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

For the quarterly period ended March 31, 2018

COMMISSION FILE NUMBER 000-10685

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

Nebraska	20-0362426
(State or other jurisdiction of	(I.R.S. Employer
incorporation or organization)	Identification No.)
2900 S. 70th, Suite 400, Lincoln, Nebraska	68506
(Address of principal executive offices)	(Zip Code)

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

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

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐

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

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting 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 reviewed financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

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

As of September 1, 2018, there were 22,860,701 shares of Voting Common Stock, par value $0.001 per share, issued and outstanding.

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MIDWEST HOLDING INC.

FORM 10-Q/A

TABLE OF CONTENTS

PART I – FINANCIAL INFORMATION

Item No.		Item Caption		Page
Item 1.		Financial Statements		4
		Consolidated Balance Sheets		4
		Consolidated Statements of Comprehensive Income		5
		Consolidated Statements of Cash Flows		6
		Notes to Consolidated Financial Statements		7
Item 2.		Management’s Discussion and Analysis of Financial Condition and Results of Operations		23
Item 3.		Quantitative and Qualitative Disclosures About Market Risk		28
Item 4.		Controls and Procedures		28
PART II – OTHER INFORMATION
Item No.		Item Caption		Page
Item 1.		Legal Proceedings		30
Item 1A.		Risk Factors		30
Item 2.		Unregistered Sales of Equity Securities and Use of Proceeds		30
Item 3.		Defaults Upon Senior Securities		30
Item 4.		Mine Safety Disclosures		30
Item 5.		Other Information		30
Item 6.		Exhibits		31
		Signatures		32

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Explanatory Note

This Amendment No. 2 to Form 10-Q is being filed by the registrant. The items that have been amended are as follows:

Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations.

Item 8. Financial Statements and Supplementary Data. The financial statements contained in this Form 10-Q/A should be relied upon and not the information in the Original Form 10-Q and Amendment No. 1 on Form 10-Q/A.

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PART I – FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS.

Midwest Holding Inc. and Subsidiaries
Consolidated Balance Sheets

		March 31, 2018				December 31, 2017
Assets		(unaudited)
Investments, available for sale, at fair value
Fixed maturities (amortized cost: $21,460,151 and $21,529,779 respectively)		$	20,348,789			$	21,005,907
Real estate, held for investment			502,678				505,688
Policy Loans			431,755				435,196
Total investments			21,283,222				21,946,791
Cash and cash equivalents			505,220				951,527
Amounts recoverable from reinsurers			22,721,637				22,501,593
Interest due and accrued			228,319				223,166
Due premiums			564,206				637,574
Deferred acquisition costs, net			2,004,350				2,045,808
Value of business acquired, net			409,694				427,454
Intangible assets			700,000				700,000
Property and equipment, net			115,418				127,976
Other assets			91,091				107,723
Total assets		$	48,623,157			$	49,669,612
Liabilities and Stockholders' Equity
Liabilities:
Benefit reserves		$	26,289,438			$	26,228,105
Policy claims			426,965				447,513
Deposit-type contracts			18,860,160				18,421,055
Advance premiums			59,085				40,839
Deferred gain on coinsurance transaction			943,333				955,427
Total policy liabilities			46,578,981				46,092,939
Accounts payable and accrued expenses			591,914				791,294
Surplus notes			550,000				550,000
Total liabilities			47,720,895				47,434,233
Commitments and Contingencies (See Note 8)
Stockholders' Equity:
Common stock, $0.001 par value. Authorized 120,000,000 shares; issued and outstanding 22,860,701 as of March 31, 2018 and as of December 31, 2017.			22,861				22,861
Additional paid-in capital			33,006,255				33,006,255
Accumulated deficit			(31,042,403	)			(30,282,518	)
Accumulated other comprehensive loss			(1,084,451	)			(511,219	)
Total stockholders' equity			902,262				2,235,379
Total liabilities and stockholders' equity		$	48,623,157			$	49,669,612

See Notes to Consolidated Financial Statements.

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Midwest Holding Inc. and Subsidiaries
Consolidated Statements of Comprehensive Income
(Unaudited)

		Three months ended March 31,
		2018				2017
Income:
Premiums		$	457,366			$	832,847
Investment income, net of expenses			203,461				254,680
Net realized losses on investments			(49,671	)			(35,504	)
Miscellaneous income			26,240				18,800
			637,396				1,070,823
Expenses:
Death and other benefits			266,860				295,257
Interest credited			121,507				219,232
(Decrease) Increase in benefit reserves			(8,341	)			145,126
Amortization of deferred acquisition costs			94,858				158,705
Salaries and benefits			482,716				576,608
Other operating expenses			439,681				719,799
			1,397,281				2,114,727
Loss before income taxes			(759,885	)			(1,043,904	)
Income tax expense			-				-
Net loss			(759,885	)			(1,043,904	)
Comprehensive (loss) income :
Unrealized (losses) gains on investments arising during period			(622,903	)			183,013
Less: reclassification adjustment for net realized losses on investments			49,671				35,504
Other comprehensive (loss) income			(573,232	)			218,517
Comprehensive loss		$	(1,333,117	)		$	(825,387	)
Net loss per common share, basic and diluted		$	(0.03	)		$	(0.05	)

See Notes to Consolidated Financial Statements.

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Midwest Holding Inc. and Subsidiaries
Consolidated Statements of Cash Flows
(Unaudited)

		Three Months ended March 31,
		2018				2017
Cash Flows from Operating Activities:
Net loss		$	(759,885	)		$	(1,043,904	)
Adjustments to arrive at cash provided by operating activities:
Net premium and discount on investments			30,785				53,312
Depreciation and amortization			33,328				85,647
Deferred acquisition costs capitalized			(39,142	)			(93,674	)
Amortization of deferred acquisition costs			94,858				158,705
Net realized losses on investments			49,671				35,504
Deferred coinsurance ceding commission			(12,094	)			-
Changes in operating assets and liabilities:
Amounts recoverable from reinsurers			(220,044	)			56,882
Interest and dividends due and accrued			(5,153	)			(26,061	)
Due premiums			73,368				70,029
Policy liabilities			398,740				132,237
Other assets and liabilities			(182,748	)			(206,280	)
Net cash used for operating activities			(538,316	)			(777,603	)
Cash Flows from Investing Activities:
Securities available for sale:
Purchases			(3,323,196	)			(3,870,624	)
Proceeds from sale or maturity			3,312,368				4,712,145
Net change in policy loans			3,441				(2,138	)
Net purchases of property and equipment			-				(24,165	)
Net cash (used for) provided by investing activities			(7,387	)			815,218
Cash Flows from Financing Activities:
Preferred stock dividend			-				(21,560	)
Receipts on deposit-type contracts			312,611				863,617
Withdrawals on deposit-type contracts			(213,215	)			(319,707	)
Net cash provided by financing activities			99,396				522,350
Net (decrease) increase in cash and cash equivalents			(446,307	)			559,965
Cash and cash equivalents:
Beginning			951,527				661,545
Ending		$	505,220			$	1,221,510

See Notes to Consolidated Financial Statements.

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Midwest Holding Inc. and Subsidiaries
Notes to Consolidated Financial Statements

Note 1. Nature of Operations and Summary of Significant Accounting Policies

Nature of operations: Midwest Holding Inc. (“Midwest” or “the Company”) was incorporated in Nebraska on October 31, 2003 for the primary purpose of becoming a financial services company. The Company is in the life insurance business and operates through its wholly owned subsidiary, American Life & Security Corp. (“American Life”). The Company has made several acquisitions of life insurance companies and related entities since 2008, all of which have been merged into the Company or into American Life.

Basis of presentation: The accompanying unaudited consolidated financial statements have been prepared in accordance with United States of America generally accepted accounting principles (“GAAP”) for interim financial information and with the instructions from the Securities and Exchange Commission (“SEC”) Quarterly Report on Form 10-Q, including Article 10 of Regulation S-X. Accordingly, they do not include all of the information and notes required by GAAP for complete financial statements. Therefore, the information contained in the Notes to Consolidated Financial Statements included in the Company’s Annual Report on Form 10-K/A for the year ended December 31, 2017 (“2017 Form 10-K/A”), should be read in connection with the reading of these interim unaudited consolidated financial statements.

