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

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 nine months ended September 30, 2018 that suggest a review should be undertaken.

Property and equipment: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 $12,524$9,814 and $16,740$12,676 for the three months ended SeptemberJune 30, 20182019 and 2017,2018, respectively. Depreciation expense totaled $37,758$19,320 and $50,387$25,234 for the ninesix months ended SeptemberJune 30, 20182019 and 2017,2018, respectively. Accumulated depreciation net of disposals totaled $931,772$954,800 and $894,014$943,323 as of SeptemberJune 30, 20182019 and December 31, 2017,2018, respectively.

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

Long-lived assets are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. An impairment loss is recognized if the carrying amount of an asset may not be recoverable and exceeds estimated future undiscounted cash flows of the asset. A recognized impairment loss reduces the carrying amount of the asset to its fair value. Management has determined that no such events occurred in the ninethree months ended SeptemberJune 30, 20182019 that would indicate the carrying amounts may not be recoverable.

Reinsurance: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 SeptemberJune 30, 20182019 or December 31, 2017.2018.

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

Benefit reserves: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: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:contracts

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

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

Notes payable:Notes payable consist of amounts loaned to the Company on June 28, 2018 as part of the closing of the transaction between Xenith and the Company. The loans were made under two notes of $500,000 and $100,000, respectively. The notes are convertible, at Xenith’s election, into approximately 24,300,000 and 4,900,000, respectively, shares of Midwest’s voting common stock which equates to approximately $0.02 per share (see Note 2).

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 2010.2015. The Company is not currently under examination for any open years. The provision for income taxes is based on income as reported in the financial statements. The income tax provision is calculated under the asset and liability method. Deferred tax assets are recorded based on the differences between the financial statement and tax basis of assets and liabilities at the enacted tax rates. The principal assets and liabilities giving rise to such differences are investments, insurance reserves, and deferred acquisition costs. A deferred tax asset valuation allowance is established when there is uncertainty that such assets would be realized. The Company has no uncertain tax positions that it believes are more-likely-than not that the benefit will not to be realized. When applicable, the Company recognizes interest accrued related to unrecognized tax benefits and penalties in income tax expense. The Company had no accruals for payments of interest and penalties at SeptemberJune 30, 20182019 or December 31, 2017.2018.

Revenue recognition and related expenses:expensesRevenues 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. Traditionalexpected life insurance products are treated as long duration contracts, which generally remain in force for the lifetime of the insured.annuity contracts.

Comprehensive loss: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.sale, net of applicable taxes.

Common and preferred stock and earnings (loss) per share

Common and preferred stock and earnings (loss) per share:The par value per commoneach Company share is $0.001 with 120,000,0001,970,000,000 voting common shares authorized, 20,000,000 non-voting common shares authorized, and 10,000,000 preferred shares authorized. On June 18, 2019, Xenith exercised the right to convert its 1,500,000 Series C preferred stock and the $19,100,000 notes payable to voting common stock at the conversion rate of approximately $.02 per common share. At SeptemberJune 30, 20182019 and December 31, 2017,2018, the Company had 1,023,408,553 and 22,873,764 voting common shares issued and outstanding, respectively. At June 30, 2019 and December 31, 2018, the Company had none and 1,500,000 Series C preferred shares outstanding shares, respectively.

The Class ASeries C preferred shares were non-cumulative, non-voting and convertibleconverted by the holderXenith to voting common shares after May, 2015,on June 18, 2019 at a rate of 1.476 common sharesapproximately $0.02 per share 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 109,47072,854,474 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 BSeries C preferred shares was 7%8%. Dividends totaling $30,544 were paid asAt the time of September 30, 2017. On September 15, 2017, the 102,669 outstanding Class B preferred shares were converted byconversion, the Company into 205,338 voting common shares.holder forgave all previously accrued dividends from June 28, 2018 through the conversion date.

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

Each Class C preferred share is convertible by the holder at any time after the original Series C issue date into approximately 48.57 shares of fully paid and non-assessable voting common shares. The Class C preferred shares vote along with common shares on an as-converted basis. The par valueLoss per preferred share is $0.001 with 1,500,000 shares authorized and outstanding as of September 30, 2018. Each preferred share has a liquidation preference of $1.00 per share. The stated annual dividend rate on the Class C preferred shares is 8% which began accruing on June 28, 2018. See Note 2 Change in Control, for further information.

Loss perbasic share attributable to the Company’s common stockholders was computed based on the weighted average number of shares outstanding during each period. The weighted average number of shares outstanding during the three months ended SeptemberJune 30, 2019 and 2018 was 220,781,744 and 2017 were 22,873,716 and 22,764,29422,860,701 shares, respectively. The weighted average number of shares outstanding during the ninesix months ended SeptemberJune 30, 2019 and 2018 were 122,374,461 and 22,860,701 shares, respectively.

Loss per diluted share attributable to the Company’s common stockholders was computed based on the average shares outstanding and the notes payable and Preferred Shares as converted during each period of 2018. The weighted average number of shares outstanding during the three and six months ended June 30, 2018 were 1,023,395,490 and 2017 were 22,873,764 and 22,763,160525,892,004 shares, respectively.

Reclassifications

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

Note 2. New accounting standards:Accounting Standards

Adoption of New Accounting Standards

In August 2018,February 2016, the FASBFinancial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2018-12,Financial Services-Insurance(2016-02, Leases (Topic 842). The guidance in this ASU supersedes the leasing guidance in Topic 944). This update 1) improves840, Leases. Under the timelinessnew 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 recognizing changesexpense recognition in the income statement. The lease liability for future policy benefitsis measured at the present value of the lease payments over the lease term with the right-of-use asset measured as the lease liability amount and modifies the rate used to discount future cash flows, 2) simplifies and improves the accountingincluding adjustments for certain market-based options or guarantees associated with deposit contracts, 3) simplifies the amortizationlease incentives and initial direct costs. Lease expense recognition will continue to differentiate between finance leases and operating leases resulting in a similar pattern of deferred acquisition costs, and 4) improves the effectiveness of the required disclosures.lease expense recognition as under current GAAP. This ASU becomes effectivepermitted a modified retrospective adoption approach that includes a number of optional practical expedients that entities may elect upon adoption.

On January 1, 2019, the Company adopted this standard using a modified retrospective adoption approach. The adoption resulted in the Company identifying three operating leases and one financial lease which were subject to this guidance. The impact to the Consolidated Statements of Comprehensive Income (Loss) was minimal. We identified four leases with net assets of $539,837 and $606,629 and lease liabilities of $591,174 and $655,818 for fiscal years,the six months ended June 30, 2019 and interim periods within those years, beginning afterthe year ended December 15, 2020. We are currently evaluating the impact of this pending new standard on our consolidated financial statements.31, 2018, respectively.

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

In May 2014, the FASB issued ASU No. 2014-09,Revenue from Contracts with Customers(“ASU 2014-09”), which outlines a single comprehensive model for entities to use in accounting for revenue arising from contracts with customers. The core principle of ASU 2014-09 is that an entity recognizes revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. In August 2015, the FASB issued ASU 2015-14, Revenue from Contracts with Customers (Topic 606): Deferral of the Effective Date (“ASU 2015-14”). This amendment deferred the effective date of the previously issued ASU 2014-09 until the interim and annual reporting periods beginning after December 15, 2017. In addition, the FASB has issued four related ASU’s on principal versus agent guidance (ASU 2016-08), identifying performance obligations and the licensing implementation guidance (ASU 2016-10) a revision of certain SEC Staff Observer comments (ASU 2016-11) and implementation guidance (ASU 2016-12). The guidance permits two methods of transition upon adoption; full retrospective and modified retrospective. The Company adopted ASU 2014-09 on January 1, 2018 and utilized the modified retrospective method. Insurance contracts, lease contracts and investments are not within the scope of ASU 2014-09; therefore, this standard does not apply to the majority of our consolidated revenues. For the Company's miscellaneous income,which is within the scope of this guidance,the Company reviewed its service fee income revenue streams and compared its historical accounting policies and practices to the new adopted standard. The Company believes its historical revenue recognition was materially consistent with the way we recognized service fee income as of June 2016, the30, 2019.

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

Future adoption of New Accounting Standards Board (“FASB”)

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

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

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

In January 2017, the FASB issued ASU 2017-01,Business Combinations (Topic 805):Clarifying the Definition of a Business, which assists in determining whether a transaction should be accounted for as an acquisition or disposal of assets or as a business. This ASU is effective for annual and interim periods beginning in 2018 and is required to be adopted using a prospective approach, with early adoption permitted for transactions not previously reported in issued financial statements. The Company adopted this ASU on January 1, 2017. The adoption of this ASU did not have a material impact on the Company’s consolidated financial statements, however, the Company will apply the provisions of ASU 2017-01 to future acquisitions.

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 we recognized service fee income as of September 30, 2018.

Note 2.3. Change in Control

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

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

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

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

At Closing,closing of the Agreement, Xenith loaned a total of $600,000 to Midwest, repayable upon maturity in 10 years with cash interest of 4% per annum payable quarterly and accrued interest of another 4% per annum payable upon maturity. The loans were made under two notes of $500,000 and $100,000, respectively. The first $500,000 note is convertible, at Xenith’s election,Both notes were converted by Xenith into approximately 24,300,000 shares of Midwest’s voting common stock (“Common Stock”) which equates to approximately $0.02 per share. The remaining $100,000 note will also be convertible at the same rate if Midwest has adequate authorized Common Stock available which will require an amendment to its Articles of Incorporation under a proxy statement that was filed with the SEC.

The notes are secured under a Security Agreement which is collateralized by all of the issued and outstanding shares of Midwest’s wholly owned insurance subsidiary, American Life. Xenith has the right to foreclose on the collateral if Midwest commits an event of default under the notes. Defaults include Midwest’s failure to pay interest or principal on the notes when due, failure to observe any material provision of the Agreement, misrepresentations under the Agreement or bankruptcy or insolvency proceedings involving Midwest.

Also at the Closing, Midwest sold 1,500,000 shares of newly created Class C Preferred Stock to Xenith for $1,500,000. The Class C Preferred Stock is convertible, at Xenith’s election, into approximately 72,900,000 shares of Midwest’s Common Stock at $0.02 per share. The Company is proposing to increase its authorizedaggregate 29,141,790 voting common shares to 1,970,000,000.on June 18, 2019.

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

To summarize the above for purposes of illustration assuming the Notes and shares of Preferred Stock are converted in the Company’s voting common stock:

The Agreement further providesprovided that Xenith, in its sole discretion, maycould loan up to an additional $22,900,000$23,500,000 to Midwest. Any loans made by Xenith under this election (“Subsequent Loans”) willcould also to be convertibleconverted into Midwest’s Common Stockvoting common stock at the rateprice of $0.02 per share. Xenith is not obligated to make any or allloaned an additional $18,500,000 in the fourth quarter of these proposed future loans.

The conversion2018 following the amendment of Subsequent Loans assumes that Midwest’sthe Midwest Articles of Incorporation are appropriately amended. This amendment will require approval of Midwest’s shareholders as indicated above.

To summarize theto increase its authorized voting common shares to 1,970,000,000. The additional subsequent loans for purposes of illustration assuming the Notes andnotes were converted, at Xenith’s election, into 898,538,525 shares of Preferred Stock are converted into the Company’s voting common stock:

The Loanstock on June 18, 2019. All interest on the notes through June 18, 2019 was waived for payment and was accounted for as a capital contribution to Midwest.

Substantially all the proceeds from the Loans and Series C Preferred Stock proceeds were contributed to Midwest’sour insurance subsidiary, American Life, to be held by it and used for general business purposes (exceptpurposes.

To summarize of the conversion of the Notes and shares of Series C Preferred Stock into voting common stock and the outstanding voting common stock as of June 30, 2019:

Note 4. Assets and Liabilities Held for upSale

On November 30, 2018, American Life entered into an Assumption and Indemnity Reinsurance Agreement (“Reinsurance Agreement”) with Unified Life Insurance Company (“Unified”), a Texas domiciled stock insurance company. The Reinsurance Agreement provides that American Life ceded and Unified agreed to $100,000 which may be used by Midwest to cover a portionreinsure, on an indemnity reinsurance basis, 100% of its expenses in entering intothe liabilities and complying with its obligations under the Agreement). Xenith is not obligated to make any orsubstantially all of these proposed future loans.

TermsAmerican Life’s life, annuity and health policies (“Policies”). The Agreement closed on December 10, 2018, as previously disclosed in Midwest’s Current Report on Form 8-K filed with the Securities and Exchange Commission (the “SEC”) on December 12, 2018. The effective date of Class C Preferred Stockthe Agreement was July 1, 2018.

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

Articles of Amendment

The Agreement, as amended, requires that the Company’s shareholders 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 the 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.

On June 28, 2018, uponAfter the closing of the transaction with Xenith Holdings LLC mentioned above,Reinsurance Agreement, Unified began the process of preparing and delivering certificates of assumption and other materials to policyholders of American Life Midwest’s principal operating subsidiary enteredin order to effect an assumption of the Policies by Unified such that all of American Life’s rights and obligations under the policies arising on and after July 1, 2018 would be completely assumed by Unified without further indemnification or other obligations, except for liabilities, claims and obligations incurred before July 1, 2018. Unified is obligated to indemnify American Life against all liabilities and claims and all of its policy obligations from and after the July 1, 2018.

The consideration paid by Unified to American Life under the Reinsurance Agreement upon closing was $3,500,000 (“Ceding Commission”), subject to minor settlement adjustments. At closing, American Life transferred the Statutory Reserves and Liabilities, as defined in the Reinsurance Agreement, directly related to the policies, to Unified.

The Ceding Commission is being amortized on a straight-line basis over the life of the policies. When the policies are converted to assumptive, meaning American Life has no liability exposure for those policies, the remaining Ceding Commission will be recognized in our income statement.

As of June 30, 2019, 59% of the indemnity policies were converted to assumptive policies thereby releasing American Life from its legal obligations related to those policies.

Our balance sheet was required to be restated for all periods shown with the assets and liabilities which were ceded by American Life to Unified into employment agreements with two officersseparate line items as assets and liabilities held for sale. The table below summarizes the assets and liabilities that are included in discontinued operations as of Xenith.June 30, 2019 and as of December 31, 2018: