				17,982,682
Stock option expense			20,518				91,760				41,819				218,112
Depreciation and amortization expense			320,035				318,892				638,848				648,649
Interest expense			191,111				256,397				414,937				519,376
Total operating expenses			15,789,428				14,220,244				31,950,667				28,235,790
Income (loss) before provision for income tax expense			(248,939	)			274,720				351,911				1,426,978
Income tax provision (benefit)			(100,682	)			155,713				118,844				662,835
Net income (loss) before minority interest			(148,257	)			119,007				233,067				764,143
Minority interest			—				(1,385	)			—				4,627
Net income (loss)		$	(148,257	)		$	120,392			$	233,067			$	759,516
Earnings per common share
Basic		$	(0.002	)		$	0.002			$	0.004			$	0.013
Diluted		$	(0.002	)		$	0.002			$	0.004			$	0.013
Weighted average shares outstanding-basic			64,919,815				61,707,257				64,900,694				59,012,087
Weighted average shares outstanding-diluted			64,996,588				62,688,698				64,982,447				60,051,751

See accompanying notes to consolidated financial statements.

ASSURANCEAMERICA COPORATION AND SUBSIDIARIES
(Unaudited) CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

		Three Months								Six Months
		Ended June 30th,								Ended June 30th,
		2008				2007				2008				2007
Net income (loss)		$	(148,257	)		$	120,392			$	233,067			$	759,516
Other comprehensive income (loss):
Change in unrealized gains (losses) of investments arising during the period			(255,823	)			(190,997	)			(638,005	)			(202,585	)
Reclassification adjustment for realized losses recognized during the year			28,965				24,442				56,723				26,239
Net change in unrealized losses			(226,858	)			(215,439	)			(581,282	)			(228,824	)
Deferred tax benefit on above changes			85,072				80,790				217,981				85,809
Other comprehensive losses			(141,786	)			(134,649	)			(363,301	)			(143,015	)
Comprehensive income (loss)		$	(290,043	)		$	(14,257	)		$	(130,234	)		$	616,501

See accompanying notes to consolidated financial statements.

ASSURANCEAMERICA CORPORATION
(Unaudited) CONSOLIDATED STATEMENTS OF CASH FLOWS

		Six Months Ended
		June 30th,
		2008				2007
Cash flows from operating activities:
Net income		$	233,067			$	759,516
Adjustments to reconcile net income to net cash provided by operating activities:
Net investment losses (gains) on securities			56,723				(26,239	)
Minority interests			—				4,627
Depreciation and amortization			646,764				651,982
Stock-based compensation — options			41,819				218,112
Stock-based compensation — director fees			59,000				112,100
Deferred tax provision			45,620				273,253
Changes in assets and liabilities:
Investment income due and accrued			21,449				(35,504	)
Receivables			(3,225,151	)			(11,829,491	)
Prepaid expenses and other assets			(412,829	)			(314,225	)
Unearned premiums			4,591,804				11,481,584
Unpaid loss and loss adjustment expenses			3,636,585				4,687,212
Ceded reinsurance payable			4,715,303				13,445,811
Reinsurance recoverable			(5,718,036	)			(9,669,970	)
Prepaid reinsurance premiums			(3,675,737	)			(7,681,880	)
Accounts payable and accrued expenses			716,829				1,027,406
Prepaid income taxes			71,378				382,554
Deferred acquisition costs			(458,602	)			(812,372	)
Provisional commission reserve			(396,071	)			(148,985	)
Net cash provided by operating activities			949,915				2,525,491
Cash flows from investing activities:
Purchases of property and equipment, net			(848,317	)			(420,194	)
Proceeds from sales, call and maturities of investments			4,221,268				625,104
Purchases of investments			(1,559,237	)			(5,310,125	)
Cash paid for acquisition of agencies, net of cash acquired			(5,200	)			(300,000	)
Net cash provided (used) by investing activities			1,808,514				(5,405,215	)
Cash flows from financing activities:
Repayments of notes payable			(2,225,769	)			(653,353	)
Repayments on capital lease obligation			—				(42,760	)
Net used provided by financing activities:			(2,225,769	)			(696,113	)
Net increase (decrease) in cash and cash equivalents			532,660				(3,575,837	)
Cash and cash equivalents, beginning of period			5,511,842				8,185,539
Cash and cash equivalents, end of period		$	6,044,502			$	4,609,702

See accompanying notes to consolidated financial statements.

ASSURANCEAMERICA CORPORATION AND SUBSIDIARIES

Notes to Consolidated Financial Statements

June 30, 2008 and 2007

(1)		Description of Business
		AssuranceAmerica Corporation, a Nevada corporation (the “Company”) is an insurance holding company whose business is comprised of AssuranceAmerica Insurance Company (“AAIC”), AssuranceAmerica Managing General Agency, LLC (“MGA”) and TrustWay Insurance Agencies, LLC (“TrustWay”), each wholly-owned. The Company solicits and underwrites nonstandard private passenger automobile insurance. The Company is headquartered in Atlanta, Georgia.
(2)		Summary of Significant Accounting Policies
		Basis of Consolidation and Presentation
		The accompanying unaudited consolidated financial statements of the Company have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) for interim financial information and in accordance with the instructions to Form 10-Q and Article 10 of Regulation S-X. Such financial statements do not include all of the information and disclosures required by GAAP for complete financial statements. In our opinion, all adjustments (consisting solely of normal recurring accruals) necessary for a fair presentation have been included in the accompanying financial statements. Certain items in prior period financial statements have been reclassified to conform to the current presentation. For further information, please refer to our audited consolidated financial statements appearing in the Form 10-K for the year ended December 31, 2007.
		Estimates
		A discussion of our significant accounting policies and the use of estimates is included in the notes to the consolidated financial statements included in the Company’s Financial Statements for the year ended December 31, 2007 as filed with the Securities and Exchange Commission in the 2007 Form 10-K.
		New Accounting Standards Adopted
		Effective January 1, 2008, the Company adopted Statement of Financial Accounting Standards (“SFAS”) No. 157, “Fair Value Measurements” which defines fair value, establishes a framework for measuring fair value, and expands disclosures about the information used to measure fair value. SFAS 157 applies whenever other accounting pronouncements require, or permit, assets or liabilities to be measured at fair value; it does not require any new fair value measurements. The adoption of SFAS 157 did not have a material impact on the results of operations or financial position of the Company (See Note 10 for required disclosures).
		Effective January 1, 2008, the Company adopted SFAS No. 159, “The Fair Value Option for Financial Assets and Financial Liabilities — including an amendment of FASB Statement No. 115” (“SFAS 159”) which permits entities to voluntarily choose to measure many financial instruments at fair value. The election is made on an instrument-by-instrument basis and is irrevocable. If the fair value is elected for an instrument, the statement specifies that entities report in earnings unrealized gains and losses at each subsequent reporting date. The Company did not elect the fair value option for any of its financial assets or liabilities.
(3)		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 (“case reserves”), estimates (based upon actuarial analysis of historical data) of losses for claims incurred but not reported (“IBNR”) 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 resulting adjustments are reflected in current operations.

