UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, DC 20549

FORM 10-Q

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

For the quarterly period ended ~~September~~June 30, ~~2020~~2021

☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES ACT OF 1934

For the transition period from _________ to ________

Commission File Number: 001-36615

GWG HOLDINGS, INC.

(Exact name of registrant as specified in its charter)


Delaware						26-2222607
(State or other jurisdiction of incorporation or organization)						(I.R.S. Employer Identification No.)

325 North St. Paul Street, Suite 2650

Dallas, TX 75201

(Address of principal executive offices, including zip code)

(612) 746-1944

(Registrant’s telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act:

Title of each class

Trading Symbol(s)

Name of each exchange

on which registered

Common Stock

GWGH

NASDAQ Capital Market

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 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, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer

☐

Accelerated filer

☐

Non-accelerated filer

☐☒

Smaller reporting company

☒

Emerging growth company

☐

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 revised 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 in Rule 12b-2 of the Exchange Act). ☐ Yes ☒ No

As of ~~November 10, 2020,~~October 15, 2021, GWG Holdings, Inc. had ~~33,094,664~~33,098,631 shares of common stock outstanding.

GWG HOLDINGS, INC.

Index to Form 10-Q

for the Quarter Ended ~~September~~June 30, ~~2020~~2021


		Page No.
PART I. FINANCIAL INFORMATION
Item 1.	Financial Statements	1
	Condensed Consolidated Balance Sheets as of ~~September~~ June 30,~~30, 2020,~~ 2021, and December 31, ~~2019~~2020	1
	Condensed Consolidated Statements of Operations for the three and six ~~nine~~months ended ~~September~~June ~~30,~~3 0 , 2021 and 2020 ~~and 2019~~	2
	Condensed Consolidated Statements of Cash Flows for the ~~nine~~six months ended ~~September~~June ~~30,~~3 0 , 2021 and 2020 ~~and 2019~~	3
	Condensed Consolidated Statements of Changes in Stockholders’ (Deficit) Equity for the three and ~~nine~~six months ended ~~September~~June ~~30,~~3 0 , 2021 and 2020 ~~and 2019~~	5
	Notes to Condensed Consolidated Financial Statements	7
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	48
Item 4.	Controls and Procedures	75

PART II. OTHER INFORMATION		7677
~~Item 1A.~~	~~Risk Factors~~	74
~~Item 5.~~	~~Other Information~~	76
Item 6.	Exhibits	7677

SIGNATURES		77

Table Of Contents

PART I — FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

GWG HOLDINGS, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

(in thousands, except share and per share data)


		September 30, 2020 (Unaudited)		December 31, 2019			June 30, 2021 (Unaudited)		December 31, 2020
ASSETS	ASSETS					ASSETS
Cash and cash equivalents	Cash and cash equivalents	$	93,766	$	79,073	Cash and cash equivalents	$	69,289	$	85,249
Restricted cash	Restricted cash	15,990		20,258		Restricted cash	22,162		38,911
Investment in life insurance policies, at fair value	Investment in life insurance policies, at fair value	787,260		796,039		Investment in life insurance policies, at fair value	770,026		791,911
Life insurance policy benefits receivable, net	Life insurance policy benefits receivable, net	36,418		23,031		Life insurance policy benefits receivable, net	25,988		14,334
Loans receivable, net of discount		229,961		232,344
Allowance for loan losses		(2,914)		0
Loans receivable, net		227,047		232,344
Fees receivable		31,571		29,168
Financing receivables from affiliates		0		67,153
Investment in alternative assets, at fair value						Investment in alternative assets, at fair value	212,494		221,894
Equity method investments						Equity method investments	4,363		8,582
Other assets	Other assets	53,501		30,135		Other assets	32,370		36,326
Goodwill	Goodwill	2,384,121		2,358,005		Goodwill	2,367,750		2,367,750
TOTAL ASSETS	TOTAL ASSETS	$	3,629,674	$	3,635,206	TOTAL ASSETS	$	3,504,442	$	3,564,957
LIABILITIES & STOCKHOLDERS’ EQUITY	LIABILITIES & STOCKHOLDERS’ EQUITY					LIABILITIES & STOCKHOLDERS’ EQUITY
LIABILITIES	LIABILITIES					LIABILITIES
Senior credit facility with LNV Corporation	Senior credit facility with LNV Corporation	$	203,907	$	174,390	Senior credit facility with LNV Corporation	$	227,137	$	193,730
L Bonds	L Bonds	1,154,519		926,638		L Bonds	1,329,013		1,246,902
Seller Trust L Bonds	Seller Trust L Bonds	366,892		366,892		Seller Trust L Bonds	272,104		272,104
Other borrowings		100,178		153,086
Debt due to related parties						Debt due to related parties	77,248		76,260
Interest and dividends payable	Interest and dividends payable	23,821		16,516		Interest and dividends payable	23,909		24,080
Deferred revenue		35,848		41,444
Accounts payable and accrued expenses	Accounts payable and accrued expenses	33,235		27,836		Accounts payable and accrued expenses	27,552		26,505
Deferred tax liability, net	Deferred tax liability, net	52,500		57,923		Deferred tax liability, net	51,149		51,469
TOTAL LIABILITIES	TOTAL LIABILITIES	1,970,900		1,764,725		TOTAL LIABILITIES	2,008,112		1,891,050

Redeemable noncontrolling interests	Redeemable noncontrolling interests	1,246,753		1,269,654		Redeemable noncontrolling interests	1,228,599		1,233,093

STOCKHOLDERS’ EQUITY	STOCKHOLDERS’ EQUITY					STOCKHOLDERS’ EQUITY

REDEEMABLE PREFERRED STOCK
(par value $0.001; shares authorized 100,000; shares outstanding 59,681 and 84,636; liquidation preference of $60,029 and $85,130 as of September 30, 2020 and December 31, 2019, respectively)		49,068		74,023
SERIES 2 REDEEMABLE PREFERRED STOCK
(par value $0.001; shares authorized 150,000; shares outstanding 137,341 and 147,164; liquidation preference of $138,142 and $148,023 as of September 30, 2020 and December 31, 2019, respectively)		118,045		127,868
COMMON STOCK
(par value $0.001; shares authorized 210,000,000; shares issued and outstanding, 33,094,664 and 33,033,793 as of September 30, 2020 and December 31, 2019, respectively)		33		33
Common stock in treasury, at cost (2,500,000 shares as of both September 30, 2020 and December 31, 2019)		(24,550)		(24,550)
Redeemable preferred stock						Redeemable preferred stock
(par value $0.001; shares authorized 100,000; shares outstanding 49,444 and 56,855; liquidation preference of $49,732 and $57,187 as of June 30, 2021 and December 31, 2020, respectively)						(par value $0.001; shares authorized 100,000; shares outstanding 49,444 and 56,855; liquidation preference of $49,732 and $57,187 as of June 30, 2021 and December 31, 2020, respectively)	38,830		46,241
Series 2 redeemable preferred stock						Series 2 redeemable preferred stock
(par value $0.001; shares authorized 150,000; shares outstanding 101,650 and 129,887; liquidation preference of $102,244 and $130,645 as of June 30, 2021 and December 31, 2020, respectively)						(par value $0.001; shares authorized 150,000; shares outstanding 101,650 and 129,887; liquidation preference of $102,244 and $130,645 as of June 30, 2021 and December 31, 2020, respectively)	82,354		110,592
Common stock						Common stock
(par value $0.001; shares authorized 210,000,000; shares issued and outstanding, 33,097,118 and 33,094,664 as of June 30, 2021 and December 31, 2020, respectively)						(par value $0.001; shares authorized 210,000,000; shares issued and outstanding, 33,097,118 and 33,094,664 as of June 30, 2021 and December 31, 2020, respectively)	33		33
Common stock in treasury, at cost (12,337,264 shares as of both June 30, 2021 and December 31, 2020)						Common stock in treasury, at cost (12,337,264 shares as of both June 30, 2021 and December 31, 2020)	(67,406)		(67,406)
Additional paid-in capital	Additional paid-in capital	178,969		233,106		Additional paid-in capital	268,190		274,023
Accumulated deficit	Accumulated deficit	(200,935)		(76,501)		Accumulated deficit	(364,447)		(251,111)
TOTAL GWG HOLDINGS STOCKHOLDERS’ EQUITY		120,630		333,979
TOTAL GWG HOLDINGS STOCKHOLDERS’ (DEFICIT) EQUITY						TOTAL GWG HOLDINGS STOCKHOLDERS’ (DEFICIT) EQUITY	(42,446)		112,372
Noncontrolling interests	Noncontrolling interests	291,391		266,848		Noncontrolling interests	310,177		328,442
TOTAL STOCKHOLDERS’ EQUITY	TOTAL STOCKHOLDERS’ EQUITY	412,021		600,827		TOTAL STOCKHOLDERS’ EQUITY	267,731		440,814
TOTAL LIABILITIES & STOCKHOLDERS’ EQUITY	TOTAL LIABILITIES & STOCKHOLDERS’ EQUITY	$	3,629,674	$	3,635,206	TOTAL LIABILITIES & STOCKHOLDERS’ EQUITY	$	3,504,442	$	3,564,957

The accompanying notes are an integral part of these Condensed Consolidated Financial Statements.

Page 1

GWG HOLDINGS, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(in thousands, except share and per share data)

(unaudited)


		Three Months Ended September 30,				Nine Months Ended September 30,					Three Months Ended June 30,				Six Months Ended June 30,
		2020		2019		2020		2019			2021		2020		2021		2020
REVENUE	REVENUE									REVENUE
Gain on life insurance policies, net		$	14,122	$	17,792	$	43,355	$	59,219
Gain (loss) on life insurance policies, net										Gain (loss) on life insurance policies, net	$	(4,473)	$	14,788	$	2,439	$	29,233
Investment income (loss), net										Investment income (loss), net	1,773		(22,671)		3,863		(15,115)
Interest income	Interest income	12,928		3,935		39,588		11,273		Interest income	305		300		622		1,015
Trust services revenues		4,556		0		14,412		0
Other income (loss)		(3,093)		484		33,504		947
Other (loss) income										Other (loss) income	(1,891)		36,501		(3,451)		36,597
TOTAL REVENUE	TOTAL REVENUE	28,513		22,211		130,859		71,439		TOTAL REVENUE	(4,286)		28,918		3,473		51,730
EXPENSES	EXPENSES									EXPENSES
Interest expense	Interest expense	40,792		28,290		113,805		83,752		Interest expense	42,127		37,142		83,509		73,013
Employee compensation and benefits	Employee compensation and benefits	33,777		9,137		123,321		21,085		Employee compensation and benefits	14,082		11,840		29,106		89,544
Legal and professional fees	Legal and professional fees	7,830		2,594		21,636		10,263		Legal and professional fees	6,054		7,643		14,182		13,806
(Recapture of) provision for loan losses		(4,986)		0		2,914		0
Other expenses	Other expenses	4,550		3,549		13,057		12,316		Other expenses	6,395		5,063		13,398		8,675
TOTAL EXPENSES	TOTAL EXPENSES	81,963		43,570		274,733		127,416		TOTAL EXPENSES	68,658		61,688		140,195		185,038
LOSS BEFORE INCOME TAXES	LOSS BEFORE INCOME TAXES	(53,450)		(21,359)		(143,874)		(55,977)		LOSS BEFORE INCOME TAXES	(72,944)		(32,770)		(136,722)		(133,308)
INCOME TAX EXPENSE (BENEFIT)		22,444		0		(613)		0
NET LOSS BEFORE INCOME (LOSS) FROM EQUITY METHOD INVESTMENT		(75,894)		(21,359)		(143,261)		(55,977)
Income (loss) from equity method investment		(1,431)		956		(4,279)		(371)
INCOME TAX BENEFIT										INCOME TAX BENEFIT	(196)		(2,018)		(482)		(18,163)
NET LOSS BEFORE LOSS FROM EQUITY METHOD INVESTMENT										NET LOSS BEFORE LOSS FROM EQUITY METHOD INVESTMENT	(72,748)		(30,752)		(136,240)		(115,145)
Loss from equity method investment										Loss from equity method investment	(3,435)		(1,318)		(6,949)		(2,848)
NET LOSS	NET LOSS	(77,325)		(20,403)		(147,540)		(56,348)		NET LOSS	(76,183)		(32,070)		(143,189)		(117,993)
Net loss attributable to noncontrolling interests	Net loss attributable to noncontrolling interests	12,745		0		23,106		0		Net loss attributable to noncontrolling interests	14,087		11,530		29,853		54,082
Less: Preferred stock dividends	Less: Preferred stock dividends	3,569		4,232		11,235		12,806		Less: Preferred stock dividends	2,775		3,714		5,967		7,666
NET LOSS ATTRIBUTABLE TO COMMON SHAREHOLDERS	NET LOSS ATTRIBUTABLE TO COMMON SHAREHOLDERS	$	(68,149)	$	(24,635)	$	(135,669)	$	(69,154)	NET LOSS ATTRIBUTABLE TO COMMON SHAREHOLDERS	$	(64,871)	$	(24,254)	$	(119,303)	$	(71,577)
NET LOSS PER COMMON SHARE	NET LOSS PER COMMON SHARE									NET LOSS PER COMMON SHARE
Basic	Basic	$	(2.23)	$	(0.75)	$	(4.44)	$	(2.09)	Basic	$	(3.13)	$	(0.79)	$	(5.75)	$	(2.34)
Diluted	Diluted	$	(2.23)	$	(0.75)	$	(4.44)	$	(2.09)	Diluted	$	(3.13)	$	(0.79)	$	(5.75)	$	(2.34)
WEIGHTED AVERAGE COMMON SHARES OUTSTANDING	WEIGHTED AVERAGE COMMON SHARES OUTSTANDING									WEIGHTED AVERAGE COMMON SHARES OUTSTANDING
Basic	Basic	30,584,719		33,033,420		30,552,233		33,010,100		Basic	20,757,400		30,536,830		20,758,431		30,535,811
Diluted	Diluted	30,584,719		33,033,420		30,552,233		33,010,100		Diluted	20,757,400		30,536,830		20,758,431		30,535,811

The accompanying notes are an integral part of these Condensed Consolidated Financial Statements.

Page 2

GWG HOLDINGS, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(in thousands)

(unaudited)


		Nine Months Ended September 30,					Six Months Ended June 30,
		2020		2019			2021		2020
CASH FLOWS FROM OPERATING ACTIVITIES	CASH FLOWS FROM OPERATING ACTIVITIES					CASH FLOWS FROM OPERATING ACTIVITIES
Net loss	Net loss	$	(147,540)	$	(56,348)	Net loss	$	(143,189)	$	(117,993)
Adjustments to reconcile net loss to net cash flows used in operating activities:	Adjustments to reconcile net loss to net cash flows used in operating activities:					Adjustments to reconcile net loss to net cash flows used in operating activities:
Change in fair value of life insurance policies	Change in fair value of life insurance policies	(23,476)		(48,031)		Change in fair value of life insurance policies	3,237		(17,455)
Investment (income) loss						Investment (income) loss	(3,863)		15,115
Amortization of deferred financing and issuance costs	Amortization of deferred financing and issuance costs	13,345		9,982		Amortization of deferred financing and issuance costs	12,004		7,855
Amortization of upfront fees		(5,356)		0
Amortization of debt discount, net		274		0
Amortization and depreciation on long-lived assets	Amortization and depreciation on long-lived assets	827		0		Amortization and depreciation on long-lived assets	1,228		492
Accretion of discount on financing receivable from affiliate		0		(1,292)
Provisions for uncollectible policy benefits receivable		0		201
Return on investments in alternative assets						Return on investments in alternative assets	1,987		1,180
Non-cash interest income	Non-cash interest income	(38,530)		0		Non-cash interest income	(140)		(146)
Non-cash interest expense	Non-cash interest expense	1,795		0		Non-cash interest expense	1,068		1,238
Loss from equity method investment	Loss from equity method investment	4,279		371		Loss from equity method investment	6,949		2,848
Loss on fair value of put options		3,191		0
Provision for loan losses		2,914		0
Loss on change in fair value of put options						Loss on change in fair value of put options	4,253		—
Deferred income tax	Deferred income tax	(4,621)		0		Deferred income tax	(802)		(19,356)
Write-off of other equity investment						Write-off of other equity investment	2,037		—
Equity-based compensation	Equity-based compensation	96,618		1,365		Equity-based compensation	9,246		73,060
Forfeiture of vested equity-based compensation	Forfeiture of vested equity-based compensation	(36,267)		0		Forfeiture of vested equity-based compensation	—		(36,267)
(Increase) decrease in operating assets:
Change in operating assets and liabilities						Change in operating assets and liabilities
Life insurance policy benefits receivable	Life insurance policy benefits receivable	(13,387)		(1,109)		Life insurance policy benefits receivable	(11,654)		3,242
Fees receivable		(2,643)		0
Accrued interest on financing receivable		0		(5,124)
Other assets	Other assets	(2,634)		(4,557)		Other assets	(1,495)		(3,246)
Increase (decrease) in operating liabilities:
Accounts payable and other accrued expenses	Accounts payable and other accrued expenses	8,306		(8,432)		Accounts payable and other accrued expenses	(1,595)		2,613
NET CASH FLOWS USED IN OPERATING ACTIVITIES	NET CASH FLOWS USED IN OPERATING ACTIVITIES	(142,905)		(112,974)		NET CASH FLOWS USED IN OPERATING ACTIVITIES	(120,729)		(86,820)
CASH FLOWS FROM INVESTING ACTIVITIES	CASH FLOWS FROM INVESTING ACTIVITIES					CASH FLOWS FROM INVESTING ACTIVITIES
Investment in life insurance policies		0		(32,249)
Return of investment for matured life insurance policies	Return of investment for matured life insurance policies	32,255		20,685		Return of investment for matured life insurance policies	18,648		18,789
Purchases of fixed assets	Purchases of fixed assets	(2,498)		0		Purchases of fixed assets	(1,532)		(1,743)
Financing receivables from affiliates issued		0		(50,000)
Equity method investments	Equity method investments	(10,144)		(10,000)		Equity method investments	(2,500)		(9,166)
Net change in loans receivable		11,169		0
Investment in put options		(14,775)		0
NET CASH FLOWS PROVIDED BY (USED IN) INVESTING ACTIVITIES		16,007		(71,564)
Investments in alternative assets						Investments in alternative assets	(4,470)		(169)
Return of investments in alternative assets						Return of investments in alternative assets	16,837		5,169

NET CASH FLOWS PROVIDED BY INVESTING ACTIVITIES						NET CASH FLOWS PROVIDED BY INVESTING ACTIVITIES	26,983		12,880
CASH FLOWS FROM FINANCING ACTIVITIES	CASH FLOWS FROM FINANCING ACTIVITIES					CASH FLOWS FROM FINANCING ACTIVITIES
Borrowings on senior debt	Borrowings on senior debt	28,530		3,937		Borrowings on senior debt	62,653		28,530
Repayments of senior debt and other borrowings		(50,000)		(21,649)
Payments for deferred financing costs for other borrowings		(3,307)		0
Repayments of senior debt						Repayments of senior debt	(28,604)		—
Payments for deferred financing costs for debt due to related parties						Payments for deferred financing costs for debt due to related parties	(1,400)		—
Purchase of noncontrolling interest	Purchase of noncontrolling interest	(1,195)		0		Purchase of noncontrolling interest	—		(261)
Proceeds from issuance of L Bonds	Proceeds from issuance of L Bonds	317,302		278,239		Proceeds from issuance of L Bonds	155,170		202,572
Payments for issuance of L Bonds		(20,203)		(16,562)
Payments for issuance costs of L Bonds						Payments for issuance costs of L Bonds	(10,006)		(13,744)
Payments for redemption of L Bonds	Payments for redemption of L Bonds	(82,206)		(92,095)		Payments for redemption of L Bonds	(73,695)		(51,384)
Issuance of common stock	Issuance of common stock	8		58		Issuance of common stock	—		24
Payments for redemption of preferred stock	Payments for redemption of preferred stock	(34,779)		(6,135)		Payments for redemption of preferred stock	(35,649)		(24,489)
Payment for equity issuance costs						Payment for equity issuance costs	(163)		—
Preferred stock dividends	Preferred stock dividends	(11,235)		(12,806)		Preferred stock dividends	(5,967)		(7,666)
Tax distribution to noncontrolling interest		(5,592)		0
Payment of employee taxes on equity based awards						Payment of employee taxes on equity based awards	(1,302)		—
NET CASH FLOWS PROVIDED BY FINANCING ACTIVITIES	NET CASH FLOWS PROVIDED BY FINANCING ACTIVITIES	137,323		132,987		NET CASH FLOWS PROVIDED BY FINANCING ACTIVITIES	61,037		133,582
NET INCREASE (DECREASE) IN CASH, CASH EQUIVALENTS AND RESTRICTED CASH		10,425		(51,551)
NET (DECREASE) INCREASE IN CASH, CASH EQUIVALENTS AND RESTRICTED CASH						NET (DECREASE) INCREASE IN CASH, CASH EQUIVALENTS AND RESTRICTED CASH	(32,709)		59,642
CASH, CASH EQUIVALENTS AND RESTRICTED CASH	CASH, CASH EQUIVALENTS AND RESTRICTED CASH					CASH, CASH EQUIVALENTS AND RESTRICTED CASH
BEGINNING OF PERIOD	BEGINNING OF PERIOD	99,331		125,436		BEGINNING OF PERIOD	124,160		115,790
END OF PERIOD	END OF PERIOD	$	109,756	$	73,885	END OF PERIOD	$	91,451	$	175,432

Page 3

GWG HOLDINGS, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(in thousands)

(unaudited)


		Nine Months Ended September 30,					Six Months Ended June 30,
		2020		2019			2021		2020
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION	SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION					SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Interest paid	Interest paid	$	97,098	$	75,153	Interest paid	$	70,736	$	59,615
Premiums paid, including prepaid	Premiums paid, including prepaid	52,136		51,586		Premiums paid, including prepaid	36,382		34,299
NON-CASH INVESTING AND FINANCING ACTIVITIES	NON-CASH INVESTING AND FINANCING ACTIVITIES					NON-CASH INVESTING AND FINANCING ACTIVITIES
L Bonds: Conversion of accrued interest and commissions payable to principal	L Bonds: Conversion of accrued interest and commissions payable to principal	$	1,296	$	1,086	L Bonds: Conversion of accrued interest and commissions payable to principal	$	436	$	940
Conversion of Promissory Note (see Note 6)		70,565		0
Employee payroll tax liability on restricted equity units		1,555		0

Business combination measurement period adjustments:
Reduction in loans receivable (see Note 4)		$	26,116	$	0
Liquidity Bonds, net of financing costs (see Note 9)						Liquidity Bonds, net of financing costs (see Note 9)	246		—

Debt due to related parties: Capitalization of deferred financing costs to principal						Debt due to related parties: Capitalization of deferred financing costs to principal	1,014		—
Noncash issuance of noncontrolling interest (Note 10)						Noncash issuance of noncontrolling interest (Note 10)	374		—
Distribution payable to noncontrolling interest (Note 10)						Distribution payable to noncontrolling interest (Note 10)	959		165

The accompanying notes are an integral part of these Condensed Consolidated Financial Statements.

Page 4

GWG HOLDINGS, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY

(in thousands, except share data)

(unaudited)

For the three and ~~nine~~six months ended ~~September~~June 30, ~~2020:~~2021:


		Redeemable Preferred Stock Shares	Redeemable Preferred Stock		Common Shares	Common Stock (par)		Additional Paid-in Capital		Accumulated Deficit		Treasury Stock		Total GWG Holdings Stockholders’ Equity		Noncontrolling Interests		Total Stockholders’ Equity		Redeemable noncontrolling interests					Redeemable Preferred Stock Shares		Redeemable Preferred Stock		Common Shares		Common Stock (par)		Additional Paid-in Capital		Accumulated Deficit		Treasury Stock		Total GWG Holdings Stockholders’ Equity (Deficit)		Noncontrolling Interests		Total Stockholders’ Equity		Redeemable noncontrolling interests
Balance, June 30, 2020 (unaudited)		207,311	$	177,402	30,537,481	$	33	$	225,537	$	(136,355)	$	(24,550)	$	242,067	$	298,705	$	540,772	$	1,264,031
Balance, March 31, 2021 (unaudited)																						Balance, March 31, 2021 (unaudited)		171,381		$	141,472	20,757,400		$	33	$	270,901	$	(302,351)	$	(67,406)	$	42,649	$	318,753	$	361,402	$	1,230,755
Net loss	Net loss	—	—		—	—		—		(64,580)		—		(64,580)		(1,059)		(65,639)		(11,686)			Net loss		—		—		—		—		—		(62,096)		—		(62,096)		(11,931)		(74,027)		(2,156)
Issuance of common stock	Issuance of common stock	—	—		57,183	—		524		—		—		524		—		524		—			Issuance of common stock		—		—		2,454		—		—		—		—		—		—		—		—
Redemption of redeemable preferred stock	Redemption of redeemable preferred stock	(10,289)	(10,289)		—	—		—		—		—		(10,289)		—		(10,289)		—			Redemption of redeemable preferred stock		(20,287)		(20,288)		—		—		27		—		—		(20,261)		—		(20,261)		—
Preferred stock dividends	Preferred stock dividends	—	—		—	—		(3,569)		—		—		(3,569)		—		(3,569)		—			Preferred stock dividends		—		—		—		—		(2,775)		—		—		(2,775)		—		(2,775)		—
LiquidTrust promissory note conversion		—	—		—	—		(44,274)		—		—		(44,274)		(26,291)		(70,565)		—
Tax distribution to noncontrolling interest	Tax distribution to noncontrolling interest	—	—		—	—		—		—		—		—		—		—		(5,592)			Tax distribution to noncontrolling interest		—		—		—		—		—		—		—		—		(74)		(74)		—
Equity-based compensation	Equity-based compensation	—	—		—	—		53		—		—		53		23,222		23,275		—			Equity-based compensation		—		—		—		—		37		—		—		37		3,767		3,804		—
Accrual for employee payroll taxes due on restricted equity units		—	—		—	—		—		—		—		—		(1,554)		(1,554)		—
Adjustment to noncontrolling interest for change in ownership of Common Units		—	—		—	—		698		—		—		698		(698)		—		—
Purchase of noncontrolling interest		—	—		—	—		—		—		—		—		(934)		(934)		—
Balance, September 30, 2020 (unaudited)		197,022	$	167,113	30,594,664	$	33	$	178,969	$	(200,935)	$	(24,550)	$	120,630	$	291,391	$	412,021	$	1,246,753
Distributions payable to noncontrolling interest																						Distributions payable to noncontrolling interest		—		—		—		—		—		—		—		—		(338)		(338)		—

Balance, June 30, 2021 (unaudited)																						Balance, June 30, 2021 (unaudited)		151,094		$	121,184	20,759,854		$	33	$	268,190	$	(364,447)	$	(67,406)	$	(42,446)	$	310,177	$	267,731	$	1,228,599

Redeemable Preferred Stock Shares Redeemable Preferred Stock Common Shares Common Stock (par) Additional Paid-in Capital Accumulated Deficit Treasury Stock Total GWG Holdings Stockholders’ Equity Noncontrolling Interests Total Stockholders’ Equity Redeemable noncontrolling interests
Balance, December 31, 2019 (audited) 231,800 $ 201,891 30,533,793 $ 33 $ 233,106 $ (76,501) $ (24,550) $ 333,979 $ 266,848 $ 600,827 $ 1,269,654
Net loss — — — — — (124,434) — (124,434) (5,797) (130,231) (17,309)
Issuance of common stock — — 60,871 — 534 — — 534 — 534 —
Redemption of redeemable preferred stock (34,778) (34,778) — — — — — (34,778) — (34,778) —
Preferred stock dividends — — — — (11,235) — — (11,235) — (11,235) —
LiquidTrust promissory note conversion — — — — (44,274) — — (44,274) (26,291) (70,565) —
Tax distribution to noncontrolling interest — — — — — — — — — — (5,592)
Equity-based compensation — — — — 140 — — 140 96,345 96,485 —
Forfeiture of vested equity-based compensation — — — — — — — — (36,267) (36,267) —
Accrual for employee payroll taxes due on restricted equity units — — — — — — — — (1,554) (1,554) —
Adjustment to noncontrolling interest for change in ownership of Common Units — — — — 698 — — 698 (698) — —
Purchase of noncontrolling interest — — — — — — — — (1,195) (1,195) —
Balance, September 30, 2020 (unaudited) 197,022 $ 167,113 30,594,664 $ 33 $ 178,969 $ (200,935) $ (24,550) $ 120,630 $ 291,391 $ 412,021 $ 1,246,753


	Redeemable Preferred Stock Shares	Redeemable Preferred Stock		Common Shares	Common Stock (par)		Additional Paid-in Capital		Accumulated Deficit		Treasury Stock		Total GWG Holdings Stockholders’ Equity (Deficit)		Noncontrolling Interests		Total Stockholders’ Equity		Redeemable noncontrolling interests
Balance, December 31, 2020 (audited)	186,742	$	156,833	20,757,400	$	33	$	274,023	$	(251,111)	$	(67,406)	$	112,372	$	328,442	$	440,814	$	1,233,093
Net loss	—	—		—	—		—		(113,336)		—		(113,336)		(25,359)		(138,695)		(4,494)
Issuance of common stock	—	—		2,454	—		—		—		—		—		—		—		—
Redemption of redeemable preferred stock	(35,648)	(35,649)		—	—		27		—		—		(35,622)		—		(35,622)		—
Preferred stock dividends	—	—		—	—		(5,967)		—		—		(5,967)		—		(5,967)		—
Tax distribution to noncontrolling interest	—	—		—	—		—		—		—		—		(1,302)		(1,302)		—
Equity-based compensation	—	—		—	—		107		—		—		107		8,981		9,088		—
Distributions payable to noncontrolling interest	—	—		—	—		—		—		—		—		(959)		(959)		—
Noncash issuance of noncontrolling interest	—	—		—	—		—		—		—		—		374		374		—
Balance, June 30, 2021 (unaudited)	151,094	$	121,184	20,759,854	$	33	$	268,190	$	(364,447)	$	(67,406)	$	(42,446)	$	310,177	$	267,731	$	1,228,599

~~The accompanying notes are an integral part of these Condensed Consolidated Financial Statements.~~

Page 5

GWG HOLDINGS, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY

(in thousands, except share data)

(unaudited)

For the three and ~~nine~~six months ended ~~September~~June 30, ~~2019:~~2020:


		Redeemable Preferred Stock Shares	Redeemable Preferred Stock		Common Shares	Common Stock (par)		Additional Paid-in Capital		Accumulated Deficit		Total Stockholders’ Equity			Redeemable Preferred Stock Shares	Redeemable Preferred Stock		Common Shares	Common Stock (par)		Additional Paid-in Capital		Accumulated Deficit		Treasury Stock		Total GWG Holdings Stockholders’ Equity		Noncontrolling Interests		Total Stockholders’ Equity		Redeemable noncontrolling interests
Balance, June 30, 2019 (unaudited)		242,648	$	212,738	33,033,420	$	33	$	241,318	$	(220,555)	$	233,534
Balance, March 31, 2020 (unaudited)														Balance, March 31, 2020 (unaudited)	216,567	$	186,658	30,535,249	$	33	$	229,207	$	(140,567)	$	(24,550)	$	250,781	$	348,169	$	598,950	$	1,241,641
Net loss	Net loss	—	—		—	—		—		(20,403)		(20,403)		Net loss	—	—		—	—		—		(20,540)		—		(20,540)		(33,920)		(54,460)		22,390
Issuance of common stock	Issuance of common stock	—	—		—	—		—		—		—		Issuance of common stock	—	—		2,232	—		8		—		—		8		—		8		—
Repurchase of common stock		—	—		—	—		—		—		—
Redemption of redeemable preferred stock	Redemption of redeemable preferred stock	(2,920)	(2,920)		—	—		—		—		(2,920)		Redemption of redeemable preferred stock	(9,256)	(9,256)		—	—		—		—		—		(9,256)		—		(9,256)		—
Preferred stock dividends	Preferred stock dividends	—	—		—	—		(4,232)		—		(4,232)		Preferred stock dividends	—	—		—	—		(3,714)		—		—		(3,714)		—		(3,714)		—
Equity-based compensation	Equity-based compensation	—	—		—	—		74		—		74		Equity-based compensation	—	—		—	—		36		—		—		36		4,189		4,225		—
Balance, September 30, 2019 (unaudited)		239,728	209,818		33,033,420	$	33	$	237,160	$	(240,958)	$	206,053
Forfeiture of equity-based compensation														Forfeiture of equity-based compensation	—	—		—	—		—		—		—		—		(36,267)		(36,267)		—
Purchase of noncontrolling interest														Purchase of noncontrolling interest	—	—		—	—		—		—		—		—		(261)		(261)		—
Distributions payable to noncontrolling interest														Distributions payable to noncontrolling interest	—	—		—	—		—		—		—		—		(29)		(29)		—
Balance, June 30, 2020 (unaudited)														Balance, June 30, 2020 (unaudited)	207,311	$	177,402	30,537,481	$	33	$	225,537	$	(161,107)	$	(24,550)	$	217,315	$	281,881	$	499,196	$	1,264,031


		Redeemable Preferred Stock Shares	Redeemable Preferred Stock		Common Shares	Common Stock (par)		Additional Paid-in Capital		Accumulated Deficit		Total Stockholders’ Equity			Redeemable Preferred Stock Shares	Redeemable Preferred Stock		Common Shares	Common Stock (par)		Additional Paid-in Capital		Accumulated Deficit		Treasury Stock		Total GWG Holdings Stockholders’ Equity		Noncontrolling Interests		Total Stockholders’ Equity		Redeemable noncontrolling interests
Balance, December 31, 2018 (audited)		245,883	$	215,973	33,018,161	$	33	$	249,662	$	(184,610)	$	281,058
Balance, December 31, 2019 (audited)														Balance, December 31, 2019 (audited)	231,800	$	201,891	30,533,793	$	33	$	233,106	$	(97,196)	$	(24,550)	$	313,284	$	293,910	$	607,194	$	1,269,654
Net loss	Net loss	—	—		—	—		—		(56,348)		(56,348)		Net loss	—	—		—	—		—		(63,911)		—		(63,911)		(48,459)		(112,370)		(5,623)
Issuance of common stock	Issuance of common stock	—	—		58,009	—		419		—		419		Issuance of common stock	—	—		3,688	—		26		—		—		26		—		26		—
Repurchase of common stock		—	—		(42,750)	—		(361)		—		(361)
Redemption of redeemable preferred stock	Redemption of redeemable preferred stock	(6,155)	(6,155)		—	—		—		—		(6,155)		Redemption of redeemable preferred stock	(24,489)	(24,489)		—	—		—		—		—		(24,489)		—		(24,489)		—
Preferred stock dividends	Preferred stock dividends	—	—		—	—		(12,806)		—		(12,806)		Preferred stock dividends	—	—		—	—		(7,666)		—		—		(7,666)		—		(7,666)		—
Equity-based compensation	Equity-based compensation	—	—		—	—		246		—		246		Equity-based compensation	—	—		—	—		71		—		—		71		73,123		73,194		—
Balance, September 30, 2019 (unaudited)		239,728	$	209,818	33,033,420	$	33	$	237,160	$	(240,958)	$	206,053
Forfeiture of equity-based compensation														Forfeiture of equity-based compensation	—	—		—	—		—		—		—		—		(36,267)		(36,267)		—
Purchase of noncontrolling interest														Purchase of noncontrolling interest	—	—		—	—		—		—		—		—		(261)		(261)		—
Distributions payable to noncontrolling interest														Distributions payable to noncontrolling interest	—	—		—	—		—		—		—		—		(165)		(165)		—
Balance, June 30, 2020 (unaudited)														Balance, June 30, 2020 (unaudited)	207,311	$	177,402	30,537,481	$	33	$	225,537	$	(161,107)	$	(24,550)	$	217,315	$	281,881	$	499,196	$	1,264,031

The accompanying notes are an integral part of these Condensed Consolidated Financial Statements.

Page 6

Table Of Contents

GWG HOLDINGS, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)

(1) Nature of Business

Organizational Structure

GWG Holdings, Inc. (“GWG Holdings”) conducts its life insurance secondary market business through a wholly-owned subsidiary, GWG Life, LLC (“GWG Life”), and GWG Life’s wholly-owned subsidiaries, GWG Life Trust, GWG DLP Funding IV, LLC (“DLP IV”) ~~and~~, GWG DLP Funding V Holdings, LLC (“DLP V Holdings”), and GWG DLP Funding Holdings VI, LLC (“DLP VI Holdings”). DLP V Holdings is the sole member of GWG DLP Funding V, LLC (“DLP V”)~~, which holds certain life insurance policies.~~. DLP VI Holdings is the sole member of GWG DLP Funding VI, LLC (“DLP VI”).

In addition, GWG ~~Holdings’~~Holdings has exposure to indirect interests in loans collateralized by cash flows from ~~other~~ alternative assets. ~~These~~Such loans are made and held by certain of the operating subsidiaries of The Beneficient Company Group, L.P. (“Ben LP,” including all of the subsidiaries it may have from time to time — “Beneficient”). These loans are made to certain of the ExAlt Trusts (as defined below), which are consolidated subsidiaries of Ben LP and ~~its~~thus, such loans are eliminated in consolidation for financial reporting purposes. The ExAlt Trusts are comprised of the Custody Trusts, Collective Trusts, LiquidTrusts and Funding Trusts (collectively, the “ExAlt Trusts”). Ben LP’s general partner is Beneficient Management, L.L.C. (“Beneficient Management”). Prior to December 31, 2019, GWG Holdings’ investment in Beneficient was accounted for as an equity method investment. On December 31, 2019, as more fully described below, Beneficient became a consolidated subsidiary of GWG Holdings. As also further described in Note 17, on August 13, 2021, GWG Holdings and Ben LP, and Beneficient Company Holdings, L.P. (“BCH”) entered into a non-binding term sheet (the “Term Sheet”) that outlines a series of transactions that, if completed, will result in, among other things, (i) GWG Holdings receiving certain proposed enhancements to its investments in Beneficient; (ii) GWG Holdings no longer having the right to appoint directors of the Board of Directors of Beneficient Management; and (iii) Beneficient no longer being a consolidated subsidiary of GWG Holdings. The Term Sheet is part of ongoing efforts by management and the Board of Directors of GWG Holdings to maximize the value of GWG Holdings’ and GWG Life’s investment in Beneficient.

Ben LP is the general partner of ~~Beneficient Company Holdings, L.P. (“BCH”)~~BCH and owns 100% of the Class A Subclass A-1 and A-2 Units of BCH. BCH is the holding company that directly or indirectly receives all active and passive income of Beneficient and allocates that income among the ~~units~~partnership interests issued by BCH. As of ~~September~~June 30, ~~2020,~~2021, BCH has issued general partnership Class A Units (Subclass A-1 and A-2), Class S Ordinary Units, Class S Preferred Units, FLP Units (Subclass 1 and Subclass 2), Preferred Series A Subclass 1 Unit Accounts, ~~Preferred Series A Subclass 2 Unit Accounts,~~ and Preferred Series C Unit Accounts. On July 15, 2020, BCH issued to Ben LP Preferred Series A Subclass 2 Unit Accounts as part of the transaction with GWG Holdings discussed below. Preferred Series A Subclass 2 Unit Accounts hold the same rights and privileges as the Preferred Series A Subclass 1 Unit Accounts. Theamended its limited partnership agreement by executing that certain 5th Amended and Restated Limited Partnership Agreement (“LPA”) of BCH ~~allows~~to allow for the issuance of Preferred Series A Subclass 0 Unit Accounts (“Preferred A.0”), which are expected to be issued once ~~the trust charters~~certain conditions are ~~received~~met (as discussed in more detail below). Effective March 31, 2021, BCH amended its limited partnership agreement by executing that certain 6th Amended and Restated LPA of BCH to allow for the issuance of Preferred Series C Subclass 0 Unit Accounts (“Preferred C.0”), which are wholly owned by GWG Holdings.

GWG Holdings also has a financial interest in FOXO ~~BioScience LLC~~Technologies Inc. (“FOXO”, formerly ~~InsurTech Holdings,~~FOXO BioScience LLC), which through its wholly-owned subsidiaries FOXO Labs Inc. (“FOXO Labs”, formerly, Life Epigenetics Inc.) and FOXO Life LLC (“FOXO Life”, formerly, youSurance General Agency, LLC), seeks to commercialize epigenetic technology for the longevity industry and offer life insurance directly to customers utilizing epigenetic technology. Although we have a financial interest in FOXO, we do not have a controlling financial interest because another party is the majority shareholder of the voting class of securities. Therefore, we account for GWG Holdings’ ownership interest in FOXO as an equity method investment.

All of the aforementioned ~~legal~~ entities are legally organized in the state of Delaware, other than GWG Life Trust, which ~~is governed by~~was formed under the laws of the state of ~~Utah.~~Utah, and certain of the ExAlt Trusts, which were formed under the laws of the state of Texas. Unless the context otherwise requires or we specifically so indicate, all references in this report to “we,” “us,” “our,” “our Company,” “GWG,” or the “Company” refer to ~~these entities collectively.~~GWG Holdings together, in each case, with its subsidiaries. Our headquarters are located inat 325 N. St. Paul Street, Suite 2650, Dallas, ~~Texas.~~Texas 75201.

Nature of Business

GWG Holdings, through its wholly-owned subsidiary GWG Life, purchased life insurance policies in the secondary market and has built a large, actuarially diverse portfolio of life insurance policies backed by highly rated life insurance companies. These policies were purchased between April 2006 and November 2019 and were funded primarily through sales of L Bonds, as discussed in Note ~~10.~~9. Beginning in 2018, GWG Holdings ~~made~~consummated a ~~strategic decision to reorient its business and increase capital allocated toward providing liquidity products to a broader range~~series of ~~alternative assets through investments in Beneficient. We believe that the investments in~~transactions with Beneficient ~~will transform GWG Holdings from a niche provider of liquidity to owners of life insurance to a full-scale provider of trust and liquidity products and trust services to holders~~as part of a ~~broad range of alternative assets.~~

As a result of such strategic decision, GWG Holdings’ business today is focused on raising capital from securities offerings and using the proceeds from such offerings to grow GWG Holdings’ alternative asset exposure through investments in Beneficient in the form of equity investments and/or loans to Beneficient or related entities. GWG Holdings believes funding Beneficient’s operations will generally produce higher actual and risk-adjusted returns than those we can achieve from life insurance policies acquired in the secondary market.

Page 7

Table Of Contents

GWG HOLDINGS, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)

strategic decision to reorient its business and increase capital allocated toward providing liquidity products to a broader range of alternative assets through investments in Beneficient. GWG Holdings completed the transactions with Beneficient to provide the Company with a significant increase in assets and common stockholders’ equity as well as the opportunity for a diversified source of future earnings from our exposure to the alternative asset industry. We believe that GWG Holdings’ and GWG Life’s investments in Beneficient and the other strategies we are pursuing, including continuing to pursue opportunities in the life insurance industry, will transform GWG Holdings from a niche provider of liquidity to owners of life insurance policies to a diversified provider of financial products and services with exposure to a broad range of alternative assets.

We believe that Beneficient’s operations will generally produce higher risk adjusted returns than those we can achieve from life insurance policies acquired in the secondary market; however, returns on equity in life settlements, especially with the current availability of financings on favorable terms, appear to be an attractive option to diversify our exposure to alternative assets, and we have begun exploring the feasibility of acquiring such policies. Furthermore, although we believe that our portfolio of life insurance policies is a meaningful component of a growing diversified alternative asset portfolio, ~~we do not anticipate purchasing additional life insurance policies in the secondary market, and~~ we continue to explore strategic alternatives for our life insurance portfolio aimed at maximizing its value, including a possible sale, refinancing, recapitalization, partnership, reinsurance guarantees, life insurance operations or ~~recapitalization~~other transactions involving our life insurance portfolio, as well as pursuing other alternatives to increase our exposure to alternative assets. These operations are in addition to allocating capital to provide liquidity to holders of ~~the portfolio.~~a broader range of alternative assets, which we currently provide through GWG Holdings’ and GWG Life’s investments in Beneficient.

Beneficient is a financial services ~~firm~~company based in Dallas, Texas that ~~provides~~markets an array of liquidity solutions for high net worth (“HNW”) individuals and small-to-mid- (“STM”) sized institutions, which previously had few options to obtain early liquidity for their alternative asset holdings. On September 25, 2018, Beneficient applied for trust charters from the Texas Department of Banking to merge into to-be organized limited trust associations. Beneficient submitted revised charter applications on March 6, 2020. As of November 19, 2020, the trust charters have not been issued to Beneficient. As such, Beneficient has closed a limited number of transactions to date, but intends to significantly expand its operations if and when the trust charters are issued.

Beneficient was formed in 2003 but began its current operations in September 2017. Beneficient operates primarily through its subsidiaries, which provide Beneficient’s products and services. These subsidiaries include: (i) Beneficient Capital Company, L.L.C. (“BCC”), through which Beneficient offers loans and liquidity products; (ii) Beneficient Administrative and Clearing Company, L.L.C. (“BACC”), through which Beneficient provides services for fund and trust administration products to alternative asset investors primarily comprised of mid-to-high-net-worth individuals having a net worth between $5 million and ~~plans to provide custody services; (iii) Pen Indemnity Insurance Company, LTD~~$30 million (“~~Pen”~~MHNW”) and small-to-midsize institutional investors and family offices with less than $1 billion in investable assets (“STMIs”). One of Beneficient’s founders, Brad K. Heppner (“Ben Founder”), ~~through which~~serves as Chairman and Chief Executive Officer of Beneficient and previously served from April 26, 2019 to June 14, 2021 as Chairman of GWG Holdings. Ben LP plans to offer ~~insurance services;~~its products and services through its five operating subsidiaries, which include (i) Ben Liquidity, (ii) Ben Custody Admin, (iii) Ben Insurance, (iv) Ben Markets ~~Management Holdings, L.P.~~and (v) Beneficient USA (each operating subsidiary is further defined below). Ben Liquidity plans to operate a trust company that is a Kansas Technology Enabled Fiduciary Financial Institutions (“TEFFI”) authorized to serve as an alternative asset custodian, trustee and lender with statutory powers granted for each of these activities and permitting Ben Liquidity to provide fiduciary financing for certain of its customer liquidity transactions. Ben Custody Admin plans to operate a Texas trust company that is being organized to provide its customers with certain administrative, custodial and trustee products and specialized services focused on alternative asset investors. Ben Insurance has been chartered as a Bermuda based insurance company that plans to offer certain customized insurance products and services covering risks relating to owning, managing and transferring alternative assets. Ben Markets is in the regulatory process for acquiring a captive registered broker-dealer that would conduct certain of its activities attendant to offering a suite of products and services from the Beneficient family of companies. Certain of Ben LP’s operating subsidiary products and services involve or are offered to certain of the ExAlt Trusts (defined below), ~~formerly called ACE Portal, L.L.C. (“~~which are consolidated subsidiaries of Ben ~~Markets”), through~~LP for financial reporting purposes (such trusts are and may individually be referred to as Custody Trusts, Collective Trusts, LiquidTrusts, and Funding Trusts). Beneficient USA employs a substantial majority of the executives and staff for Beneficient’s operating subsidiaries to which Beneficient ~~plans to provide an online portal for direct access to Beneficient’s financial services~~USA provides administrative and ~~products.~~technical services.

Beneficient’s primary operations, ~~pertain~~which commenced on September 1, 2017, consist of offering its liquidity and trust administration services to its customers, primarily through certain of Ben LP’s operating subsidiaries, Ben Liquidity, L.L.C and its subsidiaries (collectively, “Ben Liquidity”) and Ben Custody Admin, L.L.C. and its subsidiaries (collectively, “Ben Custody Admin”), respectively. Ben Liquidity offers simple, rapid and cost-effective liquidity products ~~whereby~~to its customers through the use of customized trust vehicles, (such trusts, the ExAlt Trusts), that facilitate the exchange of a customer’s alternative assets for consideration using a unique financing structure (such structure and process, the “ExAlt PlanTM”). The ExAlt trademark was developed by Beneficient ~~extends~~as a brand of liquidity and trust administration services designed for alternative asset investors, specifically MHNW and STMIs to “Ex”it “Alt”ernatives. A subsidiary of Ben Liquidity makes loans (each, an “ExAlt Loan”) to certain of the ExAlt Trusts, which employ the loan proceeds to acquire agreed upon consideration, upon which certain of the ExAlt Trusts deliver to customers in exchange for their alternative assets. Ben Liquidity generates interest and fee income earned in connection with the ExAlt Loans, which are collateralized by a portion of the cash flows from ~~illiquid~~the exchanged alternative assets ~~and~~(the “Collateral”). Ben Custody Admin currently provides trust administration services to the trustees ~~who administer the collateral. Beneficient’s core business products are its Exchange Trust, LiquidTrust and the InterChange Trust (introduced in 2020). Beneficient’s clients select one~~ of ~~these products and place their alternative assets into the custody trust that is a constituent member of a trust structure called the “ExAlt Plan~~™~~” (comprised~~certain of the ~~Exchange~~ExAlt Trusts ~~LiquidTrusts, Custody Trusts, Collective Trusts, and Funding Trusts). The ExAlt Plan~~™ ~~then delivers to Beneficient’s clients~~that own the ~~consideration required by the specific product selected by those clients. At the same time, Beneficient, extends a loan to the ExAlt Plan~~™~~. The proceeds (cash, securities of Ben LP or its affiliates, or other forms of consideration, as applicable) of that loan received by the ExAlt Plan~~™ ~~are ultimately paid to the client. The cash flows from the client’s~~exchanged alternative asset ~~support~~following liquidity transactions for fees payable quarterly. The Collateral supports the repayment of the ~~loan~~ExAlt Loans plus any related interest and ~~fees.~~

~~In 2018~~fees and ~~2019, GWG Holdings~~trust administration service fees. Under the applicable trust and ~~GWG Life consummated a series of transactions (as more fully described below) with Beneficient that has resulted in a significant reorientation~~other agreements, certain charities are the ultimate beneficiaries of the ~~Company’s business and capital allocation strategy in addition to changes in the Company’s Board~~ExAlt Trusts (the “Non-Controlling Interest Holders”). As ultimate beneficiaries of ~~Directors and executive management team.~~

~~The Exchange Transaction~~

On August 10, 2018 (the “Initial Transfer Date”), the first of two closings was completed (the “Initial Transfer”) as contemplated by a Master Exchange Agreement between GWG Holdings, GWG Life, Ben LP and certain other parties (the “Seller Trusts”), which governs the strategic exchange of assets among the parties (the “Exchange Transaction”). On the Initial Transfer Date:

•~~GWG Holdings issued~~prior transactions, for every $0.95 paid to the ~~Seller Trusts Seller Trust L Bonds due 2023 (the “Seller Trust L Bonds”) in an aggregate principal amount of $403.2 million, as more fully described below;~~

•Beneficient purchased 5,000,000 shares of GWG Holdings’ Series B Convertible Preferred Stock, par value $0.001 per share and having a stated value of $10 per share (“Series B”), for cash consideration of $50.0 million, which shares were subsequently transferred to the Seller Trusts;

•in consideration for GWG Holdings and GWG Life entering into the Master Exchange Agreement and consummating the transactions contemplated thereby, Ben LP, as borrower, entered into a commercial loan agreement (the “Commercial Loan Agreement”) with GWG Life, as lender ~~providing for a loan in a principal amount of $200.0 million (the “Commercial Loan”);~~

•~~Ben LP delivered to GWG Life a promissory note (the “Exchangeable Note”) in the principal amount of $162.9 million; and~~

•~~the Seller Trusts delivered to GWG Holdings 4,032,349 common units of Ben LP (“Common Units”) at an assumed value of $10 per unit.~~(e.g.,

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subsidiaries of Ben LP) on the ExAlt Loans, $0.05 is also paid to certain of the Non-Controlling Interest Holders. For periods following 2020, future Non-Controlling Interest Holders are structured to be paid $0.025 for every $0.975 paid to the fiduciary financial lender (e.g., subsidiaries of Ben LP) of the ExAlt Loans. Since Ben LP consolidates the ExAlt Trusts, Ben LP’s operating subsidiary’s ExAlt Loans and related interest and fee income are eliminated in the presentation of our condensed consolidated financial statements but are recognized for purposes of the allocation of income (loss) to Beneficient’s equity holders.

Prior to January 1, 2021, Ben LP operated primarily through certain of its subsidiaries, that included (i) Beneficient Capital Company, L.L.C. (“BCC”), which offered liquidity products; (ii) Beneficient Administration and Clearing Company, L.L.C. (“BACC”), which provided services for private fund and trust administration; and (iii) other entities, including the ExAlt Trusts.

