f10q0311_gwg.htm
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
__________________________
FORM 10-Q
S QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 2012
or
£ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES ACT OF 1934
For the transition period from _________ to ________
Commission File Number: None
GWG HOLDINGS, INC.
(Exact name of registrant as specified in its charter)
Delaware
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26-2222607
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(State or other jurisdiction of incorporation or organization) |
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(I.R.S. Employer Identification No.) |
220 South Sixth Street, Suite 1200
Minneapolis, MN 55402
(Address of principal executive offices, including zip code)
(612) 746-1944
(Registrant’s telephone number, including area code)
________________________
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.
T Yes £ No
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). £ Yes £ No
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company (as defined in Rule 12b-2 of the Exchange Act).
Large accelerated filer £ Accelerated filer £
Non-accelerated filer £ Smaller reporting company T
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
£ Yes T No
As of May 13, 2012, GWG Holdings, Inc. had 9,989,000 shares of common stock outstanding.
GWG HOLDINGS, INC.
Index to Form 10-Q
for the Quarter Ended March 31, 2012
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Page No.
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PART I.
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FINANCIAL INFORMATION
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Item 1.
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Financial Statements
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Condensed Consolidated Balance Sheets as of March 31, 2012, and December 31, 2011
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1
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Condensed Consolidated Statements of Operations for the three months ended March 31, 2012 and 2011
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2
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Condensed Consolidated Statements of Cash Flows for the three months ended March 31, 2012 and 2011
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4
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Notes to Condensed Consolidated Financial Statements
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6
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Item 2.
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Management’s Discussion and Analysis of Financial Condition and Results of Operations
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23
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Item 4.
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Controls and Procedures
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32
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PART II.
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OTHER INFORMATION
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Item 2.
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Unregistered Sales of Equity Securities and Use of Proceeds
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32
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Item 6.
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Exhibits
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33
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SIGNATURES
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34
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PART I—FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
GWG HOLDINGS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
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March 31, 2012
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December 31, 2011
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(unaudited)
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A S S E T S
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Cash and cash equivalents
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$ |
4,548,766 |
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|
$ |
1,878,349 |
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Restricted cash
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1,569,464 |
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4,794,302 |
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Investment in life settlements, at fair value
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128,112,092 |
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122,168,524 |
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Deferred financing costs, net
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271,713 |
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329,937 |
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Other assets
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|
131,563 |
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218,163 |
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TOTAL ASSETS
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$ |
134,633,598 |
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$ |
129,389,275 |
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L I A B I L I T I E S & E Q U I T Y
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LIABILITIES
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Revolving credit facility
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$ |
62,500,000 |
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$ |
60,000,000 |
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Series I Secured notes payable
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|
43,758,661 |
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48,179,271 |
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Secured renewable debentures
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3,061,873 |
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- |
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Accounts payable
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370,826 |
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435,768 |
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Accrued expenses
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|
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Interest
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2,132,262 |
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1,887,835 |
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Other
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1,320,045 |
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968,339 |
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Deferred taxes, net
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|
3,168,769 |
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4,308,217 |
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TOTAL LIABILITIES
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|
116,312,436 |
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115,779,430 |
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CONVERTIBLE, REDEEMABLE PREFERRED STOCK
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(par value $0.001; shares authorized 40,000,000; shares issued and outstanding 2,901,464 and 1,881,329; liquidation preference of $21,760,980 and $14,108,772, respectively)
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19,845,837 |
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12,661,276 |
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EQUITY
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Common stock (par value $0.001: shares authorized 210,000,000; shares issued
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and outstanding is 9,989,000 on both March 31, 2012 and December 31, 2011)
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9,989 |
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9,989 |
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Additional paid-in capital
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7,848,888 |
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8,169,303 |
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Accumulated deficit
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(9,383,552 |
) |
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(7,230,723 |
) |
TOTAL EQUITY (DEFICIT)
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(1,524,675 |
) |
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948,569 |
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TOTAL LIABILITIES & EQUITY
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$ |
134,633,598 |
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$ |
129,389,275 |
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The accompanying notes are an integral part of these Condensed Consolidated Financial Statements.
GWG HOLDINGS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(unaudited)
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Three Months Ended
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March 31, 2012
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March 31, 2011
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REVENUE
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Gain on life settlements, net
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$ |
601,768 |
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$ |
5,357,641 |
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Interest and other income
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1,332 |
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30,156 |
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TOTAL REVENUE
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603,100 |
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5,387,797 |
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EXPENSES
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Employee compensation and benefits
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533,745 |
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483,270 |
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Legal and professional fees
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364,225 |
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160,299 |
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Interest expense
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2,438,414 |
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1,284,189 |
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Other expenses
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558,993 |
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229,838 |
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TOTAL EXPENSES
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3,895,377 |
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2,157,596 |
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INCOME (LOSS) BEFORE INCOME TAXES
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(3,292,277 |
) |
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3,230,201 |
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INCOME TAX BENEFIT
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(1,139,448 |
) |
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- |
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NET INCOME (LOSS)
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(2,152,829 |
) |
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3,230,201 |
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NET INCOME ATTRIBUTABLE TO
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REDEEMABLE MEMBER’S INTEREST
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- |
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(143,948 |
) |
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NET INCOME (LOSS) AVAILABLE TO
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NONREDEEMABLE MEMBERS’ INTEREST
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$ |
(2,152,829 |
) |
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$ |
3,086,253 |
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EARNINGS (LOSS) PER SHARE
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Basic
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$ |
(0.22 |
) |
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$ |
0.36 |
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Diluted
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$ |
(0.22 |
) |
|
$ |
0.36 |
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WEIGHTED AVERAGE SHARES OUTSTANDING
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Basic
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9,989,000 |
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9,000,000 |
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Diluted
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|
9,989,000 |
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|
9,000,000 |
|
The accompanying notes are an integral part of these Condensed Consolidated Financial Statements.
GWG HOLDINGS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS – CONTINUED
(unaudited)
PROFORMA INFORMATION AS IF THE COMPANY
HAD BEEN A CORPORATION DURING THE THREE MONTHS ENDED MARCH 31, 2011
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INCOME BEFORE INCOME TAXES
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$ |
3,230,201 |
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INCOME TAX EXPENSE
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1,269,469 |
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NET INCOME
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$ |
1,960,732 |
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PROFORMA EARNINGS PER SHARE ATTRIBUTABLE TO
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CONTROLLING INTERESTS
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BASIC
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$ |
0.22 |
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FULLY DILUTED
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$ |
0.22 |
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PROFORMA WEIGHTED AVERAGE SHARES OUTSTANDING
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BASIC
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|
9,000,000 |
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FULLY DILUTED
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|
9,000,000 |
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The accompanying notes are an integral part of these Condensed Consolidated Financial Statements.
GWG HOLDINGS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
(unaudited)
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Three Months Ended
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|
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March 31, 2012
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March 31, 2011
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CASH FLOWS FROM OPERATING ACTIVITIES
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|
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Net income (loss)
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$ |
(2,152,829 |
) |
|
$ |
3,230,201 |
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Adjustments to reconcile net income (loss) to net
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cash flows from operating activities:
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Gain on life settlements
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(4,791,058 |
) |
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(8,379,645 |
) |
Amortization of deferred financing and issuance costs
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|
567,160 |
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|
193,416 |
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Deferred income taxes
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(1,139,448 |
) |
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|
- |
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Convertible, redeemable preferred stock dividends payable
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126,075 |
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- |
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(Increase) decrease in operating assets:
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Due from related parties
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|
768 |
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(27,714 |
) |
Other assets
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(268,672 |
) |
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261,111 |
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Increase (decrease) in operating liabilities:
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Accounts payable
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(64,942 |
) |
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(587,692 |
) |
Accrued interest
|
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|
244,427 |
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|
36,287 |
|
Accrued expenses
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378,197 |
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(89,077 |
) |
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NET CASH FLOWS USED IN OPERATING ACTIVITIES
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(7,100,322 |
) |
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(5,363,113 |
) |
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CASH FLOWS FROM INVESTING ACTIVITIES
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Investment in life settlements
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(1,153,260 |
) |
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(4,634,005 |
) |
NET CASH FLOWS USED IN INVESTING ACTIVITIES
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(1,153,260 |
) |
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(4,634,005 |
) |
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CASH FLOWS FROM FINANCING ACTIVITIES
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Net proceeds from revolving credit facility
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2,500,000 |
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4,462,500 |
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Proceeds from issuance of Series I Secured notes payable
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|
50,000 |
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|
6,281,039 |
|
Payments for redemption of Series I Secured notes payable
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(1,550,537 |
) |
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(2,488,350 |
) |
Proceeds from issuance of secured renewable debentures
|
|
|
3,061,873 |
|
|
|
- |
|
Proceeds from restricted cash
|
|
|
3,224,838 |
|
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|
257,671 |
|
Issuance of preferred stock
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|
|
4,436,465 |
|
|
|
- |
|
Payments of issuance cost for preferred stock
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|
|
(798,640 |
) |
|
|
- |
|
NET CASH FLOWS PROVIDED BY FINANCING ACTIVITIES
|
|
|
10,923,999 |
|
|
|
8,512,860 |
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|
|
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|
|
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NET INCREASE IN CASH AND CASH EQUIVALENTS
|
|
|
2,670,417 |
|
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|
(1,484,258 |
) |
|
|
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|
|
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CASH AND CASH EQUIVALENTS
|
|
|
|
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BEGINNING OF PERIOD
|
|
|
1,878,349 |
|
|
|
1,758,230 |
|
END OF PERIOD
|
|
$ |
4,548,766 |
|
|
$ |
273,972 |
|
The accompanying notes are an integral part of these Condensed Consolidated Financial Statements.