A summary of unpaid losses and loss adjustment expenses, net of reinsurance ceded, is as follows:

		June 30, 2008				December 31, 2007
Case basis		$	4,423,495			$	4,200,577
IBNR			7,037,598				6,210,621
Total		$	11,461,093			$	10,411,198

(4)		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.
		The impact of reinsurance on the statements of operations for the period ended June 30, 2008 and 2007 was as follows:

		Three Months								Six Months
		Ended June 30th,								Ended June 30th,
		2008				2007				2008				2007
Premiums written:
Direct		$	21,179,517			$	21,487,051			$	48,476,632			$	47,638,823
Assumed			272,170				437,704				691,233				791,029
Ceded			14,781,936				14,753,864				34,041,341				32,677,659
Net		$	6,669,751			$	7,170,891			$	15,126,524			$	15,752,193
Premiums earned:
Direct		$	22,553,217			$	19,395,970			$	43,766,694			$	36,537,125
Assumed			379,714				286,223				809,366				411,143
Ceded			15,672,494				13,276,919				30,365,604				24,995,779
Net		$	7,260,437			$	6,405,274			$	14,210,456			$	11,952,489
Losses and loss adjustment expenses incurred:
Direct		$	17,780,633			$	15,116,852			$	35,361,399			$	28,724,295
Assumed			294,077				217,206				694,181				230,412
Ceded			12,540,838				10,572,719				24,921,429				20,087,736
Net		$	5,533,872			$	4,761,339			$	11,134,151			$	8,866,971

The impact of reinsurance on the balance sheets is as follows:

		June 30, 2008				December 31, 2007
Unpaid losses and loss adjustment expense:
Direct		$	36,990,004			$	33,391,172
Assumed			307,395				269,642
Ceded			25,836,306				23,249,616
		$	11,461,093			$	10,411,198
Unearned premiums:
Direct		$	35,205,129			$	30,495,191
Assumed			378,241				496,394
Ceded			24,820,898				21,145,161
Net		$	10,762,472			$	9,846,404

The Company received $3,843,303 and $8,850,749 in commissions on premiums ceded during the three and six month periods ended June 30, 2008, respectively. Had all of the Company’s reinsurance agreements been cancelled at June 30, 2008, the Company would have returned $6,453,433 in reinsurance commissions to its reinsurers and its reinsurers would have returned $24,820,898 in unearned premiums to the Company.

(5)		Income Taxes
		The provision for federal and state income taxes for the period ended June 30, 2008 and 2007 were as follows:

		Three Months								Six Months
		Ended June 30th,								Ended June 30th,
		2008				2007				2008				2007
Current		$	(107,036	)		$	(76,656	)		$	73,224			$	389,582
Deferred			6,354				232,369				45,620				273,253
Total provision for income taxes		$	(100,682	)		$	155,713			$	118,844			$	662,835

(6)		Capital Stock
		Common Stock
		During the first six months of 2007, 840,000 shares of preferred stock converted to 8,400,000 shares of common stock. During the first six months of 2008, the Company issued 120,000 shares of common stock, $.01 par value to its board of directors.
		Stock-Based Compensation
		The weighted-average grant date fair value of options granted during the six month ended June 30, 2008 and June 30, 2007, using the Black-Scholes-Merton option-pricing model, was $0.4499 and $0.7946, respectively. The total intrinsic value of options exercised during the six months ended June 30, 2008 and June 30, 2007 was $0 and $162,000 respectively.
		Total compensation cost for share-based payment arrangements recognized for the three and six month periods ended June 30, 2008 was $20,518 and $41,819, respectively. Total compensation cost for share-based payment arrangements recognized for the three and six month periods ended June 30, 2007 was $91,760 and $218,112 respectively. The fair value of each option award is estimated on the date of grant using the Black-Scholes-Merton option-pricing model using the assumptions noted in the following table.

		June 30, 2008				June 30, 2007
Weighted-average-grant-date fair value		$	0.4499			$	0.7946
Expected volatility			110% - 111	%			106% - 120	%
Weighted average volatility			109	%			113	%
Risk-free interest rate			3.45% - 3.67	%			2.00% - 2.50	%
Expected term (in years)			8.2				5.0

A summary of all stock option activity during the six months ending June 30, 2008 and 2007 follows:

		2008								2007
						Weighted
		Number of				Average				Number of				Number of
Options Outstanding		Shares				Exercise Price				Shares				Shares
January 1			4,946,665			$	0.80				5,347,225			$	0.85
Add (deduct):
Granted			462,500			$	0.55				330,000			$	1.06
Exercised			—				—				(50,000	)		$	0.25
Forfeited			(109,040	)		$	0.82				(416,750	)		$	0.78
Expired			(450,000	)		$	0.25				—				—
March 31			4,850,125			$	0.87				5,210,475			$	0.87
Add (deduct):
Granted			—				—				1,091,000			$	0.96
Exercised			—				—				(120,000	)		$	0.60
Forfeited			(18,500	)		$	0.83				(1,099,510	)		$	0.83
Expired			(50,000	)		$	0.23				(20,000	)		$	0.75
June 30			4,781,625			$	0.83				5,061,965			$	0.91
Exercisable, June 30			1,302,320			$	0.78				1,488,583			$	0.81

(7)		Commitments and Contingencies
		Contractual Commitments
		The Company leases office space for its corporate headquarters in Atlanta, Georgia under a 12-year lease that commenced on May 1, 2003. The Company leases retail office space at various locations in Georgia, Florida and Alabama under short to medium term commercial leases. The Company also leases office equipment for use in its various locations. Rent expense for long-term leases with predetermined minimum rental escalations is recognized on a straight-line basis, and the difference between the recognized rental expense and amounts payable under the leases, or deferred rent, is included in other liabilities. The Company has a software license agreement with terms greater than one year.
		The Company also has contractual commitments in association with long-term debt owed to current and former owners of the Company and in connection with a Junior Subordinated Debentures issued in December 2005. Please refer to Note 6 of the Notes to Consolidated Financial Statements, as of December 31, 2007 included in our Annual Report on Form 10-K for additional information about the long-term debt arrangements.
		Minimum amounts due under the Company’s noncancelable commitments at June 30, 2008 are as follows:

		Long-Term Debt				Operating Lease
Payments due by period		Obligations				Obligations				Total
Less than 1 year		$	560,383			$	884,429			$	1,444,812
1-3 years			1,581,242				2,797,416				4,378,658
4-5 years			115,468				2,373,358				2,488,826
More than 5 years			4,971,852				1,826,624				6,798,476
Total		$	7,228,945			$	7,881,827			$	15,110,772

		Defined Contribution Plan
		The Company’s associates participate in the AssuranceAmerica Corporation 401(k) defined contribution retirement plan. Under the plan, the Company can elect to make discretionary contributions. Effective January 1, 2008, the Company elected to match 33% of employee contributions up to 6% of gross earnings. Matching contributions during the first six months of 2008 and 2007 were $51,464 and $25,962, respectively. The eligibility requirements are 21 years of age, 6 months of service and full time employment.
(8)		Net Income Per Share
		Basic and diluted income per common share is computed using the weighted average number of common shares outstanding during the period. Potential common shares not included in the calculations of net income per share for the periods ended June 30, 2008 and 2007, because their inclusion would be anti-dilutive, are as follows:

		Three Months								Six Months
		Ended June 30th,								Ended June 30th,
		2008				2007				2008				2007
Stock options			4,660,125				1,072,500				4,660,125				1,072,500

The reconciliation of the amounts used in the computation of both basic earnings per share and diluted earnings per share for the periods ended June 30, 2008 and 2007 are as follows:

						Average Shares				Per Share
		Net Income (Loss)				Outstanding				Amount
For the three months ended June 30, 2008:
Net income — basic		$	(148,257	)			64,919,815				(0.002	)
Effect of dilutive stock warrants and options			—				76,773
Net income — diluted		$	(148,257	)			64,996,588				(0.002	)
For the three months ended June 30, 2007:
Net income — basic		$	120,392				61,707,257				0.002
Effect of dilutive stock warrants and options			—				981,441
Net income — diluted		$	120,392				62,688,698				0.002
For the six months ended June 30, 2008:
Net income — basic		$	233,067				64,900,694				0.004
Effect of dilutive stock warrants and options			—				81,753
Net income — diluted		$	233,067				64,982,447				0.004
For the six months ended June 30, 2007:
Net income — basic		$	759,516				59,012,087				0.013
Effect of dilutive stock warrants and options			—				1,039,664
Net income — diluted		$	759,516				60,051,751				0.013

(9)

Supplemental Cash Flow Information

		2008				2007
Cash paid during the six months ended June 30:
Interest		$	414,937			$	519,376
Income taxes		$	1,500			$	7,025

		The Company recorded net unrealized losses on investment securities in the amount of $363,301 and $143,015, net of taxes, for the six month period ended June 30, 2008 and 2007, respectively.
		On January 3, 2007, the Company purchased the assets of Frontline Insurance Group, LLC. As part of the purchase agreement, the Company issued a note payable in the amount of $114,400.
		On January 16, 2008 the Company purchased the assets of Alabama One Stop, LLC for cash.
		The following table illustrates the composition of acquisitions for the six months ended June 30, 2008 and 2007:

		2008				2007
Fair value of assets acquired		$	5,200			$	414,400
Cash paid to sellers			(5,200	)			(300,000	)
Liabilities assumed		$	—			$	114,400

During the first six months of 2008, the Company issued 120,000 shares of common stock, $.01 par value, to members of its board of directors pursuant to the director compensation program in lieu of cash directors’ fees.