On December 31, 2020, a series of restructuring transactions occurred to better position certain of Ben LP’s subsidiaries for ongoing operations and future products and services, to capitalize PEN Indemnity Insurance Company, Ltd. (“Pen”) and to meet certain requirements of the Texas Department of Banking. These transactions had no impact on the consolidated financial statements. In connection with these transactions, BCC transferred all of its assets, which included, among other assets, its ExAlt Loans receivable, and liabilities, which included, among other liabilities, loans payable with respect to secured loans with HCLP Nominees, L.L.C., held as of December 31, 2020, to BCH. In order to capitalize Pen and enable it to offer insurance products and services to cover risks attendant to owning and managing alternative assets following approval from the Bermuda Monetary Authority (the “BMA”), BCH contributed to Pen certain of such ExAlt Loans receivable with an aggregate carrying value equal to $129.2 million. Likewise, BACC transferred all of its assets, which included its rights to perform fund trust administration services under certain trust and other agreements, and liabilities to BCH, which will perform such services until a Texas trust company charter is issued or the Kansas TEFFI trust company becomes operational.

Subsequent to December 31, 2020, Ben LP operates primarily through its business line operating subsidiaries, which provide, or will provide, Beneficient’s existing and planned products and services. These subsidiaries include (i) Ben Liquidity, which offers liquidity products; (ii) Ben Custody Admin, which provides services for fund and trust administration; (iii) Ben Insurance, L.L.C., including its subsidiaries (collectively, “Ben Insurance”), which intends to offer insurance products and services covering risks attendant to owning, managing, and transferring alternative assets; (iv) Ben Markets, L.L.C., including its subsidiaries (collectively, “Ben Markets”), which intends to provide broker-dealer services in connection with offering Beneficient’s liquidity products and services; and (vi) other entities, including the ExAlt Trusts, which operate for the benefit of the Non-Controlling Interest Holders. Beneficient’s financial products and services are presently offered through Ben Liquidity and Ben Custody Admin, and Beneficient plans to expand its capabilities under Ben Custody Admin and provide products and services through Ben Insurance and Ben Markets in the future.

Beneficient’s existing and planned products and services are designed to provide liquidity and trust solutions, support the tax and estate planning objectives of its MHNW customers, facilitate asset diversification or provide administrative management and reporting solutions tailored to the goals of investors of alternative investments.

Beneficient’s Regulatory Developments

In April 2021, the Kansas Legislature adopted, and the governor of Kansas signed into law, a bill that would allow for the chartering and creation of Kansas trust companies, known as TEFFIs, that provide fiduciary financing (e.g., lending to ExAlt Trusts), custodian and trustee services in all capacities pursuant to statutory fiduciary powers, to investors and other participants in the alternative assets market, as well as the establishment of alternative asset trusts. The legislation became effective on July 1, 2021, and designates an operating subsidiary of Ben LP, Beneficient Fiduciary Financial (“BFF”), as the pilot trust company under the TEFFI legislation. A conditional trust charter was issued by the Kansas Bank Commissioner to Beneficient on July 1, 2021 as discussed further in Note 17. Under the pilot program, Beneficient will not be authorized to exercise its fiduciary powers as a TEFFI until the earlier of the date the Kansas Bank Commissioner promulgates applicable rules and regulations or December 31, 2021. The bill also permits the Kansas Bank Commissioner to request a six-month extension of the pilot program period, which could delay Beneficient’s permission to exercise its fiduciary powers under the charter until July 1, 2022. In order to devote their time to serving as directors of the Beneficient TEFFI trust company, the directors of GWG Holdings who serve on the new TEFFI trust company Board of Directors resigned their membership, effective June 14, 2021, on GWG Holdings’ Board of Directors, which the Company believes is the highest and best use of their available time and skills and will support the development of the Beneficient TEFFI trust company and the successful execution of Beneficient’s business plan.

Additionally, Beneficient’s charter application for custodian and trustee services remains in process at the Texas Department of Banking. If the charter is issued, the trust company would serve as custodian and trustee to one or more ExAlt Trusts. Similar or

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the same services may also be provided by Beneficient’s Kansas trust company TEFFI. Also, a subsidiary of Ben Insurance, Pen has applied for regulatory approval from the BMA to write fiduciary liability policies for managers and investors in alternative asset funds to cover losses from contractual indemnification and exculpation provisions arising under the governing documents of such funds. Further, on March 26, 2021, a Ben LP subsidiary, Beneficient Capital Markets, L.L.C (“Beneficient Capital Markets”) filed a Form BD with the Securities and Exchange Commission (“SEC”) to commence its application for broker-dealer registration. Upon registration and admittance as a Financial Industry Regulatory Authority (“FINRA”) member, Beneficient Capital Markets will conduct activities attendant to offering Beneficient’s products and services.

When the Kansas TEFFI trust company is authorized to exercise its fiduciary powers, Beneficient expects to be able to expand its operations and close an increased number of liquidity transactions. Additionally, once BMA regulatory approval is obtained and Beneficient Capital Markets is admitted as a FINRA member, Beneficient anticipates being able to offer its full suite of products and services.

The Exchange Transaction

On December 28, 2018 ~~the final closing of the above transaction occurred, and the following actions took place~~ (the ~~“Final Closing” and the date upon which the Final Closing occurred, the~~ “Final Closing Date”):

•~~in accordance with~~, we completed a series of strategic exchanges of assets among GWG Holdings, GWG Life, Ben LP and certain trusts, each identified as an Exchange Trust formed during 2017 and 2018 (such trusts collectively, the “Seller Trusts”, which are a related party but are not among Ben LP’s consolidated trusts), pursuant to a Master Exchange Agreement ~~and based on~~among the ~~net asset value~~parties (the “Exchange Transaction”). As a result of ~~alternative asset financings~~the Exchange Transaction, a number of securities were exchanged between the parties, including the following securities as of the Final Closing ~~Date, effective as of~~Date: the ~~Initial Transfer Date, (i)~~Seller Trusts acquired GWG Holdings’ L Bonds due 2023 (the “Seller Trust L Bonds”) in the aggregate principal amount of the Commercial Loan was reduced to $182.0 million, (ii) the principal amount of the Exchangeable Note was reduced to $148.2 million, and (iii) the principal amount of the Seller Trust L Bonds was reduced to $366.9 million;

•the Seller Trusts ~~refunded to~~acquired 27,013,516 shares of GWG Holdings’ common stock; GWG Holdings ~~$0.8 million in interest paid on the Seller Trust L Bonds related to the Seller Trust L Bonds that were issued as~~acquired 40,505,279 common units of ~~the Initial Transfer Date but cancelled, effective as of the Initial Transfer Date, on the Final Closing Date;~~

•the accrued interest on the Commercial Loan and the Exchangeable Note was added to the principal amount of the Commercial Loan, as a result of which the principal amount of the Commercial Loan as of the Final Closing Date was $192.5 million;

•~~the Seller Trusts transferred to GWG Holdings an aggregate of 21,650,087 Common Units~~Ben LP (the “Common Units”); and GWG Holdings ~~received 14,822,843~~acquired the right to obtain additional Common Units ~~in exchange for the Exchangeable Note, upon completion of which GWG Holdings owned (including the 4,032,349 Common Units received by GWG Holdings on the Initial Transfer Date) 40,505,279 Common Units;~~

•~~Ben LP issued to GWG Holdings an option (the “Option Agreement”) to acquire the number of Common Units, interests~~ or other property that would be received by a holder of Preferred Series A Subclass 1 Unit Accounts of ~~BCH; and~~

•BCH pursuant to an option issued by Ben LP (the “Option Agreement”). In addition, in connection with the Exchange Transaction, Ben LP, as borrower, entered into a commercial loan agreement (the “Commercial Loan Agreement”) with GWG ~~Holdings issued to the Seller Trusts 27,013,516 shares~~Life, as lender, providing for a loan in a principal amount of ~~GWG Holdings common stock (including 5,000,000 shares issued upon conversion~~$192.5 million as of the ~~Series B)~~Final Closing Date (the “Commercial Loan”).

Description of the Assets Exchanged

Seller Trust L Bonds

On August 10, 2018, in connection with the ~~Initial Transfer,~~initial transfer of the Exchange Transaction, GWG Holdings, GWG Life and Bank of Utah, as trustee, entered into a Supplemental Indenture (the ~~“Supplemental~~“L Bond Supplemental Indenture”) to the Amended and Restated Indenture dated as of October 23, 2017 (the “Amended and Restated Indenture”). GWG Holdings entered into the L Bond Supplemental Indenture to add and modify certain provisions of the Amended and Restated Indenture necessary to provide for the issuance of the Seller Trust L Bonds. The maturity date of the Seller Trust L Bonds is August 9, 2023. The Seller Trust L Bonds bear interest at 7.5% per year. Interest is payable monthly in cash.

~~After~~As the second anniversary of the Final Closing Date has passed, the holders of the Seller Trust L Bonds ~~will~~now have the right to cause GWG Holdings to repurchase, in whole but not in part, the Seller Trust L Bonds held by such holder. The repurchase may be paid, at GWG Holdings’ option, in the form of cash, a pro rata portion of (i) the outstanding principal amount and accrued and unpaid interest under the Commercial Loan, and (ii) Common Units, or a combination of cash and such property.

The Seller Trust L Bonds are senior secured obligations of GWG Holdings, ranking junior only to all senior debt of GWG Holdings, pari passu in right of payment and in respect of collateral with all “L Bonds” of GWG Holdings, ~~(see Note 10),~~ and senior in right of payment to all subordinated indebtedness of GWG Holdings. See Note 9 for additional discussion of the outstanding debt of GWG Holdings. Payments under the Seller Trust L Bonds are guaranteed by GWG Life (see Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations).

~~Series B Convertible Preferred Stock~~

~~The Series B converted into 5,000,000 shares~~As result of ~~GWG Holdings common stock at a conversion price~~the Collateral Swap (discussed and defined below) on September 30, 2020, $94.8 million of ~~$10 per share~~Seller Trusts L Bonds are eliminated upon ~~the Final Closing.~~consolidation.

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Commercial Loan

The $192.5 million principal amount under the Commercial Loan is due on August 9, 2023; however, it is extendable for 2 five-year terms. Ben ~~LP's~~LP’s obligations under the Commercial Loan are unsecured.

The principal amount of the Commercial Loan bears interest at 5.0% per year. From and after the Final Closing Date, one-half of the interest, or 2.5% per year, is due and payable monthly in cash, and one-half of the interest, or 2.5% per year, accrues and compounds annually on each anniversary date of the Final Closing Date and becomes due and payable in full in cash on the maturity date.

In accordance with the L Bond Supplemental Indenture governing the issuance of the Seller Trust L Bonds, upon a redemption event or at the maturity date of the Seller Trust L Bonds, GWG Holdings, at its option, may use the outstanding principal amount of the Commercial Loan, and accrued and unpaid interest thereon, as repayment consideration of the Seller Trust L Bonds.

The Commercial Loan and its related interest are eliminated upon consolidation.

~~Exchangeable Note~~

At the Final Closing date, the principal amount of the Exchangeable Note was exchanged for 14,822,843 Common Units, and the accrued interest on the Exchangeable Note was added to the principal balance of the Commercial Loan.

Option Agreement

In connection with the ~~Final Closing,~~Exchange Transaction, GWG Holdings entered into the Option Agreement with Ben LP. The Option Agreement gave GWG Holdings the option to acquire the number of Common Units or other property that would be received by the holder of Preferred Series A Subclass 1 Unit Accounts of BCH pursuant to an option issued by Ben LP, if such holder were converting on that date. There was no exercise price and ~~the Company~~GWG Holdings could exercise the option at any time until December 27, 2028, at which time the option automatically settled. ~~The carrying value of the Option Agreement eliminates upon consolidation.~~

Effective August 11, 2020, as a result of the Exchange Agreement entered into by the parties on December 31, 2019 (discussed below), and the mutual agreement of the parties, the Option Agreement was ~~automatically~~ exercised under the provisions of the Option Agreement. As such, GWG Holdings received $57.5 million of Common Units at a price per unit equal to $12.50 per unit. The exercise of the Option Agreement ~~has~~had no impact on the Company’s condensed consolidated financial statements as it is eliminated in consolidation.

Common Units of Ben LP

In connection with the ~~Initial Transfer and Final Closing,~~Exchange Transaction, the Seller Trusts and Beneficient delivered to GWG Holdings 40,505,279 Common Units. These units represented an approximate 89.9% interest in the Common Units as of the Final Closing Date (although, on a fully diluted basis, GWG Holdings’ ownership interest in Common Units would be reduced significantly below a majority of those issued and outstanding). These amounts eliminate upon consolidation.

Purchase and Contribution Agreement

On April 15, 2019, Jon R. Sabes, the former Chief Executive Officer and a former director of GWG Holdings, and Steven F. Sabes, the former Executive Vice President and a former director of GWG Holdings, entered into a Purchase and Contribution Agreement (the “Purchase and Contribution Agreement”) with, among others, Ben LP. Under the Purchase and Contribution Agreement, Jon and Steven Sabes agreed to transfer all 3,952,155 of the shares of GWG Holdings’ outstanding common stock held directly or indirectly by them to BCC (a subsidiary of Ben LP) and AltiVerse Capital Markets, L.L.C. (“AltiVerse”). AltiVerse is a limited liability company owned by an entity related to Beneficient’s ~~founders,~~initial investors (the “Ben Initial Investors”), including Brad K. Heppner (GWG Holdings’ former Chairman, who served in such capacity from April 26, 2019 to June 14, 2021, and Beneficient’s current Chief Executive Officer and Chairman), and an entity related to Thomas O. Hicks (one of Beneficient’s current directors and a former director of GWG Holdings). GWG Holdings was not a party to the Purchase Agreement; however, the closing of the transactions contemplated by the Purchase and Contribution Agreement (the “Purchase and Contribution Transaction”) were subject to certain conditions that were dependent upon GWG Holdings taking, or refraining from taking, certain actions. The closing of the Purchase and Contribution Transaction occurred on April 26, 2019.

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In connection with such closing, BCC and AltiVerse executed and delivered a Consent and Joinder to the Amended and Restated Pledge and Security Agreement dated October 23, 2017 by and among GWG Holdings, GWG Life, Messrs. Jon and Steven Sabes and the Bank of Utah, which provides that the shares of GWG Holdings’ common stock acquired by BCC and

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AltiVerse pursuant to the Purchase and Contribution Agreement will continue to be pledged as collateral security for GWG Holdings’ obligations owing in respect of the L Bonds and Seller Trust L Bonds.

Promissory Note - ExAlt Trusts

On May 31, 2019, GWG Life entered into a Promissory Note (the “Promissory Note”), made by Jeffrey S. Hinkle and Dr. John A. Stahl, not in their individual capacity but solely as trustees of certain of The LT-1 LiquidTrust, The LT-2 LiquidTrust, The LT-5 LiquidTrust, The LT-7 LiquidTrust, The LT-8 LiquidTrust, and The LT-9 LiquidTrust, (collectively, the “Borrowers”). Pursuant to the terms of the Promissory Note, GWG Life funded a term loan to the Borrowers in an aggregate principal amount of $65.0 million (the “Loan”). The Loan was made pursuant to GWG’s strategy to further diversify into alternative assets (beyond life insurance) and ancillary businesses and was intended to better position Beneficient’s balance sheet, working capital and liquidity profile to satisfy anticipated Texas Department of Banking regulatory requirements. The Loan bears interest at 7.0% per annum, with interest payable at maturity, and matures on June 30, 2023. As of December 31, 2019, the Borrowers became consolidated subsidiaries of GWG Holdings as a result of the Investment Agreement (described below). Accordingly, the Promissory Note and related accrued interest, are eliminated upon consolidation as of that date.

On September 30, 2020, GWG Holdings, GWG Life, BCH, Ben LP, BCC, and the Borrowers entered into an agreement (the “Promissory Note Repayment”) by which the parties agreed to repay the Promissory Note and any related accrued interest for a $75.0 million Preferred Series C Unit Account (the “Preferred C”) of BCH that Ben LP issued to the Borrowers. The $75.0 million of Preferred C received by GWG Life was transferred to GWG Holdings upon execution of the Promissory Note conversion, which increased GWG Holdings’ ownership percentage in Ben LP. As part of the agreement, if Beneficient has not received a trust company charter as of the one-year anniversary of the Promissory Note conversion, or if no trust company charter filing is still pending or in the process of being refiled, GWG Holdings would receive an additional $5.0 million of Preferred C. The carrying value of the Promissory Note on September 30, 2020, immediately prior to the transaction, net of a fair value adjustment and with accrued and unpaid interest thereon, was $65.1 million.

Other than the required rebalancing of equity driven from the change in GWG Holding’s ownership percentage, any impacts of the Promissory Note conversion are eliminated upon consolidation.

The Investment and Exchange Agreements

On December 31, 2019, GWG Holdings obtained control over Ben LP ~~BCH, and Beneficient Management entered into~~pursuant to a Preferred Series A Unit Account and Common Unit Investment Agreement, by and among GWG Holdings, Ben LP, BCH, and Beneficient Management (the “Investment Agreement”)., which resulted in the consolidation of GWG Holdings and Ben LP for accounting and financial reporting purposes.

Pursuant to the Investment Agreement, GWG Holdings transferred $79.0 million to Ben LP in return for 666,667 Common Units and a Preferred Series A Subclass 1 Unit Account of BCH.

In connection with the Investment Agreement, GWG Holdings obtained the right to appoint a majority of the board of directors of Beneficient Management, the general partner of Ben LP. As a result, GWG Holdings obtained control of Ben LP and began reporting the results of Ben LP and its subsidiaries on a consolidated basis beginning on the transaction date of December 31, 2019. ~~See Note 4 for~~For more details on the accounting for the ~~consolidation.~~consolidation, refer to the Company’s Annual Report on Form 10-K for the year ended December 31, 2020, filed with the SEC on November 5, 2021 (“2020 Form 10-K”). GWG Holdings’ right to appoint a majority of the board of directors of Beneficient Management will terminate in the event (i) GWG Holdings’ ownership of the fully diluted equity of Ben LP (excluding equity issued upon the conversion or exchange of Preferred Series A Unit Accounts of BCH held as of December 31, 2019 by parties other than GWG Holdings) is less than 25%, (ii) the Continuing Directors of GWG Holdings cease to constitute a majority of the board of directors of GWG Holdings, or (iii) certain bankruptcy events occur with respect to GWG Holdings. The term “Continuing Directors” means, as of any date of determination, any member of the board of directors of GWG Holdings who: (1) was a member of the board of directors of GWG Holdings on December 31, 2019; or (2) was nominated for election or elected to the board of directors of GWG Holdings with the approval of a majority of the Continuing Directors who were members of the board of directors of GWG Holdings at the time of such nomination or election.

Following the transaction, and as agreed upon in the Investment Agreement, GWG Holdings was issued an initial capital account balance for the Preferred Series A Subclass 1 Unit Account of $319.0 million. The other holders of the Preferred Series

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A Subclass 1 Unit Accounts are ~~principally~~ an entity related to the ~~founders of~~ Ben LPInitial Investors and an entity related to one of ~~the~~Beneficient’s directors who is also a former director of ~~both~~ GWG Holdings ~~and Beneficient~~ (the “Related Account Holders”)~~, and~~. The parties to the Investment Agreement agreed that the aggregate capital accounts of all holders of the Preferred Series A Subclass 1 Unit Accounts after giving effect to the investment by GWG Holdings was $1.6 billion. GWG Holdings’ Preferred Series A Subclass 1 Unit Account is the same class of preferred security as held by the Related Account Holders. If the Related Account Holders exchange their Preferred Series A Subclass 1 Unit Accounts for securities of GWG Holdings, the Preferred Series A Subclass 1 Unit Account of GWG Holdings ~~will also convert~~would be converted into Common Units (so neither GWG Holdings nor the founders would hold Preferred Series A Subclass 1 Unit Accounts).

Also, on December 31, 2019, in a transaction related to the Investment Agreement, GWG Holdings transferred its interest in the Preferred Series A Subclass 1 Unit Account to its ~~wholly-owned~~wholly owned subsidiary, GWG Life.

In addition, on December 31, 2019, GWG Holdings, Ben LP and the holders of Common Units entered into an Exchange Agreement (the “Exchange Agreement”) pursuant to which the holders of Common Units from time to time have the right, on a quarterly basis, to exchange their Common Units for common stock of GWG Holdings. The exchange ratio in the Exchange Agreement is based on the ratio of the capital account associated with the Common Units to be exchanged to the market price of GWG ~~Holdings~~Holdings’ common stock based on the volume weighted average price of GWG ~~Holdings~~Holdings’ common stock for the five consecutive trading days prior to the quarterly exchange date. The Exchange Agreement is intended to facilitate the marketing of Ben LP’s products to holders of alternative assets.

Preferred Series C Unit Purchase Agreement

On July 15, 2020, GWG Holdings entered into a Preferred Series C Unit Purchase Agreement (“UPA”) with Ben LP and BCH. The UPA was reviewed and approved by the then constituted independent Special Committee of the Board of Directors of GWG Holdings.

Pursuant to the UPA, and provided it has adequate liquidity, GWG Holdings has agreed to make capital contributions from time to time to BCH in exchange for Preferred Series C Unit ~~accounts~~Accounts of BCH during a purchasing period commencing on the ~~Effective Date~~date of the UPA and continuing until the earlier of (i) the occurrence of a Change of Control Event (as defined below) and (ii) the

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~~(unaudited)~~

mutual agreement of the parties (the “Purchasing Period”). A “Change of Control Event” shall mean (A) the occurrence of an event that results in GWG Holdings’ ownership of the fully diluted equity of ~~Beneficient~~Ben LP is less than 25%, the Continuing Directors (as defined below) of GWG Holdings cease to constitute a majority of the board of directors of GWG Holdings, or certain bankruptcy events occur with respect to GWG Holdings, and (B) the listing of Common Units on a national securities exchange (a “Public Listing”). The term “Continuing Directors” means, as of any date of determination, any member of the board of directors of GWG Holdings who: (1) was a member of the board of directors of GWG Holdings on December 31, 2019; or (2) was nominated for election or elected to the board of directors of GWG Holdings with the approval of a majority of the Continuing Directors who were members of the board of directors of GWG Holdings at the time of such nomination or election.

If, on or prior to the end of the Purchasing Period, a Public Listing occurs, the BCH Purchased Units shall be automatically exchanged for Common Units, or another unit of ~~Beneficient,~~Ben LP, as the parties may mutually agree (the “Beneficient Units”), at the lower of (i) the volume-weighted average of the Beneficient Units for the 20 trading days following the Public Listing, and (ii) $12.75.

In addition, at any time following the Effective Date, all or some of the Preferred Series C Unit Accounts purchased under the UPA may be exchanged for Beneficient Units at the option of ~~the Company~~GWG Holdings (exercised by ~~its Special Committee~~a special committee of the Board of Directors or, if such committee is no longer in place, the appropriate governing body of ~~the Company)~~GWG Holdings); provided that, if ~~Company~~GWG Holdings exchanges less than all of the Preferred Series C Unit Accounts purchased under the UPA, then, immediately after giving effect to such exchange, ~~the Company~~GWG Holdings shall be required to continue to hold Preferred Series C Unit Accounts with a capital account that is at least ~~$10~~$10.0 million. The exchange price for such Beneficient Units shall be determined by third-party valuation agents selected by GWG Holdings and Beneficient.

Contribution and Exchange Agreement

On September 30, 2020, certain of the ExAlt Trusts (collectively, the “Participating ExAlt Trusts”) at the sole direction of John A. Stahl, independent trustee of each such trust, with the intention of protecting the value of certain assets of the Participating ExAlt Trusts underlying part of the Collateral portfolio, the Participating ExAlt Trusts entered into that certain Contribution and

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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)

Exchange Agreement with certain of the Seller Trusts, (collectively, the “Participating Exchange Trusts”), each of which entered into such agreement at the direction of its applicable trust advisor and by and through its applicable corporate trustee (the “Contribution and Exchange Agreement). Under the Contribution and Exchange Agreement, the Participating Exchange Trusts agreed to exchange 9,837,264 shares of GWG Holdings’ common stock valued at $84.6 million, 543,874 shares of Common Units valued at $6.8 million, and GWG Holdings’ L Bonds due 2023 in the aggregate principal amount of $94.8 million to the Participating ExAlt Trusts for $94.3 million in net asset value of the alternative asset investments held by the Participating ExAlt Trusts. This transaction (the “Collateral Swap”) resulted in GWG Holdings, after the effects of eliminations upon consolidation, recognizing an additional $42.9 million of treasury stock, $3.4 million of additional noncontrolling interest, and $46.8 million of a capital contribution from a related party.

The Exchange Transaction, the Purchase and Contribution Transaction, the Promissory Note, the Investment and Exchange Agreements, the UPA, and the ~~UPA,~~Collateral Swap, are referred to collectively as the “Beneficient ~~Transactions”.~~Transactions.”

Going Concern

To meet the Company’s future capital needs, the Company may need to raise additional debt or equity financing. While the Company has historically been able to raise additional capital through issuance of debt and/or equity, the Company cannot guarantee that it will be able to secure additional financing or will otherwise be able to meet is ongoing obligations. These factors, in combination with the potential NASDAQ delisting and our current inability to sell L Bonds as discussed below under the heading “Liquidity and Capital Resources”, our significant recurring losses from operations, negative cash flows from operations, delays in executing our business plans, and any potential negative outcome from the ongoing SEC investigation discussed in Note 15 to these condensed consolidated financial statements, raise substantial doubt about the Company’s ability to continue as a going concern within one year after these financial statements are issued.

The accompanying condensed consolidated financial statements have been prepared on a going concern basis, which contemplates the realization of assets and the satisfaction of liabilities in the normal course of business. The condensed consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty.

Liquidity and Capital Resources

As of June 30, 2021, we had cash, cash equivalents and restricted cash of $91.5 million. We generated net losses attributable to common shareholders of $119.3 million and $71.6 million for the six months ended June 30, 2021 and 2020, respectively. As of October 15, 2021, we had cash, cash equivalents, and restricted cash of approximately $54.3 million. Besides funding operating expenditures, we are obligated to pay other items such as interest payments and debt maturities, and preferred stock dividends and redemptions.

We have historically financed our businesses primarily through a combination of L Bond sales, preferred stock sales, the LNV Credit Facility, and the NF Credit Facility. We have also financed our business through proceeds from life insurance policy benefit receipts, cash distributions from the ExAlt Trusts’ alternative asset portfolio, dividends and interest on investments, and Beneficient’s debt due to related parties. We have traditionally used proceeds from these sources for policy acquisition, policy premiums and servicing costs, working capital and financing expenditures including paying principal, interest and dividends. We have also used proceeds to allocate capital to Beneficient; however, if Ben LP becomes an independent company per the Term Sheet discussed above and in Note 17,the Company expects that Ben LP would reduce its reliance on GWG Holdings to fund its operations and would raise future capital from other sources. Ben LP’s capital raising efforts and participation in liquidity transactions may include the issuance of equity or debt of Ben LP or one of its subsidiaries, and the newly issued securities may be dilutive to GWG Holdings’ and GWG Life’s investments in Ben LP and BCH and may include preferential terms relative to GWG Holdings’ and GWG Life’s investments in Ben LP and BCH, as applicable.

We currently fund our business primarily with debt that generally has a shorter duration than the duration of our long-term assets. The resulting asset/liability mismatch can result in a liquidity shortfall if we are unable to renew maturing short term debt or secure suitable additional financing. In such a situation, we could be forced to sell assets at less than optimal (distressed) prices. Substantially all of our life insurance policies are pledged as collateral under the LNV Credit Facility and the NF Credit Facility and we would not be able to dispose of them without compliance with the terms of those credit facilities. We heavily rely on GWG Holdings’ L Bond offering to fund our business operations, including, among other things, interest and principal payments on the existing L Bonds and capital allocations to Beneficient. We temporarily suspended the offering of GWG

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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)

Holdings’ L Bonds, commencing April 16, 2021, as a result of our delay in filing certain periodic reports with the SEC, including this Quarterly Report on Form 10-Q, and were required to seek alternative sources of capital.

As a result of the suspension of GWG Holdings’ L Bond offering, on June 28, 2021, we pledged additional life insurance policies as collateral and received an additional advance of $51.2 million under the Third LNV Credit Facility. Subsequently, on August 11 2021, we received a one-time advance of $107.6 million under the NF Credit Facility as described above. Approximately $56.7 million of such advanced amount was used to pay off the remaining amount due, including interest and penalties, under the Third LNV Credit Facility and the additional pledged life insurance policies used as collateral for the Third LNV Credit Facility were released and pledged under the NF Credit Facility. Further, on September 7, 2021, DLP IV entered into the Fourth LNV Credit Facility, that replaced the aforementioned Third LNV Credit Facility. The Fourth LNV Credit Facility resulted in an additional advance of $30.3 million from LNV Corporation, with no additional pledged collateral. All of the aforementioned transactions that occurred subsequent to June 30, 2021, are described in more detail in Note 17.

Primarily due to the current suspension of GWG Holdings’ L Bond offering, the Company may require additional capital to continue its operations over the next twelve months if our ability to sell L Bonds dissipates, or if we are forced to suspend the L Bond offering. However, the Company may not be able to obtain additional borrowings under existing debt facilities or new borrowings with other third-party lenders. To the extent that GWG Holdings or its subsidiaries raise additional capital through the future issuance of debt, the terms of those debt securities may include terms that adversely affect the rights of our existing debt and/or equity holders or involve negative covenants that restrict GWG Holdings’ ability to take specific actions, such as incurring additional debt or making additional investments in growing the operations of the Company. If GWG Holdings is unable to fund its operations and other obligations, or defaults on its debt, then the Company will be required to either i) sell assets to provide sufficient funding, ii) exercise our right to decline requests for early L Bond redemptions or redemptions of preferred stock, or iii) to raise additional capital through the sale of equity and the ownership interest of our equity holders may be diluted. Substantially all of our life insurance policies are pledged as collateral under the LNV Credit Facility and the NF Credit Facility and we would not be able to dispose of them without compliance with the terms of those credit facilities.

We anticipate recommencing the offering of GWG Holdings’ L Bonds once we become current with our filing obligations and satisfy applicable NASDAQ listing requirements. Once we become current with our filing obligations with respect to the L Bonds, we may be limited in the origination channels in which we sell our L Bonds in the event that we are unable to meet the applicable NASDAQ listing requirements in a timely manner, which could result in the L Bonds no longer being “covered securities” for federal securities law purposes which would subject the offer and sale of L Bonds to potentially extensive state “blue sky” securities law requirements. If for any reason we are forced to suspend GWG Holdings’ L Bond offering, are limited in our origination channels in which we sell our L Bonds, or demand for GWG Holdings’ L bonds dissipates, our business would be adversely impacted and our ability to service and repay our debt obligations, much of which is short term, would be compromised, thereby negatively affecting our business prospects and viability.

Beneficient is obligated to make debt payments totaling $75.5 million on certain outstanding borrowings through May 30, 2022 under the terms of the Amendment No. 1 to the Second Amended and Restated Credit Agreements as discussed in more detail in Note 9. Primarily due to both the forthcoming debt payments under the Credit Agreement and Second Lien Credit Agreement and the anticipated deconsolidation of Beneficient from GWG Holdings as discussed above and in Note 17, which is expected to result in reduced reliance by Beneficient on GWG Holdings to fund its operations, Beneficient will require additional liquidity to continue its operations over the next twelve months. We expect Beneficient to satisfy these obligations and fund its operations through anticipated operating cash flows, proceeds from distributions on the alternative assets portfolio, additional investments into Beneficient by GWG Holdings and/or other parties and, potentially refinancing with other third-party lenders some or all of the existing borrowings due prior to their maturity. Beneficient is currently in the process of raising additional equity, which is anticipated to close during the fourth quarter of 2021 and/or the first quarter of 2022.

Beneficient may not be able to refinance or obtain additional financing on terms favorable to the Company, or at all. To the extent that Beneficient raises additional capital through the future sale of equity or debt, the ownership interest of its existing equity holders may be diluted. The terms of these future equity or debt securities may include liquidation or other preferences that adversely affect the rights of its existing equity unitholders or involve negative covenants that restrict Beneficient’s ability to take specific actions, such as incurring additional debt or making additional investments in growing its operations. If Beneficient defaults on these borrowings, then it will be required to either i) sell assets to repay these loans or ii) to raise additional capital through the sale of equity and the ownership interest of our equity holders may be diluted. Moreover, if Beneficient were to sell assets to avoid a default of these borrowings, then the price at which Beneficient sold such assets may

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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)

not reflect the carrying value of those assets as reflected in our condensed consolidated financial statements, especially in the event of a bulk or distressed sale.

On November 11, 2019, GWG Holdings contributed the common stock and membership interests of its then wholly-owned FOXO Labs and FOXO Life subsidiaries to FOXO in exchange for a membership interest in the entity. On November 13, 2020, FOXO BioScience LLC converted to a corporation and is now known as FOXO Technologies Inc. With the corporate conversion, GWG Holdings’ previous membership interest in the LLC converted to preferred equity. As of June 30, 2021, GWG Holdings was committed to contribute an additional $1.3 million to FOXO, all of which was contributed by October 2021.

(2) Summary of Significant Accounting Policies

Restatement — The Company restated its previously issued (i) consolidated balance sheet as of December 31, 2019, included in its Annual Report on Form 10-K for the year ended December 31, 2019 and (ii) the consolidated statement of operations, (iii) the consolidated statement of changes in stockholders’ equity, and (iv) the consolidated statement of cash flows for the year ended December 31, 2019, included in its Annual Report on Form 10-K for the year ended December 31, 2019, (the “Restatement”) as part of its 2020 Form 10-K. The Restatement also impacted each of the quarters for the periods beginning with GWG Holdings, Inc.’s consolidation with The Beneficient Company Group, L.P. (“Ben LP,” including all of the subsidiaries it may have from time to time — “Beneficient”) as of December 31, 2019 through the quarter ended September 30, 2020.

The historical interim periods included in this Form 10-Q have been restated to reflect the Restatement.

Basis of Presentation — The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with the U.S. Securities and Exchange Commission (“SEC”) requirements for interim reporting, which allows certain footnotes and other financial information normally required by Generally Accepted Accounting Principles in the United States of America (“GAAP”) to be condensed or omitted. In our opinion, the condensed consolidated financial statements contain all adjustments (consisting of only normal recurring adjustments) necessary for the fair presentation of the Company’s financial position and results of operations. These statements should be read in conjunction with the consolidated financial statements and notes included in our ~~Annual Report on~~2020 Form ~~10-K for the year ended December 31, 2019, filed with the SEC on March 27, 2020 (“2019 Form 10-K”).~~10-K. The results of operations for interim periods are not necessarily indicative of the results to be expected for the full year.

Significant accounting policies are detailed in Note 2 to the consolidated financial statements included in the Company’s ~~2019~~2020 Form 10-K. ~~Summarized below~~There are ~~those~~no new or revised significant accounting policies ~~including those that resulted from the consolidation~~as of ~~Beneficient on December 31, 2019.~~June 30, 2021.

Use of Estimates — The preparation of ~~the Company’s~~our condensed consolidated financial statements in conformity with GAAP requires management to make significant estimates and assumptions affecting the reported amounts of assets and liabilities at the date of the condensed consolidated financial statements, as well as the reported amounts of revenue during the reporting period. Management regularly evaluates estimates and assumptions, which are based on current facts, historical experience, management’s judgment, and various other factors that we believe to be reasonable under the circumstances. ~~Actual~~Our actual results may differ materially and adversely from our estimates. Material estimates that are particularly susceptible to change, in the near term, relate to: ~~the determination of the fair values of assets acquired, liabilities assumed and noncontrolling interests under business combinations accounting guidance; the determination of~~(1) determining the assumptions used in estimating the fair value of our investments in life insurance ~~policies;~~policies, (2) determining the grant date fair value for equity-based compensation ~~awards;~~awards, (3) determining ~~our allowance for loan losses;~~the allocation of income (loss) to Beneficient’s equity holders, and (4) evaluation of potential impairment of goodwill and other ~~intangibles;~~intangibles.

As it relates to the goodwill intangible asset, in light of Beneficient’s significant recurring losses from operations, negative cash flows from operations, and delays in executing its business plans, management plans to engage a third-party valuation firm to assist in performing a quantitative goodwill impairment test in the fourth quarter of 2021. The valuation work related to the goodwill intangible is not complete, and we expect the work to be completed before the filing of our 2021 annual financial statements. While management has implemented strategies to execute its business plans, a failure to execute our business plans or adverse market changes in the future could result in changes in management’s forecasts, which could result in a decline in estimated fair value of the Beneficient reporting unit and would result in an impairment of our ~~deferred tax assets~~goodwill intangible. Key assumptions in our quantitative goodwill impairment test include assumptions regarding Ben LP’s ability to raise substantial amounts of capital as disclosed in the 2020 Form 10-K. Beneficient is actively engaged in capital raising efforts that may include the issuance of equity or debt of Ben LP or one of its subsidiaries and ~~liabilities.~~has received non-binding indications of interest from potential investors. The outcome of Ben LP’s capital raising efforts will have a direct impact on management’s forecasts

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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)

~~Loans Receivable~~ — Loans are recorded at their fair value at the acquisition date, change-of-control date, or other liquidation event. Credit discounts are included in the determination of fair value; therefore, an allowance for loan losses is not recorded as of the date of valuation. Purchased loans are evaluated upon acquisition and ~~classified as either purchased credit impaired (“PCI”) or non-purchased credit impaired (“non-PCI”).~~

PCI loans reflect credit deterioration since origination such that it is probable as of the date of valuation that Beneficient will be unable to collect all contractually required payments. For PCI loans, expected cash flows as of the date of valuation in excess of the fair value of loans are recorded as interest income over the life of the loans using a level yield method if the timing and amount of the future cash flows is reasonably estimable. Subsequently, increases in cash flows over those expected at the acquisition date are recognized prospectively as interest income. Decreases in expected cash flows due to credit deterioration are recognized by recording an allowance for loan loss. Beneficient does not report PCI loans as nonperforming due to the accretion of interest income.

For non-PCI loans, the difference between the fair value and unpaid principal balance (“UPB”) of the loan as of the date of valuation, referred to as a purchase premium or discount, is amortized or accreted to interest income over the contractual life of the loans using the effective interest method. In the event of prepayment, the remaining unamortized amount is recognized in interest income.

Impaired loans include non-accrual loans and partially charged-off loans. The accrual of interest on impaired loans is discontinued when, in management’s opinion, doubt exists about the full collectability of principal and interest. When a loan is placed on non-accrual status, all previously accrued and unpaid interest is charged against income. If the ultimate collectability of principal, wholly or partially, is in doubt, any payment received on a loan on which the accrual of interest has been suspended is applied to reduce principal first. Once all principal has been received, additional interest payments are recognized on a cash basis as interest income. Loans are returned to accrual status once collection of contractually required principal and interest is reasonably assured. At such time, the accrual of interest and amortization of any remaining discount shall resume. Any interest income that was applied to the principal balance is not reversed and is subsequently recognized as an adjustment to yield over the remaining life of the loan.

~~Allowance for Loan Losses~~ — The allowance for loan losses is a valuation allowance for probable incurred credit losses in the portfolio. Management’s determination of the allowance is based upon an evaluation of the loan portfolio, impaired loans, economic conditions, volume, growth and composition of the collateral to the loan portfolio, and other risks inherent in the portfolio. Management applies risk factors to categories of loans and individually reviews all impaired loans above a de minimis threshold. Management relies heavily on statistical analysis, current net asset value (“NAV”) and distribution performance of the underlying alternative asset collateral and industry trends related to alternative asset investments to estimate losses. Management evaluates the adequacy of the allowance by reviewing relevant internal and external factors that affect credit quality. The cash flows generated from the collateral are the sole source of repayment of the loans and related interest. Beneficient recognizes the charge-off in the period in which it is confirmed. Therefore, impaired loans are written down to their estimated net present value.

~~Goodwill and Identifiable Intangible Assets~~—Goodwill and other identifiable intangible assets are initially recorded at their estimated fair values at the date of acquisition. Goodwill and other intangible assets having an indefinite useful life are not amortized for financial statement purposes. In the event that facts and circumstances indicate that the goodwill or other identifiable intangible assets may be impaired, an interim impairment test would be required. Intangible assets with finite lives are amortized over their useful lives. We perform required annual impairment tests of our goodwill and other intangible assets as of October 1 for our reporting units.

The goodwill impairment test requires us to make judgments and assumptions. The test consists of estimating the fair value of each reporting unit based on valuation techniques, including a discounted cash flow model using revenue and profit forecasts and recent industry transaction and trading multiples of our peers, and comparing those estimated fair values with the carrying values of the assets and liabilities of each reporting unit, which includes the allocated goodwill. If the estimated fair value is less than the carrying value, we will recognize an impairment charge for the amount by which the carrying amount exceeds the reporting unit’s fair value; however, any loss recognized will not exceed the total amount of goodwill allocated to that reporting unit.

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~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS~~

~~(unaudited)~~

~~necessary that could~~consequently, have a ~~materially adverse~~direct impact on ~~our results~~the magnitude of ~~operations~~future goodwill intangible impairment losses, if any. The outcome of Ben LP’s capital raising efforts is uncertain, and ~~financial condition in the period in which the write-off occurs.~~

~~Equity-Based Compensation~~ — The Company measures and recognizes compensation expense for all equity-based payments at fair value on the grant date over the requisite service period. GWG Holdings uses the Black-Scholes option pricing model to determine the fair value of stock options and stock appreciation rights. For restricted stock grants (including restricted stock units), fair value is determined as of the closing price of GWG Holdings’ common stock on the date of grant. As it is not ~~publicly traded, Beneficient uses various methods to determine~~certain that the ~~grant date fair value~~potential investors that have submitted non-binding indications of ~~its equity-based compensation awards, as more fully described~~interest ultimately will invest in ~~Note 12.~~

~~Equity-based compensation expense is recorded~~Ben LP, or the amount of any such investments. As a result, our quantitative goodwill intangible impairment analysis, once complete, could result in ~~employee compensation and benefits~~material goodwill intangible impairment in the condensed consolidated statements of operations. The determination of fair value of equity-based payment awards on the date of grant is affected by our stock price and a number of subjective variables. These variables include, but are not limited to, the expected stock price volatility over the term of the awards, the expected duration of the awards, the results of a probability-weighted discounted cash flow analysis and observable transactions. We account for the effects of forfeitures as they occur.

The risk-free interest rate is based on the U.S. Treasury rates at the date of grant with maturity dates approximately equal to the expected life at grant date. Volatility is based on the standard deviation of the average continuously compounded rate of return of five selected companies.

~~Earnings (Loss) per Common Share~~ — Basic earnings (loss) per share attributable to common shareholders are calculated using the weighted-average number of shares outstanding during the reported period. Diluted earnings (loss) per share are calculated based on the potential dilutive impact of our redeemable preferred stock (“RPS”), Series 2 redeemable preferred stock (“RPS 2”), restricted stock units, warrants (if applicable) and stock options.

Net earnings, less any preferred dividends accumulated for the period (whether or not declared), is allocated to common stock. Basic earnings per common share is computed by dividing net earnings available to common stockholders by the weighted average number of common shares.

Diluted earnings per common share is computed in a similar manner, except that the denominator is increased to include the number of additional common shares that would have been outstanding if potentially dilutive common shares were issued using the treasury stock method in the case of restricted stock units, warrants and options, or the if-converted method in the case of RPS and RPS 2. Our dilution calculation also takes into account the weighted average number of shares of a subsidiary that are exchangeable for shares of GWG Holdings common stock.near future.

Reclassification — Certain prior year amounts have been reclassified for consistency with the current year presentation. Specifically, our equity method investment in FOXO as of December 31, 2019, was reclassified to other assets in the condensed consolidated balance sheets to maintain consistency with the current year presentation. This reclassification had no effect on the reported results of operations.

~~Additionally,~~ payments for issuances of L Bonds were previously combined with payments for redemptions of L Bonds in the condensed consolidated statements of cash flows. These payments are now presented separately within the cash flows from financing activities section. This change had no effect on the reported net cash flows provided by financing activities. Additionally, amortization of debt premiums were previously presented separately. This is now combined with amortization of deferred financing and issuance costs. This change had no effect on the reported net cash flows used by operating activities.

Newly Adopted Accounting Pronouncements — InOn January ~~2017, the Financial Accounting Standards Board (“FASB”) issued~~1, 2021, we adopted Accounting Standards Update (“ASU”) No. ~~2017-04,~~2019-12, ~~Goodwill,~~Income Taxes: Simplifying the Accounting for Income Taxes (Topic ~~350)~~740). ~~This standard~~The amendments in ASU 2019-12 eliminate certain exceptions related to the approach for intraperiod tax allocation, the methodology for calculating income taxes in an interim period and the recognition of deferred tax liabilities for outside basis differences. ASU 2019-12 also clarifies and simplifies how an entity is required to test goodwill for impairment by eliminating Step 2 from the goodwill impairment test. Step 2 measures a goodwill impairment loss by comparing the implied fair value of a reporting unit’s goodwill with the carrying amount of that goodwill. Under the new guidance, goodwill impairment loss will be measured on the basisother aspects of the ~~fair value~~accounting for income taxes. The adoption of the reporting unit relative to the reporting unit’s carrying amount rather than on the basis of the implied amount of goodwill relative to the goodwill balance of the reporting unit. ASU 2017-04 is effective for annual periods beginning after December 15, 2019, including interim periods within those periods, for public business entities. The Company adopted this ~~ASU on January 1, 2020, and the adoption~~standard did not have a material impact on ~~its condensed~~the consolidated financial statements and ~~related~~ disclosures.

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~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS~~

~~(unaudited)~~

~~In August 2018, the FASB issued ASU No. 2018-13,~~ ~~Fair Value Measurement (Topic 820): Disclosure Framework — Changes to the Disclosure Requirements for Fair Value Measurement~~, which eliminates, adds and modifies certain disclosure requirements for fair value measurements. The guidance is effective for fiscal years and interim periods beginning after December 15, 2019. Certain of the amendments require prospective application, while the remainder require retrospective application. The Company adopted this ASU on January 1, 2020, and it did not have a material impact on its condensed consolidated financial statements and related disclosures.

In March 2020, the SEC amended Regulation S-X to create Rules 13-01 and 13-02. These new rules reduce and simplify financial disclosure requirements for issuers and guarantors of registered debt offerings. Previously, with limited exceptions, a parent entity was required to provide detailed disclosures with regard to guarantors of registered debt offerings within the footnotes to the consolidated financial statements. Under the new regulations, disclosure exceptions have been expanded and required disclosures may be provided within~~Item 2.~~ ~~Management’s Discussion and Analysis of Financial Condition and Results of Operations~~ rather than in the notes to the financial statements. Further, summarized financial information covering guarantor balance sheets and income statements are permitted, replacing the previously required condensed consolidating financial statements. Summarized financial information only needs be disclosed for the current fiscal year rather than all years presented in the financial statements as was previously required. The amendments were subsequently included in the FASB codification through the issuance of ASU No. 2020-09, ~~Debt (Topic 470)~~ in October 2020. The guidance will become effective for filings on or after January 4, 2021, with early adoption permitted. The Company elected to early adopt the new regulations during the second quarter of 2020. Our summarized guarantor financial information is now presented in Item 2. ~~Management’s Discussion and Analysis of Financial Condition and Results of Operations.~~

Accounting Pronouncements Issued But Not Yet Adopted — In June 2016, the ~~FASB~~Financial Accounting Standards Board (“FASB”) issued ASU No. 2016-13, Financial Instruments—Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments, which changes the impairment model for most financial assets and certain other instruments, including trade and other receivables, held-to-maturity debt securities and loans. There have been numerous codification improvements and technical corrections issued through subsequent ASUs since the issuance of ASU No. 2016-13. The standard requires entities to use a new, forward-looking “expected loss” model that is expected to generally result in the earlier recognition of allowances for losses. The guidance is effective for annual periods beginning after December 15, 2022, including interim periods within those years, for smaller reporting companies, as defined by the SEC, but early adoption is permitted. The Company is evaluating the potential impact of this guidance on our consolidated financial statements.

ASU ~~2019-12,~~ ~~Income Taxes: Simplifying the Accounting for Income Taxes (Topic 740),~~ was issued in December 2019. The amendments in ASU 2019-12 eliminate certain exceptions related to the approach for intraperiod tax allocation, the methodology for calculating income taxes in an interim period and the recognition of deferred tax liabilities for outside basis differences. ASU 2019-12 also clarifies and simplifies other aspects of the accounting for income taxes. ASU 2019-12 is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2020, for public business entities. Early adoption is permitted, including adoption in any interim period. The Company is evaluating the impact of this ASU on its consolidated financial statements and disclosures.

~~ASU~~ 2020-04, Reference Rate Reform (Topic 848) was issued in March 2020. The amendments in ~~ASU 2020-04~~Topic 848 provide optional expedients and exceptions for applying GAAP to contracts, hedging relationships, and other transactions affected by reference rate reform if certain criteria are met. ~~ASU 2020-04~~Topic 848 can be applied by all entities as of the beginning of the interim period that includes March 12, 2020, or any date thereafter, and entities may elect to apply the amendments prospectively through December 31, 2022. The Company did not utilize the optional expedients and exceptions provided by this standard during the six months ended June 30, 2021. The Company is evaluating the impact of this ~~ASU~~standard on its consolidated financial statements and disclosures.

ASU 2020-06, Debt—Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging—Contracts in Entity’s Own Equity (Subtopic 815-40): Accounting for Convertible Instruments and Contracts in an Entity’s Own Equity (ASU 2020-06) was issued in August 2020. The amendments in ASU 2020-06 simplify the accounting for convertible instruments by removing major separation models and removing certain settlement condition qualifiers for the derivatives scope exception for contracts in an entity’s own equity, and simplify the related diluted net income per share calculation for both Subtopics. ASU 2020-06 is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2023, for smaller reporting companies, as defined by the SEC. ~~Early adoption is permitted, but no earlier than fiscal years beginning after December 15, 2020, including interim periods within those fiscal years.~~ The Company is evaluating the impact of this ASU on its consolidated financial statements and disclosures.

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(3) Restrictions on Cash

Under the terms of ~~our~~the second amended and restated senior credit facility with LNV Corporation ~~(“LNV~~(as amended from time to time, “LNV Credit Facility”, discussed further in Note ~~10)~~9), we are required to maintain collection and payment accounts that are used to collect policy benefits from pledged policies, pay annual policy premiums, interest and other charges under the facility, distribute funds to pay down the facility, and distribute excess funds to the borrower (GWG DLP Funding IV, LLC).

The agents for the lender authorize the disbursements from these accounts. At ~~September~~June 30, ~~2020~~2021 and December 31, ~~2019,~~2020, there was a balance of ~~$16.0~~$17.0 million and ~~$20.3~~$33.5 million, respectively, in these collection and payment accounts.

~~(4) Business Combination~~

~~Prior to December 31, 2019, GWG Holdings owned 41,505,279 Common Units, for a total limited partnership interest in~~Under the ~~Common Units~~terms of approximately 90.2%. This investment was historically accounted for using the equity method (see Note 8). On December 31, 2019, GWG Holdings entered into the Investment Agreement and Exchange Agreement as described in Note 1.

Pursuant to the Investment Agreement, GWG Holdings transferred $79.0 million to Ben LP in return for 666,667 additional Common Units and a Preferred Series A Subclass 1 Unit Account of BCH, which increased GWG Holdings’ ownership of Common Units to approximately 95.5%. Also, on December 31, 2019, in a transaction related to the Investment Agreement, GWG Holdings transferred its interest in the Preferred Series A Subclass 1 Unit Account to its wholly-owned subsidiary, GWG Life. In connection with the Investment Agreement, GWG Holdings obtained the right to appoint a majority of the board of directors of Beneficient Management, the general partner of Ben LP. As a result, GWG Holdings obtained control of Ben LP, resulting in the consolidation of Ben LP as of December 31, 2019, in accordance with ASC 805, ~~Business Combinations~~.

As a result of the change-of-control, GWG Holdings was required to remeasure its existing equity investment at fair value prior to consolidation. At December 31, 2019, GWG Holdings’ equity investment in Common Units had a carrying value of $368.6 million, prior to the additional investment noted above. GWG Holdings estimated the fair value of its preexisting investment in Ben LP to be approximately $622.5 million, resulting in the recognition of a gain, which is provisional, of $253.9 million during the fourth quarter of 2019. This gain was included in gain on consolidation of equity method investment in the Company’s consolidated statement of operations for the year ended December 31, 2019. This gain was partially offset by the remeasurement to fair value of the Commercial Loan Agreement between GWG Life and Ben LP and the Option Agreement between GWG Holdings and Ben LP, which resulted in a net loss of $4.2 million. The net gain on consolidation of equity method investment after remeasurement of these preexisting balances was $249.7 million. GWG Holdings’ proportionate share of the earnings or losses from Ben LP was recognized in earnings (loss) from equity method investment in the consolidated statement of operations from August 10, 2018 until December 31, 2019 (see Note 8 for further information) and was previously recorded on a one-quarter lag basis. In connection with the consolidation of Beneficient, the one-quarter lag was discontinued.

~~Table Of Contents~~

~~GWG HOLDINGS, INC. AND SUBSIDIARIES~~

~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS~~

~~(unaudited)~~

~~The following table summarizes the fair value measurement of the assets acquired and liabilities assumed (in thousands):~~

Fair Value at Acquisition Date
Measurement Period Adjustments(1)
Adjusted Fair Value at Acquisition Date
ASSETS
Loans receivable(1)
$ 232,344 $ (26,116) $ 206,228
Fees receivable 29,168 — 29,168
Investment in public equity securities 24,550 — 24,550
Other assets 14,053 — 14,053
Intangible assets(2)
3,449 — 3,449
Total identifiable assets acquired 303,564 (26,116) 277,448
LIABILITIES
Other borrowings 153,086 — 153,086
Commercial loan agreement from parent 168,420 — 168,420
Other liabilities and deferred revenue 105,866 — 105,866
Accounts payable and accrued expenses 13,713 — 13,713
Total liabilities assumed 441,085 — 441,085
Net liabilities assumed (137,521) (26,116) (163,637)
NONCONTROLLING INTERESTS
Common Units not owned by GWG Holdings(3)
181,383 — 181,383
Class S Ordinary Units 85,448 — 85,448
Class S Preferred Units 17 — 17
Preferred Series A Subclass 1 Unit Accounts 1,269,654 — 1,269,654
Total noncontrolling interests 1,536,502 — 1,536,502
ACQUISITION CONSIDERATION
Cash, less cash acquired 61,479 — 61,479
Fair value of preexisting investment in Common Units(4)
622,503 — 622,503
Fair value of noncontrolling interest 1,536,502 — 1,536,502
Total estimated consideration 2,220,484 — 2,220,484
Less: Net liabilities assumed (137,521) (26,116) (163,637)
Resulting preliminary goodwill $ 2,358,005 $ 26,116 $ 2,384,121

~~(1)~~As a result of additional information obtained about the collateral value used in the valuation of the loan portfolio for certain collateral dependent loans, the Company recorded measurement period adjustments during the nine months ended September 30, 2020, which resulted in a decrease to loans receivable of $26.1 million with a corresponding adjustment to goodwill. The measurement period adjustments are comprised of $14.6 million during the three months ended March 31, 2020 and $11.5 million during the three months ended June 30, 2020.

~~(2)Includes an insurance license valued at $3.1 million and a non-compete agreement valued at $0.3 million.~~

~~(3)~~Calculated as 1,974,677 Common Units not owned by GWG Holdings at December 31, 2019, multiplied by the $15 per unit derived from the enterprise valuation of Beneficient on that date. Also includes $151.8 million of equity-based payment awards that were granted by Beneficient prior to the change in control but were not replaced by awards of GWG Holdings upon the change in control. These awards were treated as noncontrolling interests in accordance with ASC 805, ~~Business Combinations~~.

~~(4)Calculated as 41,505,279 Common Units owned by GWG Holdings prior to the change in control multiplied by the $15 per unit derived from the enterprise valuation of Beneficient.~~

~~Page 17~~

~~Table Of Contents~~

~~GWG HOLDINGS, INC. AND SUBSIDIARIES~~

~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS~~

~~(unaudited)~~

~~Methods Used to Determine Equity Value and to Fair Value Assets and Liabilities~~

The following is a description of the valuation methodologies used to estimate the fair value of equity and the fair values of major categories of assets acquired and liabilities assumed. In many cases, determining the fair value of equity and the acquired assets and assumed liabilities required management to estimate cash flows expected from those assets and liabilities and to discount those cash flows at appropriate rates of interest. This determination required the utilization of significant estimates and management judgment in accounting for the change-of-control event.

~~Loans receivable~~ — The loan portfolio was valued using current accounting guidance that defines fair value as the price that would be received to sell an asset or transfer a liability in an orderly transaction between market participants at the measurement date. Level 3 inputs were utilized to value the loan portfolio and included the use of present value techniques employing cash flow estimates and incorporated assumptions that marketplace participants would use in estimating fair values, specifically market interest rate and general credit fair value assumptions. In instances where reliable market information was not available, management used assumptions in an effort to determine reasonable fair value. There was no carryover related allowance for loan losses.

~~Cash and cash equivalents and fees receivable~~ ~~— Cash and cash equivalents and fees receivable were valued using their current carrying amounts, which approximate fair value.~~

~~Investment in public equity securities~~ — The fair value of the investments in public equity securities was determined using quoted market prices. As these were investments by Beneficient in the common stock of GWG Holdings, these amounts were eliminated in consolidation and treated as treasury stock.

~~Other assets~~ — Other assets include miscellaneous receivables that were valued using the current carrying amount as that amount approximates fair value due to the relatively short time between their origination date and the fair value date. Miscellaneous intercompany receivables were eliminated in consolidation.

~~Intangible assets~~ ~~— Intangible assets include an insurance license and a non-compete agreement. Both assets were valued using their current carrying amount, which approximates fair value.~~

~~Other borrowings and commercial loan agreement from parent~~ — The measurement of the fair value of other borrowings and Commercial Loan Agreement from parent was based on market prices that generally are observable for similar liabilities at commonly quoted intervals and is considered a level 2 fair value measurement. The Commercial Loan Agreement between Beneficient and GWG Life was eliminated in consolidation.

~~Other liabilities and deferred revenue~~ ~~— The carrying amounts of other liabilities and deferred revenue approximate their fair value. The Option Agreement between Beneficient and GWG Holdings was eliminated in consolidation.~~

~~Accounts payable and accrued expenses~~ ~~— Due to their short-term nature, the carrying amounts of accounts payable and accrued expenses approximate the fair value. Miscellaneous intercompany payables were eliminated in consolidation.~~

~~Noncontrolling interests~~ — The values for each noncontrolling interest component were calculated after determination of an overall enterprise value for the Company. The enterprise value of the Company was determined using the Option Pricing Model (“OPM”) Backsolve approach under the market method. The OPM Backsolve approach uses a Black-Scholes option pricing model to calculate the implied equity value of the firm. Once an overall equity value was determined, amounts were allocated to the various classes of equity based on the security class preferences. The inputs to the OPM Backsolve approach are the equity value for one component of the capital structure, expected time to exit, the risk-free interest rate and an assumed volatility based on the volatility of similar publicly traded companies. The OPM Backsolve estimates include Level 3 inputs.

~~Goodwill~~ — The resulting excess of the overall enterprise value after deducting the fair values of assets acquired and liabilities assumed is recognized as goodwill. The goodwill recognized is the result of the inherent value associated with the assembled business after all separately identifiable assets acquired and liabilities assumed are deducted from the enterprise value. The excess estimated enterprise value of Beneficient over the fair value of its net assets is primarily attributable to the potentially large and underserved market that Beneficient is seeking to address, including the estimated demand from HNW individuals and STM size institutions seeking liquidity for their professionally managed alternative assets. None of the goodwill is expected to be deductible for income tax purposes. The goodwill is allocated to our Beneficient reporting unit.

~~Page 18~~

~~Table Of Contents~~

~~GWG HOLDINGS, INC. AND SUBSIDIARIES~~

~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS~~

~~(unaudited)~~

The initial accounting for the estimates of equity values, which includes noncontrolling interests, the fair value of loans receivable, and any separately identifiable intangibles was based on the facts and circumstances that existed as of the acquisition date. Should management obtain new information during the measurement period, in addition to that discussed above, about facts and circumstances that existed at the acquisition date, further adjustments to the fair values assigned to these items could occur during the measurement period of up to one year from the acquisition date. Any such adjustment will result in corresponding adjustments to goodwill.

The following unaudited pro forma financial information presents the combined results of operations of GWG Holdings for the three and nine months ended September 30, 2019, as if the acquisition of Ben LP had occurred as of January 1, 2019 (in thousands, except per share data):

Three Months Ended September 30, 2019 Nine Months Ended September 30, 2019
Total Revenue
Pro forma $ 36,532 $ 123,242
As reported 22,211 71,439
Net Loss Attributable to Common Shareholders
Pro forma $ (26,761) $ (66,564)
As reported (24,635) (69,154)
Net Loss per Diluted Common Share
Pro forma $ (0.81) $ (2.02)
As reported (0.75) (2.09)

The unaudited pro forma financial information is presented for informational purposes only. It is not necessarily indicative of what our condensed consolidated results of operations actually would have been had the acquisition occurred at the beginning of each year, nor does it attempt to project the future results of operations of the combined company.

~~The unaudited pro forma financial information above gives effect to the following:~~

•~~Deconsolidation of certain Beneficient trusts included in~~ the ExAlt Plan™TM;

•~~Reduction~~ trust agreements, the trusts are required to maintain capital call reserves and administration reserves. These reserves are used to satisfy capital call obligations and pay fees and expenses for the trusts as required. The fees and expenses are primarily paid to Ben Custody Admin for serving as the administrative agent to the current trustees of ~~Beneficient interest expense related to acquisition-date debt principal payments;~~the ExAlt Trusts. These reserves represent cash held in banks. At June 30, 2021 and

•~~Elimination~~ December 31, 2020, there was a combined balance of ~~intercompany transactions, including the Commercial Loan Agreement~~$5.1 million and ~~Option Agreement.~~$5.4 million, respectively, in these reserves.

~~(5)~~(4) Investment in Life Insurance Policies

The Company’s investments in life insurance policies ~~include~~are valued based on unobservable inputs that are significant to their overall fair value. Changes in the fair value of these policies, net of premiums paid, are recorded in gain (loss) on life insurance policies, net in our condensed consolidated statements of operations. ~~Fair~~

The fair value of our life insurance policies is determined ~~on a discounted~~as the net present value of the life insurance portfolio’s future expected cash ~~flow basis~~flows (policy benefits received and required premium payments) that incorporates life expectancy ~~assumptions~~estimates obtained when the policy was purchased and current discount rate assumptions. We refer to our valuation methodology as the Longest Life Expectancy methodology. This methodology utilizes a portfolio mortality multiplier (“PMM”) that allows us to “fit” projections to actual results, which provides a basis to forecast future performance more accurately. During the second quarter of 2021, we recalculated the PMM in accordance with our valuation methodology, which requires an analysis any time (1) the six-month moving average of the difference between the actual portfolio performance and projected performance deviates by more than one standard deviation from the mean, and (2) such deviation continues as of the end of any calendar quarter after persisting for three consecutive months. The PMM recalculation resulted in a $16.4 million downward adjustment to the value of the life insurance portfolio as of June 30, 2021, as reflected in the year-to-date reconciliation of gain (loss) on life insurance policies table below.

The life expectancies used in our valuation were obtained at the time of policy purchase and are generally derived from reports obtained from widely accepted life expectancy providers (other than insured lives covered under small face amount policies — those with $1.0 million in face value benefits or less — which utilize either a single fully underwritten, or simplified report based on self-reported medical interview),. Our valuation methodology also incorporates assumptions relating to cost-of-insurance (premium) rates and other ~~assumptions.~~ assumptions, including a discount rate.

The discount rate we apply ~~incorporates~~is primarily based on information about the discount rates observed in recent portfolio purchase transactions in the life insurance ~~secondary market through competitive bidding observations (which have recently declined for us as a result of our decreased purchase activity) and other means,~~tertiary market. The discount rate also incorporates fixed income market interest rates, the estimated credit exposure to the insurance companies that issued the life insurance policies and management’s estimate of the operational risk yield premium a purchaser would require to receive the future cash flows derived from our portfolio as a whole. ~~Management has significant discretion regarding the combination of these and other factors when determining~~In prior periods, the discount ~~rate.~~rate also incorporated information about the discount rates observed in the life insurance secondary market through the Company’s internal competitive bidding to purchase policies. However, the Company discontinued the use of this input as of December 31, 2020, as it is no longer actively purchasing policies in the life insurance secondary market. The determination of the discount rate used in the valuation of the Company’s life insurance policies requires management judgment and incorporates information that is reasonably available to management as of the date of the valuation. As a result of management’s analysis, a discount rate of 8.25% was applied to our portfolio as of both ~~September~~June 30, ~~2020~~2021 and December 31, ~~2019.~~2020.

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GWG HOLDINGS, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)

Portfolio Information

Our portfolio of life insurance policies, owned by ~~our~~GWG Holdings’ subsidiaries as of ~~September~~June 30, ~~2020,~~2021, is summarized below:

Life Insurance Portfolio Summary


Total life insurance portfolio face value of policy benefits (in thousands)	Total life insurance portfolio face value of policy benefits (in thousands)	$	1,921,067		Total life insurance portfolio face value of policy benefits (in thousands)	$	1,844,466
Average face value per policy (in thousands)		$	1,777
Average face value per insured life (in thousands)	Average face value per insured life (in thousands)	$	1,913		Average face value per insured life (in thousands)	$	1,975
Weighted average age of insured (years)			82.9
Weighted average life expectancy estimate (years)			6.9
Average life expectancy estimate (years)*					Average life expectancy estimate (years)*		7.0
Total number of policies	Total number of policies		1,081		Total number of policies		1,010
Number of unique lives	Number of unique lives		1,004		Number of unique lives		934
Demographics	Demographics		74% Male; 26% Female		Demographics		74% Male; 26% Female
Number of smokers	Number of smokers		43		Number of smokers		39
Largest policy as % of total portfolio face value	Largest policy as % of total portfolio face value		0.7	%	Largest policy as % of total portfolio face value		0.7	%
Average policy as % of total portfolio face value	Average policy as % of total portfolio face value		0.1	%	Average policy as % of total portfolio face value		0.1	%
Average annual premium as % of face value	Average annual premium as % of face value		3.7	%	Average annual premium as % of face value		4.0	%

(*) Averages presented in the table are weighted averages by face amount of policy benefits.

A summary of our policies organized according to their estimated life expectancy dates, grouped by year, as of the reporting date, is as follows (dollars in thousands):


		As of September 30, 2020					As of December 31, 2019						As of June 30, 2021					As of December 31, 2020
Years Ending December 31,	Years Ending December 31,	Number of Policies	Estimated Fair Value		Face Value		Number of Policies	Estimated Fair Value		Face Value		Years Ending December 31,	Number of Policies	Estimated Fair Value		Face Value		Number of Policies	Estimated Fair Value		Face Value
Three months ending December 31, 2020		3	$	3,351	$	3,375	8	$	5,869	$	6,342
2021		25	24,270		28,848		55	62,061		79,879
Six months ending December 31, 2021												Six months ending December 31, 2021	2	$	3,227	$	3,250	15	$	19,429	$	22,298
2022	2022	66	67,724		93,448		90	89,074		138,723		2022	35	45,020		55,805		62	66,657		88,698
2023	2023	114	114,510		184,202		128	123,352		222,369		2023	85	97,440		140,913		106	113,926		178,983
2024	2024	118	126,943		228,041		109	103,111		217,053		2024	119	128,208		216,264		119	130,280		229,815
2025	2025	111	86,759		194,267		113	74,223		171,961		2025	109	105,489		215,424		111	85,842		187,042
2026												2026	118	90,821		205,976		115	100,280		237,632
Thereafter	Thereafter	644	363,703		1,188,886		648	338,349		1,184,646		Thereafter	542	299,821		1,006,834		530	275,497		956,247
Totals	Totals	1,081	$	787,260	$	1,921,067	1,151	$	796,039	$	2,020,973	Totals	1,010	$	770,026	$	1,844,466	1,058	$	791,911	$	1,900,715

We recognized life insurance benefits of ~~$39.8~~$35.5 million and ~~$27.5~~$39.9 million during the three months ended ~~September~~June 30, ~~2020~~2021 and ~~2019,~~2020, respectively, related to policies with a carrying value of ~~$13.5~~$10.1 million and ~~$6.6~~$12.8 million, respectively, and as a result recorded realized gains of ~~$26.3~~$25.4 million and ~~$20.8~~$27.1 million, respectively. We recognized life insurance benefits of ~~$105.2~~$61.4 million and ~~$80.9~~$65.4 million during the ~~nine~~six months ended ~~September~~June 30, ~~2020~~2021 and ~~2019,~~2020, respectively, related to policies with a carrying value of ~~$32.3~~$18.6 million and ~~$20.7~~$18.8 million, respectively, and as a result recorded realized gains of ~~$72.9~~$42.8 million and ~~$60.2~~$46.6 million, respectively. The aforementioned carrying value, which represents the aggregate cost basis in the policies that matured during the period, is considered a return of investment within the investing section of the condensed consolidated statements of cash flows. Changes in fair value of policies and the other components of the net gain on life insurance policies, as detailed below, are included in the operating section of the condensed consolidated statements of cash flows.

Page 2019

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GWG HOLDINGS, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)

A reconciliation of gain (loss) on life insurance policies is as follows (in thousands):


		Three Months Ended September 30,				Nine Months Ended September 30,					Three Months Ended June 30,				Six Months Ended June 30,
		2020		2019		2020		2019			2021		2020		2021		2020
Change in estimated probabilistic cash flows(1)	Change in estimated probabilistic cash flows(1)	$	14,723	$	17,908	$	47,923	$	52,161	Change in estimated probabilistic cash flows(1)	$	13,863	$	15,349	$	27,110	$	33,200
Unrealized gain on acquisitions(2)		0		472		0		6,775
Premiums and other annual fees	Premiums and other annual fees	(18,235)		(17,219)		(53,060)		(49,055)		Premiums and other annual fees	(18,486)		(17,626)		(37,121)		(34,825)

Change in life expectancy evaluation										Change in life expectancy evaluation	2,337		—		2,337		—
Change in PMM										Change in PMM	(16,386)		—		(16,386)		—
Face value of matured policies	Face value of matured policies	39,803		27,470		105,194		80,927		Face value of matured policies	35,485		39,889		61,445		65,391
Fair value of matured policies	Fair value of matured policies	(22,169)		(10,839)		(56,702)		(31,590)		Fair value of matured policies	(21,286)		(22,824)		(34,946)		(34,533)
Gain on life insurance policies, net		$	14,122	$	17,792	$	43,355	$	59,218
Gain (loss) on life insurance policies, net										Gain (loss) on life insurance policies, net	$	(4,473)	$	14,788	$	2,439	$	29,233

(1)Change in fair value of expected future cash flows relating to our investment in life insurance policies that are not specifically attributable to changes in life expectancy, discount rate changes or policy maturity events.

~~(2)~~Gain resulting from fair value in excess of the purchase price for life insurance policies acquired during the reporting period. There were no policy acquisitions during the three or nine months ended September 30, 2020.

Estimated premium payments and servicing fees required to maintain our current portfolio of life insurance policies in force for the next five years, assuming no mortalities, are as follows (in thousands):


Years Ending December 31,	Years Ending December 31,	Premiums		Servicing		Total		Years Ending December 31,	Premiums		Servicing		Total
Three months ending December 31, 2020		$	13,088	$	405	$	13,493
2021		78,959		1,620		80,579
Six months ending December 31, 2021								Six months ending December 31, 2021	$	33,160	$	697	$	33,857
2022	2022	91,220		1,620		92,840		2022	85,141		1,394		86,535
2023	2023	102,859		1,620		104,479		2023	96,780		1,394		98,174
2024	2024	112,033		1,620		113,653		2024	106,033		1,394		107,427
2025	2025	124,556		1,620		126,176		2025	117,865		1,394		119,259
2026								2026	130,158		1,394		131,552
		$	522,715	$	8,505	$	531,220		$	569,137	$	7,667	$	576,804

Management ~~funds~~anticipates funding the majority of the premium payments and servicing fees estimated above from cash flows realized from life insurance policy benefits, and to the extent necessary, with additional borrowing capacity created as the premiums and servicing costs of pledged life insurance policies become due, under the LNV Credit Facility and the net proceeds from our offering of L Bonds as described in Note ~~10.~~9. Management ~~funds~~anticipates funding premiums and servicing costs of non-pledged life insurance policies with cash flows realized from life insurance policy benefits from our portfolio of life insurance policies and net proceeds from ~~our~~GWG Holdings’ offering of L Bonds. The proceeds of these capital sources ~~are~~may also be used for: ~~additional allocations to Beneficient;~~the purchase, policy premiums and servicing costs of additional life insurance policies; working capital; and financing expenditures including paying principal, interest and dividends.

~~(6) Loans Receivable~~(5) Investments in Alternative Assets

~~Beneficient Loans Receivable~~

~~Loans receivable~~The investments held, either through direct ownership or through a beneficial interest, by the Company as of September 30, 2020 and December 31, 2019, were originated primarily through the initial capitalization transactions of Beneficient in 2017 and 2018. These loans are collateralized by the cash flows from the portfolio of alternative assets held in the custody of certain ~~trusts~~ of the ExAlt ~~Plan~~™.Trusts consist primarily of limited partnership interests in various alternative assets, including private equity funds. These alternative investments are valued using NAV as a practical expedient. Changes in the NAV of these investments are recorded in investment income, net in our consolidated statements of operations. The ~~outstanding principal balance was $460.6 million~~investments in alternative assets provide the economic value that ultimately collateralizes the loan that Beneficient originates with the ExAlt Trusts in a liquidity transaction.

The NAV calculation reflects the most current report of NAV and ~~$425.9 million~~other data received from firm/fund sponsors. If no such report has been received, Beneficient estimates NAV based upon the last NAV calculation reported by the investment manager and adjusts it for capital calls and distributions made in the intervening time frame. In some instances, current available valuation information may indicate that the valuations that are available from third-party sources are not reliable. In these instances, Beneficient may perform model-based analytical valuations that could be used as ~~of September 30, 2020 and December 31, 2019, respectively, which included $200.6 million and $154.7 million of inception-to-date interest income paid-in-kind, respectively.~~an input to value these investments. Public equity securities known to be owned within an alternative investment fund, based on the most recent information reported by the general partners, are marked to market using quoted market prices on the reporting date.

~~Components of the carrying value of loans receivable were as follows for the periods presented below (in thousands):~~

September 30, 2020 December 31, 2019
Loans receivable, net of discount $ 229,961 $ 232,344
Allowance for loan losses (2,914) 0
Loans receivable, net $ 227,047 $ 232,344

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GWG HOLDINGS, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)

~~As described~~The underlying interests in ~~Note 4,~~alternative assets are primarily limited partnership interests, and the limited partnership agreements governing those interests generally include restrictions on ~~December 31, 2019, a change-of-control event occurred that resulted~~disclosure of fund-level information, including fund names and company names in the ~~application of push-down accounting, and all of Beneficient’s assets and liabilities were recorded at fair value. Certain~~funds. The transfer of the ~~purchased loans were determined~~investments in private equity funds generally requires the consent of the corresponding private equity fund manager, and the transfer of certain fund investments is subject to rights of first refusal or other preemptive rights, potentially further limiting the ExAlt PlanTM from transferring an investment in a private equity fund. These investments can never be ~~PCI loans under ASC 310-30,~~ ~~Loans and Debt Securities Acquired with Deteriorated Credit Quality, as defined in Note 2,~~redeemed with the ~~remaining loans accounted for under ASC 310-20,~~ ~~Nonrefundable Fees and Other Costs. For loans accounted for under ASC 310-20, the discount arising due to the difference between~~funds. Distributions from each ~~loan’s carrying value and the estimated fair value at the time of acquisition~~fund will be ~~accreted into interest income over its remaining contractual life. Should management obtain new information about facts and circumstances that existed at~~received as the ~~acquisition date, additional adjustments to the fair values assigned to acquired loans could occur during the measurement period~~underlying investments are liquidated. Timing of ~~one year from the acquisition date.~~liquidation is currently unknown.

~~The following table reflects the fair value of non-PCI and PCI loans as of December 31, 2019, the date of the change-of control (in thousands):~~


~~Fair value of non-PCI loans~~	$	~~86,436~~

~~Fair value of PCI loans~~	$	~~145,908~~

~~The fair values above do not include the downward measurement period adjustments totaling $26.1 million discussed in Note 4.~~

~~The following table reflects the outstanding principal balance and carrying amounts of the non-PCI loans (in thousands):~~

September 30, 2020 December 31, 2019
Carrying Value Unpaid Balance Carrying Value Unpaid Balance
Loans receivable $ 93,625 $ 140,997 $ 86,436 $ 129,304

~~The following table reflects the outstanding principal balance and carrying amounts of the PCI loans (in thousands):~~

September 30, 2020 December 31, 2019
Carrying Value Unpaid Balance Carrying Value Unpaid Balance
Loans receivable $ 133,422 $ 319,607 $ 145,908 $ 296,627

As of December 31, 2019, total contractually required payments receivable, including interest, on PCI loans over the remaining contract period was $772.2 million. This assumes all loans accrue interest through maturity, with maturities on loans that existed at December 31, 2019 ranging from 2029 to 2030. Cash flows expected to be collected at the acquisition date totaled $235.6 million. The difference between total cash flows expected to be collected and the fair value of the loans represents accretable yield.

~~The following table presents a rollforward of the accretable yield for the three and nine months ended September 30, 2020 (in thousands):~~

Three Months Ended
September 30, 2020 Nine Months Ended
September 30, 2020
Balance, beginning of period $ 66,383 $ 89,647
Accretion (7,899) (22,863)
Decrease in accretable yield(a)
0 (8,300)
Balance, end of period $ 58,484 $ 58,484

~~(a)Includes changes in the accretable yield due to both transfers from the nonaccretable difference and the impact of changes in the expected timing of cash flows.~~

~~Page 22~~

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~~GWG HOLDINGS, INC. AND SUBSIDIARIES~~

~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS~~

~~(unaudited)~~

Portfolio Information

~~The changes~~

Our portfolio of alternative investments, held by certain of the ExAlt Trust subsidiaries by asset class of each fund as of June 30, 2021 and December 31, 2020, is summarized below:

Alternative Investments Portfolio Summary(1)


	June 30, 2021				December 31, 2020
Asset Class	Value		Unfunded Commitments		Value		Unfunded Commitments
Venture Capital	$	111,317	$	1,529	$	123,021	$	1,659
Private Equity	95,633		33,485		92,316		33,387
Private Real Estate	1,956		270		2,118		269
Other(2)	3,588		295		4,439		294
Total	$	212,494	$	35,579	$	221,894	$	35,609

(1)Amounts presented in the ~~allowance for loan losses for~~table exclude the ~~three and nine months ended September 30, 2020 are as follows (in thousands):~~

Three Months Ended
September 30, 2020 Nine Months Ended
September 30, 2020
Beginning balance $ 7,900 $ 0
(Recapture) provision (4,986) 2,914
Charge-offs and other, net 0 0
Ending balance $ 2,914 $ 2,914

As of September 30, 2020, the allowance for loan losses was $2.9 million, $2.3 million of which was related to PCI loans. There were 0 net charge-offs related to PCI loans during the three and nine months ended September 30, 2020.

During the three months ended September 30, 2020, a loan loss provision recapture of $5.0 million was recorded, all of which was related to PCI loans. The quarter-to-date loan loss provision recapture was due to an increase in expected cash flowscollateral resulting from the ~~underlying collateral for certain PCI loans. During~~Collateral Swap, including GWG Holdings’ common stock valued at $84.6 million, 543,874 shares of Ben Common Units valued at $6.8 million, and GWG L Bonds due 2023 in the nine months ended September 30, 2020, a loan loss provision expense of $2.9 million was recorded, $2.3 million of which was related to PCI loans. The year-to-date loan loss provision expense was primarily due to a decrease in expected cash flows.

~~As a result of the push-down accounting described in Note 4, the loans were recorded at fair value and there was no carryover allowance for loan losses recorded as of December 31, 2019.~~

~~Promissory Note-LiquidTrusts~~

On May 31, 2019, GWG Life entered into a Promissory Note (the “Promissory Note”), made by Jeffrey S. Hinkle and Dr. John A. Stahl, not in their individual capacity but solely as trustees of The LT-1 LiquidTrust, The LT-2 LiquidTrust, The LT-5 LiquidTrust, The LT-7 LiquidTrust, The LT-8 LiquidTrust and The LT-9 LiquidTrust (collectively, the “LiquidTrust Borrowers”). Pursuant to the terms of the Promissory Note, GWG Life funded a term loan to the LiquidTrust Borrowers in an aggregate principal amount of ~~$65.0~~$94.8 million, (the “Loan”). The Loan was made pursuant to GWG Holdings’ strategy to further diversify into alternative assets (beyond life insurance) and ancillary businesses and was intended to better position Beneficient’s balance sheet, working capital and liquidity profile to satisfy anticipated Texas Departmentall of ~~Banking regulatory requirements. The Loan bears interest at 7.0% per annum, with interest payable at maturity, and matures on June 30, 2023.~~

The loan is reported in financing receivables from affiliates in the consolidated balance sheets and included accrued interest receivable of $2.2 million as of December 31, 2019. There was 0 allowance for loan losses related to the Promissory Note as of December 31, 2019.

~~On September 30, 2020, GWG Holdings, GWG Life, BCH, Ben LP, BCC, and the LiquidTrust Borrowers entered into an agreement (the “Promissory Note Repayment”) by~~ which the parties agreed to repay the Promissory Note and any related accrued interest for a $75.0 million Preferred Series C Unit Account (the “Preferred C”) of BCH that Ben LP issued to the LiquidTrust Borrowers for no consideration; however, the transaction ultimately increased the value of the collateral of Beneficient's loan portfolio. The $75.0 million of Preferred C received by GWG Life was transferred to GWG Holdings upon execution of the Promissory Note Conversion, which increased GWG Holdings’ ownership percentage in Beneficient. As part of the agreement, if Beneficient has not received a trust charter as of the one-year anniversary of the Promissory Note Conversion, or if no trust charter filing is still pending or in the process of being refiled, GWG Holdings would receive an additional $5.0 million of Preferred C. The outstanding balance of the Promissory Note on September 30, 2020, immediately prior to the transaction, with accrued and unpaid interest thereon, was $70.6 million.

As a result of the change in ownership while GWG Holdings retained a controlling interest, a rebalancing of the noncontrolling interests was performed in accordance with ASC 810-10. Ultimately, the transaction resulted in a $26.3 million decrease to noncontrolling interests based on the rebalancing of equity performed as a result of GWG Holdings’ receipt of additional Preferred C, a $70.6 million decrease to financing receivables from affiliates, and a resulting $44.3 million decrease to additional paid-in-capital in GWG Holdings’ condensed consolidated financial statements. The Preferred C that was received by GWG Holdings isare eliminated in consolidation.

(2)“Other” includes private debt strategies, natural resources strategies, and hedge funds.

~~Page 23~~

As of June 30, 2021, ExAlt Trusts’ portfolio had exposure to 120 professionally managed alternative investment funds, comprised of 313 underlying investments, 96 percent of which are investments in private companies.

~~Table Of Contents~~

~~GWG HOLDINGS, INC. AND SUBSIDIARIES~~

~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS~~

~~(unaudited)~~

~~(7)~~(6) Fair Value ~~Definition and Hierarchy~~Measurements

ASC 820, Fair Value Measurements and Disclosures (“ASC 820”), establishes a hierarchical disclosure framework that prioritizes and ranks the level of market price observability used in measuring assets and liabilities at fair value. Market price observability is affected by a number of factors, including the type of investment, the characteristics specific to the investment and the state of the marketplace, including the existence and transparency of transactions between market participants. Assets and liabilities with readily available and actively quoted prices, or for which fair value can be measured from actively quoted prices in an orderly market, generally will have a higher degree of market price observability and a lesser degree of judgment used in measuring fair value.

ASC 820 maximizes the use of observable inputs and minimizes the use of unobservable inputs by requiring the use of observable inputs whenever available. Observable inputs are inputs that market participants would use in pricing the asset or liability developed based on market data obtained from third-party sources. Unobservable inputs are inputs that reflect assumptions about how market participants price an asset or liability based on the best available information. Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability (i.e., the “exit price”) in an orderly transaction between market participants at the measurement date (a non-distressed transaction in which neither seller nor buyer is compelled to engage in the transaction).

The fair value hierarchy ~~prioritizes the inputs~~is broken down into three levels based on the observability of inputs as follows:

Level 1 — Valuations based on quoted prices in active markets for identical assets or liabilities that the Company has the ability to access as of the measurement date. Valuations are based on quoted prices that are readily and regularly available in an active market.

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(unaudited)

Level 2 — Valuations based quoted prices for similar instruments in active markets; quoted prices for identical or similar instruments in in markets that are not active; and model-derived valuations whose inputs are observable or whose significant value drivers are observable market data.

Level 3 — Valuations based on inputs that are unobservable, are derived from other valuation methodologies, including option pricing models, discounted cash flow models and similar techniques, and are not based on market exchange, dealer, or broker traded transactions. Level 3 valuations incorporate certain assumptions and projections in determining the fair value assigned to such instruments.

A financial instrument’s categorization within the valuation hierarchy is based upon the lowest level of input that is significant to the fair value measurement. Investments valued using NAV as a practical expedient are excluded from this hierarchy. At June 30, 2021 and December 31, 2020, the fair value of these investments using the NAV per share practical expedient was $212.5 million and $221.9 million, respectively. During the three and six months ended June 30, 2021, $1.8 million and $3.9 million of gain, respectively, was recognized from changes in NAV, compared to $18.0 million and $20.1 million of loss for the three and six months ended June 30, 2020, respectively. These changes in NAV are recorded within the investment income (loss) on our condensed consolidated statements of operations.

The availability of observable inputs can vary by types of assets and liabilities and is affected by a wide variety of factors, including, for example, whether an instrument is established in the marketplace, the liquidity of markets and other characteristics particular to the transaction. To the extent that valuation is based on models or inputs that are less observable or unobservable in the market, the determination of fair value requires more judgment. Accordingly, the degree of judgment exercised by management in determining fair value is greatest for assets and liabilities categorized in Level 3.

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~~GWG HOLDINGS, INC. AND SUBSIDIARIES~~

~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS~~

~~(unaudited)~~

Financial instruments measured at fair value on a recurring basis

The Company’s financial assets and liabilities carried at fair value on a recurring basis, including the level in the fair value hierarchy, on ~~September~~June 30, ~~2020~~2021 and December 31, ~~2019~~2020 are presented below (in thousands).


		As of September 30, 2020									As of June 30, 2021
		Level 1		Level 2		Level 3		Total			Level 1		Level 2		Level 3		Total
Assets:	Assets:									Assets:
Investments in put options	Investments in put options	$	11,584	$	0	$	0	$	11,584	Investments in put options	$	2,764	$	—	$	—	$	2,764
Investments in life insurance policies	Investments in life insurance policies	0		0		787,260		787,260		Investments in life insurance policies	—		—		770,026		770,026

		As of December 31, 2019									As of December 31, 2020
		Level 1		Level 2		Level 3		Total			Level 1		Level 2		Level 3		Total
Assets:	Assets:									Assets:
Investments in put options										Investments in put options	$	7,017	$	—	$	—	$	7,017
Investments in life insurance policies	Investments in life insurance policies	$	0	$	0	$	796,039	$	796,039	Investments in life insurance policies	—		—		791,911		791,911

The following is a description of the valuation methodologies used for financial instruments measured at fair value on a recurring basis:

~~Investment~~Investments in put options

On July 17, 2020, ~~Beneficient,~~Ben LP, through its subsidiary CT Risk Management, L.L.C., made aggregate payments of $14.8 million to purchase put options against a decrease in the S&P 500 Index. The options have an aggregate notional amount of $300.0 million and are designed to protect the net asset value of the interests in alternative assets that ~~collateralize~~support the Collateral to Beneficient’s loan portfolio against market risk. One-half of the put options expire in July 2022 with the remaining put options expiring in July 2023. Changes in the fair value of the options are recognized directly in earnings. The fair value of the options is recorded in the other assets line item of the condensed consolidated balance sheets, and changes in the fair value of the options are recognized directly in earnings in the other income (loss) line item of the condensed consolidated statements of operations.

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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)

Repurchase options

Repurchase options were fair valued using a Black-Scholes option pricing model with a time-dependent strike price for the repurchase price. The option pricing model has assumptions related to a period of restricted exercise price, dividend yield, underlying NAVs, alternative asset growth rates, volatilities, and market discount rate. The Company uses Level 3 inputs for its fair value estimates. The unrealized impact of this Level 3 measurement on earnings is reflected in investment income (loss).

The following table reconciles the beginning and ending fair value of our Level 3 repurchase options (in thousands). The three months ended June 30, 2021, is not presented as the repurchase options, all of which were unexercised, expired during the third and fourth quarters of 2020, which is recognized in the investment income (loss) line item of the condensed consolidated statement of operations. Additionally, during the three and six months ended June 30, 2020, $18.0 million and $20.1 million of loss, respectively. was recognized from changes in NAV, which is recorded within investment income (loss) on our consolidated statements of operations.


	Three Months Ended June 30, 2020		Six Months Ended June 30, 2020
Beginning balance	$	52,052	$	61,664
Total (gain) loss in earnings(1)	4,608		(5,004)
Purchases	—		—
Settlements	—		—
Ending balance	$	56,660	$	56,660

_______________________________________

(1)Net change in fair value.

The following table provides quantitative information about the significant unobservable inputs used in the fair value measurement of the Level 3 repurchase options as of June 30, 2020 (dollars in thousands):

Valuation Date

Fair Value

Valuation Methodology

Unobservable Inputs

Range of Targets

June 30, 2020

56,660

Option Pricing Model

Alternative asset market discount rate

0.085

Dividend yield

.10 - .53

Net asset value growth rates

0.085

Net asset value volatilities

0.24 - 0.45

Restricted exercise period

1 year

Investments in life insurance policies

The estimated fair value of our portfolio of life insurance policies is determined on a quarterly basis by management taking into consideration a number of factors, including changes in discount rate assumptions, estimated premium payments and life expectancy estimate assumptions, as well as any changes in economic and other relevant conditions. The discount rate incorporates information about discount rates observed in the life insurance secondary market through competitive bidding observations (which have declined recently as a result of our decreased purchase activity) and other means, fixed income market interest rates, the estimated credit exposure to the insurance ~~company~~companies that issued the life insurance ~~policy~~policies and management’s estimate of the operational risk yield premium a purchaser would require to receive the future cash flows derived from our portfolio as a whole. ~~Management has significant discretion regarding the combination~~The determination of ~~these and other factors when determining~~ the discount ~~rate.~~rate used in the valuation of the Company’s life insurance policies requires management judgment and incorporates information that is reasonably available to management as of the date of the valuation.

Under our Longest Life Expectancy portfolio valuation methodology, we: i) utilize life expectancy reports from third-party life expectancy providers for the pricing of all life insurance ~~policies;~~policies at the time of purchase; ii) apply a stable valuation methodology driven by the experience of our life insurance portfolio, which is re-evaluated if experience deviates by a specified margin; and iii) use relevant market observations that can be validated and mapped to the discount rate used to value the life insurance portfolio.

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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)

These inputs are then used to estimate the discounted cash flows from the portfolio using the ClariNet LS probabilistic and stochastic portfolio pricing model from ClearLife Limited, which estimates the expected cash flows using various mortality probabilities and scenarios. The valuation process includes a review by senior management as of each quarterly valuation date. We also engage ClearLife Limited to prepare a net present value calculation of our life insurance portfolio using the inputs we provide on a quarterly basis.

~~Page 25~~

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~~GWG HOLDINGS, INC. AND SUBSIDIARIES~~

~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS~~

~~(unaudited)~~

As discussed in further detail in Note 4 above, during the second quarter of 2021, we recalculated the PMM in accordance with our valuation methodology, which resulted in a $16.4 million downward adjustment to the value of the life insurance portfolio as of June 30, 2021.

The following table reconciles the beginning and ending fair value of our Level 3 investments in our portfolio of life insurance policies (in thousands):

Three Months Ended
September 30, Nine Months Ended
September 30,
2020 2019 2020 2019
Beginning balance $ 794,706 $ 799,266 $ 796,039 $ 747,922
Total gain in earnings(1)
6,021 14,181 23,476 48,031
Purchases 0 711 0 32,250
Settlements(2)
(13,467) (6,640) (32,255) (20,685)
Transfers into Level 3 0 0 0 0
Transfers out of Level 3 0 0 0 0
Ending balance $ 787,260 $ 807,518 $ 787,260 $ 807,518


	Three Months Ended June 30,				Six Months Ended June 30,
	2021		2020		2021		2020
Beginning balance	$	791,499	$	802,181	$	791,911	$	796,039
Total gain (loss) in earnings(1)	(11,399)		5,278		(3,237)		17,456

Settlements(2)	(10,074)		(12,753)		(18,648)		(18,789)


Ending balance	$	770,026	$	794,706	$	770,026	$	794,706

(1)Net change in fair value

(2)Policy maturities at initial cost basis

The net activity in the table above is reported in gain (loss) on life insurance policies, net, in the condensed consolidated statements of operations.

There have been no transfers between levels in the fair value hierarchy for any assets or liabilities recorded at fair value on a recurring basis or any changes in the valuation techniques used for measuring the fair value as of ~~September~~June 30, ~~2020~~2021 and December 31, ~~2019.~~ 2020.

The following table ~~provides quantitative information about~~summarizes the ~~significant unobservable~~ inputs ~~used~~utilized in estimating the fair value ~~measurement~~ of ~~the Company’s Level 3 fair value assets:~~our portfolio of life insurance policies:


		As of September 30, 2020			As of December 31, 2019				As of June 30, 2021			As of December 31, 2020
Weighted-average age of insured, years*	Weighted-average age of insured, years*	82.9			82.4			Weighted-average age of insured, years*	83.4			83.1
Age of insured range, years	Age of insured range, years	63-100			62-101			Age of insured range, years	64-101			63-100
Weighted-average life expectancy, months*	Weighted-average life expectancy, months*	82.8			86.2			Weighted-average life expectancy, months*	83.4			83.0
Life expectancy range, months	Life expectancy range, months	0-240			0-240			Life expectancy range, months	0-240			0-240
Average face amount per policy (in thousands)	Average face amount per policy (in thousands)	$	1,777		$	1,756		Average face amount per policy (in thousands)	$	1,826		$	1,797
Discount rate	Discount rate	8.25		%	8.25		%	Discount rate	8.25		%	8.25		%

(*)Weighted-average by face amount of policy ~~benefits~~benefits.

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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)

Life expectancy estimates and market discount rates for a portfolio of life insurance policies are inherently uncertain and the effect of changes in estimates may be significant. For example, if the life expectancy estimates were increased or decreased by four and eight months on each outstanding policy, and the discount rates were increased or decreased by 1% and 2%, with all other variables held constant, the fair value of our investment in life insurance policies would increase or decrease as summarized below (in thousands):

Change in Life Expectancy Estimates
Minus
8 months Minus
4 months Plus
4 months Plus
8 months
September 30, 2020 $ 98,909 $ 46,028 $ (62,483) $ (115,452)
December 31, 2019 $ 113,812 $ 57,753 $ (55,905) $ (111,340)
Change in Discount Rate
Minus 2% Minus 1% Plus 1% Plus 2%
September 30, 2020 $ 84,613 $ 40,314 $ (36,802) $ (70,497)
December 31, 2019 $ 91,890 $ 43,713 $ (39,790) $ (76,118)

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~~GWG HOLDINGS, INC. AND SUBSIDIARIES~~

~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS~~

~~(unaudited)~~


	Change in Life Expectancy Estimates
	Minus 8 Months		Minus 4 Months		Plus 4 Months		Plus 8 Months
June 30, 2021	$	114,916	$	64,431	$	(39,757)	$	(90,729)
December 31, 2020	$	97,837	$	45,536	$	(61,713)	$	(114,099)
	Change in Discount Rate
	Minus 2%		Minus 1%		Plus 1%		Plus 2%
June 30, 2021	$	78,434	$	37,411	$	(34,223)	$	(65,619)
December 31, 2020	$	82,983	$	39,560	$	(36,151)	$	(69,284)

Financial instruments measured at fair value on a non-recurring basis

There were no assets or liabilities measured at fair value on a non-recurring basis as of ~~September~~June 30, ~~2020. As of~~2021 and December 31, 2019, Beneficient’s assets and liabilities were recorded at fair value in the consolidated balance sheet due to the application of purchase accounting in accordance with ASC 805 as described in Note 4.2020, respectively.

Carrying amounts and estimated fair values

The Company is required to disclose the estimated fair value of financial instruments, whether or not recognized in the condensed consolidated balance sheets, for which it is practicable to estimate those values. These fair value estimates are determined based on relevant market information and information about the financial instruments. Fair value estimates are intended to represent the price at which an asset could be sold or the price at which a liability could be settled. However, given there is no active market or observable market transactions for many of the Company’s financial instruments, estimates of fair values are subjective in nature, involve uncertainties and matters of significant judgment and therefore cannot be determined with precision. Changes in assumptions could significantly affect the estimated values. Nonfinancial instruments are excluded from disclosure requirements.

The carrying amounts and estimated fair values of the Company’s financial instruments not recorded at fair value were as noted in the tables below (in thousands).

As of September 30, 2020
Level in Fair Value Hierarchy Carrying Amount Estimated Fair Value
Financial assets:
Cash, cash equivalents and restricted cash 1 $ 109,756 $ 109,756
Life insurance policy benefits receivable, net 1 36,418 36,418
Loans receivable, net of allowance for loan losses and discount 3 227,047 257,764
Fees receivable 1 31,571 31,571
Financial liabilities:
Senior credit facility 2 $ 203,907 $ 213,117
L Bonds and Seller Trust L bonds 2 1,521,411 1,638,227
Other borrowings 2 100,178 101,368
Other liabilities 1 57,056 57,056

As of December 31, 2019
Level in Fair Value Hierarchy Carrying Amount Estimated Fair Value
Financial assets:
Cash, cash equivalents and restricted cash 1 $ 99,331 $ 99,331
Life insurance policy benefits receivable, net 1 23,031 23,031
Loans receivable, net of allowance for loan losses and discount 3 232,344 232,344
Fees receivable 1 29,168 29,168
Financing receivables from affiliates 2 67,153 59,608
Financial liabilities:
Senior credit facility with LNV Corporation 2 $ 174,390 $ 184,587
L Bonds and Seller Trust L Bonds 2 1,293,530 1,390,288
Other borrowings 2 153,086 153,086
Other liabilities 1 44,352 44,352

Other liabilities is comprised of the interest and dividends payable and accounts payable and accrued expenses line items on the condensed consolidated balance sheets as of September 30, 2020 and December 31, 2019.


	As of June 30, 2021
	Level in Fair Value Hierarchy	Carrying Amount		Estimated Fair Value
Financial assets:
Cash, cash equivalents and restricted cash	1	$	91,451	$	91,451
Life insurance policy benefits receivable, net	1	25,988		25,988
Financial liabilities:
Senior credit facility with LNV Corporation	2	$	227,137	$	236,660
L Bonds and Seller Trust L Bonds	1	1,601,117		1,601,117
Debt due to related parties	2	77,248		82,498
Other liabilities	1	51,461		51,461

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~~(8)~~


	As of December 31, 2020
	Level in Fair Value Hierarchy	Carrying Amount		Estimated Fair Value
Financial assets:
Cash, cash equivalents and restricted cash	1	$	124,160	$	124,160
Life insurance policy benefits receivable, net	1	14,334		14,334
Financial liabilities:
Senior credit facility with LNV Corporation	2	$	193,730	$	202,611
L Bonds and Seller Trust L Bonds	1	1,519,006		1,519,006
Debt due to related parties	2	76,260		78,081
Other liabilities	1	50,585		50,585

Other liabilities are comprised of the interest and dividends payable and accounts payable and accrued expenses line items on the condensed consolidated balance sheets as of June 30, 2021 and December 31, 2020.

Certain assets are subject to periodic impairment testing by comparing the respective carrying value of the asset to its estimated fair value. In the event we determine these assets to be impaired, we would recognize an impairment loss equal to the amount by which the carrying value of the impaired asset exceeds its estimated fair value. These periodic impairment tests utilize company-specific assumptions involving significant unobservable inputs, or Level 3, in the fair value hierarchy.

(7) Equity Method Investments

FOXO ~~BioScience LLC~~Technologies Inc. (formerly, ~~InsurTech Holdings,~~FOXO BioScience LLC)

On November 11, 2019, GWG Holdings contributed the common stock and membership interests of its wholly-owned subsidiaries, FOXO Labs and FOXO Life (“Insurtech Subsidiaries”), to a legal entity then known as FOXO BioScience LLC, in exchange for a membership interest in FOXO. On November 13, 2020, FOXO BioScience LLC converted to a corporation and is now known as FOXO Technologies Inc. With the conversion to a corporation, GWG Holdings’ previous membership interest in the LLC converted to preferred equity in FOXO. Although GWG Holdings ~~currently owns 100% of FOXO’s equity, we do~~has a financial interest in FOXO, GWG Holdings does not have a controlling financial interest ~~in FOXO~~ because another party is the ~~managing member has substantive participating rights.~~majority shareholder of the voting class of securities. Therefore, we account for ~~our~~GWG Holdings’ ownership interest in FOXO as an equity method investment.

The transaction resulted in a loss of control of the Insurtech Subsidiaries and, as a result, we deconsolidated the subsidiaries and recorded an equity method investment balance during the fourth quarter of 2019. The loss of control required us to measure the equity investment at fair value. We determined the fair value of our investment in FOXO approximated the carrying value of $3.4 million, which was primarily comprised of cash and fixed assets contributed to the entity during the fourth quarter of 2019. We recognized a loss on equity method investment of $1.6 million during the fourth quarter of 2019, resulting in a balance of $1.8 million as of December 31, 2019.

The following table includes a rollforward of the equity method investment in FOXO (in thousands):


							Three Months Ended June 30,				Six Months Ended June 30,
		Three Months Ended September 30, 2020		Nine Months Ended September 30, 2020			2021		2020		2021		2020
Beginning balance	Beginning balance	$	7,773	$	1,761	Beginning balance	$	6,318	$	5,648	$	8,582	$	1,761
Contributions	Contributions	3,884		13,051		Contributions	1,250		3,750		2,500		9,167
Loss on equity method investment	Loss on equity method investment	(1,431)		(4,279)		Loss on equity method investment	(3,435)		(1,318)		(6,949)		(2,848)
Other	Other	10		(297)		Other	230		(307)		230		(307)
Ending balance	Ending balance	$	10,236	$	10,236	Ending balance	$	4,363	$	7,773	$	4,363	$	7,773

In accordance with the ~~operating~~subscription agreement of FOXO, as of ~~September~~June 30, ~~2020,~~2021, GWG Holdings iswas committed to contribute an additional ~~$5.0~~$1.3 million to the entity through October ~~2021. Our~~2021, all of which has been contributed through such date. GWG Holdings’ investment in ~~the membership interest of~~ FOXO is presented in other assets in our condensed consolidated balance sheets. Our proportionate share of earnings or losses from our investee is recognized in earnings (loss) from equity method investments in our condensed consolidated statements of operations.

~~The Beneficient Company Group, L.P.~~

During 2018, we acquired 40,505,279 million Common Units for a total limited partnership interest in the Common Units of approximately 89.9% as of December 31, 2018. On June 12, 2019, we acquired an additional 1,000,000 Common Units from a third party for a cash investment of $10.0 million.

Prior to December 31, 2019, our investment in Common Units was presented in equity method investment on our condensed consolidated balance sheets. Our proportionate share of earnings or losses from our investee was recognized in earnings (loss) from equity method investments in our condensed consolidated statements of operations. We recorded our share of the earnings or loss of Beneficient through September 30, 2019, on a one-quarter lag.

~~On December 31, 2019, we obtained control of Beneficient and consolidated Beneficient as of that date in accordance with ASC 805,~~ ~~Business Combinations. See Note 4 for further information on the business combination. In connection with the consolidation, we discontinued the one-quarter reporting lag.~~

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(unaudited)

~~Pre-consolidation financial information after the elimination of any intercompany transactions pertaining to Beneficient is summarized in the table below (in thousands):~~

Three Months Ended June 30, 2019 Nine Months Ended June 30, 2019
Total revenues $ 28,151 $ 69,262
Net loss 9,696 (36,345)
Net gain (loss) attributable to Ben LP common unitholders 1,080 (11,439)
GWG portion of net earnings (loss) 956 (1) (371) (2)

1.~~Our portion of Beneficient’s net earnings (loss) from March 31, 2019 to June 30, 2019. This amount was recognized during the three months ended September 30, 2019.~~

2.~~Our portion of Beneficient's net earnings (loss) from October 1, 2018 to June 30, 2019. This amount was recognized during the nine months ended September 30, 2019.~~

~~(9)~~(8) Variable Interest Entities

In accordance with ASC 810, Consolidation, the Company assesses whether it has a variable interest in legal entities in which it has a financial relationship and, if so, whether or not those entities are variable interest entities (“VIEs”). For those entities that qualify as VIEs, ASC 810 requires the Company to determine if the Company is the primary beneficiary of the VIE, and if so, to consolidate the VIE.

VIEs for ~~which~~Which the Company is the Primary Beneficiary

ExAlt Trusts

The Company determined that the ExAlt Trusts used in connection with Beneficient’s operations are VIEs of which Beneficient is the primary beneficiary. The Company concluded that Beneficient is the primary beneficiary of the trusts as it has the power to direct the most significant activities and has an obligation to absorb potential losses of the trusts. Accordingly, the results of the trusts are included in the Company’s condensed consolidated financial statements. The assets of the trusts may only be used to settle obligations of the trusts. Other than potentially funding capital calls above the related reserve (refer to Note 15), there is no recourse to the Company for the trusts’ liabilities.

