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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-K

(Mark One)

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

For the fiscal year ended December 31, 2011

or

o         TRANSITION REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from        to         .

COMMISSION FILE NUMBER 000-10685

Midwest Holding Inc.

(Exact name of registrant as specified in its charter)

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

Securities registered pursuant to Section 12(b) of the Act: None

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

Voting Common Stock, $0.001 par value

(Title of class)

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes o No x

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes o No x

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 o No x

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 x No o

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K  ( § 229.405 of this chapter) is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. o

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

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

The aggregate market value of the voting and non-voting common equity held by non-affiliates of the registrant on the last business day of the most recently completed second quarter is not determinable, as there is no public market for such shares.

As of March 21, 2012, there were 8,670,146 shares of Voting Common Stock, par value $0.001 per share, issued and outstanding.

DOCUMENTS INCORPORATED BY REFERENCE

Portions of the registrant’s definitive Proxy Statement to be filed for its 2012 Annual Meeting of Shareholders, scheduled to be held June 12, 2012, are incorporated by reference into Part III of this Form 10-K.

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MIDWEST HOLDING INC.

FORM 10

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PART I.

ITEM 1.  BUSINESS.

Special Note Regarding Forward-Looking Statements

Certain statements in this Form 10-K constitute forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. These statements are based on management’s expectations, estimates, projections and assumptions. In some cases, you can identify forward-looking statements by terminology including “could,” “may,” “will,” “should,” “expect,” “plan,” “anticipate,” “believe,” “estimate,” “predict,” “potential,” “intend,” or “continue,” the negative of these terms, or other comparable terminology used in connection with any discussion of future operating results or financial performance. These statements are only predictions, and reflect our management’s present expectation of future events and are subject to a number of important factors and uncertainties that could cause actual results to differ materially from those described in the forward-looking statements.

General Information

Midwest Holding Inc. (we, us, our, Midwest, the Company or the Registrant) was formed on October 31, 2003 for the primary purpose of becoming a financial services holding company. We presently conduct our business through our wholly owned subsidiary, American Life & Security Corp. (American Life). Capital Reserve Life Insurance Company of Jefferson City, Missouri (Capital Reserve) is a dormant, wholly owned subsidiary of American Life. Security Capital Corporation is a 60% owned subsidiary of Midwest. Hot Dot, Inc. is a 37% owned subsidiary of Midwest and Midwest controls a majority of the Board of Directors.  Midwest and Hot Dot are Nebraska corporations, American Life is an Arizona corporation, Capital Reserve is a Missouri corporation, and Security Capital is an Arkansas corporation. The principal executive offices for the companies are at 8101 “O” Street, Suite S111, Lincoln, Nebraska 68510. The phone number for the companies is (402) 489-8266.

Development of the Business

From our inception through July 2006, we raised approximately $6.5 million through the sale of shares of voting common stock in several private placements. We raised approximately $11.0 million through an intrastate public offering of voting common stock in the State of Nebraska. Each of these sales of stock was intended to provide capital for our financial services operations.

The Company was a development stage company until American Life commenced its insurance operations in 2009. We have incurred significant net losses since inception totaling approximately $10.5 million through December 31, 2011. These losses have resulted primarily from costs incurred while raising capital and establishing American Life. We expect to continue to incur operating losses until we achieve a volume of in-force life insurance policies that provides premiums that are sufficient to cover our operating expenses.

On September 1, 2009, American Life was issued a certificate of authority to conduct life insurance business in the State of Nebraska. Initial capital and surplus contributed to American Life was approximately $3.5 million, which was increased to approximately $5.5 million on September 1, 2009. In its first four months of operation, between September 1, 2009 and December 31, 2009, American Life generated $354,352 in premium revenue. For the years ended December 31, 2011 and 2010, American Life generated $2.5 million and $1.9 million in premium revenue, respectively.

On June 20, 2010, American Life acquired Capital Reserve in exchange for a cash payment of approximately $1.9 million. This transaction added approximately a like amount of assets to American Life. Further, with the insurance charters acquired from Capital Reserve, we obtained access to additional markets in Missouri, Kansas and Iowa.

In connection with the acquisition of Capital Reserve, American Life also coinsured a block of life insurance business from Capital Reserve’s parent corporation in a separate transaction. The purchase price for this block of business was approximately $375,000. This transaction added more than $70,000 in annual revenues to American Life’s operations, as well as approximately $3.5 million of new assets to our balance sheet, while American Life assumed approximately $3.65 million in policy reserves on the block of business.

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In July 2010, we commenced the private sale of 74,159 shares of our Series A Preferred Stock to certain qualified investors in Latin America. This offering was completed in January 2011. The net proceeds of this sale, after expenses, were approximately $415,750. These proceeds were used to further capitalize our insurance operations, for working capital and for other general corporate purposes.

On July 12, 2010, in order to provide additional capital to support our continued growth, we commenced an offering of up to 2,000,000 additional shares of voting common stock to existing shareholders who were residents of the State of Nebraska. This offering was completed on February 28, 2011, and a total of 1,554,326 additional shares of voting common stock were sold. The gross proceeds of this sale, after expenses, were approximately $7.7 million. These proceeds were used to fund the acquisition of Old Reliance Insurance Company (Old Reliance) as described below, and will be used to further capitalize our insurance operations, for working capital and for other general corporate purposes.

On November 8, 2010, the Company entered into an agreement to acquire all of the issued and outstanding capital stock of Old Reliance, an Arizona-domiciled life insurance company. The plan provided for American Life to merge into Old Reliance following the purchase, with the survivor changing its name to American Life & Security Corp. and domiciled in Arizona. In the transaction, the sole shareholder of Old Reliance received: (i) approximately $1.6 million in cash, (ii) $500,000 in the form of a surplus debenture issued by American Life, and (iii) 150,000 shares of voting common stock of the Company ($750,000 fair value). On November 8, 2010, prior to signing the stock purchase agreement with American Life, Old Reliance had assets of approximately $19 million and for the period from January 1, 2010 through November 8, 2010, income of approximately $1.4 million, and expenses of approximately $1.7 million. The transaction, including the merger, was consummated on August 3, 2011.

During the 3rd quarter of 2011, control was attained on a previous noncontrolling interest in Security Capital Corporation. The previously held interest was remeasured at fair value and a gain of $182,200 was recognized. The acquisition of Security Capital added cash and cash equivalents of $21,471 and investments in equity securities of $434,000 to the consolidated balance sheets.

In August 2011, the Company acquired a controlling interest ownership of Hot Dot, Inc., a company organized to develop, manufacture, and market the Alert Patch.  During the third quarter of 2011, Hot Dot purchased certain assets of IonX Capital Holding, Inc. The consideration paid by the Company was $1.05 million in cash. The purchase price was primarily allocated to a patent asset for a thermochromatic patch for monitoring and detecting body temperature.  Hot Dot had no operating revenues and operating expenses of $115,147 for the year ended December 31, 2011.  Hot Dot is a development stage company that has not conducted operations apart from raising capital.

American Life

General

Our insurance Company, as it exists today, is the product of the August 2011 merger of Old Reliance and American Life.  Organized in 1960, Old Reliance primarily focused on the sale of final expense or burial products which typically are small face amount policies with limited underwriting.  American Life historically did not offer similar products and instead focused on the sale of its American Accumulator product (a multi-benefit life insurance policy) and its Future Cornhusker Plan (a single premium term life product for children), as described below.  The final expense and burial products have been offered by Old Reliance through a small network of independent agents in the Southwest United States.  Sales over the past five years have been nominal as the Company lacked the capital and surplus to support broad sales of the products.  Following the acquisition by American Life and merger, these final expense and burial products were withdrawn due to concerns regarding persistency and potential claims.

Management does not expect the historical block of Old Reliance business to be unprofitable due to the profitability built into the products.  New ordinary life products are being developed that will incorporate more underwriting to serve as replacements to the final expense and burial products previously offered by Old Reliance.  It is expected that these products will be similar to those that have been offered in the past by American Life.

On November 8, 2010, prior to signing the stock purchase agreement with American Life, Old Reliance had assets of approximately $19 million and for the period from January 1, 2010 through November 8, 2010, income of approximately $1.4 million, and expenses of approximately $1.7 million.

American Life underwrites and markets life insurance products within the State of Nebraska. After completing the merger with Old Reliance, we are licensed in fourteen states. Because American Life is domiciled in Arizona following the merger, it is required to comply with the insurance laws of that state.  Management is evaluating the pros and cons of

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domesticating American Life in Nebraska; however no decision has been made as of the current date.  Old Reliance had eliminated marketing in several states prior to the acquisition. Management’s assessment of Old Reliance’s activities was that the business lacked adequate profit. As such, an on-going review is underway to evaluate market potential and appropriate products; such decision is expected in the first half of 2012. With the acquisition of Capital Reserve, we also obtained access to additional markets in Missouri, Kansas and Iowa, although our sales efforts remain focused on Nebraska at the present time. Over time, we may apply with other state insurance departments in order to obtain certificates of authority to market life insurance products in those states.

Additionally, we intend to explore the international market for U.S. dollar denominated ordinary life policies.

Some of the agents who were engaged by us to sell shares of voting common stock in the 2007-09 intrastate public offering were cross-trained by American Life to act as agents for its insurance business. The recruiting, training and hiring of captive agents (agents who sell only American Life’s products) will be a continuous process for American Life.

Type of Policies

American Life sells two insurance products, the “American Accumulator”, which is a multi-benefit life insurance policy that combines cash value life insurance with a tax deferred annuity, and the “Future Cornhusker Plan”, which is a single premium term life product offered for children aged three months to 15 years.  The Future Cornhusker is available in annual premium amounts of $125 or $250 and carries an initial face amount of $5,000 or $10,000.  The American Accumulator is sold in annual premium units of $2,000.  The average annual premium is approximately $2,000 with an average face amount of $64,000.  Premiums may be higher based upon the age and health of the insured.

It is anticipated that, over time, American Life will market other traditional life insurance products such as limited pay whole life, term and decreasing term life and single and flexible premium annuities. The potential profitability of any product, including the cost involved to market and administer it, will be a significant factor in the decision to offer that product.  Currently, the Company’s consulting actuary is working with management to design these products.  Management expects to introduce a limited pay whole life and term product during the summer of 2012.