In the opinion of management, these statements include all normal recurring adjustments necessary for a fair presentation of the Company’s results. Operating results for the three months period ended March 31, 2018, are not necessarily indicative of the results that may be expected for the full year ending December 31, 2018. All material inter-company accounts and transactions have been eliminated in consolidation.

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

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

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

The recognition of other-than-temporary impairment losses on debt securities is dependent on the facts and circumstances related to the specific security. If the Company intends to sell a security or it is more likely than not that the Company would be required to sell a security prior to recovery of the amortized cost, the difference between amortized cost and fair value is recognized in the statement of comprehensive income as an other-than-temporary impairment. If the Company does not expect to recover the amortized basis, does not plan to sell the security and if it is not more likely than not that the Company would be required to sell a security before the recovery of its amortized cost, the recognition of the other-than-temporary impairment is bifurcated. The Company recognizes the credit loss portion in the income statement and the noncredit loss portion in accumulated other comprehensive loss. The credit component of an other-than-temporary impairment is determined by comparing the net present value of projected cash flows with the amortized cost basis of the debt security. The net present value is calculated by discounting the Company’s best estimate of projected future cash flows at the effective interest rate implicit in the fixed income security at the date of acquisition. Cash flow estimates are driven by assumptions regarding probability of default, including changes in credit ratings, and estimates regarding timing and amount of recoveries associated with a default. No other-than-temporary impairments were recognized during the three months ended March 31, 2018 or 2017.

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

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

Real estate, held for investment: Real estate, held for investment is comprised of ten condominiums in Hawaii. Real estate is carried at depreciated cost. Depreciation on residential real estate is computed on a straight-line basis over 50 years.

Cash: The Company considers all liquid investments with original maturities of three months or less when purchased to be cash equivalents. At March 31, 2018 and December 31, 2017, the Company had no cash equivalents.

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

Recoverability of deferred acquisition costs is evaluated periodically by comparing the current estimate of the present value of expected pretax future profits to the unamortized asset balance. If this current estimate is less than the existing balance, the difference is charged to expense. The Company performs a recoverability analysis annually in the fourth quarter unless events occur which require an immediate review. The Company determined that no events occurred in the three months ended March 31, 2018 that suggest a review should be undertaken.

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

The following table provides information about deferred acquisition costs for the periods ended March 31, 2018 and December 31, 2017, respectively.

		March 31, 2018				December 31, 2017
Balance at beginning of period		$	2,045,808			$	2,568,799
Capitalization of commissions, sales and issue expenses			39,142				333,940
Change in DAC due to unrealized investment losses			14,258				(15,201	)
Gross amortization			(94,858	)			(404,111	)
Change in DAC due to coinsurance ceding commission			-				(437,620	)
Balance at end of period		$	2,004,350			$	2,045,808

Value of business acquired: Value of business acquired (“VOBA”) represents the estimated value assigned to purchased companies or insurance in force of the assumed policy obligations at the date of acquisition of a block of policies.

Recoverability of value of business acquired is evaluated periodically by comparing the current estimate of the present value of expected pretax future profits to the unamortized asset balance. If this current estimate is less than the existing balance, the difference is charged to expense. The Company performs a recoverability analysis annually in the fourth quarter unless events occur which require an immediate review. The Company determined that no events occurred in the three months ended March 31, 2018 that suggest a review should be undertaken.

Property and equipment: Property and equipment are stated at cost net of accumulated depreciation. Annual depreciation is primarily computed using straight-line methods for financial reporting and straight-line and accelerated methods for tax purposes. Furniture and equipment is depreciated over 3 to 7 years and computer software and equipment is generally depreciated over 3 years. Depreciation expense totaled $12,558 and $16,390 for the three months ended March 31, 2018 and 2017, respectively. Accumulated depreciation totaled $906,572 and $894,014 as of March 31, 2018 and December 31, 2017, respectively.

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

Long-lived assets are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. An impairment loss is recognized if the carrying amount of an asset may not be recoverable and exceeds estimated future undiscounted cash flows of the asset. A recognized impairment loss reduces the carrying amount of the asset to its fair value. Management has determined that no such events occurred in the three months ended March 31, 2018 that would indicate the carrying amounts may not be recoverable.

Reinsurance: In the normal course of business, the Company seeks to limit any single exposure to losses on large risks by purchasing reinsurance. The amounts reported in the consolidated balance sheets as reinsurance recoverable include amounts billed to reinsurers on losses paid as well as estimates of amounts expected to be recovered from reinsurers on insurance liabilities that have not yet been paid. Reinsurance recoverable on unpaid losses are estimated based upon assumptions consistent with those used in establishing the liabilities related to the underlying reinsured contracts. Insurance liabilities are reported gross of reinsurance recoverable. Management believes the recoverables are appropriately established. The Company generally strives to diversify its credit risks related to reinsurance ceded. Reinsurance premiums are generally reflected in income in a manner consistent with the recognition of premiums on the reinsured contracts. Reinsurance does not extinguish the Company’s primary liability under the policies written. Therefore, the Company regularly evaluates the financial condition of its reinsurers including their activities with respect to claim settlement practices and commutations, and establishes allowances for uncollectible reinsurance recoverable as appropriate. There were no allowances as of March 31, 2018 or December 31, 2017.

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

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

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

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

Income taxes: The Company is subject to income taxes in the U.S. federal and various state jurisdictions. Tax regulations within each jurisdiction are subject to the interpretation of the related tax laws and regulations and require significant judgment to apply. With few exceptions, the Company is no longer subject to U.S. federal, state or local tax examinations by tax authorities for the years before 2010. The provision for income taxes is based on income as reported in the financial statements. The income tax provision is calculated under the asset and liability method. Deferred tax assets are recorded based on the differences between the financial statement and tax basis of assets and liabilities at the enacted tax rates. The principal assets and liabilities giving rise to such differences are investments, insurance reserves, and deferred acquisition costs. A deferred tax asset valuation allowance is established when there is uncertainty that such assets would be realized. The Company has no uncertain tax positions that it believes are more-likely-than not that the benefit will not to be realized. When applicable, the Company recognizes interest accrued related to unrecognized tax benefits and penalties in income tax expense. The Company had no accruals for payments of interest and penalties at March 31, 2018 or December 31, 2017.

Revenue recognition and related expenses: Revenues on traditional life insurance products consist of direct and assumed premiums reported as earned when due.

Amounts received as payment for annuities and/or non-traditional contracts such as interest sensitive whole life contracts, single payment endowment contracts, single payment juvenile contracts and other contracts without life contingencies are recognized as deposits to policyholder account balances and included in future insurance policy benefits. Revenues from these contracts are comprised of fees earned for administrative and contract-holder services and cost of insurance, which are recognized over the period of the contracts, and included in revenue. Deposits are shown as a financing activity in the consolidated statements of cash flows.

Amounts received under our multi-benefit policy form are allocated to the life insurance portion of the multi-benefit life insurance arrangement and the annuity portion based upon the signed policy.

Liabilities for future policy benefits are provided and acquisition costs are amortized by associating benefits and expenses with earned premiums to recognize related profits over the life of the contracts. Acquisition costs are amortized over the premium paying period using the net level premium method. Traditional life insurance products are treated as long duration contracts, which generally remain in force for the lifetime of the insured.

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

Common and preferred stock and earnings (loss) per share: The par value per common share is $0.001 with 120,000,000 voting common shares authorized, 20,000,000 non-voting common shares authorized, and 10,000,000 preferred shares authorized. At March 31, 2018 and December 31, 2017, the Company had 22,860,701 voting common shares issued and outstanding. Subsequent to March 31, 2018, the Company entered into a Loan, Convertible Preferred Stock and Convertible Senior Secured Note Purchase Agreement, under which convertible debt and convertible preferred stock have been issued. See Note 11.

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

The Class A preferred shares were non-cumulative, non-voting and convertible by the holder to voting common shares after May, 2015, at a rate of 1.3 common shares for each preferred share (subject to customary anti-dilution adjustments). The par value per preferred share was $0.001 with 2,000,000 shares authorized. At December 31, 2017 the 74,159 Class A preferred shares outstanding were converted by the Company into 96,407 voting common shares.

The Class B preferred shares were non-cumulative, non-voting and convertible by the holder or the Company to voting common shares after May 1, 2017 at a rate of 2.0 common shares for each preferred share. The par value per preferred share was $0.001 with 1,000,000 shares authorized. The stated annual dividend rate on the Class B preferred shares was 7%. Dividends totaling $30,544 were paid as of June 30, 2017. On June 15, 2017, the 102,669 outstanding Class B preferred shares were converted by the Company into 205,338 voting common shares.

Loss per share attributable to the Company’s common stockholders were computed based on the weighted average number of shares outstanding during each period. The weighted average number of shares outstanding during the three months ended March 31, 2018 and 2017 were 22,860,701 and 22,558,956 shares, respectively.

Reclassification of certain prior period information: Reclassifications have been made on the Consolidated Statement of Comprehensive Income for the three months ended March 31, 2018. These reclassifications do not impact the overall Net loss or Net loss per common shares line items of the Consolidated Statement of Comprehensive Income for the three months ended March 31, 2018.

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

In June 2016, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2016-13, Financial Instruments – Credit Losses (Topic 326). Under the new guidance, this replaces the incurred loss impairment methodology in current GAAP with a methodology that reflects expected credit losses and requires consideration of a broader range of reasonable and supportable information to perform credit loss estimates. This update changes the methodology from an incurred loss to an expected credit loss. An allowance for the expected credit loss will be set up and the net income will be impacted. The credit losses will be evaluated in the current period and an adjustment to the allowance can be made. The new standard becomes effective after December 15, 2019. We are currently evaluating the impact of our pending adoption of the new standard on our consolidated financial statements.

In February 2016, the FASB issued ASU 2016-02, Leases (Topic 842). The guidance in this ASU supersedes the leasing guidance in Topic 840, Leases. Under the new guidance, lessees are required to recognize lease assets and lease liabilities on the balance sheet for all leases with terms longer than 12 months. Leases will be classified as either finance or operating, with classification affecting the pattern of expense recognition in the income statement. The new standard is effective for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years. A modified retrospective transition approach is required for lessees for capital and operating leases existing at, or entered into after, the beginning of the earliest comparative period presented in the financial statements, with certain practical expedients available. We are currently evaluating the impact of our pending adoption of the new standard on our consolidated financial statements.

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

In May 2014, the FASB issued ASU 2014-09, Revenue from Contracts with Customers ("ASU 2014-09"), which outlines a single comprehensive model for entities to use in accounting for revenue arising from contracts with customers. The core principle of ASU 2014-09 is that an entity recognizes revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. In August 2015, the FASB issued ASU 2015-14, Revenue from Contracts with Customers (Topic 606): Deferral of the Effective Date ("ASU 2015-14"). This amendment defers the effective date of the previously issued ASU 2014-09 until the interim and annual reporting periods beginning after December 15, 2017. Earlier application is permitted for interim and annual reporting periods beginning after December 15, 2016. In addition, the FASB has issued four related ASU's on principal versus agent guidance (ASU 2016-08), identifying performance obligations and the licensing implementation guidance (ASU 2016-10), a revision of certain SEC Staff Observer comments (ASU 2016-11) and implementation guidance (ASU 2016-12). The guidance permits two methods of transition upon adoption; full retrospective and modified retrospective. The Company will utilize the modified retrospective method upon adoption of ASU 2014-09 on January 1, 2018. Under the modified retrospective method, revenues and other disclosures for pre-2017 periods would be provided in the notes to the consolidated financial statements as previously reported under the current revenue standard. Insurance contracts, lease contracts and investments are not within the scope of ASU 2014-09; therefore, this standard would not apply to the majority of our consolidated revenues. For the Company's miscellaneous income, which is within the scope of this guidance, the Company reviewed its service fee income revenue streams and compared its historical accounting policies and practices to the new standard. The Company believes its historical revenue recognition was materially consistent with the way it recognized service fee income as of March 31, 2018.

Note 2. Investments

The cost or amortized cost and estimated fair value of investments classified as available-for-sale as of March 31, 2018 and December 31, 2017 are as follows:

		Cost or			Gross			Gross
		Amortized			Unrealized			Unrealized			Estimated
		Cost			Gains			Losses			Fair Value
March 31, 2018:
Fixed maturities:
U.S. government obligations		$	2,127,142		$	-		$	140,505		$	1,986,637
Mortgage-back securities			1,300,212			-			56,143			1,244,069
States and political subdivisions -- general obligations			268,805			-			3,649			265,156
States and political subdivisions -- special revenue			25,318			-			214			25,104
Corporate			17,738,674			7,533			918,384			16,827,823
Total fixed maturities		$	21,460,151		$	7,533		$	1,118,895		$	20,348,789
December 31, 2017:
Fixed maturities:
U.S. government obligations		$	2,132,441		$	-		$	102,343		$	2,030,098
Mortgage-back securities			1,365,684			-			47,103			1,318,581
States and political subdivisions -- general obligations			269,884			1,123			1,020			269,987
States and political subdivisions -- special revenue			25,347			38			-			25,385
Corporate			17,736,423			44,037			418,604			17,361,856
Total fixed maturities		$	21,529,779		$	45,198		$	569,070		$	21,005,907

The Company has two securities that individually exceed 10% of the total of the state and political subdivisions categories as of March 31, 2018. The amortized cost, fair value, credit ratings, and description of each security is as follows:

		Amortized			Estimated
		Cost			Fair Value			Credit Rating
March 31, 2018:
Fixed maturities:
States and political subdivisions -- general obligations
Bellingham Wash		$	109,671		$	106,363		AA+
Longview Washington Refunding			159,134			158,793		Aa3
Total		$	268,805		$	265,156

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

The following table summarizes, for all securities in an unrealized loss position at March 31, 2018 and December 31, 2017, the estimated fair value, pre-tax gross unrealized loss and number of securities by length of time that those securities have been continuously in an unrealized loss position.

		March 31, 2018								December 31, 2017
					Gross			Number					Gross			Number
		Estimated			Unrealized			of		Estimated			Unrealized			of
		Fair Value			Loss			Securities(1)		Fair Value			Loss			Securities(1)
Fixed Maturities:
Less than 12 months:
U.S. government obligations		$	254,346		$	20,816		2		$	262,662		$	13,877		2
Mortgage-back securities			1,244,069			56,143		19			1,318,581			47,103		19
States and political subdivisions -- general obligations			265,156			3,649		2			108,917			1,020		1
States and political subdivisions -- special revenue			25,104			214		1			-			-		-
Corporate			10,680,779			471,058		55			7,511,874			133,061		35
Greater than 12 months:
U.S. government obligations			1,732,291			119,689		10			1,767,435			88,466		10
Corporate			5,886,070			447,326		37			7,144,231			285,543		42
Total fixed maturities		$	20,087,815		$	1,118,895		126		$	18,113,700		$	569,070		109

(1) We may reflect a security in more than one aging category based on various purchase dates.

Based on our review of the securities in an unrealized loss position at March 31, 2018 and December 31, 2017, no other-than-temporary impairments were deemed necessary. Management believes that the Company will fully recover its cost basis in the securities held at March 31, 2018, and management does not have the intent to sell nor is it more likely than not that the Company will be required to sell such securities until they recover or mature. The temporary impairments shown herein are primarily the result of the current interest rate environment rather than credit factors that would imply other-than-temporary impairment.

The amortized cost and estimated fair value of fixed maturities at March 31, 2018, by contractual maturity, are shown below. Expected maturities may differ from contractual maturities because issuers may have the right to call or prepay obligations with or without call or prepayment penalties.

The Company is required to hold assets on deposit for the benefit of policyholders in accordance with statutory rules and regulations. At March 31, 2018 and December 31, 2017, these required deposits had a total amortized cost of $3,281,240 and $3,287,932 and fair values of $3,085,185 and $3,167,727, respectively.

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

The components of net investment income for the three months ended March 31, 2018 and 2017 are as follows:

Proceeds for the three months ended March 31, 2018 and 2017 from sales of investments classified as available-for-sale were $3,312,368 and $4,712,145, respectively. Gross gains of $24,910 and $10,141 and gross losses of $74,581 and $45,645 were realized on those sales during the three months ended March 31, 2018 and 2017, respectively.