The cash flows generated by these VIEs are included within the Company’s consolidated statements of cash flows. The consolidated balance sheets include the following amounts from these consolidated VIEs as of the dates presented (in thousands):


	June 30, 2021		December 31, 2020
Assets:
Cash and cash equivalents	$	2,065	$	5,965
Restricted cash	5,126		5,386
Investments in alternative assets, at NAV	212,494		221,894
Other assets	1,300		1,273
Total Assets of VIE	$	220,985	$	234,518

Liabilities:
Accounts payable and accrued expense	$	2,345	$	2,029
Total Liabilities of VIE	$	2,345	$	2,029

Equity (Deficit):
Noncontrolling interest	$	(17,246)	$	7,208
Total Equity of VIE	$	(17,246)	$	7,208

The consolidated statement of operations for the three and six months ended June 30, 2021 and 2020, includes the following amounts from these consolidated VIEs (in thousands):


	Three Months Ended June 30,				Six Months Ended June 30,
	2021		2020		2021		2020
REVENUE
Investment income (loss), net	$	1,773	$	(22,671)	$	3,863	$	(15,115)
Interest income	—		—		—		20
TOTAL REVENUE	1,773		(22,671)		3,863		(15,095)
EXPENSES
Other expenses	146		166		357		167
TOTAL EXPENSES	146		166		357		167
NET INCOME (LOSS)	1,627		(22,837)		3,506		(15,262)
Net loss attributable to noncontrolling interests	11,035		33,253		23,867		43,721
NET INCOME ATTRIBUTABLE TO COMMON SHAREHOLDERS	$	12,662	$	10,416	27,373		28,459

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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)

CT Risk Management L.L.C.

On March 20, 2020, CT Risk Management, ~~LLC~~L.L.C. (“CT”) was created as a Delaware limited liability company to reduce the impact of a potential market downturn on the interests in alternative assets ~~used to collateralize~~that support the Collateral for receivables held by Beneficient by distributing any potential profits to certain of the ~~Collective~~ExAlt Trusts thereby offsetting any reduction in the value of the alternative assets. The LLC agreement was amended and restated on April 16, 2020. There was no activity of CT until July 2020 when Beneficient made a capital contribution of $14.8 million, which was used to purchase the put options reflected in the condensed consolidated balance ~~sheet~~sheets as of ~~September~~June 30, 2021 and December 31, 2020.

CT is considered a VIE as the at-risk equity holder, ~~Beneficient,~~Ben LP, does not have all of the characteristics of a controlling financial interest due to ~~Beneficient’s~~Ben LP’s receipt of returns being limited to its initial investment in CT. The Company concluded that Beneficient is the primary beneficiary of CT as it has the power to direct the most significant activities and has an obligation to absorb potential losses of CT. Accordingly, the results of CT are included in the Company’s condensed consolidated financial statements.

As of ~~September~~June 30, 2021 and December 31, 2020, the condensed consolidated balance sheets include assets of this consolidated VIE with a carrying value of ~~$11.6~~$2.8 million and $7.0 million, respectively, which is recorded in the other assets line item. Additionally, the Company recorded a ~~$3.2~~$2.1 million and $4.3 million loss on investment for the three and ~~nine~~six months ended ~~September~~June 30, ~~2020,~~2021, respectively, which is reported in the other income (loss) line item of the condensed consolidated statements of operations.

VIEs for ~~which~~Which the Company is Not the Primary Beneficiary

We determined that the LiquidTrust Borrowers are VIEs, but that we are not the primary beneficiary of these VIEs. We do not have the power to direct any activities of the LiquidTrust Borrowers that most significantly impact the Borrower’s economic performance. The Company’s exposure to risk of loss in the LiquidTrust Borrowers is limited to its financing receivable from the LiquidTrust Borrowers.

~~The Company also determined that certain other trusts included within the ExAlt Plan~~TM used in connection with Beneficient’s operations are VIEs, but that we are not the primary beneficiary of these VIEs. The Company does not have both the power to direct the most significant activities of the trusts and the obligation to absorb losses or right to receive benefits that could potentially be significant to the trusts. The Company’s investments in the trusts are carried in loans receivable in the condensed consolidated balance sheets. The Company’s exposure to risk of loss was determined as the amortized cost of the loans to the trusts, any earned but unpaid fees or expenses plus any remaining potential contributions for unfunded capital commitments and cash reserve commitments.

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~~GWG HOLDINGS, INC. AND SUBSIDIARIES~~

~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS~~

~~(unaudited)~~

We determined that FOXO is a VIE, but that we are not the primary beneficiary of the ~~VIE.~~variable interests. We do not have the power to direct any activities of FOXO that most significantly impact its economic performance. The Company’s exposure to risk of loss in FOXO is limited to its equity method investment in the ~~membership interests~~preferred equity of FOXO and its remaining unfunded capital commitments.

The following table shows the classification, carrying value and maximum exposure to loss with respect to the Company’s unconsolidated VIEs (in thousands):

September 30, 2020 December 31, 2019
Carrying Value Maximum Exposure to Loss Carrying Value Maximum Exposure to Loss
Loans receivable $ 227,047 $ 293,847 $ 232,344 $ 335,255
Financing receivables from affiliates 0 0 67,153 67,153
Equity method investment 10,236 15,236 1,761 19,661
Accounts payable and accrued expenses (2,583) 0 (2,515) 0
Total $ 234,700 $ 309,083 $ 298,743 $ 422,069


	June 30, 2021				December 31, 2020
	Carrying Value		Maximum Exposure to Loss		Carrying Value		Maximum Exposure to Loss
Total equity method investment	$	4,363	$	5,613	$	8,582	$	12,332

~~(10)~~(9) Debt

Senior Credit Facility with LNV Corporation

On ~~November 1, 2019,~~June 28, 2021, DLP IV entered into ~~a second~~the third amended and restated senior credit facility with LNV Corporation (as amended and restated by the Fourth LNV Credit Facility (defined in Note 17) on September 7, 2021, the (“Third LNV Credit Facility”)), as lender, and CLMG Corp., as the administrative agent on behalf of the lenders under the agreement, which replaced the second amended and restated senior credit facility with LNV Corporation (“Second LNV Credit Facility”) dated ~~September 27, 2017~~November 1, 2019 that previously governed DLP IV’s senior credit facility. The Third LNV Credit Facility ~~makes available~~resulted in an additional advance of $52.5 million from LNV Corporation, which was subsequently repaid on August 11, 2021, using a ~~total~~portion of ~~up to $300.0 million~~the advance received from the NF Credit Facility (as defined and discussed in ~~credit to DLP IV with a maturity date of September 27, 2029.~~ Note 17).

Subject to available borrowing base capacity, additional advances are available under the Third LNV Credit Facility at the LIBOR rate described below. Such advances are available to pay the premiums and servicing costs of pledged life insurance policies as such amounts become due. Interest will accrue on amounts borrowed under the Third LNV Credit Facility at an annual interest rate, determined as of each date of borrowing or quarterly if there is no borrowing, equal to (a) the greater of 1.50% or 12-month LIBOR, plus (b) 7.50% per annum. The effective rate at ~~September~~June 30, ~~2020~~2021 was 9.00%. Interest payments are made on a quarterly basis.

Under the Third LNV Credit Facility, DLP IV has granted the administrative agent, for the benefit of the lenders under the agreement, a security interest in all of DLP IV’s assets.

In conjunction with entering into the LNV Credit Facility, DLP IV pledged life insurance policies having an aggregate face value of approximately $298.3 million as additional collateral and received an advance of approximately $37.1 million (inclusive of certain fees and expenses incurred in connection with the negotiation and entry into the LNV Credit Facility). We were in compliance with all covenants of the LNV Credit Facility at September 30, 2020, and continue to be as of the date of this filing.

As of September 30, 2020, approximately 76.9% of the total face value of our life insurance policies portfolio is pledged to LNV Corporation. The principal amount outstanding under this facility was $213.1 million and $184.6 million at September 30, 2020 and December 31, 2019, respectively. There were unamortized deferred financing costs of $9.2 million and $10.2 million as of September 30, 2020 and December 31, 2019, respectively. Obligations under the Third LNV Credit Facility are secured by a

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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)

security interest in DLP IV’s assets, for the benefit of the lenders, through an arrangement under which Wells Fargo Bank, N.A. serves as securities intermediary. The life insurance policies owned by DLP IV do not serve as direct collateral for the obligations of GWG Holdings under the L Bonds and Seller Trust L Bonds.

In conjunction with entering into the Second LNV Credit Facility, DLP IV pledged life insurance policies having an aggregate face value of approximately $298.3 million as additional collateral and received an advance of approximately $37.1 million (inclusive of certain fees and expenses incurred in connection with the negotiation and entry into the Second LNV Credit Facility). In conjunction with entering into the Third LNV Credit Facility, DLP V transferred life insurance policies having an aggregate face value of approximately $440.6 million to DLP IV, which were pledged as additional collateral to the Third LNV Credit Facility, and DLP IV received proceeds of approximately $51.2 million (net of certain fees and expenses incurred in connection with the negotiation and entry into the Third LNV Credit Facility). The Third LNV Credit Facility sets forth interest and other terms and covenants similar those included in the previous LNV Credit Facility. As of June 30, 2021, 100.0% of the total face value of the life insurance policies portfolio is pledged to LNV Corporation.

The LNV Credit Facility has certain financial and nonfinancial covenants. In addition, the LNV Credit Facility has certain reporting obligations that require DLP IV to deliver unaudited quarterly financial statements no later than forty-five days after the end of each of the first three fiscal quarters, and audited annual financial statements no later than ninety days after the end of each fiscal year. We were in compliance with these covenants at June 30, 2021, and continue to be as of the date of this filing.

The Third LNV Credit Facility makes available a total of up to $300.0 million in credit to DLP IV with a maturity date of September 27, 2029. The principal amount outstanding under this facility was $236.7 million and $202.6 million at June 30, 2021 and December 31, 2020, respectively. There were unamortized deferred financing costs of $9.5 million and $8.9 million as of June 30, 2021 and December 31, 2020, respectively. The difference between the amount outstanding and the carrying amount on our condensed consolidated balance sheets is due to netting of unamortized debt issuance costs.

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~~GWG HOLDINGS, INC. AND SUBSIDIARIES~~

~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS~~

~~(unaudited)~~

L Bonds

WeGWG Holdings began publicly offering and selling L Bonds in January 2012, which have been sold under ~~the name “Renewable Secured Debentures”. These debt securities were re-named “L Bonds” in January 2015. L Bonds were publicly offered and sold on a continuous basis under a~~various registration ~~statement~~statements since that time. On December 1, 2017, an additional public offering was declared effective permitting us to sell up to $1.0 billion in principal amount of L Bonds through January 2018. On December 1, 2017, a registration statement relating to an additional public offering was declared effective permitting us to sell up to an additional $1.0 billion in principal amount of L Bonds on a continuous basis ~~through~~until December 2020. We reached the maximum capacity on this offering during the third quarter of 2020.

We are party to an indenture governing the L Bonds dated October 19, 2011, as amended (“Indenture”), under which GWG Holdings is obligor, GWG Life is guarantor, and Bank of Utah serves as indenture trustee. Effective December 31, 2019, we entered into Amendment No. 2 to the indenture, which primarily modified the calculation of the debt coverage ratio to allow the Company greater flexibility to finance and to anticipate the potential impacts of GWG Holdings’ ~~expanding~~ relationship with Beneficient.

We were in compliance with the covenants of the indenture at ~~September~~June 30, ~~2020,~~2021, and as of the date of this ~~filing.~~filing, and no Events of Default (as defined in the Amended and Restated Indenture) existed as of such dates.

GWG Holdings publicly ~~offer~~offers and ~~sell~~sells L Bonds under a registration statement declared effective by the SEC and have issued Seller Trust L Bonds under athe L Bond Supplemental Indenture, as described below. We temporarily suspended the offering of ~~our~~GWG Holdings’ L Bonds, ~~on May 1, 2019~~commencing April 16, 2021, as a result of our delay in filing certain periodic reports with the ~~SEC.~~SEC, including this Quarterly Report on Form 10-Q. We ~~recommenced our~~anticipate recommencing the offering of GWG Holdings’ L ~~Bond offering on August 8, 2019.~~Bonds when we regain compliance with SEC filing requirements.

The bonds have renewal features under which we may elect to permit their renewal, subject to the right of bondholders to elect to receive payment at maturity. Interest is payable monthly or annually depending on the election of the investor.

At ~~September~~both June 30, ~~2020~~2021 and December 31, ~~2019,~~2020, the weighted-average interest rate of ~~our outstanding~~GWG Holdings’ L Bonds was ~~7.22% and 7.15%, respectively.~~7.21%. The principal amount of L Bonds outstanding, including Liquidity Bonds discussed below, was ~~$1.2~~$1.4 billion and ~~$0.9~~$1.3 billion at ~~September~~June 30, ~~2020~~2021 and December 31, ~~2019,~~2020, respectively. The difference between the amount of outstanding L Bonds and the

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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)

carrying amount on our condensed consolidated balance sheets is due to netting of unamortized deferred issuance costs, cash receipts for new issuances, and payments of redemptions in process. ~~Amortization~~There were $8.3 million of ~~deferred issuance costs was $4.3~~redemptions in process and $18.0 million of subscriptions in process as of June 30, 2021 and ~~$3.2 million for the three months ended September 30,~~December 31, 2020, ~~and 2019,~~ respectively. Amortization of deferred issuance costs was ~~$12.4~~$5.3 million and ~~$9.2~~$4.2 million for the ~~nine~~three months ended ~~September~~June 30, 2021 and 2020, respectively. Amortization of deferred issuance costs was $10.3 million and ~~2019,~~$8.1 million for the six months ended June 30, 2021 and 2020, respectively. Future expected amortization of deferred financing costs as of ~~September~~June 30, ~~2020~~2021 is ~~$45.8~~$49.1 million in total over the next seven years.

Seller Trust L Bonds

On August 10, 2018, in connection with the ~~Initial Transfer~~initial transfer of the Exchange Transaction described in Note 1, GWG Holdings issued Seller Trust L Bonds in the amount of $366.9 million to the Seller Trusts. The maturity date of the Seller Trust L Bonds is August 9, 2023. The Seller Trust L Bonds bear interest at 7.50% per year. Interest is payable monthly in cash.

After December 28, 2020, the holders of the Seller Trust L Bonds ~~will~~ have the right to cause GWG Holdings to repurchase, in whole but not in part, the Seller Trust L Bonds held by such holder. The repurchase may be paid, at the option of GWG Holdings, in the form of cash, and/or a pro rata portion of (i) the outstanding principal amount and accrued and unpaid interest under the ~~commercial loan between GWG Life and Ben LP entered into on August 10, 2018~~Commercial Loan Agreement and (ii) Common Units, or a combination of cash and such property.

GWG Holdings’ L Bonds are offered and sold under a registration statement declared effective by the SEC, as described above, and GWG Holdings has issued Seller Trust L Bonds under the L Bond Supplemental Indenture.

As a result of the Collateral Swap on September 30, 2020, as discussed in Note 1, $94.8 million of Seller Trust L Bonds are now held by certain trusts within the ExAlt Trusts, and are eliminated in consolidation.

The principal amount of Seller Trust L Bonds outstanding reflected on the condensed consolidated balance sheets was ~~$366.9~~$272.1 million at both ~~September~~June 30, ~~2020~~2021 and December 31, ~~2019.~~2020.

Liquidity Bonds

On December 31, 2020, GWG Holdings, GWG Life, and Bank of Utah, as trustee (the “Trustee”), entered into a supplemental indenture, dated as of December 31, 2020 (the “Liquidity Bond Supplemental Indenture”), to that certain Amended and Restated Indenture, dated as of October 23, 2017 (as amended, the “Indenture”), among GWG Holdings, GWG Life and the Trustee, providing for the issuance from time to time of up to $1.0 billion in aggregate principal amount of two new series of L Bonds (the “Liquidity Bonds”). The Liquidity Bonds were offered and sold to accredited investors in transactions that are exempt from the registration requirements of the Securities Act of 1933, as amended (the “Securities Act”), pursuant to Regulation D under the Securities Act.

The Liquidity Bonds were issued as part of the Company’s strategy to expand its exposure to a portfolio of loans collateralized by cash flows from illiquid alternative assets; however, the Company has decided during the second quarter 2021 to cease the offering of these Liquidity Bonds at this time, but will consider replacing with other similar securities as needed to execute the Company’s strategy. Ben LP is now in the process of reevaluating its strategy and does not believe the decision to cease offering the Liquidity Bonds will have a significant impact on our future operating performance.

As of June 30, 2021 and December 31, 2020, there was $0.8 million and $0.5 million in principal and, as of both dates, $0.2 million of unamortized financing costs of Liquidity Bonds, respectively. The net of these amounts is presented on the condensed consolidated balance sheets in the L Bonds line item.

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~~Other Borrowings~~Debt Due to Related Parties

As of ~~September~~June 30, ~~2020~~2021 and December 31, ~~2019,~~2020, Beneficient had borrowings that consisted of the following (in thousands):


		September 30, 2020		December 31, 2019			June 30, 2021		December 31, 2020
First Lien Credit Agreement	First Lien Credit Agreement	$	27,373	$	77,477	First Lien Credit Agreement	$	2,318	$	2,288
Second Lien Credit Agreement	Second Lien Credit Agreement	72,245		72,184		Second Lien Credit Agreement	73,230		72,260
Other borrowings	Other borrowings	2,606		2,538		Other borrowings	2,675		2,628
Unamortized debt premiums (discounts)		(2,046)		887
Total Other Borrowings		$	100,178	$	153,086
Unamortized debt discounts						Unamortized debt discounts	(975)		(916)
Total debt due to related parties						Total debt due to related parties	$	77,248	$	76,260

Beneficient First and Second Lien Credit Agreement

On May 15, 2020, Beneficient executed a Term Sheet with ~~its lender~~HCLP Nominees, L.L.C. (“HCLP” or the “Lender”) to amend its then senior credit agreement and subordinated credit agreement. The resulting Second Amended and Restated First Lien Credit Agreement and Second Amended and Restated Second Lien Credit Agreement (collectively, the ~~“Second Amendments”~~“Ben Credit Agreements”) was executed on August 13, 2020, with terms and conditions substantially consistent with the Term Sheet, as further described below. ~~Prior to the execution of the Second Amendments, other amendments~~The Ben Credit Agreements extended the June 30, 2020 maturity dates of both loans to August 13, 2020, while Beneficient and the lender finalized the amended and restated credit agreements. Additional agreements were entered into on June 10, 2020, and on June 19, 2020, consistent with the Term Sheet, whereby Beneficient agreed to repay $25.0 million of the then outstanding principal balance and pay an extension fee of 2.5% of the outstanding aggregate principal balance of the loans, calculated after the $25.0 million repayment, on July 15, 2020. A total of $28.6 million was paid on July 15, 2020, which included the $25.0 million principal payment, related accrued interest thereon, and the extension fee described above.

GWG Holdings, GWG Life, and a newly formed entity, DLP V, have also entered into the credit agreements with respect to provisions related to the potential future assumption of the loans by DLP V as described below. The amendments extend the maturity date of both loans to April 10, 2021, and ~~increase~~increased the interest rate on each loan to 1-month LIBOR plus 8.0%, with a maximum interest rate of 9.5%. ~~The loans are payable in 3 installments of $25.0 million on each of September 10, 2020, December 10, 2020, and March 10,~~Through June 30, 2021, ~~with the remaining balance payable on April 10, 2021. Through September 30, 2020,~~ all principal and interest due under the ~~Second Amendments~~Ben Credit Agreements have been paid.

~~The amendments provide for the assumption~~On March 10, 2021, Beneficient Capital Company II, L.L.C. (formerly known as Beneficient Capital Company, L.L.C.) and Beneficient Company Holdings, L.P. (the “New Borrower”), both of which are subsidiaries of the ~~loans by DLP V pursuant~~Company, entered into Amendment No. 1 to ~~a Third~~the Second Amended and Restated ~~First~~Credit Agreement (the “First Lien Amendment”) and Amendment No. 1 to the Second Amended and Restated Second Lien Credit Agreement ~~upon satisfaction of certain conditions precedent, including~~(the “Second Lien Amendment” and, together with the ~~issuance of Beneficient’s trust company charters by~~First Lien Amendment, the ~~Texas Department of Banking.~~“Amendments”) with the Lender. The ~~amendments~~Amendments extend the scheduled maturity date under the Ben Credit Agreements from April 10, 2021 to May 30, 2022. The Amendments also provide that ~~DLP V will receive Preferred C interests~~the New Borrower shall repay $5.0 million of the outstanding principal amount under the Ben Credit Agreements on each of September 10, 2021 (subsequently deferred as discussed below), December 10, 2021, and March 10, 2022. The Amendments also provide for an extension fee equal to 1.5% of the outstanding principal under the Ben Credit Agreements, which was added to the outstanding amount under the Ben Credit Agreements as provided for in ~~exchange for assuming Beneficient’s amended loans~~the amendments. Through June 30, 2021, all principal and interest due have been paid. Finally, as also discussed in Note 17, effective July 15, 2021, Beneficient executed Consent and Amendment No. 3 to the Second Amended and Restated Credit Agreement and Amendment No. 2 to the Second Amended and Restated Subordinate Credit Agreement with its lender, which (i) deferred the payment of all accrued and unpaid interest until December 10, 2021, and (ii) deferred the installment payment of $5.0 million due on September 10, 2021, to December 10, 2021. Beneficient agreed to pay an amendment fee to the lender in an amount equal to ~~110%~~3% of the then outstanding ~~loan balance. Upon assumption of~~principal and interest on December 10, 2021.

On June 28, 2021, Beneficient executed the loans, the lender will receive a fee of 2.0% of the then outstanding balance of the loans. Furthermore, upon assumption of the loans, the Commercial Loan Agreement between GWG Life and Beneficient will be assumed by GWG Life USA, LLC, a wholly owned subsidiary of GWG Holdings, in exchange for Class A Subclass A-2 Units of BCH equivalentAmendment No. 2 to the ~~outstanding principal balance~~Second Amended and Restated Credit Agreement and Amendment No. 2 to the Second Amended and Restated Subordinate Credit Agreement with its lender. The amendments, among other things, eliminated the obligation of ~~the debt evidenced by the Commercial Loan Agreement. In connection with the assumption of the loans by~~ DLP V to assume the ~~lender will be granted a security interest~~Ben Credit Agreements as provided for in the ~~Preferred Series A Subclass 1 Unit Accounts of BCH held by GWG Life~~Ben Credit Agreements and waive the ~~life insurance policies held by DLP V, which are to be contributed to DLP V from GWG Life Trust.~~daily fee payable upon the Trigger as provided for in the Amendments.

In connection with the ~~agreement by DLP V to assume the loans upon the issuance of Beneficient's trust company charters,~~Ben Credit Agreements, (i) the ~~lender~~Lender will be permitted to make capital contributions of up to $152.0 million in exchange for a Preferred Series A Subclass 1 Unit Account of BCH for an equal amount of cash for two years after the assumption of the loans; should the ~~lender~~Lender elect to make such a capital contribution, GWG Holdings or one of its subsidiaries will be allowed to exchange an amount of Preferred C into Preferred Series A Subclass 1 Unit Accounts or contribute cash for Preferred Series A Subclass 1 Unit Accounts, in certain circumstances, in order to maintain its relative ownership percentage of the Preferred Series A Subclass 1 Unit Accounts; (ii) ~~BHI,~~Beneficient Holdings, Inc. (“BHI”), which owns a majority of the Class S Ordinary Units, Preferred Series A Subclass 1 Unit Accounts, and FLP Subclass 1 Unit Accounts issued by BCH, will grant certain tax-related concessions related to the transaction to the ~~lender~~Lender as may be mutually agreed upon between the parties, and (iii) in exchange for the tax-related concessions to be agreed between the parties, (a) 5% of BHI’s Preferred Series A Sub Class 1 Unit Account, which will be held by the ~~lender,~~Lender, may convert, upon delivery of notice by BHI or its designee, to a Preferred A.0 Unit Account of BCH, and (b) recipients of a grant of Preferred Series A Subclass 1 Unit Accounts from BHI will have the right to put an amount of Preferred Series A Subclass 1 Unit Accounts to Ben LP equal to any

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~~Accounts to Beneficient equal to any~~ associated tax liability stemming from any such grant; provided that the aggregated associated tax liability shall not relate to more than $30 million of grants of Preferred Series A Subclass 1 Unit Accounts from BHI; and provided, further, that such a put cannot be exercised prior to July 1, 2021. There has been no liability recorded for the put right as of ~~September~~June 30, ~~2020,~~2021, as the transfer of Preferred Series A Subclass Unit Accounts has not occurred.

The ~~amended loan terms~~Ben Credit Agreements and ancillary documents contain covenants that (i) prevent Beneficient from issuing any securities senior to the Preferred Series A Subclass 1 or Preferred A.0 Unit Accounts; (ii) prevent Beneficient from incurring additional debt or borrowings greater than $10.0 million, other than trade payables, while the loans are outstanding; (iii) prevent, without the written consent of the ~~lender,~~Lender, GWG Life Trust or DLP V from selling, transferring or otherwise disposing any of the life insurance policies held by GWG Life Trust as of May 15, 2020, except that life insurance policies may be sold, transferred, or otherwise disposed of, provided that concurrent with the assumption of the loans by DLP V, a prepayment of the loans would be required, if necessary, to maintain certain loan-to-value percentages, after giving effect to such sale, transfer or disposal; and (iv) prevent, without the written consent of the ~~lender,~~Lender, GWG Holdings from selling, transferring, or otherwise disposing of any Preferred Series A Subclass 1 Unit Accounts held as of May 15, 2020, other than to DLP V. These covenants are materially similar to the terms under the Third Amended and Restated First Lien Credit Agreement once assumed by DLP V. As of ~~September~~June 30, ~~2020,~~2021, Beneficient was in compliance with all covenants.

~~The assumption set forth in the amendments are subject to, among other things, the satisfaction of certain closing conditions, some of which may be outside of the parties’ control.~~ These loans are not currently guaranteed by GWG.

Beneficient’s Second Lien Credit Agreement was originally issued to BHI, a Ben Founder Affiliate. “Ben Founder Affiliates” are defined as certain trusts and those entities held by such trusts that are controlled by Ben Founder. During 2019, the Second Lien Credit Agreement was contributed to HCLP and thus, all existing senior loan obligations are held by HCLP as of June 30, 2021 and December 31, 2020.

HCLP is indirectly associated with Ben Founder. Further, an indirect parent entity of HCLP had loans outstanding to Ben Founder Affiliates as of December 31, 2020.

Beneficient's ~~additional~~other borrowings as detailed in the table above mature in ~~2023~~2024 and ~~2024.~~2025.

~~(11)~~(10) Stockholders’ Equity

GWG Holdings Equity

Common Stock

In September 2014, GWG Holdings consummated an initial public offering of its common stock resulting in the sale of 800,000 shares of common stock at $12.50 per share, and net proceeds of approximately $8.6 million after the payment of underwriting commissions, discounts and expense reimbursements. In connection with this offering, the common stock of GWG Holdings was listed on the Nasdaq Capital Market under the ticker symbol “GWGH.”

The 2018 transactions between GWG Holdings, GWG Life, Beneficient and the Seller Trusts described in Note 1 ultimately resulted in the issuance of 27,013,516 shares of GWG ~~Holdings~~Holdings’ common stock to the Seller ~~Trust~~Trusts in exchange for Common Units. The shares were offered and sold in reliance upon the exemption from registration provided by Section 4(a)(2) under the Securities Act of 1933, as amended. Also, the Purchase and Contribution Agreement described in Note 1 ultimately resulted in the sale of 2,500,000 shares of GWG Holdings common stock to BCC, and the contribution of 1,452,155 shares of GWG Holdings common stock to AltiVerse.

Pursuant to the Exchange Agreement described in Note 1, commencing on December 31, 2019, holders of ~~Ben LP~~ Common Units have the right to exchange their Common Units for common stock of GWG Holdings. The exchange ratio in the Exchange Agreement is based on the ratio of the capital account associated with the Common Units to be exchanged to the market price of the common stock of GWG Holdings based on the volume weighted average price of GWG Holdings’ common stock for the five consecutive trading days prior to the quarterly exchange date. No ~~Ben LP~~ Common Units have been exchanged for common stock of GWG Holdings through ~~September~~June 30, ~~2020.~~

On November 15, 2018, the Board of Directors of GWG Holdings approved a stock repurchase program pursuant to which the Company was permitted, from time to time, to purchase shares of its common stock for an aggregate purchase price not to exceed $1.5 million. Stock repurchases were able to be executed through various means, including, without limitation, open market transactions, privately negotiated transactions or otherwise. The stock repurchase program did not obligate the Company to purchase any shares, and expired on April 30, 2019.2021.

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~~The following table includes information about the stock repurchase program for the nine months ended September 30, 2019 (dollar amounts in thousands, except per share data):~~

2019 Monthly Period Number of Shares Purchased Average Price Paid per Share Total Number of Shares Purchased as Part of the Program Maximum Dollar Value of Shares that Remained Under the Program
January 2019 42,488 $ 8.47 52,523 $ 1,072
February 2019 202 8.88 52,725 1,070

~~(1)No stock was repurchased after February 2019, and the stock repurchase program expired on April 30, 2019.~~

Redeemable Preferred Stock

On November 30, 2015, ~~our~~GWG Holdings’ public offering of up to 100,000 shares of RPS at $1,000 per share was declared effective. Holders of RPS are entitled to cumulative dividends at the rate of 7% per annum, paid monthly. Dividends on the RPS are recorded as a reduction to additional paid-in capital, if any, then to the outstanding balance of the preferred stock if additional paid-in capital has been exhausted. Under certain circumstances described in the Certificate of Designation for the RPS, additional shares of RPS may be issued in lieu of cash dividends.

The RPS ranks senior to ~~our~~GWG Holdings’ common stock and pari passu with ~~our~~GWG Holdings’ RPS 2 (see further details in the section below) and entitles its holders to a liquidation preference equal to the stated value per share (i.e., $1,000) plus accrued but unpaid dividends. Holders of RPS may presently convert their RPS into ~~our~~GWG Holdings’ common stock at a conversion price equal to the volume-weighted average price of ~~our~~GWG Holdings’ common stock for the 20 trading days immediately prior to the date of conversion, subject to a minimum conversion price of $15.00 and in an aggregate amount limited to 15% of the stated value of RPS originally purchased from us and still held by such purchaser.

Holders of RPS may request that we redeem their RPS at a price equal to their stated value plus accrued but unpaid dividends, less an applicable redemption fee, if any, as specified in the Certificate of Designation. Nevertheless, the Certificate of Designation for RPS permits us in our sole discretion to grant or decline redemption requests. Subject to certain restrictions and conditions, we may also redeem shares of RPS without a redemption fee upon a holder’s death, total disability or bankruptcy. In addition, after one year from the date of original issuance, we may, at our option, call and redeem shares of RPS at a price equal to their liquidation preference.

In March 2017, we closed the RPS offering to additional investors having sold 99,127 shares of RPS for an aggregate gross consideration of $99.1 million and incurred approximately $7.0 million of related selling costs.

At the time of its issuance, we determined that the RPS contained two embedded features: (1) optional redemption by the holder, and (2) optional conversion by the holder. We determined that each of the embedded features met the definition of a derivative; however, based on our assessment under ASC 470, Debt, (“ASC 470”) and ASC 815, Derivatives and Hedging, (“ASC 815”), we do not believe bifurcation of either the holder’s redemption or conversion feature is appropriate.

Series 2 Redeemable Preferred Stock

On February 14, 2017, ~~our~~GWG Holdings’ public offering of up to 150,000 shares of RPS 2 at $1,000 per share was declared effective. The terms of the RPS 2 are largely consistent with those of the RPS, other than the conversion and redemption features discussed below.

Holders of RPS 2 may, less an applicable conversion discount, if any, convert their RPS 2 into ~~our~~GWG Holdings’ common stock at a conversion price equal to the volume-weighted average price of ~~our~~GWG Holdings’ common stock for the 20 trading days immediately prior to the date of conversion, subject to a minimum conversion price of $12.75 and in an aggregate amount limited to 10% of the stated value of RPS 2 originally purchased from us and still held by such purchaser. We may, at our option, call and redeem shares of RPS 2 at a price equal to their liquidation preference (subject to a minimum redemption price, in the event of redemptions occurring less than one year after issuance, of 107% of the stated value of the shares being redeemed).

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~~(unaudited)~~

In April 2018, we closed the RPS 2 offering to additional investors having sold 149,979 shares of RPS 2 for an aggregate gross consideration of $150.0 million and incurred approximately $10.3 million of related selling costs.

The RPS 2 was determined to have the same two embedded features discussed in the RPS section above (optional redemption by the holder and optional conversion by the holder). We do not believe bifurcation of either the holder’s redemption or conversion feature is appropriate.

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Beneficient Equity

As of ~~September~~June 30, ~~2020,~~2021, Ben LP has issued Common Units and BCH, a consolidated subsidiary of Ben LP, has issued general partnership Class A Units (Subclass A-1 and A-2), Class S Ordinary Units, Class S Preferred Units, FLP Units (Subclass 1 and Subclass 2), Preferred Series A Subclass 1 Unit Accounts, Preferred Series A Subclass 2 Unit Accounts, and Preferred Series C Subclass 1 Unit Accounts. The Preferred Series A Subclass 0 Unit Accounts were created under the 5th Amended and Restated LPA while the Preferred Series C Subclass 0 Unit Accounts were created under the 6th Amended and Restated LPA; however, ~~none have~~neither security has been issued as of ~~September~~June 30, ~~2020.~~2021. The ~~5th~~6th Amended and Restated LPA of BCH governs the terms of these equity securities.

Common Units

As of ~~September~~both June 30, ~~2020~~2021 and December 31, ~~2019, Beneficient~~2020, Ben LP has a total of ~~48,749,630 and 44,146,623~~48,205,756 Common Units issued and outstanding, respectively. As of ~~September~~both June 30, ~~2020~~2021 and December 31, ~~2019,~~2020, GWG Holdings owns ~~46,887,963 and 42,171,946,~~46,887,915 Common Units, respectively, which are eliminated in consolidation. The remaining issued and outstanding Common Units are recorded in the condensed consolidated balance sheet in the noncontrolling interests line item.

Preferred Series A Subclass 0 (Noncontrolling Interests)

On July 15, 2020, BCH ~~a consolidated subsidiary of Ben LP,~~ amended its limited partnership agreement in a 5th Amended and Restated LPA, which created a new subclass of Preferred Series A Unit Accounts, the Preferred A.0.

As a subclass of the Preferred Series A Unit Accounts, the Preferred A.0 receives the same preferred return on a quarterly basis as the other Preferred Series A subclasses. However, the Preferred A.0 is senior to all other classes of preferred equity, including the other subclasses of Preferred Series A in terms of allocations of profits, distributions, and liquidation. The Preferred A.0 can be converted into Class S Units at the election of the holder, at a price equal to (x) prior to the initial public listing, the per Common Unit fair market value as determined by the general Partner and (y) following the initial public listing, the lesser of (i) $10 and (ii) if the Common Units are listed on a national securities exchange, the volume-weighted average closing price of a Common Unit as reported on the exchange on which the Common Units are traded for the twenty (20) days immediately prior to the applicable exchange date, or if the Common Units are not listed on a national securities exchange, then the volume-weighted average closing price of a security traded on a national securities exchange or quoted in an automated quotation system into which the Common Units are convertible or exchangeable for the twenty (20) days immediately prior to the applicable exchange date.

The Preferred A.0 Unit Accounts have not been issued as of June 30, 2021.

Preferred Series A Subclass 1 (Redeemable Noncontrolling Interest)

BCH, a consolidated subsidiary of Ben LP, has non-unitized equity outstanding. The Preferred Series A Subclass 1 Unit Accounts are non-participating and convertible on a dollar basis.

In 2019, Preferred Series A Subclass 1 Unit Account holders signed an agreement to forbear the right to receive an annualized preferred return in excess of a rate determined materially consistent with the methodology below until, initially, the earlier of December 31, 2019 or three months following the issuance of the limited trust association ~~charters~~charter by the Texas Department of Banking. The ~~charters~~charter from the Texas Department of Banking ~~were~~was not issued as of December 31, 2019. ~~In 2020, this~~The forbearance agreement was extended through ~~September~~June 30, ~~2020.~~2021.

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The income allocation methodology under this forbearance agreement was as follows:

•First, Ben, as the sole holder of Class A Units issued by BCH is allocated income from BCH to cover the expenses incurred solely by Ben;

•Second, the remaining income at BCH is allocated 50% to the aggregate of Class A Units and Class S Ordinary Units and 50% to Preferred Series A Subclass 1 Unit Accounts, until the Common Units issued by Ben LP receive a 1% annualized return on the Common Unit account balance;

•Third, after the 1% annualized return to the Common Unit issued by Ben LP is achieved, additional income is allocated to the Preferred Series A until the Preferred Series A is allocated the amount required under the LPA, (as amended); and

•Finally, any remaining income is allocated under the terms of the current LPA (pro-rata between the Class A Units and Class S Ordinary Units).

If and when the forbearance agreement expires, account holders will be entitled to a compounded quarterly preferred return. The preferred return to be paid to Preferred Series A Unitholders is limited by a quarterly preferred return rate cap that is based on the annualized revenues of BCH. Annualized revenues are defined as four times the sum of total quarterly interest, fee and dividend income plus total noninterest revenues. This quarterly rate cap is defined as follows:

•0.25% if annualized revenues are $80 million or less;

•0.50% if annualized revenues are greater than $80 million but equal to or less than $105 million;

•0.75% if annualized revenues are greater than $105 million but equal to or less than $125 million;

•1.00% if annualized revenues are greater than $125 million but equal to or less than $135 million;

•1.25% if annualized revenues are greater than $135 million but equal to or less than $140 million; and

•If over $140 million, the preferred return calculation is based on a fraction (i) the numerator of which is (A) the positive percentage rate change, if any, to the seasonally adjusted CPI-U covering the period from the date of the last allocation of profits to such holders, plus (B) (x) 2% prior to an Initial Public Offering (as defined in the BCH LPA) by Ben LP and (y) 3% thereafter, and (ii) the denominator of which is 1 minus the highest effective marginal combined U.S. federal, state and local income tax rate in effect as of the beginning of the fiscal quarter for which such determination is being made for an individual resident in New York City, New York, assuming (1) that the aggregate gross income allocable with respect to the quarterly preferred return for such fiscal year will consist of the same relative proportion of each type or character (e.g., long term or short term capital gain or ordinary or exempt income) of gross income item included in the aggregate gross income actually allocated in respect of the quarterly preferred return for the fiscal year reflected in the ~~BCH's~~BCH’s most recently filed Internal Revenue Service Form 1065 and (2) any state and local income taxes are not deductible against U.S. federal income tax.

The definition of Initial Public Offering includes an event, transaction or agreement pursuant to which the Common Units are convertible or exchangeable into equity securities listed on a national securities exchange or quotation in an automated quotation system.

No amounts have been paid to the Preferred Series A Subclass 1 Unit Account holders related to the preferred return from inception through ~~September~~June 30, ~~2020. In connection with~~2021, and any amounts earned have been accrued and are included in the ~~issuance~~balance of ~~Preferred Series A Subclass 2 Units as part~~redeemable noncontrolling interests line item of the Option Agreement, the preferred return of Preferred Series A Subclass 1 Unit Account holders is reduced by the preferred return allocated to the Preferred Series A Subclass 2 Units during the period the Option Agreement remains outstanding. Additionally, certaincondensed consolidated balance sheets. Certain Preferred Series A Subclass 1 Unit Account holders agreed to be specially allocated any income or losses associated with the Beneficient Management Partners, L.P. Equity Incentive Plan and certain other costs.

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~~(unaudited)~~

Upon election by a holder, the Preferred Series A Unit Accounts (other than Preferred Series A Subclass 2 Unit Accounts) are, at any time on or after January 1, 2021, convertible in an amount of Preferred Series A Unit Accounts (other than Preferred Series A Subclass 2 Unit Accounts), equal to 20% of their Sub-Capital Accounts into Class S Ordinary Units (with the right to convert any unconverted amount from previous years in any subsequent years). Upon an election, a holder of Preferred Series A Subclass 1 Unit Accounts will be issued Class S Ordinary Units necessary to provide the holder with a number of Class S Ordinary Units that, in the aggregate, equal (a) the balance of the holder’s capital account associated with the Preferred Series A Subclass 1 Unit Accounts being converted divided by (b) either (x) prior to an initial public offering, the appraised per Class A Unit fair market value as determined by Beneficient or (y) following an initial public offering, the average price of a Common Unit for the thirty (30) day period ended immediately prior to the applicable conversion date. The holder of such newly issued

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Class S Ordinary Units may immediately convert them into Common Units. Additionally, effective December 31, 2030, if the Preferred Series A Subclass 1 Unit Accounts have not been converted, they will redeem for cash in an amount equal to the then outstanding capital account balance of the accounts. If available redeeming cash (as defined in the LPA) is insufficient to satisfy any such redemption requirements, BCH, on a quarterly basis, will redeem additional Preferred Series A Units until all such Preferred Series A Units have been redeemed. The Preferred Series A Subclass 1 Unit Accounts are subject to certain other conversion and redemption provisions.

The current LPA of BCH also includes certain limitations of BCH, without the consent of a majority-in-interest of the Preferred Series A Unit Account holders, to (i) issue any new equity securities and (ii) except as otherwise provided, incur indebtedness that is senior to or pari passu with any right of distribution, redemption, repayment, repurchase or other payments relating to the Preferred Series A Unit accounts. Further, BCH cannot, prior to the conversion of all the Preferred Series A Unit accounts, incur any additional long-term debt unless (i) after giving effect to the incurrence of the new long-term debt on a pro forma basis, the sum of certain preferred stock, existing debt and any new long-term indebtedness would not exceed 55% of BCH’s net asset value (“NAV”) plus cash on hand, and (ii) at the time of incurrence of any new long-term indebtedness, the aggregate balance of BCH’s (including controlled subsidiaries) debt plus such new long-term debt does not exceed 40% of the sum of the NAV of the ~~collateral~~interests in alternative assets supporting the Collateral underlying the loan portfolio of BCH and its subsidiaries plus cash on hand at Ben LP, BCH and its subsidiaries.

The Preferred Series A Subclass 1 Unit Accounts are recorded in the condensed consolidated balance sheet in the redeemable noncontrolling interest line item.

Preferred Series C Subclass 0 Unit Accounts

The ~~5th~~6th Amended and Restated LPA ~~also created a new class~~allowed for the issuance of ~~preferred equity, the~~ Preferred Series C Subclass 0 Unit Accounts. The Preferred Series C Subclass 0 Unit Accounts are non-participating and convertible on a basis consistent with the UPA discussed in Note 1. Account holders are entitled to a compounded quarterly preferred return based on a fraction, the numerator of which is (a) the sum of an inflation adjustment amount, plus (1) 0.5% prior to the initial public listing and (2) 0.75% following the initial public listing, and the denominator of which is (b) 1 minus the means of the highest effective marginal combined U.S. federal, state and local income tax rate (including the rate of taxes under Section 1411 of the Code) for a Fiscal Year prescribed for an individual resident in New York, New York (taking into account (a) the nondeductibility of expenses subject to the limitations described in Sections 67 and 68 of the Code, (b) the character (e.g., long-term or short-term capital gain or ordinary or exempt income) of the applicable income, but not taking into account the deductibility of state and local income taxes for U.S. federal income tax purposes), based on the Partnership’s most recently filed IRS form 1065, and (c) multiplied by 80%.

The Preferred Series C Subclass 0 Unit Accounts are senior to all other classes of preferred equity other than the Preferred Series A Subclass 0 Unit Accounts in terms of allocations of profits, distributions, and liquidation.

The only conversion, redemption, or exchange rights available to the Preferred Series C Subclass 0 Unit Accounts are those rights afforded in accordance with the UPA, described in Note 1, or such similar agreement.

While any amount of Preferred Series C (Subclass 0 or 1) Unit Accounts is outstanding, BCH cannot make any distributions, other than tax distributions and redemptions, distributions upon a liquidation of BCH, and distributions of net consideration received from a sale of BCH, without the prior consent of a majority in interest of the holders of the Preferred Series C (Subclass 0 or 1) Unit Accounts.

The Preferred Series C Subclass 0 Unit Accounts have not been issued as of June 30, 2021.

Preferred Series C Subclass 1 Unit Accounts

The 5th Amended and Restated LPA also created a new class of preferred equity, the Preferred Series C Subclass 1 Unit Accounts. The Preferred Series C Subclass 1 Unit Accounts are non-participating and convertible on a basis consistent with the UPA discussed in Note 1. Account holders are entitled to a compounded quarterly preferred return based on a fraction, the numerator of which is (a) the sum of an inflation adjustment amount, plus (1) 0.5% prior to the initial public listing and (2) 0.75% following the initial public listing, and the denominator of which is (b) 1 minus the means of the highest effective marginal combined U.S. federal, state and local income tax rate (including the rate of taxes under Section 1411 of the Code) for a Fiscal Year prescribed for an individual resident in New York, New York (taking into account (a) the nondeductibility of

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expenses subject to the limitations described in Sections 67 and 68 of the Code and (b) the character (e.g., long-term or short-term capital gain or ordinary or exempt income) of the applicable income, but not taking into account the deductibility of state and local income taxes for U.S. federal income tax purposes), based on the Partnership’s most recently filed IRS form 1065.

BCH calculates two Preferred Series C Subclass 1 Unit Accounts capital accounts: the Liquidation Capital Account and the Conversion Capital Account. In calculating the Conversion Capital Account, the Preferred Series C Subclass 1 Unit Accounts are allocated profits and losses junior to the Preferred Series A Unit Accounts. In calculating the Liquidation Capital Account, the Preferred Series C Subclass 1 Unit Accounts are allocated profits and losses pari passu with the Preferred Series A Unit Accounts.

Following the exchange of any Preferred Series C Subclass 1 Unit Accounts into Common Units under the UPA described in Note 1, the excess of the profits and losses allocated to the Preferred Series C Subclass 1 Unit Accounts under the Liquidation Capital Account will be deemed the “Excess Amount.” This Excess Amount will be specially allocated at each tax period in accordance with the principals of Treasury Regulation Section 1.704-1(b)(4)(x), to the Preferred Series A Subclass 1 Units Accounts, prior to any amount of profit, income or gain being allocated to any other class of units (other than the Preferred A.0) or limited partners until such special allocations equal, in the aggregate, such Excess Amount.

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~~(unaudited)~~

The only conversion, redemption, or exchange rights available to the Preferred Series C Subclass 1 Unit Accounts are those rights afforded in accordance with the UPA, described in Note 1, or such similar agreement.

As of ~~September~~June 30, 2021 and December 31, 2020, the aggregate carrying value of GWG ~~owns $161.0 million of~~Holdings’ investments in Preferred Series C Subclass 1 Unit ~~Accounts.~~Accounts was $210.6 million and $195.6 million, respectively. The Preferred Series C Subclass 1 Unit Accounts are eliminated upon consolidation.

Class S Ordinary Units

As of both ~~September~~June 30, ~~2020~~2021 and December 31, ~~2019,~~2020, BCH, a consolidated subsidiary of Ben LP, had issued and outstanding ~~5.7~~5.8 million Class S Ordinary ~~Units.~~Units, respectively. The Class S Ordinary Units participate on an as-converted basis pro-rata in the share of the profits or losses of BCH and subsidiaries following all other allocations made by BCH and its subsidiaries. As limited partner interests, these units have limited voting rights and do not entitle participation in the management of BCH’s business and affairs. The Class S Ordinary Units are exchangeable for Common Units on a 1-for-one basis, subject to customary conversion rate adjustments for splits, distributions and reclassifications, as well as compliance with any applicable vesting and transfer restrictions. Each conversion also results in the issuance to Ben LP of a Class A Unit of BCH for each ~~common unit~~Common Unit issued.

The Class S Ordinary Units are recorded in the condensed consolidated balance sheet in the noncontrolling interests line item.

Class S Preferred Units

The limited partnership agreement of BCH allows it to issue Class S Preferred Units. The Class S Preferred Units are entitled to a quarterly preferred return that is limited by the quarterly preferred return rate cap described above for Preferred Series A Subclass 1 except for when annualized revenues exceed $140 million, the Class S Preferred return is based on a fraction (i) the numerator of which is (A) the positive percentage rate change, if any, to the seasonally adjusted CPI-U covering the period from the date of the last allocation of profits to such holders, plus (B) 0.75 percent, and (ii) the denominator of which is 1 minus the highest effective marginal combined U.S. federal, state and local income tax rate in effect as of the beginning of the fiscal quarter for which such determination is being made for an individual resident in New York City, New York, assuming (1) that the aggregate gross income allocable with respect to the quarterly preferred return for such fiscal year will consist of the same relative proportion of each type or character (e.g., long term or short term capital gain or ordinary or exempt income) of gross income item included in the aggregate gross income actually allocated in respect of the quarterly preferred return for the fiscal year reflected in the Ben Group Partnership’s most recently filed IRS Form 1065 and (2) any state and local income taxes are not deductible against U.S. federal income tax. The Class S Preferred Units also participate on an as-converted basis ~~pro-rata~~pro-

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rata in the share of the profits or losses of BCH and subsidiaries following all other allocations made by BCH and its subsidiaries. As limited partner interests, these units are generally non-voting and do not entitle participation in the management of BCH’s business and affairs. Generally, the Class S Preferred Units are exchangeable for Common Units in Ben LP on a 1.2-for-1 basis, subject to customary conversion rate adjustments for splits, distributions and reclassifications, as well as compliance with any applicable vesting and transfer restrictions. Each conversion also results in the issuance to Ben LP of a Class A Unit for each Common Unit issued. Holders of Class S Preferred Units may elect to convert into Class S Ordinary Units in connection with a sale or dissolution of BCH.

As of June 30, 2021, a nominal number of shares of Class S Preferred Units have been issued. No amounts have been paid to the Class S Preferred Unit holders related to the preferred return from ~~inception~~issuance through ~~September~~June 30, ~~2020. The~~2021, and any amounts earned have been accrued and are included in the balance of Class S Preferred Units ~~are recorded in~~presented on the condensed consolidated balance sheet in the noncontrolling interests line item.

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~~(unaudited)~~Beneficiaries of the ExAlt Trusts

The ultimate beneficiary of the ExAlt Trusts is an unrelated third party charity (the “Charitable Beneficiary”) that is entitled to i) approximately 5% of any amounts paid to Beneficient as payment on amounts due under each ExAlt Loan, ii) approximately 10% of the amount of excess cash Collateral, if any, following the full repayment of an ExAlt Loan; and (iii) all amounts accrued and held at the ExAlt Trusts once all amounts due to Beneficient under the ExAlt Loans and any fees related to Beneficient’s services to the ExAlt Trusts are repaid. The Charitable Beneficiary’s account balances with respect to its interest in such ExAlt Trusts cannot be reduced to below zero. Any losses allocable to the Charitable Beneficiary in excess of its account balances are reclassified at each period end to the trusts deficit account, which is included as part of noncontrolling interest. Additional ExAlt Trusts are created with each new liquidity transaction with customers. These new ExAlt Trusts, which are consolidated by Beneficient, result in the recognition of additional noncontrolling interest representing the interests in these new ExAlt Trusts held by the Charitable Beneficiary. For the three and six months ended June 30, 2021, nil and $0.4 million, respectively, of such noncontrolling interest was created, compared to nil for both the three and six months ended June 30, 2020.

~~(12)~~The interest of the Charitable Beneficiary, including the associated trust deficit (as applicable), in the ExAlt Trusts is recorded on the consolidated balance sheets in the noncontrolling interests line item.

(11) Equity-Based Compensation

As of ~~September~~June 30, 2021 and December 31, 2020, the Company has outstanding equity-based awards under the GWG Holdings 2013 Stock Incentive Plan, the Beneficient Management Partners, L.P. (“BMP”) Equity Incentive Plan ~~and~~(the “BMP Equity Incentive Plan”, the Ben Equity Incentive Plan (as defined below), and Preferred Series A Subclass 1 Unit Accounts, as more fully described in the sections below. The holders of certain of the units issued under the BMP Equity Incentive Plan and the Ben Equity Incentive Plan, upon vesting, have the right to convert the units to shares of GWG Holdings common stock per the Exchange Agreement discussed in Note 1. As such, units vested and issued under Beneficient’s equity incentive plans may result in dilution of the common stock of GWG Holdings.

2013 Stock Incentive Plan

GWG Holdings adopted the 2013 Stock Incentive Plan in March 2013, as amended on June 1, 2015, May 5, 2017 and May 8, 2018. Participants under the plan may be granted incentive stock options and non-statutory stock options; stock appreciation rights; stock awards; restricted stock; restricted stock units; and performance shares. Eligible participants include officers and employees of GWG Holdings and its subsidiaries, members of ~~our~~GWG Holdings’ Board of Directors, and consultants. Option awards generally expire 10 years from the date of grant. As of ~~September~~June 30, ~~2020,~~2021, the Company has granted stock options, stock appreciation rights (“SAR”), and restricted stock units (“RSU”) under this plan.

During the nine months ended September 30, 2020, a total of 84,018 stock options held by employees vested. Additionally, as a result of stock option exercises, 3,688 shares of common stock were issued to employees, net of shares forfeited to satisfy tax withholding obligations.

Upon the exercise of SARs, the Company is obligated to make cash payments equal to the positive difference between the market value of ~~the Company’s~~GWG Holdings’ common stock on the date of exercise less the market value of the common stock on the date of grant. The liability for the SARs as of ~~September~~both June 30, ~~2020~~2021 and December 31, ~~2019~~2020 was $0.7 million, ~~and $0.6 million, respectively,~~ and was recorded within accounts payable and accrued expenses in the condensed consolidated balance sheets.

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A RSU entitles the holder thereof to receive one share of GWG Holdings’ common stock (or, in some circumstances, the cash value thereof) upon vesting. RSUs are subject to forfeiture until they vest. During the ~~nine~~six months ended ~~September~~June 30, ~~2020, 57,183~~2021, none of the RSUs held by employees and directors vested.

BMP Equity Incentive Plan

The Board of Directors of Beneficient Management, Ben LP’s general partner, adopted the BMP Equity Incentive Plan in 2019. Under the BMP Equity Incentive Plan, certain directors and employees of ~~Ben~~Beneficient are eligible to receive equity units in BMP, an entity affiliated with the board of directors of Beneficient Management, in return for their services to Ben. The BMP equity units eligible to be awarded to employees are comprised of BMP’s Class A Units and/or BMP’s Class B Units (collectively, the “BMP Equity Units”). ~~The BMP Equity Units awarded~~All awards are classified in ~~2019 and during the three and nine months ended September 30, 2020, included some awards that were fully vested~~equity upon ~~grant date, and some awards that are~~issuance.

Awards will generally be subject to service-based vesting over a four-year period from the recipient’s date of ~~hire.~~ hire, though some awards fully vest upon grant date. Expense associated with the vesting of these awards is based on the fair value of the BMP Equity Units on the date of grant. Expense recognized for these awards is specially allocated to certain holders of redeemable noncontrolling interests. While providing services to Beneficient, if applicable, certain of these awards are subject to minimum retained ownership rules requiring the award recipient to continuously hold BMP Equity Units equivalents equal to at least 25% of their cumulatively granted awards that have the minimum retained ownership requirement. The awards are generally non-transferable. Awards under the BMP Equity Incentive Plan that vest ultimately dilute holders of Common Units.

As BMP’s equity is not publicly traded, the fair value of the BMP Equity Units is determined on each grant date using a probability-weighted discounted cash flow analysis. This fair value measurement is based on significant inputs not observable in the market and thus represents a Level 3 measurement within the fair value hierarchy. The resultant probability-weighted cash flows are then discounted using a rate that reflects the uncertainty surrounding the expected outcomes, which the Company believes is appropriate and representative of a market participant assumption.

During second quarter 2020, 1,963,969 vested units were forfeited and returned as a result of an agreement allowing Beneficient to recover the aforementioned units held by one former director of Beneficient (see further discussion below).

Ben Equity Incentive Plan

The Board of Directors of Beneficient Management adopted the Ben Equity Incentive Plan in September ~~2018.~~2018 (the “Ben Equity Incentive Plan”). Under the Ben Equity Incentive Plan, Ben LP is permitted to grant equity awards, in the form of restricted equity units (“REUs”), among others, representing ownership interests in Common Units. Settled awards under the Ben Equity Incentive Plan dilute ~~Ben’s~~holders of Common ~~Unitholders.~~Units. The total number of Common Units that may be issued under the Ben Equity Incentive Plan is equivalent to 15% of the number of fully diluted Common Units outstanding, subject to annual adjustment.

~~Page 39~~

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~~GWG HOLDINGS, INC. AND SUBSIDIARIES~~

~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS~~

~~(unaudited)~~

All awards are classified in equity upon issuance.

All REUs are subject to two performance conditions, both of which were met during 2019. Additionally, if a change-of-control event occurs prior to July 1, 2021, then all units, vested and unvested, will settle within 60 days. Any transaction ~~where~~whereby GWG Holdings obtains the right to appoint a majority of the members of Beneficient Management’s Board of Directors is expressly excluded from the definition of change-of-control for the REUs.

Awards will generally be subject to service-based vesting over a multi-year period from the recipient’s date of hire, though some awards fully vest upon grant date. While providing services to ~~Ben,~~Beneficient, if applicable, certain of these awards are subject to minimum retained ownership rules requiring the award recipient to continuously hold Common Unit equivalents equal to at least 15% of their cumulatively granted awards that have the minimum retained ownership requirement.

As Ben LP’s equity is not publicly traded, the fair value of the REUs is estimated on the grant date using recent equity transactions involving third parties, which provides the Company with observable fair value information sufficient for estimating the grant date fair value.

During second quarter 2020, 507,500 vested units were forfeited as a result of an agreement allowing Beneficient to recover the aforementioned units held by one former director of Beneficient. Beneficient recognized $36.3 million of other income as a result of this recovery of equity-based compensation, including both BMP Equity Units and REUs. A substantial majority of the former director's equity-based compensation units were fully vested, and the majority of the related expense was allocated to certain holders of noncontrolling interests and recorded in prior periods. The provisions of the award agreements related to the forfeiture of vested units resulted in the previous expense being recorded to other income in the year-to-date period, accordingly.

~~During third quarter 2020, 515,000 units were granted to a senior partner director subject to a performance condition. The performance condition has not been met as of September 30, 2020.~~ As the performance condition of the grant is based on a liquidity event, recognition of the related compensation cost is deferred until the condition has been met. Total unrecognized compensation cost related to this award is approximately $6.4 million as of ~~September 30, 2020.~~

~~The following table summarizes the award activity, in number of units, for each plan during the nine months ended September 30, 2020:~~

Balance at December 31, 2019 Granted Vested Exercised Forfeited Recovery of Vested Awards Balance at September 30, 2020
Vested
Stock Options 673,341 0 84,018 (20,136) (109,671) 0 627,552
SAR 200,745 18,556 45,529 (1,284) (4,541) 0 259,005
RSU 0 0 57,183 0 0 0 57,183
BMP Equity Units 7,980,037 4,580,888 496,142 0 (31,618) (1,963,969) 11,061,480
REUs 2,164,742 3,033,956 341,223 0 (14,000) (507,500) 5,018,421
Unvested
Stock Options 232,040 0 (84,018) 0 (66,625) 0 81,397
SAR 174,880 125,269 (45,529) 0 (27,067) 0 227,553
RSU 244,083 0 (57,183) 0 (57,183) 0 129,717
BMP Equity Units 180,000 2,963,800 (496,142) 0 (347,599) 0 2,300,059
REUs 246,500 2,682,072 (341,223) 0 (282,400) 0 2,304,949
Total
Stock Options 905,381 0 0 (20,136) (176,296) 0 708,949
SAR 375,625 143,825 0 (1,284) (31,608) 0 486,558
RSU 244,083 0 0 0 (57,183) 0 186,900
BMP Equity Units 8,160,037 7,544,688 0 0 (379,217) (1,963,969) 13,361,539
REUs 2,411,242 5,716,028 0 0 (296,400) (507,500) 7,323,370

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~~Table Of Contents~~

~~GWG HOLDINGS, INC. AND SUBSIDIARIES~~

~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS~~

~~(unaudited)~~

The holders of certain of the units issued under the BMP Equity Incentive Plan and the Ben Equity Incentive Plan, upon vesting, have the right to convert the units to shares of GWG Holdings common stock per the Exchange Agreement discussed in Note 1. As such, units vested and issued under Beneficient’s equity incentive plans may result in dilution of the common stock of GWG Holdings.

As Ben LP’s equity is not publicly traded, the fair value for substantially all of the REUs granted in 2020 was estimated by using the valuation techniques consistent with those utilized to determine the acquisition date equity values arising from GWG Holdings obtaining a controlling financial interest in Beneficient. These valuation techniques relied upon the OPM Backsolve approach under the market method as more fully described in the 2020 Form 10-K. For the REUs granted in the latter portion of 2020 and through June 30, 2021, we utilized valuation techniques consisting of the income approach and market approach.

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GWG HOLDINGS, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)

During third quarter 2020, 515,000 units were granted to a senior partner director subject to a performance condition. The performance condition has not been met as of June 30, 2021. As the performance condition of the grant is based on a liquidity event, recognition of the related compensation cost is deferred until the condition has been met. Total unrecognized compensation cost related to this award is approximately $6.4 million as of June 30, 2021.

Preferred Equity

On April 25, 2019, Preferred Series A Subclass 1 Unit Accounts in BCH, a subsidiary of Ben LP, were assigned to 3 directors, with each having a capital account balance of $4.0 million, subject to a performance condition, in return for each of the directors providing to BCH their knowledge and abilities in helping with the formation of and capital raising for the Company. BHI, a Ben Founder Affiliate, assigned the Preferred Series A Subclass 1 Unit Accounts it holds in BCH to the directors for those individuals providing services to BCH. Accounting for services provided to the Company but paid by a principal shareholder follows the substance of the transaction and is therefore accounted for similar to a share-based payment in exchange for services rendered. The awards vest upon grant, subject to a performance condition whereby each of the directors must be a board member at the time that a certain level of additional capital is raised. The fair value of the awards at the grant date was estimated at $12.0 million in aggregate.

During the fourth quarter of 2019, $4.0 million of the capital account balance was forfeited back to the Company and reverted to BHI upon the departure of a certain director. The performance condition was met during the fourth quarter of 2020 and expense of $11.4 million was recognized and specially allocated to certain Preferred Series A Subclass 1 Unit Account holders on a pro-rata basis based on their capital account balance. The expense recognized upon vesting is reflective of the value calculated after the determination of overall enterprise value in connection with the change of control event discussed in the 2020 Form 10-K.

The following table summarizes the award activity, in number of units, for each plan during the six months ended June 30, 2021:


	Balance at December 31, 2020	Granted	Vested	Exercised	Forfeited/Cancelled	Balance at June 30, 2021
Vested
Stock Options	629,530	—	9,750	(1,666)	(2,334)	635,280
SAR	293,455	13,350	25,741	—	—	332,546
RSU	—	—	—	—	—	—
BMP Equity Units	11,144,016	21,096	447,328	—	(321,986)	11,290,454
REUs	5,078,796	21,096	365,481	—	(208,816)	5,256,557
Unvested
Stock Options	65,587	—	(9,750)	—	—	55,837
SAR	242,202	94,575	(25,741)	—	—	311,036
RSU	129,717	3,189	—	—	(3,189)	129,717
BMP Equity Units	2,230,097	84,384	(447,328)	—	(80,469)	1,786,684
REUs	2,268,574	84,384	(365,481)	—	(53,264)	1,934,213
Total
Stock Options	695,117	—	—	(1,666)	(2,334)	691,117
SAR	535,657	107,925	—	—	—	643,582
RSU	129,717	3,189	—	—	(3,189)	129,717
BMP Equity Units	13,374,113	105,480	—	—	(402,455)	13,077,138
REUs	7,347,370	105,480	—	—	(262,080)	7,190,770

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GWG HOLDINGS, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)

The following table presents the components of equity-based compensation expense recognized in the condensed consolidated statement of operations (in thousands):


		Three Months Ended September 30,				Nine Months Ended September 30,					Three Months Ended June 30,				Six Months Ended June 30,
		2020		2019		2020		2019			2021		2020		2021		2020
Stock options	Stock options	$	53	$	74	$	140	$	319	Stock options	$	36	$	38	$	76	$	86
Stock appreciation rights	Stock appreciation rights	282		327		171		323		Stock appreciation rights	89		(316)		158		(111)
Restricted stock units	Restricted stock units	0		263		(38)		687		Restricted stock units	—		(299)		31		(38)
BMP equity units	BMP equity units	12,392		0		51,515		0		BMP equity units	1,864		2,172		3,969		39,124
REUs	REUs	10,831		0		44,830		0		REUs	1,905		2,017		5,012		33,999
Total equity-based compensation	Total equity-based compensation	$	23,558	$	664	$	96,618	$	1,329	Total equity-based compensation	$	3,894	$	3,612	$	9,246	$	73,060

Unrecognized equity-based compensation expense, excluding the expense related to the performance award discussed above, totaled approximately ~~$38.3~~$28.7 million as of ~~September~~June 30, ~~2020.~~2021. We currently expect to recognize equity-based compensation expense of ~~$4.1~~$9.3 million during the remainder of ~~2020,~~2021, and the remainder thereafter based on scheduled vesting of awards outstanding as of ~~September~~June 30, ~~2020.~~ 2021.

The following table presents the equity-based compensation expense expected to be recognized over the next five years based on scheduled vesting of awards outstanding, excluding the award subject to the performance condition discussed above, as of ~~September~~June 30, ~~2020~~2021 (in thousands):


		Stock Options		SAR		REUs		BMP Equity Units		Total			Stock Options		SAR		REUs		BMP Equity Units		Total
Three months ending 2020		$	42	$	55	$	1,947	$	2,012	$	4,056
2021		109		200		7,818		7,982		16,109
Six months ending 2021												Six months ending 2021	$	31	$	962	$	4,246	$	4,068	$	9,307
2022	2022	19		153		5,729		5,851		11,752		2022	19		296		5,657		5,682		11,654
2023	2023	0		56		2,889		2,517		5,462		2023	—		195		3,142		2,728		6,065
2024	2024	0		0		567		396		963		2024	—		35		823		724		1,582
2025												2025	—		—		31		49		80
2026												2026	—		—		—		—		—
Total	Total	$	170	$	464	$	18,950	$	18,758	$	38,342	Total	$	50	$	1,488	$	13,899	$	13,251	$	28,688

~~(13)~~(12) Income Taxes

The Company’s income tax provision reflects the activity of GWG Holdings and its subsidiaries, Beneficient Corporate Holdings, LLC and Ben Markets Corporate Holdings, LLC. GWG Holdings and its subsidiaries files a separate tax return from the aforementioned Beneficient entities, but the tax provision information below as of and for the six months ended June 30, 2021 is disclosed on a consolidated basis for financial reporting purposes under applicable GAAP.

The Company applies an estimated annual effective rate to interim period pre-tax income to calculate the income tax provision for the quarter in accordance with the principal method prescribed by the accounting guidance established for computing income taxes in interim periods. ~~Prior to 2020, the Company determined the quarterly income tax provision using a discrete year-to-date calculation.~~

~~Consolidated income tax expense was $22.4 million for the three months ended September 30, 2020, and consolidated income tax benefit was $0.6 million for the nine months ended September 30, 2020.~~ The Company’s effective tax rate was ~~0.4%~~0.34% for the ~~nine~~six months ended ~~September~~June 30, 2020. The income tax expense for the three months ended September 30, 2020 primarily reflects the effects of a gain allocated to GWG Holdings from Ben LP and an increase to the valuation allowance on the Company’s net deferred tax assets (described below).2021. The income tax benefit for the ~~nine~~three and six months ended ~~September~~June 30, 2021 was $0.2 million and $0.5 million, respectively, compared to $2.0 million and $18.2 million for the three and six months ended June 30, 2020, respectively. The effective tax rate differs from the statutory U.S. federal income tax rate of 21% primarily due to valuation allowances recorded on the current year losses, offset by a current state tax expense. The income tax benefit for the three and six months ended June 30, 2021 reflects ~~the effects of a gain allocated~~adjustments to ~~GWG Holdings from Ben LP and a change in state taxing jurisdictions.~~

~~After~~ the ~~change-of-control transaction with Ben LP on December 31, 2019, the Company moved its headquarters from Minnesota to Texas. This move resulted in a change in the state~~ deferred tax ~~rate from 9.8%~~liability for specific expense allocations to ~~0%. In~~ the ~~third quarter 2020,~~holders of the Preferred Series A Subclass 1 Unit Accounts and deferred federal income tax benefit related to Beneficient’s losses, offset by current state tax expense of GWG ~~Holdings was allocated~~Holdings.

The Company currently records a ~~gain from~~valuation allowance against its ~~investment in Ben LP. The~~deferred tax ~~effects~~assets that cannot be realized solely by the future reversal of existing temporary differences. Due to the uncertain timing of the reversal of certain of these ~~items have been recorded~~taxable temporary differences due to the constraint described below, they cannot be considered as ~~discrete items.~~a source of future taxable income for purposes

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GWG HOLDINGS, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)

The Company currently records a valuation allowance against its deferred tax assets that cannot be realized by the future reversal of existing temporary differences. Due to the uncertain timing of the reversal of certain of these temporary differences due to the constraint described below, they cannot be considered as a source of future taxable income for purposes of determining a valuation allowance; therefore, the vast majority of the existing deferred tax liability cannot be utilized in determining the realizability of the deferred tax assets. ~~This is often referred to as a “naked credit.”~~ Due to a prior deemed ownership change, net operating loss carryforwards are subject to Section 382 of the Internal Revenue Code.

The Company ~~reassessed its valuation allowance during the third quarter of 2020 and~~ determined it ~~will no longer~~cannot utilize the reversal of a taxable temporary difference related to ~~the Company's preferred equity~~GWG Life’s ownership in ~~Beneficient,~~the Preferred Series A Subclass 1 Unit Accounts described in Note 1, until such time as the preferred equity is no longer constrained, as a source of income to realize existing deferred tax assets related to the net operating loss and Internal Revenue Code Section 163(j) limitations. As a result, the ~~valuation allowance on the deferred tax assets increased as of September 30, 2020, which resulted in~~Company recorded a ~~larger~~large net deferred tax liability ~~(naked credit)~~on December 31, 2019, the majority of which remained as of ~~September~~June 30, 2021 and December 31, 2020. ~~The naked credit as of September 30, 2020 is specifically related to GWG Life’s investment in the Preferred Series A Subclass 1 Unit Accounts described in Note 1.~~ The disposition of this investment is constrained by the Pledge and Security Agreement in favor of the holders of the L Bonds of GWG Holdings. As such, the timing of recognition of the necessary taxable income related to this investment and the future reversal of this taxable temporary difference cannot be predicted.

We continue to monitor and evaluate the rationale for recording a full valuation allowance for the net amount of the deferred tax assets in excess of the deferred tax liabilities that are not constrained. We intend to continue maintaining a full valuation allowance on these net deferred tax assets until there is sufficient evidence to support the reversal of all or some portion of these allowances. Release of the valuation allowance would result in the recognition of certain deferred tax assets and a decrease to income tax expense for the period the release is recorded. However, the exact timing and amount of the valuation allowance release are subject to change on the basis of the level of profitability that we are able to actually achieve.

On March 27, 2020, Congress passed and the President signed into law the Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”), which included significant changes to U.S. Federal income tax law. However, the only change that is expected to affect the Company is the modification to Section 163(j), which increased the allowable business interest deduction from 30% of adjusted taxable income to 50% of adjusted taxable income.

~~(14)~~(13) Loss per Common Share

The computations of basic and diluted income (loss) attributable to common shareholders per share for the three and ~~nine~~six months ended ~~September~~June 30, ~~2020~~2021 and ~~2019~~2020 are as follows (in thousands, except share data and per share data):


		Three Months Ended September 30,				Nine Months Ended September 30,					Three Months Ended June 30,				Six Months Ended June 30,
		2020		2019		2020		2019			2021		2020		2021		2020
Numerator:	Numerator:									Numerator:
Net loss attributable to common shareholders	Net loss attributable to common shareholders	$	(68,149)	$	(24,635)	$	(135,669)	$	(69,154)	Net loss attributable to common shareholders	$	(64,871)	$	(24,254)	$	(119,303)	$	(71,577)
Denominator:	Denominator:									Denominator:
Basic – weighted average common shares outstanding	Basic – weighted average common shares outstanding	30,584,719		33,033,420		30,552,233		33,010,100		Basic – weighted average common shares outstanding	20,757,400		30,536,830		20,758,431		30,535,811
Effect of dilutive securities	Effect of dilutive securities	0		0		0		0		Effect of dilutive securities	—		—		—		—
Diluted – weighted average common shares outstanding	Diluted – weighted average common shares outstanding	30,584,719		33,033,420		30,552,233		33,010,100		Diluted – weighted average common shares outstanding	20,757,400		30,536,830		20,758,431		30,535,811

Basic loss per common share	Basic loss per common share	$	(2.23)	$	(0.75)	$	(4.44)	$	(2.09)	Basic loss per common share	$	(3.13)	$	(0.79)	$	(5.75)	$	(2.34)
Diluted loss per common share	Diluted loss per common share	$	(2.23)	$	(0.75)	$	(4.44)	$	(2.09)	Diluted loss per common share	$	(3.13)	$	(0.79)	$	(5.75)	$	(2.34)

For the three months ended ~~September~~June 30, ~~2020~~2021 and ~~2019,~~2020, RPS, RPS 2, restricted stock units, and stock options for a potential ~~2,222,118~~2,039,951 and ~~2,737,679~~2,368,178 shares, respectively, were not included in the calculation of diluted earnings per share because we recorded a net loss during these periods and the effects were anti-dilutive. For the ~~nine~~six months ended ~~September~~June 30, ~~2020~~2021 and ~~2019,~~2020, RPS, RPS 2, restricted stock units, and stock options for a potential ~~2,377,628~~2,045,510 and ~~2,698,524~~2,455,922 shares, respectively, were not included in the calculation of diluted earnings per share because we recorded a net loss during these periods and the effects were anti-dilutive. Potentially dilutive instruments issued by Ben LP that are ultimately exchangeable into GWG common stock were also excluded from the calculation of diluted earnings per share for the three and ~~nine~~six months ended ~~September~~June 30, 2021 and 2020 because we recorded a net loss during ~~this period~~these periods and the effects were anti-dilutive.

~~Page 42~~

~~Table Of Contents~~

~~GWG HOLDINGS, INC. AND SUBSIDIARIES~~

~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS~~

~~(unaudited)~~

~~(15)~~(14) Segment Reporting

The Company has 2 reportable segments consisting of Secondary Life Insurance and Beneficient. Corporate & Other includes certain activities not allocated to specific business segments. These activities include holding company financing and investing activities, ~~and~~ management and administrative services to support the overall operations of the Company, and ~~from November 1, 2019, include our~~GWG Holdings’ equity method investment in FOXO.

The Secondary Life Insurance segment seeks to earn non-correlated yield from our portfolio of life insurance policies. Our Beneficient segment consists of the assets and operations of Ben LP and its subsidiaries. ~~Beneficient became a consolidated subsidiary of GWG Holdings as of December 31, 2019, as described in Note 4.~~ Ben LP provides a variety of trust services, liquidity products ~~and loans~~ for owners of alternative assets and illiquid investment funds, and other financial services to ~~HNW~~MHNW individuals. ~~Prior~~The Corporate & Other category consists of unallocated corporate overhead and administrative costs and the operations of operating segments that do not meet the quantitative criteria to ~~December 31, 2019, we accounted for our investment in the Common Units under the equity method.~~be separately reported.

These segments are differentiated by the products and services they offer as well as by the information used by the Company’s chief operating decision maker to determine allocation of resources and assess performance.

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GWG HOLDINGS, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)

Earnings before taxes (“EBT”) is the measure of profitability used by management to assess performance of its segments and allocate resources. Segment EBT represents net income (loss) excluding income taxes and includes earnings (loss) from equity method ~~investments and gain~~investments. Information on ~~consolidation of equity method investment.~~reportable segments is as follows (in thousands):


		Three Months Ended September 30,				Nine Months Ended September 30,					Three Months Ended June 30,				Six Months Ended June 30,
Revenue:	Revenue:	2020		2019		2020		2019		Revenue:	2021		2020		2021		2020
Secondary Life Insurance	Secondary Life Insurance	$	14,422	$	18,238	$	44,800	$	61,199	Secondary Life Insurance	$	(4,073)	$	15,230	$	3,099	$	30,378
Beneficient	Beneficient	14,091		3,709		86,042		9,723		Beneficient	(219)		13,672		368		21,336
Corporate & Other	Corporate & Other	0		264		17		517		Corporate & Other	6		16		6		16
Total	Total	$	28,513	$	22,211	$	130,859	$	71,439	Total	$	(4,286)	$	28,918	$	3,473	$	51,730


		Three Months Ended September 30,				Nine Months Ended September 30,					Three Months Ended June 30,				Six Months Ended June 30,
Interest Expense:	Interest Expense:	2020		2019		2020		2019		Interest Expense:	2021		2020		2021		2020
Secondary Life Insurance	Secondary Life Insurance	$	24,983	$	21,410	$	72,022	$	63,114	Secondary Life Insurance	$	30,460	$	24,346	$	58,079	$	47,039
Beneficient	Beneficient	15,809		6,880		41,783		20,638		Beneficient	11,667		12,796		25,430		25,974
Corporate & Other		0		0		0		0

Total	Total	$	40,792	$	28,290	$	113,805	$	83,752	Total	$	42,127	$	37,142	$	83,509	$	73,013


		Three Months Ended September 30,				Nine Months Ended September 30,					Three Months Ended June 30,				Six Months Ended June 30,
Interest Income:		2020		2019		2020		2019
Segment EBT:										Segment EBT:	2021		2020		2021		2020
Secondary Life Insurance	Secondary Life Insurance	$	209	$	226	$	1,056	$	1,594	Secondary Life Insurance	$	(36,199)	$	(12,446)	$	(58,588)	$	(27,167)
Beneficient	Beneficient	12,719		3,709		38,532		9,678		Beneficient	(29,281)		(15,218)		(60,874)		(95,412)
Corporate & Other	Corporate & Other	0		0		0		4		Corporate & Other	(10,899)		(6,424)		(24,209)		(13,577)
Total		$	12,928	$	3,935	$	39,588	$	11,276
Total Segment EBT										Total Segment EBT	(76,379)		(34,088)		(143,671)		(136,156)
Income tax benefit										Income tax benefit	(196)		(2,018)		(482)		(18,163)
Net loss										Net loss	$	(76,183)	$	(32,070)	$	(143,189)	$	(117,993)

Three Months Ended
September 30, Nine Months Ended
September 30,
Segment EBT: 2020 2019 2020 2019
Secondary Life Insurance $ (12,147) $ (9,169) $ (39,314) $ (19,792)
Beneficient (33,819) (2,214) (86,347) (11,286)
Corporate & Other (8,915) (9,020) (22,492) (25,270)
Total (54,881) (20,403) (148,153) (56,348)
Income tax benefit 22,444 0 (613) —
Net income (loss) $ (77,325) $ (20,403) $ (147,540) $ (56,348)

~~Page 43~~

~~Table Of Contents~~

~~GWG HOLDINGS, INC. AND SUBSIDIARIES~~

~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS~~

~~(unaudited)~~


Total Assets:	Total Assets:	September 30, 2020		December 31, 2019		Total Assets:	June 30, 2021		December 31, 2020
Secondary Life Insurance	Secondary Life Insurance	$	907,197	$	904,363	Secondary Life Insurance	$	876,783	$	886,739
Beneficient	Beneficient	2,675,370		2,721,546		Beneficient	2,618,038		2,662,630
Corporate & Other	Corporate & Other	47,107		9,297		Corporate & Other	9,621		15,588
Total	Total	$	3,629,674	$	3,635,206	Total	$	3,504,442	$	3,564,957

The total assets of the Beneficient segment at both ~~September~~June 30, ~~2020~~2021 and December 31, ~~2019~~2020 includes goodwill of $2.4 billion, which represents all of the goodwill on the Company’s condensed consolidated balance sheet as of the end of each reporting period.

~~(16)~~(15) Commitments and Contingencies

Litigation — In the normal course of business, we are involved in various legal proceedings. In the opinion of management, any liability resulting from such proceedings would not have a material adverse effect on our financial position, results of operations or cash flows.

Commitments — GWG Holdings is committed to contribute an additional ~~$5.0~~$1.3 million to FOXO through October 2021, ~~with an additional $1.2 million in the three months ending December 31, 2020 and $3.8 million in 2021. Beneficient~~all of which has been contributed through such date. The ExAlt Trusts had ~~$35.3 million and $73.8~~$35.6 million of potential gross ~~potential~~ capital commitments as of ~~September~~both June 30, ~~2020~~2021 and December 31, ~~2019,~~2020, respectively, representing potential limited partner capital funding commitments on the interests in alternative asset ~~fund collateral for its loans~~funds. This is the amount above any existing cash ~~reserves.~~reserves for such capital funding commitments. The ~~decrease in gross potential capital commitments from December 31, 2019 is due to the liquidation of the underlying funds and removal of the related commitment. The trust~~ExAlt Trusts holding the interest in the limited partnership for the alternative asset fund is required to fund these limited partner capital commitments per the terms of the limited partnership agreement. Capital funding commitment reserves are maintained by the associated trusts within the ExAlt PlanTM created at the origination of each trust for up to

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$0.1 million. To the extent that the associated ~~trust~~ExAlt Trusts cannot pay the capital funding commitment, Beneficient is obligated to lend the associated ExAlt Trust sufficient funds to meet the ~~commitment.~~ commitment, pursuant to the terms of the respective ExAlt Loan. Any amounts advanced by Beneficient to the ExAlt Trusts for these limited partner capital funding commitments, pursuant to the terms of the respective ExAlt Loan, above the associated capital funding commitment reserves held by the associated ExAlt Trusts are added to the ExAlt Loan balance between Beneficient and the ExAlt Trusts and are expected to be recouped through the cash distributions from the alternative asset fund that collateralizes such ExAlt Loan.

Capital commitments generally originate from limited partner agreements having fixed or expiring expiration dates. The total limited partner capital funding commitment amounts may not necessarily represent future cash requirements. Beneficient considers the creditworthiness of the investments on a case-by-case basis. At both June 30, 2021 and December 31, 2020, Beneficient had no reserves for losses on unused commitments to fund potential limited partner capital funding commitments.

Investigation — On October 6, 2020, GWG Holdings received a subpoena to produce documents from the Chicago office of the SEC’s Division of Enforcement, informing the Company of the existence of a non-public, fact-finding investigation into GWG Holdings. Since the initial subpoena, GWG Holdings has received subsequent subpoenas from the SEC for additional information. The requested information from the SEC has primarily related to GWG Holdings’ investment products, including its L Bonds, as well as various accounting matters. among them, the consolidation for financial reporting purposes of Beneficient by GWG Holdings, goodwill valuation, and the accounting related to the ExAlt Trusts, related party transactions, life insurance policies, and the calculation of the debt-coverage ratio.

Until receipt of the initial subpoena on October 6, 2020, GWG Holdings had no previous communication with the SEC related to these issues and was unaware of this investigation. The Company is fully cooperating with the SEC in this investigation. The Company is currently unable to predict when this matter will be resolved or what further action, if any, the SEC may take in connection with it. As such, the Company cannot predict with certainty the outcome or effect of any such investigation or whether it will lead to any claim or litigation.

~~(17)~~(16) Concentration

Life Insurance Carriers

Our portfolio consists of purchased life insurance policies written by life insurance companies rated investment-grade by third-party rating agencies, including A.M. Best Company, Standard & Poor’s, and Moody’s. As a result, there may be concentrations of policies with certain life insurance companies. The following summarizes the aggregate face value of insurance policies with ~~individual~~specific life insurance companies exceeding 10% of the total face value of our portfolio.


Life Insurance Company	Life Insurance Company	September 30, 2020		December 31, 2019		Life Insurance Company	June 30, 2021		December 31, 2020
John Hancock Life Insurance Company	John Hancock Life Insurance Company	14.66	%	14.23	%	John Hancock Life Insurance Company	13.69	%	14.72	%
The Lincoln National Life Insurance Company	The Lincoln National Life Insurance Company	11.23	%	11.55	%	The Lincoln National Life Insurance Company	11.30	%	11.20	%
AXA Equitable Life Insurance Company		10.72	%	10.63	%
Equitable Financial Life Insurance Company						Equitable Financial Life Insurance Company	10.91	%	10.57	%

The following summarizes the number of ~~insureds’ state of residence~~insurance policies held in specific states exceeding 10% of the total face value ofheld by our portfolio:


State of Residence	State of Residence	September 30, 2020		December 31, 2019		State of Residence	June 30, 2021		December 31, 2020
California	California	17.95	%	17.46	%	California	17.82	%	18.05	%
Florida	Florida	14.99	%	14.86	%	Florida	15.35	%	14.93	%

~~Loans Receivable~~Alternative Assets Industries

Beneficient’s underlying portfolio companies primarily operate in the United States and Western Europe, with the largest percentage, based on NAV, operating in ~~semiconductor and equipment,~~ diversified financials, telecommunications services, food and ~~telecommunications industries.~~staples retailing, software and services, and utilities.

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~~(18)~~(17) Subsequent Events and Other Matters

~~Proposed Amended and Restated Certificate~~L Bond Suspension

We temporarily suspended the offering of ~~Incorporation~~

~~On July 6, 2020,~~ GWG ~~Holdings filed documents~~Holdings’ L Bonds, commencing April 16, 2021, as a result of our delay in filing certain periodic reports with the SEC, ~~seeking authority~~including this Quarterly Report on Form 10-Q. We anticipate recommencing the offering of GWG Holdings’ L Bonds when we regain compliance with SEC filing requirements.

Beneficient’s Conditional Kansas Charter

National Founders LP Credit Agreement

On August 11, 2021, GWG DLP Funding VI, LLC, a Delaware limited liability company (“DLP VI”), entered into a Credit Agreement (the “NF Credit Agreement”) with each lender from time to time party thereto and National Founders LP, a Delaware limited partnership, as the administrative agent (the credit facility evidenced by such NF Credit Agreement, the “NF Credit Facility”). DLP VI is a wholly owned subsidiary of GWG DLP Funding Holdings VI, LLC, a Delaware limited liability company (the “DLP Holdings VI”). DLP Holdings VI is a wholly owned subsidiary of GWG Life.

On August 11, 2021, a one-time advance of approximately $107.6 million was made to the DLP VI under the NF Credit Facility with a scheduled maturity date of August 11, 2031. Amounts borrowed under the NF Credit Facility bear interest on each day on the outstanding principal amount on such day at a per annum rate, determined on a daily basis, generally equal to 5.5% up to a 65% of the loan to value percent as calculated in accordance with the NF Credit Agreement, and 7.0% on anything above that loan to value percent. In particular, amounts borrowed under the NF Credit Facility bear interest on each day on the outstanding principal amount on such day at a per annum rate equal to the Interest Rate as of such day, or the Default Rate as of such day if an ~~exchange~~event of default has occurred and is continuing. The “Interest Rate” as of such day is equal to the sum of: (a) the percentage equal to (i) the Non-Higher Rate Factor as of such date of determination multiplied by (ii) 5.50%; and (b) the percentage equal to (i) the Higher Rate Factor as of such date of determination multiplied by (ii) 7.00%. “Non-Higher Rate Factor” means, as of any date of determination, the percentage equal to (i) 100% minus (ii) the Higher Rate Factor as of such date of determination, and “Higher Rate Factor” means, as of any date of determination, the percentage equal to (i) the greater of (a) the amount equal to (1) the LTV Percentage (as defined in the NF Credit Agreement) as of such date of determination minus (2) 65% and (b) zero percent divided by (ii) the LTV Percentage as of such date of determination. The “Default Rate” as of such day is equal to the sum of: (a) the Interest Rate as of such day and (b) 2.00%. Interest payments are made on a monthly basis.

Under the NF Credit Facility, each of DLP VI and DLP Holdings VI has granted the administrative agent, for the benefit of the lenders under the agreement, a security interest in substantially all of GWG Holdings’ remaining life insurance policy assets not pledged by DLP IV under its ~~equity securities for securities issued~~LNV Credit Facility. In addition, amounts owing under the NF Credit Facility have been guaranteed by GWG Holdings upon the occurrence of a Guarantee Trigger Event (as defined in the guarantee), including certain bankruptcy events related to the DLP VI or ~~one~~DLP Holdings VI or ~~more~~a Change in Control (as defined in the NF Credit Agreement).

A portion of the proceeds from the funding under the NF Credit Facility was used to purchase life insurance policies that were owned by DLP IV, which used the funds to repay the most recent advance of $52.5 million plus interest and penalties under the LNV Credit Facility described above. At August 11, 2021, the aggregate face value of life insurance policies owned by DLP VI, was approximately $433.1 million. As of such date, the aggregate face value of life insurance policies owned by DLP IV was approximately $1.42 billion.

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GWG Holdings secures L Bonds with a pledge of collateral security in its ownership interests in GWG Life and GWG Holdings’ other direct subsidiaries; GWG Life’s ownership in its direct subsidiaries ~~(“subsidiary securities”)~~that own directly or indirectly a large actuarially diverse portfolio of life insurance policies of highly rated insurance companies; and investments in Beneficient. Subsequent to entering into the NF Credit Facility, substantially all of our life insurance policies are held by ~~adopting an Amended~~DLP IV or DLP VI. The policies held by DLP IV and ~~Restated Certificate~~DLP VI are not direct collateral for the L Bonds as such policies are pledged under the LNV Credit Facility and NF Credit Facility, respectively. Furthermore, L Bonds are secured by a pledge of ~~Incorporation~~approximately 4.0 million shares of GWG ~~Holdings (the “Amended Charter”).~~Holdings’ common stock. GWG Holdings’ most significant assets are cash and its investments in subsidiaries. These assets were not pledged under the NF Credit Facility.

The NF Credit Facility has certain financial and nonfinancial covenants, and we were in compliance with these covenants as of the date of this filing. In addition, the NF Credit Facility has certain reporting obligations that require DLP VI to deliver audited annual consolidated financial statements of DLP Holdings VI no later than 150 days after the end of each fiscal year (beginning with the fiscal year ending December 31, 2021) and unaudited quarterly consolidated financial statements of DLP Holdings VI no later than 90 days after the end of each of DLP VI’s first three fiscal quarters (beginning with the fiscal quarter ending September 30, 2021). The NF Credit Facility also has customary events of default for a facility of this type.

DLP VI may voluntarily prepay amounts owing under the NF Credit Facility upon payment of all accrued and unpaid interest on such prepaid amounts and payment of the applicable Prepayment Premium (as defined in the NF Credit Agreement).

The NF Credit Facility permits DLP VI to pay dividends and distributions from the proceeds of the one-time advance. As a result, the funding under the NF Credit Facility, less amounts used to purchase the life insurance policies from DLP IV, will be available to GWG Holdings and will improve GWG Holdings’ cash position while it works to complete its periodic reporting requirements with the SEC, including this Form 10-Q, which GWG Holdings expects will permit it to resume the issuance of its L Bonds.

Non-Binding Term Sheet with Beneficient

On August 13, 2021, GWG Holdings, Ben LP, and BCH entered into a non-binding term sheet (the “Term Sheet”) that contemplates a series of transactions, which, if completed, will result in, among other things, (i) GWG Holdings receiving certain proposed ~~Amended Charter has been adopted~~enhancements to its investments in Beneficient; (ii) GWG Holdings no longer having the right to appoint directors of the board of directors of Beneficient Management; and (iii) Beneficient no longer being a consolidated subsidiary of GWG Holdings. The Term Sheet and related negotiations are a part of ongoing efforts by management and the Board of Directors of GWG Holdings ~~which declared its advisability, based upon a recommendation from a Special Committee of independent and disinterested directors. It has also been approved through a written consent from~~to maximize the ~~holders of a majority of the outstanding shares~~value of GWG Holdings’ ~~common stock. To become effective,~~and GWG Life’s investment in Beneficient.

The Company believes that returning control of Beneficient is a necessary step for Ben LP to establish one of its operating subsidiaries as a TEFFI under the ~~Amended Charter must also be approved by the~~Kansas Technology-Enabled Fiduciary Financial Institutions Act (the “TEFFI Act”), which is important to Beneficient’s long-term business objective of providing liquidity and other services to holders of ~~a majority~~alternative assets.

Until the definitive documentation is finalized and executed, each of ~~the outstanding shares of RPS~~these provisions is non-binding and ~~RPS 2, each series voting separately~~is subject to change in all respects, including as a ~~class. We plan to solicit~~result of additional diligence, the ~~consent~~further discharge of the holders of our RPS and RPS 2 to the Amended Charter. While we believe such an exchange of equity securities may be a potential avenue to create efficiencies, no plans have been approved to exchange either the common stock, RPS or RPS 2 of GWG Holdings or the specific terms or issuer of any such securities that may be issued in connection therewith.

The proposed Amended Charter provides that the value for which each share of common stock to be exchanged may not be less than the greater of (i) $10 (subject to certain adjustments), or (ii) the volume weighted average price (“VWAP”) of the common stock for the twenty (20) trading days immediately prior to the date of any notice of exchange. The Amended Charter also requires that at least 1 class of the subsidiary securities to be listed on a national securities exchange prior to, or at the time of, the exchange.

In addition, the Amended Charter would permit GWG Holdings to exchange all of the RPS and RPS 2 for preferred equity securities of GWG Holdings or one or more of its subsidiaries (the “subsidiary preferred interest”) with substantially similar terms to that of the RPS and RPS 2, provided that, the Amended Charter requires the subsidiary preferred interest to have the following preferential terms:

•~~accrue monthly cumulative dividends of not less than 7.5% per annum, subject to increase in the Board’s discretion, on the stated value of such subsidiary preferred interest; and~~

•be subject to conversion into common equity securities of the issuer of the subsidiary preferred interest or a subsidiary thereof on terms substantially similar to those governing the conversion of the current RPS and RPS 2; provided, that the conversion price shall not be greater than $12 per common equity securities.

~~The Amended Charter would also provide for an exclusive forum in the state of Delaware for certain potential claims by stockholders, as specified in the Amended Charter.~~

~~There can be no assurance that GWG Holdings will receive the required consents of the holders of the RPS and RPS 2,~~fiduciary duties, and the negotiation of definitive documentation. The Company has ~~not approved any plans~~begun working on definitive documentation to ~~exchange either~~implement the ~~common stock or~~Term Sheet with Ben LP and is working to complete such definitive documentation during the ~~RPS or RPS 2 or the terms or issuer or issuers~~fourth quarter of ~~any securities issued in connection therewith, and~~2021, although there can be no assurance ~~that any such exchange~~definitive documentation will ~~occur~~be completed by then, or ~~what~~at all.

If Ben LP becomes an independent company pursuant to the terms of the Term Sheet, the Company expects that Ben LP would reduce its reliance on GWG Holdings to fund its operations and would raise future capital from other sources. Beneficient’s capital raising efforts may include the issuance of equity or debt of Ben LP or one of its subsidiaries, and the newly issued securities may be dilutive to ~~be issued~~GWG Holdings’ and GWG Life’s investment in ~~connection with such exchange will be, other than as provided for~~Ben LP and BCH and may include preferential terms relative to GWG Holdings’ and GWG Life’s investments in ~~the Amended Charter. Any such exchange would be subject to approval of the terms of any such exchange by the Board of Directors of~~Ben LP and BCH. GWG Holdings and ~~conditions precedent, some of which are outside~~GWG Life would still retain a substantial investment in Beneficient.

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(unaudited)

Fourth Amended and Restated Senior Credit Facility with LNV Corporation

On September 7, 2021, DLP IV entered into a Fourth Amended and Restated Loan and Security Agreement with LNV Corporation, as lender, and CLMG Corp., as the administrative agent on behalf of the lenders under the agreement (the “Fourth LNV Credit Facility”). The Fourth LNV Credit Facility replaced the Third LNV Credit Facility, that previously governed the Company’s ~~control, including~~senior credit facility. The Fourth LNV Credit Facility resulted in an additional advance of $30.3 million from LNV Corporation, paid on September 7, 2021.

Under the ~~issuance~~Fourth LNV Credit Facility, all advances bear interest at a rate of ~~trust company charters from~~ the ~~Texas Department~~Benchmark Rate plus the Applicable Margin, or the Default Rate if an event of ~~Banking.~~default has occurred and is continuing. For purposes of the Fourth LNV Credit Facility, (i) the Benchmark Rate is the greater of (a) the sum of (i) the Federal Funds Rate plus (ii) one-half of one percent (0.50%) and (b) one and one half of one percent (1.50%); (ii) the Applicable Margin is seven and one half percent (7.50%); and (iii) the Default Rate is the Benchmark Rate plus nine and one half percent (9.50%).

Amendment to Beneficient’s Credit Agreements

Effective July 15, 2021, Beneficient executed Consent and Amendment No. 3 to the Second Amended and Restated Credit Agreement and Amendment No. 2 to the Second Amended and Restated Subordinate Credit Agreement with its lender, which (i) deferred the payment of all accrued and unpaid interest until December 10, 2021, and (ii) deferred the installment payment of $5.0 million due on September 10, 2021, to December 10, 2021. Beneficient agreed to pay an amendment fee to the lender in an amount equal to 3% of the then outstanding principal and interest on December 10, 2021.

COVID-19

In December 2019, a novel strain of coronavirus and the associated respiratory disease (“COVID-19”) was first reported in Wuhan, China. Less than four months later, on March 11, 2020, the World Health Organization declared COVID-19 a pandemic. The extent of COVID-19’s effect on the Company’s operational and financial performance will depend on continuing developments, including the duration, spread and intensity of the pandemic, all of which are uncertain and difficult to predict considering the rapidly evolving landscape. Although a substantial majority of our employees continue to work remotely, we have maintained our operations at or near normal levels. We have not experienced any significant disruptions due to operational issues, loss of communication capabilities, technology failure or cyber-attacks. The Company continues to raise capital, receive ~~interest income~~distributions from alternative assets and insurance policy benefits, pay interest and dividends and otherwise meet its ongoing

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~~(unaudited)~~

obligations. However, depending on the extent of the ongoing economic crisis resulting from the pandemic and its impact on the Company’s business, the pandemic could have a material adverse effect on our results of operations, financial condition and cash flows.

As discussed in our 2019 Form 10-K, management performs goodwill and intangible asset impairment testing annually, during the fourth quarter, or when events occur, or circumstances change that would more likely than not indicate impairment has occurred. The Company recorded goodwill on December 31, 2019, as a result of the transactions with Beneficient discussed in Note 4 to the condensed consolidated financial statements, and the measurement period remains open as of the date of this filing. Due to the significance of the COVID-19 pandemic, management performed a qualitative assessment of the goodwill of the Beneficient reporting unit as of September 30, 2020. Management concluded that the potentially large and underserved market that Beneficient is seeking to address, including the estimated demand from HNW individuals and STM size institutions seeking liquidity for their professionally managed alternative assets, has not been negatively affected by the COVID-19 pandemic such that it is more likely than not that the fair value of the Beneficient reporting unit would exceed its carrying value as of September 30, 2020. Therefore, the impact of the COVID-19 pandemic through September 30, 2020 was not a triggering event to perform a quantitative test.

The annual quantitative test as of October 1, which is in the process of being finalized as of the date of this filing, is the first annual assessment since the recognition of this goodwill. The Company has experienced lower-than-forecasted operating results during the first nine months of 2020. These conditions will be considered during the respective annual impairment evaluation of goodwill as of October 1, 2020. If the estimated fair value is less than the carrying value, the Company would be required to recognize an impairment charge for the amount by which the carrying amount exceeds Beneficient’s fair value; however, the loss recognized would not exceed the total amount of Beneficient’s recorded goodwill.

~~Liquidity and Capital Resources~~

As of September 30, 2020, we had cash, cash equivalents and restricted cash of $109.8 million. We generated net losses attributable to common shareholders of $135.7 million and $69.2 million for the nine months ended September 30, 2020 and 2019, respectively. As of November 6, 2020, we had cash, cash equivalents and restricted cash of approximately $95.1 million. Besides funding operating expenditures and having sufficient cash to fund anticipated additional investments in Beneficient primarily for its lending products and working capital needs, we are obligated to pay other items such as interest payments and debt redemptions, and preferred stock dividends and redemptions. We expect to satisfy these obligations and fund our operations through anticipated operating cash flows, receipt of proceeds from our insurance policies, sales of additional L Bonds, and, potentially, additional borrowings under existing debt facilities or new borrowings with other third-party lenders or asset sales.

GWG Holdings has a history of selling L Bonds dating back to January 2012. GWG Holdings may not be able sell additional L Bonds on terms as favorable to the Company as past transactions or in quantities sufficient to fund all of the Company’s operating requirements. Additionally, the Company may not be able to obtain additional borrowing under existing debt facilities or new borrowings with other third-party lenders. To the extent that GWG Holdings or its subsidiaries raise additional capital through the future issuance of debt, the terms of those debt securities may include terms that adversely affect the rights of our existing debt and/or equity holders or involve negative covenants that restrict GWG Holdings’ ability to take specific actions, such as incurring additional debt or making additional investments in growing the operations of the Company. If GWG Holdings is unable to fund its operations and other obligations, or defaults on its debt, then the Company will be required to either i) sell assets to provide sufficient funding or ii) to raise additional capital through the sale of equity and the ownership interest of our equity holders may be diluted.

Based on projections of anticipated operating cash flows, receipt of proceeds from our insurance policies, sales of additional L-Bonds, and, potentially, additional borrowings under existing debt facilities or new borrowings with other third-party lenders, we believe that we will have sufficient cash resources to finance our operations, satisfy our other obligations, and to fund anticipated additional investments in Beneficient through November 19, 2021.

Policy Benefits and L Bonds

Subsequent to ~~September~~June 30, ~~2020~~2021 through ~~November 6, 2020,~~October 15, 2021, policy ~~benefits~~ benefits on 933 policies covering 830 individuals have been realized. The face value of insurance benefits of these policies was ~~$7.7~~$44.8 million.

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~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS~~

~~(unaudited)~~

~~Subsequent to September 30, 2020 through November 6, 2020, we have~~Holdings issued approximately ~~$63.4~~$191.6 million of L ~~Bonds.~~Bonds in the current year through April 16, 2021, the date we temporarily suspended GWG Holdings’ L Bond offering. No L Bonds have been sold since April 16, 2021.

~~Loans Receivable~~

~~Subsequent to September 30, 2020 through November 6, 2020, we have originated approximately $8.1 million of loans receivable.~~

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

The following discussion should be read in conjunction with the condensed consolidated financial statements and accompanying notes and the information contained in other sections of this report. This discussion and analysis is based on the beliefs of our management, as well as assumptions made by, and information currently available to, our management.

Unless the context otherwise indicates, all references in this Management’s Discussion and Analysis of Financial Condition and Results of Operations, or MD&A, to the “Company,” “we,” “us,” “our” or “ours” or similar words are to GWG Holdings Inc. and its direct and indirect wholly-owned and consolidated subsidiaries, references to “GWG Holdings” refer to GWG Holdings Inc., references to “GWG Life” refer to GWG Life, LLC (a wholly-owned subsidiary of GWG Holdings), references to “DLP IV” refer to GWG DLP Funding IV, LLC (a wholly-owned subsidiary of GWG Life), references to “DLP V Holdings” refer to GWG DLP Funding V Holdings, LLC (a wholly-owned subsidiary of GWG Life), references to “DLP V” refer to GWG DLP Funding V, LLC (a wholly-owned subsidiary of DLP V Holdings), references to “DLP VI Holdings” refer to GWG DLP Funding Holdings VI, LLC (a wholly-owned subsidiary of GWG Life), references to “DLP VI” refer to GWG DLP Funding VI, LLC (a wholly-owned subsidiary of DLP VI Holdings), references to “Ben LP” refer to The Beneficient Company Group, L.P. (a consolidated subsidiary of GWG Holdings), references to “Beneficient” refer to Ben LP and all of its consolidated subsidiaries, references to "BCH" refer to Beneficient Company Holdings, L.P. (of which Ben LP is the general partner), references to “Beneficient Management” refer to Beneficient Management, L.L.C. (the general partner of Ben LP), references to “BCC” refer to Beneficient Capital Company, L.L.C. (a subsidiary of Ben LP), references to “BACC” refer to Beneficient Administrative and Clearing Company, L.L.C. (a subsidiary of Ben LP), references to “Pen” refer to Pen Indemnity Insurance Company, LTD (a subsidiary of Ben LP), references to “Ben Markets” refer to Ben Markets ~~Management Holdings, L.P.~~L.L.C. (a subsidiary of Ben LP), references to “FOXO” refer to FOXO ~~BioScience LLC~~Technologies Inc. (formerly, ~~InsurTech Holdings,~~FOXO BioScience LLC, an equity investee of GWG Holdings), references to “FOXO Labs” refer to FOXO Labs Inc. (formerly, Life Epigenetics Inc., a wholly-owned subsidiary of FOXO) ~~and~~, references to “FOXO Life” refer to FOXO Life LLC (formerly, youSurance General Agency, LLC, a wholly-owned subsidiary of FOXO), and references to the “ExAlt PlanTM” refer to a trust structure comprising customized trust vehicles (the “ExAlt Trusts” and each, an “ExAlt Trust”) .

Risk Relating to Forward-Looking Statements

This report contains forward-looking statements that reflect our current expectations and projections about future events. Actual results could differ materially from those described in these forward-looking statements.

The words “believe,” “could,” “possibly,” “probably,” “anticipate,” “estimate,” “project,” “expect,” “may,” “will,” “should,” “seek,” “intend,” “plan,” “expect,” or “consider” and similar expressions are intended to identify forward-looking statements but are not the exclusive means of identifying such statements. Forward-looking statements are subject to risks and uncertainties, which could cause actual results to differ materially from such statements. Many of the forward-looking statements contained in this report can be found in the following discussion and analysis.

Such risks and uncertainties include, but are not limited to:

•substantial doubt about our ability to continue as a going concern;

•the valuation of assets reflected on our financial statements;

•the illiquidity of our life insurance investments and receivables from affiliates;

•the continued success of the alternative assets industry;

•our ability to realize the anticipated benefits from our consolidation of Beneficient;

•Beneficient’s financial performance and ability to execute on its business plan;

•Beneficient’s ability to obtain the trust ~~charters~~company charter from the Texas Department of Banking and its trust bank charter from the Kansas State Bank Commissioner necessary to implement its business plan;

•changes resulting from the evolution of our business model and strategy with respect to Beneficient and the life insurance secondary market;

•our reliance on debt financing and continued access to the capital markets;

•our significant and ongoing financing requirements;

•our predominant use of short-term debt to fund a portfolio of long-term assets could result in a liquidity shortage;

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•our ability to make cash distributions in satisfaction of dividend obligations and redemption requests;

•our ability to satisfy our debt obligations if we were to sell our assets;

•general economic outlook, including prevailing interest rates;

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•the novel coronavirus pandemic, the ongoing economic downturn and its impact on our business;

•federal, state, FINRA and other regulatory matters;

•litigation risks;

•our ability to comply with financial and non-financial covenants contained in borrowing agreements;

•the reliability of assumptions underlying our actuarial models, including life expectancy (“LE”) estimates and our projections of mortality events and the realization of policy benefits;

•risks relating to the validity and enforceability of the life insurance policies we purchase;

•our reliance on information provided and obtained by third parties, including changes in underwriting tables and underwriting methodology;

•life insurance company credit exposure;

•cost-of-insurance (premium) increases on our life insurance policies;

•performance of our investments in life insurance policies; and

•risks associated with our investment in FOXO ~~BioScience LLC~~Technologies Inc. (formerly ~~InsurTech Holdings,~~FOXO BioScience LLC).

We caution you that the foregoing list of factors is not exhaustive. Forward-looking statements are only estimates and predictions, or statements of current intent. Actual results, outcomes or actions that we ultimately undertake could differ materially from those anticipated in the forward-looking statements due to risks, uncertainties or actual events differing from the assumptions underlying these statements. We assume no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events, or otherwise, except as required by law.

Overview

We are an innovative financial services firm based in Dallas, Texas that is a leader in providing unique liquidity solutions and services for the owners of illiquid investments. In 2018 and 2019, GWG Holdings and GWG Life consummated a series of transactions with The Beneficient Company Group, L.P. (“Ben LP” including all of the subsidiaries it may have from time to time — “Beneficient”), as more fully described in Note 1 to our condensed consolidated financial statements in this Form 10-Q. On December 31, 2019, GWG Holdings obtained the right to appoint a majority of the board of directors of Beneficient Management. As a result of this change-of-control event, GWG Holdings reported the results of Beneficient on a consolidated basis beginning on the transaction date of December 31, 2019. As further described in Note 17 to the condensed consolidated financial statements, on August 13, 2021, GWG Holdings, Ben LP, and BCH entered into a non-binding term sheet (the “Term Sheet”), which, if completed, is expected to result in, among other things, the deconsolidation of Beneficient from GWG Holdings.

Beneficient is a financial services ~~firm,~~company, based in Dallas, Texas, that ~~provides~~markets an array of liquidity ~~solutions for professionally managed~~and trust administration products to alternative ~~assets for high~~asset investors primarily comprised of mid-to-high-net-worth individuals having a net worth (“HNW”) individuals and small-to-mid (“STM”) size institutions, which previously had few options to obtain early liquidity for their alternative asset holdings. Beneficient has closed a limited number of these transactions to date, but intends to significantly expand its operations going forward. As part of the Company’s reorientation, we also changed our Board of Directors and executive management team. Beneficient plans to operate three potentially high value, high margin lines of business:

•Private Trust Lending & Liquidity Products. Through BCC, Beneficient provides a unique suite of private trust, lending and liquidity products focused on bringing liquidity to owners of professionally managed alternative assets. Beneficient’s innovative liquidity solutions are designed to serve HNW individuals, STM institutions, and asset managers who have historically possessed few attractive options to access early liquidity from their alternative assets. Beneficient targets HNW clients withbetween $5 million toand $30 million ~~in net worth~~(“MHNW”) and ~~STM~~small-to-midsize institutional ~~clients typically holding~~investors and family offices with less than $1 billion in ~~assets.~~

•~~Trust and Custody Services. Through BACC, and through Pen which is expected to be capitalized during fourth quarter 2020, Beneficient~~investable assets (“STMIs”). Ben LP plans to ~~market retirement funds, custody and clearing of alternative assets, and trustee and insurance services for covering risks attendant to owning or managing alternative assets.~~

•Financial Technology. Through Ben Markets, Beneficient plans to provide online portals and financial technologies for the trading and financing of alternative assets. Beneficient’s existing and plannedoffer its products and services ~~are designed~~through its five operating subsidiaries, which include (i) Ben Liquidity, L.L.C. and its subsidiaries (collectively, “Ben Liquidity”), (ii) Ben Custody, L.L.C. and its subsidiaries (collectively, “Ben Custody Admin”), (iii) Ben Insurance, L.L.C. and its subsidiaries (collectively, “Ben Insurance”), (iv) Ben Markets, L.L.C., and its subsidiaries (collectively, “Ben Markets”) and (v) The Beneficient Company Group (USA), L.L.C (“Beneficient USA”). Ben Liquidity plans to ~~support the tax~~operate a trust company that is a Kansas Technology Enabled Fiduciary Financial Institutions (“TEFFI”) authorized to serve as an alternative asset custodian, trustee and ~~estate planning objectives~~lender with statutory powers granted for each of these activities and permitting Ben Liquidity to provide fiduciary financing for certain of its ~~HNW clients, facilitate~~customer liquidity transactions. Ben Custody Admin plans to operate a ~~diversification~~Texas trust company that is being organized to provide its customers with certain administrative, custodial and trustee products and specialized services focused on alternative asset investors. Ben Insurance has been chartered as a Bermuda based insurance company that plans to offer certain customized insurance products and services covering risks relating to owning, managing and transferring alternative assets. Ben Markets is in the regulatory process for acquiring a captive registered broker-dealer that would conduct certain of ~~assets~~its activities attendant to offering a suite of products and services from the Beneficient family of companies. Certain of Ben LP’s operating subsidiary products and services involve or ~~simply provide administrative management and reporting solutions tailored~~are offered to ~~the goals~~certain of the ~~investor who owns alternative investments.~~ExAlt Trusts, which operate for the benefit of the Non-Controlling Interest Holders, and are consolidated subsidiaries of Ben LP for financial reporting purposes (such trusts are and may

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~~While we are continuing our work~~individually be referred to ~~maximize~~as Custody Trusts, Collective Trusts, LiquidTrusts, and Funding Trusts). Beneficient USA employs a substantial majority of the ~~value of our secondary life insurance business, we do not anticipate purchasing additional life insurance policies in the secondary market~~executives and ~~have increased capital allocated toward providing liquidity~~staff for Beneficient’s operating subsidiaries to ~~holders of a broader range of alternative assets through Beneficient.~~ which Beneficient USA provides administrative and technical services.

We believe that Beneficient’s operations will generally produce higher ~~actual and risk-adjusted~~risk adjusted returns than those we can ~~generally~~ achieve from life insurance policies acquired in the secondary ~~market.~~market; however, returns on equity in life settlements, especially with the current availability of financings on favorable terms, appear to be an attractive option to diversify our exposure to alternative assets, and we have begun exploring the feasibility of acquiring such policies. Furthermore, although we believe that our portfolio of life insurance policies is a meaningful component of a growing diversified alternative asset portfolio, we ~~will~~ continue to explore strategic alternatives for our life insurance portfolio aimed at maximizing its value, including a possible sale, refinancing, recapitalization, partnership, reinsurance guarantees, life insurance operations or ~~recapitalization of~~other transactions involving our life insurance ~~portfolio.~~portfolio, as well as pursuing other alternatives to increase our exposure to alternative assets. These operations are in addition to allocating capital to provide liquidity to holders of a broader range of alternative assets, which we currently provide through GWG Holdings’ and GWG Life’s investments in Beneficient.

GWG Holdings completed the transactions with Beneficient, in part, to provide the Company with a significant increase in assets and common ~~shareholders’~~stockholders’ equity. In addition, the transactions with Beneficient may provide ~~the Company~~us with the opportunity for a diversified source of future earnings within the alternative asset industry. ~~As the combined organization expands, we~~We believe the Beneficient transactions and the other strategies we are pursuing will transform GWG Holdings from a niche provider of liquidity to owners of life insurance to a ~~full-scale~~diversified provider of ~~trust and liquidity~~financial products and ~~trust~~ services with exposure to ~~owners of~~ a broad range of alternative assets.

Restatement

The Company restated its previously issued (i) consolidated balance sheet as of December 31, 2019, included in its Annual Report on Form 10-K for the year ended December 31, 2019 and (ii) the consolidated statement of operations, (iii) the consolidated statement of changes in stockholders’ equity, and (iv) the consolidated statement of cash flows for the year ended December 31, 2019, included in its Annual Report on Form 10-K for the year ended December 31, 2019, (the “Restatement”) as part of its 2020 Form 10-K. The Restatement also impacted each of the quarters for the periods beginning with GWG Holdings, Inc.’s consolidation with The Beneficient Company Group, L.P. (“Ben LP,” including all of the subsidiaries it may have from time to time — “Beneficient”) as of December 31, 2019 through the quarter ended September 30, 2020.

The historical interim periods included in this Form 10-Q have been restated to reflect the Restatement.

Critical Accounting Policies and Estimates

Critical Accounting Estimates

The preparation of our condensed consolidated financial statements in accordance with accounting principles generally accepted in the United States of America (“GAAP”) requires us to make significant judgments, estimates, and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. We base our judgments, estimates, and assumptions on historical experience and on various other factors believed to be reasonable under the circumstances. Actual results could differ materially from these estimates. We evaluate our judgments, estimates, and assumptions on a regular basis and make changes accordingly.

Material estimates that are particularly susceptible to change, in the near term, relate to: ~~the determination of the fair values of assets acquired, liabilities assumed and noncontrolling interests under business combinations accounting guidance; the determination of~~determining the assumptions used in estimating the fair value of our investments in life insurance policies; determining the grant date fair value for equity-based compensation awards; determining ~~our allowance for loan losses;~~the allocation of income (loss) to Beneficient’s equity holders; and evaluation of potential impairment of goodwill and other ~~intangibles; and the value of our deferred tax assets and liabilities.~~intangibles. We believe these estimates are likely to have the greatest potential impact on our condensed consolidated financial statements and accordingly believe these to be our critical accounting estimates.

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estimated fair value of the Beneficient reporting unit and would result in an impairment of our goodwill intangible. Key assumptions in our quantitative goodwill impairment test include assumptions regarding Ben LP’s ability to raise substantial amounts of capital as disclosed in the 2020 Form 10-K (as defined below). Beneficient is actively engaged in capital raising efforts that may include the issuance of equity or debt of Ben LP or one of its subsidiaries and has received non-binding indications of interest from potential investors. The outcome of Ben LP’s capital raising efforts will have a direct impact on management’s forecasts and consequently, have a direct impact on the magnitude of future goodwill intangible impairment losses, if any. The outcome of Ben LP’s capital raising efforts is uncertain, and it is not certain that the potential investors that have submitted non-binding indications of interest ultimately will invest in Ben LP, or the amount of any such investments. As a result, our quantitative goodwill intangible impairment analysis, once complete, could result in material goodwill intangible impairment in the near future.

Update on the Investments in Life Insurance Policies

We maintain an actual-to-expected analysis-based valuation methodology (“A2E Methodology”) to ensure more accurate pricing and valuation of our life insurance policies. Proper maintenance of an A2E Methodology includes the continual tracking of actual results as well as comparisons to projections. An A2E Methodology rests on the actuarial premise that mortality results for sufficiently large populations follow predictable mortality curves. As such, through the A2E Methodology and the use of the portfolio mortality multiplier (“PMM”), we are able to “fit” projections to actual results, which provides a basis to forecast future performance more accurately.

When performance sufficiently deviates from these projections, the A2E Methodology is re-examined to determine if the resultant PMM still results in the most accurate fitting of the projections to actual results. Adjustments to the PMM are made based on that analysis if warranted. The basis for a re-examination is based on a performance-based trigger approach that allows the portfolio to perform within statistical norms (+/- 1 standard deviation). We re-examine the A2E Methodology and recalculate the resultant PMM anytime the six-month moving average of the difference between actual portfolio performance and projected performance deviates by more than one standard deviation from the mean and such deviation continues as of the end of any calendar quarter after persisting for three consecutive months.

A re-examination occurred during second quarter of 2021, which resulted in an update to the PMM and a downward adjustment of $16.4 million to the fair value of the investments in life insurance policies.

Critical Accounting Policies

Refer to our Annual Report on Form 10-K for the year ended December 31, ~~2019~~2020 filed with the SEC on ~~March 27,~~ November 5, 2021 (“2020 ~~(“2019~~ Form 10-K”) for a discussion of our critical accounting policies and estimates. As discussed in Note 2 to our condensed consolidated financial statements in this Form 10-Q, we have revised and added accounting policies as necessary to incorporate those accounting policies of Beneficient. There have been no significant changes to our critical accounting policies during the ~~nine~~six months ended ~~September~~June 30, ~~2020, other than the additional policies noted below.~~

~~Loans Receivable and Allowance for Loan Losses~~

Loans receivable are carried at the principal amount outstanding, plus interest paid-in-kind. The loans do not have scheduled principal or interest payments due prior to their maturity date, which is generally 12 years from the date of origination. Prepayment of the loans, in whole or in part, is permitted without premium or penalty. Loans bear contractual interest at the greater o~~f 14% plus or minus 95% of certain income or losses of the associated Funding Trust or 1-month LIBOR plus 10% compounded monthly. T~~he primary source of repayment for the loans and related fees is cash flows from the alternative assets collateralizing the loans. Interest income on loans is accrued on the principal amount outstanding.

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The allowance for loan losses is a valuation allowance for probable incurred credit losses in the portfolio. Management’s determination of the allowance is based upon an evaluation of the loan portfolio, impaired loans, economic conditions, volume, growth and composition of the collateral to the loan portfolio, and other risks inherent in the portfolio. Management applies risk factors to categories of loans and individually reviews all impaired loans above a de minimis threshold. Management relies heavily on statistical analysis, current net asset value (“NAV”) and distribution performance of the underlying alternative asset collateral and industry trends related to alternative asset investments to estimate losses. Management evaluates the adequacy of the allowance by reviewing relevant internal and external factors that affect credit quality. The cash flows from the underlying collateral are the sole source of repayment of the loans and related interest. Beneficient recognizes the charge-off in the period in which it is confirmed. Therefore, impaired loans are written down to their estimated net present value.

~~Purchased Loans~~

Purchased loans are recorded at their fair value at the acquisition date. Credit discounts are included in the determination of fair value; therefore, an allowance for loan losses is not recorded at the acquisition date. Purchased loans are evaluated upon acquisition and classified as either purchased credit impaired (“PCI”) or non-purchased credit impaired (“non-PCI”).

PCI loans reflect credit deterioration since origination such that it is probable at acquisition that Beneficient will be unable to collect all contractually required payments. For PCI loans, expected cash flows at the acquisition date in excess of the fair value of loans are recorded as interest income over the life of the loans using a level yield method if the timing and amount of the future cash flows is reasonably estimable. Subsequent to the acquisition date, increases in cash flows over those expected at the acquisition date are recognized prospectively as interest income. Decreases in expected cash flows due to credit deterioration are recognized by recording an allowance for loan loss. Beneficient does not report PCI loans as nonperforming due to the accretion of interest income.

For non-PCI loans, the difference between the fair value and unpaid principal balance (“UPB”) of the loan at the acquisition date, referred to as a purchase premium or discount, is amortized or accreted to interest income over the contractual life of the loans using the effective interest method. In the event of prepayment, the remaining unamortized amount is recognized in interest income.

~~Goodwill and Identifiable Intangible Assets~~

Goodwill and other identifiable intangible assets are initially recorded at their estimated fair values at the date of acquisition. Goodwill and other intangible assets having an indefinite useful life are not amortized for financial statement purposes. In the event that facts and circumstances indicate that the goodwill or other identifiable intangible assets may be impaired, an interim impairment test would be required. Intangible assets with finite lives are amortized over their useful lives. We perform required annual impairment tests of our goodwill and other intangible assets as of October 1 for our reporting units.

This evaluation includes multiple assumptions, including estimated discounted cash flows and other estimates that may change over time. If future discounted cash flows become less than those projected by us, future impairment charges may become necessary that could have a materially adverse impact on our results of operations and financial condition in the period in which the write-off occurs.

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~~Equity-Based Compensation~~

The Company measures and recognizes compensation expense for all equity-based payments at fair value on the grant date over the requisite service period. GWG Holdings uses the Black-Scholes option pricing model to determine the fair value of stock options and stock appreciation rights. For restricted stock grants (including restricted stock units), fair value is determined as of the closing price of GWG Holdings’ common stock on the date of grant. As it is not publicly traded, Beneficient uses various methods to determine the grant date fair value of its equity-based compensation awards.

The fair value of the Beneficient Management Partners, L.P. (“BMP”) Equity Units is determined on the grant date using a probability-weighted discounted cash flow analysis. This fair value measurement is based on significant inputs not observable in the market and thus represents a Level 3 measurement within the fair value hierarchy. The resultant probability-weighted cash flows are then discounted using a rate that reflects the uncertainty surrounding the expected outcomes, which the Company believes is appropriate and representative of a market participant assumption.

The fair value of Ben LP’s restricted equity units (“REUs”) is estimated on the grant date using recent equity transactions involving third parties, which provides the Company with observable fair value information sufficient for estimating the grant date fair value.2021.

Recent Developments

We define “recent developments” as material transactions or matters that occurred in the most recent fiscal quarter or in the period between the end of the fiscal quarter and the filing of the quarterly or annual financial statements with the SEC. The following recent developments are described in more detail in the notes to the condensed consolidated financial statements. A reference to the corresponding note is included below:

•In April 2021, the Kansas Legislature adopted, and the governor of Kansas signed into law, a bill that would allow for the chartering and creation of Kansas trust companies, known as TEFFIs, that provide fiduciary financing (e.g., lending to ExAlt Trusts), custodian and trustee services in all capacities pursuant to statutory fiduciary powers, to investors and other participants in the alternative assets market, as well as the establishment of alternative asset trusts. The legislation became effective on July 1, 2021 and designates BFF as the pilot trust company under the TEFFI legislation. A conditional trust charter was issued by the Kansas Bank Commissioner to a subsidiary of Ben LP on July 1, 2021. Under the pilot program, BFF will not be authorized to exercise its fiduciary powers as a TEFFI until the earlier of the date the Kansas Bank Commissioner promulgates applicable rules and regulations or December 31, 2021 or. The bill also permits the Kansas Bank Commissioner to request a six-month extension of the pilot program period, which could delay Beneficient’s exercise of fiduciary powers under the charter until July 1, 2022. As a result, the directors of GWG Holdings who serve on the new TEFFI trust company Board of Directors resigned their membership, effective June 14, 2021, on GWG Holdings’ Board of

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Directors to devote their time to serving as directors of the Beneficient TEFFI trust company, which the Company believes is the highest and best use of their available time and skills and will support the development of the Beneficient TEFFI trust company and the successful execution of Beneficient’s business plan (Note 17).

•On June 28, 2021, DLP IV entered into the Third LNV Credit Facility that resulted in a $52.5 million advance from LNV Corporation, or $51.2 million including certain fees and expenses incurred in connection with the entry into the Third LNV Credit Facility (Note 9).

•On August 11, ~~2020,~~2021, GWG DLP Funding VI, LLC, a Delaware limited liability company (“DLP VI”), entered into a Credit Agreement (the “NF Credit Agreement”) with each lender from time to time party thereto and National Founders LP, a Delaware limited partnership, as the ~~Option~~administrative agent (the credit facility evidenced by such NF Credit Agreement, ~~between Ben LP and GWG Holdings was exercised, resulting~~the “NF Credit Facility”) that resulted in ~~GWG Holdings receiving $57.5~~a one-time $107.6 million advance with a scheduled maturity date of August 11, 2031 (Note 17). Approximately $56.7 million of ~~Common Units (Note 1);~~such advanced amount was used to pay off the remaining amount due under the Third LNV Credit Facility.

•On August 13, ~~2020,~~2021, GWG Holdings, Ben LP, and BCH entered into a Term Sheet that contemplates a series of transactions, which, if completed, will result in, among other things, (i) GWG Holdings receiving certain proposed enhancements to its investments in Beneficient; (ii) GWG Holdings no longer having the right to appoint directors of the board of directors of Beneficient ~~executed the Second Amended~~Management; and ~~Restated Credit Agreement and the Second Amended and Restated Second Lien Credit Agreement with its lender~~(iii) Beneficient no longer being a consolidated subsidiary of GWG Holdings (Note ~~10);~~17).

•On September ~~30, 2020,~~7, 2021, DLP IV entered into a Fourth Amended and Restated Loan and Security Agreement with LNV Corporation, as lender, and CLMG Corp., as the ~~LiquidTrust Promissory Note between GWG Life~~administrative agent on behalf of the lenders under the agreement (the “Fourth LNV Credit Facility”) that resulted in a $30.3 million advance from LNV Corporation, with such advance including amounts to cover certain fees and expenses incurred in connection with the ~~LiquidTrust was repaid by~~entry into the ~~LiquidTrust Borrowers utilizing Preferred Series C Unit Accounts of BCH~~Fourth LNV Credit Facility (Note ~~6) resulting in GWG increasing its ownership in Ben;~~

•~~Subsequent to September 30, 2020 and through November 6, 2020, Beneficient has originated $8.1 million of loans receivable; and~~17).

•An update on the current state of the Company and potential impact of the COVID-19 pandemic (Note ~~18)~~17).

Asset Diversification

As of ~~September~~June 30, ~~2020,~~2021, we held a combined portfolio of assets consisting of ~~66%~~78% of fair value secondary life insurance policies and ~~34%~~22% of ~~loans collateralized~~indirect interests in alternative assets held by ~~cash flows from alternative assets.~~certain of the ExAlt Trusts. The table presented below reflects classifications based on GWG Holdings’ and Beneficient’s current exposure types as of ~~September~~June 30, ~~2020~~2021 (dollar amounts in thousands). Additional information regarding ~~Beneficient's loan~~the Collateral portfolio is available on its website at ~~www.trustben.com.~~www.trustben.com. The information on ~~Beneficient's~~Beneficient’s website is not part of, or incorporated by reference in, this report.

Exposure Type Value Percent of Total
Intermediate-Duration Life Insurance Policies (1)
$ 310,818 26.0 %
Near-Duration Life Insurance Policies (1)
308,962 25.9 %
Long-Duration Life Insurance Policies (1)
167,481 14.0 %
Growth Stage Private (2)
122,662 10.3 %
Late Stage Venture Backed (2)
99,467 8.3 %
Corporate Buyouts (2)
72,161 6.0 %
Early Stage Venture Backed (2)
58,298 4.9 %
Other (2)
54,844 4.6 %
Total $ 1,194,693 100.0 %

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Exposure Type	Value		Percent of Total
Near-Duration Life Insurance Policies (1)	$	325,961	33.2	%
Intermediate-Duration Life Insurance Policies (1)	299,961		30.5	%
Long-Duration Life Insurance Policies (1)	144,104		14.7	%
Growth Stage Private (2)	81,946		8.3	%
Late Stage Venture Backed (2)	52,665		5.4	%
Early Stage Venture Backed (2)	29,698		3.0	%
Other (2)	26,716		2.7	%
Corporate Buyouts (2)	21,469		2.2	%
Total	$	982,520	100.0	%

(1)Represents fair value of life insurance ~~polices~~policies.

(2)Represents the net asset value (“NAV”) of the interests in alternative assets that provide cash flows, ~~that~~which comprise the Collateral of the ExAlt Loans (defined in section below entitled ExAlt Trusts’ Investment in Alternative Assets). Excludes collateral exchanged in the Collateral Swap, which are eliminated in consolidation. These ExAlt Loans eliminate upon consolidation in the presentation of ~~Beneficient’s loan portfolio. NAV~~our condensed consolidated financial statements. The Net Asset Value (“NAV”) calculation reflects the most current report of NAV and other data received from firm/fund sponsors. If no such report has been received, Beneficient estimates NAV based upon the last NAV calculation reported by the investment manager and adjusts it for capital calls and distributions made in the intervening time frame.

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The underlying exposure data represents GWG Holdings’ exposure to life insurance policies included in its portfolio and its exposure to the underlying ~~collateral~~Collateral of Beneficient’s loan ~~portfolio.~~portfolio to the ExAlt Trusts. Exposure type reflects classifications based on each company’s portfolio as determined by management. Figures are based on third-party information and other relevant information as determined by management. “Other” includes private debt strategies, natural resources strategies, and hedge funds. “Near-Term”, “Intermediate-Term”, and “Long-Term” life insurance policies represent policies with life expectancies between 0 – 47 months, 48 – 95 months, and 96 – 240 months, respectively.

The following sections contain information on each of the secondary life insurance assets and ~~Beneficient loans receivable~~the interests in alternative assets held by certain of the ExAlt Trusts separately.

Secondary Life Insurance Assets

Our portfolio of life insurance policies, owned by ~~our~~GWG Holdings’ subsidiaries as of ~~September~~June 30, ~~2020,~~2021, is summarized below:

Life Insurance Portfolio Summary

Total life insurance portfolio face value of policy benefits (in thousands) $ 1,921,067
Average face value per policy (in thousands) $ 1,777
Average face value per insured life (in thousands) $ 1,913
Weighted average age of insured (years) 82.9
Weighted average life expectancy estimate (years) 6.9
Total number of policies 1,081
Number of unique lives 1,004
Demographics 74% Male; 26% Female
Number of smokers 43
Largest policy as % of total portfolio face value 0.7 %
Average policy as % of total portfolio 0.1 %
Average annual premium as % of face value 3.7 %

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Total life insurance portfolio face value of policy benefits (in thousands)	$	1,844,466
Average face value per policy (in thousands)	$	1,826
Average face value per insured life (in thousands)	$	1,975
Weighted average age of insured (years)		83.4
Weighted average life expectancy estimate (years)		7.0
Total number of policies		1,010
Number of unique lives		934
Demographics		74% Male; 26% Female
Number of smokers		39
Largest policy as % of total portfolio face value		0.7	%
Average policy as % of total portfolio		0.1	%
Average annual premium as % of face value		4.0	%

Our portfolio of life insurance policies, owned by ~~our~~GWG Holdings’ subsidiaries as of ~~September~~June 30, ~~2020,~~2021, organized by the insured’s current age and the associated number of policies and policy benefits, is summarized below:

Distribution of Policies and Policy Benefits by Current Age of Insured


						Percentage of Total										Percentage of Total
Min Age	Min Age	Max Age	Number of Policies	Policy Benefits		Number of Policies		Policy Benefits		Weighted Average LE (Years)	Min Age	Max Age	Number of Policies	Policy Benefits (in thousands)		Number of Policies		Policy Benefits		Weighted Average LE (Years)
63		69	45	$	50,840	4.2	%	2.6	%	10.34
64											64	69	30	$	28,334	3.0	%	1.6	%	11.6
70	70	74	199	230,244		18.4	%	12.0	%	10.71	70	74	174	216,293		17.2	%	11.7	%	10.2
75	75	79	207	364,936		19.1	%	19.0	%	9.63	75	79	204	338,110		20.2	%	18.3	%	9.4
80	80	84	221	392,196		20.5	%	20.5	%	7.36	80	84	203	361,047		20.1	%	19.6	%	7.6
85	85	89	235	547,893		21.7	%	28.5	%	4.93	85	89	218	530,708		21.6	%	28.8	%	4.8
90	90	94	149	284,856		13.8	%	14.8	%	3.09	90	94	154	312,097		15.2	%	16.9	%	3.2
95	95	100	25	50,102		2.3	%	2.6	%	2.19	95	101	27	57,877		2.7	%	3.1	%	2.0
Total	Total		1,081	$	1,921,067	100.0	%	100.0	%	6.9	Total		1,010	$	1,844,466	100.0	%	100.0	%	7.0

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Our portfolio of life insurance policies, owned by ~~our~~GWG Holdings’ subsidiaries as of ~~September~~June 30, ~~2020,~~2021, organized by the insured’s estimated life expectancy estimates and associated policy benefits, is summarized below:

Distribution of Policies by Current Life Expectancies of Insured


						Percentage of Total									Percentage of Total
Min LE (Months)	Min LE (Months)	Max LE (Months)	Number of Policies	Policy Benefits (in Thousands)		Number of Policies		Policy Benefits		Min LE (Months)	Max LE (Months)	Number of Policies	Policy Benefits (in Thousands)		Number of Policies		Policy Benefits
0	0	47	295	$	485,341	27.3	%	25.3	%	0	47	288	$	515,559	28.5	%	27.9	%
48	48	71	230	422,540		21.3	%	22.0	%	48	71	226	412,910		22.4	%	22.4	%
72	72	95	197	342,067		18.2	%	17.8	%	72	95	186	335,336		18.4	%	18.2	%
96	96	119	154	287,227		14.2	%	15.0	%	96	119	139	241,431		13.8	%	13.1	%
120	120	143	112	174,806		10.4	%	9.1	%	120	143	95	154,374		9.4	%	8.4	%
144	144	179	79	149,556		7.3	%	7.8	%	144	179	68	162,581		6.7	%	8.8	%
180	180	240	14	59,530		1.3	%	3.0	%	180	240	8	22,275		0.8	%	1.2	%
Total	Total		1,081	$	1,921,067	100.0	%	100.0	%	Total		1,010	$	1,844,466	100.0	%	100.0	%

We rely on the payment of policy benefit claims by life insurance companies as a significant source of cash inflow. The life insurance assets we own represent obligations of third-party life insurance companies to pay the benefit amount under the policy upon the mortality of the insured. As a result, we manage this credit risk exposure by generally purchasing policies issued by insurance companies with investment-grade credit ratings from Standard & Poor’s, and diversifying our life insurance portfolio among a number of insurance companies.

The yield to maturity on bonds issued by life insurance carriers reflects, among other things, the credit risk (risk of default) of such insurance carrier. We follow the yields on certain publicly traded life insurance company bonds because this information is part of the data we consider when valuing our portfolio of life insurance policies for our financial statements.

The average yield to maturity of publicly traded life insurance company bonds data we consider as inputs to our life insurance portfolio valuation process was ~~1.36%~~1.45% as of ~~September~~June 30, ~~2020.~~2021. We believe this average yield to maturity reflects, in part, the financial market’s judgment that credit risk is low with regard to these carriers’ financial obligations. The obligations of life insurance carriers to pay life insurance policy benefits ranks senior to all of their other financial obligations, including the senior bonds they issue. As of ~~September~~June 30, ~~2020, approximately 96.2%~~2021, 94.8% of the face value ~~of policy~~ benefits inof our life insurance ~~portfolio~~policies were issued by ~~insurance companies with~~insurers having an investment-grade credit ~~ratings from~~rating (BBB or better) by Standard & Poor’s.

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As of ~~September~~June 30, ~~2020,~~2021, our ten largest life insurance company credit exposures and the Standard & Poor’s credit rating of their respective financial strength and claims-paying ability is set forth below:

Distribution of Policy Benefits by Top 10 Insurance Companies


Rank	Rank	Policy Benefits (in Thousands)		Percentage of Policy Benefit Amount		Insurance Company	S&P Insurer Financial Strength Rating	Rank	Policy Benefits (in Thousands)		Percentage of Policy Benefit Amount		Insurance Company	S&P Insurer Financial Strength Rating
1	1	$	281,692	14.7	%	John Hancock Life Insurance Company	AA-	1	$	252,493	13.7	%	John Hancock Life Insurance Company	AA-
2	2	215,804		11.2	%	Lincoln National Life Insurance Company	AA-	2	208,417		11.3	%	Lincoln National Life Insurance Company	AA-
3	3	205,936		10.7	%	AXA Equitable Life Insurance Company	A+	3	201,236		10.9	%	Equitable Financial Life Insurance Company	A+
4	4	166,791		8.7	%	Transamerica Life Insurance Company	A+	4	164,491		8.9	%	Transamerica Life Insurance Company	A+
5	5	157,755		8.2	%	Brighthouse Life Insurance Company	AA-	5	151,789		8.2	%	Brighthouse Life Insurance Company	AA-
6	6	87,839		4.6	%	American General Life Insurance Company	A+	6	84,998		4.6	%	Pacific Life Insurance Company	AA-
7	7	85,998		4.5	%	Pacific Life Insurance Company	AA-	7	82,389		4.5	%	American General Life Insurance Company	A+
8	8	67,376		3.5	%	ReliaStar Life Insurance Company	A+	8	63,876		3.5	%	ReliaStar Life Insurance Company	A+
9	9	60,558		3.2	%	Security Life of Denver Insurance Company	A+	9	57,862		3.1	%	Security Life of Denver Insurance Company	A-
10	10	57,953		3.0	%	Protective Life Insurance Company	AA-	10	53,669		2.9	%	Protective Life Insurance Company	AA-
		$	1,387,702	72.3	%				$	1,321,220	71.6	%

~~Beneficient Loans Receivable~~ExAlt Trusts’ Investment in Alternative Assets

Beneficient’s primary operations, ~~pertain~~which commenced on September 1, 2017, consist of offering its liquidity and trust administration services to its customers, primarily through certain of Ben LP’s operating subsidiaries, Ben Liquidity (as defined below) and Ben Custody Admin (as defined below), respectively. Ben Liquidity offers simple, rapid and cost-effective liquidity products ~~whereby~~to its customers through the use of customized trust vehicles, the ExAlt Trusts, that facilitate the exchange of a customer’s alternative assets for consideration using a unique financing structure. A subsidiary of Ben ~~LP, through its subsidiaries, extends loans~~Liquidity makes ExAlt Loans to certain of the ExAlt Trusts. Ben Liquidity generates interest and fee income earned in connection with such ExAlt Loans to certain of the ExAlt Trusts, which are collateralized by the cash flows from ~~illiquid~~the exchanged alternative assets ~~and~~(the “Collateral”). Ben Custody Admin provides trust administration services to the trustees ~~who administer the collateral. Beneficient’s core business products are its Exchange Trust, LiquidTrust and the InterChange Trust (introduced in 2020). Beneficient’s clients select one~~ of ~~these products and place their alternative assets into the custody trust that is a constituent member~~certain of ~~a trust structure called the “ExAlt Plan~~TM” ~~(comprised of Exchange Trusts, LiquidTrusts, Custody Trusts, Collective Trusts, and Funding Trusts). The ExAlt Plan~~TM ~~then delivers to Beneficient’s clients the consideration required by the specific product selected by those clients. At the same time, Beneficient, through a subsidiary, extends a loan to~~ the ExAlt ~~Plan~~TM~~. The proceeds (cash or securities of Ben LP or its affiliates) of~~Trusts that ~~loan to~~own the ~~ExAlt Plan~~TM ~~are ultimately paid to the client. The cash flows from the client’s~~exchanged alternative asset ~~support~~following a liquidity transaction for fees payable quarterly. The Collateral supports the repayment of the loans plus any related interest and fees. Since the ExAlt Trusts are consolidated, Ben LP’s operating subsidiary ExAlt Loans and interest and fee income are eliminated in the presentation of our condensed consolidated financial statements.

~~Loans~~The ExAlt Trusts’ investments in alternative assets are ~~carried at~~ the ~~principal amount outstanding, plus interest paid in kind, less allowance for loan loss and net of any unearned income. Loans bear contractual interest~~ ~~at the greater of 14% plus or minus 95% of certain income or losses~~source of the ~~associated Funding Trust or 1-month LIBOR plus 10%, compounded~~ ~~monthly. In~~Collateral supporting the ~~event an~~ExAlt Loans. These assets consist primarily of limited partnership interests in various alternative ~~reference rate is required,~~investments, including private equity funds. These alternative investments are valued using NAV as a practical expedient. Changes in the ~~Secured Overnight Financing Rate (“SOFR”) would replace LIBOR, as contemplated~~NAV of these investments are recorded in investment income, net in our ~~loan agreements.~~consolidated statements of operations. The ~~primary source of repayment for the loans and related fees is cash flows from the~~ExAlt Trusts’ investments in alternative assets ~~collateralizing~~provide the ~~loans. Interest income on loans is accrued on~~economic value creating the ~~principal amount outstanding and interest compounds on~~Collateral to the ExAlt Loans made in connection with each liquidity transaction.

The ExAlt Trusts held interests in alternative assets with a ~~monthly basis.~~

~~Beneficient held loans receivable,~~ net asset value of ~~allowance for loan losses, of $227.0~~$212.5 million and ~~$232.3~~$221.9 million at ~~September~~June 30, ~~2020~~2021 and December 31, ~~2019.~~

~~Loan~~2020, respectively. As of June 30, 2021, the ExAlt Trusts’ portfolio had exposure to ~~Value Ratio~~

~~The loan to value ratio is calculated as the carrying value~~120 professionally managed alternative investment funds, comprised of ~~loans receivable prior to any allowance for loan losses over the collateral value~~313 underlying investments, 96 percent of ~~the loan portfolio. The collateral value is defined as the mutual beneficial interest of the respective Collective Trust that is owed by the Funding Trust,~~ which is derived from the expected cash flows from the alternative assets. The collateral is valued using industry standard valuation models which includes assumptions related to i) equity market risk premiums, ii) alternative asset beta to public equities, iii) NAVs, iv) volatilities, v) distribution rates, and vi) market discount rates. The fair value of the mutual beneficial interests collateralizing the loan portfolio as of September 30, 2020 and December 31, 2019 was $361.7 million and $357.8 million, respectively.are investments in private companies.

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~~Beneficient’s loan to value ratio for~~The portfolio of alternative assets, excluding the ~~entire loan portfolio was .63 and .65 as of September 30, 2020 and December 31, 2019, respectively. The loan to value ratio as of December 31, 2019~~collateral exchanged in the Collateral Swap, which is ~~not reflective of measurement period adjustments recorded during~~eliminated in consolidation, covers the ~~measurement period.~~

As of September 30, 2020, Beneficient’s loan portfolio had exposure to 122 professionally managed alternative investment funds, comprised of 323 underlying investments, and approximately 87 percent of Beneficient’s loan portfolio (based on NAV) was collateralized by investments in private companies.

~~The collateral to Beneficient’s loan portfolio spans across these~~following industry sectors and geographic regions ~~for~~as of the ~~periods~~dates shown below (dollar amounts in thousands):


		September 30, 2020				December 31, 2019					June 30, 2021				December 31, 2020
Industry Sector	Industry Sector	Value		Percent of Total		Value		Percent of Total		Industry Sector	Value		Percent of Total		Value		Percent of Total
Diversified Financials										Diversified Financials	29,230		13.8	%	28,462		12.8	%
Food and Staples Retailing										Food and Staples Retailing	26,986		12.7	%	24,450		11.0	%
Software and Services										Software and Services	26,483		12.5	%	23,310		10.5	%
Telecommunication Services										Telecommunication Services	26,408		12.4	%	27,401		12.3	%
Utilities										Utilities	23,052		10.8	%	21,740		9.8	%
Not Applicable (e.g., Escrow, Earnouts)(1)										Not Applicable (e.g., Escrow, Earnouts)(1)	16,769		7.9	%	18,138		8.2	%
Semiconductors and Semiconductor Equipment										Semiconductors and Semiconductor Equipment	15,555		7.3	%	21,271		9.6	%
Health Care Equipment and Services										Health Care Equipment and Services	12,488		5.9	%	14,682		6.6	%
Other(1)	Other(1)	$	65,481	16.0	%	$	42,954	11.3	%	Other(1)	35,523		16.7	%	42,440		19.2	%
Semiconductors and Semiconductor Equipment		54,018		13.3	%	11,983		3.2	%
Diversified Financials		50,067		12.3	%	27,418		7.3	%
Telecommunication Services		48,366		11.9	%	40,356		10.7	%
Food and Staples Retailing		45,026		11.1	%	20,507		5.4	%
Utilities		38,894		9.5	%	17,768		4.7	%
Software and Services		36,184		8.9	%	21,858		5.8	%
Not Applicable (e.g., Escrow, Earnouts)(1)		36,052		8.8	%	27,829		7.3	%
Health Care Equipment and Services		28,978		7.1	%	94,325		25.0	%
Pharmaceuticals, Biotechnology and Life Sciences		4,366		1.1	%	73,002		19.3	%
Total	Total	$	407,432	100.0	%	$	378,000	100.0	%	Total	$	212,494	100.0	%	$	221,894	100.0	%


		September 30, 2020				December 31, 2019					June 30, 2021				December 31, 2020
Geography	Geography	Value		Percent of Total		Value		Percent of Total		Geography	Value		Percent of Total		Value		Percent of Total
North America	North America	$	159,627	39.2	%	$	215,462	57.0	%	North America	$	90,151	42.3	%	$	95,569	43.1	%
Western Europe	Western Europe	89,272		21.9	%	81,769		21.6	%	Western Europe	49,292		23.2	%	50,219		22.6	%
Asia	Asia	83,967		20.6	%	25,163		6.7	%	Asia	30,295		14.3	%	36,436		16.4	%
Latin & South America	Latin & South America	46,487		11.4	%	22,402		5.9	%	Latin & South America	27,744		13.1	%	25,255		11.4	%
Other(2)	Other(2)	28,079		6.9	%	33,204		8.8	%	Other(2)	15,012		7.1	%	14,415		6.5	%
Total	Total	$	407,432	100.0	%	$	378,000	100.0	%	Total	$	212,494	100.0	%	$	221,894	100.0	%

(1)Industries in this category each comprise less than 5 percent as of ~~September~~June 30, ~~2020. Pharmaceuticals, Biotechnology and Life Sciences is shown separately as it comprised greater than 5 percent as of December 31, 2019.~~2021.

(2)Locations in this category each comprise less than 5 percent.

~~Values represent the NAV of the interests in alternative assets, the cash flows of which comprise the collateral of Beneficient’s loan portfolio.~~ Assets in the ~~collateral~~ portfolio consist primarily of interests in alternative investment vehicles (also referred to as “funds”) that are managed by a group of U.S. and non-U.S. based alternative asset management firms that invest in a variety of financial markets and utilize a variety of investment strategies. The vintages of the funds in the ~~collateral~~ portfolio as of ~~September~~June 30, ~~2020~~2021 ranged from 1993 to ~~2016.~~2021.

As ~~Beneficient grows its loan~~the ExAlt Trusts grow their portfolio, ~~Beneficient~~they will monitor the diversity of ~~its collateral~~the portfolio through the use of concentration guidelines. These guidelines were established, and will be periodically updated, through a data driven approach based on asset type, fund manager, vintage of fund, industry segment and geography to manage portfolio risk. Beneficient will refer to these guidelines when making decisions about new financing opportunities; however, these guidelines will not restrict Beneficient from entering into financing opportunities that would result in Beneficient having exposure outside of its concentration guidelines. In addition, changes to ~~Beneficient’s collateral~~the ExAlt Trusts’ portfolio may lag changes to the concentration

~~Page 56~~

guidelines. As such, ~~Beneficient’s collateral~~the ExAlt Trusts’ portfolio may, at any given time, have exposures that are outside of its concentration guidelines to reflect, among other things, attractive financing opportunities, limited availability of assets, or other business reasons. Given ~~Beneficient’s~~the ExAlt Trusts’ limited operating history, ~~its collateral~~the portfolio as of ~~September~~June 30, ~~2020~~2021 had exposure to certain alternative investment vehicles and investments in private companies that were outside of those guidelines.

Classifications by industry sector, exposure type and geography reflect classification of investments held in funds or companies held directly in the ~~collateral~~ portfolio. Investments reflect the assets listed by the general partner of a fund as held by the fund and have a positive or negative net asset value. Typical assets include portfolio companies, limited partnership interests in other funds, and net other assets, which are a fund’s cash and other current assets minus liabilities. The underlying interests in alternative assets ~~that serve as collateral for Beneficient’s loan portfolio~~

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are primarily limited partnership interests, and the limited partnership agreements governing those interests generally include restrictions on disclosure of fund-level information, including fund names and company names in the funds.

Industry sector is based on Global Industry Classification Standard (GICS®) Level 2 classification (also known as “Industry Group”) of companies held in the ~~collateral~~ portfolio by funds or directly, subject to certain adjustments by us. “Other” classification is not a GICS® classification. “Other” classification reflects companies in the GICS® classification categories of Automobiles & Components, Banks, Capital Goods, Commercial & Professional Services, Consumer Durables & Apparel, Consumer Services, Energy, Food, Beverage & Tobacco, Household & Personal Products, Insurance, Materials, Media & Entertainment, Pharmaceutical, Biotechnology & Life Sciences, Real Estate, Retailing, ~~Semiconductors & Semiconductors Equipment,~~ Tech Hardware & Equipment, and Transportation. N/A includes investments assets that we have determined do not have an applicable GICS® Level 2 classification, such as Net Other Assets and investments that are not operating companies.

Investment exposure type reflects classifications based on each fund’s current investment strategy stage as determined by us. “Other” includes private debt strategies, natural resources strategies and hedge funds.

Geography reflects classifications determined by us based on each underlying investment. “Other” geography classification ~~includes~~includes Israel, Australia, Northern Europe, and Eastern Europe.

Principal Revenue and Expense Items

During the three and ~~nine~~six months ended ~~September~~June 30, ~~2020~~2021 and ~~2019,~~2020, we earned revenues from the following primary sources:

•Revenue ~~realized~~Realized from ~~maturities~~Maturities of ~~life insurance policies~~Life Insurance Policies. We recognize the difference between the face value of the policy benefits and carrying value when an insured event has occurred and determine that collection of the policy benefits is realizable and reasonably assured. Revenue from a transaction must meet both criteria in order to be recognized. We generally collect the face value of the life insurance policy from the insurance company within 45 days of our notification of the insured’s ~~mortality.~~mortality, but this collection time varies depending on the insurance company and individual policy.

•Change in Fair Value of Life Insurance Policies. We value our life insurance portfolio investments for each reporting period in accordance with the fair value principles discussed herein, which reflects the expected receipt of policy benefits in future periods, net of premium costs, as shown in our condensed consolidated financial statements.

•~~Interest Income.~~Investment Income. Includes ~~interest income on Beneficient’s loan portfolio and on~~ the ~~LiquidTrust promissory note, including discount amortization as applicable. See~~change in NAV of the ~~discussion above under “Critical Accounting Policies and Estimates – Purchased Loans” for further information on our accounting for PCI and non-PCI loans.~~alternative assets held by certain of the ExAlt Trusts.

•~~Trust Services.~~Interest Income. ~~Trust administration fees are~~Primarily includes interest earned ~~for providing administrative services to trustees for existing liquidity solution clients. The performance obligation under these agreements is satisfied over time as the administration~~from policy benefits receivable and management services are provided. Fees are recognized monthly based upon the beginning of quarter (in advance) net asset value plus any remaining unfunded loan commitments and the applicable fee rate of the account as outlinedcash held in the agreement. Payment frequency is defined in the individual contracts, which primarily stipulate billings on a quarterly basis in advance. Fees that have been billed in advance are reflected as Deferred Income until earned. Trust services revenues were added beginning January 1, 2020, as a result of the consolidation of Beneficient on December 31, 2019.banks.

~~Page 57~~

•Other Income. Includes changes in the fair value of ~~Beneficient's~~Beneficient’s investment in put options, L Bond redemption fees, and other miscellaneous income. Additionally, includes ~~income~~$36.3 million recognized during the second quarter of 2020 by Beneficient as a result of the forfeiture of vested equity-based compensation related to one former director of Beneficient.

During the three and ~~nine~~six months ended ~~September~~June 30, ~~2020~~2021 and ~~2019,~~2020, our main components of expense are summarized below:

•Interest Expense. ~~We recognize and record~~Includes interest ~~expenses associated with~~incurred under the ~~costs of financing our life insurance portfolio and our investment in Beneficient. These expenses include interest paid to our senior lenders under our~~ second amended and restated senior credit facility with LNV Corporation ~~(“LNV~~(as amended from time to time, “LNV Credit Facility”), as well as interest paid on ~~our~~GWG Holdings’ L Bonds, Seller Trust L Bonds and other outstanding indebtedness, including Beneficient’s ~~other borrowings.~~debt due to related parties. When we issue debt, we amortize the financing costs (commissions and other fees) associated with such indebtedness over the outstanding term of the financing and classify it as interest expense.

•Employee Compensation and Benefits. Employee compensation and benefits includes salaries, bonuses and other incentives and costs of employee benefits. Also included are significant non-cash compensation ~~expense~~expenses totaling $9.0 million and $73.1 million for the six months ended June 30, 2021 and 2020, respectively, related to Beneficient’s equity incentive ~~plans for the three and nine months ended September 30, 2020.~~plans.

•Selling, General and Administrative Expenses. We recognize and record expenses incurred in our business operations, ~~as incurred,~~ including operations related to the servicing of life insurance policies, the origination and servicing of ~~loans~~ExAlt Loans and costs associated with trust administration. These expenses include legal and professional fees, sales, marketing, occupancy and other expenditures.

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Additional components of our net earnings include:

•Earnings (Loss) from Equity Method Investment. Prior to the Investment and Exchange Agreements on December 31, 2019, we accounted for our investment in the common units of Ben LP (“Common Units”) using the equity method. Under this method, we recorded our share of the net earnings or losses attributable to Ben LP common unitholders, on a one quarter~~lag, as a separate line on our condensed consolidated statements of operations.~~ We ~~also~~ account for ~~our~~GWG Holdings’ investment in FOXO as an equity method investment, which is ~~also~~ included in earnings (loss) from equity method investment in our condensed consolidated statements of operations. We had losses from equity method investments of ~~$1.4~~$3.4 million and ~~earnings from equity method investments of $1.0~~$1.3 million during the three months ended ~~September~~June 30, ~~2020~~2021 and ~~2019,~~2020, respectively. We had losses from equity method investments of ~~$4.3~~$6.9 million and ~~$0.4~~$2.8 million during the ~~nine~~six months ended ~~September~~June 30, ~~2020~~2021 and ~~2019,~~2020, respectively.

~~Page 58~~

Results of Operations —Three and ~~Nine~~Six Months Ended ~~September~~June 30, ~~2020~~2021 Compared to the Same Periods in ~~2019~~2020

The following is our analysis of the results of operations for the periods indicated below. This analysis should be read in conjunction with our condensed consolidated financial statements and related notes (dollar values in thousands).

Net Loss Attributable to Common Shareholders

Net loss attributable to common shareholders was $64.9 million and $24.3 million for the three months ended June 30, 2021 and 2020, respectively. Net loss attributable to common shareholders was $119.3 million and $71.6 million for the six months ended June 30, 2021 and 2020, respectively. The results of operations for the three and six months ended June 30, 2021 reflect higher interest expense as result of increased average debt balances and interest rates, combined with a lower gain on life insurance policies as a result of the adjustment to the PMM and lower maturities of life insurance policies. More details regarding revenue and expenses for the three and six months ended June 30, 2021 and 2020 are included in the discussion below.

Revenue from Secondary Life Insurance


		Three Months Ended September 30,						Nine Months Ended September 30,							Three Months Ended June 30,						Six Months Ended June 30,
		2020			2019			2020			2019				2021			2020			2021			2020
Revenue realized from maturities of life insurance policies	Revenue realized from maturities of life insurance policies	$	26,336		$	20,830		$	72,939		$	60,242		Revenue realized from maturities of life insurance policies	$	25,412		$	27,136		$	42,797		$	46,603
Revenue recognized from change in fair value of life insurance policies	Revenue recognized from change in fair value of life insurance policies	6,021			14,181			23,476			48,031			Revenue recognized from change in fair value of life insurance policies	(11,399)			5,278			(3,237)			17,455
Premiums and other annual fees paid	Premiums and other annual fees paid	(18,235)			(17,219)			(53,060)			(49,055)			Premiums and other annual fees paid	(18,486)			(17,626)			(37,121)			(34,825)
Gain on life insurance policies, net		$	14,122		$	17,792		$	43,355		$	59,218
Gain (loss) on life insurance policies, net														Gain (loss) on life insurance policies, net	$	(4,473)		$	14,788		$	2,439		$	29,233
Attribution of gain on life insurance policies, net:	Attribution of gain on life insurance policies, net:													Attribution of gain on life insurance policies, net:
Change in estimated probabilistic cash flows, net of premium and other annual fees paid	Change in estimated probabilistic cash flows, net of premium and other annual fees paid	$	(3,512)		$	689		$	(5,137)		$	3,106		Change in estimated probabilistic cash flows, net of premium and other annual fees paid	$	(4,623)		$	(2,277)		$	(10,011)		$	(1,625)
Change in life expectancy evaluation														Change in life expectancy evaluation	2,337			—			2,337			—
Change in PMM														Change in PMM	(16,386)			—			(16,386)			—
Net revenue recognized at maturity	Net revenue recognized at maturity	17,634			16,631			48,492			49,337			Net revenue recognized at maturity	14,199			17,065			26,499			30,858
Unrealized gain on acquisitions		—			472			—			6,775
Gain on life insurance policies, net		$	14,122		$	17,792		$	43,355		$	59,218
Gain (loss) on life insurance policies, net														Gain (loss) on life insurance policies, net	$	(4,473)		$	14,788		$	2,439		$	29,233

Number of policies acquired		—			6			—			81
Face value of purchases		$	—		$	3,155		$	—		$	96,321
Purchases (initial cost basis)		$	—		$	711		$	—		$	32,250
Unrealized gain on acquisition (% of face value)		—			15.0		%	—			7.0		%
Number of policies matured	Number of policies matured	21			22			70			61			Number of policies matured	22			29			48			49
Face value of matured policies	Face value of matured policies	$	39,803		$	27,470		$	105,194		$	80,927		Face value of matured policies	$	35,485		$	39,889		$	61,445		$	65,391
Net revenue recognized at maturity event (% of face value matured)	Net revenue recognized at maturity event (% of face value matured)	44.3		%	60.5		%	46.1		%	61.0		%	Net revenue recognized at maturity event (% of face value matured)	40.0		%	42.8		%	43.1		%	47.2		%

Revenue from changes in estimated probabilistic cash flows, net of premiums paid was ~~$(3.5)~~a charge of $4.6 million ~~and $0.7~~compared to $2.3 million during the three months ended ~~September~~June 30, 2021 and 2020, ~~and 2019, respectively, and $(5.1)~~respectively. Revenue from changes in estimated probabilistic cash flows, net of premiums paid was a charge of $10.0 million and ~~$3.1~~$1.6 million for the ~~nine~~six months ended ~~September~~June 30, ~~2020~~2021 and ~~2019,~~2020, respectively. The decreases of ~~$3.7~~$19.3 million and ~~15.9~~$26.8 million in gain on life insurance policies for the three and ~~nine~~six months ended ~~September~~June 30, ~~2020,~~2021, respectively, over the comparable prior year periods, was driven by ~~a combination of no gain on policy acquisitions and~~lower revenue realized from maturities ~~of policies with a higher cumulative cost basis.~~

~~The Company did not purchase any life insurance policies during the first nine months of 2020. The face value~~ of life insurance policies ~~purchased~~(see more details in the ~~first nine months~~following paragraph), a lower amount of ~~2019 was $96.3 million. The resulting unrealized gain on acquisition was nil and $0.5 million for the three months ended September 30, 2020 and 2019, respectively, and nil and $6.8 million~~revenue recognized from changes in the nine months ended September 30, 2020 and 2019, respectively. The absence of unrealized gain on acquisition in the current year periods is the result of a strategic decision to significantly reduce capital allocated to purchasing additional life insurance policies in the secondary market and to increase capital allocated toward providing liquidity to a broader range of alternative assets through additional investments in Beneficient. On December 31, 2019, we obtained the right to appoint a majorityfair value of the ~~board of directors~~policies still in force at June 30, 2021, and higher premium costs due to the aging of the ~~general partner~~portfolio. The lower amount of ~~Ben LP. As~~revenue recognized from changes in fair value of the policies is largely driven by the

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$16.4 million downward adjustment to fair value taken as a result of ~~this change-of-control event, we reported~~an update to the results of Ben LP and its subsidiaries on a consolidated basis beginning on the transaction date of December 31, 2019. We believe Beneficient can finance investments in alternative assets that will generally produce higher actual and risk-adjusted returns than those we can generally achieve from life insurance policies acquiredPMM as discussed in the secondary market. Furthermore, although we believe that our portfolio of life insurance policies is a meaningful component of a growing diversified alternative asset portfolio, we continue to explore strategic alternatives for our life insurance portfolio aimed at maximizing its value, including a possible sale, refinancing or recapitalization of our life insurance portfolio.“Critical Accounting Policies and Estimates” section above.

The face value of matured policies was ~~$39.8~~$35.5 million and ~~$27.5~~$39.9 million for the three months ended ~~September~~June 30, ~~2020~~2021 and ~~2019, respectively, and $105.2 million and $80.9 million for the nine months ended September 30,~~ 2020, respectively, reflecting ~~an increase~~a decrease in face value of matured policies of ~~$12.3~~$4.4 million. The resulting revenue realized at maturity was $25.4 million and ~~$24.3~~$27.1 million during the three months ended June 30, 2021 and 2020, respectively. The decreased revenue realized at maturity during the comparable periods was due to the higher average carrying value of the policies that matured during the second quarter of 2021 compared to the second quarter of 2020.

The face value of matured policies was $61.4 million and $65.4 million for the six months ended June 30, 2021 and 2020, respectively, reflecting a decrease in face value of matured policies of $3.9 million, respectively, during those periods. The resulting revenue recognized at maturity was ~~$26.3~~$42.8 million and ~~$20.8~~$46.6 million during the ~~three~~six months ended ~~September~~June 30,

~~Page 59~~

~~2020~~ 2021 and ~~2019, respectively, and $72.9 million and $60.2 million during the nine months ended September 30,~~ 2020, ~~and 2019,~~ respectively. The ~~increased~~decreased revenue recognized at maturity during the comparable periods reflects the ~~continued aging~~higher average carrying value of the ~~existing portfolio with no additional~~ policies ~~being added.~~that matured during the first six months of 2021 compared to the same period in 2020.

Investment Income, Interest Income, ~~Trust Services Revenues~~ and Other Income (in thousands)


		Three Months Ended September 30,						Nine Months Ended September 30,							Three Months Ended June 30,						Six Months Ended June 30,
		2020		2019		Increase/(Decrease)		2020		2019		Increase/(Decrease)			2021		2020		Variance		2021		2020		Variance
Investment income (loss)														Investment income (loss)	$	1,773	$	(22,671)	$	24,444	$	3,863	$	(15,115)	$	18,978
Interest income	Interest income	$	12,928	$	3,935	$	8,993	$	39,588	$	11,273	$	28,315	Interest income	305		300		5		622		1,015		(393)
Trust services revenues		4,556		—		4,556		14,412		—		14,412
Other income		(3,093)		484		(3,577)		33,504		947		32,557
Other (loss) income														Other (loss) income	(1,891)		36,501		(38,392)		(3,451)		36,597		(40,048)
Total	Total	$	14,391	$	4,419	$	9,972	$	87,504	$	12,220	$	75,284	Total	$	187	$	14,130	$	(13,943)	$	1,034	$	22,497	$	(21,463)

~~Interest~~Investment income ~~increased $9.0~~was $1.8 million and ~~$28.3~~$3.9 million during the three and ~~nine~~six months ended ~~September~~June 30, 2021, respectively, driven by an increase in the NAV of the alternative assets held by certain of the ExAlt Trusts. Investment loss was $22.7 million and $15.1 million during the three and six months ended June 30, 2020, respectively, primarily due to a decrease in the NAV of the alternative assets held by certain of the ExAlt Trusts, partially offset by a decrease to the repurchase option liability.

Interest income decreased during the six months ended June 30, 2021, compared to the same ~~periods~~period in ~~2019,~~2020, primarily due to ~~the consolidation of Beneficient, which added $11.6 million~~a decrease in average cash balances and ~~$35.1 million to~~corresponding bank interest ~~income~~earned.

Other loss during the three and ~~nine~~six months ended ~~September~~June 30, 2020, respectively. We also added $1.1 million per quarter in 2020 of interest income from the promissory note between GWG Life and certain LiquidTrusts entered into on May 31, 2019, as discussed in Note 6 to the condensed consolidated financial statements. These increases during the three and nine months ended September 30, 2019 were partially offset by $4.12021, includes a $2.1 million and ~~$8.5~~$4.3 million decrease, respectively, of interest on the commercial loan between GWG Life and Beneficient, which was reported in interest income during the three and nine months ended September 30, 2019, prior to the consolidation of Beneficient on December 31, 2019. This intercompany interest was eliminated in consolidation beginning January 1, 2020.

~~Trust services revenues related to Beneficient’s trust administration services were added beginning January 1, 2020, as a result of the consolidation of Beneficient on December 31, 2019.~~

~~Other income during the three months ended September 30, 2020, includes a $3.2 million decrease~~ to the fair value of ~~Beneficient's~~Beneficient’s investment in put options, ~~entered into on July 17, 2020,~~ compared to L Bond early redemption fees and other miscellaneous income items recorded in the comparable ~~period~~periods in ~~2019.~~2020. Other income ~~increased $32.6 million during~~for the ~~nine~~three and six months ended ~~September~~June 30, 2020, ~~compared to the same period in 2019, due to~~includes $36.3 million of income recognized during the second quarter of 2020 by Beneficient as a result of the forfeiture of vested equity-based compensation related to one former director of Beneficient. A substantial majority of the former director’s equity-based compensation units were fully vested, and the related expense was recorded in prior periods. The provisions of the award agreements related to the forfeiture of vested units resulted in the previous expense being recorded to other income in the second quarter of 2020. This income was offset by the aforementioned decrease to the fair value of Beneficient’s put options during the third quarter of 2020. Other income during the nine months ended September 30, 2019 includes L Bond early redemption fees and other miscellaneous income from legacy initiatives of GWG Holdings.

Interest and Operating Expenses (in thousands)


		Three Months Ended September 30,						Nine Months Ended September 30,							Three Months Ended June 30,						Six Months Ended June 30,
		2020		2019		Increase/ (Decrease)		2020		2019		Increase/ (Decrease)			2021		2020		Variance		2021		2020		Variance
Interest expense (including amortization of deferred financing costs)	Interest expense (including amortization of deferred financing costs)	$	40,792	$	28,290	$	12,502	$	113,805	$	83,752	$	30,053	Interest expense (including amortization of deferred financing costs)	$	42,127	$	37,142	$	4,985	$	83,509	$	73,013	$	10,496
Employee compensation and benefits	Employee compensation and benefits	33,777		9,137		24,640		123,321		21,085		102,236		Employee compensation and benefits	14,082		11,840		2,242		29,106		89,544		(60,438)
Legal and professional fees	Legal and professional fees	7,830		2,594		5,236		21,636		10,263		11,373		Legal and professional fees	6,054		7,643		(1,589)		14,182		13,806		376
(Recapture of) provision for loan losses		(4,986)		—		(4,986)		2,914		—		2,914
Other expenses	Other expenses	4,550		3,549		1,001		13,057		12,316		741		Other expenses	6,395		5,063		1,332		13,398		8,675		4,723
Total expenses	Total expenses	$	81,963	$	43,570	$	38,393	$	274,733	$	127,416	$	147,317	Total expenses	$	68,658	$	61,688	$	6,970	$	140,195	$	185,038	$	(44,843)

Page 6059

Interest expense, including amortization of deferred financing costs, increased ~~$12.5~~$5.0 million and ~~$30.1~~$10.5 million during the three and ~~nine~~six months ended ~~September~~June 30, ~~2020,~~2021, respectively, compared to the same periods in ~~2019. The increase in interest expense for the three and nine months ended September 30,~~ 2020, ~~compared to the same periods in 2019, was~~ primarily due to the increase in the average balance of outstanding L ~~Bonds during each~~Bonds. The difference also includes the effects of the ~~comparative periods. The~~ increased ~~average L Bond balances resulted in increases~~interest rate on debt due to related parties and additional deferred financing cost amortization as a result of the amendments of Beneficient’s debt agreements on August 13, 2020, partially offset by the elimination of a portion of the interest expense on the Seller Trust L Bonds as a result of ~~$7.7 million~~the Collateral Swap transaction that occurred on September 30, 2020.

Employee compensation and ~~$19.3 million~~benefits increased during the three ~~and nine~~ months ended ~~September~~June 30, 2020, respectively, compared to the comparable periods in 2019. Also, the consolidation of Beneficient beginning December 31, 2019 increased interest expense by $3.5 million and $7.7 million for the three and nine months ended September 30, 2020, respectively,2021, compared to the same ~~periods in 2019, related~~period of 2020, due to ~~Beneficient’s other borrowings. Additionally, $1.5 million~~higher salary and ~~$3.1 million~~benefit costs recognized as a result of ~~increased interest expense~~higher headcount for the comparable period. Employee compensation and benefits decreased during the ~~three and nine~~six months ended ~~September~~June 30, ~~2020, respectively,~~2021, compared to the same ~~periods in 2019, was due to increased interest paid on our LNV Credit Facility associated with a higher principal balance outstanding.~~

~~The increase in employee compensation and benefits in the three and nine months ended September 30,~~period of 2020, ~~compared to the same periods of 2019, was~~ primarily related to the consolidation of Beneficient on December 31, 2019. Specifically, the Company recognized $23.2 million and $96.3 million of equity-based compensation expense during the three and nine months ended September 30, 2020, respectively, related to Beneficient’s equity incentive plans. ~~Beneficient’s Board~~Specifically, the Company recognized $9.0 million during the six months ended June 30, 2021, compared to $73.1 million during the comparable period of ~~Directors adopted the~~2020, of equity-based compensation expense related to Beneficient’s equity incentive ~~plans in 2018 and 2019 and approved~~plans. The decrease is due to the ~~granting~~full vesting of ~~equity incentive~~some awards upon grant during ~~the second quarter of 2019 to certain directors and in~~ the first quarter of 2020 compared to ~~certain employees. Awards are generally subject to~~predominately service-based vesting over a multi-year period from the recipient’s date of hire, though some awards fully vested upon the grant date. As of September 30, 2020, over 78% of the awards granted under Beneficient’s equity incentive plans had vested.

The Company expects to recognize an additional $4.0 million of equity-based compensation expense under Beneficient’s plans in the three months ending December 31, 2020, related to awards outstanding as of September 30, 2020. Expense associated with these awards is based on the fair value of the equity on the date of grant. As Ben LP’s equity is not publicly traded, the fair value of the equity awards is estimated on the grant date using internal valuations or recent equity transactions involving third parties, which provides the Company with observable fair value information sufficient for estimating the grant date fair value.

during 2021. In addition to Beneficient’s equity-based compensation expense, we recognized additional retention, severance and other costs in the first quarter of 2020 related to the relocation of ~~our~~GWG Holdings’ principal offices from Minneapolis to Dallas in late 2019. Finally, these decreases were partially offset by higher salary and benefit costs recognized as a result of higher headcount for the comparable periods.

The ~~increase~~decrease in legal and professional fees in the three ~~and nine~~ months ended ~~September~~June 30, ~~2020,~~2021, compared to the same ~~periods~~period of ~~2019,~~2020, is primarily the result of higher legal costs in the ~~consolidation~~second quarter of ~~Beneficient on December 31, 2019, which added $4.7 million~~2020 related to debt amendments and ~~$13.6 million~~other transactions that occurred during that time, combined with higher costs of ~~legal~~life expectancy reports ordered during the second quarter of 2020. Legal and professional fees ~~during~~remained relatively flat for the ~~three and nine~~six months ended ~~September~~June 30, 2020, respectively. In addition to the consolidation of Beneficient, recent transactions and other ongoing initiatives resulted in increased legal and professional fees during the third quarter of 2020,2021 compared to the same period ~~in 2019. During the nine months ended September 30, 2020, the increase in legal and professional fees resulting from the consolidation~~ of Beneficient was partially offset as the nine months ended 2019 included comparatively high legal and professional fees of GWG Holdings as a result of the Beneficient transactions detailed in Note 1 to the condensed consolidated financial statements.

During the three months ended September 30, 2020, a loan loss provision recapture of $5.0 million was recognized due to an increase in expected cash flows for certain PCI loans as more fully described in Note 6 to the condensed consolidated financial statements. During the nine months ended September 30, 2020, a loan loss provision expense of $2.3 million was recorded, primarily due to a decrease in expected cash flows.2020.

The increase in other expenses induring the three ~~and nine~~ months ended ~~September~~June 30, ~~2020~~2021, compared to the same ~~periods~~period of ~~2019,~~2020, is primarily due a $1.0 million TEFFI application fee incurred by Beneficient during the ~~result~~second quarter of 2021. In addition to the ~~consolidation~~TEFFI application fee, the increase in other expenses during the six months ended June 30, 2021, compared to the same period of ~~Beneficient on December 31, 2019, which added~~2020, is primarily due to the $2.0 million ~~and $4.7 million during the three and nine months ended September 30, 2020, respectively. These increases were partially offset by lower~~write-off of an investment related to legacy business ~~insurance, contract labor and other operating expenses~~initiatives of GWG Holdings, ~~and subsidiaries~~combined with a $1.3 million partial expense reversal of a service provider accrual by Beneficient during the ~~comparable periods.~~first quarter of 2020.

~~Page 61~~

Income Taxes

~~Consolidated income tax expense for the three months ended September 30, 2020 was $22.4 million, and consolidated income tax expense for the nine months ended September 30, 2020 was $0.6 million.~~ The Company’s effective tax rate was ~~0.4%~~0.34% for the ~~nine~~six months ended ~~September~~June 30, 2020. The income tax expense for the three months ended September 30, 2020 primarily reflects the effects of a gain allocated to GWG Holdings from Ben LP and an increase to the valuation allowance on the Company's net deferred tax assets (described below).2021. The income tax benefit for the ~~nine~~three and six months ended ~~September~~June 30, 2021 was $0.2 million and $0.5 million, respectively, compared to $2.0 million and $18.2 million for the three and six months ended June 30, 2020, respectively. The effective tax rate differs from the statutory U.S. federal income tax rate of 21% primarily due to valuation allowances recorded on the current year losses, offset by a current state tax expense. The income tax benefit for the three and six months ended June 30, 2021 reflects ~~the effects of a gain allocated~~adjustments to ~~GWG Holdings from Ben LP and a change in state taxing jurisdictions.~~

The Company currently records a valuation allowance against its deferred tax assets that cannot be realized solely by the future reversal of existing temporary differences. Due to the uncertain timing of the reversal of certain of these taxable temporary differences due to the constraint described below, they cannot be considered as a source of future taxable income for purposes of determining a valuation allowance; therefore, the vast majority of the existing deferred tax liability cannot be utilized in determining the realizability of the deferred tax assets. ~~This is often referred to as a “naked credit.”~~ Due to a prior deemed ownership change, net operating loss carryforwards are subject to Section 382 of the Internal Revenue Code.

Page 60

majority of which remained as of ~~September~~June 30, 2021 and December 31, 2020. ~~The naked credit as of September 30, 2020 is specifically related to GWG Life’s investment in the Preferred Series A Subclass 1 Unit Accounts described in Note 1.~~ The disposition of this investment is constrained by the Pledge and Security Agreement in favor of the holders of the L Bonds of GWG Holdings. As such, the timing of recognition of the necessary taxable income related to this investment and the future reversal of this taxable temporary difference cannot be predicted.

~~Page 62~~

Revenue and Earnings before Tax by Reportable Segment — Three and ~~Nine~~Six Months Ended ~~September~~June 30, ~~2020~~2021 Compared to the Same Periods ~~of 2019~~in 2020

We have two reportable segments: 1) ~~Beneficient~~Secondary Life Insurance and 2) ~~Secondary Life Insurance.~~Beneficient. Corporate & Other includes certain activities not allocated to specific business segments. These activities include holding company financing and investing activities, management and administrative services to support the overall operations of the Company, and ~~our~~GWG Holdings’ equity method investment in FOXO.

Comparison of revenue by reportable segment for the periods indicated (in thousands):


		Three Months Ended September 30,						Nine Months Ended September 30,							Three Months Ended June 30,						Six Months Ended June 30,
Revenue:	Revenue:	2020		2019		Increase/(Decrease)		2020		2019		Increase/(Decrease)		Revenue:	2021		2020		Variance		2021		2020		Variance
Secondary Life Insurance	Secondary Life Insurance	$	14,422	$	18,238	$	(3,816)	44,800		$	61,199	$	(16,399)	Secondary Life Insurance	$	(4,073)	$	15,230	$	(19,303)	3,099		$	30,378	$	(27,279)
Beneficient	Beneficient	14,091		3,709		10,382		86,042		9,723		76,319		Beneficient	(219)		13,672		(13,891)		368		21,336		(20,968)
Corporate & Other	Corporate & Other	—		264		(264)		17		517		(500)		Corporate & Other	6		16		(10)		6		16		(10)
Total	Total	$	28,513	$	22,211	$	6,302	$	130,859	$	71,439	$	59,420	Total	$	(4,286)	$	28,918	$	(33,204)	$	3,473	$	51,730	$	(48,257)

The primary components of the changes in revenue during the three and ~~nine~~six months ended ~~September~~June 30, ~~2020~~2021 compared to the same periods in ~~2019~~2020 were as follows:

•Secondary Life Insurance revenue decreased by ~~$3.8~~$19.3 million and ~~$16.4~~$27.3 million during the three and ~~nine~~six months ended ~~September~~June 30, ~~2020, respectively,~~2021, compared to the comparable periods in ~~2019,~~2020, primarily as a result of ~~respective decreases of $0.5 million and $6.9 million in gain on policy acquisitions as we have not acquired any policies in 2020. Also contributing~~an adjustment to the ~~decrease~~PMM during the second quarter of 2021 that resulted in ~~Secondary Life Insurance~~a $16.4 million downward adjustment to the fair value of the portfolio, combined with higher premiums and lower revenue recognized at maturity.

•Beneficient segment ~~revenues were respective decreases of $3.2 million and $4.2 million in change in estimated probabilistic cash flows during~~revenue decreased for the three and ~~nine~~six months ended ~~September~~June 30, 2020, compared to the comparable periods in 2019, and respective increases of $1.0 million and $4.0 million in premiums paid during the comparable periods. Furthermore, net revenue recognized at maturity was $1.0 million higher and $0.9 million lower in the three and nine months ended September 30, 2020, respectively,2021, compared to the same periods in ~~2019.~~

•~~Beneficient segment revenue for the three and nine months ended September 30,~~ 2020, ~~represents the consolidated operations of Beneficient, compared~~primarily due to an equity method investment in Beneficient during the same periods in 2019, and also includes interest income on the LiquidTrust promissory note entered into in May 2019. As such, the first nine months of 2020 includes $35.1$36.3 million of interest income and $14.4 million of trust services revenues, whereas the first nine months of 2019 primarily includes interest income on the Commercial Loan between GWG Life and Beneficient, which was eliminated in consolidation beginning December 31, 2019. Additionally, there was $36.2 million ofnon-recurring income recognized during the second quarter of 2020 by Beneficient as a result of the forfeiture of vested equity-based compensation related to one former director of Beneficient. A substantial majority of the former director’s equity-based compensation units were fully vested, and the related expense was recorded in prior periods. ~~The provisions~~This decrease was partially offset by an increase in investment income driven by changes in the NAV of the ~~award agreements related to forfeiture~~alternative assets held by certain of ~~vested units resulted in~~ the ~~previous expense being recorded to other income in the second quarter of 2020.~~

•~~Corporate & Other revenue was de minimis~~ExAlt Trusts during the three and ~~nine~~six months ended ~~September~~June 30, ~~2020, and during~~2021, compared to the ~~three and nine months ended September 30, 2019 includes minimal revenue related to a legacy merchant cash advance subsidiary of GWG Holdings. GWG holdings no longer participates~~same periods in ~~the merchant cash advance industry.~~2020.

~~Page 63~~

Comparison of ~~earnings~~loss before tax by reportable segment for the periods indicated (in thousands):


		Three Months Ended September 30,						Nine Months Ended September 30,							Three Months Ended June 30,						Six Months Ended June 30,
Segment Income (Loss) Before Tax(1)		2020		2019		Increase/Decrease		2020		2019		Increase/Decrease
Segment Loss Before Tax														Segment Loss Before Tax	2021		2020		Variance		2021		2020		Variance
Secondary Life Insurance	Secondary Life Insurance	$	(12,147)	$	(9,169)	$	(2,978)	$	(39,314)	$	(19,792)	$	(19,522)	Secondary Life Insurance	$	(36,199)	$	(12,446)	$	(23,753)	$	(58,588)	$	(27,167)	$	(31,421)
Beneficient~~(1)~~	Beneficient~~(1)~~	(33,819)		(2,214)		(31,605)		(86,347)		(11,286)		(75,061)		Beneficient~~(1)~~	(29,281)		(15,218)		(14,063)		(60,874)		(95,412)		34,538
Corporate & Other~~(2)~~(1)	Corporate & Other~~(2)~~(1)	(8,915)		(9,020)		105		(22,492)		(25,270)		2,778		Corporate & Other~~(2)~~(1)	(10,899)		(6,424)		(4,475)		(24,209)		(13,577)		(10,632)
Total	Total	$	(54,881)	$	(20,403)	$	(34,478)	$	(148,153)	$	(56,348)	$	(91,805)	Total	$	(76,379)	$	(34,088)	$	(42,291)	$	(143,671)	$	(136,156)	$	(7,515)

(1)Includes income and loss from equity method investments for the three and nine months ended September 30, 2019, as presented in our condensed consolidated statements of operations, related to GWG Holdings’ equity method investment in Beneficient prior to December 31, 2019.

~~(2)~~Includes loss from equity method investments ~~for the three and nine months ended September 30, 2020,~~ as presented in our condensed consolidated statements of operations, related to GWG Holdings’ investment in FOXO.

The primary drivers of the changes in loss before tax during the three and ~~nine~~six months ended ~~September~~June 30, ~~2020,~~2021, compared to the same periods in ~~2019~~2020 were as follows:

•Secondary Life Insurance loss before tax increased by ~~$3.0~~$23.8 million and ~~$19.5~~$31.4 million, respectively, for the three and ~~nine~~six months ended ~~September~~June 30, ~~2020, respectively,~~2021, compared to the same periods in ~~2019,~~2020, primarily as a result of the following:

Page 61

•$~~3.7~~19.3 million and ~~$15.9~~$26.8 million respective decreases in gain on life insurance policies, net for the comparative periods as described above in the revenue comparison discussion;

•$~~12.5~~6.1 million and ~~$30.1~~$11.0 million respective increases in interest expense during the comparative periods as a result of higher average debt outstanding; and

•~~Increases~~$1.7 million and $6.9 million respective decreases in operating expenses ~~of $25.9 million and $117.3 million~~ during the comparative periods, primarily resulting from ~~higher~~a lower percentage of employee compensation and benefits ~~professional fees and other expenses described above in~~allocated to the ~~expense comparison discussion.~~Secondary Life Insurance segment.

•Beneficient segment loss before tax increased by ~~$31.6 million and $75.1~~$14.1 million for the three ~~and nine~~ months ended ~~September~~June 30, 2021, respectively, compared to the same period in 2020, ~~respectively,~~primarily due to:

•an increase in investment income of $24.4 million offset by an increase in loss on put option of $2.2 million and $36.3 million of non-recurring income in second quarter of 2020 as described above in the revenue comparison discussion;

•a decrease of $0.4 million in non-cash charges for equity incentive compensation; and

•net increases in interest and other operating expenses of approximately $0.6 million.

•Beneficient segment loss before tax decreased by $34.5 million for the six months ended June 30, 2021, primarily due to:

•a decrease of $60.6 million in non-cash charges for equity incentive compensation;

•a increase in investment income of $18.9 million partially offset by an increase in loss on put option of $4.3 million and $36.3 million of non-recurring income in second quarter of 2020 as described above in the revenue comparison discussion; and

•net increases in interest and other operating expenses of approximately $5.1 million.

•Corporate & Other operating loss was higher during the three and six months ended June 30, 2021 compared to the same periods in ~~2019,~~2020, primarily due to the consolidation of Beneficient on December 31, 2019. During 2019, we accounted for Beneficient using the equity method on a one-quarter lag, and the amount reported represents our proportionate share of the losses of Beneficient for the period presented. The one-quarter lag was discontinued with the consolidation of Beneficient on December 31, 2019. The earnings of Beneficient for the three and nine months ended September 30, 2020, were affected by $24.3 million and $93.6 million, respectively, of non-cash charges for equity incentive compensation. During the nine months ended September 30, 2020, Beneficient’s losses were offset by $36.2 million of income recognized as a result of the forfeiture of vested equity-based compensation related to one former director of Beneficient as described in the revenue comparison discussion above.due:

•$2.1 million and $4.1 million respective increases in loss from equity method investments;

•$0.3 million and $4.5 million respective increases in operating expenses due to a higher percentage of salaries and benefits, legal fees and other operating expenses allocated to Corporate & Other; and ~~Other operating loss was lower~~

•the write-off of a $2.0 million investment related to legacy business initiatives of GWG Holdings during the ~~three and nine~~six months ended ~~September~~June 30, ~~2020 compared to the same periods in 2019, primarily due to lower legal and consulting fees as we incurred higher fees in the first nine months of 2019 as a result of the Beneficient transactions.~~2021.

~~Page 64~~

Liquidity and Capital Resources

As of June 30, 2021 and December 31, 2020, we had approximately $91.5 million and $124.2 million, respectively, in combined available cash, cash equivalents, and restricted cash. We ~~finance~~generated net losses attributable to common shareholders of $119.3 million and $71.6 million for the six months ended June 30, 2021 and 2020, respectively. As of October 15, 2021, we had cash, cash equivalents, and restricted cash of approximately $54.3 million. Besides funding operating expenditures, we are obligated to pay other items such as interest payments, debt maturities, and preferred stock dividends and redemptions.

We have historically financed our businesses primarily through a combination of L Bond sales, preferred stock sales, the LNV Credit Facility, and the NF Credit Facility. We have also financed our business through proceeds from life insurance policy benefit ~~receipts; receipt of principal, interest and related fees on loans receivable;~~receipts, cash distributions from the ExAlt Trusts’ alternative asset portfolio, dividends and interest on ~~investments; equity offerings;~~investments, and Beneficient’s debt ~~offerings; and our LNV Credit Facility and other borrowings.~~due to related parties. We have traditionally used proceeds from these sources for policy acquisition, policy premiums and servicing costs, working capital and financing expenditures including paying principal, interest and dividends. We have also used ~~and intend to continue to use,~~ proceeds to allocate capital to ~~Beneficient.~~Beneficient; however, if Ben LP becomes an independent company pursuant to the terms of the Term Sheet, the Company expects that Ben LP would reduce its reliance on GWG Holdings to fund its operations and would raise future capital from other sources. Ben LP’s capital raising efforts and participation in liquidity transactions may include the issuance of equity or debt of Ben LP or one of its subsidiaries, and the newly issued securities may be dilutive to GWG Holdings’ and GWG Life’s investments in Ben LP and BCH and may include preferential terms relative to GWG Holdings’ and GWG Life’s investments in Ben LP and BCH, as applicable.

As of September 30, 2020 and December 31, 2019, we had approximately $177.7 million and $151.5 million, respectively, in combined available cash, cash equivalents, restricted cash, policy benefits receivable and fees receivable.

Page 62

We currently fund our business primarily with debt that generally has a shorter duration than the duration of our ~~longer-term~~long-term assets. The resulting asset/liability mismatch can result in a liquidity shortfall if we are unable to renew maturing ~~short term~~short-term debt or secure suitable additional financing. In such a situation, we could be forced to sell assets at less than optimal (distressed) prices. Substantially all of our life insurance policies are pledged as collateral under the LNV Credit Facility and the NF Credit Facility and we would not be able to dispose of them without compliance with the terms of those credit facilities. We heavily rely on ~~our~~GWG Holdings’ L Bond offering to fund our business operations, including, among other things, interest and principal payments on the existing L Bonds and capital allocations to Beneficient. We ~~were unable to offer our~~temporarily suspended the offering of GWG Holdings’ L Bonds, commencing April 16, 2021, as a result of our ~~primary source of debt capital, for the approximately three month period commencing May 1, 2019 due to delays~~delay in filing certain periodic reports with the ~~SEC. We drew down our cash balances during that period as L Bonds matured but~~SEC, including this Quarterly Report on Form 10-Q, and were ~~unable~~required to ~~be renewed, and we were unable to offer new L Bonds. We recommenced our~~seek alternative sources of capital.

As a result of the suspension of GWG Holdings’ L Bond offering, on June 28, 2021 (as described in more detail below and in Note 9 to the condensed consolidated financial statements), we pledged additional life insurance policies as collateral and received an additional advance of $51.2 million under the Third LNV Credit Facility. Subsequently, on August ~~8, 2019. If~~11 2021, we entered into the NF Credit Agreement (as described in more detail below and in Note 17 to the condensed consolidated financial statements) and received a one-time advance of $107.6 million under this credit agreement. Approximately $56.7 million of such advanced amount was used to pay off the remaining amount due, including interest and penalties, under the Third LNV Credit Facility and the additional pledged life insurance policies used as collateral for the Third LNV Credit Facility were released and pledged under the NF Credit Facility. Further, on September 7, 2021, DLP IV entered into the Fourth LNV Credit Facility, that replaced the aforementioned Third LNV Credit Facility. The Fourth LNV Credit Facility resulted in an additional advance of $30.3 million from LNV Corporation, with no additional pledged collateral.

Primarily due to the current suspension of GWG Holdings’ L Bond offering, the Company may require additional capital to continue its operations over the next twelve months if our ability to sell L Bonds dissipates, or if we are ~~again~~ forced to suspend the L Bond offering. However, the Company may not be able to obtain additional borrowings under existing debt facilities or new borrowings with other third-party lenders. To the extent that GWG Holdings or its subsidiaries raise additional capital through the future issuance of debt, the terms of those debt securities may include terms that adversely affect the rights of our existing debt and/or equity holders or involve negative covenants that restrict GWG Holdings’ ability to take specific actions, such as incurring additional debt or making additional investments in growing the operations of the Company. If GWG Holdings is unable to fund its operations and other obligations, or defaults on its debt, then the Company will be required to either i) sell assets to provide sufficient funding, ii) exercise our right to decline requests for early L Bond redemptions or redemptions of preferred stock, or iii) to raise additional capital through the sale of equity and the ownership interest of our equity holders may be diluted. Substantially all of our life insurance policies are pledged as collateral under the LNV Credit Facility and the NF Credit Facility and we would not be able to dispose of them without compliance with the terms of those credit facilities.

We anticipate recommencing the offering of GWG Holdings’ L Bonds once we become current with our filing obligations and satisfy applicable NASDAQ listing requirements. Once we become current with our filing obligations with respect to the L Bonds, we may be limited in the origination channels in which we sell our L ~~Bond offering~~Bonds in the ~~future for any significant length of time, or demand for our L bonds dissipates, and~~event that we are unable to ~~obtain replacement financing,~~meet the applicable NASDAQ listing requirements in a timely manner, which could result in the L Bonds no longer being “covered securities” for federal securities law purposes which would subject the offer and sale of L Bonds to potentially extensive state “blue sky” securities law requirements. If for any reason we are forced to suspend GWG Holdings’ L Bond offering, are limited in our origination channels in which we sell our L Bonds, or demand for GWG Holdings’ L bonds dissipates, our business would be adversely impacted and our ability to service and repay our debt obligations, much of which is short term, would be compromised, thereby negatively affecting our business prospects and viability.

We had ~~$86.9~~$63.3 million of borrowing base capacity, excluding any potential capacity for premiums and servicing costs, under the LNV Credit Facility as of ~~September~~June 30, ~~2020.~~2021. Additional future borrowing base capacity for premiums and servicing costs, created as the premiums and servicing costs of pledged life insurance policies become due and by additional policy pledges to the facility, if any, exists under the LNV Credit ~~Facility.~~Facility at the sole discretion of the lender. The LNV Credit Facility has certain financial and nonfinancial ~~covenants. We~~covenants, and we were in compliance with ~~the~~these debt covenants as of ~~September~~June 30, ~~2020~~2021 and continue to be so as of the filing date of this report. Subsequent to June 30, 2021, we received additional advances through amendments to the LNV Credit Facility and entered into the NF Credit Facility (as described above and more fully in Note 17 to the condensed consolidated financial statements).

Beneficient is obligated to make debt payments totaling $75.5 million on certain outstanding borrowings through May 30, 2022 under the terms of the Amendment No. 1 to the Second Amended and Restated Credit Agreements as discussed further in Note 17 to the condensed consolidated financial statements. Primarily due to both the forthcoming debt payments under the Credit

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Agreement and Second Lien Credit Agreement and the anticipated deconsolidation of Beneficient from GWG Holdings, as discussed previously and in Note 17, which is expected to result in reduced reliance by Beneficient on GWG Holdings to fund its operations, Beneficient will require additional liquidity to continue its operations over the next twelve months. Beneficient expects to satisfy these obligations and fund its operations through anticipated operating cash flows, proceeds from distributions on the alternative assets portfolio, additional investments into Beneficient by GWG Holdings and/or other parties and, potentially refinancing with other third-party lenders some or all of the existing borrowings due prior to their maturity. Beneficient is currently in the process of raising additional equity, which is anticipated to close during the fourth quarter of 2021 and/or the first quarter of 2022.

As noted in the “Results of Operations” section above, on November 11, 2019, GWG Holdings contributed the common stock and membership interests of its then wholly-owned FOXO Labs and FOXO Life subsidiaries to ~~a legal entity,~~ FOXO in exchange for a membership interest in the entity. On November 13, 2020, FOXO BioScience LLC converted to a corporation and is now known as FOXO Technologies Inc. With the corporate conversion, GWG Holdings’ previous membership interest in the LLC converted to preferred equity. GWG Holdings has contributed ~~$11.2~~$2.5 million in cash to FOXO ~~to date~~during the six months ended June 30, 2021, and iswas committed to contribute an additional ~~$5.0~~$1.3 million to the entity through October ~~2021.~~2021, all of which has been contributed through such date.

The potential NASDAQ delisting and our current inability to sell L Bonds as discussed above, in combination with significant recurring losses from operations, negative cash flows from operations, delays in executing our business plans, and any potential negative outcome from the ongoing SEC investigation discussed elsewhere in this Form 10-Q, raise substantial doubt about our ability to continue as a going concern for the next 12 months following the filing of this Form 10-Q.

Financings Summary

We had the following outstanding debt balances as of ~~September~~June 30, ~~2020~~2021 and December 31, ~~2019~~2020, with the following weighted average interest rates as calculated for the six months ended June 30, 2021, and the year ended December 31, 2020 (dollars in thousands):


		September 30, 2020				December 31, 2019					June 30, 2021				December 31, 2020
Issuer/Borrower	Issuer/Borrower	Principal Amount Outstanding		Weighted Average Interest Rate		Principal Amount Outstanding		Weighted Average Interest Rate		Issuer/Borrower	Principal Amount Outstanding		Weighted Average Interest Rate		Principal Amount Outstanding		Weighted Average Interest Rate
GWG DLP Funding IV, LLC – LNV senior credit facility	GWG DLP Funding IV, LLC – LNV senior credit facility	$	213,117	9.16	%	$	184,586	9.57	%	GWG DLP Funding IV, LLC – LNV senior credit facility	$	236,660	9.00	%	$	202,611	9.12	%
GWG Holdings, Inc. – L Bonds		1,181,058		7.22	%	948,128		7.15	%
GWG��Holdings, Inc. – L Bonds										GWG��Holdings, Inc. – L Bonds	1,369,818		7.21	%	1,277,881		7.21	%
GWG Holdings, Inc. – Seller Trust L Bonds	GWG Holdings, Inc. – Seller Trust L Bonds	366,892		7.50	%	366,892		7.50	%	GWG Holdings, Inc. – Seller Trust L Bonds	272,104		7.50	%	272,104		7.50	%
Beneficient – Other borrowings		102,224		6.24	%	152,199		4.59	%
Beneficient – Debt due to related parties										Beneficient – Debt due to related parties	78,223		7.92	%	77,176		6.50	%
Total	Total	$	1,863,291	7.44	%	$	1,651,805	7.26	%	Total	$	1,956,805	7.50	%	$	1,829,772	7.43	%

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The table below reconciles the face amount of our outstanding debt to the carrying value shown on our balance sheets (dollars in thousands):


		September 30, 2020		December 31, 2019			June 30, 2021		December 31, 2020
Senior credit facility with LNV Corporation	Senior credit facility with LNV Corporation					Senior credit facility with LNV Corporation
Face amount outstanding	Face amount outstanding	$	213,117	$	184,586	Face amount outstanding	$	236,660	$	202,611
Unamortized deferred financing costs	Unamortized deferred financing costs	(9,210)		(10,196)		Unamortized deferred financing costs	(9,523)		(8,881)
Carrying amount	Carrying amount	$	203,907	$	174,390	Carrying amount	$	227,137	$	193,730
L Bonds and Seller Trust L Bonds:	L Bonds and Seller Trust L Bonds:					L Bonds and Seller Trust L Bonds:
Face amount outstanding	Face amount outstanding	$	1,547,950	$	1,315,020	Face amount outstanding	$	1,641,922	$	1,549,985
Subscriptions in process		19,300		15,839
Redemptions and subscriptions in process(1)						Redemptions and subscriptions in process(1)	8,279		17,978
Unamortized selling costs	Unamortized selling costs	(45,839)		(37,329)		Unamortized selling costs	(49,084)		(48,957)
Carrying amount	Carrying amount	$	1,521,411	$	1,293,530	Carrying amount	$	1,601,117	$	1,519,006
Other borrowings:				—
Debt due to related parties:						Debt due to related parties:
Face amount outstanding	Face amount outstanding	$	102,224	$	152,199	Face amount outstanding	$	78,223	$	77,176
Unamortized premium (discount)		(2,046)		887
Unamortized discount						Unamortized discount	(975)		(916)
Carrying amount	Carrying amount	$	100,178	$	153,086	Carrying amount	$	77,248	$	76,260

__________________________________________

(1)Amount as of June 30, 2021 only includes redemptions in process.

Amendments of Senior Credit Facility with LNV Corporation

Effective June 28, 2021, DLP IV entered into the Third LNV Credit Facility. The Third LNV Credit Facility makes available a total of up to $300.0 million in credit to DLP IV with a maturity date of September 27, 2029. Subject to available borrowing base capacity, additional advances are available under the Third LNV Credit Facility at the LIBOR rate described below. Such advances are available to pay premiums and servicing costs of pledged life insurance policies as such amounts become due. Interest will accrue on amounts borrowed under the Third LNV Credit Facility at an annual interest rate, determined as of each date of borrowing or quarterly if there is no borrowing, equal to (a) the greater of 1.50% or 12-month LIBOR, plus (b) 7.50% per annum. The effective rate at June 30, 2021 was 9.00%. Interest payments are made on a quarterly basis. As of June 30, 2021, we had approximately $236.7 million outstanding under the senior credit facility. The Third LNV Credit Facility resulted in an additional advance of $52.5 million from LNV Corporation, which was paid off on August 11, 2021, with a portion of the proceeds from the NF Credit Facility described below.

Under the Third LNV Credit Facility, DLP IV has granted the administrative agent, for the benefit of the lenders under the facility, a security interest in all of DLP IV’s assets. As with prior collateral arrangements relating to the senior secured debt of GWG Holdings and its subsidiaries (on a consolidated basis), GWG Life’s excess equity value of DLP IV after satisfying all amounts owing under the LNV Credit Facility is available as collateral for the obligations of GWG Holdings under the L Bonds and Seller Trust L Bonds (although the life insurance assets owned by DLP IV do not themselves serve as direct collateral for those obligations).

We are subject to various financial and non-financial covenants under the Third LNV Credit Facility, including, but not limited to, compliance with laws, preservation of existence, financial reporting, keeping of proper books of record and account, payment of taxes, and ensuring that neither DLP IV nor GWG Life become an investment company. In addition, the Third LNV Credit Facility has certain reporting obligations that require DLP IV to deliver unaudited quarterly financial statements no later than forty-five days after the end of each of the first three fiscal quarters, and audited annual financial statements no later than ninety days after the end of each fiscal year. As of June 30, 2021, we were in compliance with all financial and non-financial covenants.

As more fully described in Note 17, on September 7, 2021, DLP IV entered into the Fourth LNV Credit Facility, which replaced the aforementioned Third LNV Credit Facility. The Fourth LNV Credit Facility resulted in an additional advance of $30.3 million from LNV Corporation. The Fourth LNV Credit Facility sets forth interest and other terms and covenants similar those included in the previous LNV Credit Facility.

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L Bonds (including Liquidity Bonds) and Seller Trust L Bonds

In January 2015, weGWG Holdings began publicly offering up to $1.0 billion of L Bonds as a follow-on to our earlier $250.0 million public debt offering. In January 2018, weGWG Holdings began publicly offering up to $1.0 billion L Bonds ~~under an additional~~as a follow-on to its earlier offering. Through September 30, 2020, the total amount of L Bonds sold under these L Bond offerings, including renewals, was $2.0 billion. As of September 30, 2020 and December 31, 2019, respectively, we had approximately $1.2 billion and $948.1 million in principal amount of L Bonds outstanding (exclusive of Seller Trust L Bonds).

On June 3, 2020, a registration statement relating to an additional public offering was declared effective permitting us to sell up to $2.0 billion in principal amount of L Bonds on a continuous basis through June 2023. These bonds contain the same terms and features as our previous offerings. WeThrough June 30, 2021, we have raised ~~$108.3~~$453.2 million under this offering, including renewals, since it was declared effective.

~~In February 2017, we began publicly offering up to 150,000 shares~~Through June 30, 2021, the total amount of ~~our Series 2 Redeemable Preferred Stock (“RPS 2”) at a per-share price of $1,000.~~L Bonds sold under all offerings, including renewals, was $2.3 billion. As of June 30, 2021 and December 31, ~~2018,~~2020, respectively, we had ~~issued~~ approximately ~~$150 million stated value~~$1.4 billion and $1.3 billion in principal amount of ~~RPS 2 and terminated that offering.~~L Bonds outstanding (exclusive of Seller Trust L Bonds).

On August 10, 2018, GWG Holdings, GWG Life and the Bank of Utah, as trustee, entered into the L Bond Supplemental Indenture to the Amended and Restated Indenture. GWG Holdings entered into the L Bond Supplemental Indenture to add and modify certain provisions of the Amended and Restated Indenture necessary to provide for the issuance of the Seller Trust L Bonds. WeGWG Holdings issued Seller Trust L Bonds in the amount of $366.9 million to the Seller Trusts in connection with the Exchange ~~Transaction~~Transaction. As a result of the Collateral Swap discussed ~~in detail~~ in Note 1 to the condensed consolidated financial ~~statements.~~statements, $94.8 million of the Seller Trust L Bonds are eliminated upon consolidation. The maturity date of the Seller Trust L Bonds is August 9, 2023. The Seller Trust L Bonds bear interest at 7.5% per annum. Interest is payable monthly in cash (see Note 109 to the condensed consolidated financial statements). The Amended and Restated Indenture was subsequently amended on December 31, 2019, primarily to modify the calculation of the Debt Coverage Ratio in the Indenture to provide ~~the Company~~GWG Holdings with the ability to incur indebtedness (directly or through a subsidiary of ~~the Company)~~GWG Holdings) that is payable in capital stock of ~~the Company~~GWG Holdings or mandatorily convertible into or exchangeable for capital stock of ~~the Company~~GWG Holdings that would be excluded from the calculation of the Debt Coverage Ratio. On December 31, 2020, we entered into the Liquidity Bond Supplemental Indenture to add and modify certain provisions of the Amended and Restated Indenture necessary to provide for the issuance of the Liquidity Bonds in a principal amount of up to $1.0 billion.

The weighted-average interest rate of ~~our~~GWG Holdings’ outstanding L Bonds (excluding the Seller Trust L Bonds) as of ~~September~~both June 30, ~~2020~~2021 and December 31, ~~2019~~2020 was ~~7.22% and 7.15%~~7.21%, ~~respectively,~~ and the weighted-average maturity at those dates was ~~3.22~~3.03 years and ~~3.21~~3.19 years, respectively. ~~Our~~GWG Holdings’ L Bonds (other than the Seller Trust L Bonds and Liquidity Bonds) have renewal features. Since we first issued ~~our~~GWG Holdings’ L Bonds, we have ~~experienced $736.8~~experienced $834.8 million in maturities, of which ~~$389.2~~$429.5 million has renewed through ~~September~~June 30, ~~2020~~2021, for an additional term. This renewal activity has provided us with an aggregate renewal rate of approximately ~~52.8%~~51.5% for investments in these ~~securities.~~

~~Page 66~~

securities.

Future contractual maturities of L Bonds ~~and~~(including the Seller Trust L Bonds and Liquidity Bonds) at ~~September~~June 30, ~~2020~~2021 are as follows (in thousands):


Years Ending December 31,	Years Ending December 31,			Years Ending December 31,
Three months ending December 31, 2020		$	34,232
2021(1)		566,092
Six months ending 2021(1)				Six months ending 2021(1)	$	372,661
2022	2022	254,467		2022	290,702
2023	2023	160,353		2023	249,823
2024	2024	117,303		2024	172,033
2025				2025	165,510
Thereafter	Thereafter	415,503		Thereafter	391,193
		$	1,547,950		$	1,641,922

(1)~~After~~As of June 30, 2021, we had approximately $366.9 million in principal amount of Seller Trust L Bonds outstanding, of which $94.8 million are held by the ExAlt Trusts and are eliminated in consolidation. Accordingly, the net of these amounts, $272.1 million, is presented in the table above. As the second anniversary of the Final Closing Date has passed, the holders of the Seller Trust L Bonds ~~will~~now have the right to cause GWG Holdings to repurchase, in whole but not in part, the Seller Trust L Bonds held by such holder within 45 days. As such, while the maturity date of the ~~$366.9 million of~~ Seller Trust L Bonds is in August 2023, their contractual maturity is reflected in 2021, as that is the first period in which they could become payable. The repurchase may be paid, at the option of GWG Holdings, in the form of

Page 66

cash, and/or a pro rata portion of (i) the outstanding principal amount and accrued and unpaid interest under the Commercial Loan Agreement, and (ii) Common Units, or a combination of cash and such property.

The L Bonds ~~and~~(including the Seller Trust L Bonds and Liquidity Bonds) are secured by all of our assets and are subordinate to ~~our LNV Credit Facility.~~

On September 27, 2017, we entered into a $300.0 million amended and restated senior credit facility, which matures on September 27, 2029, with LNV Corporation in which DLP IV is the borrower. As of September 30, 2020, we had approximately $213.1 million outstanding under the senior credit facility. On November 1, 2019, we entered into the LNV Credit Facility ~~which replaced~~and the ~~prior agreement governing the facility. A description of the agreement governing our LNV~~NF Credit ~~Facility is set forth below under the caption “Amendment of Credit Facility with LNV Corporation”. We intend~~Facility.

Debt Due to ~~use the proceeds from this facility to maintain our portfolio of life insurance policies, for liquidity and for general corporate purposes.~~Related Parties

Beneficient had borrowings with an aggregate carrying value of ~~$100.2~~$77.2 million and ~~$153.1~~$76.3 million as of ~~September~~June 30, ~~2020~~2021 and December 31, ~~2019,~~2020, respectively. This aggregate outstanding balance includes a first lien credit agreement and a second lien credit agreement with respective balances, including accrued interest, of ~~$27.4~~$2.3 million and ~~$72.2~~$73.2 million as of ~~September~~June 30, ~~2020~~2021 and ~~$77.5~~$2.3 million and ~~$72.2~~$72.3 million as of December 31, ~~2019,~~2020, respectively. These amounts exclude an unamortized discount of ~~$2.0~~$1.0 million ~~as of September 30, 2020~~ and ~~an unamortized premium of~~ $0.9 million as of June 30, 2021 and December 31, ~~2019.~~2020, respectively. In accordance with the terms of the ~~Second Amendments,~~Ben Credit Agreements, dated August 13, 2020, both loans accrue interest at a rate of 1-month LIBOR plus 8.0%, with a maximum rate of 9.5%. Both credit agreements were amended and restated on August 13, 2020, which extended the maturity for both to April 10, 2021, as discussed in detail in Note 10 to the condensed consolidated financial statements. Prior to the ~~Second Amendments,~~Ben Credit Agreements, both loans accrued interest at a rate of 1-month LIBOR plus 3.95%, compounded daily. On March 10, 2021, the Ben Credit Agreements were amended to extend the maturity for both agreements to May 30, 2022, as discussed in detail in Note 17 to the condensed consolidated financial statements. These loans are not currently guaranteed by GWG Holdings as of ~~September~~June 30, ~~2020.~~2021.

Beneficient has additional borrowings maturing in 2023 and 2024 with an aggregate ~~balances~~principal balance of ~~$2.6~~$2.7 million and ~~$2.5~~$2.6 million as of ~~September~~June 30, ~~2020~~2021 and December 31, ~~2019,~~2020, respectively.