Product Pricing

None of the insurance products to be marketed by American Life, other than the two initial products described above, have been developed or filed with the Arizona Department of Insurance and the Nebraska Department of Insurance for approval. These products will be developed with a pricing structure designed to accomplish the following primary objectives:

·                  Provide a competitively priced product to the insurance consumer;

·                  Provide sufficient gross margins to allow the insurance subsidiary to achieve operating profits comparable to the life insurance industry as a whole; and

·                  Provide sufficient first year and renewal commission structures necessary to attract and retain career-oriented insurance agents.

All products will be developed by using the services of an independent qualified consulting actuary, Miller and Newberg of Kansas City, Missouri.  In addition to product development, Miller and Newberg serves as American Life’s Valuation Actuary.  The total fees paid to Miller and Newberg in 2011 were $39,199.

Underwriting Standards

Underwriting guidelines will have a direct impact on American Life’s operating results. If the underwriting standards that are established are not adequate, desired operating results will not be realized. Generally, when underwriting standards are less restrictive, more mortality claims will result and vice versa. Underwriting standards have a direct impact on the pricing structure of a product. The less restrictive the underwriting standards, the higher the product needs to be priced in order to allow for a higher incident of mortality. This higher incident of mortality is also reflected in greater policy reserves being established.

American Life has established underwriting guidelines consistent with its product’s pricing structure. The Company utilizes information from the application and, in some cases, telephone interviews with applicants, inspection reports, doctors’ statements and/or medical examinations to determine whether a policy should be issued in accordance with the application, with a different rating, with a rider, with reduced coverage or rejected.  In addition to an applicant’s medical history, the Company also considers other factors such as financial profile, foreign travel, vocations and alcohol, drug and tobacco use.  Requests for coverage are reviewed on their merits and generally a policy is not issued unless the particular risk

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has been examined and approved by our underwriters.  American Life’s consulting actuary assists the insurance subsidiaries in establishing its underwriting standards.

Marketing

New agents are recruited through referrals from shareholders, newspaper advertisements, and solicitation through the use of on-line job sites.  Each potential candidate must go through a three interview process.  If hired to sell insurance, the candidate must complete a 40 hour training course conducted by a third party as well as pass the state examination.  Once licensed, they must complete a week long product and sales training class.  Following course completion, they will have a training week where their manager will work side by side making sales calls with them.  The average turnover rate of our agents is approximately 15% per year.

The products developed by American Life have been marketed initially by those agents cross-trained to market insurance products after selling shares of stock in our intrastate public offering. When agents were recruited to sell stock in connection with our earlier intrastate public offering, they were required to complete a similar company training program and compliance course.  They also were required to be licensed by the Nebraska Department of Banking & Finance, Securities Bureau, under applicable securities laws and were required to spend time in the field with their managers prior to engaging in any sales activity on their own.  During the period in which our intrastate offering was on-going, the average turnover rate of our agents was approximately 10% per year.

Additionally, the recruiting, hiring and training process is continuous for American Life going forward. These captive agents will market only the life insurance subsidiary’s products.  The American Accumulator pays a first year commission to our marketing agents ranging from 42% to a high of 72% and renewal commissions totaling 15%.  The Future Cornhusker pays a first year commission to our marketing agents of 20% and no renewal commission.

The insurance products are marketed using the same face-to-face marketing concept that was used by us to sell shares of stock in our intrastate public offering that utilized in person sales meetings with prospective shareholders. When the intrastate offering was being conducted, the shares were only offered to individuals who had been referred by another shareholder.  There was no cold calling or other similar activity.  The sale of stock was not allowed to be conducted in any area where insurance sales were ongoing. Our insurance agents have used our shareholder base and their referrals as potential clients for our life insurance products.

American Life also intends to pursue the U.S. Dollar-denominated life insurance market in Latin America. The products that will be offered are ordinary whole life that are designed specifically for that market.

If, and when, American Life enters the interest-sensitive and universal life markets, it would not use its captive agents to market such products. Generally, these are sophisticated products which require a unique ability to market. Accordingly, if American Life chooses to enter this market, it would develop an independent agent distribution system using independent marketing agencies that have the experience and ability to market these products. However, American Life would not enter this market segment unless it could do so profitably.

Operating Results

There are certain factors unique to the life insurance business, which may have an adverse effect on the operating results of American Life. One such factor is that the cost of putting a new policy in force is usually greater than the first year’s policy premium, and, accordingly, in the early years of a new life insurance company, these initial costs and the required provisions for reserves often have an adverse effect on operating results. American Life, as is common among new or inactive life insurance companies, probably will continue to operate at a loss for a number of years because of the substantial costs of writing new life insurance. The aggregate cost of writing new life insurance includes such significant, nonrecurring items as first year commissions, medical and investigation expenses, and other expenses incidental to the issuance of new policies, together with the initial reserves required to be established. For the American Accumulator product, the costs to cover expenses and the policyholder liability that must be set up at policy issuance exceed the first year premium by approximately 39%, while there is no excess of costs to cover expenses and the policyholder liability for the Future Cornhusker product.  Accordingly, it is generally recognized that the cost of putting a new policy in force is substantially greater than the first year premium. As a result, a new life insurance company can be expected to sustain losses for a number of years, during which time earnings are not available for dividends. However, in accordance with accounting principles generally accepted in the United States of America (GAAP), incremental direct costs 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, are capitalized and amortized over the life of the premiums produced.

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Additionally, the Company has a large portion of its business as first year business.  Therefore, the overhead of the Company is not yet supported by renewal business and premium growth.

Our operating results are reported in accordance with accounting principles generally accepted in the United States of America (GAAP) for stock life companies; although the Company’s life insurance subsidiaries will also prepare financial statements in accordance with accounting practices prescribed or permitted by their respective states of domicile (statutory basis of accounting) for the purpose of reporting to insurance regulatory authorities. Under the GAAP method of reporting, certain costs, which are expensed immediately under the statutory basis of accounting, will be charged to operations over the period in which premiums are earned, thereby reducing the adverse effect of these costs on operating results. In addition, under the GAAP method of reporting, assumptions used in calculating reserves are less conservative than those used under the statutory basis, thereby further reducing adverse effects on operating results.

Administration

The policies written or acquired by American Life have historically been administered through a contract with a third-party administrator (TPA). The TPA is a company that is not related to American Life which is in the business of performing policy administration. Such administration was performed through a TPA until January 31, 2012. Policy administration includes the issuance of policies, billing, preparation of commission and production statements, posting of premium payments and servicing of policyholders. Following the acquisition of Old Reliance, which owned a policy administration and accounting system, management gave notice of cancellation to American Life’s TPA and brought all administration in house on February 1, 2012.

Investments

American Life and Capital Reserve have adopted investment policies in compliance with the insurance laws of the State of Arizona and Missouri, respectively. The type and amount of investments which can be made by a life insurance company are specifically controlled by applicable state statutes and rules and regulations of the respective state departments of insurance.

It is critical that an insurer invest its assets wisely and conservatively as investment income ultimately (as a new company grows, investment income will increase as a percent of total income due to investment of policy reserves) will be a significant component of total revenue. Accordingly, American Life has developed a conservative investment policy in an effort to minimize its investment risk. An independent professional investment advisor who specializes in the insurance industry assists American Life with its investments.

Reinsurance

American Life and Capital Reserve reinsure with other companies (reinsurers) portions of the life insurance risks they underwrite and occasionally will reinsure portions of life insurance risks underwritten by other (ceding) companies.  The primary purpose of reinsurance is to allow a company to reduce the amount of its risk on any particular policy. The effect of reinsurance is to transfer a portion of the risk to the reinsurers. However, American Life and Capital Reserve remain contingently liable for the risk in the event the reinsurers are not able to meet their obligations under the reinsurance agreements. Further, when life insurance risks are ceded to another insurer, the ceding company must pay a reinsurance premium to the reinsurance company as consideration for the risk being transferred. The payment of this reinsurance premium to the reinsurer represents a reduction of the premium income received by American Life or Capital Reserve. This reduction in premium income has a direct impact on the profitability of the ceding company (American Life and Capital Reserve).

The average face amount of our life insurance policies in force is $64,000.  With respect to such policies, the Company retains $40,000 of risk on any one life.  As of December 31, 2011, approximately 62% of the gross outstanding life insurance policies in force are reinsured with third parties.  The Company cedes approximately $8.57, or .857%, of premium per year for each $1,000 of life insurance in force. All accidental death benefits are reinsured.

Reserves

American Life and Capital Reserve establish as liabilities actuarially computed reserves to meet the obligations on the policies they write, in accordance with the insurance laws and the regulations of the Arizona and Missouri Departments of Insurance, respectively, for statutory accounting and GAAP for financial reporting to shareholders. These reserves are the amounts which, with additions from premiums to be received and with interest on related investments, compounded annually at certain assumed rates, in the future are sufficient according to accepted actuarial principles to meet policy obligations as they mature. The various actuarial factors are determined from mortality tables and interest rates in effect when the policies are issued and are applied against policy in force amounts.

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Competition

The life insurance industry is fiercely competitive. Many of the life insurance companies authorized to do business in states that we conduct business in are well-established companies with fine reputations, offering a broader line of insurance policies, having larger selling organizations, and possessing greater financial resources than American Life. American Life is not rated by industry analysts at the present time and likely will not be rated for a period of three to five years. This will have a negative impact on American Life’s ability to compete with rated insurance companies. There is also considerable competition among insurance companies in obtaining qualified sales agents, which might require the Company to pay higher commissions to attract such agents.

Possible Acquisition of Other Companies

Subject to the regulation and supervision of the Arizona Department of Insurance and other regulators, we may acquire one or more life insurance or insurance-related companies in the future. Our acquisition strategy, should this avenue be pursued, will be to identify one or more established insurance companies which have developed viable marketing networks for their products and which are or could be managed from a Lincoln, Nebraska administrative office. In selecting target insurance companies which constitute suitable acquisition candidates, we will consider factors such as, but not limited to, the target company’s financial statements and operating history (including surplus adequacy and underwriting standards); the price and features of insurance products sold and the markets serviced; the competency and loyalty of its agents; certain income tax considerations; and the purchase price therefore.

