UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q

For the quarterly period ended March 31,June 30, 2019

COMMISSION FILE NUMBER 000-10685

Midwest Holding Inc.
(Exact name of registrant as specified in its charter)

Registrant’s telephone number, including area code:(402) 489-8266

Former name, former address and former fiscal year, if changed since last report:Not applicable

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 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 ☒ No ☐

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Website, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes ☒ No ☐

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

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or reviewed financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined by Rule 12b-2 of the Act). Yes ☐No ☒

As of MayAugust 1, 2019, there were 22,873,7641,023,408,553 shares of Voting Common Stock, par value $0.001 per share, issued and outstanding.

MIDWEST HOLDING INC.

FORM 10-Q

TABLE OF CONTENTS

PART I – FINANCIAL INFORMATION

PART I–FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS.

MIDWEST HOLDING INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS

See Notes to Consolidated Financial Statements.

MIDWEST HOLDING INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSSINCOME (LOSS)
(Unaudited)

See Notes to Consolidated Financial Statements.

MIDWEST HOLDING INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
(Unaudited)

See Notes to Consolidated Financial Statements.

MIDWEST HOLDING INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)

See Notes to Consolidated Financial Statements.

MIDWEST HOLDING INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
(Unaudited)

See Notes to Consolidated Financial Statements.

MIDWEST HOLDING INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

Note 1. Nature of Operations and Basis of Presentation

Nature of Operations

Midwest Holding Inc. (“(“Midwest,” “the Company,” “we,” “our,” or “us”) was incorporated in Nebraska on October 31, 2003 for the primary purpose of operating a financial services company. The Company is in the life and annuity insurance business and operates through its wholly owned subsidiary, American Life & Security Corp. (“American Life”). As discussed in Note 3,, on June 28, 2018, we underwent a change in control as a result of the closing of a Loan, Convertible Preferred Stock and Convertible Senior Secured Note Purchase Agreement dated May 9, 2018 (the “Agreement”) with a non-affiliated third party, Xenith Holdings LLC, a Delaware limited liability company (“Xenith”). Xenith owns 100%On April 2, 2019, we obtained a 51% ownership in 1505 Capital that was established on August 31, 2018 with its Certificate of the voting stock of Vespoint LLC, a Delaware limited liability company (“Vespoint”), which is also the manager of Xenith.Formation. It was organized to provide financial and investment advisory and management services to clients and any related investment, trading or financial activities.

Basis of Presentation

The accompanying unaudited consolidated financial statements have been prepared in accordance with United States of America generally accepted accounting principles (“GAAP”) for interim financial information and with the instructions from the Securities and Exchange Commission (“SEC”) Quarterly Report on Form 10-Q, including Article 10 of Regulation S-X. Accordingly, they do not include all of the information and notes required by GAAP for complete financial statements. The information contained in the Notes to Consolidated Financial Statements included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2018 (“2018 Form 10-K”), should be read in connection with the reading of these interim unaudited consolidated financial statements.

Certain GAAP policies, which significantly affect the determination of financial condition, results of operations and cash flows, are summarized in our 2018 Form 10-K.

In the opinion of management, these statements include all normal recurring adjustments necessary for a fair presentation of the Company’s results. Operating results for the three months ended March 31,June 30, 2019, are not necessarily indicative of the results that may be expected for the full year ending December 31, 2019. All material inter-company accounts and transactions have been eliminated in consolidation.

Investments

All fixed maturities owned by the Company are considered available-for-sale and are included in the consolidated financial statements at their fair value as of the financial statement date. Bond premiums and discounts are amortized using the scientific-yield method over the term of the bonds. Realized gains and losses on securities sold during the year are determined using the specific identification method. Unrealized holding gains and losses, net of applicable income taxes, are included in comprehensive loss.

Declines in the fair value of available for sale securities below their amortized cost are evaluated to assess whether any other-than-temporary impairment loss should be recorded. In determining if these losses are expected to be other-than-temporary, the Company considers severity of impairment, duration of impairment, forecasted recovery period, industry outlook, financial condition of the issuer, issuer credit ratings, and the intent and ability of the Company to hold the investment until the recovery of the cost.