Note 3. Fair Values of Financial Instruments

Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants. We use valuation techniques that are consistent with the market approach, the income approach and/or the cost approach. Inputs to valuation techniques refer to the assumptions that market participants would use in pricing the asset or liability. Inputs may be observable, meaning those that reflect the assumptions market participants would use in pricing the asset or liability developed based on market data obtained from independent sources, or unobservable, meaning those that reflect the reporting entity’s own assumptions about the assumptions market participants would use in pricing the asset or liability developed based on the best information available in the circumstances. In that regard, accounting standards establish a fair value hierarchy for valuation inputs that gives the highest priority to quoted prices in active markets for identical assets or liabilities and the lowest priority to unobservable inputs. The fair value hierarchy is as follows:

●	Level 1: Quoted prices (unadjusted) for identical assets or liabilities in active markets that the entity has the ability to access as of the measurement date.
●	Level 2: Significant other observable inputs other than Level 1 prices such as quoted prices for similar assets or liabilities; quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data.
●	Level 3: Significant unobservable inputs that reflect a reporting entity’s own assumptions about the assumptions that market participants would use in pricing an asset or liability.

A review of fair value hierarchy classifications is conducted on a quarterly basis. Changes in the valuation inputs, or their ability to be observed, may result in a reclassification for certain financial assets or liabilities. Reclassifications impacting Level 3 of the fair value hierarchy are reported as transfers in/out of the Level 3 category as of the beginning of the period in which the reclassifications occur.

A description of the valuation methodologies used for assets measured at fair value, as well as the general classification of such instruments pursuant to the valuation hierarchy, is set forth below.

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

Fixed maturities: Fixed maturities are recorded at fair value on a recurring basis utilizing a third-party pricing source. The valuations are reviewed and validated quarterly through random testing by comparisons to separate pricing models or other third party pricing services. For the period ended March 31, 2018, there were no material changes to the valuation methods or assumptions used to determine fair values, and no broker or third party prices were changed from the values received. Securities with prices based on validated quotes from pricing services are reflected within Level 2.

Cash: The carrying value of cash and cash equivalents and short-term investments approximate the fair value because of the short maturity of the instruments.

Policy loans: Policy loans are stated at unpaid principal balances. As these loans are fully collateralized by the cash surrender value of the underlying insurance policies, the carrying value of the policy loans approximates their fair value. Policy loans are categorized as Level 3 in the fair value hierarchy.

Deposit-type contracts: The fair value for direct and assumed liabilities under deposit-type insurance contracts (accumulation annuities) is calculated using a discounted cash flow approach. Cash flows are projected using actuarial assumptions and discounted to the valuation date using risk-free rates adjusted for credit risk and nonperformance risk of the liabilities. These liabilities are categorized as Level 3 in the fair value hierarchy.

Surplus notes: The fair value for surplus notes was equal to book value as a result of the notes reaching maturity in 2016. These notes are structured such that all interest is paid at maturity. In the following fair value tables, the Company has included accrued interest expense, which is recorded in the accounts payable and accrued expenses, of approximately $301,930 and $293,922 in carrying value of the surplus notes as of March 31, 2018 and December 31, 2017, respectively. These liabilities are categorized as Level 3 in the fair value hierarchy.

The following table presents the Company’s fair value hierarchy for those financial instruments measured at fair value on a recurring basis as of March 31, 2018 and December 31, 2017.

					Significant
		Quoted			Other			Significant
		Markets			Inputs			Inputs			Fair
		(Level 1)			(Level 2)			(Level 3)			Value
March 31, 2018
Fixed maturities:
U.S. government obligations		$	-		$	1,986,637		$	-		$	1,986,637
Mortgage-back securities			-			1,244,069			-			1,244,069
States and political subdivisions - general obligations			-			265,156			-			265,156
States and political subdivisions - special revenue			-			25,104			-			25,104
Corporate			-			16,827,823			-			16,827,823
Total fixed maturities		$	-		$	20,348,789		$	-		$	20,348,789
December 31, 2017
Fixed maturities:
U.S. government obligations		$	-		$	2,030,098		$	-		$	2,030,098
Mortgage-back securities			-			1,318,581			-			1,318,581
States and political subdivisions - general obligations			-			269,987			-			269,987
States and political subdivisions - special revenue			-			25,385			-			25,385
Corporate			-			17,361,856			-			17,361,856
Total fixed maturities		$	-		$	21,005,907		$	-		$	21,005,907

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

There were no transfers of financial instruments between any levels during the three months ended March 31, 2018 or during the year ended December 31, 2017.

Accounting standards require disclosure of the fair value of financial assets and financial liabilities, including those financial assets and financial liabilities that are not measured and reported at fair value on a recurring basis or non-recurring basis. The methodologies for estimating the fair value of financial assets and financial liabilities that are measured at fair value on a recurring basis are discussed above. There were no financial assets or financial liabilities measured at fair value on a non-recurring basis.

The following disclosure contains the carrying values, estimated fair values and their corresponding placement in the fair value hierarchy, for financial assets and financial liabilities as of March 31, 2018 and December 31, 2017, respectively:

		March 31, 2018
					Fair Value Measurements Using
					Quoted Prices in
					Active Markets			Significant Other			Significant
					for Identical Assets			Observable			Unobservable
		Carrying			and Liabilities			Inputs			Inputs			Fair
		Amount			(Level 1)			(Level 2)			(Level 3)			Value
Assets:
Policy loans		$	431,755		$	-		$	-		$	431,755		$	431,755
Cash			505,220			505,220			-			-			505,220
Liabilities:
Policyholder deposits (Deposit-type contracts)			18,860,160			-			-			18,860,160			18,860,160
Surplus notes and accrued interest payable			851,930			-			-			851,930			851,930
		December 31, 2017
					Fair Value Measurements Using
					Quoted Prices in
					Active Markets			Significant Other			Significant
					for Identical Assets			Observable			Unobservable
		Carrying			and Liabilities			Inputs			Inputs			Fair
		Amount			(Level 1)			(Level 2)			(Level 3)			Value
Assets:
Policy loans		$	435,196		$	-		$	-		$	435,196		$	435,196
Cash			951,527			951,527			-			-			951,527
Liabilities:
Policyholder deposits (Deposit-type contracts)			18,421,055			-			-			18,421,055			18,421,055
Surplus notes and accrued interest payable			843,922			-			-			843,922			843,922

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

Note 4. Income Tax Matters

Significant components of the Company’s deferred tax assets and liabilities as of March 31, 2018 and December 31, 2017 are as follows:

		March 31, 2018				December 31, 2017
Deferred tax assets:
Loss carryforwards		$	5,990,218			$	5,782,670
Capitalized costs			305,137				317,026
Unrealized losses on investments			246,655				123,454
Benefit reserves			656,853				656,180
Total deferred tax assets			7,198,863				6,879,330
Less valuation allowance			(6,535,562	)			(6,240,991	)
Total deferred tax assets, net of valuation allowance			663,301				638,339
Deferred tax liabilities:
Policy acquisition costs			308,018				263,683
Due premiums			118,483				133,891
Value of business acquired			86,036				89,765
Intangible assets			147,000				147,000
Property and equipment			3,764				4,000
Total deferred tax liabilities			663,301				638,339
Net deferred tax assets		$	-			$	-

At March 31, 2018 and December 31, 2017, the Company recorded a valuation allowance of $6,535,562 and $6,240,991, respectively, on the deferred tax assets to reduce the total to an amount that management believes will ultimately be realized. Realization of deferred tax assets is dependent upon sufficient future taxable income during the period that deductible temporary differences and carryforwards are expected to be available to reduce taxable income.

Loss carryforwards for tax purposes as of March 31, 2018, have expiration dates that range from 2024 through 2036.

There was no income tax expense for the three months ended March 31, 2018 and 2017. This differed from the amounts computed by applying the statutory U.S. federal income tax rate of 21% in 2018 and 34% in 2017 to pretax income, as a result of the following:

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

U.S. tax legislation enacted on December 22, 2017 is referred to as the Tax Cuts and Jobs Act ("New Tax Act"). The New Tax Act made fundamental changes to the U.S. Internal Revenue Code that impacted the Company. The primary impact on our 2017 financial results was associated with the effect of reducing the U.S. statutory tax rate from 35% to 21% which required us to remeasure our deferred tax assets and liabilities using the lower rate at December 22, 2017, the date of enactment. Other provisions of the New Tax Act that will impact us but are not effective until January 1, 2018, include, but are not limited to: 1) provisions reducing the dividends received deduction; 2) eliminating the corporate alternative minimum tax ("AMT"); 3) changing the rules regarding use of net operating losses; and 4) changing the way in which tax reserves will be measured.

Note 5. Reinsurance

A summary of significant reinsurance amounts affecting the accompanying consolidated financial statements as of March 31, 2018 and December 31, 2017 and for the three months ended March 31, 2018 and 2017 is as follows:

The following table provides a summary of the significant reinsurance balances recoverable on paid and unpaid policy claims by reinsurer along with the A.M. Best credit rating as of March 31, 2018:

										Recoverable on						Total Amount
				Recoverable			Recoverable			Benefit			Ceded			Recoverable
		AM Best		on Paid			on Unpaid			Reserves/Deposit-			Due/Advance			from
Reinsurer		Rating		Losses			Losses			type Contracts			Premiums			Reinsurer
Optimum Re Insurance Company		A-		$	-		$	6,877		$	94,926		$	-		$	101,803
Sagicor Life Insurance Company		A-			-			279,115			12,196,175			244,128			12,231,162
US Alliance Life and Security Company		NR			-			8,000			10,477,970			97,298			10,388,672
				$	-		$	293,992		$	22,769,071		$	341,426		$	22,721,637

Effective September 30, 2017, American Life entered into an indemnity coinsurance transaction with US Alliance Life and Security Company (“US Alliance”) to transfer 100% of the risk related to the Great Plains Life and First Wyoming Life blocks of business. The purpose of this transaction was to provide statutory capital and surplus for American Life and has minimal effect on GAAP financials. We paid no commissions or brokerage fees for this transaction and the proceeds of the transaction were based upon valuations prepared by our third party actuary. American Life had more than one offer to assume this business. Under the indemnity coinsurance, US Alliance assumed certain liabilities and obligations for incurred claims, surrenders and commissions. As we are not relieved of our legal liability to the policyholders; the liabilities and obligations associated with the reinsured blocks of business remain on our Consolidated Balance Sheets with a corresponding reinsurance receivable from US Alliance. We transferred $9,569,175 of GAAP net adjusted reserves as of September 30, 2017 to US Alliance for cash of $7,078,223 which was net of a ceding allowance of $1,850,000 which is treated as an increase to surplus on a statutory basis. As a result of the transaction, in addition to the reserves, American Life will cede approximately $883,000 of annual GAAP revenues and $1,758,250 of statutory revenues. US Alliance assumes all responsibilities for incurred claims, surrenders and commission from the effective date.

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

The ceding commission of $1,850,000 first reduced DAC of $437,620 and VOBA of $1,085,811 which had been held on our books from the Great Plains Life and First Wyoming Life acquisitions. The remaining $943,333 has been reflected as a deferred gain, which will be recognized into income over the expected duration of the Great Plains Life and First Wyoming Life blocks of business.

At March 31, 2018 and December 31, 2017, total benefit reserves, policy claims, deposit-type contracts, and due premiums ceded by American Life to Sagicor were $12,231,162 and $12,320,695, respectively. At March 31, 2018 and December 31, 2017, total benefit reserves, policy claims, deposit-type contracts, and due premiums ceded by American Life to US Alliance was $10,388,672 and $10,072,530, respectively. American Life remains contingently liable on the ceded reinsurance should Sagicor or US Alliance be unable to meet their obligations.

The use of reinsurance does not relieve American Life of its primary liability to pay the full amount of the insurance benefit in the event of the failure of a reinsurer to honor its contractual obligation. No reinsurer of business ceded by American Life has failed to pay policy claims (individually or in the aggregate) with respect to our ceded business.

American Life monitors several factors that it considers relevant to satisfy itself as to the ongoing ability of a reinsurer to meet all obligations of the reinsurance agreements. These factors include the credit rating of the reinsurer, the financial strength of the reinsurer, significant changes or events of the reinsurer, and any other relevant factors. If American Life believes that any reinsurer would not be able to satisfy its obligations with American Life, a separate contingency reserve may be established. At March 31, 2018 and December 31, 2017, no contingency reserve was established.

Note 6. Deposit-Type Contracts

The Company’s deposit-type contracts represent the contract value that has accrued to the benefit of the policyholder as of the balance sheet date. Liabilities for these deposit-type contracts are included without reduction for potential surrender charges. This liability is equal to the accumulated account deposits, plus interest credited, and less policyholder withdrawals. The following table provides information about deposit-type contracts for the quarter ended March 31, 2018 and the year ended December 31, 2017:

		March 31, 2018				December 31, 2017
Beginning balance		$	18,421,055			$	16,012,567
US Alliance			220,202				-
Deposits received			312,611				2,511,107
Investment earnings			121,507				808,085
Withdrawals			(213,215	)			(899,799	)
Contract Charges			(2,000	)			(10,905	)
Ending balance		$	18,860,160			$	18,421,055

Under the terms of American Life’s coinsurance agreement with Security National Life Insurance or SNL, American Life assumes certain deposit-type contract obligations, as shown in the table above. The remaining deposits, withdrawals and interest credited represent those for American Life’s direct business. Additionally, American Life cedes 100% of the Great Plains Life and First Wyoming Life’s block of business to US Alliance. Accordingly, this amount is presented within the corresponding single line above.

Note 7. Commitments and Contingencies

Legal Proceedings: We are involved in litigation incidental to our operations from time to time. We are not presently a party to any legal proceedings other than litigation arising in the ordinary course of our business, and we are not aware of any claims that could materially affect our financial position or results of operations.

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

Regulatory Matters: State regulatory bodies and other regulatory bodies regularly make inquiries and conduct examinations or investigations concerning the Company’s compliance with laws in relation to, but not limited to, insurance and securities matters.

Office Lease: The Company leases office space in Lincoln, Nebraska under an agreement executed October 17, 2013 that expires on January 31, 2024. The Company executed an amendment to its lease for an additional 2,876 square feet of office space on October 23, 2015, which expired on May 31, 2017. Rent expense for the three months ended March 31, 2018 and 2017 was $47,461 and $56,219, respectively. Future minimum lease payments for the remainder of 2017 and the subsequent years are as follows:

Note 8. Statutory Net Income and Surplus

American Life is required to prepare statutory financial statements in accordance with statutory accounting practices prescribed or permitted by the Nebraska Department of Insurance. Statutory practices primarily differ from GAAP by charging policy acquisition costs to expense as incurred, establishing future policy benefit liabilities using different actuarial assumptions as well as valuing investments and certain assets and accounting for deferred taxes on a different basis. Effective September 30, 2017, American Life entered into a coinsurance agreement with US Alliance to cede 100% of the First Wyoming Life’s and Great Plains Life’s blocks of business. American Life’s statutory net loss for the quarters ended March 31, 2018 and 2017 were $651,716 and $722,991, respectively. Capital and surplus of American Life as of March 31, 2018 and December 31, 2017 was $2,321,219 and $2,962,885, respectively.

Note 9. Surplus Notes

The following provides a summary of the Company’s surplus notes along with issue dates, maturity dates, face amounts, and interest rates as of March 31, 2018:

											Annual
Creditor		Issue Date		Maturity Date		Face Amount					Interest Rate
David G. Elmore		September 1, 2006		September 1, 2016			$	250,000			7%
David G. Elmore		August 4, 2011		August 1, 2016				300,000			5%

Any payments and/or repayments must be approved by the Nebraska Department of Insurance. As of March 31, 2018, the Company had accrued $301,930 of interest expense under accounts payable and accrued expenses on the consolidated balance sheet. No payments were made in the three months ended March 31, 2018, or during the year ended December 31, 2017. The surplus notes for $300,000 and $250,000 matured on August 1, 2016 and September 1, 2016, respectively.

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

Note 10. Related Party Transactions

The Company commenced its third party administrative (“TPA”) services in 2012 as an additional revenue source. These services are offered to non-consolidated entities. These agreements, for various levels of administrative services on behalf of each company, generate fee income for the Company. Services provided vary based on their needs and can include some or all aspects of back-office accounting and policy administration. We have been able to perform our TPA services using our existing in-house resources. Fees earned during the three months ended March 31, 2018 and 2017 amounted to $24,240 and $16,500, respectively.

Note 11. Subsequent Events

On May 9, 2018, the Company entered into a Loan, Convertible Preferred Stock and Convertible Senior Secured Note Purchase Agreement (the “Agreement”) with a non-affiliated third party, Xenith Holdings LLC, a Delaware limited liability company (“Xenith”).

The following summarizes the Agreement:

Loan, Convertible Preferred Stock and Convertible Senior Secured Note Purchase Agreement.

1. After certain conditions were met, primarily receipt of approval of the Agreement by the Nebraska Department of Insurance which was granted on June 28, 2018, the closing was held (the “Initial Closing”) at which Xenith loaned $600,000 (the “Loan”) to the Company, repayable upon maturity in 10 years with cash interest of 4% per annum payable quarterly and accrued interest of another 4% per annum payable upon maturity.

2. The first $500,000 of the Loan will be convertible, at Xenith’s election, into approximately 24,300,000 shares of the Company’s voting common stock (which equates to approximately $0.02 per share). The remaining $100,000 will also be convertible at the same rate if the Company has adequate authorized voting common stock available which will require an amendment to its Articles of Incorporation under an SEC proxy statement.

3. Also at the Initial Closing Xenith purchased 1,500,000 shares of the Company’s newly created Class C Preferred Stock for $1,500,000. The Preferred Stock will be convertible, at Xenith’s election, into approximately 72,900,000 shares of Company’s voting common stock (also at approximately $0.02 per share). The Company will be recording the Preferred Stock in 2018 at the Mezzanine Level in the equity section of the balance sheet.

4. To summarize the initial investments in Items 2 and 3 above for purposes of illustration assuming the Notes and shares of Preferred Stock are converted into the Company’s voting common stock:

		Number		Percentage
Current Company Shareholders		22,900,000		18.3%
Note Conversion ($500,000)		24,300,000		19.5%
Note Conversion ($100,000)		4,900,000		3.9%
Preferred Stock Conversion		72,900,000		58.3%
Total Outstanding		125,000,000		100.0%

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5. After the Initial Closing (sale and issuance of the $600,000 Notes and Preferred Stock) Xenith, in its sole discretion, may loan up to an additional $22,900,000 to the Company. Any loans made by Xenith under this election (“Subsequent Loans”) will also be convertible into the Company’s voting common stock at the rate of approximately $0.02 per share. To summarize the additional subsequent loans for purposes of illustration assuming the Notes and shares of Preferred Stock are converted into the Company’s voting common stock:

		Fully Diluted
		Number		Percentage
Current Company Shareholders		22,900,000		1.8%
Note conversion ($500,000)		24,300,000		1.9%
Note conversion ($100,000)		4,900,000		0.4%
Preferred stock conversion		72,900,000		5.7%
Subsequent loans		1,145,000,000		90.2%
Total Outstanding		1,270,000,000		100.0%

The conversion of Subsequent Loans assumed that Midwest’s Articles of Incorporation are appropriately amended as does the possible conversion of the $100,000 Note above. This amendment will require approval of Midwest’s shareholders. See “Articles of Amendment” below.

The Loan and Preferred Stock proceeds must be contributed to Midwest’s insurance subsidiary, American Life, to be held by it and used for general business purposes (except for up to $100,000 which may be used by Midwest to cover some of its expenses in entering into and complying with its obligations under the Agreement).

Terms of Class C Preferred Stock

●	Rank: Senior to the Company’s voting common stock on liquidation with a liquidation preference of $1.00 per share or $1,500,000 in the aggregate
●	Dividends: Subject to the availability of funds, dividends at the annual rate of 8% of the liquidation preference of $1,500,000, if the dividends accrue if not paid.
●	Redemption: At any time beginning in early 2025 and subject to Nebraska law, the Lender may require the Company to redeem the shares of Preferred Stock at the liquidation preference (plus accrued dividends) or fair market value, whichever is greater. If the shares are not redeemed for any reason, a default interest rate of 12% per year begins (and increases by 1% per month)
●	Voting: The Preferred Stock votes along with the Company’s voting common stock as a single class on an “as converted” basis.
●	Election of Directors: Holders of Preferred Stock voting as a separate class are entitled to elect five of the Company’s eight members of its Board of Directors.
●	Protective Provisions: The Preferred Stock has several protections against the Company taking action that would adversely affect the rights of holders of Preferred Stock such as mergers, liquidation, dilutive stock issuances, among others.

Articles of Amendment

The Agreement, as amended, requires that, as soon as practicable, the Company shall call a meeting of its shareholders to consider and act upon an amendment to its amended and restated articles of incorporation to increase its authorized shares of voting common stock to 1,970,000,000 shares, $0.001 par value. This increase would be needed if Lender were to convert its $500,000 Note and shares of Preferred Stock in the Company’s voting common stock and then elects to convert its $100,000 Note and Notes related to any Subsequent Loans into shares of the Company’s voting common stock and for future corporate purposes. Shareholder action will be requested pursuant to a proxy statement filed with and cleared by the U.S. Securities and Exchange Commission (“SEC”). This report shall not be deemed to be the solicitation of or request for a proxy. Such solicitation will be made only with a related proxy statement and notice of meeting of shareholders.

On April 16, 2018 Midwest came to an agreement with the holder for repayment of the surplus notes of $550,000 and the status of the Hawaii condominiums owed by American Life. This agreement became effective upon the closing of the transaction between Xenith and Midwest on June 28, 2018 subject to the approval of the Nebraska Department of Insurance. The surplus notes will be retired in full (including the due and unpaid interest of $301,930) through the transfer of the ten condominiums in Hawaii owned by American Life. The condominiums had a book value at December 31, 2017 of $505,688 and an appraised value of $640,000.

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

The following Management’s Discussion and Analysis (“MD&A”) is intended to help the reader understand the financial condition as of March 31, 2018, compared with December 31, 2017, and the results of operations for the three months ended March 31, 2018, compared with the corresponding period in 2017 of Midwest Holding Inc. and its consolidated subsidiary. The MD&A is provided as a supplement to, and should be read in conjunction with our consolidated financial statements and the accompanying notes to the consolidated financial statements (“Notes”) presented in “Part 1 – Item 1. Financial Statements”; our Form 10-K/A for the year ended December 31, 2017 (“2017 Form 10-K/A”), including the sections entitled “Part I – Item 1A. Risk Factors,” and “Part II – Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations.”

Cautionary Note Regarding Forward-Looking Statements

Except for certain historical information contained herein, this report contains certain statements that may be considered “forward-looking statements” within the meaning of Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), and Section 27A of the Securities Act of 1933, as amended, and such statements are subject to the safe harbor created by those sections. All statements, other than statements of historical fact, are statements that could be deemed forward-looking statements, including without limitation: any projections of revenues, earnings, cash flows, capital expenditures, or other financial items; any statement of plans, strategies, and objectives of management for future operations; any statements concerning proposed acquisition plans, new services, or developments; any statements regarding future economic conditions or performance; and any statements of belief and any statement of assumptions underlying any of the foregoing. Words such as “believe,” “may,” “could,” “expects,” “hopes,” “estimates,” “projects,” “intends,” “anticipates,” and “likely,” and variations of these words, or similar expressions, terms, or phrases, are intended to identify such forward-looking statements. Forward-looking statements are inherently subject to risks, assumptions, and uncertainties, some of which cannot be predicted or quantified, which could cause future events and actual results to differ materially from those set forth in, contemplated by, or underlying the forward-looking statements. Factors that could cause or contribute to such differences include, but are not limited to, those discussed in the section entitled "Item 1A. Risk Factors," set forth in our 2017 Form 10-K/A.

All such forward-looking statements speak only as of the date of this Form 10-Q. You are cautioned not to place undue reliance on such forward-looking statements. We expressly disclaim any obligation or undertaking to release publicly any updates or revisions to any forward-looking statements contained herein to reflect any change in the our expectations with regard thereto or any change in the events, conditions, or circumstances on which any such statement is based.

Overview

We were formed on October 31, 2003 for the primary purpose of becoming a financial services company. We presently conduct our business through our sole life insurance subsidiary, American Life & Security Corp. (“American Life”). In 2009, American Life was issued a certificate of authority to conduct life insurance business in Nebraska

We have incurred losses since inception that resulted primarily from costs incurred while raising capital and establishing and operating American Life and other entities. We expect to continue to incur operating losses until American Life achieves a volume of in-force life insurance policies that provides premiums that are sufficient to cover our operating expenses.

Critical Accounting Policies and Estimates

The MD&A included in our 2017 Form 10-K/A contains a detailed discussion of our critical accounting policies and estimates. This report should be read in conjunction with the “Critical Accounting Policies and Estimates” discussed in our 2017 Form 10-K/A.

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Consolidated Results of Operations

The following discussion compares the results of the quarter ended March 31, 2018 with the quarter ended March 31, 2017. Unless the context indicates otherwise, the 2018 results are stated first followed by 2017 results.

Net Loss: The decrease in net loss was primarily due to the decline in death benefits and surrenders, interest credited, lower reserves, the amortization of deferred acquisition costs, and the decrease in other operating expenses and salaries. These decreases were offset by a decline in revenues.

Revenues are primarily generated from premium revenues and investment income. Insurance revenues are summarized in the table below.

Premium revenue: Premium revenue decreased primarily due to American Life’s coinsurance agreement with US Alliance to cede 100% the Great Plains and First Wyoming blocks of business. We had limited production of new insurance business in 2017 and expect the same during the remainder of 2018.

Investment income, net of expenses: The components of our net investment income are as follows:

The decrease in investment income was due primarily to the decrease in our bond portfolio from the sale of bonds during the third quarter of 2017 to provide cash to US Alliance for the coinsurance agreement. Policy loan interest and miscellaneous investment income is included in the “Other” line item above. The decrease in investment expenses was due to the transfer of bonds to American Life’s custodial account from the custodial accounts that were held for First Wyoming Life and Great Plains Life prior to our acquisition of those companies in January of 2017.

Net realized gains on investments: The net realized gain decreased primarily due the market conditions deteriorating in 2018 when most of our bond portfolio was in an unrealized loss position, therefore, when bonds are sold we incurred losses.

Miscellaneous income: Miscellaneous income increased due an increase in our TPA fees. We have two customers for whom we performed these services. We do not expect such services to be a significant source of future revenue. TPA fees earned during the three months ended March 31, 2018 and 2017 were $24,240 and $16,500, respectively.

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Expenses are summarized in the table below.

		Three months ended March 31,
		2018				2017
Death and other benefits		$	266,860			$	295,257
Interest credited			121,507				219,232
Increase in benefit reserves			(8,341	)			145,126
Amortization of deferred acquisition costs			94,858				158,705
Salaries and benefits			482,716				576,608
Other operating expenses			439,681				719,799
		$	1,397,281			$	2,114,727

Death and other benefits: Death benefits decreased due to a decrease in our direct paid claims. We expect death benefits to continue at current levels due to the age of a block of business we acquired several years ago. Claims experience on our current underwritten block has been minimal. We maintain policy reserves to offset the effect of all claims. Claim expenses on our acquired block of business are largely offset by a release in policy reserves. The decrease in our direct block of business was offset by an increase in our assumed claims.

Interest credited: The decrease was due to American Life’s coinsurance agreement with US Alliance to cede 100% of the Great Plains Life and First Wyoming Life’s blocks of business.

Increase in benefit reserves: The decrease in benefit reserves reflects American Life’s coinsurance agreement with US Alliance to cede 100% of the Great Plains Life and First Wyoming Life’s blocks of business. Surrenders primarily from acquired blocks of business also had a direct impact on the decrease in reserves. American Life’s overall persistency is 94% which is above industry average and better than the pricing model for the block.

Amortization of deferred acquisition costs: The decrease was due to American Life’s coinsurance agreement with US Alliance to cede 100% of the Great Plains Life and First Wyoming Life’s blocks of business.

Salaries and benefits: The decrease was due to management’s cost cutting efforts primarily through reduction of staff.

Other operating expenses: Other operating expenses decreased due to reduction in audit fees of $94,000 incurred in the first quarter of 2018 compared to 2017, the Nebraska Department of Insurance regulatory examination fees of $80,000 incurred in 2017, and a decrease in VOBA amortization of $48,000 due to American Life’s coinsurance agreement with US Alliance to cede 100% of the Great Plains Life and First Wyoming Life’s blocks of business which resulted in us writing off the VOBA associated with those businesses. The reduction in audit fees resulted from our inability to start and complete the independent audit of our financial statements for the year ended December 31, 2017.

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Investments

The Company’s overall investment philosophy is reflected in the allocation of its investments. The Company emphasizes investment grade debt securities, with smaller holdings in equity securities, real estate held for investment, and policy loans. The following table shows the carrying value of our investments by investment category and cash and cash equivalents, and the percentage of each to total invested assets as of March 31, 2018 and December 31, 2017.

		March 31, 2018						December 31, 2017
		Carrying			Percent			Carrying			Percent
		Value			of Total			Value			of Total
Fixed maturity securities:
U.S. government obligations		$	1,986,637		9.1	%		$	2,030,098		8.9	%
Mortgage-back securities			1,244,069		5.7				1,318,581		5.8
States and political subdivisions - general obligation			265,156		1.2				269,987		1.2
States and political subdivisions - special revenue			25,104		0.1				25,385		0.1
Corporate			16,827,823		77.3				17,361,856		75.7
Total fixed maturity securities			20,348,789		93.4				21,005,907		91.7
Cash and cash equivalents			505,220		2.3				951,527		4.2
Other investments:
Real estate, held for investment			502,678		2.3				505,688		2.2
Policy loans			431,755		2.0				435,196		1.9
Total		$	21,788,442		100.0	%		$	22,898,318		100.0	%

The following table shows the distribution of the credit ratings of our portfolio of fixed maturity securities by carrying value as of March 31, 2018 and December 31, 2017.

		March 31, 2018						December 31, 2017
		Carrying						Carrying
		Value			Percent			Value			Percent
AAA and U.S. Government		$	3,058,586		23.6	%		$	3,146,782		15.0	%
AA			2,930,244		7.0				2,979,616		14.2
A			5,364,022		25.3				6,797,613		32.4
BBB			8,546,646		41.9				7,573,843		36.0
Total investment grade			19,899,498		97.8				20,497,854		97.6
BB and other			449,291		2.2				508,053		2.4
Total		$	20,348,789		100.0	%		$	21,005,907		100.0	%

Reflecting the quality of securities maintained by the Company, 97.8% and 97.6% of all fixed maturity securities were investment grade as of March 31, 2018 and December 31, 2017, respectively. Due to the low interest rate environment, the Company has invested in bonds with “A” or “BBB” ratings.

Market Risks of Financial Instruments

The Company holds a portfolio of investments that primarily includes cash, bonds, stocks, and real estate, held for investment. Each of these investments is subject to market risks that can affect their return and their fair value. A majority of the investments are fixed maturity securities including debt issues of corporations, U.S. Treasury securities, or securities issued by government agencies. The primary market risks affecting the investment portfolio are interest rate risk, credit risk, and equity risk.

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Interest Rate Risk

Interest rate risk arises from the price sensitivity of investments to changes in interest rates. Interest and dividend income represent the greatest portion of an investment’s return for most fixed maturity securities in stable interest rate environments. The changes in the fair value of such investments are inversely related to changes in market interest rates. As interest rates fall, the interest and dividend streams of existing fixed-rate investments become more valuable and fair values rise. As interest rates rise, the opposite effect occurs. We attempt to mitigate our exposure to adverse interest rate movements through staggering the maturities of the fixed maturity investments and through maintaining cash and other short term investments to assure sufficient liquidity to meet its obligations and to address reinvestment risk considerations. Due to the composition of our book of insurance business, we believe it is unlikely that we would encounter large surrender activity due to an interest rate increase that would force the disposal of fixed maturities at a loss.

Credit Risk

We are exposed to credit risk through counterparties and within the investment portfolio. Credit risk relates to the uncertainty associated with an obligor’s ability to make timely payments of principal and interest in accordance with the contractual terms of an instrument or contract. We manage our credit risk through diversification of investments amongst many corporations and numerous industries. Additionally our investment policy limits the size of holding in any particular issuer.

Liquidity and Capital Resources

At March 31, 2018, the Company had cash and cash equivalents totaling $505,220. We believe that our existing cash and cash equivalents will be sufficient to fund the anticipated operating expenses and capital expenditures for at least twelve months when combined with the liquidity associated with our investment portfolio. However, most of the Company's liquid assets are held in an insurance subsidiary and under existing insurance law the subsidiary cannot make significant payments up to the parent company which is the Company. We have based the foregoing upon assumptions that may prove to be wrong and we could use our limited capital resources sooner than we currently expect.

The National Association of Insurance Commissioners (“NAIC”) has established minimum capital requirements in the form of Risk-Based Capital (“RBC”). RBC factors the type of business written by an insurance company, the quality of its assets and various other aspects of an insurance company’s business to develop a minimum level of capital called “authorized control level risk-based capital” and compares this level to adjusted statutory capital that includes capital and surplus as reported under statutory accounting principles, plus certain investment reserves. Should the ratio of adjusted statutory capital to control level RBC fall below 200%, a series of remedial actions by the affected company would be required. Our RBC at December 31, 2017 was 533.907%.

Effective September 30, 2017, American Life entered into an indemnity coinsurance transaction with US Alliance to transfer 100% of the risk related to the Great Plains Life and First Wyoming Life blocks of business. The purpose of this transaction was to provide statutory capital and surplus for American Life and has minimal effect on GAAP financials. We paid no commissions or brokerage fees for this transaction and the proceeds of the transaction were based upon valuations prepared by our third party actuary. Under the indemnity coinsurance, US Alliance assumed certain liabilities and obligations for incurred claims, surrenders and commission from the effective date. As we are not relieved of our legal liability to the policyholders; the liabilities and obligations associated with the reinsured blocks of business remain on our Consolidated Balance Sheets with a corresponding reinsurance receivable from US Alliance. We transferred $9,569,175 of GAAP net adjusted reserves as of September 30, 2017 to US Alliance for cash of $7,078,223 which was net of a ceding allowance of $1,850,000 which is treated as an increase to surplus on a statutory basis. As a result of the transaction, in addition to the reserves, American Life will cede approximately $883,000 of annual GAAP revenues and $1,758,250 of statutory revenues.

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Our surplus notes of $300,000 and $250,000 matured on August 1, 2016 and September 1, 2016, respectively. The Company reached an agreement with the holder of the notes following the closing of the transaction with Xenith and subject to approval by the Nebraska Department of Insurance, the surplus notes will be retired in full, including any accrued interest, through the transfer of the 10 condominiums in Hawaii owned by American Life. As of March 31, 2018, the book value of the condominiums was $502,678 with an appraised value of $640,000.

Since inception, our operations have been financed primarily through the sale of voting common stock and preferred stock. Our operations have generated significant operating losses since we were incorporated in 2003. We expect to continue to incur losses for at least the foreseeable future.

Aside from raising capital, which has funded the vast majority of our operations, premium income, deposits to policyholder account balances, and investment income are the primary sources of funds while withdrawals of policyholder account balances, investment purchases, policy benefits in the form of claims, and operating expenses are the primary uses of funds. To ensure we will be able to meet future commitments, the funds received as premium payments and deposits are invested in primarily fixed income securities. Funds are invested with the intent that the income from investments, plus proceeds from maturities, will in the future meet our ongoing cash flow needs. The approach of matching asset and liability durations and yields requires an appropriate mix of investments. Our investments consist primarily of marketable debt securities that could be readily converted to cash for liquidity needs. Cash flow projections and cash flow tests under various market interest scenarios are also performed annually to assist in evaluating liquidity needs and adequacy.

Net cash used by operating activities was $538,316 for March 31, 2018, which was comprised primarily of the net loss of $759,885 and the amounts recoverable from reinsurers of $220,044, partially offset by an increase in policy liabilities of $398,740. Net cash used for investing activities was $7,387. The primary source of cash was from sales of available for sale securities. Offsetting this source of cash was our purchases of investments in available-for-sale securities and the purchase of property and equipment. Net cash provided by financing activities was $99,396. The primary source of cash was net receipts on deposit-type contracts.

Management’s focus has been on raising additional capital or seeking other funding from outside investors. On May 9, 2018, the Company entered into a Loan, Convertible Preferred Stock and Convertible Senior Secured Note Purchase Agreement (the “Agreement”) with a non-affiliated third party, Xenith Holdings LLC, a Delaware limited liability company (“Xenith”).

As of June 28, 2018, Xenith had loaned Midwest $600,000 and purchased $1,500,000 of newly created Class C preferred stock. See note 11 “Subsequent Events” in the accompanying consolidated financial statements.

The terms and conditions of the Agreement were described in Midwest’s Current Report on Form 8-K filed with the Securities and Exchange Commission (“SEC”) on July 3, 2018. All conditions to consummation of the Agreement, including approval of the transactions contemplated therein by the State of Nebraska Department of Insurance, were subsequently met and a closing was held pursuant to the Agreement on June 28, 2018. For additional details, see the Company’s Current Report on Form 8-K filed with the Securities and Exchange Commission on July 3, 2018.

Impact of Inflation

Insurance premiums are established before the amount of losses and loss adjustment expenses, or the extent to which inflation may affect such losses and expenses, are known. We attempt, in establishing premiums, to anticipate the potential impact of inflation. If, for competitive reasons, premiums cannot be increased to anticipate inflation, this cost would be absorbed by us. Inflation also affects the rate of investment return on the investment portfolio with a corresponding effect on investment income.

Off-Balance Sheet Arrangements

We have no off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources that is material to investors.

Contractual Obligations

As a “smaller reporting company” the Company is not required to provide the table of contractual obligations required pursuant to this Item.

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.

As a “smaller reporting company,” the Company is not required to provide disclosure pursuant to this Item.

ITEM 4. CONTROLS AND PROCEDURES.

We have established disclosure controls and procedures to ensure, among other things, material information relating to our Company, including our consolidated subsidiary, is made known to our officers who certify our financial reports and to the other members of our senior management and the Board of Directors.

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Management, (with the participation of our principal executive officer/principal financial officer), carried out an evaluation of the effectiveness of the design and operation of our disclosure controls and procedures, as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”) as of March 31, 2018. Based on this evaluation, our principal executive officer/principal financial officer concluded that, as of the end of December 31, 2017 covered in the Form 10-K/A report, our disclosure controls and procedures along with the related internal controls over financial reporting were not effective to provide reasonable assurance that the information required to be disclosed by us in reports that we file or submit under the Exchange Act is recorded, processed, summarized, and reported within the time periods specified in Securities and Exchange Commission rules and forms, and is accumulated and communicated to our management, including our principal executive officer/principal financial officer to allow timely decisions regarding required disclosure.

Material Weakness Previously Identified

A material weakness is 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. The material weakness in Internal Control over Financial Reporting resulted from the Company not being able to obtain and assimilate all information required to complete the required independent audit of our financial statements for the fiscal year ended December 31, 2017 by the filing deadline of April 1, 2018 and the reviews by our auditors of the quarters ended March 31, 2018 and June 30, 2018.

Remediation

Management has developed certain remediation steps to address the material weakness and to improve our internal control over financial reporting, including a process to meet with our auditing firm on an earlier timely schedule, obtaining an enterprise risk management program, and engaging an auditing advisor. Our management and our Board of Directors take the control and integrity of our financial statements seriously and believe that the remediation to ensure that all financial information has been obtained on a timely basis is essential to maintaining an effective internal control environment. We intend to commit such additional resources as necessary to mitigate the material weakness such that we can make timely and materially accurate quarterly and annual SEC filings.

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PART II – OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS.

We are involved in litigation incidental to our operations from time to time. We are not presently a party to any legal proceedings other than litigation arising in the ordinary course of our business, and we are not aware of any claims that could materially affect our financial position or results of operations.

ITEM 1A. RISK FACTORS.

There have been no material changes from the risk factors described in the Company’s Annual Report on Form 10-K/A for the year ended December 31, 2017 in response to Item 1A of Part I of such Form 10-K/A.

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

Not applicable.

ITEM 3. DEFAULTS UPON SENIOR SECURITIES.

None.

ITEM 4. MINE SAFETY DISCLOSURES.

Not applicable.

ITEM 5. OTHER INFORMATION.

None.

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ITEM 6. EXHIBITS.

EXHIBIT
NUMBER		DESCRIPTION
31.1*		Certification of Principal Executive Officer and Principal Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
32*		Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
101.INS **		XBRL Instance Document.
101.SCH **		XBRL Taxonomy Extension Schema Document.
101.CAL **		XBRL Taxonomy Extension Calculation Linkbase Document.
101.LAB **		XBRL Taxonomy Extension Label Linkbase Document.
101.PRE **		XBRL Taxonomy Extension Presentation Linkbase Document.
101.DEF **		XBRL Taxonomy Extension Definition Linkbase Document.

* Filed herewith.

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SIGNATURES

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

Dated: September 28, 2018

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