We also may seek to acquire insurance-related companies such as: (i) third-party administrators; (ii) existing marketing agencies; (iii) actuarial services companies; (iv) reinsurance brokerage companies; and (v) life and health insurance data processing servicers.

The primary reasons we may acquire an existing life insurance company or insurance-related company are: (i) the placement of administrative, accounting and data processing systems that would allow the company to expand; (ii) to provide additional revenue streams to us through additional marketing expansion or ancillary services; and (iii) to provide additional profits through more effective cost management of an existing company as many companies within the insurance industry have excessive administrative cost levels relative to premium income.

No acquisition agreements have been signed as of April 2, 2012. However, we will continue to evaluate and consider appropriate acquisition candidates.

Prior Acquisitions and Investments

In 2006, we acquired 1,627,500 shares of Western States Alliance Corporation (Western States) for $0.46 a share for an aggregate investment of $748,650. This investment gave us majority ownership of Western States. Western States was subsequently dissolved, with the majority of its assets transferred to us, effective December 31, 2009.

Between 2005 and 2011, we acquired 2,704,000 shares of capital stock of Security Capital Corporation (Security Capital), an Arkansas corporation formerly known as Arkansas Security Capital Corporation, for an aggregate investment of $102,500. As of December 31, 2011, our ownership constituted approximately 60% of the issued and outstanding capital stock of Security Capital. During the third quarter of 2011, the Company began consolidating Security Capital.  Security Capital is a development stage company that has not conducted operations apart from raising capital.

In July 2009 and December 2010, we acquired 350,000 shares of capital stock of First Wyoming Capital Corporation (First Wyoming), a Wyoming corporation, for an aggregate investment of $117,500.  First Wyoming’s insurance subsidiary received its Certificate of Authority to operate in Wyoming on July 1, 2011. As of December 31, 2011, our ownership constituted approximately 12.8% of the issued and outstanding capital stock of First Wyoming.

In April 2010, we acquired 340,000 shares of capital stock of Rocky Mountain Capital Corporation (Rocky Mountain), a Colorado corporation, for $0.10 per share for an aggregate investment of $34,000. As of December 31, 2011, our ownership constituted approximately 12% of the issued and outstanding capital stock of Rocky Mountain.  Rocky Mountain is a development stage company that has not conducted operations apart from raising capital.

In April 2010, we acquired 600,000 shares of non-voting capital stock of Northstar Financial Corp. (Northstar), a Minnesota corporation, for $0.10 per share for an aggregate investment of $60,000. As of December 31, 2011, our ownership constituted approximately 19.6% of all issued and outstanding capital stock of Northstar.  Northstar is a development stage company that has not conducted operations apart from raising capital.

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In 2010 and 2011, we acquired 814,000 shares of capital stock of Great Plains Financial Corporation (Great Plains), a South Dakota corporation, for an aggregate investment of $828,850.  Great Plains has a life insurance subsidiary licensed to do business in South Dakota. As of December 31, 2011, our ownership constituted approximately 21.3% of the issued and outstanding capital stock of Great Plains. Subsequent to December 31, 2011, we purchased an additional 375,000 shares for $731,250.  This increased our aggregate ownership percentage to approximately 31%.

In July 2011, we acquired 3 nonvoting units of League of Lakeway, LLC (Lakeway), a Texas Limited Liability Company, for an aggregate investment of $45,000.  The Company operates a restaurant based in Lakeway, Texas.  As of December 31, 2011, our ownership constituted less than 10% of the outstanding units of Lakeway.

In August 2011, we acquired 2,500,000 shares of capital stock of Hot Dot, Inc. (Hot Dot), a Nebraska corporation, for $0.02 per share for an aggregate investment of $50,000. Hot Dot was organized to develop, manufacture, and market the Alert Patch. The Alert Patch is an adhesive-backed cloth patch that is used to detect increases in body temperature that pose a risk of heat exhaustion or heat stroke. As of December 31, 2011, the Company, when combined with the Company’s management, held approximately 53.7% of the combined voting power of Hot Dot’s outstanding common stock and approximately 36.8% of the economic interest in Hot Dot.  Rick Meyer, Chairman of our Board of Directors, is Chairman and a member of the original Board of Directors of Hot Dot. Rick Meyer owns 300,000 shares of voting capital stock of Hot Dot. Mark A. Oliver, our Secretary/Treasurer and a member of our Board of Directors, is Treasurer and a member of the original Board of Directors of Hot Dot. Mr. Oliver owns 300,000 shares of voting capital stock of Hot Dot. Travis Meyer, our President and a member of our Board of Directors, is President and a member of the original Board of Directors of Hot Dot. Travis Meyer owns 300,000 shares of voting capital stock of Hot Dot. Todd C. Boeve, an employee of ours, is Secretary and a member of the original Board of Directors of Hot Dot. Mr. Boeve owns 50,000 shares of voting capital stock of Hot Dot.  Hot Dot is a development stage company that has not conducted operations apart from raising capital.

On August 3, 2011, the Company acquired Old Reliance Life Insurance Company, an Arizona domiciled life insurer and simultaneously merged American Life with and into it, changing the survivors name to American Life and Security Corp. This acquisition added licenses in 14 new states, annual income of approximately $1.7 million, annual expenses of approximately $2.0 million, and total assets of approximately $19 million.  At the time of the acquisition, Old Reliance had 35 independent agents under contract.  Currently, all 35 remain under contract.

In September 2011, we acquired 600,000 shares of non-voting capital stock of Pacific Northwest Capital Corp. (Pacific Northwest), an Idaho corporation, for $0.10 per share for an aggregate investment of $60,000. As of December 31, 2011, our ownership constituted approximately 21.9% of the issued and outstanding capital stock.  Pacific Northwest is a development stage company that has not conducted operations apart from raising capital

On December 27, 2011, American Life reached an agreement to acquire all of the outstanding shares of Preferred Security Life Insurance Company (Preferred Security), a Texas domiciled stipulated premium life insurance company, in exchange for $225,000 in cash.  Management anticipates the deal to close during the second quarter of 2012.  The acquisition will add approximately $3 million in assets and $60,000 of annual revenues to the Company’s consolidated financial statements.

Our less than wholly owned subsidiary, Security Capital, owns 350,000 shares of capital stock of Northern Plains Capital Corporation (Northern Plains), a North Dakota corporation.  In the third quarter of 2011, control was attained on a previous noncontrolling interest in Security Capital Corporation, and the previously held interest was remeasured at fair value. The remeasurement increased the carrying value of Security Capital’s investment in Northern Plains to $434,000.  As of December 31, 2011, our ownership constituted approximately 10% of the issued and outstanding capital stock.

Certain Relationships and Affiliations with Similar Businesses

The Company and certain of our directors and officers have current or past relationships and affiliations with businesses that operate, or once operated, in the life insurance industry and that have conducted public and private stock offerings in connection with their operations. Additional information on these relationships and affiliations, organized by company, is as follows:

·                  Northstar.  Northstar was incorporated in Minnesota in April 2010 with the purpose of organizing a life insurance subsidiary in that state and becoming an insurance holding company. We invested approximately $60,000 in the organizational financing of Northstar in exchange for 600,000 shares of non-voting capital stock. As of December 31, 2011, our ownership constitutes approximately 19.6% of all issued and outstanding capital stock of Northstar. In addition, Rick Meyer, Chairman of our Board of Directors, is Chairman, Chief Executive Officer and a member of the original Board of Directors of Northstar. Rick Meyer owns 200,000 shares of Northstar’s voting capital stock. Mark A. Oliver, our Secretary/Treasurer and a member of our Board of Directors, is President, Chief Operating Officer, Treasurer, Chief Financial Officer and a member of the original

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Board of Directors of Northstar. Mr. Oliver owns 140,000 shares of non-voting capital stock of Northstar. Travis Meyer, our President and a member of our Board of Directors, owns 150,000 shares of non-voting capital stock. Milton Tenopir, a member of our Board of Directors, is a member of the Board of Directors of Northstar and owns 50,000 shares of voting capital stock. Other of our present and former directors also own capital stock of Northstar. As of December 31, 2011, Northstar is a development stage company that has not conducted operations apart from raising capital through a $1.0 million private placement of securities. It commenced a $10 million intrastate offering in May 2011.

·                  First Wyoming.  First Wyoming was incorporated in Wyoming in July 2009 for the purpose of organizing a life insurance subsidiary in that state and becoming an insurance holding company. We have invested $117,500 in the financing of First Wyoming in exchange for 350,000 shares of capital stock. John Perkins, our former Secretary and compliance officer and a current member of our Board of Directors, serves as Chairman of the Board of First Wyoming. Les Meyer, a member of our Board of Directors, serves as a member of the Board of Directors. Great American Marketing, Inc., a corporation owned by Travis Meyer, our President and a member of our Board of Directors, had a consulting agreement with First Wyoming that terminated on June 30, 2010. He owns 25,000 shares of capital stock of First Wyoming. Additionally, Rick Meyer, our Chairman, owns 25,000 shares of capital stock of First Wyoming. First Wyoming has raised approximately $4 million of an anticipated $7.5 million offering and received its certificate of authority in July 2011.

·                  Rocky Mountain.  Rocky Mountain was incorporated in Colorado in March 2010 with the purpose of organizing a life insurance subsidiary in that state and becoming an insurance holding company. We invested approximately $34,000 in the organizational financing of Rocky Mountain in exchange for 340,000 shares of capital stock. In addition, Les Meyer, a member of our Board of Directors, is President, Chief Executive Officer and a member of the original Board of Directors of Rocky Mountain. Les Meyer owns 352,000 shares of capital stock of Rocky Mountain. Rick Meyer, Chairman of our Board of Directors, is Chairman and a member of the original Board of Directors of Rocky Mountain. Rick Meyer owns 130,000 shares of capital stock of Rocky Mountain. Mark A. Oliver, our Treasurer and a member of our Board of Directors, is Secretary/Treasurer and a member of the original Board of Directors of Rocky Mountain. Mr. Oliver owns 130,000 shares of capital stock of Rocky Mountain. John R. Perkins, a member of our Board of Directors, is a member of the original Board of Directors of Rocky Mountain and owns 140,000 shares of capital stock. Travis Meyer, our President and a member of our Board of Directors, owns 130,000 shares of capital stock of Rocky Mountain. Other of our present and former directors also own capital stock of Rocky Mountain. As of December 31, 2011, Rocky Mountain is a development stage company that has not conducted operations apart from commencing a $1.0 million private placement of securities. It commenced a $7.5 million public intrastate offering in May, 2011.

·                  Great Plains.  Great Plains was incorporated in South Dakota in January 2007.  Great Plains has raised over $7.5 million through private placements of stock and a registered public offering in South Dakota and established a regulated life insurance subsidiary in that state. As of December 31, 2011, we have invested $828,850 in the financing of Great Plains in exchange for 814,000 shares of capital stock. Subsequent to December 31, 2011, we purchased an additional 375,000 shares for $731,250. Scott Engebritson, a former officer and Board member of the Company, serves as Chairman of the Board and President of Great Plains. In June 2011, Jack Osborne, Milt Tenopir, Travis Meyer, Mark Oliver and Rick Meyer were elected to the Great Plains Board of Directors.

·                  Pacific Northwest.  Pacific Northwest was incorporated in Idaho in October 2010 with the purpose of organizing a life insurance subsidiary in that state and becoming an insurance holding company. We invested approximately $60,000 in the organizational financing of Pacific Northwest in exchange for 600,000 shares of non-voting capital stock. In addition, Travis Meyer, our President and a member of our Board of Directors, is President, Chief Executive Officer, Co-Chairman and a member of the original Board of Directors of Pacific Northwest. Travis Meyer owns 200,000 shares of non-voting capital stock of Pacific Northwest. Rick Meyer, Chairman of our Board of Directors, is Co-Chairman and a member of the original Board of Directors of Pacific Northwest. Rick Meyer owns 200,000 shares of capital stock of Pacific Northwest. Mark A. Oliver, our Treasurer and a member of our Board of Directors, is Treasurer and a member of the original Board of Directors of Pacific Northwest. Mr. Oliver owns 200,000 shares of non-voting capital stock of Pacific Northwest. Todd C. Boeve, an employee of ours, is Secretary and a member of the original Board of Directors of Pacific Northwest. Mr. Boeve owns 50,000 shares of capital stock of Pacific Northwest.  Pacific Northwest is a development stage company that has not conducted operations apart from raising capital.

Most of these entities have business plans similar to that of the Company.  Each entity operates under a separate Board of Directors.  There are no plans to merge any of the entities above as of the present date.

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Regulation

American Life and Capital Reserve, as well as any other life insurance subsidiary that we may acquire or form, are (or will be) subject to the regulation and supervision of the Arizona and Missouri Departments of Insurance, respectively, and/or other state insurance regulators. Such regulation is primarily for the benefit of policyholders rather than shareholders. These regulators possess broad administrative powers. These powers include the authority to grant and revoke licenses to transact business, to approve the form of insurance contracts, to regulate capital requirements, to regulate the character of permitted investments, and to require deposits for the protection of investments. Arizona and Missouri insurance law requires the filing of a detailed annual report with the Department of Insurance, as do other states’ laws. Thus, the business and financial accounts of American Life and Capital Reserve will be subject to examination by the Arizona and Missouri Departments of Insurance, respectively, as well as insurance departments of any other states in which we may do business.

There can be no assurance that American Life, Capital Reserve, or any other life insurance subsidiary that we may acquire or form will be able to satisfy the regulatory requirements of the Arizona or Missouri Department of Insurance or a similar department in any other state in which it may wish to transact business.

As the holder of a controlling interest in an Arizona and Missouri insurance company, the Company also is subject to regulation as an insurance holding company system under Arizona and Missouri law. The provisions of this law generally provide for restrictions on a change in control of the insurance holding company, require the filing of certain reports with the Department of Insurance, and limit the amount of dividends which may be received by the holding company from American Life and Capital Reserve.

On July 21, 2010, President Obama signed into law financial regulatory reform legislation, known as the Dodd-Frank Wall Street Reform and Consumer Protection Act (the “Reform Act”). The Reform Act reshapes financial regulations in the United States by creating new regulators, regulating new markets and firms, and providing new enforcement powers to regulators. Virtually all major areas of the Reform Act will be subject to regulatory interpretation and implementation rules requiring rulemaking that may take several years to complete. Although the ultimate outcome of the regulatory rulemaking proceedings cannot be predicted with certainty, we do not believe that the provisions of the Reform Act will have a material impact on our consolidated financial results or financial condition.

Employees and Agents

As of December 31, 2011, we have 19 full-time employees and 2 part-time employees, as well as 50 insurance agents who operate as independent contractors.

ITEM 1A.  RISK FACTORS.

An investment in our voting common stock involves a high degree of risk. Investors should carefully consider the risks described below and the other information in this Form 10-K before investing in our voting common stock. If any of the following risks occur, our business, operating results and financial condition could be seriously harmed.

Risks Related to Our Business

The Company has a limited operating history and owns a limited amount of assets.

The Company was formed in October 2003 and was in the development stage until the insurance operations of American Life commenced in September 2009. We have a limited operating history and, until 2009, we generated no revenues other than interest and investment income. The start-up costs we have incurred have created a history of operating losses. We have all of the risks inherent in establishing a new business, including limited capital, uncertain markets, lack of revenues and potential competition from better capitalized companies. We have no control over general economic conditions, competitors’ products, competitive pricing, customer demand and costs of marketing or advertising to build and expand our business. Moreover, we anticipate that we will continue to incur net operating losses well into the future as we establish a revenue stream from our operating subsidiaries. There is no assurance that our activities will be successful or result in any revenues or profits to the Company and, the likelihood of any success must be considered in light of our early stage of development. These risks and our lack of substantial operating history make it difficult to predict the Company’s future revenues or results of operations. As a result, our financial results may fluctuate widely and fall below our expectations or the expectations of our shareholders. This could cause the value of our voting common stock to decline.

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Ownership of shares of our voting common stock involves substantial risk, and the entire value of those shares may be lost.

Shares of our voting common stock constitute a high-risk investment in a developing business. No assurance or guaranty can be given that any of the potential benefits envisioned by our business plan will prove to be available, nor can any assurance or guaranty be given as to the actual amount of financial return, if any, which may result from ownership of our shares. The entire value of shares of our voting common stock may be lost.

Our insurance marketing efforts are key to our success.

We market our insurance products through the services of licensed insurance agents. New agents are recruited through referrals from shareholders, newspaper advertisements, and solicitation through use of on-line job sites.  Each potential candidate must go through a three interview process.  If hired to sell insurance, the candidate must complete a 40 hour training course conducted by a third party as well as pass the state examination.  Once licensed, they must complete a week long product and sales training class.  Following course completion, they will have a training week where their manager will work side by side making sales calls with them.  The average turnover rate of our agents is approximately 15% per year.

The insurance products are marketed using the same face-to-face marketing concept that was used by us to sell shares of stock in our intrastate public offering that utilized in person sales meetings with prospective shareholders. When the intrastate offering was being conducted, the shares were only offered to individuals who had been referred by another shareholder.  There was no cold calling or other similar activity.  The sale of stock was not allowed to be conducted in any area where insurance sales were ongoing.  Our insurance agents have used our shareholder base and their referrals as potential clients for our life insurance products.

Many of these agents have no prior insurance product selling experience and, accordingly, this lack of experience may have a negative impact on the amount of premium volume we write.  The extent of this negative impact on the premium volume written will depend primarily on our ability to timely and adequately train these agents to sell our insurance products and the effectiveness of our face-to-face marketing concept.

Our existing insurance subsidiaries, American Life and Capital Reserve, may fail as a result of being inadequately capitalized.

American Life was granted a certificate of authority by the Nebraska Department of Insurance based on initial capital and surplus of approximately $3.5 million, which was increased to approximately $5.5 million on September 1, 2009. Following the merger of American Life with Old Reliance, American Life had approximately $4.5 million in capital and surplus at December 31, 2011. The Arizona Department of Insurance may require American Life to add additional amounts of capital and surplus to support its business going forward, just as the Missouri Department of Insurance may require additional capitalization of Capital Reserve. Capital Reserve had capital and surplus of $1.4 million as of December 31, 2011. The amount of capital and surplus ultimately required will be based on certain “risk-based capital” standards established by statute and regulation and administered by the Arizona and Missouri Departments of Insurance and other regulators. The “risk-based capital” system establishes a framework for evaluating the adequacy of the minimum amount of capital and surplus, calculated in accordance with statutory accounting principles, necessary for an insurance company to support its overall business operations. It identifies insurers that may be inadequately capitalized by looking at certain inherent risks of each insurer’s assets and liabilities and its mix of net premiums written. Insurers falling below a calculated threshold may be subject to varying degrees of regulatory action, including supervision, rehabilitation, or liquidation. If American Life or Capital Reserve fails to maintain required capital levels in accordance with the “risk-based capital” system, each company’s ability to maintain the regulatory authority necessary to conduct business would be compromised.

We expect to suffer operating losses for a number of years.

We expect to sustain losses for a number of years. American Life, as is common among new or inactive life insurance companies, likely will operate at a loss for a number of years because of the substantial costs of writing new life insurance. We have incurred significant net losses since inception totaling approximately $10.5 million through December 31, 2011.

The aggregate cost of writing new life insurance includes such significant, nonrecurring items as first year commissions, medical and investigation expenses, and other expenses incidental to the issuance of new policies, together with the initial reserves required to be established. For the American Accumulator product, the costs to cover expenses and the policyholder liability that must be set up at policy issuance exceed the first year premium by approximately 39%, while

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there is no excess of costs to cover expenses and the policyholder liability for the Future Cornhusker product.  Accordingly, it is generally recognized that the cost of putting a new policy in force is substantially greater than the first year premium. As a result, a new life insurance company can be expected to sustain losses for a number of years, during which time earnings are not available for dividends. However, in accordance with accounting principles generally accepted in the United States of America (GAAP), incremental direct costs 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, are capitalized and amortized over the life of the premiums produced.