The recognition of other-than-temporary impairment losses on debt securities is dependent on the facts and circumstances related to the specific security. If the Company intends to sell a security or it is more likely than not that the Company would be required to sell a security prior to recovery of the amortized cost, the difference between amortized cost and fair value is recognized in the statement of comprehensive income as an other-than-temporary impairment. If the Company does not expect to recover the amortized basis, does not plan to sell the security and if it is not more likely than not that the Company would be required to sell a security before the recovery of its amortized cost, the recognition of the other-than-temporary impairment is bifurcated. The Company recognizes the credit loss portion in the income statement and the noncredit loss portion in accumulated other comprehensive loss. The credit component of an other-than-temporary impairment is determined by comparing the net present value of projected cash flows with the amortized cost basis of the debt security. The net present value is calculated by discounting the Company’s best estimate of projected future cash flows at the effective interest rate implicit in the fixed income security at the date of acquisition. Cash flow estimates are driven by assumptions regarding probability of default, including changes in credit ratings, and estimates regarding timing and amount of recoveries associated with a default. No other-than-temporary impairments were recognized during the threesix months ended March 31,June 30, 2019 or 2018.

Midwest Holding Inc. and Subsidiary
Notes to Consolidated Financial Statements – Continued

Investment income consists of interest, dividends, and real estate income, which are recognized on an accrual basis and amortization of premiums and discounts.

Midwest Holding Inc. and Subsidiary
Notes to Consolidated Financial Statements – Continued

Mortgage loans on real estate, held for investment

Mortgage loans on real estate, held for investment are carried at unpaid principal balances. Interest income on mortgage loans on real estate, held for investment is recognized in net investment income at the contract interest rate when earned. A mortgage loan is considered to be impaired when it is probable that the Company will be unable to collect all amounts due according to the contractual terms of the mortgage agreement. Valuation allowances on mortgage loans are established based upon losses expected by management to be realized in connection with future dispositions or settlement of mortgage loans, including foreclosures. The Company establishes valuation allowances for estimated impairments on an individual loan basis as of the balance sheet date. Such valuation allowances are based on the excess carrying value of the loan over the present value of expected future cash flows discounted at the loan’s original effective interest rate. These evaluations are revised as conditions change and new information becomes available. No such valuation allowance was established as of June 30, 2019.

Policy loans

Policy loans are carried at unpaid principal balances. Interest income on policy loans is recognized in net investment income at the contract interest rate when earned. No valuation allowance is established for these policy loans as the amount of the loan is fully secured by the death benefit of the policy and cash surrender value.

Cashand cash equivalents

The Company considers all liquid investments with original maturities of three months or less when purchased to be cash equivalents. At March 31,June 30, 2019 and December 31, 2018, the Company had no cash equivalents.

Deferred acquisition costs

Deferred acquisition costs (“DAC”) consist of incremental direct costs, net of amounts ceded to reinsurers, that result directly from and are essential to the contract acquisition transaction and would not have been incurred by the Company had the contract acquisition not occurred. These costs are capitalized, to the extent recoverable, and amortized over the life of the premiums produced. The Company evaluates the types of acquisition costs it capitalizes. The Company capitalizes agent compensation and benefits and other expenses that are directly related to the successful acquisition of contracts. The Company also capitalizes expenses directly related to activities performed by the Company, such as underwriting, policy issuance, and processing fees incurred in connection with successful contract acquisitions.

Recoverability of deferred acquisition costs is evaluated periodically by comparing the current estimate of the present value of expected pretax future profits to the unamortized asset balance. If this current estimate is less than the existing balance, the difference is charged to expense. The Company performs a recoverability analysis annually in the fourth quarter unless events occur which require an immediate review. The Company determined that no events occurred in the threesix months ended March 31,June 30, 2019 that suggest a review should be undertaken.

Property and equipment

Property and equipment are stated at cost net of accumulated depreciation. Annual depreciation is primarily computed using straight-line methods for financial reporting and straight-line and accelerated methods for tax purposes. Furniture and equipment is depreciated over 3 to 7 years and computer software and equipment is generally depreciated over 3 years. Depreciation expense totaled $9,506$9,814 and $12,558$12,676 for the three months ended March 31,June 30, 2019 and 2018, respectively. Depreciation expense totaled $19,320 and $25,234 for the six months ended June 30, 2019 and 2018, respectively. Accumulated depreciation totaled $944,986$954,800 and $943,323 as of March 31,June 30, 2019 and December 31, 2018, respectively.

Maintenance and repairs are expensed as incurred. Replacements and improvements which extend the useful life of the asset are capitalized. The net book value of assets sold or retired are removed from the accounts, and any resulting gain or loss is reflected in earnings.

Long-lived assets are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. An impairment loss is recognized if the carrying amount of an asset may not be recoverable and exceeds estimated future undiscounted cash flows of the asset. A recognized impairment loss reduces the carrying amount of the asset to its fair value. Management has determined that no such events occurred in the three months ended March 31,June 30, 2019 that would indicate the carrying amounts may not be recoverable.

Reinsurance

In the normal course of business, the Company seeks to limit any single exposure to losses on large risks by purchasing reinsurance. The amounts reported in the consolidated balance sheets as reinsurance recoverable include amounts billed to reinsurers on losses paid as well as estimates of amounts expected to be recovered from reinsurers on insurance liabilities that have not yet been paid. Reinsurance recoverable on unpaid losses are estimated based upon assumptions consistent with those used in establishing the liabilities related to the underlying reinsured contracts. Insurance liabilities are reported gross of reinsurance recoverable. Management believes the recoverables are appropriately established. The Company generally strives to diversify its credit risks related to reinsurance ceded. Reinsurance premiums are generally reflected in income in a manner consistent with the recognition of premiums on the reinsured contracts. Reinsurance does not extinguish the Company’s primary liability under the policies written. Therefore, the Company regularly evaluates the financial condition of its reinsurers including their activities with respect to claim settlement practices and commutations, and establishes allowances for uncollectible reinsurance recoverable as appropriate. There were no allowances as of March 31,June 30, 2019 or December 31, 2018.

Midwest Holding Inc. and Subsidiary
Notes to Consolidated Financial Statements – Continued

Benefit reserves

The Company establishes liabilities for amounts payable under insurance policies, including traditional life insurance and annuities. Generally, amounts are payable over an extended period of time. Liabilities for future policy benefits of traditional life insurance have been computed by a net level premium method based upon estimates at the time of issue for investment yields, mortality and withdrawals. These estimates include provisions for experience less favorable than initially expected. Mortality assumptions are based on industry experience expressed as a percentage of standard mortality tables.

Policy claims

Policy claims are based on reported claims plus estimated incurred but not reported claims developed from trends of historical data applied to current exposure.

Deposit-type contracts

Deposit-type contracts consist of amounts on deposit associated with deferred annuity riders, premium deposit funds and supplemental contracts without life contingencies.

Income taxes

The Company is subject to income taxes in the U.S. federal and various state jurisdictions. Tax regulations within each jurisdiction are subject to the interpretation of the related tax laws and regulations and require significant judgment to apply. With few exceptions, the Company is no longer subject to U.S. federal, state or local tax examinations by tax authorities for the years before 2015. The Company is not currently under examination for any open years. The provision for income taxes is based on income as reported in the financial statements. The income tax provision is calculated under the asset and liability method. Deferred tax assets are recorded based on the differences between the financial statement and tax basis of assets and liabilities at the enacted tax rates. The principal assets and liabilities giving rise to such differences are investments, insurance reserves, and deferred acquisition costs. A deferred tax asset valuation allowance is established when there is uncertainty that such assets would be realized. The Company has no uncertain tax positions that it believes are more-likely-than not that the benefit will not to be realized. When applicable, the Company recognizes interest accrued related to unrecognized tax benefits and penalties in income tax expense. The Company had no accruals for payments of interest and penalties at March 31,June 30, 2019 or December 31, 2018.