(10)		Recent Accounting Pronouncements
		In February 2007, the Financial Accounting Standards Board (“FASB”) issued The Fair Value for Financial Assets and Financial Liabilities—including an amendment of FASB Statement No. 115. This statement permits entities to choose to measure many financial instruments and certain other items at fair value. The objective is to improve financial reporting by providing entities with the opportunity to mitigate volatility in reported earnings caused by measuring related assets and liabilities differently without having to apply complex hedge accounting provisions. This statement is expected to expand the use of fair value measurement, which is consistent with the FASB’s long-term measurement objective for accounting for financial instruments. This statement became effective January 1, 2008. However, the Company has not chosen the fair value option for any assets or liabilities.
		Effective January 1, 2008, the Company adopted SFAS No. 157, “Fair Value Measurements” which defines fair value, establishes a framework for measuring fair value, and expands disclosures about the information used to measure fair value. SFAS 157 applies whenever other accounting pronouncements require, or permit, assets or liabilities to be measured at fair value; it does not require any new fair value measurements. The adoption of SFAS 157 did not have a material impact on the results of operations or financial position of the Company.
		The fair value of our investments in fixed income and equity securities is based on observable market quotations, other market observable data, or is derived from such quotations and market observable data. We utilize third party pricing servicers, brokers and internal valuation models to determine fair value. We gain assurance of the overall reasonableness and consistent application of the assumptions and methodologies and compliance with accounting standards for fair value determination through our ongoing monitoring of the fair values received or derived internally.
		Level 1 inputs are unadjusted, quoted prices in active markets for identical instruments at the measurement date (e.g., U.S. Government securities and active exchange-traded equity securities). Level 2 securities are comprised of securities whose fair value was determined by a nationally recognized pricing service using observable market inputs. Level 3 securities are comprised of (i) securities for which the pricing service is unable to provide a fair value, (ii) securities whose fair value is determined by the pricing service based on unobservable inputs and (iii) securities, other than securities backed by the U.S. Government, that are not rated by a Nationally Recognized Statistical Rating Organization.
		The following table illustrates the fair value measurements as of June 30, 2008:

		Quoted Prices in				Significant Other				Significant Other
		Active Markets				Observable Inputs				Unobservable Inputs
		(Level 1)				(Level 2)				(Level 3)
Description:
Available for sale securities		$	5,693,869			$	6,147,292			$	—
Marketable equity securities			2,250,077				—				—
Total		$	7,943,946			$	6,147,292			$	—

(11)		Segment Reporting
		The Company’s subsidiaries are each unique operating entities performing a separate business function. AAIC, a property and casualty insurance company focuses on writing nonstandard automobile business in the states of Georgia, Alabama, Arizona, Florida, Louisiana, Mississippi, South Carolina and Texas. MGA markets AAIC’s policies through more than 1,800 independent agencies in these states. MGA provides all of the underwriting, accounting, product management, legal, policyholder administration and claims functions for AAIC and for two unaffiliated insurer’s that retain the non-standard automobile insurance policies produced by MGA in Florida and Texas. MGA receives various fees related to insurance transactions that vary according to state insurance laws and regulations. TrustWay is comprised of 50 retail insurance agencies that focus on selling nonstandard automobile policies and related coverages in Georgia, Florida and Alabama. TrustWay receives commissions and various fees associated with the sale of the products and services from its appointing insurance carriers.
		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, amortization and interest.

     Following are the operating results for the Company’s various segments and an overview of segment assets:

($ in thousands)		MGA				TrustWay				AAIC				Company				Eliminations				Consolidated
SECOND QUARTER 2008
Revenues
External customer		$	6,376			$	1,703			$	7,462			$	—			$	—			$	15,541
Intersegment			1,562				534				822				699				(3,617	)			—
Income
Segment pretax income(loss)			1,872				(1,628	)			(483	)			(10	)			—				(249	)
Assets
Segment assets			10,849				4,699				117,917				27,066				(24,265	)		$	136,266

($ in thousands)		MGA				TrustWay				AAIC				Company				Eliminations				Consolidated
SECOND QUARTER 2007
Revenues
External customer		$	6,562			$	1,290			$	6,643			$	—			$	—			$	14,495
Intersegment			1,684				1,027				753				743				(4,207	)			—
Income
Segment pretax income(loss)			281				(622	)			967				(351	)			—				275
Assets
Segment assets			7,091				11,213				107,795				23,290				(22,777	)			126,612
FIRST SIX MONTHS 2008
Revenues
External customer		$	14,059			$	3,591			$	14,652			$	—			$	—			$	32,303
Intersegment			3,545				1,765				1,614				1,398				(8,322	)			—
Income
Segment pretax income(loss)			2,192				(2,077	)			225				12				—				352
Assets
Segment assets			10,849				4,699				117,917				27,066				(24,265	)			136,266

($ in thousands)		MGA				TrustWay				AAIC				Company				Eliminations				Consolidated
FIRST SIX MONTHS 2007
Revenues
External customer		$	14,093			$	3,197			$	12,373			$	—			$	—			$	29,663
Intersegment			3,715				2,559				1,669				1,485				(9,428	)			—
Income
Segment pretax income(loss)			612				(479	)			1,832				(538	)			—				1,427
Assets
Segment assets			7,091				11,213				107,795				23,290				(22,777	)			126,612

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Financial Condition

     Investments and cash as of June 30, 2008, decreased $2.8 million to $20.9 million from investments and cash of $23.7 million as of December 31, 2007. The decrease was due in part to $0.9 million increase in cash and income generated through operating activities and $2.7 million in net sales on investments. This increase was offset by $.8 million in purchases of property and equipment and $2.2 million in principal payments on notes payable. The Company continues to invest in upgrading its retail stores and invest in technology to strengthen our infrastructure and support expansion. The Company’s investments of $14.9 million are primarily in direct obligations of the U.S. Treasury as well as those securities unconditionally guaranteed as to the payment of principal and interest by the United States government or any agency thereof and in high-quality corporate and municipal bonds of Georgia-based issuers. The Company’s investment activities are made in accordance with the Company’s Investment Policy. The objectives of the Investment Policy are to obtain favorable after-tax returns on investments through a

diversified portfolio of fixed income, equity and real estate holdings. The Company’s investment criteria and practices reflect the short-term duration of its contractual obligations with policyholders and regulators. Tax considerations include federal and state income tax as well as premium tax abatement and credit opportunities offered to insurance companies in the states where AAIC writes policies.

     Premiums receivable as of June 30, 2008, increased $3.3 million to $32.1 million compared to December 31, 2007. The balance represents amounts due from AAIC’s insureds and the increase is directly attributable to the increase in AAIC’s premium writings during the first six months of 2008. The Company’s policy is to write off receivable balances immediately upon cancellation or expiration, and the Company does not consider an allowance for doubtful accounts to be necessary.

     Reinsurance recoverable as of June 30, 2008, increased $5.7 million to $35.0 million compared to December 31, 2007. The increase is directly related to AAIC’s continued growth. AAIC maintains a quota-share reinsurance treaty with its reinsurers in which it cedes 70% of the majority of premiums and losses. The $35.0 million represents the reinsurers’ portion of losses and loss adjustment expense, both paid and unpaid. All amounts are considered current.

     Prepaid reinsurance premiums as of June 30, 2008, increased $3.7 million to $24.8 million compared to December 31, 2007. The increase results from AAIC’s continued growth, and represents premiums ceded to its reinsurers which have not been fully earned.

     Deferred acquisition costs as of June 30, 2008 increased $0.5 million to $2.6 million compared to December 31, 2007. The increase resulted from AAIC’s continued growth. The amount represents agents’ commissions and other variable expenses associated with acquiring the insurance policies that are being deferred to coincide with the earnings of the related policy premiums.

     Intangible assets as of June 30, 2008, decreased $0.2 million to $11.2 million from the balance of $11.4 million as of December 31, 2007. This decrease is directly related to the amortization of acquired assets.

     Accounts payable and accrued expenses as of June 30, 2008, increased $0.7 million from December 31, 2007 to $7.9 million. The increase is due to $.02 million of accrued commissions due to agents, $.02 million of expenses and $.03 million increase in the liability for premium taxes.

     Unearned premium as of June 30, 2008 increased $4.6 million to $35.6 million from December 31, 2007, and represents premiums written but not earned. This is directly attributable to the increase in AAIC’s premium writings during the first six months of 2008.

     Unpaid losses and loss adjustment expenses increased $3.6 million to $37.3 million as of June 30, 2008 from $33.7 million at December 31, 2007. This amount represents management’s estimates of future amounts needed to pay claims and related expenses and the increase correlates with the increase in AAIC’s writings and anticipated future losses.

     Reinsurance payable as of June 30, 2008 increased $4.7 million to $29.9 million, compared to the balance at December 31, 2007. The amount represents premiums owed to the Company’s reinsurers. AAIC maintains a quota-share reinsurance treaty with its reinsurers in which it cedes 70% of the majority of both premiums and losses. The increase is directly attributable to the increase in AAIC’s premium writings during the first six months of 2008.

     Provisional commission reserves represent the difference between our minimum ceding commission and the provisional amount paid by the reinsurers. This balance as of June 30, 2008 decreased $2.4 million to $2.3 million, compared to the balance at December 31, 2007. The decrease is related a provisional commission payment during the second quarter of 2008.

Liquidity and Capital Resources

     Net cash provided by operating activities for the six months ended June 30, 2008 was $.09 million compared to net cash provided by operating activities of $2.5 million for the same period of 2007.

     Investing activities for the six months ended June 30, 2008 consisted of the purchase of leasehold improvements and property and equipment in the amount of $0.8 million in our retail stores and new technology and $2.7 million in net sales of investments in compliance with various Departments of Insurance requirements for issuance of Certificates of Authority and general investment policies of the Company.

     Financing activities for the six months ended June 30, 2008 consisted of debt repayments for the six months ended June 30, 2008 and 2007 of $2.2 million, compared to $.07 million during the same period in 2007.

     The Company’s liquidity and capital needs have been met in the past through premium, commission and fee income, loan from its Chairman and issuance of its Series A Convertible Preferred Stock, common stock and debt securities. The Company’s related party debt consists of unsecured promissory notes payable to its Chairman. The promissory notes carry an interest rate of 8% per annum and provide for the repayment of principal on an annual basis. On December 22, 2005, the Company, through a newly-formed Delaware statutory trust, AssuranceAmerica Capital Trust I (the “Trust”), consummated the private placement of 5,000 of the Trust’s floating rate capital securities, with a liquidation amount of $1,000 per capital security (the “Capital Securities”). In connection with the Trust’s issuance and sale of the Capital Securities, the Company purchased from the Trust 155 of the Trust’s floating rate common securities, with a liquidation amount of $1,000 per common security (the “Common Securities”). The Trust used the proceeds from the issuance and sale of the Capital Securities and the Common Securities to purchase $5,155,000 in aggregate principal amount of the floating rate junior subordinated debentures of the Company (the “Debentures”). The Capital Securities mature on December 31, 2035, but may be redeemed at par beginning December 31, 2010 if and to the extent the Company exercises its right to redeem the Debentures. The Capital Securities require quarterly distributions by the Trust to the holders of the Capital Securities, at a floating rate of three-month LIBOR plus 5.75% per annum, reset quarterly. Distributions are cumulative and will accrue from the date of original issuance but may be deferred for a period of up to 20 consecutive quarterly interest payment periods if the Company exercises its right under the Indenture to defer the payment of interest on the Debentures.

     The growth of the Company has and will continue to strain its liquidity and capital resources. AAIC is required by the state of South Carolina to maintain minimum capital and surplus of $3.0 million. As of June 30, 2008, AAIC’s statutory capital and surplus was $11.8 million.

Results of Operations

     The Company reported a net loss of $0.1 million and a net gain of $0.2 million for the three and six month periods ended June 30, 2008 compared to net income of $0.1 million and $0.8 million for the three and six month periods ended June 30, 2007. The Company reported basic losses per common share of $0.002 and basic earnings per common share of $0.004 for the three and six month periods ended June 30, 2008 compared to $0.002 and $0.013 for the three and six month periods ended June 30, 2007. Fully diluted losses per common share was ($0.002) and fully diluted earnings per common share was $0.004 for the three and six month period ended June 30, 2008 compared to $0.002 and $0.013 for the three and six month periods ended June 30, 2007.

Revenues

Premiums

     Gross premiums written for the three and six month periods ended June 30, 2008 were $21.5 million and $49.2 million, respectively. In the comparable period for 2007, AAIC recorded $21.9 million and $48.4 million, respectively, in gross premiums written. 2008 gross premiums written includes insurance premiums written directly by AAIC, or “direct premiums written,” of $21.2 million and $48.5 million in the respective three and six month periods, plus $0.3 and $0.7 million, in the respective three and six month periods, of premiums associated with the insurance risk transferred to AAIC by two unaffiliated insurance companies pursuant to a reinsurance contract, referred to as “assumed premiums written.” 2007 gross premiums written includes direct premiums written of $21.5 million and $47.6 million in the respective three and six month periods, plus $.04 million and $0.8 million, in the respective three and six month periods, of assumed premiums written. The majority of our growth occurred in Louisiana and Arizona, where AAIC began writing policies in Louisiana in 2007 and in Arizona where AAIC began writing policies in the first quarter of 2008. Entry into Louisiana accounted for $4.2 million and Arizona was $0.5 of the increase during 2008 over the comparable 2007 period. As of June 30, the soft market and economic factors continues to put pressure on our writings in Georgia and Florida. The decline in Georgia premium for the six months ended June 30, 2008 was $1.1 million or 6% from the 2007 comparable period. Florida premium declined $3.4 million when compared with the first six months of 2007. Policies inforce increased 12% from December 31, 2007 to June 30, 2008. The Company cedes approximately 70% of its direct premiums written to its reinsurers and the amount ceded for the six months ended June 30, 2008, was $34.0 million.

     Premiums written refers to the total amount of premiums billed to the policyholder less the amount of premiums returned, generally as a result of cancellations, during a given period. Premiums written become premiums earned as the policy ages. Barring premium rate changes, if an insurance company writes the same mix of business each year, premiums written and premiums earned will be equal and the unearned premium reserve will remain constant. During periods of growth, the unearned premium reserve will increase, causing premiums earned to be less than premiums written. Conversely, during periods of decline, the unearned premium reserve will decrease, causing premiums earned to be greater than premiums written. The Company’s net earned premium, after deducting reinsurance, was $7.3 million and $14.2 million for the three and six month periods ended June 30, 2008 and compares to $6.4 million and $11.9 million, respectively, for the three and six month periods ended June 30, 2007.

Commission and Fee Income

     MGA and TrustWay produce and service non-standard personal automobile insurance business for our own carrier and other insurers. We receive service fees for agency, underwriting, policy administration, and claims adjusting services performed on behalf of these insurers. We also receive commission and service fee income in TrustWay on other insurance products produced for unaffiliated insurance companies on which we do not bear underwriting risk, including travel protection, vehicle protection and hospital indemnity insurance policies. Commission rates vary between carriers and are applied to written premium to determine commission income.

     Commission income, as a result of business produced in both TrustWay and MGA, the commission decreased 4% and 5% for the three and six month periods ended June 30, 2008, respectively, compared to the same periods ended June 30, 2007. Total commission income earned by TrustWay from the production of AAIC for the three and six month periods ended June 30, 2008 totaled $0.6 million and $1.8 million, respectively and this amount is eliminated from total commission income (revenue) and commission expense. AAIC pays MGA commission on the 30% of premium which AAIC retains. This amount is subsequently eliminated upon consolidation. The amount eliminated was $1.6 million and $3.5 million, respectively, for the three and six month periods ended June 30, 2008.

     Managing general agent fees for the three and six month periods ended June 30, 2008 were $2.9 million and $6.1 million, respectively, an increase of $0.3 million and $0.9 million, when compared to the same periods of 2007.

     Other fee income was flat and decreased $0.1 million for the three and six month periods ended June 30, 2008 from the comparable periods of 2007. TrustWay collects fees for various services performed and for additional products sold to insureds. As TrustWay writes less agency bill policies, the fee income will decline slightly.

Net Investment Income

     Our investment portfolio is generally highly liquid and consists substantially of readily marketable, investment-grade debt and equity securities. Net investment income is primarily comprised of interest and dividends earned on these securities, net of related investment expenses. Net investment income increased $22,000 and decreased $4,000 for the three and six month periods ended June 30, 2008 from $0.2 million and $0.4 million in the comparable 2007 periods. This is primarily a result of an increase in average invested assets. The improved cash flows from our insurance operations resulted in increases in average invested assets.

Expenses

Insurance Loss and Loss Adjustment Expenses

     Insurance losses and loss adjustment expenses include payments made to settle claims, estimates for future claim payments and changes in those estimates for current and prior periods, as well as loss adjustment expenses incurred in connection with settling claims. Insurance losses and loss adjustment expenses are influenced by many factors, such as claims frequency and severity trends, the impact of changes in estimates for prior accident years, and increases in the cost of medical treatment and automobile repairs. The anticipated impact of inflation is considered when we establish our premium rates and set loss reserves. We perform a rolling quarterly actuarial analysis each month and establish or adjust (for prior accident quarters) reserves, based upon our estimate of the ultimate incurred losses and loss adjustment expenses to reflect loss development information and trends that have been updated for the most recent quarter’s activity. Each month our estimate of ultimate loss and loss adjustment expenses is evaluated by accident quarter, by state and by major coverage grouping (e.g., bodily injury, physical damage) and changes in estimates are reflected in the period the additional information becomes known.

     We have historically used reinsurance to manage our exposure to loss by ceding a portion of our gross losses and loss adjustment expenses to reinsurers. We remain obligated for amounts covered by reinsurance, however, in the event that the reinsurers do not meet their obligations under the agreements (due to, for example, disputes with the reinsurer or the reinsurer’s insolvency). The Company cedes approximately 70% of its direct loss and loss adjustment expenses incurred to its reinsurers and the amount ceded for the three and six month periods ended June 30, 2008, was $12.5 million and $24.9 million, respectively.

     After making deductions for the effect of reinsurance, losses and loss adjustment expenses were $5.5 million and $11.1 million for the three and six month periods ended June 30, 2008. As a percentage of earned premiums, this amount increased for the three month period ended June 30, 2008, from 76.2% to 74.3%, when compared with the same period in 2007. As a percentage of earned premiums, this amount decreased for the six month period ended June 30, 2008, from 78.3% to 74.2%, when compared with the same period in 2007. 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. The increase in the year-over-year loss ratio is in part due to adverse loss development experienced due storm activity and increased claim frequency in various states.

Other Expenses

     Other operating expenses, including selling and general and administrative increased $0.8 million and $1.7 million for the three and six-month periods ended June 30, 2008 when compared to the same periods of 2007. As a percentage of revenue, selling and general and administrative expenses for the three month period ended June 30, 2008 increased from 60.6% to 62.6% when compared to the 2007 period. As a percentage of revenue, selling and general and administrative expenses for the six month period ended June 30, 2008 increased from 60.6% to 61.1% when compared to the 2007 period. The increase in selling expenses is primarily attributable to additional staffing costs as compared to the 2007 period.

Income Tax Expense

     The provision for income taxes for the three and six month periods ended June 30, 2008, consists of federal and state income taxes at the Company’s effective tax rate. The Company had a tax benefit of ($0.1) million and a tax expense of $0.1 million for the three and six month periods ended June 30, 2008, representing an effective tax rate of (40.4%) and 33.8%, respectively. This tax expense compares with $0.2 million and $0.7 million for the comparable 2007 periods, which was an effective tax rate of 56.7% and 46.5%, respectively.

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

We are primarily exposed to the impact of interest rate changes, changes in market values of investments and to credit risk.

In the normal course of business, we employ established policies and procedures to manage our exposure to changes in interest rates, fluctuations in the fair market value of debt and equity securities and credit risk. We seek to mitigate these risks by various actions described below.

Our cash flows from operations and short-term cash position generally have been more than sufficient to meet our projected obligations for claim payments, which by the nature of the personal automobile insurance business, tend to have an average duration of less than one year. As a result, it has been unnecessary for the Company to employ elaborate market risk management techniques involving complicated asset and liability duration matching or hedging strategies.

Interest Rate Risk

Investments. Our investment portfolio consists primarily of fixed-maturity debt securities, all of which are classified as available for sale. For these securities, we seek to provide for liquidity and diversification while maximizing income without sacrificing investment quality. The value of the fixed maturity securities portfolio is subject to interest rate risk where the value of the fixed maturity securities portfolio decreases as market interest rates increase, and conversely, when market interest rates decrease, the value of the fixed maturity securities portfolio increases. Duration is a common measure of the sensitivity of a fixed maturity security’s value to changes in interest rates. More specifically, it is the approximate percentage change in the value of a bond or bond portfolio due to a 100 basis point change in interest rates. The higher the duration, the more sensitive a fixed maturity security is to market interest rate fluctuations. Effective duration also measures this sensitivity, but it takes into account call terms, as well as changes in remaining term, coupon rate, cash flow, and other items. We strive to limit interest rate risk by selecting investments with characteristics such as duration, yield and liquidity tailored to the anticipated cash outflow characteristics of our liabilities. Interest rate risk includes the risk from movements in the underlying market rate and in the credit spread of the respective sectors of the debt securities in our portfolio. We do not hedge our exposure to interest rate risk because we have the capacity to, and typically, hold fixed-maturity investments to maturity. The effective duration of the portfolio as of June 30, 2008 was 5.59 years. Should market interest rates increase 1.0%, our fixed income portfolio would be expected to decline in market value by $0.6 million, or 5.1%. Conversely, a 1.0% decline in interest rates would result in approximately $0.7 million, or 6.1%, appreciation in the market value of our fixed income portfolio.

Credit Facility. We also have exposure to market risk for changes in interest rates because we have variable rate debt. The interest rate we pay increases or decreases with the changes in LIBOR. Based on our borrowings under the floating rate credit agreement at June 30, 2008, a 10% increase in market interest rates would increase our annual net interest expense by approximately $20,000. Conversely, a 10% decrease in market interest rates would decrease our annual net interest expense by approximately $20,000.

The graphical depiction of the relationship between the yield on bonds of the same credit quality with different maturities is usually referred to as a yield curve. Because the yield on U.S. Treasury securities is the base rate (or “risk free rate”) from which non-government bond yields are normally benchmarked, the most commonly constructed yield curve is derived from the observation of prices and yields in the Treasury market. An upward sloping curve, where yield rises steadily as maturity increases, is referred to as a normal yield curve.