Credit Facility with National Founders LP

On August 11, 2021, DLP VI, entered into the NF Credit Agreement with each lender from time to time party thereto and National Founders LP, as the administrative agent. On August 11, 2021, a one-time advance of approximately $107.6 million was made to the DLP VI under the NF Credit Facility with a scheduled maturity date of August 11, 2031. Approximately $56.7 million of such advanced amount was used to pay off the remaining amount due under the Third LNV Credit Facility. Amounts borrowed under the NF Credit Facility bear interest on each day on the outstanding principal amount on such day at a per annum rate, determined on a daily basis, generally equal to 5.5% up to a 65% of the loan to value percent as calculated in accordance with the NF Credit Agreement, and 7.0% on anything above that loan to value percent.

We are subject to various financial and non-financial covenants under the NF Credit Facility, including, but not limited to, compliance with laws, preservation of existence, financial reporting, keeping of proper books of record and account, payment of taxes, and ensuring that neither DLP VI nor GWG Life become an investment company. Additionally, we are required to maintain a Debt Coverage Ratio not to exceed 90%. As of September 30, 2021, we were in compliance with all financial and non-financial covenants in the NF Credit Facility.

We expect to meet our ongoing operational capital needs for, among other things, GWG Holdings’ investments in Beneficient, alternative asset investments, policy premiums and servicing costs, new policy acquisitions, exploring opportunities to establish a life insurance company, working capital and financing expenditures including paying principal, interest and dividends through a combination of the receipt of policy benefits from our portfolio of life insurance policies, net proceeds from ~~our~~GWG Holdings’ L Bond offering, dividends and interest from investments, ~~including Beneficient’s fee~~distributions from the alternative assets held by certain of the ExAlt Trusts, future preferred and ~~loans receivable,~~common equity offerings, and funding available from ~~our~~the LNV Credit Facility. We estimate that our liquidity and capital resources are sufficient for our current and projected financial needs for at least the next twelve months given current assumptions. However, if we are unable to continue ~~our~~GWG Holdings’ L Bond ~~offering~~or preferred stock offerings for any reason, and we are unable to obtain capital from other sources, our business will be materially and adversely affected. In addition, our business will be materially and adversely affected if we do not receive the policy benefits we forecast and if holders of ~~our~~GWG Holdings’ L Bonds fail to renew with the frequency we have historically experienced. In such a case, we could be forced to sell our investments in life insurance policies to service or satisfy our debt-related and other obligations. A sale under such circumstances may result in significant impairment of the recognized value of our portfolio.

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Capital expenditures have historically not been material and we do not anticipate making material capital expenditures through the remainder of ~~2020.~~2021.

Alternative Assets and Secured Indebtedness

The following information is specifically related to GWG Holdings, Inc. and its subsidiaries (not including the assets and liabilities held by Beneficient or any eliminations in consolidation).

The following table seeks to illustrate the impact that a hypothetical sale of our portfolio of life insurance assets (at various discount rates, including the discount rate used to value our portfolio at ~~September~~June 30, ~~2020)~~2021), and the realization of the investment in Common Units, ~~(a substantial majority of the net assets of which are currently represented by intangible assets and goodwill),~~ investment in Preferred Series A Subclass 1 Unit Account of BCH, investment in Preferred Series C Unit Account of BCH (a substantial majority of the net assets of which are currently represented by intangible assets and goodwill), and the Commercial Loan Agreement (in each case, at their respective carrying amounts and assuming no discount for lack of marketability or transaction costs, which could be substantial) would have on our ability to satisfy our debt obligations as of ~~September~~June 30, ~~2020.~~2021. The investment in Common Units, investment in Preferred Series A Subclass 1 Unit Account of BCH, investment in Preferred Series C Unit Account of BCH, and Commercial Loan Agreement are discussed in detail in Note 1 and other applicable notes to the ~~consolidation~~condensed consolidated financial statements. The amounts in the table below do not include the consolidation of the assets and liabilities of Beneficient and related eliminations as of ~~September~~June 30, ~~2020.~~2021. In all cases, the sale of the life insurance assets owned by DLP IV will be used first to satisfy all amounts owing under ~~our~~the LNV Credit Facility. The net sale proceeds remaining after satisfying all obligations under ~~our~~the LNV Credit Facility would be applied to the L Bonds and Seller Trust L Bonds on a pari passu basis. All dollar amounts in the table below are in thousands.

~~Life Insurance~~


Portfolio Discount Rate		8.25%(1)		10.00%		15.00%		18.00%		20.00%
Life Insurance Portfolio Discount Rate												Life Insurance Portfolio Discount Rate	8.25%(1)		9.00%		9.50%		10.00%		10.34%
Value of life insurance portfolio	Value of life insurance portfolio	$	787,260	$	724,925	$	589,682	$	529,946	$	496,422	Value of life insurance portfolio	$	770,026	$	744,090	$	727,712	$	712,019	$	701,632
Common Units	Common Units	438,403		438,403		438,403		438,403		438,403		Common Units	437,783		437,783		437,783		437,783		437,783
Preferred Series A Subclass 1 Unit Account of BCH	Preferred Series A Subclass 1 Unit Account of BCH	319,030		319,030		319,030		319,030		319,030		Preferred Series A Subclass 1 Unit Account of BCH	319,030		319,030		319,030		319,030		319,030
Preferred Series C Unit Account of BCH	Preferred Series C Unit Account of BCH	161,000		161,000		161,000		161,000		161,000		Preferred Series C Unit Account of BCH	210,624		210,624		210,624		210,624		210,624
Commercial Loan Agreement	Commercial Loan Agreement	177,512		177,512		177,512		177,512		177,512		Commercial Loan Agreement	186,338		186,338		186,338		186,338		186,338
Cash, cash equivalents and policy benefits receivable	Cash, cash equivalents and policy benefits receivable	144,850		144,850		144,850		144,850		144,850		Cash, cash equivalents and policy benefits receivable	103,422		103,422		103,422		103,422		103,422
Other assets	Other assets	22,194		22,194		22,194		22,194		22,194		Other assets	14,242		14,242		14,242		14,242		14,242
Total assets	Total assets	2,050,249		1,987,914		1,852,671		1,792,935		1,759,411		Total assets	2,041,465		2,015,529		1,999,151		1,983,458		1,973,071
Less: Senior credit facility(2)	Less: Senior credit facility(2)	213,117		213,117		213,117		213,117		213,117		Less: Senior credit facility(2)	236,660		236,660		236,660		236,660		236,660
Net after senior credit facility	Net after senior credit facility	1,837,132		1,774,797		1,639,554		1,579,818		1,546,294		Net after senior credit facility	1,804,805		1,778,869		1,762,491		1,746,798		1,736,411
Less: L Bonds(3)	Less: L Bonds(3)	1,547,950		1,547,950		1,547,950		1,547,950		1,547,950		Less: L Bonds(3)	1,736,710		1,736,710		1,736,710		1,736,710		1,736,710
Net remaining	Net remaining	$	289,182	$	226,847	$	91,604	$	31,868	$	(1,656)	Net remaining	$	68,095	$	42,159	$	25,781	$	10,088	$	(299)
Impairment to L Bonds	Impairment to L Bonds	No impairment		No impairment		No impairment		No Impairment		Impairment		Impairment to L Bonds	No impairment		No impairment		No impairment		No impairment		Impairment

(1)The discount rate used to calculate the fair value of our life insurance portfolio as of ~~September~~June 30, ~~2020.~~2021.

(2)This amount excludes unamortized deferred financing costs.

(3)Amount represents aggregate outstanding principal balance of L Bonds and Seller Trust L Bonds prior to eliminations as of ~~September~~June 30, ~~2020.~~2021.

The above table illustrates that our ability to fully satisfy amounts owing under the L Bonds and Seller Trust L Bonds would likely be impaired upon the sale or the realization of the investment in Common Units, investment in Preferred Series A Subclass 1 Unit Account of BCH, investment in Preferred Series C Unit Account of BCH and Commercial Loan Agreement at their respective carrying amounts, plus all our life insurance assets at a price equivalent to a discount rate of approximately ~~20.00%~~10.34% or higher at ~~September~~June 30, ~~2020.~~2021. At December 31, ~~2019,~~2020, the likely impairment occurred at a discount rate of approximately ~~27.41%~~16.12% or higher. Based on a preliminary analysis, at September 30, 2021, management expects the likely impairment, as calculated in accordance with the table above, to occur at a discount rate of approximately 8.50% or higher. The above hypothetical analysis is included for informational purposes only, and the results of such analysis have no bearing on the current ability of GWG Holdings to market and sell L Bonds or to satisfy amounts owing under the L Bonds and Seller Trust L Bonds.

The table does not include any allowance for transactional fees and expenses (which expenses and fees could be substantial) nor any discount for lack of marketability associated with a portfolio sale or the realization of the investment in Common Units, investment in Preferred Series A Subclass 1 Unit Account of BCH, investment in Preferred Series C Unit Account of BCH, and Commercial Loan Agreement, respectively, and is provided to demonstrate how various discount rates used to value our

Page 68

portfolio of life insurance assets could affect our ability to satisfy amounts owing under our debt obligations in light of our senior secured lender’s right to priority payments under our senior credit facility with LNV Corporation.

~~Page 68~~

The table also assumes weGWG Holdings will realize the full amounts of the investment in Common Units, investment in Preferred Series A Subclass 1 Unit Account of BCH, investment in Preferred Series C Unit Account of BCH, and Commercial Loan Agreement. ~~There~~However, the ultimate value of these investments in Beneficient depends on multiple factors, including the expected growth of new service offerings and products. Since predicting the rate of growth attributable to newly launched products is inherently uncertain, there is no assurance that GWG Holdings will recover the full book basis of its investments in Beneficient. Additionally, there is currently no market for the aforementioned assets, and a market may not develop. Our Commercial Loan receivable and a portion of ~~our~~GWG Holdings’ investment in the Common Units may be used as consideration for retiring the Seller Trust L Bonds upon a redemption event or at the maturity of the Seller Trust L Bonds (see Note 109 to the condensed consolidated financial statements). This table also does not include the yield maintenance fee we are required to pay in certain circumstances under ~~our~~the LNV Credit Facility, which could be substantial. The above table should be read in conjunction with the information contained in other sections of this report, including the notes to the condensed consolidated financial statements in this Form 10-Q and our ~~2019~~2020 Form 10-K.

~~Amendment of Credit Facility with LNV Corporation~~

Effective November 1, 2019, DLP IV entered into the LNV Credit Facility. The LNV Credit Facility makes available a total of up to $300.0 million in credit to DLP IV with a maturity date of September 27, 2029. Subject to available borrowing base capacity, additional advances are available under the LNV Credit Facility at the LIBOR rate described below. Such advances are available to pay premiums and servicing costs of pledged life insurance policies as such amounts become due. Interest will accrue on amounts borrowed under the LNV Credit Facility at an annual interest rate, determined as of each date of borrowing or quarterly if there is no borrowing, equal to (a) the greater of 9.00% or 12-month LIBOR, plus (b) 7.50% per annum. The effective rate at September 30, 2020 was 9.00%. Interest payments are made on a quarterly basis.

Under the LNV Credit Facility, DLP IV has granted the administrative agent, for the benefit of the lenders under the facility, a security interest in all of DLP IV’s assets. As with prior collateral arrangements relating to the senior secured debt of GWG Holdings and its subsidiaries (on a consolidated basis), GWG Life’s excess equity value of DLP IV after satisfying all amounts owing under our LNV Credit Facility is available as collateral for the obligations of GWG Holdings under the L Bonds and Seller Trust L Bonds (although the life insurance assets owned by DLP IV do not themselves serve as direct collateral for those obligations).

We are subject to various financial and non-financial covenants under the LNV Credit Facility, including, but not limited to, compliance with laws, preservation of existence, financial reporting, keeping of proper books of record and account, payment of taxes, and ensuring that neither DLP IV nor GWG Life become an investment company. As of September 30, 2020, we were in compliance with all financial and non-financial covenants.

Cash Flows

Interest and Dividend Payments

We finance our businesses through a combination of: life insurance policy benefit receipts; principal, dividends and interest ~~receipt on investments, including Ben LP fee and loans receivable;~~receipts from investments; distributions from the alternative assets held by the ExAlt Trusts; debt and equity offerings; and ~~our senior credit facility with~~the LNV ~~Corporation.~~Credit Facility and the NF Credit Facility. We have historically relied on debt (L Bonds and ~~our senior credit facility with~~the LNV ~~Corporation)~~Credit Facility) and equity (preferred stock) financing for the majority of our cash expenditures (for policy acquisition, policy premiums and servicing costs, working capital and financing expenditures including paying principal and interest on existing debt, and for GWG Holdings and GWG Life making investments in Beneficient) as the amount of cash flows from the realization of life insurance policy benefits and cash flows from our other investments has been insufficient to meet all of our needs. This has resulted in the Company incurring substantial indebtedness and, to a lesser extent, obligations to make dividend payments on our classes of preferred stock.

Beneficient primarily finances its business through ~~payments~~repayments on ~~outstanding loans receivable and fees receivable~~ExAlt Loans. Such repayments are funded from a portion of the cash distributions the ExAlt Trusts receive from their alternative assets and additional investments ~~into~~in Beneficient by GWG Holdings and/or other parties. See Note 109 to the condensed consolidated financial statements for details on the amendments of ~~Beneficient's~~Beneficient’s credit agreements. Beneficient uses proceeds from these sources to fund ~~loan originations~~liquidity transactions and potential unfunded capital commitments, working capital, debt service payments, and costs associated with potential future products. Beneficient also anticipates the need to establish sufficient regulatory capital if and when its Texas trust ~~charters are issued.~~company charter is issued or the Kansas TEFFI trust company becomes operational. Additionally, Bermuda insurance statutes and regulations, and the policies of the BMA, require that Pen, among other things, maintain a minimum level of capital and surplus, satisfy solvency standards, and restrict dividends and distributions. Beneficient Capital Markets will also be subject to regulations of the SEC and FINRA that require, among other things, Beneficient Capital Markets to maintain a minimum level of capital.

Our total interest expense of ~~$40.8~~$42.1 million and ~~$28.3~~$37.1 million for the three months ended ~~September~~June 30, ~~2020~~2021 and ~~2019,~~2020, respectively, and ~~$113.8~~$83.5 million and ~~$83.8~~$73.0 million for the ~~nine~~six months ended ~~September~~June 30, 2021 and 2020, ~~and 2019,~~ respectively, ~~represent~~represents the largest cash expense item in each period. Preferred stock cash dividends were ~~$3.6~~$2.8 million and ~~$4.2~~$3.7 million for the three months ended ~~September~~June 30, ~~2020~~2021 and ~~2019,~~2020, respectively, and ~~$11.2~~$6.0 million and ~~$12.8~~$7.7 million for the ~~nine~~six months ended

~~Page 69~~

~~September~~ June 30, ~~2020~~2021 and ~~2019,~~2020, respectively. While reducing our cost of funds and increasing our common equity base ~~(at valuations accretive to our book value)~~ are primary goals of the Company, until we do so we will continue to expend significant amounts of cash for interest and dividend payments and will thus continue to rely heavily on our ability to raise cash from ~~our~~GWG Holdings’ L Bond offering, ~~senior credit facility with~~ LNV ~~Corporation~~Credit Facility and other means as they are developed and available.

Life Insurance Policy Premium Payments

The payment of premiums and servicing costs to maintain life insurance policies represents one of our most significant requirements for cash disbursement. When a policy is purchased, we are able to calculate the minimum premium payments required to maintain the policy in-force. Over time as the insured ages, premium payments will increase. Nevertheless, the probability we will be required to pay the premiums decreases as mortality becomes more likely. These scheduled premiums

Page 69

and associated probabilities are factored into our expected internal rate of return and cash-flow modeling. Beyond premiums, we incur policy servicing costs, including annual trustee, policy administration and tracking costs. Additionally, we incur significant financing costs, including principal, interest and dividends. Both policy servicing costs and financing costs are excluded from our internal rate of return calculations. We finance our businesses through a combination of life insurance policy benefit receipts, dividends and interest on other investments, equity offerings, debt offerings, and advances under ~~our senior credit facility with~~the LNV ~~Corporation.~~Credit Facility and NF Credit Facility.

The amount of payments for anticipated premiums, including the requirement under ~~our~~the LNV Credit Facility and NF Credit Facility to maintain a two month cost-of-insurance threshold within each policy cash value account, and servicing costs that we will be required to make over the next five years to maintain our current portfolio, assuming no mortalities, is set forth in the table below (in thousands):


Years Ending December 31,	Years Ending December 31,	Premiums		Servicing		Total		Years Ending December 31,	Premiums		Servicing		Total
Three months ending December 31, 2020		$	13,088	$	405	$	13,493
2021		78,959		1,620		80,579
Six months ending 2021								Six months ending 2021	$	33,160	$	697	$	33,857
2022	2022	91,220		1,620		92,840		2022	85,141		1,394		86,535
2023	2023	102,859		1,620		104,479		2023	96,780		1,394		98,174
2024	2024	112,033		1,620		113,653		2024	106,033		1,394		107,427
2025	2025	124,556		1,620		126,176		2025	117,865		1,394		119,259
2026								2026	130,158		1,394		131,552
		$	522,715	$	8,505	$	531,220		$	569,137	$	7,667	$	576,804

Our anticipated premium expenses are subject to the risk of increased cost-of-insurance charges (i.e., “COI” or premium charges) for the life insurance policies we own. We ~~did not receive any notices of COI rate changes in 2019. We~~ have received notices of COI increases on ~~six policies~~one policy in the first ~~nine~~six months of 2021 compared to three in the first six months of 2020.

We have no known pending cost-of-insurance increases on any policies in our portfolio, but we are aware that cost-of-insurance increases have become more prevalent in the industry. Thus, we may see additional insurers implementing cost-of-insurance increases in the future.

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Life Insurance Policy Benefit Receipts

For the quarter-end dates set forth below, the following table illustrates the total amount of face value of policy benefits owned, and the trailing 12 months of life insurance policy benefits realized and premiums paid on our portfolio. The trailing 12-month benefits/premium coverage ratio indicates the ratio of policy benefits realized to premiums paid over the trailing 12-month period from our portfolio of life insurance policies.


Quarter End Date	Quarter End Date	Portfolio Face Amount (in Thousands)		12-Month Trailing Benefits Realized (in Thousands)		12-Month Trailing Premiums Paid (in Thousands)		12-Month Trailing Benefits/Premium Coverage Ratio		Quarter End Date	Portfolio Face Amount (in thousands)	12-Month Trailing Benefits Realized (in thousands)	12-Month Trailing Premiums Paid (in thousands)	12-Month Trailing Benefits/Premiums Coverage Ratio
March 31, 2016		$	1,027,821	$	21,845	$	28,771	75.9	%
June 30, 2016		1,154,798		30,924		31,891		97.0	%
September 30, 2016		1,272,078		35,867		37,055		96.8	%
December 31, 2016		1,361,675		48,452		40,239		120.4	%
March 31, 2017		1,447,558		48,189		42,753		112.7	%
June 30, 2017	June 30, 2017	1,525,363		49,295		45,414		108.5	%	June 30, 2017	1,525,363	49,295	45,414	108.5	%
September 30, 2017	September 30, 2017	1,622,627		53,742		46,559		115.4	%	September 30, 2017	1,622,627	53,742	46,559	115.4	%
December 31, 2017	December 31, 2017	1,676,148		64,719		52,263		123.8	%	December 31, 2017	1,676,148	64,719	52,263	123.8	%
March 31, 2018	March 31, 2018	1,758,066		60,248		53,169		113.3	%	March 31, 2018	1,758,066	60,248	53,169	113.3	%
June 30, 2018	June 30, 2018	1,849,079		76,936		53,886		142.8	%	June 30, 2018	1,849,079	76,936	53,886	142.8	%
September 30, 2018	September 30, 2018	1,961,598		75,161		55,365		135.8	%	September 30, 2018	1,961,598	75,161	55,365	135.8	%
December 31, 2018	December 31, 2018	2,047,992		71,090		52,675		135.0	%	December 31, 2018	2,047,992	71,090	52,675	135.0	%
March 31, 2019	March 31, 2019	2,098,428		87,045		56,227		154.8	%	March 31, 2019	2,098,428	87,045	56,227	154.8	%
June 30, 2019	June 30, 2019	2,088,445		82,421		59,454		138.6	%	June 30, 2019	2,088,445	82,421	59,454	138.6	%
September 30, 2019	September 30, 2019	2,064,156		101,918		61,805		164.9	%	September 30, 2019	2,064,156	101,918	61,805	164.9	%
December 31, 2019	December 31, 2019	2,020,973		125,148		63,851		196.0	%	December 31, 2019	2,020,973	125,148	63,851	196.0	%
March 31, 2020	March 31, 2020	2,000,680		120,191		65,224		184.3	%	March 31, 2020	2,000,680	120,191	65,224	184.3	%
June 30, 2020	June 30, 2020	1,960,826		137,082		66,846		205.1	%	June 30, 2020	1,960,826	137,082	66,846	205.1	%
September 30, 2020	September 30, 2020	1,921,067		149,415		67,931		220.0	%	September 30, 2020	1,921,067	149,415	67,931	220.0	%
December 31, 2020										December 31, 2020	1,900,715	125,109	69,734	179.4	%
March 31, 2021										March 31, 2021	1,879,895	125,566	71,206	176.3	%
June 30, 2021										June 30, 2021	1,844,466	121,163	61,301	197.7	%

We believe that the portfolio cash flow results set forth above are consistent with our general investment thesis that the life insurance policy benefits we receive will continue to increase over time in relation to the premiums we are required to pay on the remaining polices in the portfolio. Nevertheless, we expect that our portfolio cash flow on a period-to-period basis will remain inconsistent as we ~~continue~~have reduced capital allocated to ~~allocate substantially~~acquiring a larger, more ~~capital to Beneficient.~~

~~Interest Income~~

~~We earn interest income primarily on Beneficient’s loans receivable and the promissory note receivable from the LiquidTrusts. Although Beneficient has originated a limited number~~diversified portfolio of ~~loans to date, we expect interest income to continue to increase as Beneficient expands its operations if and when the trust charters are issued.~~life insurance policies.

Inflation

Changes in inflation do not necessarily correlate with changes in interest rates. We presently do not foresee any material impact of inflation on our results of operations in the periods presented in our condensed consolidated financial statements.

~~Page 71~~

Off-Balance Sheet Arrangements

Unfunded Capital Commitments

~~Beneficient~~The ExAlt Trusts had ~~$35.3 million and $73.8~~$35.6 million of gross potential capital commitments as of ~~September~~both June 30, ~~2020~~2021 and December 31, ~~2019,~~2020, respectively, representing potential limited partner capital funding commitments on the interests in alternative asset fund collateral to its loans above any cash reserves. The decrease in gross potential capital commitments from December 31, 2019 is due to the liquidation of the underlying funds and removal of the related commitment.funds. The trust holding the interest in the limited partnership for the alternative asset fund is required to fund these limited partner capital commitments per the terms of the limited partnership agreement. Capital funding commitment reserves are maintained by the associated trusts within the ExAlt PlanTMcreated at the origination of each trust for up to $0.1 million. To the extent that the associated ~~trust~~ExAlt Trust cannot pay the capital funding commitment, Beneficient is obligated to lend sufficient funds to meet the commitment. Any amounts advanced by Beneficient to the ExAlt Trusts for these limited partner capital funding commitments above the associated capital funding commitment reserves held by the associated ~~trusts~~ExAlt Trusts are added to the ~~loan~~ExAlt Loan balance between Beneficient and the ExAlt Trusts and are expected to be recouped through the cash distributions from the interests in alternative asset fund ~~collateral.~~that collateralizes such ExAlt Loan.

Page 71

Capital commitments generally originate from limited partner agreements having fixed or expiring expiration dates. The total limited partner capital funding commitment amounts may not necessarily represent future cash requirements. Beneficient considers the creditworthiness of the investment on a case-by-case basis. At both ~~September~~June 30, ~~2020~~2021 and December 31, ~~2019,~~2020, Beneficient had no reserves for losses on unused commitments to fund potential limited partner capital funding commitments.

Equity Method Investee Commitments

GWG Holdings has contributed $2.5 million in cash to FOXO during the six months ended June 30, 2021, and is committed to contribute an additional $1.3 million to the entity through October 2021, all of which has been contributed through such date.

Credit Risk and Interest Rate Risk

We review the credit risk associated with our portfolio of life insurance policies when estimating its fair value. In evaluating the policies’ credit risk, we consider insurance company solvency, credit risk indicators, economic conditions, ongoing credit evaluations, and company positions. We attempt to manage our credit risk related to life insurance policies typically by purchasing policies issued only from companies with an investment-grade credit rating by either Standard & Poor’s, Moody’s, or A.M. Best Company. As of ~~September~~June 30, ~~2020, 96.2%~~2021, 94.8% of our life insurance policies, by face value benefits, were issued by companies that maintained an investment-grade credit rating (BBB or better) by Standard & Poor’s.

The ~~assets and liabilities exchanged in the Initial Transfer of the Exchange Transaction are excluded from this analysis.~~

~~Our~~ LNV Credit Facility, NF Credit Facility, and Beneficient’s ~~other borrowings~~debt due to related parties are floating-rate financings. In addition, our ability to offer interest and dividend rates that attract capital (including in our continuous offering of L Bonds) is generally impacted by prevailing interest rates. Furthermore, while ~~our~~GWG Holdings’ L Bond offering provides us with fixed-rate debt financing, our Debt Coverage Ratio is calculated in relation to the interest rate on all of our debt financing, exclusive of ~~our~~GWG Holdings’ Seller Trust L Bonds. Therefore, increases in interest rates impact our business by increasing our borrowing costs and reducing availability under our debt financing arrangements. Earnings from our life insurance portfolio are based upon the spread, if any, generated between the return on the portfolio and the total cost of our financing (excluding cost of financing for the Seller Trust L Bonds). As a result, increases in interest rates will reduce the earnings we expect to achieve from our investments in life insurance policies.

~~Beneficient is subject~~The ExAlt Trusts hold investments in alternative assets, which are exposed to risks related to markets, credit, currency, and interest rates. Beneficient issues loans that are subject to credit risk, repayment risk and interest rate risk. Beneficient has underwriting procedures and utilizes market rates. As of September 30, 2020, all of Beneficient’s loans are collateralized by the cash flows originating from alternative assets without recourse to the client. Currently, all of these alternative assets consist of private equity limited partnership interests, which are primarily denominated in the U.S. dollar, Euro, and Canadian dollar. The underlying portfolio companies primarily operate in the United States and Western Europe, with the largest percentage, based on NAV, operating in ~~healthcare technology, bio-technology,~~diversified financials, telecommunications services, food and ~~semiconductor~~staples retailing, software and ~~equipment~~services, and utilities industries. The ~~Company mitigates credit~~financial statements risk, ~~through~~stemming from such investments, are those associated with the determination of estimated fair values, the diminished ability to monetize certain investments in times of strained market conditions, the recognition of income and recognition of impairments on certain investments.

As of June 30, 2021, and December 31, 2020, all of the ExAlt ~~Plan~~TM ~~whereby~~Loans, which are eliminated upon consolidation, are collateralized by the cash flows originating from the ExAlt Trusts’ investments in alternative assets. These ExAlt Loans are a key determinant in income (loss) allocable to Beneficient’s equity holders, and thus GWG Holdings. Beneficient has underwriting procedures and utilizes market rates. Additionally, Beneficient has purchased put options to protect the net asset value of the interests in alternative assets held by certain of the ExAlt Trusts from impacts associated with a broad market downturn. Finally, the ExAlt Trusts applicable trust agreements allow for excess cash flows from a collective pool of alternative assets ~~can~~to be utilized to repay the ~~loans~~ExAlt Loans they have with Beneficient when cash flows from the ~~client’s original~~customer’s originally alternative assets are not sufficient to repay the outstanding principal, interest, and fees.

Page 72

Guarantee and Collateral Provisions of L Bonds ~~and Seller Trust L Bonds~~

~~Our~~GWG Holdings’ L Bonds are offered and sold under a registration statement declared effective by the SEC, and ~~we have~~GWG Holdings has issued Seller Trust L Bonds under athe L Bond Supplemental Indenture, as described in Note 109 to the condensed consolidated financial statements. The L Bonds and Seller Trust L Bonds are secured by substantially all the assets of GWG Holdings and a pledge of all of GWG

~~Page 72~~

Holdings’ common stock held by BCC and AltiVerse ~~(which together~~Capital Markets, L.L.C., a limited liability company owned by an entity related to the Ben Initial Investors, including Brad K. Heppner (GWG Holdings’ former Chairman, who served in such capacity from April 26, 2019 to June 14, 2021, and Beneficient's current Chief Executive Officer and Chairman) and an entity related to Thomas O. Hicks (one of Beneficient’s current directors and a former director of GWG Holdings) (“AltiVerse”). Together, BCC and AltiVerse represent approximately 12% of our outstanding common ~~stock),~~stock, and are guaranteed by ~~a guarantee by~~ GWG Life and a corresponding grant of a security interest in substantially all the assets of GWG ~~Life(1)~~.Life. As a guarantor, GWG Life has fully and unconditionally guaranteed the payment of principal and interest on the L Bonds and Seller Trust L Bonds. GWG Life’s equity in GWG Life Trust, DLP IV,~~(2)~~, and DLP V Holdings serves as collateral for ~~our~~GWG Holdings’ L Bond and Seller Trust L Bond obligations. ~~Substantially~~As of June 30, 2021, substantially all of our life insurance policies ~~are~~were held by DLP IV, DLP V, or GWG Life Trust. The policies held by DLP IV are not direct collateral for the L Bonds as such policies are pledged tounder the LNV Credit Facility.

On December 31, 2020, GWG Holdings, GWG Life and Bank of Utah, as trustee, entered into the Liquidity Bond Supplemental Indenture that provides for the issuance of two series of Liquidity Bonds, as described in Note 9 to the condensed consolidated financial statements. The Liquidity Bonds are issued by GWG Life and guaranteed by GWG Holdings. The Liquidity Bonds are secured by the same collateral as the other L Bonds.

Furthermore, regarding the obligations of GWG Holdings and its subsidiaries as of June 30, 2021:

(1) The Seller Trust L Bonds are ~~senior~~ secured obligations of GWG Holdings, ranking junior to all senior debt of GWG Holdings and pari passu in right of payment and in respect of collateral with all L Bonds of GWG Holdings (see Note ~~10)~~9). Payments under the Seller Trust L Bonds are guaranteed by GWG Life. The assets exchanged in connection with the Beneficent transaction are available as collateral for all holders of the L Bonds and Seller Trust L Bonds. Specifically, the Common Units are held by GWG Holdings and the Commercial Loan is held by GWG Life.

(2) The Liquidity Bonds are secured obligations of GWG Life, ranking junior to all senior debt of GWG Holdings or GWG Life and pari passu in right of payment and in respect of collateral with all L Bonds of GWG Holdings. Payments under the Liquidity Bonds are guaranteed by GWG Holdings.

(3) The terms of ~~our~~the LNV Credit Facility require that we maintain a significant excess of pledged collateral value over the amount outstanding on the LNV Credit Facility at any given time. Any excess after satisfying all amounts owing under ~~our~~the LNV Credit Facility is available as collateral for the L Bonds (including the Seller Trust L Bonds and Liquidity Bonds).

The following represents summarized financial information as of ~~September~~June 30, ~~2020~~2021 and December 31, ~~2019,~~2020, with respect to the financial position, and for the ~~nine~~six months ended ~~September~~June 30, ~~2020,~~2021, with respect to results of operations. The tables present summarized financial information of GWG Holdings ~~as issuer of the L Bonds and Seller Trust L Bonds,~~ and GWG Life ~~as guarantor,~~ on a combined basis after elimination of (i) intercompany transactions and balances among such entities, including GWG ~~Holdings'~~Holdings’ interest in GWG Life, and (ii) equity in earnings from and investments in any subsidiary that is a non-guarantor (including DLP IV, DLP V, GWG Life Trust and Beneficient). The summarized financial information has been prepared in accordance with Rule 13-01 of Regulation S-X.

Page 73

Summarized Balance Sheet Information (in thousands, not intended to balance):


		September 30, 2020		December 31, 2019			June 30, 2021		December 31, 2020
Assets(1)	Assets(1)					Assets(1)
Cash, cash equivalents and restricted cash	Cash, cash equivalents and restricted cash	$	91,289	$	60,365	Cash, cash equivalents and restricted cash	$	59,843	$	65,556
Financing receivables from affiliates		—		67,153
Other assets	Other assets	7,400		8,659		Other assets	4,776		6,366
Total assets	Total assets	$	98,689	$	136,177	Total assets	$	64,619	$	71,922
Liabilities	Liabilities					Liabilities
L Bonds	L Bonds	$	1,154,519	$	926,638	L Bonds	$	1,329,013	$	1,246,902
Seller Trust L Bonds	Seller Trust L Bonds	366,892		366,892		Seller Trust L Bonds	366,892		366,892
Interest and dividends payable	Interest and dividends payable	12,145		12,491		Interest and dividends payable	12,193		12,086
Accounts payable and accrued expenses	Accounts payable and accrued expenses	15,988		3,093		Accounts payable and accrued expenses	8,538		7,347
Deferred tax liabilities	Deferred tax liabilities	52,500		57,923		Deferred tax liabilities	51,149		51,469
Total liabilities	Total liabilities	$	1,602,044	$	1,367,037	Total liabilities	$	1,767,785	$	1,684,696
Equity	Equity					Equity
Redeemable preferred stock and Series 2 redeemable preferred stock	Redeemable preferred stock and Series 2 redeemable preferred stock	$	167,113	$	201,891	Redeemable preferred stock and Series 2 redeemable preferred stock	$	121,185	$	156,833

(1)

~~(1)~~ Assets exclude: i) GWG Holdings’ investment in GWG Life of ~~$1.2~~$1.1 billion and $1.2 billion as of ~~September~~June 30, ~~2020~~2021 and December 31, ~~2019,~~2020, respectively; ii) GWG Holdings’ aggregate investments in non-obligor subsidiaries of ~~$613.9~~$657.9 million and ~~$439.4~~$643.1 million as of ~~September~~June 30, ~~2020~~2021 and December 31, ~~2019,~~2020, respectively; and iii) GWG Life’s aggregate investments in and loans to non-obligor subsidiaries of $1.1 billion and $1.2 billion as of ~~September~~June 30, ~~2020~~2021 and December 31, ~~2019,~~2020, respectively.

~~Page 73~~

Summarized Statement of Operations Information (in thousands):


	~~Nine~~Six Months Ended ~~September~~June 30, ~~2020~~2021
Total revenues	$	~~90,249~~3,766

Interest expense	$		~~91,073~~73,217
Other expenses	~~29,235~~20,205
Total expenses	$		~~120,308~~93,422
Loss before income taxes and preferred dividends	$		~~(30,059)~~(89,656)
Income tax ~~expense (benefit)~~benefit	~~(1,416)~~—
Preferred dividends	~~11,235~~5,967
Net loss	$	~~(39,878)~~(95,623)

Debt Coverage Ratio

The L Bond borrowing covenants of GWG Holdings require it to maintain a Debt Coverage Ratio ~~of less than~~not to exceed 90%. The Debt Coverage Ratio is calculated by dividing the sum of our total interest-bearing indebtedness (other than Excluded Indebtedness defined and described in note 2 to the table below) by the sum of our cash, cash equivalents, restricted cash, life insurance policy benefits receivable, the net present value of the life insurance portfolio, and, without duplication, the value of all of our other assets as reflected on our most recently available balance sheet prepared in accordance with GAAP.

GWG Holdings’ and GWG Life’s investments in Beneficient and GWG Life’s ownership interests in the holding companies that own DLP IV and DLP VI, which own substantially all of the life insurance portfolio, secure our obligations under the L Bonds, and are illiquid assets. Although GWG Holdings and GWG Life own debt and equity securities of Beneficient, a substantial majority of the net assets of Beneficient are currently represented by goodwill, an intangible asset. The calculation of Beneficient’s goodwill required the utilization of significant estimates and management judgment, as discussed elsewhere in this Quarterly Report on Form 10-Q. As a result, the carrying value of those assets as reflected in our condensed consolidated financial statements may not necessarily reflect the current market price for those assets, especially in the event of a bulk or distressed sale. Proceeds from L Bond sales will be primarily used for the repayment of L Bond maturities, interest payments and other operating expenses of GWG Holdings, and as otherwise specified in the prospectus for the L Bonds. GWG Holdings may also continue to use a portion of the proceeds from L Bond sales to make investments in Beneficient. Because advances

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may be used by Beneficient for working capital purposes, such investments may not increase the tangible assets securing the L Bonds. If the trustee for the L Bonds were forced to sell all or a portion of the collateral securing them, there can be no assurance that the trustee would be able to sell them for the prices at which we have recorded them in our condensed consolidated financial statements, and the trustee might be forced to sell them at significantly lower prices.

The discount rate we use for the net present value of our life insurance portfolio for this calculation may not be the same discount rate we use for our GAAP valuation and is not necessarily reflective of the amount we could realize upon a sale of the portfolio ~~(dollar amounts~~(dollars in thousands):


		September 30, 2020			December 31, 2019				June 30, 2021			December 31, 2020
Life insurance portfolio policy benefits	Life insurance portfolio policy benefits	$	1,921,067		$	2,020,973		Life insurance portfolio policy benefits	$	1,844,466		$	1,900,715
Discount rate of future cash flows(1)	Discount rate of future cash flows(1)	7.49		%	7.55		%	Discount rate of future cash flows(1)	7.48		%	7.46		%
Net present value of life insurance portfolio policy benefits	Net present value of life insurance portfolio policy benefits	$	817,555		$	826,196		Net present value of life insurance portfolio policy benefits	$	798,530		$	822,859
All cash and cash equivalents (including restricted cash)	All cash and cash equivalents (including restricted cash)	108,432			81,780			All cash and cash equivalents (including restricted cash)	77,434			106,282
Life insurance policy benefits receivable, net	Life insurance policy benefits receivable, net	36,418			23,031			Life insurance policy benefits receivable, net	25,988			14,334
Financing receivables from affiliates~~(2)~~	Financing receivables from affiliates~~(2)~~	177,512			258,402			Financing receivables from affiliates~~(2)~~	186,338			180,080
Investments in Common Units(2)(3)		438,403			313,443
Investments in Common Units(3)								Investments in Common Units(3)	437,783			438,194
Investments in Preferred Series A Subclass 1 Unit Account(3)	Investments in Preferred Series A Subclass 1 Unit Account(3)	319,030			319,030			Investments in Preferred Series A Subclass 1 Unit Account(3)	319,030			319,030
Investments in Preferred Series C Unit Account(3)	Investments in Preferred Series C Unit Account(3)	161,000			—			Investments in Preferred Series C Unit Account(3)	210,624			195,578
Option Agreement and other assets(3)		22,194			54,365
Other Assets								Other Assets	14,242			20,082
Total Coverage~~(4)~~(2)	Total Coverage~~(4)~~(2)	$	2,080,544		$	1,876,247		Total Coverage~~(4)~~(2)	$	2,069,969		$	2,096,439

Total Indebtedness~~(4)~~(2)	Total Indebtedness~~(4)~~(2)	$	1,444,454		$	1,132,714		Total Indebtedness~~(4)~~(2)	$	1,634,372		$	1,519,107

Debt Coverage Ratio	Debt Coverage Ratio	69.43		%	60.40		%	Debt Coverage Ratio	78.96		%	72.46		%

(1)Weighted-average interest rate paid on indebtedness, excluding that of Seller Trust ~~L-Bonds.~~L-Bonds, as required under the indenture governing the L Bonds.

(2)~~The LiquidTrust Promissory Note, previously included in financing receivables from affiliates, was converted to Common Units on September 30, 2020.~~

~~(3)The Option Agreement was exercised and converted to Common Units effective August 11, 2020.~~

~~(4)~~Total Coverage excludes the assets of Beneficient. Total Indebtedness is equal to the total liabilities balance of GWG Holdings (excluding the liabilities of Beneficient) as of ~~September~~June 30, ~~2020,~~2021, other than Excluded Indebtedness. ~~Excluded Indebtedness is Indebtedness~~“Excluded Indebtedness” means indebtedness that is payable at ~~the Company’s~~GWG Holdings’ option in ~~Capital Stock~~capital stock of ~~the Company~~GWG Holdings or securities mandatorily convertible into or exchangeable for ~~Capital Stock~~capital stock of ~~the Company,~~GWG Holdings, or any Indebtedness that is reasonably expected to be converted or exchanged, directly or indirectly, into ~~Capital Stock~~capital stock of ~~the Company.~~GWG Holdings. This change in the definition of the Debt Coverage Ratio was defined in Amendment No. 2 to the Amended and Restated Indenture entered into as of December 31, 2019 (see Note 109 to the condensed consolidated financial statements).

(3)Generally represents the value of the investment in Beneficient as of December 31, 2019, for investments that existed at the time of the change-in-control transaction, or the value at the time of purchase for investments that were made subsequent to December 31, 2019. As noted above, these are illiquid investments that are carried at book basis and not market value.

As of ~~September~~June 30, ~~2020~~2021 and December 31, ~~2019,~~2020, we were in compliance with the Debt Coverage Ratio.

~~Page 74~~

Based on a preliminary analysis, the Company expects the Debt Coverage Ratio to be approximately 82% as of September 30, 2021.

ITEM 4. CONTROLS AND PROCEDURES.

Evaluation of Disclosure Controls and Procedures

We maintain disclosure controls and procedures designed to provide reasonable assurance that information required to be disclosed in our reports filed pursuant to the Securities Exchange Act of 1934 is recorded, processed, summarized, and reported within the time periods specified in the SEC’s rules and forms, and that such information is accumulated and communicated to our management, including ~~our~~GWG Holdings’ Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure. A control system, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance the objectives of the control system are met.

~~Our~~GWG Holdings’ Chief Executive Officer and Chief Financial Officer have evaluated the effectiveness of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities and Exchange Act of 1934) as of ~~September~~June 30, ~~2020~~2021 (the end of the period covered by this report). Based on that evaluation, ~~our~~GWG Holdings’ Chief Executive Officer

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and Chief Financial Officer have concluded that due to the material ~~weakness~~weaknesses described below, our disclosure controls and procedures were not effective as of ~~September~~June 30, ~~2020.~~2021.

Material ~~Weakness~~Weaknesses

Restatement

In connection with matters related to the Restatement, we have determined that a material weakness existed in our internal control over financial reporting for all periods from December 31, 2019 to December 31, 2020. As of December 31, 2020, the design and operating effectiveness of controls over the selection, application and review of the implementation of accounting policies were not sufficient to ensure amounts recorded and disclosed were fairly stated in accordance with GAAP. This material weakness resulted in the Restatement.

In response to this material weakness, our management has expended, and will continue to expend, a substantial amount of effort and resources for the remediation and improvement of our internal control over financial reporting. While we have processes to properly identify and evaluate the appropriate accounting technical pronouncements and other literature for all significant or unusual transactions, we are improving these processes to ensure that the nuances of such transactions are effectively evaluated in the context of the increasingly complex accounting standards. Our remediation plan at this time includes continuing to enhance our internal and external technical accounting resources by hiring additional personnel and increasing communication with third-party professionals with whom we consult regarding the application of complex accounting transactions.

Our remediation plan can only be accomplished over time and will be continually reviewed to determine that it is achieving its objectives. We can offer no assurance that these initiatives will ultimately have the intended effects.

Quarterly Valuation Allowance

In connection with the preparation and review of our quarterly condensed consolidated financial statements as of and for the period ended September 30, 2020, we ~~and our independent registered public accounting firm~~also identified a material weakness in internal controls over the quarterly income tax provision process, which included the measurement of the valuation allowance against the Company’s deferred tax assets.

We have ~~begun the implementation~~implemented a suite of ~~additional steps in our valuation allowance estimation process~~enhanced internal controls and ~~are reevaluating the internal and~~have involved additional external resources ~~involved~~ in the quarterly income tax provision process, including the assessment of the valuation allowance. We believe these measures will enable us to quickly remediate this material weakness in internal controls over the income tax provision process, including the valuation allowance against the Company’s deferred tax assets.

We have completed certain of such remediation activities as of the date of this filing and believe that we have strengthened our internal controls to address the identified material weakness. However, control weaknesses are not considered remediated until new internal controls have been operational for a period of time, are tested, and management concludes that these controls are operating effectively. We will continue to monitor the effectiveness of these remediation measures, and we will make any changes to the design of this plan and take such other actions that we deem appropriate given the circumstances.

Notwithstanding these material weaknesses, the Company has concluded that no material misstatements exist in the condensed consolidated financial statements, and such financial statements present fairly, in all material respects, the financial position, results of operations and cash flows of the Company as of and for the six months ended June 30, 2021 and 2020, in conformity with accounting principles generally accepted in the United States of America.

Changes in Internal Control over Financial Reporting

As discussed elsewhere in this report, on December 31, 2019, GWG Holdings obtained the right to appoint a majority of the board of directors of Beneficient Management, the general partner of Ben LP. As a result of this change-of-control event, GWG Holdings reported the results of Ben LP and its subsidiaries on a consolidated basis beginning on the transaction date of December 31, 2019. As such, the scope of our assessment of the effectiveness of our disclosure controls and procedures did not include the internal control over financial reporting of Beneficient. These exclusions are consistent with the SEC Staff’s guidance that an assessment of a recently acquired business may be omitted from the scope of our assessment of the effectiveness of disclosure controls and procedures that are also part of internal control over financial reporting in the 12 months following the acquisition.

As a result of the consolidation of Beneficient, we have evaluated the processes and procedures of Beneficient’s internal control over financial reporting, and are incorporating Beneficient’s internal control over financial reporting into our internal control over financial reporting framework. In addition, as a result of the consolidation of Beneficient, we have implemented new processes and controls over accounting for goodwill and other intangible assets, primarily related to assessing these assets for impairment.

Other than the aforementioned ~~items,~~material weaknesses, there were no changes in our internal control over financial reporting during the period covered by this report that materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

Page 7576

PART II — OTHER INFORMATION

~~ITEM 1A. RISK FACTORS.~~

Except as described below, there have been no material changes from the risk factors previously disclosed in our Annual Report on Form 10-K filed with the Securities and Exchange Commission on March 27, 2020.

~~We have identified a material weakness in our internal control over our tax provision process which could, if not remediated, result in material misstatements in our financial statements.~~

Our management has identified a material weakness in our internal controls over financial reporting. A material weakness is defined as a deficiency, or a combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of our annual or interim financial statements will not be prevented or detected on a timely basis. In connection with the preparation of our quarterly report for the quarter ended September 30, 2020, we identified a material weakness in internal controls over the quarterly income tax provision process, which included the measurement of the valuation allowance against the Company's deferred tax assets.

We continue to evaluate, design and implement controls and procedures under a remediation plan designed to address this material weakness. If our remedial measures are insufficient to address the material weakness, or if additional material weaknesses or significant deficiencies in our internal control are discovered or occur in the future, our financial results could be adversely affected.

~~ITEM 5. OTHER INFORMATION~~

~~None.~~

ITEM 6. EXHIBITS


Exhibit
~~10.1~~						~~Second Amended and Restated Credit Agreement among Beneficient Capital Company, L.LC., HCLP Nominees L.L.C., and other persons party thereto~~ ~~(filed herewith)~~†
~~10.2~~						~~Second Amended and Restated Second Lien Credit Agreement among Beneficient Capital Company, L.LC., HCLP Nominees L.L.C., and other persons party thereto(filed herewith)~~†
22						List of Guarantor Subsidiaries (filed herewith)
31.1						Section 302 Certification of the Chief Executive Officer (filed herewith)
31.2						Section 302 Certification of the Chief Financial Officer (filed herewith)
32.1						Certification of Chief Executive Officer and Chief Financial Officer Pursuant to 18 U.S.C. §1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (filed herewith)
99.1						Letter from ClearLife Limited, dated ~~Octobe~~r 20 ~~, 2020 (~~September 29, 2021 ~~filed herewith~~)(filed herewith)
99.2						Portfolio of Life Insurance Policies as of ~~September~~June 30 ~~30, 2020 (~~, 2021~~filedherewith~~) (filed herewith)
101.INS						XBRL Instance Document
101.SCH						XBRL Taxonomy Extension Schema Document
101.CAL						XBRL Taxonomy Extension Calculation Linkbase Document
101.DEF						XBRL Taxonomy Extension Definition Linkbase Document
101.LAB						XBRL Taxonomy Extension Label Linkbase Document
101.PRE						XBRL Taxonomy Extension Presentation Linkbase Document

~~† Certain information has been excluded from this exhibit because it both is not material and would likely cause competitive harm to the registrant if publicly disclosed.~~

~~Page 76~~

SIGNATURES

Pursuant to the requirements of the Securities and Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.


	GWG HOLDINGS, INC.

Date: November ~~19, 2020~~12, 2021	By:	/s/ Murray T. Holland
		President and Chief Executive Officer

Date: November ~~19, 2020~~12, 2021	By:	/s/ Timothy L. Evans
		Chief Financial Officer

Page 77


	Fair Value at Acquisition Date		Measurement Period Adjustments(1)		Adjusted Fair Value at Acquisition Date
ASSETS
Loans receivable(1)	$	232,344	$	(26,116)	$	206,228
Fees receivable	29,168		—		29,168
Investment in public equity securities	24,550		—		24,550
Other assets	14,053		—		14,053
Intangible assets(2)	3,449		—		3,449
Total identifiable assets acquired	303,564		(26,116)		277,448
LIABILITIES
Other borrowings	153,086		—		153,086
Commercial loan agreement from parent	168,420		—		168,420
Other liabilities and deferred revenue	105,866		—		105,866
Accounts payable and accrued expenses	13,713		—		13,713
Total liabilities assumed	441,085		—		441,085
Net liabilities assumed	(137,521)		(26,116)		(163,637)
NONCONTROLLING INTERESTS
Common Units not owned by GWG Holdings(3)	181,383		—		181,383
Class S Ordinary Units	85,448		—		85,448
Class S Preferred Units	17		—		17
Preferred Series A Subclass 1 Unit Accounts	1,269,654		—		1,269,654
Total noncontrolling interests	1,536,502		—		1,536,502
ACQUISITION CONSIDERATION
Cash, less cash acquired	61,479		—		61,479
Fair value of preexisting investment in Common Units(4)	622,503		—		622,503
Fair value of noncontrolling interest	1,536,502		—		1,536,502
Total estimated consideration	2,220,484		—		2,220,484
Less: Net liabilities assumed	(137,521)		(26,116)		(163,637)
Resulting preliminary goodwill	$	2,358,005	$	26,116	$	2,384,121


	Three Months Ended September 30, 2019		Nine Months Ended September 30, 2019
Total Revenue
Pro forma	$	36,532	$	123,242
As reported	22,211		71,439

Net Loss Attributable to Common Shareholders
Pro forma	$	(26,761)	$	(66,564)
As reported	(24,635)		(69,154)

Net Loss per Diluted Common Share
Pro forma	$	(0.81)	$	(2.02)
As reported	(0.75)		(2.09)


	Three Months Ended September 30, 2020		Nine Months Ended September 30, 2020
Balance, beginning of period	$	66,383	$	89,647
Accretion	(7,899)		(22,863)
Decrease in accretable yield(a)	0		(8,300)
Balance, end of period	$	58,484	$	58,484


	Three Months Ended June 30, 2019			Nine Months Ended June 30, 2019
Total revenues	$	28,151		$	69,262
Net loss	9,696			(36,345)
Net gain (loss) attributable to Ben LP common unitholders	1,080			(11,439)
GWG portion of net earnings (loss)	956		(1)	(371)		(2)


2019 Monthly Period	Number of Shares Purchased	Average Price Paid per Share		Total Number of Shares Purchased as Part of the Program	Maximum Dollar Value of Shares that Remained Under the Program
January 2019	42,488	$	8.47	52,523	$	1,072
February 2019	202	8.88		52,725	1,070


	Balance at December 31, 2019	Granted	Vested	Exercised	Forfeited	Recovery of Vested Awards	Balance at September 30, 2020
Vested
Stock Options	673,341	0	84,018	(20,136)	(109,671)	0	627,552
SAR	200,745	18,556	45,529	(1,284)	(4,541)	0	259,005
RSU	0	0	57,183	0	0	0	57,183
BMP Equity Units	7,980,037	4,580,888	496,142	0	(31,618)	(1,963,969)	11,061,480
REUs	2,164,742	3,033,956	341,223	0	(14,000)	(507,500)	5,018,421
Unvested
Stock Options	232,040	0	(84,018)	0	(66,625)	0	81,397
SAR	174,880	125,269	(45,529)	0	(27,067)	0	227,553
RSU	244,083	0	(57,183)	0	(57,183)	0	129,717
BMP Equity Units	180,000	2,963,800	(496,142)	0	(347,599)	0	2,300,059
REUs	246,500	2,682,072	(341,223)	0	(282,400)	0	2,304,949
Total
Stock Options	905,381	0	0	(20,136)	(176,296)	0	708,949
SAR	375,625	143,825	0	(1,284)	(31,608)	0	486,558
RSU	244,083	0	0	0	(57,183)	0	186,900
BMP Equity Units	8,160,037	7,544,688	0	0	(379,217)	(1,963,969)	13,361,539
REUs	2,411,242	5,716,028	0	0	(296,400)	(507,500)	7,323,370