Revenue recognition and related expenses

Amounts received as payment for annuities are recognized as deposits to policyholder account balances and included in future insurance policy benefits. Revenues from these contracts are comprised of fees earned for administrative and contract-holder services and cost of insurance, which are recognized over the period of the contracts, and included in revenue. Deposits are shown as a financing activity in the consolidated statements of cash flows.

Liabilities for future policy benefits are provided and acquisition costs are amortized by associating benefits and expenses with earned premiums to recognize related profits over the life of the contracts. Acquisition costs are amortized over the expected life of the annuity contracts.

Comprehensive loss

Comprehensive loss is comprised of net loss and other comprehensive income (loss). Other comprehensive income (loss) includes unrealized gains and losses from marketable securities classified as available for sale, net of applicable taxes.

Common and preferred stock and earnings (loss) per share

Common and preferred stock and earnings (loss) per share:The par value per commoneach Company share is $0.001 with 1,970,000,000 voting common shares authorized, 20,000,000 non-voting common shares authorized, and 10,000,000 preferred shares authorized. On June 18, 2019, Xenith exercised the right to convert its 1,500,000 Series C preferred stock and the $19,100,000 notes payable to voting common stock at the conversion rate of approximately $.02 per common share. At March 31,June 30, 2019 and December 31, 2018, the Company had 1,023,408,553 and 22,873,764 voting common shares issued and outstanding, respectively. At June 30, 2019 and December 31, 2018, the Company had none and 1,500,000 shares of Series C preferred stock issued and outstanding.shares outstanding shares, respectively.

The ClassSeries C preferred shares are cumulative, voting and convertiblewere converted by the holderXenith to voting common shares at any time and from time to time after the original Series C issue dateon June 18, 2019 at a rate of approximately $0.02 per share offor 72,854,474 voting common shares for each preferred share. The par value per preferred share is $0.001 with 1,500,000 shares authorized.shares. The stated annual dividend rate on the ClassSeries C preferred shares iswas 8%. AsAt the time of March 31, 2019the conversion, the holder forgave all previously accrued dividends from June 28, 2018 through the conversion date.

Midwest Holding Inc. and December 31, 2018, the Company had dividends in arrears of approximately $90,000 and $60,000, respectively, relatedSubsidiary
Notes to the Class C preferred stock.Consolidated Financial Statements – Continued

Loss per basic share attributable to the Company’s common stockholders was computed based on the weighted average number of shares outstanding during each period. The weighted average number of shares outstanding during the three months ended March 31,June 30, 2019 and 2018 was 22,860,701 220,781,744 and 22,860,701 shares, respectively. The weighted average number of shares outstanding during the six months ended June 30, 2019 and 2018 were 122,374,461 and 22,860,701 shares, respectively.

Loss per diluted share attributable to the Company’s common stockholders was computed based on the average shares outstanding and the Xenith Notesnotes payable and Preferred Shares as converted during each period.period of 2018. The weighted average number of shares outstanding during the three and six months ended March 31, 2019June 30, 2018 were 1,023,395,490 and 2018 was 1,052,792,914 and 1,052,779,851525,892,004 shares, respectively.

Midwest Holding Inc. and Subsidiary
Notes to Consolidated Financial Statements – Continued

Reclassifications

ReclassificationsCertain reclassifications have been made on the Consolidated Balance Sheets and Statements of Comprehensive Loss for the year ended December 31, 2018 and the threesix months ended March 31,June 30, 2018. These reclassifications do not impact the overall Net loss or Net loss per common shares line items of the Consolidated Statement of Comprehensive Loss for the three months and six months ended March 31,June 30, 2018.