The following table shows the carrying values of our fixed maturity securities, which are reported at fair value. The table also presents estimated fair values at adjusted market rates assuming a parallel 100 basis point increase in market interest rates, given the effective duration noted above. The following sensitivity analysis summarizes only the exposure to market interest rate risk:

Estimated

Carrying Value at

Change in

Adjusted Market

Value as a

(Dollar amounts in thousands)

Carrying

Rates/Prices

Percentage of

June 30, 2008

Value

Indicated Above

Carrying Value

Fixed maturity securities available-for-sale, at fair value

$

12,124.6

$

11,248.1

(7.2

)%

The discussion above provides only a limited, point-in-time view of the market risk sensitivity of our fixed rate financial instruments. The actual impact of interest rate changes on our fixed maturity securities in particular may differ significantly from those shown, as the analysis assumes a parallel shift in market interest rates. The analysis also does not consider any actions we could take in response to actual and/or anticipated changes in interest rates.

The difference between long-term Treasury yields and short-term Treasury yields are usually referred as the “slope” of the yield curve. If the spread between the long end of the curve, where maturities are high, and the short end of the curve, where maturities are low, narrows, the yield curve is said to be “flattening.” Conversely, if the spread between the long end of the curve and the short end of the curve widens, the yield curve is said to be “steepening.” If the yields on the long end of the curve fall below those of the short end of the curve, the yield curve is said to be “inverted.”

The analysis above assumes a parallel shift in interest rates. However, the curve may also steepen, flatten or become inverted. This type of behavior may affect certain sections of the curve in disproportionate amounts. For example, if short-term Treasury yields rise and the yield curve flattens, fixed maturity instruments with short duration may be impacted to a greater degree than fixed maturity instruments with longer duration. Conversely, if long-term Treasury yields rise and the yield curve steepens, fixed maturity instruments with long duration may be impacted to a greater degree than fixed maturity instruments with shorter duration.

The following summarizes the effective duration distribution of our fixed maturity securities portfolio.

		Duration Ranges
June 30, 2008		Below 1				1 to 3				3 to 5				5 to 7				7 to 10				10 to 20
Fair value percentage of fixed maturity security portfolio			10.8	%			8.7	%			10.8	%			34.1	%			35.7	%			0.0	%

Equity Price Risk

Investments. The marketable equity securities portfolio of our insurance subsidiary, which is carried on our consolidated balance sheets at estimated fair value, has exposure to price risk, which is the risk of potential loss in estimated fair value resulting from adverse changes in prices. The objective of our insurance subsidiary is to earn competitive relative returns by investing in diverse portfolios of high-quality, liquid securities.

Credit Risk

Investments. The fixed maturity securities portfolio of our insurance subsidiary is subject to credit risk. This risk is the potential loss in market value resulting from adverse changes in the borrower’s ability to repay the debt. We attempt to manage our credit risk through issuer and industry diversification. We regularly monitor our overall investment results and review compliance with our investment objectives and guidelines. Our investment guidelines include limitations on the minimum rating of debt securities in our investment portfolio, as well as restrictions on investments in debt securities of a single issuer. All of the debt securities in our portfolio were rated investment grade by the National Association of Insurance Commissioners, or the NAIC, and Standard & Poor’s as of June 30, 2008.

Reinsurance. The Carrier places reinsurance with four major unaffiliated reinsurers. Two of the reinsurers are authorized and two are unauthorized To the extent that a reinsurer may be unable to pay losses for which it is liable to Carrier under the terms of its reinsurance agreement, Carrier remains liable for such losses. The Company attempts to minimize this risk by maintaining reinsurance agreements with financially sound reinsurers. The Company maintains security trust agreements with the two unauthorized reinsurers, whereby all reinsurance receivables are pre-funded and secured. As of June 30, 2008, there were no amounts deemed uncollectible.

ITEM 4. CONTROLS AND PROCEDURES

Evaluation of Disclosure Controls and Procedures

As of the end of the period covered by this report on Form 10-Q, the Company’s Chief Executive Officer and Acting Chief Financial Officer carried out an evaluation of the effectiveness of the design and operation of the Company’s disclosure controls and procedures in accordance with Rule 13a-15(e) and 15d-15(e) promulgated under the Securities Exchange Act of 1934 (the “Exchange Act”). Based on this evaluation, the Company’s Chief Executive Officer and Acting Chief Financial Officer 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 Commissions rules and forms.

Management’s Annual Report on Changes in Internal Control over Financial Reporting

Our management is responsible for establishing and maintaining adequate internal control over financial reporting as defined in Exchange Act Rules 13a-15(f) and 15d-15(f). Our internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles.

Management assessed the effectiveness of our internal control over financial reporting as of June 30, 2008. In making this assessment, management used the criteria described in “Internal Control — Integrated Framework” issued by the Committee of Sponsoring Organizations of the Treadway Commission. Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with policies and procedures may deteriorate. Based on this evaluation, management determined that, as of June 30, 2008, we maintained effective internal control over financial reporting, and there were no changes in our internal control over financial reporting made during our most recent fiscal quarter that materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

PART II — OTHER INFORMATION

ITEM 1A. RISK FACTORS

An investment in Company common stock involves a number of risks. Investors should carefully consider the following information, together with the other information contained in the Company’s Annual Report on Form 10-K, before investing in Company common stock. Further, such factors could cause actual results to differ materially from those contained in any forward-looking statement contained in this report, statements by us in periodic press releases and oral statements by Company officials to securities analysts and stockholders during presentations about us.

We face intense competition from other automobile insurance providers.

     The non-standard automobile insurance business is highly competitive and, except for regulatory considerations, there are relatively few barriers to entry. We compete with both large national insurance providers and smaller regional companies. The largest automobile insurance companies include The Progressive Corporation, The Allstate Corporation, State Farm Mutual Automobile Insurance Company, GEICO, Farmers Insurance Group, Safeco Corp., and American International Group (AIG). Our chief competitors include some of these companies as well as Mercury General Corporation, Infinity Property & Casualty Corporation, Affirmative Insurance Holdings, Inc., and Direct General Corporation. Some of our competitors have more capital, higher ratings and greater resources than we have, and may offer a broader range of products and lower prices and down payments than we offer. Some of our competitors that sell insurance policies directly to customers, rather than through agencies or brokerages as we do, may have certain competitive advantages, including increased name recognition among customers, direct relationships with policyholders and potentially lower cost structures. In addition, it is possible that new competitors will enter the non-standard automobile insurance market. Our loss of business to competitors could have a material impact on our growth and profitability. Further, competition could result in lower premium rates and less favorable policy terms and conditions, which could reduce our underwriting margins.

Our concentration on non-standard automobile insurance could make us more susceptible to unfavorable market conditions.

     We underwrite exclusively non-standard automobile insurance. Given this focus, negative developments in the economic, competitive or regulatory conditions affecting the non-standard automobile insurance industry could have a material adverse effect on our results of operations, financial condition and cash flows. In addition, these developments could have a greater effect on us, compared to more diversified insurers that also sell other types of automobile insurance products. Our profitability can be

affected by cyclicality in the non-standard automobile insurance industry caused by price competition and fluctuations in underwriting capacity in the market, as well as changes in the regulatory environment.

Our success depends on our ability to price the risks we underwrite accurately.

     Our results of operations and financial condition depend on our ability to underwrite and set rates accurately for a full spectrum of risks. Rate adequacy is necessary to generate sufficient premiums to pay losses, loss adjustment expenses and underwriting expenses and to earn a profit. If we fail to assess accurately the risks that we assume, we may fail to establish adequate premium rates, which could reduce our income and have a material adverse effect on our results of operations, financial condition or cash flows.

     In order to price our products accurately, we must collect and properly analyze a substantial volume of data; develop, test and apply appropriate rating formulas; closely monitor and timely recognize changes in trends; and project both severity and frequency of losses with reasonable accuracy. Our ability to undertake these efforts successfully, and as a result price our products accurately, is subject to a number of risks and uncertainties, including, without limitation:

	•		availability of sufficient reliable data;
	•		incorrect or incomplete analysis of available data;
	•		uncertainties inherent in estimates and assumptions, generally;
	•		selection and application of appropriate rating formulas or other pricing methodologies;
	•		unanticipated or inconsistent court decisions, legislation or regulatory action;
	•		ongoing changes in our claim settlement practices, which can influence the amounts paid on claims;
	•		changing driving patterns, which could adversely affect both frequency and severity of claims;
	•		unexpected inflation in the medical sector of the economy, resulting in increased bodily injury and personal injury protection claim severity; and
	•		unanticipated inflation in automobile repair costs, automobile parts prices and used automobile prices, adversely affecting automobile physical damage claim severity.

     Such risks may result in our pricing being based on inadequate or inaccurate data or inappropriate analyses, assumptions or methodologies, and may cause us to estimate incorrectly future increases in the frequency or severity of claims. As a result, we could underprice our products, which would negatively affect our profit margins, or we could overprice our products, which could reduce our volume and competitiveness. In either event, our results of operations, financial condition and cash flows could be materially and adversely affected.

Our losses and loss adjustment expenses may exceed our loss and loss adjustment expense reserves, which could adversely impact our results of operation, financial condition and cash flows.

     Our financial statements include loss and loss adjustment expense reserves, which represent our best estimate of the amounts that we will ultimately pay on claims and the related costs of adjusting those claims as of the date of the financial statements. We rely heavily on our historical loss and loss adjustment expense experience in determining these loss and loss adjustment expense reserves. The historic development of reserves for losses and loss adjustment expenses may not necessarily reflect future trends in the development of these amounts. In addition, factors such as inflation, claims settlement patterns and legislative activities, regulatory activities, and litigation trends may also affect loss and loss adjustment expense reserves. As a result of these and other risks and uncertainties, ultimate losses and loss adjustment expenses may deviate, perhaps substantially, from our estimates of losses and loss adjustment expenses included in the loss and loss adjustment expense reserves in our financial statements. If actual losses and loss adjustment expenses exceed our expectations, our net income and our capital would decrease. Actual paid losses and loss adjustment expenses may be in excess of the loss and loss adjustment expense reserve estimates reflected in our financial statements.

We are subject to comprehensive regulation, and our ability to earn profits may be adversely affected by these regulations.

     We are subject to comprehensive regulation by government agencies in the states where our insurance subsidiaries are domiciled and where these subsidiaries issue policies and handle claims. Certain states impose restrictions or require prior regulatory approval of certain corporate actions, which may adversely affect our ability to operate, innovate, obtain necessary rate adjustments in a timely manner or grow our business profitably. In addition, certain federal laws impose additional requirements on insurers. Our ability to comply with these laws and regulations, and to obtain necessary regulatory action in a timely manner, is and will continue to be critical to our success.

     Required Licensing. We operate under licenses issued by various state insurance authorities. If a regulatory authority denies or delays granting a new license, our ability to enter that market quickly can be substantially impaired.

     Transactions Between Insurance Companies and Their Affiliates. Transactions between our subsidiaries and their affiliates (including us) generally must be disclosed to the state regulators, and prior approval of the applicable regulator generally is required before any material or extraordinary transaction may be consummated. State regulators may refuse to approve or delay approval of such a transaction, which may impact our ability to innovate or operate efficiently.

     Regulation of Insurance Rates and Approval of Policy Forms. The insurance laws of the states in which our insurance subsidiaries operate require insurance companies to file insurance rate schedules and insurance policy forms for review and/or approval. If, as permitted in some states, we begin using new rates before they are approved, we may be required to issue refunds or credits to our policyholders if the new rates are ultimately deemed excessive or unfair and disapproved by the applicable state regulator. Accordingly, our ability to respond to market developments or increased costs in that state can be adversely affected.

     Restrictions on Cancellation, Non-Renewal or Withdrawal. 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 not renew policies. Some states prohibit an insurer from withdrawing from one or more lines of business in the state, except pursuant to a plan approved by the state insurance department. In some states, this restriction applies to significant reductions in the amount of insurance written, not just to a complete withdrawal. These laws and regulations could limit our ability to exit or reduce our writings in unprofitable markets or discontinue unprofitable products in the future.

     Other Regulations. We must also comply with regulations involving, among other things:

	•		the use of non-public consumer information and related privacy issues;
	•		investment restrictions;
	•		the use of credit history in underwriting and rating;
	•		the payment of dividends;
	•		the acquisition or disposition of an insurance company or of any company controlling an insurance company;
	•		the involuntary assignments of high-risk policies, participation in reinsurance facilities and underwriting associations, assessments and other governmental charges; and
	•		reporting with respect to financial condition.

     Compliance with laws and regulations addressing these and other issues often will result in increased administrative costs. In addition, these laws and regulations may limit our ability to underwrite and price risks accurately, prevent us from obtaining timely rate increases necessary to cover increased costs and may restrict our ability to discontinue unprofitable relationships or exit unprofitable markets. These results, in turn, may adversely affect our results of operation or our ability or desire to grow our business in certain jurisdictions. The failure to comply with these laws and regulations may also result in actions by regulators, fines and penalties, and in extreme cases, revocation of our ability to do business in that jurisdiction. In addition, we may face individual and class action lawsuits by our insureds and other parties for alleged violations of certain of these laws or regulations.

Our insurance subsidiaries are subject to minimum capital and surplus requirements. Our failure to meet these requirements could subject us to regulatory action.

     The laws of the states of domicile of our insurance subsidiaries impose risk-based capital standards and other minimum capital and surplus requirements. Failure to meet applicable risk-based capital requirements or minimum statutory capital requirements could subject us to further examination or corrective action imposed by state regulators, including limitations on our writing of additional business, state supervision or liquidation. Any changes in existing risk-based capital requirements or minimum statutory capital requirements may require us to increase our statutory capital levels, which we may be unable to do.

Regulation may become more extensive in the future, which may adversely affect our business.

     States may make existing insurance laws and regulations more restrictive in the future or enact new restrictive laws. In such events, we may seek to reduce our premium writings in, or to withdraw entirely from, these states. 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. We are unable to predict whether and to what extent new laws and regulations that would affect our business will be adopted in the future, the timing of any such adoption and what effects, if any, they may have on our financial condition, results of operations, and cash flows.

Our failure to pay claims accurately could adversely affect our business, financial condition, results of operations and cash flows.

     We must accurately evaluate and pay claims that are made under our policies. Many factors affect our ability to pay claims accurately, including the training and experience of our claims representatives, our claims organization’s culture and the effectiveness of our management, our ability to develop or select and implement appropriate procedures and systems to support our claims functions and other factors. Our failure to pay claims accurately could lead to material litigation, undermine our reputation in the marketplace, impair our image and materially adversely affect our financial condition, results of operations and cash flows.

     In addition, if we do not train new claims employees effectively or lose a significant number of experienced claims employees our claims department’s ability to handle an increasing workload could be adversely affected. In addition to potentially requiring that growth be slowed in the affected markets, we could suffer in decreased quality of claims work, which in turn could lower our operating margins.

The policy service fee revenues could be adversely affected by insurance regulation.

     Policy service fee revenues have provided additional revenues equivalent to approximately 12% of gross premium produced by MGA. These fees include policy origination fees and installment fees to compensate us for the costs of providing installment payment plans, as well as late payment, policy cancellation, policy rewrite and reinstatement fees. Our revenues could be reduced by changes in insurance regulation that restrict our ability to charge these fees. Those arrangements are subject to insurance holding company act regulation in the states where our insurance subsidiaries are domiciled. Continued payment of these fees could be affected if insurance regulators in these states determined that these arrangements are not permissible under the insurance holding company acts.

New pricing, claim and coverage issues and class action litigation are continually emerging in the automobile insurance industry, and these new issues could adversely impact our results of operations and financial condition.

     As automobile insurance industry practices and regulatory, judicial and consumer conditions change, unexpected and unintended issues related to claims, coverage and business practices may emerge. These issues can have an adverse effect on our business by changing the way we price our products, including limiting the factors we may consider when we underwrite risks, by extending coverage beyond our underwriting intent, by increasing the size or frequency of claims or by requiring us to change our claims handling practices and procedures or our practices for charging fees. The effects of these unforeseen emerging issues could negatively affect our results of operations, financial condition and cash flows.

We may be unable to attract and retain independent agents and brokers.

     We distribute our products exclusively through independent agents and brokers. We compete with other insurance carriers to attract producers and maintain commercial relationships with them. Some of our competitors offer a larger variety of products, lower prices for insurance coverage or higher commissions. We may not be able to continue to attract and retain independent agents and brokers to sell our products. Our inability to continue to recruit and retain productive independent agents and brokers would have an adverse effect on our financial condition and results of operations and could impact our cash flows.

We rely on information technology and telecommunication systems, and the failure of these systems could materially and adversely affect our business.

     Our business is highly dependent upon the successful and uninterrupted functioning of our information technology and telecommunications systems. We rely on these systems to process new and renewal business, provide customer service, make claims payments and facilitate collections and cancellations. These systems also enable us to perform actuarial and other modeling functions necessary for underwriting and rate development. The failure of these systems could interrupt our operations or materially impact our ability to evaluate and write new business. Because our information technology and telecommunication systems interface with and depend on third-party systems, we could experience service denials if demand for such service exceeds capacity or such third-party systems fail or experience interruptions. If sustained or repeated, a system failure or service denial could result in a deterioration of our ability to write and process new and renewal business and provide customer service or compromise our ability to pay claims in a timely manner. This outcome could result in a material adverse effect on our business and our results of operations, financial condition and cash flows.

Our ability to operate our company effectively could be impaired if we lose key personnel.

     We manage our business with a number of key personnel, including our executive officers, the loss of whom could have a material adverse effect on our business and our results of operations, financial condition and cash flows. Only our Chief Executive Officer, Lawrence Stumbaugh and our MGA President, Joseph Skruck, have employment agreements with us. In addition, as our business develops and expands, we believe that our future success will depend greatly on our continued ability to attract and retain highly skilled and qualified personnel. We may not be able to continue to employ key personnel and may not be able to attract and retain qualified personnel in the future. Failure to retain or attract key personnel could have a material adverse effect on our business and our results of operations, financial condition and cash flows.

Our debt service obligations could impede our operations, flexibility and financial performance.

     Our level of debt could affect our financial performance. As of June 30, 2008, we had consolidated indebtedness (other than trade payables and certain other short term debt) of approximately $7.2 million. In addition, borrowings under our trust preferred arrangement bear interest at rates that may fluctuate. Therefore, increases in interest rates on the obligations under our credit agreement would adversely affect our income and cash flow that would be available for the payment of interest and principal on the loans outstanding.

     If we do not have enough money to pay our debt service obligations, we may be required to refinance all or part of our existing debt, sell assets, borrow more money or raise equity. In that event, we may not be able to refinance our debt, sell assets, borrow more money or raise equity on terms acceptable to us or at all.

Adverse securities market conditions can have significant and negative effects on our investment portfolio.

     Our results of operations depend in part on the performance of our invested assets. As of June 30, 2008, 80% of our investment portfolio was invested in fixed maturity securities with the remainder in equity investments. Certain risks are inherent in connection with fixed maturity securities, including loss upon default and price volatility in reaction to changes in interest rates, credit spreads, deterioration in the financial condition of the issuers and general market conditions. An increase in interest rates lowers prices on fixed maturity securities, and any sales we make during a period of increasing interest rates may result in losses. Also, investment income earned from future investments in fixed maturity securities will decrease if interest rates decrease.

     In addition, our investment portfolio is subject to risks inherent in the capital markets. The functioning of those markets, the values of our investments and our ability to liquidate investments on short notice may be adversely affected if those markets are disrupted by national or international events including, without limitation, wars, terrorist attacks, recessions or depressions, high inflation or a deflationary environment, the collapse of governments or financial markets, and other factors or events.

     If our investment portfolio were impaired by market or issuer-specific conditions to a substantial degree, our financial condition, results of operations and cash flows could be materially adversely affected. Further, our income from these investments could be materially reduced, and write-downs of the value of certain securities could further reduce our profitability. In addition, a decrease in value of our investment portfolio could put us at risk of failing to satisfy regulatory capital requirements. If we were not able to supplement our subsidiaries’ capital by issuing debt or equity securities on acceptable terms, our ability to continue growing could be adversely affected.

Our operations could be adversely affected if conditions in the states where our business is concentrated were to deteriorate.

     For the three months ended June 30, 2008, we generated approximately 70% of our gross written premium in our top two states, Florida and Georgia. Our revenues and profitability are therefore subject to prevailing regulatory, legal, economic, demographic, competitive and other conditions in those states. Changes in any of those conditions could have an adverse effect on our results of operations, financial condition and cash flows. Adverse regulatory developments in any of those states, which could include, among others, reductions in the rates permitted to be charged, inadequate rate increases, restrictions on our ability to reject applications for coverage or on how we handle claims, or more fundamental changes in the design or implementation of the automobile insurance regulatory framework, could have a material adverse effect on our results of operations, financial condition and cash flows.

Severe weather conditions and other catastrophes may result in an increase in the number and amount of claims filed against us.

     Our business is also exposed to the risk of severe weather conditions and other catastrophes in the states in which we operate. Catastrophes include severe hurricanes, tornadoes, hail storms, floods, windstorms, earthquakes, fires and other events such as terrorist attacks and riots, each of which tends to be unpredictable. Such conditions may result in higher incidence of automobile accidents and increase the number of claims. Because many of our insureds live near the coastlines, we have potential exposure to hurricanes and major coastal storms. In addition, our business could be impaired if a significant portion of our business or systems were shut down by, or if we were unable to gain access to certain of our facilities as a result of such an event. If such events were to occur with enough severity, our results of operations, financial condition and cash flows could be materially adversely affected.

Our financial condition may be adversely affected if one or more parties with which we enter into significant contracts becomes insolvent or experiences other financial hardship.

     Our business is dependent on the performance by third parties of their responsibilities under various contractual relationships, including without limitation, contracts for the acquisitions of goods and services (such as telecommunications and information technology software, equipment and support and other services that are integral to our operations) and arrangements for transferring certain of our risks (including our corporate insurance policies). If one or more of these parties were to default on the performance of their obligations under their respective contracts or determine to abandon or terminate support for a system, product or service that is significant to our business, we could suffer significant financial losses and operational problems, which could in turn adversely affect our financial condition, results of operations and cash flows.

ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS.

     For 2008 directors’ fees, each non-officer director may choose between (i) an amount in cash equal to $10,000 plus the number of shares equal to $10,000 divided by the share price on December 31, 2007, or (ii) if they accept all stock for their fee, the number of shares equal to $30,000 divided by the share price on December 31, 2007. During the first six months of 2008, the Company issued 120,000 shares of common stock, $.01 par value, to members of its board of directors pursuant to this director compensation program. The shares were issued on January 29, 2008 to directors, each an accredited investor, as a private placement exempt from registration pursuant to Section 4(2) of the Securities Act of 1933, as amended and Regulation D. The Company received no consideration for the common stock issued.

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.

     On April 24, 2008, our annual meeting of stockholders was held in our Atlanta, Georgia offices. A total of 49,817,064 of our shares of common stock were present or represented by proxy at the annual meeting. This represented approximately 76.73% of our shares outstanding on the record date. One proposal was voted upon at our annual meeting and was approved. Each of Guy W. Millner, Bud Stumbaugh, Donald Ratajczak, Quill O. Healey, John E. Cay III, Kaaren Street, Sam Zamarripa and John Ray was re-elected as a director, each to serve until our next annual meeting of stockholders and until his or her successor is duly elected and qualified.

     The table set forth below states the number of votes cast for, against or withheld, as well as the number of abstentions and broker non-votes for each of the proposals voted upon at our annual meeting of stockholders.

Broker Non-

Description of Matter

For

Against

Withheld

Abstentions

Votes

1. Election of Directors:

94

n/a

7

n/a

n/a

ITEM 6. EXHIBITS

     (a) Exhibits.

	31.1		Certification of Chief Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
	31.2		Certification of Acting Chief Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
	32.1		Certification of Chief Executive Officer and Acting Chief Financial Officer Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

SIGNATURES

     In accordance with the requirements of the Exchange Act, the registrant caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.