GWG HOLDINGS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS – CONTINUED
(unaudited)
|
|
Three Months Ended
|
|
|
|
March 31, 2012
|
|
|
March 31, 2011
|
|
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
|
|
|
|
|
|
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Interest paid
|
|
$ |
1,149,000 |
|
|
$ |
1,058,000 |
|
|
|
|
|
|
|
|
|
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NON-CASH INVESTING AND FINANCING ACTIVITIES
|
|
|
|
|
|
|
|
|
Convertible, redeemable preferred stock:
|
|
|
|
|
|
|
|
|
Non-cash conversion of Series I secured notes
|
|
$ |
3,090,000 |
|
|
$ |
- |
|
Non-cash conversion of accrued interest payable on Series I secured notes
|
|
$ |
4,000 |
|
|
$ |
- |
|
Non-cash accretion of convertible, redeemable preferred stock to redemption value
|
|
$ |
340,000 |
|
|
$ |
- |
|
Non-cash conversion of dividends payable
|
|
$ |
112,000 |
|
|
$ |
- |
|
Non-cash conversion of accrued interest payable on Series I secured notes to principal
|
|
$ |
37,000 |
|
|
$ |
- |
|
The accompanying notes are an integral part of these Condensed Consolidated Financial Statements.
GWG HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
( 1 ) Nature of business and summary of significant accounting policies
Nature of business - GWG Holdings, Inc. (Holdings) (previously GWG Holdings, LLC) and Subsidiaries, located in Minneapolis, Minnesota, facilitates the purchase of life insurance policies for its own investment portfolio through its wholly owned subsidiary, GWG Life Settlements, LLC (GWG Life), and its subsidiaries, GWG Trust (Trust), GWG DLP Funding II, LLC (DLP II) and its wholly owned subsidiary, GWG DLP Master Trust II (the Trust II). Holdings converted from a limited liability company into a corporation effective June 10, 2011 and as a result of this change all member units were converted into common stock. Holdings finances the acquisition of life insurance policies and pays policy premiums through its line of credit and other debt and equity securities as well as from revenues from maturities of life insurance policies. Holdings earns fees for brokering policy transactions between market participants through its wholly owned subsidiary, GWG Broker Services, LLC (Broker Services). GWG Member, LLC a wholly owned subsidiary formed November 2010 to facilitate the acquisition of policies, has not commenced operations as of March 31, 2012. The entities were legally organized in Delaware and are collectively referred herein to as GWG, or the Company.
Basis of presentation - The condensed consolidated balance sheet as of March 31, 2012, the condensed consolidated statements of operations for the three months ended March 31, 2012 and 2011, and the condensed consolidated statements of cash flows for the three months ended March 31, 2012 and 2011, and the related information presented in these notes, have been prepared by management in accordance with U.S. generally accepted accounting principles for interim financial information and with the instructions to Form 10-Q and Rule 10-01 of Regulation S-X, without audit. To the extent that information and notes required by U.S. generally accepted accounting principles (“GAAP”) for complete financial statements are contained in or are consistent with the consolidated audited financial statements in the Company’s Form 10-K for the year ended December 31, 2011, such information and notes have not been duplicated herein . In the opinion of management, all adjustments considered necessary for a fair presentation of results have been included. The condensed consolidated balance sheet at December 31, 2011 was derived from the audited consolidated financial statements as of that date. Operating results for the three months ended March 31, 2012 are not necessarily indicative of the results that may be expected for the year ending December 31, 2012. For further information, refer to the consolidated financial statements and notes thereto included in the Company’s Special Financial Report on Form 10-K for the year ended December 31, 2011.
Use of estimates - The preparation of consolidated financial statements in conformity with Generally Accepted Accounting Principles (GAAP) requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. The Company regularly evaluates estimates and assumptions. The Company bases its estimates and assumptions on current facts, historical experience, and various other factors that it believes to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities and the accrual of costs and expenses that are not readily apparent from other sources. The actual results experienced by the Company may differ materially and adversely from the Company’s estimates. To the extent there are material differences between the estimates and the actual results, future results of operations will be affected. The most significant estimates with regard to these consolidated financial statements relates to (1) the determination of the assumptions used in estimating the fair value of the investment in life insurance policies, and (2) the value of deferred tax assets upon conversion to a corporation.
Operating agreement – Prior to the conversion to a corporation in 2011, the Amended and Restated Operating Agreement dated September 29, 2009 (Operating Agreement), specified the members’ obligations and rights relating to contributions, income, gains, losses, deductions, credits and distributions. The Company had issued 2,044 Class A units and 200 Class B units to members. The Operating Agreement provided for the allocation of income, losses and distribution to unit holders on a pro rata basis for all Class A and Class B members.
One Class B member held a put right to cause the Company to purchase the member’s 100 units at fair value. This put option was exercisable five years from the date of the Operating Agreement (March 19, 2013) or at any time at which voting control over the remaining unit holders is relinquished. The Operating Agreement also gave the Company the right to purchase, at fair value, the 100 units held by the aforementioned Class B member. This call right became exercisable on February 10, 2011. The redemption value of the Class B units subject to the put and call provisions have been excluded from member’s equity through March 2011 in accordance with the guidance in Accounting Standards Codification (ASC) 480 “Distinguishing Liabilities from Equity.”
GWG HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
The Operating Agreement, with the consent of its unit holders, was amended effective March 31, 2011 to eliminate the put and call option held by the Class B unit holder and the Company, respectively. As a result, the accumulated loss attributable to the Class B units of $509,126 was reclassified as a component of equity.
Effective June 10, 2011, the Company filed a certificate of conversion from a limited liability company into a corporation, registered in the state of Delaware. With this conversion, the Company is authorized to issue 210,000,000 shares of common stock, par value $.001, and 40,000,000 shares of preferred stock, par value $.001. In connection with the conversion, the outstanding member units were converted to 4,500,000 shares of common stock (prior to giving effect to the August 9, 2011 two-for-one forward stock split discussed below). Common stock dividends distributed subsequent to the conversion will be recorded as a reduction of paid in capital until the Company reflects accumulated positive earnings.
On July 31, 2011, the Company began a private placement offering for the sale of up to 3,333,333 shares of Series A 10% convertible, redeemable preferred stock at an offering price of $7.50 per share (see note 10).
On August 9, 2011 the Company filed an amendment to its certificate of incorporation to effect a two-for-one forward stock split of its common stock. Unless otherwise noted, all share amounts contained in these consolidated financial statements are post-split share amounts determined after giving effect to the forward stock split.
Life settlements - ASC 325-30, Investments in Insurance Contracts, allows an investor the election to account for its investments in life settlements using either the investment method or the fair value method. The election shall be made on an instrument-by-instrument basis and is irrevocable. Under the investment method, an investor shall recognize the initial investment at the purchase price plus all initial direct costs. Continuing costs (policy premiums and direct external costs, if any) to keep the policy in force shall be capitalized. Under the fair value method, an investor shall recognize the initial investment at the purchase price. In subsequent periods, the investor shall re-measure the investment at fair value in its entirety at each reporting period and shall recognize the change in fair value in current period income net of premiums paid. The Company uses the fair value method to account for all investments in life settlements.
The Company recognizes the difference between the death benefits received and carrying values of the life insurance policy when an insured event has occurred and the Company determines that settlement and ultimate collection of the death benefits is realizable and reasonably assured. Revenue from a transaction must meet both criteria in order to be recognized. The Company recognizes realized gains (revenue) from life settlement contracts upon one of the two following events:
1) Receipt of death notice or verified obituary of insured
2) Sale of policy and filing of change of ownership forms and receipt of payment
Deposits and initial direct costs advanced on policies to be purchased, but not yet settled, are recorded as other assets until policy ownership has been transferred to the Company.
Deferred financing and issuance costs – Financing costs incurred to obtain financing under the revolving credit facility have been capitalized and are amortized using the straight-line method over the term of the revolving credit facility. Amortization of deferred financing costs was $58,000 for each of the three months ended March 31, 2012 and 2011. The future amortization is $175,000 and $97,000 for the nine months ending December 31, 2012 and the year ending December 31, 2013, respectively. The Series I Secured note obligations, as described in note 7, are reported net of issuance costs, sales commissions and other direct expenses, which are amortized using the interest method over the term of the borrowings. The renewable secured debentures, as described in note 8, are reported net of issuance costs, sales commissions, and other direct expenses, which are amortized using the interest method over the term of the borrowings. The Series A convertible, redeemable preferred stock, as described in note 10, is reported net of issuance costs, sales commissions, and other direct expenses, which are amortized using the interest method over the three year redemption period to the redemption amount.
GWG HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
Earnings (loss) per share – The Company converted from a limited liability company into a corporation effective June 10, 2011, and as a result of this change all member units were converted into common stock. The earnings (loss) per share has been restated to reflect the equivalent common stock per share amounts as of the earliest period reported. Basic per share earnings (loss) is calculated using the weighted average number of shares outstanding during the period. Diluted earnings per share is calculated based on the potential dilutive impact, if any, of the Company’s preferred stock and outstanding warrants. The Company has 215,729 warrants and 4,352,196 shares of Convertible Redeemable Preferred Stock (equivalent common shares if Convertible Redeemable Preferred Stock were converted into common stock). The Convertible Redeemable Preferred Stock and warrants are anti-dilutive for the three months ended March 31, 2012.
Recently adopted pronouncements – In May 2011, the FASB issued ASU No. 2011-04, “Fair Value Measurement (Topic 820): Amendments to Achieve Common Fair Value Measurement and Disclosure Requirements in U.S. GAAP and IFRS,” which amends disclosure requirements related to categorization within the fair value hierarchy. This update results in common principles and requirements for measuring fair value and disclosing information about fair value measurements in accordance with GAAP and International Financial Reporting Standards. The guidance became effective January 1, 2012. The adoption of this guidance did not have a material impact on the Company’s consolidated financial statements.
Other pronouncements issued by the FASB or other authoritative accounting standards groups with future effective dates are either not applicable or are not expected to be significant to the Company.
( 2 ) Restrictions on cash
The Company is required by its lenders to maintain collection and escrow accounts. These accounts are used to fund the acquisition and pay annual premiums of insurance policies and to pay interest and other charges under its revolving credit facility. DZ Bank AG, as agent for Autobahn Funding Company, LLC, the lender for the revolving credit facility as described in note 6, authorizes the disbursements from these accounts. The Company also maintains a separate cash account for the deposit of Series I Secured note proceeds as described in note 7. An account control agreement is in place with the Series I Trustee, Lord Securities Corporation, who must authorize disbursements from this account for uses identified in note 7. At March 31, 2012 and December 31, 2011 there was a balance of $1,569,000, and $4,794,000, respectively, maintained in these restricted cash accounts.
( 3 ) Investment in life insurance policies
The life insurance policies (Level 3 financial instruments) are valued based on inputs that are unobservable and significant to the overall fair value measurement. Changes in the fair value of these instruments are recorded in gain or loss on life insurance policies in our consolidated statements of operations (net of the cash premiums paid on the policies). The fair value is determined on a discounted cash flow basis that incorporates current life expectancy assumptions. Life expectancy reports have been obtained from widely accepted life expectancy providers. The discount rate incorporates current information about market interest rates, the credit exposure to the insurance company that issued the life insurance policy and our estimate of the risk premium an investor in the policy would require. As a result of management’s analysis, discount rates of 13.45%, and 13.31% were applied to the portfolio as of March 31, 2012 and 2011, respectively.
GWG HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
A summary of the Company’s life insurance policies, as of March 31, 2012 accounted for under the fair value method, based on remaining life expectancy is as follows:
Years Ending December 31,
|
|
Number of Contracts
|
|
|
Estimated Fair Value
|
|
|
Face Value
|
|
2012
|
|
|
- |
|
|
$ |
- |
|
|
$ |
- |
|
2013
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
2014
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
2015
|
|
|
5 |
|
|
|
2,789,000 |
|
|
|
5,329,000 |
|
2016
|
|
|
12 |
|
|
|
12,797,000 |
|
|
|
31,135,000 |
|
2017
|
|
|
28 |
|
|
|
24,046,000 |
|
|
|
67,498,000 |
|
2018
|
|
|
34 |
|
|
|
25,147,000 |
|
|
|
83,008,000 |
|
Thereafter
|
|
|
102 |
|
|
|
63,333,000 |
|
|
|
295,485,000 |
|
Totals
|
|
|
181 |
|
|
$ |
128,112,000 |
|
|
$ |
482,455,000 |
|
There were no death benefits recognized by the Company during the three month periods ended March 31, 2012 and 2011, respectively. The Company recognized death benefits of $4,500,000 in May 2012.
Reconciliation of gain on life settlements:
|
|
Three Months Ended
March 31,
2012
|
|
|
Three Months Ended
March 31,
2011
|
|
Change in fair value
|
|
$ |
4,791,000 |
|
|
$ |
8,380,000 |
|
Premiums and other annual fees
|
|
|
(4,189,000 |
) |
|
|
(3,022,000 |
) |
Policy maturities
|
|
|
- |
|
|
|
- |
|
Gain on life settlements, net
|
|
$ |
602,000 |
|
|
$ |
5,358,000 |
|
The estimated expected premium payments to maintain the above life insurance policies in force for the next five years, assuming no mortalities, are as follows:
Years Ending December 31,
|
|
|
|
Nine months ending December 31, 2012
|
|
$
|
11,568,000
|
|
2013
|
|
|
16,237,000
|
|
2014
|
|
|
17,274,000
|
|
2015
|
|
|
18,592,000
|
|
2016
|
|
|
20,015,000
|
|
|
|
$
|
83,686,000
|
|
Management anticipates funding the estimated premium payments as noted above with proceeds from the DZ Bank revolving credit facility and through additional debt and equity financing as well as from revenues from maturities of life insurance policies. The proceeds of these capital sources are also intended to be used for the purchase, financing, and maintenance of additional life insurance policies.
( 4 ) Fair value definition and hierarchy
ASC 820 establishes a hierarchal disclosure framework which prioritizes and ranks the level of market price observability used in measuring assets and liabilities at fair value. Market price observability is affected by a number of factors, including the type of investment, the characteristics specific to the investment and the state of the marketplace including the existence and transparency of transactions between market participants. Assets and liabilities with readily available active quoted prices or for which fair value can be measured from actively quoted prices in an orderly market generally will have a higher degree of market price observability and a lesser degree of judgment used in measuring fair value. ASC 820 establishes a three-level valuation hierarchy for inputs used in measuring fair value that maximizes the use of observable inputs and minimizes the use of unobservable inputs by requiring that the most observable inputs be used when available. Observable inputs are inputs that market participants would use in pricing the asset or liability developed based on market data obtained from sources independent of the Company. Unobservable inputs are inputs that reflect the Company’s assumptions about the assumptions market participants would use in pricing the asset or liability developed based on the best information available in the circumstances. Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability (i.e., the “exit price”) in an orderly transaction between market participants at the measurement date.
GWG HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
The hierarchy is broken down into three levels based on the observability of inputs as follows:
·
|
Level 1 - Valuations based on quoted prices in active markets for identical assets or liabilities that the Company has the ability to access. Valuation adjustments and block discounts are not applied to Level 1 instruments. Since valuations are based on quoted prices that are readily and regularly available in an active market, valuation of these products does not entail a significant degree of judgment.
|
·
|
Level 2 - Valuations based on one or more quoted prices in markets that are not active or for which all significant inputs are observable, either directly or indirectly.
|
·
|
Level 3 - Valuations based on inputs that are unobservable and significant to the overall fair value measurement.
|
The availability of observable inputs can vary by types of assets and liabilities and is affected by a wide variety of factors, including, for example, whether the investment is established in the marketplace, the liquidity of markets and other characteristics particular to the transaction. To the extent that valuation is based on models or inputs that are less observable or unobservable in the market, the determination of fair value requires more judgment. Accordingly, the degree of judgment exercised by management in determining fair value is greatest for assets and liabilities categorized in Level 3.
Life insurance policies represent financial instruments recorded at fair value on a recurring basis. The following table reconciles the beginning and ending fair value of the Company’s Level 3 investments in life insurance policies for the year ended December 31, 2011, and the three months ending March 31, 2012:
Balance at December 31, 2010
|
|
$ |
82,718,000 |
|
Purchases
|
|
|
11,929,000 |
|
Maturities
|
|
|
(1,803,000 |
) |
Net change in fair value
|
|
|
29,325,000 |
|
Balance at December 31, 2011
|
|
|
122,169,000 |
|
Purchases
|
|
|
1,152,000 |
|
Maturities
|
|
|
- |
|
Net change in fair value
|
|
|
4,791,000 |
|
Balance at March 31, 2012
|
|
$ |
128,112,000 |
|
The fair value of a portfolio of life insurance policies is based on information available to the Company at the reporting date. Fair value is based upon a discounted cash flow model that incorporates current life expectancy assumptions. Life expectancy reports are obtained from independent, third-party widely accepted life expectancy providers at policy acquisition. The life expectancy values of each policy holder, as determined at policy acquisition, are rolled down monthly by the MAPS actuarial software the Company uses for ongoing valuation of its portfolio of life insurance policies. The Company also orders new life expectancy reports from time to time on existing policies already in the portfolio. The discount rate incorporates current information about market interest rates, the credit exposure to the insurance company that issued the life insurance policy and management’s estimate of the risk premium an investor in the individual policies would require.
GWG HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
The fair value of life insurance policies is estimated using present value calculations of estimated cash flows based on the data specific to each individual life insurance policy. The following summarizes inputs utilized in estimating the fair value of the portfolio of life insurance policies:
|
|
As of March 31,
|
|
|
As of December 31,
|
|
|
|
2012
|
|
|
2011
|
|
Weighted average age of insured
|
|
|
81.0 |
|
|
|
80.9 |
|
Weighted average life expectancy, months*
|
|
|
91.6 |
|
|
|
93.6 |
|
Average face amount per policy
|
|
$ |
2,665,498 |
|
|
$ |
2,722,315 |
|
Fair Value Discount rate
|
|
|
13.45 |
% |
|
|
13.41 |
% |
_______________________
* Standard life expectancy as adjusted for insured’s specific circumstances.
These assumptions are, by their nature, inherently uncertain and the effect of changes in estimates may be significant. The techniques used in estimating the present value of estimated cash flows are derived from valuation techniques generally used in the industry that include inputs for the asset that are not based on observable market data. The extent to which the fair value could reasonable vary in the near term has been quantified by evaluating the effect of changes in significant underlying assumptions used to estimate the fair value. If the life expectancies were increased or decreased by 4 months on each outstanding policy and the discount factors were increased or decreased by 1% while all other variables are held constant, the fair value of the investment in life insurance policies would increase or (decrease) by the amounts summarized below:
|
Change in life expectancy
|
|
|
plus 4
months
|
|
minus
4 months
|
|
Investment in life policies
|
|
|
|
|
March 31, 2012
|
|
$ |
(9,912,000 |
) |
|
$ |
10,205,000 |
|
|
|
|
|
|
|
|
|
|
December 31, 2011
|
|
$ |
(9,660,000 |
) |
|
$ |
9,951,000 |
|
|
|
|
|
|
|
|
|
|
|
Change in discount rate
|
|
|
plus 1%
|
|
minus 1%
|
|
Investment in life policies
|
|
|
|
|
|
|
|
|
March 31, 2012
|
|
$ |
(6,741,000 |
) |
|
$ |
7,326,000 |
|
|
|
|
|
|
|
|
|
|
December 31, 2011
|
|
$ |
(6,665,000 |
) |
|
$ |
7,254,000 |
|
Carrying value of receivables, prepaid expenses, accounts payable and accrued expenses approximate fair value due to their short term maturities. The estimated fair value of the Company’s Series I Secured notes payable is approximately $45,306,000 based on a weighted average market interest rate of 6.98%. The Company began issuing Renewable Secured Debentures in the first quarter of 2012. The current interest rates on the Renewable Secured Debentures approximate market value. The carrying value of the revolving credit facility reflects interest charged at the commercial paper rate plus an applicable margin. The margin represents our credit risk, and management believes this margin has not changed over time. The overall rate reflects market, and the carrying value of the revolver approximates fair value.
GWG HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
The Company has issued warrants to purchase common stock in connection with the issuance of its preferred stock. These warrants are Level 3 instruments and are measured at fair value upon issuance. The Company issued 139,417 warrants through December 31, 2011. The estimated fair value per warrant as of the date of issuance was $0.14 using the Black-Scholes model and included an assumed life of three years, a risk free interest rate of 0.42% and a volatility rate of 25.25%. The Company issued an additional 76,312 warrants during the three months ended March 31, 2012. The estimated fair value per warrant issued during the three months ended March 31, 2012 was $0.26 using the Black-Scholes model and included an assumed life of three years, a risk free interest rate of 0.38% and a volatility rate of 36.20%.
The Company has not changed its methodology in estimating fair value from prior periods.
( 5 ) Notes receivable from related parties
Notes receivable from related parties consisted of various unsecured notes receivable. These notes were due from shareholders of the Company, with interest rates ranging from 4.2% to 5%, payable annually and were paid in full July 27, 2011. Interest income from related parties totaled $24,000 during the three months ended March 31, 2011. As a part of the Company’s compensation plan effective January 1, 2011, interest income earned on these notes were treated as guaranteed payments to the members and are included in employee compensation and benefits in the statement of operations for the three months ended March 31, 2011. On July 27, 2011, the Company paid dividends to the shareholders in the amount of their respective note receivable balances. They immediately repaid their balance due on each note and the related accrued interest in full.
As of March 31, 2012, and 2011, the Company had receivables totaling $5,000,000 due from an affiliate, Opportunity Finance, LLC, that were fully reserved. Opportunity Finance ceased operations in 2008.
( 6 ) Credit facilities
Revolving credit facility – Autobahn Funding Company LLC
On July 15, 2008, DLP II and United Lending entered into a revolving credit facility pursuant to a Credit and Security Agreement (Agreement) with Autobahn Funding Company LLC (Autobahn), providing the Company with a maximum borrowing amount of $100,000,000. Autobahn is a commercial paper conduit that issues commercial paper to investors in order to provide funding to DLP II and United Lending. DZ Bank AG acts as the agent for Autobahn. The Agreement expires on July 15, 2013. The amount outstanding under this facility as of March 31, 2012 and December 31, 2011, was $62,500,000 and $60,000,000, respectively.
The Agreement requires DLP II or United Lending to pay, on a monthly basis, interest at the commercial paper rate plus an applicable margin, as defined in the Agreement. The effective rate was 2.18% and 2.25% at March 31, 2012 and December 31, 2011, respectively. The weighted average effective interest rate was 2.26% and 2.17% (excluding the unused line fee) for the three months ended March 31, 2012 and 2011, respectively. The Agreement also requires payment of an unused line fee on the unfunded amount under the revolving credit facility. The note is secured by substantially all of DLP II and United Lending assets which consist primarily of life settlement policies.
The Agreement has certain financial and nonfinancial covenants. The Company is in compliance with these covenants at March 31, 2012. In addition, advances under the Agreement are subject to a borrowing base formula, which limits the availability of advances on the borrowing base calculation based on attributes of policies pledged to the facility. Over-concentration of policies by insurance carrier, and over-concentration of policies by insurance carriers with ratings below a AA- rating are the two primary factors with the potential of limiting availability of funds on the facility. Total funds available for additional borrowings under the borrowing base formula criteria at March 31, 2012 and December 31, 2011, were $6,507,000 and $7,691,000 respectively.
Holdings is not obligated under this credit facility to guarantee loan or interest payments to Autobahn: however, Holdings is obligated under a performance guaranty to provide servicing for policies held by DLP II.
GWG HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
Lending agreement with affiliate
The Company entered into an Investment Agreement with an affiliate Insurance Strategies Fund, LLC (ISF) on September 3, 2009. Under the terms of this agreement, ISF will provide working capital loans to the Company for general working capital needs and expenses. The Company does not expect to take working capital loans under this agreement during the foreseeable future.