Note 2. New Accounting Standards

Adoption of New Accounting Standards

In February 2016, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2016-02, Leases (Topic 842). The guidance in this ASU supersedes the leasing guidance in Topic 840, Leases. Under the new guidance, lessees are required to recognize lease assets and lease liabilities on the balance sheet for all leases with terms longer than 12 months. Leases will be classified as either finance or operating, with classification affecting the pattern of expense recognition in the income statement. The lease liability is measured at the present value of the lease payments over the lease term with the right-of-use asset measured as the lease liability amount and including adjustments for certain lease incentives and initial direct costs. Lease expense recognition will continue to differentiate between finance leases and operating leases resulting in a similar pattern of lease expense recognition as under current GAAP. This ASU permitted a modified retrospective adoption approach that includes a number of optional practical expedients that entities may elect upon adoption.

On January 1, 2019, the Company adopted this standard using a modified retrospective adoption approach. The adoption resulted in the Company identifying three operating leases and one financial lease which arewere subject to this guidance. The impact to the Consolidated Statements of Comprehensive Income (Loss) was minimal. We have one finance identified four leases with net assets of $539,837 and $606,629 and lease with a net assetliabilities of $11,651$591,174 and $14,564 and a finance lease liability of $7,439 and $9,299$655,818 for the threesix months ended March 31,June 30, 2019 and the year ended December 31, 2018, respectively. The other three leases have been classified as operating leases with right of use assets established of $561,582 and $592,065 and operating lease liabilities of $616,268 and $646,519 as of March 31, 2019 and December 31, 2018, respectively.

On February 14, 2018, the FASB issued ASU No. 2018-02,Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income. It allows a reclassification from accumulated other comprehensive income to retained earnings for stranded tax effects resulting from the Tax Cuts and Jobs Act. The ASU is effective for all entities for fiscal years beginning after December 15, 2018, and interim periods within those fiscal years. Early adoption is permitted, including adoption in any interim period for public business entities for reporting periods for which financial statements have not yet been issued. The Company has evaluated the impact of this update and has determined that this does not impact us currently due to not recording unrealized losses or gains net of tax. The Company has incurred net operating losses since inception so it does not record deferred tax assets or deferred tax liabilities due to establishing a valuation allowance.

In May 2014, the FASB issued ASU No. 2014-09,Revenue from Contracts with Customers (“(“ASU 2014-09”), which outlines a single comprehensive model for entities to use in accounting for revenue arising from contracts with customers. The core principle of ASU 2014-09 is that an entity recognizes revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. In August 2015, the FASB issued ASU 2015-14, Revenue from Contracts with Customers (Topic 606): Deferral of the Effective Date (“ASU 2015-14”). This amendment defersdeferred the effective date of the previously issued ASU 2014-09 until the interim and annual reporting periods beginning after December 15, 2017. Earlier application is permitted for interim and annual reporting periods beginning after December 15, 2016. In addition, the FASB has issued four related ASU’s on principal versus agent guidance (ASU 2016-08), identifying performance obligations and the licensing implementation guidance (ASU 2016-10) a revision of certain SEC Staff Observer comments (ASU 2016-11) and implementation guidance (ASU 2016-12). The guidance permits two methods of transition upon adoption; full retrospective and modified retrospective. The Company adopted ASU 2014-09 on January 1, 2018 and utilized the modified retrospective method. Insurance contracts, lease contracts and investments are not within the scope of ASU 2014-09; therefore, this standard would diddoes not apply to the majority of our consolidated revenues. For the Company's miscellaneous income,which is within the scope of this guidance,the Company reviewed its service fee income revenue streams and compared its historical accounting policies and practices to the new adopted standard. The Company believes its historical revenue recognition was materially consistent with the way we recognized service fee income as of March 31,June 30, 2019.

Midwest Holding Inc. and Subsidiary
Notes to Consolidated Financial Statements – Continued

Future adoption of New Accounting Standards

In August 2018, the FASB issued ASU No. 2018-15,Intangibles—Goodwill and Other—Internal-Use Software (Subtopic 350-40): Customer’s Accounting for Implementation Costs Incurred in a Cloud Computer Arrangement That is a Service Contract. Under ASU No. 2018-15, the amendment aligns the requirements for capitalizing implementation costs incurred in a hosting arrangement that is a service contract with the requirements for capitalizing implementation costs incurred to develop or obtain internal-use software. The accounting for the service element of a hosting arrangement that is a service contract is not affected by the amendments in this update. In order to determine which costs can be capitalized, we are to follow the guidance in Subtopic 350-40. Cost for implementation activities in the application development stage are capitalized depending on the nature of the costs, while costs incurred during the preliminary project and the post-implementation stage are expensed as the activities are performed. The amendments in this update are effective for public business entities for fiscal years beginning after December 15, 2019, and interim periods within those fiscal years. The amendments in this update should be applied either retrospectively or prospectively to all implementation costs incurred after the date of adoption. Management has reviewed and evaluated the impact of this pending new standard and will implement this starting in fiscal year 2020. The Company has incurred substantial implementation costs related to the new cloud based technology that were incurred in 2018 and decided not to early adopt this ASU.

Midwest Holding Inc. and Subsidiary
Notes to Consolidated Financial Statements – Continued

In August 2018, the FASB issued ASU No. 2018-12,Financial Services-Insurance(Topic 944). This update 1) improvesmodifies the timeliness of recognizing changes in the liability for future policy benefits and modifies the rate used to discount future cash flows, 2) simplifies and improves the accounting for certain market-based options or guarantees associated with deposit contracts, 3) simplifies the amortization of deferred acquisition costs, and 4) improvesaddresses the effectiveness of the required disclosures. This ASU becomes effective for fiscal years, and interim periods within those years, beginning after December 15, 2020. We anticipate that the adoption of ASU 2018-12 will have a pervasive broad impact on our consolidated financial statements and related disclosures and will require us to make changes to somecertain of our processes,, systems and controls. We are unable to determine the impact at this time of ASU No. 2018-12 as we are still in the process of evaluating the standard.

In November 2018, the FASB issued ASU No. 2018-10,Codification Improvements to Topic 326, Financial Instruments—Credit Losses.The amendments in this update include items brought to the Board’s attention by stakeholders to clarify the guidance in the amendments in ASU 2016-13,Financial Instruments – Credit Losses(Topic 326) which was issued in June 2016. ThisThese update amendments clarify that receivables arising from operating leases are not within the scope of Subtopic 326-20. Under ASU 2016-13, this replaces the incurred loss impairment methodology in current GAAP with a methodology that reflects expected credit losses and requires consideration of a broader range of reasonable and supportable information to perform credit loss estimates. This update changes the methodology from an incurred loss to an expected credit loss. An allowance for the expected credit loss will be set up and the net income will be impacted. The credit losses will be evaluated in the current period and an adjustment to the allowance can be made. The new standard becomes effective after December 15, 2019. We are currently evaluating the impact of our pending adoption of the new standard on our consolidated financial statements.

Note 3. Change in Control

On June 28, 2018 we underwent a change in control as a result of the closing of a Loan, Convertible Preferred Stock and Convertible Senior Secured Note Purchase Agreement dated May 9, 2018 (the “Agreement”) with a non-affiliated third party, Xenith Holdings LLC, a Delaware limited liability company (“Xenith”). Xenith owns 100% of the voting stock of Vespoint LLC, a Delaware limited liability company (“Vespoint”), which is also owns 100% of the managervoting stock of Xenith. Vespoint is owned and managed by AMS Advisors LLC, a Delaware limited liability company, and Rendezvous Capital LLC, a New York limited liability company. Each of these three companies is a private investment company; they are controlled by A. Michael Salem and Michael Minnich, who are Co-Chief Executive Officers of Vespoint.Vespoint and Executive Officers of Midwest and American Life.

The terms and conditions of the Agreement were described in Midwest’s Current Report on Form 8-K filed with the Securities and Exchange Commission (“SEC”)SEC on May 14, 2018. All conditions to consummation of the Agreement, including approval of the transactions contemplated therein by the State of Nebraska Department of Insurance (“NDOI”), were subsequently met and a closing was held pursuant to the Agreement on June 28, 2018 (the “Closing”).