Additionally, the Company will continue to have a large portion of its business as first year business.  Therefore, the overhead of the Company is not yet supported by renewal business and premium growth.

The insurance industry is subject to numerous laws and regulations, and compliance costs and/or changes in the regulatory environment could adversely affect our business.

We are subject to government regulation in each of the states in which we conduct business. Such regulatory authority is vested in state agencies having broad administrative power dealing with all aspects of the insurance business, including rates, policy forms, and capital adequacy, and is concerned primarily with the protection of policyholders rather than shareholders. During the past several years, increased scrutiny has been placed upon the insurance regulatory framework, and certain state legislatures have considered or enacted laws that alter, and in many cases increase, state authority to regulate insurance companies and insurance holding company systems. The National Association of Insurance Commissioners (the NAIC) and state insurance regulators are reexamining existing laws and regulations, specifically focusing on insurance company investments and solvency issues, risk-based capital guidelines, interpretations of existing laws, the development of new laws, the implementation of non-statutory guidelines and the circumstances under which dividends may be paid. Current NAIC initiatives, and other regulatory changes, could have a material adverse impact on our business. There can be no assurance that our life insurance subsidiaries or any other life insurance subsidiary that we may acquire or form will be able to satisfy the regulatory requirements of the Departments of Insurance of their respective state of domicile or a similar department in any other state in which it may wish to transact business.

Individual state guaranty associations assess insurance companies to pay benefits to policyholders of insolvent or failed insurance companies. The impact of such assessments may be partly offset by credits against future state premium taxes. We cannot predict the amount of any future assessments, nor have we attempted to estimate the amount of assessments to be made from known insolvencies.

We operate in a highly competitive industry, and our business will suffer if we are unable to compete effectively.

The operating results of companies in the insurance industry are subject to significant fluctuations due to competition, economic conditions, interest rates, investment performance, maintenance of insurance ratings from rating agencies such as A.M. Best and other factors. Our ability to compete with other insurance companies is dependent upon, among other things, our ability to attract and retain agents to market our insurance products, our ability to develop competitive and profitable products and our ability to obtain high ratings. In connection with the development and sale of products, we and our operating subsidiaries encounter significant competition from other insurance companies, many of whom have financial resources substantially greater than the Company, as well as competition from other investment alternatives available to our customers. We do not anticipate that American Life will be rated by industry analysts for a period of three to five years. This will have a negative impact on American Life’s ability to compete with rated insurance companies. Accordingly, competition for new life insurance policies will be significant which may have a negative impact on our ability to operate profitably.

We are highly dependent upon our key personnel, and the loss of any of our key personnel could materially and adversely affect our business.

Our ability to operate successfully is dependent primarily upon the efforts of our President, Travis Meyer, and our Secretary/Treasurer and Chief Executive Officer of American Life, Mark Oliver, as well as other key personnel. The loss of the services of any of these officers and employees could have a material adverse effect on our ability to operate successfully.

Development of life insurance products involves the use of certain assumptions, and the inaccuracy of these assumptions could adversely affect our profitability.

We must make certain assumptions as to expected mortality, lapse rates and other factors in developing the pricing and other terms of our life insurance products. These assumptions are based on industry experience and are reviewed and

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revised regularly so as to reflect actual experience on a current basis. However, variation of actual experience from that assumed in developing such terms may affect a product’s profitability.

If we underestimate our liability for future policy benefits, our results of operations could suffer.

The liability established for future life insurance policy benefits is based upon a number of factors, including certain assumptions, such as mortality, morbidity, lapse rate and crediting rate. If we underestimate future policy benefits, we would incur additional expenses at the time we become aware of the inadequacy. As a result, our profitability could suffer.

American Life may not be able to obtain a favorable insurance rating.

Insurance ratings have become an increasingly important factor in establishing the competitive position of insurance companies. Ratings reflect the rating agencies’ opinion of an insurance company’s financial strength, operating performance and ability to meet its obligations to policyholders. American Life will not receive a rating until it has maintained operations for a minimum of three to five years. There can be no assurance that American Life will be rated by a rating agency or that any rating, if and when received, will be favorable to the insurance subsidiary.  The lack of a rating could impact the Company’s ability to make sales in the broad insurance marketplace.  For example, customers may choose not to purchase a policy from an unrated company, or we may be required to charge lower rates and offer discounts to attract business.  Capital Reserve also has no rating at the present time; however it is currently not marketing products.

Fluctuations in interest rates could adversely affect our business and profitability.

Interest rate fluctuations could impair the ability to pay policyholder benefits with operating and investment cash flows, cash on hand and other cash sources.  Our annuity product exposes us to the risk that changes in interest rates will reduce our spread, or the difference between the amounts that we are required to pay under the contracts and the amounts we are able to earn on our investments intended to support our obligations under the contracts.  Our spread is a key component of our net income.

To the extent that interest rates credited are less than those generally available in the marketplace, policyholder lapses, policy loans and surrenders, and withdrawals of life insurance policies and annuity contracts may increase as contract holders seek to buy products with perceived higher returns.  This process may result in cash outflows requiring that we sell investments at a time when the prices of those investments are adversely affected by the increase in market interest rates, which may result in realized investment losses.

Increases in market interest rates may also negatively affect our profitability. In periods of increasing interest rates, the Company may not be able to replace invested assets with higher yielding assets needed to fund the higher crediting rates that may be necessary to keep interest sensitive products competitive.  We therefore may have to accept a lower spread and thus lower profitability or face a decline in sales and greater loss of existing contracts.

Changes in the tax laws could adversely affect our business.

Congress has from time to time considered possible legislation that would eliminate the deferral of taxation on the accretion of value within certain annuities and life insurance products. This and similar legislation, including a simplified “flat tax” income tax structure with an exemption from taxation for investment income, could adversely affect the sale of life insurance compared with other financial products if such legislation were to be enacted. There can be no assurance as to whether such legislation will be enacted or, if enacted, whether such legislation would contain provisions with possible adverse effects on any annuity and life insurance products that we and our operating subsidiaries develop.

We may not be able to successfully execute our acquisition strategy, which could cause our business and future growth prospects to suffer.

One component of our business plan is to pursue strategic acquisitions of companies that meet our acquisition criteria. However, suitable acquisition candidates may not be available on terms and conditions that we find acceptable. In pursuing acquisitions, we compete with other companies, many of which have greater financial and other resources than the Company. If we are unable to secure sufficient funding for potential acquisitions, we may not be able to complete strategic acquisitions that we otherwise find desirable. Further, if we succeed in consummating strategic acquisitions, our business, financial condition and results of operations may be negatively affected because:

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·                  Some of the acquired businesses may not achieve anticipated revenues, earnings or cash flows;

·                  We may assume liabilities that were not disclosed or exceed our estimates;

·                  We may be unable to integrate acquired businesses successfully and realize anticipated economic, operational and other benefits in a timely manner;

·                  Acquisitions could disrupt our on-going business, distract our management and divert our resources;

·                  We may experience difficulties operating in markets in which we have no or only limited direct experience; and

·                  There is the potential for loss of customers and key employees of the acquired company.

We may be required to raise additional capital through sales of our voting common stock, which could dilute the ownership interests of our existing shareholders.

In order to continue to operate, to fund the capital and surplus required for our insurance subsidiaries and to grow in accordance with our business plan, we may require additional capital. This capital may be raised through the issuance of additional shares of our voting common stock. If additional shares are issued, the ownership interests of existing shareholders will be diluted.

Certain of our directors and officers have relationships with businesses similar to the Company’s, which could present a potential conflict of interest if we were to expand into those states or if those other insurance holding companies were to offer life insurance products in our territory.

As described in more detail in Item 1, under the heading “Certain Relationships and Affiliations with Similar Businesses,” some of our officers and directors have past or present relationships with other businesses operating in the insurance industry. Should we plan to enter the life insurance markets in the states where these other businesses operate, or should those other businesses enter the life insurance markets in our territory, a potential conflict of interest could exist. We will attempt to eliminate or minimize any conflicts of interest, should they arise. We expect that these efforts will include the required recusal of interested parties from (a) any decision relating to competition in a state in which another company with whom he or she is associated is operating, and (b) any other decision involving a conflict of interest with respect to such companies. However, the efforts to eliminate or minimize potential conflicts of interest may not be successful.

Shares of our voting common stock are an illiquid investment.

There is no public market for shares of our voting common stock, and there is no assurance that one will develop. Therefore, the shares will have limited marketability for an indefinite period of time. There is not currently, and may never be, an active market in our securities, and there is no assurance that any of our securities will ever become publicly traded or that an active trading market will develop or be sustained. Consequently, shareholders may not be able to liquidate their investment in the event of an emergency or for any other reason. We do not meet the requirements for our stock to be quoted on the New York Stock Exchange, NASDAQ, the New York Stock Exchange Alternext Exchange (formerly, AMEX), the OTC Bulletin Board or any other exchange.

We do not intend to declare cash dividends on shares of our voting common stock in the foreseeable future.

We have not paid cash dividends on our stock in the past and do not anticipate paying such dividends in the foreseeable future. We intend to retain available funds to be used in the expansion of our operations. Future dividend policy will depend on our earnings, capital requirements, financial condition and other relevant factors. Moreover, the Company is a holding company without independent operations. We expect a source of cash will be dividends on the stock of our operating subsidiaries, including American Life. The payment of dividends to the Company by our operating subsidiaries is subject to limitations imposed by applicable insurance laws. For example, with respect to American Life, “extraordinary” dividends may not be paid without permission of the Arizona Department of Insurance. An “extraordinary” dividend is defined, in general, as any dividend or distribution of cash or other property whose fair market value, compared with that of other dividends or distributions made within the preceding twelve months, exceeds the greater of (i) 10% of the policyholders surplus (total statutory capital stock and surplus) as of December 31 of the preceding year or (ii) the statutory net gain from operations excluding realized gains on investments) of the insurer for the twelve month period ending December 31 of the preceding year. Arizona insurance laws also require that dividends on capital stock must be paid out of surplus, which is calculated after reserving a sum equal to all liabilities of the insurance company and may include all or part of surplus arising from unrealized capital gains or revaluation of assets

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Because we do not intend to pay cash dividends in the foreseeable future, shareholders will benefit from an investment in our voting common stock only if it appreciates in value and becomes liquid.

Because we do not expect to pay any cash dividends in the foreseeable future, the success of any investment in our stock will depend upon any future appreciation in its value. We cannot guarantee that our stock will appreciate in value or even achieve or maintain a value equal to the price at which shares were purchased. Further, a market may never develop to sell shares of our stock even if they appreciate in value based on an increase in book value or other valuation criteria.

Our business and future growth prospects may suffer if the acquisition and merger of Old Reliance with American Life does not achieve expected results.

Our business, financial condition and results of operations may be negatively affected if: (i) the acquired business does not achieve anticipated revenues, earnings or cash flows; (ii) we assume liabilities that were not disclosed or exceed estimates; (iii) we are unable to integrate the acquired business successfully and realize anticipated economic, operational and other benefits in a timely manner; (iv) the acquisition itself disrupts our on-going business, distracts management or diverts resources from other more beneficial uses; (v) we experience difficulties operating in markets in which we have no or only limited direct experience; or (vi) there is a loss of customers and key employees of the acquired company.

ITEM 1B.  UNRESOLVED STAFF COMMENTS.

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

ITEM 2.  PROPERTIES.

The Company currently leases office space at 8101 “O” Street, Suite S111, Lincoln, Nebraska 68510. This lease was executed August 28, 2009, amended on January 21, 2011, and expires on January 31, 2014. As part of the acquisition of Old Reliance, the Company assumed a lease for the headquarters of Old Reliance in Colorado Springs, Colorado that expires on December 31, 2012. Rent expense for the years ended December 31, 2011 and 2010 was $113,207 and $93,369, respectively. Future minimum payments for 2012, 2013 and 2014 are $145,076, $128,240 and $10,687, respectively.

ITEM 3.  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 4.  MINE SAFTEY DISCLOSURES.

Not applicable.

PART II.

ITEM 5.  MARKET FOR REGISTRANTS’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES.

Market Information

There is no established public trading market for our voting common stock. Our securities are not listed for trading on any national securities exchange nor are bid or asked quotations reported in any over-the-counter quotation service.

On December 31, 2011, the Company had issued and outstanding 8,670,146 shares of voting common stock. No other voting securities of the Company are outstanding.

Holders of Record

As of March 22, 2012, there were approximately 5,500 holders of record of our voting common stock.

Dividends

We have not paid cash dividends on our voting common stock and do not anticipate paying cash dividends in the foreseeable future. Instead, we intend to retain any future earnings for reinvestment in our business. Any future determination

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to pay cash dividends will be at the discretion of the Board of Directors and will be dependent upon our financial condition, results of operations, capital requirements and such other factors as the Board of Directors deems relevant.

Securities Authorized for Issuance Under Equity Compensation Plans

We have not established any equity compensation plans or granted any equity awards under such plans.  As a result, there are no securities authorized for issuance under such plans.

ITEM 6.  SELECTED FINANCIAL DATA.

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

ITEM 7.  MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.

The following discussion and analysis of our financial condition and results of operations should be read in conjunction with our financial statements and the related notes appearing elsewhere in this report. In addition to historical information, this discussion and analysis may contain forward-looking statements that involve risk, uncertainties and assumptions. Actual results may differ materially from those anticipated in these forward-looking statements.

Overview

Midwest was formed on October 31, 2003 for the primary purpose of becoming a financial services holding company. We presently conduct our business through our wholly owned subsidiary, American Life & Security Corp. Capital Reserve Life Insurance Company of Jefferson City, Missouri is a dormant, wholly owned subsidiary of American Life. Security Capital Corporation is a 60% owned subsidiary of Midwest. Hot Dot, Inc. is a 37% owned subsidiary of Midwest and Midwest controls a majority of the Board of Directors.

From our inception through July 2006, we raised approximately $6.5 million through the sale of shares of voting common stock in several private placements. We raised approximately $11.0 million through an intrastate public offering of voting common stock in the State of Nebraska.

On September 1, 2009, American Life was issued a certificate of authority to conduct life insurance business in the State of Nebraska. Initial capital and surplus contributed to American Life was approximately $3.5 million, which was increased to approximately $5.5 million on September 1, 2009. In its first four months of operation, between September 1, 2009 and December 31, 2009, American Life generated $354,352 in premium revenue. In 2011 and 2010, American Life generated $2.5 million and $1.9 million in premium revenue, respectively.

On June 20, 2010, American Life acquired Capital Reserve in exchange for a cash payment of approximately $1.9 million. This transaction added approximately a like amount of assets to American Life. Further, with the insurance charters acquired from Capital Reserve, we obtained access to additional markets in Missouri, Kansas and Iowa.

In connection with the acquisition of Capital Reserve, American Life also coinsured a block of life insurance business from Capital Reserve’s parent corporation in a separate transaction. The purchase price for this block of business was approximately $375,000. This transaction added more than $70,000 in annual revenues to American Life’s operations, as well as approximately $3.5 million of new assets and $3.2 million of policy liabilities to our balance sheet.

In January 2011, we completed the private sale of 74,159 shares of our Series A Preferred Stock to certain qualified investors in Latin America. The net proceeds of this sale, after expenses, were approximately $415,750. These proceeds were used to further capitalize our insurance operations, for working capital and for other general corporate purposes.

On July 12, 2010, in order to provide additional capital to support our continued growth, we commenced an offering of up to 2,000,000 additional shares of voting common stock to existing shareholders who were residents of the State of Nebraska. This offering was completed on February 28, 2011 and a total of 1,554,326 additional shares of voting common stock were sold. The gross proceeds of this sale were approximately $7.7 million. These proceeds were used to fund the acquisition of Old Reliance Insurance Company as described below, and will be used to further capitalize our insurance operations, for working capital and for other general corporate purposes.

On November 8, 2010, the Company entered into an agreement to acquire all of the issued and outstanding capital stock of Old Reliance. American Life merged into Old Reliance following the purchase, with the survivor changing its name to American Life & Security Corp. In the transaction, the sole shareholder of Old Reliance received: (i) approximately

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$1.6 million in cash, (ii) $500,000 in the form of a surplus debenture and (iii) 150,000 shares of voting common stock of the Company ($750,000 fair value). On November 8, 2010, prior to signing the stock purchase agreement with American Life, Old Reliance had assets of approximately $19 million and for the period from January 1, 2010 through November 8, 2010, income of approximately $1.4 million, and expenses of approximately $1.7 million. The transaction, including the merger, was consummated on August 3, 2011.

The Company was a development stage company until American Life commenced insurance operations in 2009. We have incurred significant net losses since inception totaling approximately $10.5 million through December 31, 2011. These losses have resulted primarily from costs incurred while raising capital and establishing American Life. We expect to continue to incur operating losses until we achieve a volume of in-force life insurance policies that provides premiums that are sufficient to cover our operating expenses.

During the 3rd quarter of 2011, control was attained on a previous noncontrolling interest in Security Capital Corporation. The previously held interest was remeasured at fair value and a gain of $182,200 was recognized. The acquisition of Security Capital added cash and cash equivalents of $21,471 and investments in equity securities of $434,000 to the consolidated balance sheets.

In August 2011, the Company acquired a controlling interest ownership of Hot Dot, Inc., a company organized to develop, manufacture, and market the Alert Patch.  The Alert Patch is an adhesive-backed cloth patch that is used to detect increases in body temperature that pose a risk of heat exhaustion or heat stroke. Hot Dot had no operating revenues and operating expenses of $115,147 for the year ended December 31, 2011.  Hot Dot is a development stage company that has not conducted operations apart from raising capital.

Critical Accounting Policies and Estimates

The accounting and reporting policies of the Company are in accordance with U.S. generally accepted accounting principles. Preparation of these financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses. The following is an explanation of the Company’s accounting policies and the estimates considered most significant by management. These accounting policies inherently require significant judgment and assumptions and actual operating results could differ significantly from management’s estimates determined using these policies. We believe the following accounting policies, judgments and estimates are the most critical to the understanding of the results of operations and financial position.  A detailed discussion of significant accounting policies is provided in Note 1 — Nature of Operations and Summary of Significant Accounting Policies in the Notes to Consolidated Financial Statements.

Valuation of Investments

The Company’s principal investments are in fixed maturity securities.  Fixed maturity securities, which are classified as available for sale, are carried at their fair value in the consolidated balance sheets, with unrealized gains or losses recorded in accumulated other comprehensive income (loss). The Company’s fair value of fixed maturity securities are derived from external brokers. The valuation of the investment portfolio involves a variety of assumptions and estimates.

The Company has a policy and process in place to identify securities that could potentially have an impairment that is other-than-temporary. The assessment of whether impairments have occurred is based on a case-by-case evaluation of underlying reasons for the decline in fair value.  We consider severity of impairment, duration of impairment, forecasted recovery period, industry outlook, financial condition of the issuer, projected cash flows, issuer credit ratings and the intent and ability of the Company to hold the investment until the recovery of the cost.

The recognition of other-than-temporary impairment losses on debt securities is dependent on the facts and circumstances related to the specific security. If the Company intends to sell a security or it is more likely than not that the Company would be required to sell a security prior to recovery of the amortized cost, the difference between amortized cost and fair value is recognized in the income statement 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

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regarding probability of default, including changes in credit ratings, and estimates regarding timing and amount of recoveries associated with a default.

Deferred Acquisition Costs

Incremental direct costs 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, are capitalized and amortized over the life of the premiums produced.  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.

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.  At least annually, a review is performed of the models and the assumptions used to develop expected future profits, based upon management’s current view of future events. VOBA is reviewed on an ongoing basis to determine that the unamortized portion does not exceed the expected recoverable amounts. Management’s view primarily reflects Company experience but can also reflect emerging trends within the industry. Short-term deviations in experience affect the amortization of VOBA in the period, but do not necessarily indicate that a change to the long-term assumptions of future experience is warranted. If it is determined that it is appropriate to change the assumptions related to future experience, then an unlocking adjustment is recognized for the block of business being evaluated. Certain assumptions, such as interest spreads and surrender rates, may be interrelated. As such, unlocking adjustments often reflect revisions to multiple assumptions. The VOBA balance is immediately impacted by any assumption changes, with the change reflected through the income statement as an unlocking adjustment in the amount of VOBA amortized. These adjustments can be positive or negative with adjustments reducing amortization limited to amounts previously deferred plus interest accrued through the date of the adjustment.

In addition, the Company may consider refinements in estimates due to improved capabilities resulting from administrative or actuarial system upgrades. The Company considers such enhancements to determine whether and to what extent they are associated with prior periods or simply improvements in the projection of future expected gross profits due to improved functionality. To the extent they represent such improvements, these items are applied to the appropriate financial statement line items in a manner similar to unlocking adjustments.

VOBA is also reviewed on an ongoing basis to determine that the unamortized portion does not exceed the expected recoverable amounts. If it is determined from emerging experience that the premium margins or gross profits are insufficient to amortize deferred acquisition costs, then the asset will be adjusted downward with the adjustment recorded as an expense in the current period.

Goodwill and Intangibles

Goodwill represents the excess of the amounts paid to acquire subsidiaries and other businesses over the fair value of their net assets at the date of acquisition. Goodwill is tested for impairment at least annually in the fourth quarter or more frequently if events or circumstances change that would indicate that a triggering event has occurred.

In September 2011, the FASB issued ASU 2011-08 which amends the rules for testing goodwill for impairment. Under the new rules, an entity has the option to first assess qualitative factors to determine whether the existence of events or circumstances leads to a determination that it is more likely than not that the fair value of a reporting unit is less than its carrying amount. If, after assessing the totality of events or circumstances, an entity determines it is not more likely than not that the fair value of a reporting unit is less than its carrying amount, then performing the two-step impairment test is unnecessary. We early adopted ASU 2011-08 for our December 31, 2011 annual goodwill impairment test.

In assessing the qualitative factors to determine whether it is more likely than not that the fair value of a reporting unit is less than its carrying amount, we assess relevant events and circumstances that may impact the fair value and the carrying amount of the reporting unit. The identification of relevant events and circumstances and how these may impact a reporting units’ fair value or carrying amount involve significant judgments and assumptions. The judgment and assumptions include the identification of macroeconomic conditions, industry and market considerations, cost factors, overall financial performance, specific events and share price trends and making the assessment on whether each relevant factor will impact the impairment test positively or negatively and the magnitude of any such impact.

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Based upon our fiscal 2011 qualitative impairment analysis, prepared in accordance with ASU 2011-08, we concluded that there was no requirement to do a quantitative annual goodwill impairment test. The key qualitative factors that led to our conclusion were i) that our calculation of goodwill recorded as part of the Old Reliance acquisition was performed as of August 3, 2011, which occurred only five months prior to our qualitative impairment analysis; ii) general positive trends in the macroeconomic environment and life insurance industry; iii) synergies arising from the integration of the entities resulting in lower costs of operations; and iv) subsequent to the date of the acquisition, the Company's operations have performed at or above our expectations.

The Company assesses the recoverability of intangible assets at least annually or whenever events or circumstances suggest that the carrying value of an identifiable intangible asset may exceed the sum of the undiscounted cash flows expected to result from its use and eventual disposition. If the asset is considered to be impaired, the amount of any impairment is measured as the difference between the carrying value and the fair value of the impaired asset.

Reinsurance

In the normal course of business, the Company seeks to limit aggregate and 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.

Future Policy Benefits

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.

Income Taxes

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 they believe are more-likely-than not that the benefit will not to be realized.

Recognition of Revenues

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, 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.

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New Accounting Standards

A detailed discussion of new accounting standards is provided in Note 1 — Nature of Operations and Summary of Significant Accounting Policies in the Notes to Consolidated Financial Statements.

Income

Our income prior to commencing insurance operations in 2009 came from our investments, which were nominal due to the need to maintain liquidity. When American Life commenced operations in September 2009, we also began to receive premium income from the sales of life insurance. Capital Reserve, acquired in 2010, had little impact on 2010 operations as it had no premium income or related expenses. Management expects the premium writings in American Life to increase substantially in the next few years, and as assets and policy reserves grow, expects investment income to grow also. An evaluation of the best use of the assets obtained in the acquisitions of Capital Reserve and Old Reliance is ongoing.

Consolidated Results of Operations

Insurance revenues are primarily generated from premium revenues and investment income.  Insurance revenues for the years ended December 31, 2011 and 2010 are summarized in the table below.

Premium revenue: Premium revenue in the year ended December 31, 2011 was $3,119,457, up $1,208,895 from $1,910,562 in the year ended December 31, 2010.  The increase in premium revenue is primarily attributable to the acquisition of Old Reliance on August 3, 2011, which added premium revenues of $621,858 during 2011.  Additional increases in revenues were a result of the Company’s continued growth.

Consideration on reinsurance assumed:  Consideration on reinsurance assumed in the year ended December 31, 2011 was $0 compared to $3,729,599 in the year ended December 31, 2010.   The decrease reflects the realization in the 2010 period of $3,729,599 in consideration for the reinsurance assumed from Security National. The consideration for reinsurance assumed is a non-recurring revenue that did not reoccur in 2011.

Investment income, net of expenses: The components of net investment income for the years ended December 31, 2011 and 2010 are as follows:

Investment income, net of expenses was $268,287 in the 2011 period compared to $167,613 in the 2010 period.  This increase is primarily a result of higher average invested balances as a result of investment of capital along with the acquisition of investments from Old Reliance.

Miscellaneous income:  Miscellaneous income was $223,711 for the year ended December 31, 2011 compared to $24,138 in the year ended December 31, 2010, which was largely due to the gain recognized from writing up the Company’s previously held interest in Security Capital.

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Expenses for the years ended December 31, 2011 and 2010 are summarized in the table below.

Death and other benefits:  Death and other policy benefits were $383,899 in the 2011 period compared to $162,099 in the 2010 period. The increase in death and other policy benefits is primarily attributable to the acquisition of Old Reliance.

Increase in benefit reserves:  The increase in benefit reserves was $1,199,340 in 2011 compared to $4,650,227 in 2010.  This decrease in expense primarily relates to the one-time benefit reserve increase required in 2010 as a result of the assumption of insurance from Security National discussed above.  The decrease reflects the significant one-time increase in benefit reserves of $3,729,599 which was required in the 2010 period as a result of the assumption of insurance from Security National. This increase in benefit reserves was a non-recurring event that was not repeated in 2011.

Amortization of deferred acquisition costs:  Life insurance companies are required to defer certain expenses that vary with, and are primarily related to, the cost of acquiring new business. The majority of these acquisition expenses consist of commissions paid to agents, underwriting costs, and certain marketing expenses.  In accordance with accounting principles generally accepted in the United States of America (GAAP), these costs are capitalized and amortized over the life of the premiums produced. Amortization of such costs was $624,650 in 2011, compared to $320,935 in 2010.  The increase in amortization of deferred acquisition costs directly relates to an increase in the balances of deferred acquisition costs.

Salaries and benefits: Salaries and benefits were $2,534,175 in 2011 compared to $960,154 in 2010.  This increase in payroll results from the addition of 11 new employees from January 2010 to December 2011and general salary increases as a result of the anticipated growth of our life insurance business.

Other expenses: Other expenses (general administrative expenses, licenses and fees, and other expenses) were $2,745,737 in 2011 compared to $1,961,631 in 2010.  This increase is mainly the result of the continued growth of our business.  We expect most of these expenses to continue to increase in the future as a result of an increased administrative expenses necessary for the management of the anticipated growth of our life insurance business, although management intends to pursue opportunities to forge partnerships with other companies of similar size in order to achieve better economies of scale.

Net Loss:  Net loss attributable to Midwest Holding Inc. was ($3,777,945) for the year ended December 31, 2011, compared to a net loss of ($2,223,205) for the year ended December 31, 2010. The increase in the net loss was primarily attributable to the fact that the overall increase in recurring expenses described above more than offset the overall increase in recurring revenue. We expect our losses to continue and increase in the future as we incur increased cost to grow our life insurance business.

Investments

The Company’s overall conservative 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, mortgage loans on real estate, held for investment, policy loans, and other investments.  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.

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Increases in fixed maturity securities, equity securities, mortgage loans on real estate, held for investment, real estate, held for investment, and policy loans are primarily a result of the Old Reliance acquisition.

Increases in private placement common stock are a result from the acquisition of Security Capital Corporation during the third quarter of 2011.  Security Capital Corporation’s primary asset was its investment in equity securities, which added $434,000 to the consolidated balance sheet.

Increases in notes receivable are a result of short-term financing arrangements made with affiliated companies to cover operating expenses during developmental stage activities.  As of December 31, 2011, the company had short-term financing arrangements with Rocky Mountain Capital Corporation and Northstar Financial Corp. in the amounts of $105,000 and $115,000, respectively.  The Northstar note was repaid in full on January 11, 2012 and management anticipates the repayment of the Rocky Mountain note during 2012.

The following table shows the distribution of the credit ratings of our portfolio of fixed maturity securities by carrying value.

Reflecting the high quality of securities maintained by the Company, 99.1% and 98.5% of all fixed maturity securities were investment grade as of December 31, 2011 and 2010, respectively.

Increases in fixed maturity securities primarily resulted from the acquisition of Old Reliance. The following table shows the distribution of credit ratings of our portfolio by carrying value as of December 31, 2011 specifically of the bonds acquired as part of the Old Reliance acquisition.

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The Company acquired approximately $1.7 million of fixed maturity securities rated AAA and U.S. Government during the year as part of the Old Reliance acquisition.  However, this was offset by sales of similarly rated securities during the year and to a lesser extent, downgrades of similarly rated securities.  The increase in fixed maturity securities rated AA and BBB is primarily related to additional purchases of securities during the year and to a lesser extent, bonds acquired from Old Reliance.  The increase in fixed maturity securities rated A is primarily related to bonds acquired from Old Reliance.

The Company acquired approximately $700K of mortgage loans on real estate, held for investment during the year as part of the Old Reliance acquisition.  As part of the Old Reliance purchase agreement, the seller guaranteed the performance of the mortgage loans.  Additionally, the Company transferred $200K from notes receivable to mortgage loans on real estate, held for investment during the year as the note receivable was restructured as a mortgage loan.

Market Risks of Financial Instruments

We hold a diversified portfolio of investments that primarily includes cash, bonds, stocks, mortgage loans on real estate, held for investment, real estate, held for investment and notes receivable. Each of these investments is subject to market risks that can affect their return and their fair value. A majority of our 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 our investment portfolio are interest rate risk, credit risk, and equity risk.

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 our fixed maturity investments and through maintaining cash and other short term investments to assure sufficient liquidity to meet our 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 our 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 established investment credit policies and guidelines which address the quality of creditors and counterparties, concentration limits, diversification practices and acceptable risk levels. These policies and guidelines are regularly reviewed and approved by senior management.

Equity Risk

Equity risk is the risk that the Company will incur economic losses due to adverse fluctuations in a particular stock. As of December 31, 2011 and 2010, the fair value of our equity securities was $1,820,205 and $1,110,725, respectively. As of December 31, 2011 a 10% decline in the value of the equity securities would result in an unrealized loss of $182,021 as compared to an estimated unrealized loss of $111,073 as of December 31, 2010. The selection of a 10% unfavorable change in the equity markets should not be construed as a prediction by the Company of future market events, but rather as an illustration of the potential impact of such an event.

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Liquidity and Capital Resources

Since inception, our operations have been financed primarily through the sale of voting common stock and preferred stock. As a result of delays in obtaining the Certificate of Authority for American Life, our operations have not been profitable and have generated significant operating losses since the Company was incorporated in 2003.

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 pay 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 meet the ongoing cash flow needs of the Company. The approach of matching asset and liability durations and yields requires an appropriate mix of investments. Additionally, the Company’s investments consist primarily of marketable debt securities that could be readily converted to cash for liquidity needs.

In the year ended December 31, 2011, net cash used in operating activities was ($3,832,432) compared to cash provided by operating activities of $667,993 for the year ended December 31, 2010. The cash provided by operating activities in 2010 was largely due to the effects of the non-recurring transaction with Security National, and the net cash used in operating activities in the 2011 period largely reflects our operating losses. In the 2011 period, net cash used in investing activities was ($3,702,400) compared to ($2,501,251) in the 2010 period. The increase in cash flow used in investing activities is a primarily a result of the Company’s acquisition of Old Reliance offset by a decrease in purchases of available for sale securities. In the 2011 period, net cash provided by financing activities was $4,754,089 compared to $5,599,612 in the 2010 period. The decrease in positive cash flow from financing activities can be attributed to the decrease in proceeds from the sale of shares of voting common stock to existing shareholders in Nebraska in the first half of 2011 and partially offset by proceeds from issuing equity instruments and transfers from noncontrolling interests both in relation capital raising efforts through a private placement by the Company’s less than wholly owned subsidiary, Hot Dot.

At December 31, 2011, we had cash and cash equivalents totaling $2,469,725. We believe that our existing cash and cash equivalents will be sufficient to fund our anticipated operating expenses and capital expenditures for at least twelve months. We have based this estimate upon assumptions that may prove to be wrong and we could use our capital resources sooner than we currently expect. The growth of American Life is uncertain and will require additional capital if it continues to grow.

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 our 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 7A.  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 8.  CONSOLIDATED FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.

The consolidated financial statements are included as a part of this report beginning on page F-1.

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ITEM 9.  CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE.

On December 3, 2009, we dismissed Dana F. Cole & Company, LLP (“Dana Cole”) as our auditor. At that time, we anticipated that we would be required to file a Form 10 pursuant to Section 12(g) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), and the rules and regulations thereunder. Dana Cole was not registered with the Public Company Accounting Oversight Board and could not audit our financial statements for the purposes of including them in this report. Thus, Dana Cole was not engaged to audit our financial statements for the year ended December 31, 2009, even though it had audited our financial statements in prior years. Our Board of Directors approved the dismissal of Dana Cole. None of the prior reports of Dana Cole on our financial statements contained an adverse opinion or disclaimer of opinion, or was qualified or modified as to uncertainty, audit scope or accounting principles. We did not have any disagreements with Dana Cole regarding any matter of accounting principles or practices, financial statement disclosure or auditing scope or procedure.

On December 3, 2009, we engaged McGladrey & Pullen, LLP (“McGladrey”) as our auditor. Prior to the engagement of McGladrey, we did not consult with McGladrey regarding (1) the application of accounting principles to specified transactions, (2) the type of audit opinion that might be rendered on our financial statements, (3) written or oral advice that would be an important factor considered by us in reaching a decision as to an accounting, auditing or financial reporting issues, or (4) any matter that was the subject of a disagreement between our company and our predecessor auditor as described in Item 304(a)(1)(iv) or a reportable event as described in Item 304(a)(1)(v) of Regulation S-K. The decision to engage McGladrey was approved by our Board of Directors.

ITEM 9A.  CONTROLS AND PROCEDURES.

(a) Conclusions Regarding Disclosure Controls and Procedures

We have established disclosure controls and procedures to ensure, among other things, material information relating to our Company, including our consolidated subsidiaries, 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.

As required by Exchange Act Rule 13a-15(b), management of the Company, including the President and the Secretary/Treasurer, conducted an evaluation as of the end of the period covered by this report, of the effectiveness of the Company’s disclosure controls and procedures as defined in Exchange Act Rules 13a-15(e).  Based upon an evaluation at the end of the period, the President and Secretary/Treasurer concluded that disclosure controls and procedures are effective in timely alerting them to material information relating to us and our consolidated subsidiaries required to be disclosed in our periodic reports under the Exchange Act.

(b) Management’s Assessment on Internal Control Over Financial Reporting

The Annual Report on Form 10-K does not include a report of management’s assessment regarding internal control over financial reporting or an attestation report of the Company’s registered public accounting firm due to a transition period established by rules of the Securities and Exchange Commission for newly public companies.

(c) Changes in Internal Control over Financial Reporting

During 2011, management hired additional employees to improve the Company’s segregation of duties related to preparing financial reports and to provide additional experience in selecting the correct accounting policies for, and establishing policies, procedures and controls to record and report the Company’s business transactions.  On February 1, 2012, the Company terminated its agreement with its third party administrator and brought all of its accounting operations in-house.  Other than the aforementioned, there was no change in our internal control over financial reporting that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

ITEM 9B.  OTHER INFORMATION.

There is no information required to be disclosed on Form 8-K for the quarter ended December 31, 2011 which has not been previously reported.

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PART III.

ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE.

The information required by Item 10 is incorporated into Part III of this Annual Report on Form 10-K by reference to the Company’s definitive Proxy Statement for the Annual Meeting of Stockholders scheduled to be held on June 12, 2012.

The Company has adopted a Code of Ethics for Officers, Directors and Employees. The Code of Ethics is filed as Exhibit 14.1 to this Annual Report on Form 10-K and is available on the Company’s website at http://www.midwestholding.com.

ITEM 11. EXECUTIVE COMPENSATION

The information required by Item 11 is incorporated into Part III of this Annual Report on Form 10-K by reference to the Company’s definitive Proxy Statement for the Annual Meeting of Stockholders scheduled to be held on June 12, 2012.

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS

The information required by Item 12 is incorporated into Part III of this Annual Report on Form 10-K by reference to the Company’s definitive Proxy Statement for the Annual Meeting of Stockholders scheduled to be held on June 12, 2012.

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE

The information required by Item 13 is incorporated into Part III of this Annual Report on Form 10-K by reference to the Company’s definitive Proxy Statement for the Annual Meeting of Stockholders scheduled to be held on June 12, 2012.

ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES

The information required by Item 14 is incorporated into Part III of this Annual Report on Form 10-K by reference to the Company’s definitive Proxy Statement for the Annual Meeting of Stockholders scheduled to be held on June 12, 2012.

PART IV.

ITEM 15.  EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.

(a)                                  1. Consolidated Financial Statements:

The list of financial statements filed as part of this Annual Report on Form 10-K is provided on page F-1.

2. Financial Statement Schedules:

The list of financial statement schedules filed as part of this Annual Report on Form 10-K is provided on page FS-1.

(b)                                 Exhibits:

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SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) 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: April 2, 2012

Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Registrant and in the capacities indicated on the dates indicated.

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MIDWEST HOLDING INC. AND SUBSIDIARIES

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

Table of Contents

Report of Independent Registered Public Accounting Firm

To the Board of Directors and Stockholders

Midwest Holding Inc. and Subsidiaries

We have audited the accompanying consolidated balance sheets of Midwest Holding Inc. and Subsidiaries (the Company) as of December 31, 2011 and 2010, and the related consolidated statements of operations, stockholders’ equity, and cash flows for the years then ended. Our audits also included the financial statement schedules of Midwest Holding Inc. listed in Item 15. These consolidated financial statements and financial statement schedules are the responsibility of the Company’s management. Our responsibility is to express an opinion on these consolidated financial statements and schedules based on our audits.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. The Company is not required to have, nor were we engaged to perform an audit of its internal control over financial reporting. Our audits included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Midwest Holding Inc. and Subsidiaries as of December 31, 2011 and 2010, and the results of their operations and their cash flows for the years then ended in conformity with U.S. generally accepted accounting principles. Also, in our opinion, the related financial statement schedules, when considered in relation to the basic consolidated financial statements taken as a whole, present fairly in all material respects the information set forth therein.

/s/ McGladrey & Pullen, LLP

Omaha, Nebraska

April 2, 2012

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Midwest Holding Inc. and Subsidiaries

Consolidated Balance Sheets

December 31, 2011 and 2010

See Notes to Consolidated Financial Statements.

F-3

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Midwest Holding Inc. and Subsidiaries

Consolidated Statements of Operations

Years Ended December 31, 2011 and 2010

See Notes to Consolidated Financial Statements.

F-4

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Midwest Holding Inc. and Subsidiaries

Consolidated Statements of Stockholders’ Equity

Years Ended December 31, 2011 and 2010