( 7 ) Series I Secured notes payable
Series I Secured notes payable have been issued in conjunction with the GWG Series I Secured notes private placement memorandum dated August 25, 2009 (last revised November 15, 2010). On June 14, 2011 the Company closed the offering to additional investors, however, existing investors may elect to continue advancing amounts outstanding. Series I Secured notes have maturity dates ranging from six months to seven years with fixed interest rates varying from 7.0% to 9.55% depending on the term of the note. Interest is payable monthly, quarterly, annually or at maturity depending on the terms of the note. At March 31, 2012 and December 31, 2011 the weighted average interest rates of Series I Secured notes were 8.13%, and 8.04% respectively. The notes are secured by assets of GWG Life. The amount outstanding under these Series I Secured notes was $44,778,000 and $49,332,000 at March 31, 2012, and December 31, 2011, respectively. The difference between the amount outstanding on the Series I Secured notes and the carrying amount on the consolidated balance sheet is due to netting of unamortized deferred issuance costs. Overall, interest expense includes amortization of deferred financing and issuance costs of $509,000 and $135,000 for the three months ended March 31, 2012 and 2011, respectively. Future expected amortization of deferred financing costs is $1,019,000.
On November 15, 2010, the owners pledged their ownership interests in the Company to the Series I Trust as security for advances under the Series I Trust arrangement.
The use of proceeds from the issuances of Series I Secured notes was limited to the following: (1) payment of commissions of Series I Secured note sales, (2) purchase life insurance policies, (3) payment of premiums of life insurance policies, (4) payment of principal and interest to Senior Liquidity Provider (DZ Bank), (5) payment of portfolio or note operating fees or costs, (6) payment of trustee (Wells Fargo Bank, N.A.), (7) payment of servicer and collateral fees, (8) payment of principal and interest on Series I Secured notes, (9) making of distributions to equity holders for tax liability related to portfolio, (10) purchase of interest rate caps, swaps, or hedging instruments, (11) payment of GWG Series I Trustee fees, and (12) payment of offering expenses.
On November 1, 2011, GWG entered into a Third Amended and Restated Note Issuance and Security Agreement with Lord Securities Corporation after receiving majority approval from the holders of Series I Secured Notes. Among other things, the amended and restated agreement modified the use of proceeds and certain provisions relating to the distribution of collections and subordination of cash flow. Under the amended and restated agreement, GWG is no longer restricted as to its use of proceeds or subject to restrictions on certain distributions of collections and subordination of cash flows.
GWG HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
Future maturities of Series I Secured notes payable at March 31, 2012 are as follows:
Years Ending December 31,
|
|
|
|
2012
|
|
$
|
18,560,000
|
|
2013
|
|
|
8,897,000
|
|
2014
|
|
|
7,108,000
|
|
2015
|
|
|
4,212,000
|
|
2016
|
|
|
1,161,000
|
|
Thereafter
|
|
|
4,840,000
|
|
|
|
$
|
44,778,000
|
|
( 8 ) Renewable secured debentures
The Company has filed with the Securities and Exchange Commission, effective January 2012, to offer the sale of $250,000,000 of secured debentures. Renewable Secured Debentures have maturity dates ranging from six months to seven years with fixed interest rates varying from 4.75% to 9.50% depending on the term of the note. Interest is payable monthly, annually or at maturity depending on the terms of the debenture. At March 31, 2012, the weighted average interest rate of Renewable Secured Debentures was 7.86%. The debentures are secured by assets of GWG Life. The amount outstanding under these Renewable Secured Debentures was $3,231,000 at March 31, 2012. The difference between the amount outstanding on the Renewable Secured Debentures and the carrying amount on the consolidated balance sheet is due to netting of unamortized deferred issuance costs. Amortization of deferred issuance costs was $3,742 for the three months ended March 31, 2012. Future expected amortization of deferred financing costs is $169,127. Subsequent to March 31, 2012, the Company has issued an additional $3,787,000 in principal amount of these secured debentures.
The use of proceeds from the sales of Renewable Secured Debentures is limited to the following: (1)payment of commissions on sales of Renewable Secured Debentures, (2) payment of offering expenses, (3) purchase of life insurance policies, (4) payment of premiums on life insurance policies, (5) payment of principal and interest on Renewable Secured Debentures, (6) payment of portfolio operations expenses, and (7) general working capital.
Future maturities of Renewable Secured Debentures at March 31, 2012 are as follows:
Years Ending December 31,
|
|
|
|
2012
|
|
$
|
200,000
|
|
2013
|
|
|
330,000
|
|
2014
|
|
|
528,000
|
|
2015
|
|
|
936,000
|
|
2016
|
|
|
45,000
|
|
Thereafter
|
|
|
1,192,000
|
|
|
|
$
|
3,231,000
|
|
The Company entered into an Indenture effective October 19, 2011 with Holdings as obligor, GWG Life as guarantor, and Bank of Utah as trustee for the benefit of the debenture holders. The Indenture has certain financial and nonfinancial covenants. The Company is in compliance with these covenants at March 31, 2012.
( 9 ) Income taxes and proforma calculations
The Company was a pass through entity for federal income tax purposes through June 10, 2011. No income tax provision has been included through that date in these consolidated financial statements as income or loss of the Company was required to be reported by the respective members on their income tax returns. Subsequent to the Company’s conversion to a corporation it files a combined return with the subsidiaries. As a result of the Company’s change in legal structure from a limited liability company (filing tax returns as a pass through entity) to a corporation effective June 10, 2011, the Company will file and pay taxes based on its reported income.
GWG HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
The Company was not a taxable entity during the three months ended March 31, 2011. Income tax benefit was ($1,139,000) for the three months ended March 31, 2012. The effective tax rate for the three months ended March 31, 3012, was 34.6%. The components of income tax benefit for the three months ended March 31, 2012 consisted of the following:
|
|
Three Months Ended March 31, |
|
Income tax benefit:
|
|
2012
|
|
|
2011
|
|
Federal
|
|
$
|
957,000
|
|
|
$
|
-
|
|
State
|
|
|
182,000
|
|
|
|
-
|
|
Total income tax benefit
|
|
$
|
1,139,000
|
|
|
$
|
-
|
|
( 10 ) Convertible, redeemable preferred stock
The Company began offering 3,333,333 shares of convertible redeemable preferred stock (Series A preferred stock) for sale to accredited investors in a private placement effective July 31, 2011. The preferred stock is being sold at an offering price of $7.50 per share. Series A preferred stock has a preferred yield of 10% per annum, and each share shall have the right to convert into 1.5 shares of the Company’s common stock until such time as the Company elects to automatically convert the preferred stock to common stock as described below. Preferred shareholders also received three-year warrants to purchase, at an exercise price per share of $6.25, one share of common stock for every 20 shares of Series A preferred stock purchased. The warrants are convertible immediately. In the Certificate of Designations for the Series A preferred stock dated July 31, 2011, the Company has agreed to permit preferred shareholders to sell their shares back to the Company for the stated value of $7.50 per share, plus accrued dividends, according to the following schedule:
•
|
Up to 33% of the holder’s unredeemed shares one year after issuance:
|
•
|
Up to 66% of the holder’s unredeemed shares two years after issuance; and
|
•
|
Up to 100% of the holder’s unredeemed shares three years after issuance.
|
The Company’s obligation to redeem preferred shares will terminate upon the Company completing a registration of its common stock with the SEC. The Company may redeem the shares at a price equal to 110% of their liquidation preference ($7.50 per share) at any time after December 15, 2012.
At the election of the Company, the preferred shares may be automatically converted into the common stock of the Company in the event of either (1) a registered offering of the Company’s common stock with the SEC aggregating gross proceeds of at least $5.0 million at a price equal to or greater than $5.50 per share of common stock, or (2) the consent of shareholders holding at least a majority of the then-outstanding shares of Series A preferred stock. The Company began issuing Series A preferred stock on September 1, 2011. As of March 31, 2012, the Company had issued 2,901,464 preferred shares resulting in gross consideration of $21,752,000 (including cash proceeds for new notes, conversion of Series I Secured notes and accrued interest on Series I notes, and preferred dividends). The Company incurred Series A preferred stock issuance costs of 2,246,000, of which $340,000 was amortized to additional paid-in capital during the three months ended March 31, 2012, resulting in a net preferred stock capital balance of $19,846,000.
The Company determined the grant date fair value of the outstanding warrants attached to the Series A preferred stock was $34,000 during the three months ended March 31, 2012 and $14,000 during the year ended December 31, 2011. The Company may redeem outstanding warrants prior to their expiration, at a price of $0.01 per share upon 30 days written notice to the investors at any time after (i) the Company has completed a registration of its common stock with the SEC and (ii) the volume of weighted average sale price per share of common stock equals or exceeds $7.00 per share for ten consecutive trading days ending on the third business day prior to proper notice of such redemption. Total warrants outstanding as of March 31, 2012, were 215,729 with a weighted average remaining life of 2.65 years. Total warrants outstanding at December 31, 2011, were 139,417 with a weighted average remaining life of 2.76 years.
GWG HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
Dividends on the preferred stock may be paid in either cash or additional shares of preferred stock at the election of the holder. The dividends are reported as an expense and included in the caption interest expense in the consolidated statements of operations.
The Company declared and accrued dividends payable of $417,000 for the three months ended March 31, 2012. Cash dividends of $265,000 were paid on April 15, 2012, and 19,751 shares of Series A preferred stock were issued in lieu of cash dividends on April 15, 2012, pursuant to a board resolution declaring the dividend.
Subsequent to March 31, 2012, the Company issued an additional 161,484 shares of convertible, redeemable preferred stock.
( 11 ) Contingencies
Litigation - In the normal course of business, the Company is involved in various legal proceedings. In the opinion of management, any liability resulting from such proceedings would not have a material adverse effect on the Company’s financial position, results of operations or cash flows.
Contingency matter – Opportunity Finance, LLC, owned by Jon Sabes and Steven Sabes, is subject to litigation clawback claims by the bankruptcy trustee for third-party matters for payments that may have been deemed preference payments. In addition, Jon Sabes and Steven Sabes are subject to litigation clawback claims by the bankruptcy trustee for third-party matters for payments received from Opportunity Finance that may have been deemed preference payments. If the parties are unsuccessful in defending against these claims, their equity ownership in the Company may be sold or transferred to other parties to satisfy such claims. In addition, the Company loaned $1,000,000 to Opportunity Finance, LLC, and was repaid in full plus interest of $177,000. This investment amount may also be subject to clawback claims by the bankruptcy court. These matters may also distract management and reduce the time and attention that they are able to devote to the Company’s operations.
( 12 ) Guarantees of secured debentures
Holdings has filed with the Securities and Exchange Commission to offer for sale $250,000,000 of secured debentures as described in note 8. The secured debentures are secured by the assets of Holdings as described in note 8 and a pledge of all the common stock by the largest shareholders. Obligations under the debentures are guaranteed by Holding’s subsidiary GWG Life. This guarantee involves the grant of a security interest in all the assets of GWG Life. GWG Life is a wholly owned subsidiary of Holdings and the payment of principal and interest on the secured debentures is fully and unconditionally guaranteed by GWG Life. The majority of the Company’s life insurance policies are held by DLP II, a wholly owned subsidiary of GWG Life, however, the policies held by DLP II are not collateral for the debenture obligations as such policies are collateral for the credit facility.
The condensed consolidating financial statements are presented in lieu of separate financial statements and other related disclosures of the subsidiary guarantors and issuer because management does not believe that separate financial statements and related disclosures would be material to investors. There are currently no significant restrictions on the ability of Holdings or GWG Life , the guarantor subsidiary, to obtain funds from its subsidiaries by dividend or loan, except as follows. DLP II is a borrower under a credit agreement with Autobahn, with DZ Bank AG as agent, as described in note 3. The significant majority of insurance policies owned by the Company are subject to a collateral arrangement with DZ Bank AG described in note 3. Under this arrangement, collection and escrow accounts are used to fund purchases and premiums of the insurance policies and to pay interest and other charges under its revolving credit facility. DZ Bank AG and Autobahn must authorize all disbursements from these accounts, including any distributions to GWG Life. Distributions are limited to an amount that would result in the borrowers (GWG DLP Funding II, LLC, GWG Life Settlements, LLC, and GWG Holdings, Inc) realizing an annualized rate of return on the equity funded amount for such assets of not more than 18%, as determined by DZ Bank AG. After such amount is reached, the credit agreement requires that excess funds be used for repayments of borrowings before any additional distributions may be made.
GWG HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
The following represents condensed consolidating financial information as of March 31, 2012 and December 31, 2011, with respect to the financial position, and as of March 31, 2012 and 2011 with respect to results of operations and cash flows of Holdings and its subsidiaries for the three months then ended. The parent column presents the financial information of Holdings, the primary obligor of the secured debentures. The guarantor subsidiary column presents the financial information of GWG Life, the guarantor subsidiary of the secured debentures, presenting its investment in DLP II and Trust under the equity method. The non-guarantor subsidiaries column presents the financial information of all non-guarantor subsidiaries including DLP II and Trust.
Condensed Consolidating Balance Sheets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
ASSETS |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$ |
4,381,377 |
|
|
$ |
167,389 |
|
|
$ |
- |
|
|
$ |
- |
|
|
$ |
4,548,766 |
|
Restricted cash
|
|
|
- |
|
|
|
- |
|
|
|
1,569,464 |
|
|
|
- |
|
|
|
1,569,464 |
|
Investment in life settlements, at fair value
|
|
|
- |
|
|
|
2,186,911 |
|
|
|
125,925,181 |
|
|
|
- |
|
|
|
128,112,092 |
|
Deferred financing costs, net
|
|
|
- |
|
|
|
- |
|
|
|
271,713 |
|
|
|
- |
|
|
|
271,713 |
|
Other assets
|
|
|
24,660 |
|
|
|
106,153 |
|
|
|
750 |
|
|
|
- |
|
|
|
131,563 |
|
Investment in subsidiaries
|
|
|
21,466,062 |
|
|
|
64,996,883 |
|
|
|
- |
|
|
|
(86,462,945 |
) |
|
|
- |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
TOTAL ASSETS
|
|
$ |
25,872,099 |
|
|
$ |
67,457,336 |
|
|
$ |
127,767,108 |
|
|
$ |
(86,462,945 |
) |
|
$ |
134,633,598 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES & OWNERS' EQUITY (DEFICIT)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revolving credit facility
|
|
$ |
- |
|
|
$ |
- |
|
|
$ |
62,500,000 |
|
|
$ |
- |
|
|
$ |
62,500,000 |
|
Series I Secured notes payable
|
|
|
- |
|
|
|
43,758,661 |
|
|
|
- |
|
|
|
- |
|
|
|
43,758,661 |
|
Secured renewable debentures
|
|
|
3,061,873 |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
3,061,873 |
|
Accounts payable
|
|
|
244,036 |
|
|
|
126,790 |
|
|
|
- |
|
|
|
- |
|
|
|
370,826 |
|
Accrued expenses
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
|
|
Interest
|
|
|
15,023 |
|
|
|
1,99,287 |
|
|
|
125,952 |
|
|
|
- |
|
|
|
2,132,262 |
|
Other
|
|
|
1,061,236 |
|
|
|
250,392 |
|
|
|
8,417 |
|
|
|
- |
|
|
|
1,320,045 |
|
Deferred taxes
|
|
|
3,168,769 |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
3,168,769 |
|
TOTAL LIABILITIES
|
|
|
7,550,937 |
|
|
|
46,127,130 |
|
|
|
62,634,369 |
|
|
|
- |
|
|
|
116,312,436 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CONVERTIBLE, REDEEMABLE PREFERRED STOCK
|
|
|
19,845,837 |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
19,845,837 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
EQUITY (DEFICIT)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Member capital
|
|
|
- |
|
|
|
17,268,547 |
|
|
|
51,404,457 |
|
|
|
(68,673,004 |
) |
|
|
- |
|
Common stock
|
|
|
9,989 |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
9,989 |
|
Additional paid-in capital
|
|
|
7,848,888 |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
7,848,888 |
|
Accumulated deficit
|
|
|
(9,383,552 |
) |
|
|
4,061,659 |
|
|
|
13,728,282 |
|
|
|
(17,789,941 |
) |
|
|
(9,383,552 |
) |
TOTAL EQUITY (DEFICIT)
|
|
|
(1,524,675 |
) |
|
|
21,330,206 |
|
|
|
65,132,739 |
|
|
|
(86,462,945 |
) |
|
|
(1,524,675 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
TOTAL LIABILITIES AND EQUITY (DEFICIT)
|
|
$ |
25,872,099 |
|
|
$ |
67,457,336 |
|
|
$ |
127,767,108 |
|
|
$ |
(86,462,945 |
) |
|
$ |
134,633,598 |
|
GWG HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
Condensed Consolidating Balance Sheets (continued)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
ASSETS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$ |
1,746,456 |
|
|
$ |
131,893 |
|
|
$ |
- |
|
|
$ |
- |
|
|
$ |
1,878,349 |
|
Restricted cash
|
|
|
- |
|
|
|
822,227 |
|
|
|
3,972,075 |
|
|
|
- |
|
|
|
4,794,302 |
|
Investment in life settlements, at fair value
|
|
|
- |
|
|
|
4,876,389 |
|
|
|
117,292,135 |
|
|
|
- |
|
|
|
122,168,524 |
|
Deferred financing costs, net
|
|
|
- |
|
|
|
- |
|
|
|
329,937 |
|
|
|
- |
|
|
|
329,937 |
|
Other assets
|
|
|
34,817 |
|
|
|
170,346 |
|
|
|
13,000 |
|
|
|
- |
|
|
|
218,163 |
|
Investment in subsidiaries
|
|
|
17,026,465 |
|
|
|
61,326,724 |
|
|
|
- |
|
|
|
(78,353,189 |
) |
|
|
- |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
TOTAL ASSETS
|
|
$ |
18,807,738 |
|
|
$ |
67,327,579 |
|
|
$ |
121,607,147 |
|
|
$ |
(78,353,189 |
) |
|
$ |
129,389,275 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES & OWNERS' EQUITY (DEFICIT)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revolving credit facility
|
|
$ |
- |
|
|
$ |
- |
|
|
$ |
60,000,000 |
|
|
$ |
- |
|
|
$ |
60,000,000 |
|
Series I Secured notes payable
|
|
|
- |
|
|
|
48,179,271 |
|
|
|
- |
|
|
|
- |
|
|
|
48,179,271 |
|
Accounts payable
|
|
|
379,457 |
|
|
|
56,311 |
|
|
|
- |
|
|
|
- |
|
|
|
435,768 |
|
Accrued expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest
|
|
|
- |
|
|
|
1,779,796 |
|
|
|
108,039 |
|
|
|
- |
|
|
|
1,887,835 |
|
Other
|
|
|
510,219 |
|
|
|
450,704 |
|
|
|
7,416 |
|
|
|
- |
|
|
|
968,339 |
|
Deferred taxes
|
|
|
4,308,217 |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
4,308,217 |
|
TOTAL LIABILITIES
|
|
|
5,197,893 |
|
|
|
50,466,082 |
|
|
|
60,115,455 |
|
|
|
- |
|
|
|
115,779,430 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CONVERTIBLE, REDEEMABLE PREFERRED STOCK
|
|
|
12,661,276 |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
12,661,276 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
EQUITY (DEFICIT)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Member capital
|
|
|
- |
|
|
|
10,427,852 |
|
|
|
47,620,149 |
|
|
|
(58,048,001 |
) |
|
|
- |
|
Common stock
|
|
|
9,989 |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
9,989 |
|
Additional paid-in capital
|
|
|
8,169,303 |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
8,169,303 |
|
Accumulated deficit
|
|
|
(7,230,723 |
) |
|
|
6,433,645 |
|
|
|
13,871,543 |
|
|
|
(20,305,188 |
) |
|
|
(7,230,723 |
) |
TOTAL EQUITY
|
|
|
948,569 |
|
|
|
16,861,497 |
|
|
|
61,491,692 |
|
|
|
(78,353,189 |
) |
|
|
948,569 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
TOTAL LIABILITIES AND EQUITY
|
|
$ |
18,807,738 |
|
|
$ |
67,327,579 |
|
|
$ |
121,607,147 |
|
|
$ |
(78,353,189 |
) |
|
$ |
129,389,275 |
|
GWG HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
Condensed Consolidating Statements of Operations
For the three months ended
March 31, 2012
|
|
Parent
|
|
|
Guarantor Subsidiary
|
|
|
Non-Guarantor Subsidiaries
|
|
|
Eliminations
|
|
|
Consolidated
|
|
REVENUE
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Contract servicing fees
|
|
$ |
- |
|
|
$ |
148,200 |
|
|
$ |
- |
|
|
$ |
(148,200 |
) |
|
$ |
- |
|
Gain on life settlements, net
|
|
|
- |
|
|
|
149,970 |
|
|
|
451,798 |
|
|
|
- |
|
|
|
601,768 |
|
Interest and other income
|
|
|
304 |
|
|
|
955 |
|
|
|
73 |
|
|
|
- |
|
|
|
1,332 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
TOTAL REVENUE
|
|
|
304 |
|
|
|
299,125 |
|
|
|
451,871 |
|
|
|
(148,200 |
) |
|
|
603,100 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
EXPENSES
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Origination and servicing fees
|
|
|
- |
|
|
|
(6,500 |
) |
|
|
154,700 |
|
|
|
(148,200 |
) |
|
|
- |
|
Employee compensation and benefits
|
|
|
- |
|
|
|
533,745 |
|
|
|
- |
|
|
|
- |
|
|
|
533,745 |
|
Legal and professional fees
|
|
|
290,903 |
|
|
|
73,322 |
|
|
|
- |
|
|
|
- |
|
|
|
364,225 |
|
Interest expense
|
|
|
454,173 |
|
|
|
1,556,310 |
|
|
|
427,931 |
|
|
|
- |
|
|
|
2,438,414 |
|
Other expenses
|
|
|
146,407 |
|
|
|
400,086 |
|
|
|
12,500 |
|
|
|
- |
|
|
|
558,993 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
TOTAL EXPENSES
|
|
|
891,483 |
|
|
|
2,556,963 |
|
|
|
595,131 |
|
|
|
(148,200 |
) |
|
|
3,895,377 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LOSS BEFORE EQUITY IN LOSS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
OF SUBSIDIARIES
|
|
|
(891,179 |
) |
|
|
(2,257,838 |
) |
|
|
(143,260 |
) |
|
|
- |
|
|
|
(3,292,277 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
EQUITY IN LOSS OF SUBSIDIARY
|
|
|
(2,401,098 |
) |
|
|
(114,148 |
) |
|
|
- |
|
|
|
2,515,246 |
|
|
|
- |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NET LOSS BEFORE INCOME TAXES
|
|
|
(3,292,277 |
) |
|
|
(2,371,986 |
) |
|
|
(143,260 |
) |
|
|
2,515,246 |
|
|
|
(3,292,277 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
INCOME TAX BENEFIT
|
|
|
(1,139,448 |
) |
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
(1,139,448 |
) |
NET LOSS
|
|
$ |
(2,152,829 |
) |
|
$ |
(2,371,986 |
) |
|
$ |
(143,260 |
) |
|
$ |
2,515,246 |
|
|
$ |
(2,152,829 |
) |
For the three months ended
March 31, 2011
|
|
Parent
|
|
|
Guarantor Subsidiary
|
|
|
Non-Guarantor Subsidiaries
|
|
|
Eliminations
|
|
|
Consolidated
|
|
REVENUE
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Contract servicing fees
|
|
$ |
- |
|
|
$ |
916,000 |
|
|
$ |
- |
|
|
$ |
(916,000 |
) |
|
$ |
- |
|
Gain on life settlements, net
|
|
|
- |
|
|
|
38,026 |
|
|
|
5,319,615 |
|
|
|
- |
|
|
|
5,357,641 |
|
Interest and other income
|
|
|
- |
|
|
|
26,573 |
|
|
|
3,583 |
|
|
|
- |
|
|
|
30,156 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
TOTAL REVENUE
|
|
|
- |
|
|
|
980,599 |
|
|
|
5,323,198 |
|
|
|
(916,000 |
) |
|
|
5,387,797 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
EXPENSES
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Origination and servicing fees
|
|
|
- |
|
|
|
6,000 |
|
|
|
910,000 |
|
|
|
(916,000 |
) |
|
|
- |
|
Employee compensation and benefits
|
|
|
- |
|
|
|
483,270 |
|
|
|
- |
|
|
|
- |
|
|
|
483,270 |
|
Legal and professional fees
|
|
|
15,331 |
|
|
|
144,968 |
|
|
|
- |
|
|
|
- |
|
|
|
160,299 |
|
Interest expense
|
|
|
- |
|
|
|
977,688 |
|
|
|
306,501 |
|
|
|
- |
|
|
|
1,284,189 |
|
Other expenses
|
|
|
747 |
|
|
|
216,588 |
|
|
|
12,503 |
|
|
|
- |
|
|
|
229,838 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
TOTAL EXPENSES
|
|
|
16,078 |
|
|
|
1,828,514 |
|
|
|
1,229,004 |
|
|
|
(916,000 |
) |
|
|
2,157,596 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
INCOME (LOSS) BEFORE EQUITY INCOME (LOSS)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
OF SUBSIDIARIES
|
|
|
(16,078 |
) |
|
|
(847,915 |
) |
|
|
4,094,194 |
|
|
|
- |
|
|
|
3,230,201 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
EQUITY IN INCOME OF SUBSIDIARY
|
|
|
3,246,279 |
|
|
|
4,123,306 |
|
|
|
- |
|
|
|
(7,369,585 |
) |
|
|
- |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NET INCOME
|
|
$ |
3,230,201 |
|
|
$ |
3,275,391 |
|
|
$ |
4,094,194 |
|
|
$ |
(7,369,585 |
) |
|
$ |
3,230,201 |
|
GWG HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
Condensed Consolidating Statements of Cash Flows
For the three months ended March 31, 2012
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CASH FLOWS FROM OPERATING ACTIVITIES
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
$ |
(2,152,829 |
) |
|
$ |
(2,371,986 |
) |
|
$ |
(143,260 |
) |
|
$ |
2,515,246 |
|
|
$ |
(2,152,829 |
) |
Adjustments to reconcile net loss to cash:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Gain) loss on life settlements
|
|
|
- |
|
|
|
1,066,228 |
|
|
|
(5,857,286 |
) |
|
|
- |
|
|
|
(4,791,058 |
) |
Amortization of deferred financing and issuance costs
|
|
|
- |
|
|
|
508,936 |
|
|
|
58,224 |
|
|
|
- |
|
|
|
567,160 |
|
Deferred income taxes
|
|
|
(1,139,448 |
) |
|
|
- |
|
|
|
- |
|
|
|
|
|
|
|
(1,139,448 |
) |
Accrued convertible, redeemable preferred stock dividends
|
|
|
126,075 |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
126,075 |
|
(Increase) decrease in operating assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Due from related parties
|
|
|
- |
|
|
|
768 |
|
|
|
- |
|
|
|
- |
|
|
|
768 |
|
Other assets
|
|
|
(1,353,267 |
) |
|
|
(197,467 |
) |
|
|
3,797,308 |
|
|
|
(2,515,246 |
) |
|
|
(268,672 |
) |
Increase (decrease) in operating liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts payable
|
|
|
(135,421 |
) |
|
|
70,479 |
|
|
|
- |
|
|
|
- |
|
|
|
(64,942 |
) |
Accrued interest
|
|
|
15,023 |
|
|
|
211,491 |
|
|
|
17,913 |
|
|
|
- |
|
|
|
244,427 |
|
Accrued expenses
|
|
|
575,090 |
|
|
|
(197,893 |
) |
|
|
1,000 |
|
|
|
- |
|
|
|
378,197 |
|
NET CASH FLOWS USED IN OPERATING ACTIVITIES
|
|
|
(4,064,777 |
) |
|
|
(909,444 |
) |
|
|
(2,126,101 |
) |
|
|
- |
|
|
|
(7,100,322 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CASH FLOWS FROM INVESTING ACTIVITIES
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investment in life settlements
|
|
|
- |
|
|
|
1,623,250 |
|
|
|
(2,776,510 |
) |
|
|
- |
|
|
|
(1,153,260 |
) |
NET CASH FLOWS PROVIDED BY (USED IN) INVESTING ACTIVITIES
|
|
|
- |
|
|
|
1,623,250 |
|
|
|
(2,776,510 |
) |
|
|
- |
|
|
|
(1,153,260 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CASH FLOWS FROM FINANCING ACTIVITIES
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net proceeds from revolving credit facility
|
|
|
- |
|
|
|
- |
|
|
|
2,500,000 |
|
|
|
- |
|
|
|
2,500,000 |
|
Proceeds from issuance of Series I Secured notes payable
|
|
|
- |
|
|
|
50,000 |
|
|
|
- |
|
|
|
- |
|
|
|
50,000 |
|
Payments for redemption of Series I Secured notes payable
|
|
|
- |
|
|
|
(1,550,537 |
) |
|
|
- |
|
|
|
- |
|
|
|
(1,550,537 |
) |
Proceeds from issuance of debentures
|
|
|
3,061,873 |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
3,061,873 |
|
Proceeds (payments) from restricted cash
|
|
|
- |
|
|
|
822,227 |
|
|
|
2,402,611 |
|
|
|
- |
|
|
|
3,224,838 |
|
Issuance of preferred stock
|
|
|
4,436,465 |
|
|
|
- |
|
|
|
- |
|
|
|
|
|
|
|
4,436,465 |
|
Payments for issuance of preferred stock
|
|
|
(798,640 |
) |
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
(798,640 |
) |
NET CASH FLOWS PROVIDED BY (USED IN) FINANCING ACTIVITIES
|
|
|
6,699,698 |
|
|
|
(678,310 |
) |
|
|
4,902,611 |
|
|
|
- |
|
|
|
10,923,999 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NET INCREASE IN CASH AND CASH EQUIVALENTS
|
|
|
2,634,921 |
|
|
|
35,496 |
|
|
|
- |
|
|
|
- |
|
|
|
2,670,417 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CASH AND CASH EQUIVALENTS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
BEGINNING OF THE PERIOD
|
|
|
1,746,456 |
|
|
|
131,893 |
|
|
|
- |
|
|
|
- |
|
|
|
1,878,349 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
END OF THE PERIOD
|
|
$ |
4,381,377 |
|
|
$ |
167,389 |
|
|
$ |
- |
|
|
$ |
- |
|
|
$ |
4,548,766 |
|
GWG HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
Consolidating Statements of Cash Flows (continued)
For the three months ended March 31, 2011
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CASH FLOWS FROM OPERATING ACTIVITIES
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
$ |
3,230,201 |
|
|
$ |
3,275,391 |
|
|
$ |
4,094,194 |
|
|
$ |
(7,369,585 |
) |
|
$ |
3,230,201 |
|
Adjustments to reconcile net income (loss) to cash:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Gain) on life settlements
|
|
|
- |
|
|
|
(139,726 |
) |
|
|
(8,239,919 |
) |
|
|
- |
|
|
|
(8,379,645 |
) |
Amortization of deferred financing and issuance costs
|
|
|
- |
|
|
|
135,192 |
|
|
|
58,224 |
|
|
|
- |
|
|
|
193,416 |
|
(Increase) decrease in operating assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Due from related parties
|
|
|
(30,000 |
) |
|
|
2,286 |
|
|
|
- |
|
|
|
- |
|
|
|
(27,714 |
) |
Other assets
|
|
|
(3,196,282 |
) |
|
|
(8,011,849 |
) |
|
|
4,099,657 |
|
|
|
7,369,585 |
|
|
|
261,111 |
|
Increase (decrease) in operating liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts payable
|
|
|
- |
|
|
|
26,108 |
|
|
|
(613,800 |
) |
|
|
- |
|
|
|
(587,692 |
) |
Accrued interest
|
|
|
- |
|
|
|
23,112 |
|
|
|
13,175 |
|
|
|
- |
|
|
|
36,287 |
|
Accrued expenses
|
|
|
- |
|
|
|
(76,377 |
) |
|
|
(12,700 |
) |
|
|
- |
|
|
|
(89,077 |
) |
NET CASH FLOWS PROVIDED BY (USED IN) OPERATING ACTIVITIES
|
|
|
3,919 |
|
|
|
(4,765,863 |
) |
|
|
(601,169 |
) |
|
|
- |
|
|
|
(5,363,113 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CASH FLOWS FROM INVESTING ACTIVITIES
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investment in life settlements
|
|
|
- |
|
|
|
(16,150 |
) |
|
|
(4,617,855 |
) |
|
|
- |
|
|
|
(4,634,005 |
) |
NET CASH FLOWS USED IN INVESTING ACTIVITIES
|
|
|
- |
|
|
|
(16,150 |
) |
|
|
(4,617,855 |
) |
|
|
- |
|
|
|
(4,634,005 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CASH FLOWS FROM FINANCING ACTIVITIES
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net proceeds from revolving credit facility
|
|
|
- |
|
|
|
- |
|
|
|
4,462,500 |
|
|
|
- |
|
|
|
4,462,500 |
|
Proceeds from issuance of Series I Secured notes payable
|
|
|
- |
|
|
|
6,281,039 |
|
|
|
- |
|
|
|
- |
|
|
|
6,281,039 |
|
Payments for redemption of Series I Secured notes payable
|
|
|
- |
|
|
|
(2,488,350 |
) |
|
|
- |
|
|
|
- |
|
|
|
(2,488,350 |
) |
Proceeds (payments) from restricted cash
|
|
|
- |
|
|
|
1,069,535 |
|
|
|
(811,864 |
) |
|
|
- |
|
|
|
257,671 |
|
NET CASH FLOWS PROVIDED BY FINANCING ACTIVITIES
|
|
|
- |
|
|
|
4,862,224 |
|
|
|
3,650,636 |
|
|
|
- |
|
|
|
8,512,860 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|