Midwest Holding Inc. and Subsidiary
Notes to Consolidated Financial Statements – Continued

Issuance of ClassSeries C Convertible Preferred Stock. At the closing of the Agreement, we issued 1,500,000 shares of newly created ClassSeries C Convertible Preferred Stock (“ClassSeries C Preferred Stock”) to Xenith for $1,500,000, which iswas recorded in our balance sheet as Mezzanine Equity. The Class C Preferred Stock is convertible, at Xenith’s election, into approximately 72,900,000 shares ofEquity, and it ranked senior to our voting common stock (“Common Stock”) at approximately $0.02 per share, and ranks senior to the common stock on liquidation with a preference of $1.00 per share. Subject to the availability of funds, annual dividends of 8% of the ClassSeries C Preferred Stock liquidation preference arewere payable by us; if not paid the dividends accrue.accrued. Also, at any time after June 28, 2025 and subject to Nebraska law, Xenith may requirewould have required us to redeem the ClassSeries C Preferred Stock at the liquidation preference (plus accrued dividends) or fair market value, whichever iswas greater. If the shares arewere not redeemed for any reason, an interest rate of 12% per year begins.would have begun. The Preferred Stock votesvoted along with the Common Stockvoting common stock as a single classSeries on an “as converted” basis. Also, Holders of Preferred Stock voting as a separate class areSeries were entitled to elect five of the Company’s eight members of its Board of Directors. The Preferred Stock hashad several protections against the Company taking action that would adversely affect the rights of holders of Preferred Stock such as mergers, liquidation, dilutive stock issuances, among others. On June 18, 2019, the Series C Preferred Stock shares were converted, at Xenith’s election, into 72,854,474 shares of our voting common stock at approximately $0.02 per share. All accrued dividends were waived.

At Closing,closing of the Agreement, Xenith loaned a total of $600,000 to Midwest, repayable upon maturity in 10 years with cash interest of 4% per annum payable quarterly and accrued interest of another 4% per annum payable upon maturity. The loans were made under two notes of $500,000 and $100,000, respectively. The first $500,000 note is convertible, at Xenith’s election,Both notes were converted by Xenith into approximately 24,300,000 shares of Midwest’san aggregate 29,141,790 voting common stock which equates to approximately $0.02 per share. The remaining $100,000 note is also convertible at the same rate.

Midwest Holding Inc. and Subsidiary
Notes to Consolidated Financial Statements – Continued

The notes are secured under a security agreement which is collateralized by all of the issued and outstanding shares of American Life. Xenith has the right to foreclose on the collateral under events of default, which include our failure to pay interest or principal on the notes when due, failure to observe any material provision of the Agreement, misrepresentations under the Agreement or bankruptcy or insolvency proceedings involving us. All interest on the notes through January 31, 2019 has been waived.June 18, 2019.

The Agreement further provided that Xenith, in its sole discretion, maycould loan up to an additional $23,500,000 to Midwest. Any loans made by Xenith under this election (“Subsequent Loans”) willcould also to be convertibleconverted into Midwest’s Common Stockvoting common stock at the rateprice of $0.02 per share. Xenith contributedloaned an additional $18,500,000 in the fourth quarter of 2018 following the amendment of the Midwest Articles of Incorporation to increase its authorized voting common shares to 1,970,000,000. The additional notes were converted, at Xenith’s election, into 898,538,525 shares of voting common stock on June 18, 2019. All interest on the notes through June 18, 2019 was waived for payment and was accounted for as a capital contribution to Midwest.

ProceedsSubstantially all the proceeds from the Loans and Series C Preferred Stock were contributed to Midwest’sour insurance subsidiary, American Life, to be held by it and used for general business purposes (except for up to $100,000 which has been used by Midwest to cover a portion of its expenses in entering into and complying with its obligations under the Agreement).purposes.

To summarize of the above for purposesconversion of illustration assuming the Notes and shares of Series C Preferred Stock are converted in the Company’sinto voting common stock:stock and the outstanding voting common stock as of June 30, 2019: