**UNITED
      STATES**


**SECURITIES
      AND EXCHANGE COMMISSION**


**WASHINGTON,
      D.C. 20549**





**FORM
      10-K/A**


Amendment
      No. 1





x
            Annual
                Report Pursuant to Section 13 or 15 (d) of the Securities Exchange
                Act of
                1934 (the “Exchange Act”)For
                the fiscal year ended: February 29,
                2008




Commission
      File Number: 0-7900




**LIFE
      PARTNERS HOLDINGS, INC.**


(Name
      of
      registrant in its charter)


Texas
              (State
                of incorporation)
            74-2962475
              (I.R.S.
                Employer ID no.)204
                Woodhew
              Waco,
                Texas
              (Address
                of Principal Executive Offices)
            76712
              (Zip
                Code)




Registrant’s
      telephone number, including area code: 254-751-7797




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




**Common
      Stock (par value $0.01 per share)**


(Title
      of
      Class)




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




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 Exchange Act.  o




Indicate
      by check mark whether
      the registrant (1) has filed all reports required to be filed by Section 13
      or
      15(d) of the Exchange Act during the past 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 at least the past 90 days.


Yes x
      No o




Indicate
      by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not
      contained herein, and will not be contained, to the best of the 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 definitions of
“ large
      accelerated filer ,”
      “accelerated filer” and “smaller reporting company ”
in
      Rule
      12b-2 of the Exchange Act. (Check one):




Large
                accelerated filer o
            Accelerated
                filer xNon-accelerated
                filer o
            Smaller
                reporting company o




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




The
      aggregate market value of the Common Stock held by non-affiliates of the
      Registrant as of November 30, 2007 (the last business day of the Registrant’s
      most recently completed second fiscal quarter) was $204,499,466, based on the
      last reported sale price of $35.30 on that date on NASDAQ. Shares held by each
      officer and director and by each person who owns 5% **** or
      more
      of the outstanding Common Stock have been excluded in that such persons may
      be
      deemed to be affiliates. This standard for determining affiliate status is
      not
      necessarily the appropriate standard for other purposes.




Shares
      of
      Common Stock, $.01 par value, outstanding as of May 1, 2008: 12,019, 483




**DOCUMENTS
      INCORPORATED BY REFERENCE**




Our
      definitive proxy statement in connection with the Annual Meeting of Shareholders
      to be filed with the Commission pursuant to Regulation 14A, is incorporated
      by
      reference into Part II, Item 5 and Part III of this report.









**EXPLANATORY
        NOTE**
 
 We
        are
        filing Amendment No. 1 (this “Amendment”)
        to the Life
        Partners Holdings, Inc. (“we” or
        the
“Company”) Annual Report on Form 10-K for the year ended February 29, 2008,
        which was originally filed on May 15, 2008 (the “Original Filing”). This
        Amendment revises certain
        numbers in Part II, Items 6, 7 and 8, and the Consolidated Financial Statements
        and Notes.
 
 A
        computational error in the calculation of current income tax expense and
        deferred income
        tax benefit affected other amounts, not all of which were changed in the
        Original Filings. These
        amounts include: (a) in Item 6, “Total liabilities”, which was $9.1 million
        instead of $9.0
        million; (b) in Item 8, “Net income” for the 4 th  quarter
        of fiscal 2008, which was $4,475,519 instead
        of $4,175,519; (c) “Total assets” for fiscal 2008 in the Consolidated Balance
        Sheet, which was
        $31,861,957 instead of $31,455,530; (d) “Net income” for fiscal 2008 in the
        Consolidated Statement
        of Shareholders' Equity, which was $18,756,271 instead of $18,824,271; (e)
“Net
        income” in the Consolidated Statement of Cash Flows for fiscal 2008, which was
        $18,756,271 instead
        of $18,824,271; (f) “Unrealized gain (loss) on marketable securities, net of
        taxes” in the Consolidated
        Statement of Cash Flows for fiscal 2008, which was ($729,902) instead of ($1,169,255);
        and (g) in Note 9 to the Notes to Consolidated Financial Statements, in the
        “Stock Split” table, for fiscal 2008, “Basic and Diluted Earnings per Share, Net
        Income” was $1.95 and $1.56
        before and after the split, respectively, instead of $1.96 and $1.57, and
“Basic
        and Diluted Earnings
        per Share, Comprehensive Income” was $1.88 and $1.50 before and after the split, respectively,
        instead of $1.87 and $1.47.
  A
        change
        in presentation, which separated “Note receivable” from “Accounts receivable” in
        the
        Consolidated Balance Sheet, affected certain other amounts. These amounts
        include: (h) in Item 7, under the heading “Liquidity and Capital Resources”, the
        net cash flows from operating
        activities, which increased 255% or $8,986,917 to $12,509,720 instead of
        256% or
        $9,086,917 to $12,609,720, and the net cash flows from investing and financing
        activities, in which
        we
        used cash of $4,207,210 instead of $4,307,210; (i) in the Consolidated Statement
        of Cash Flows for fiscal 2008, the increase in “Accounts receivable” was
        ($6,704,623) instead of ($6,604,623)
        and the “Increase in note receivable” was ($425,000) instead of ($525,000),
        which affected,
        respectively, “Net cash provided by operating activities” ($12,509,720 instead
        of $12,647,220)
        and “Net cash used in investing activities” (($4,207,210) instead of
        ($4,307,210)).
  In
        Item
        7, under the heading “Liquidity and Capital Resources”, we used cash to pay dividends
        of $2,445,218 in fiscal 2008 and $1,391,672 in fiscal 2007 instead of $2,690,575
        and $1,984,912,
        respectively. In the Consolidated Statement of Shareholders' Equity for fiscal
        2006, several
        amounts in the column “Treasury Stock, Number of Shares” were not adjusted for
        an August
        2007, 5-for-4 stock split: the beginning balance for number of treasury shares
        was 258,269,
        replacement shares issued was (22,728) and the balance at February 28, 2007,
        was 235,541.
  For
        the
        convenience of the reader, this Amendment restates the Original Filing. This
        Amendment does not otherwise amend or update any exhibit to or disclosure
        set
        forth in the Original
        Filing. Pursuant
        to Rule 12b-15 under the Securities Exchange Act of 1934, as amended,
        this Amendment contains new certifications pursuant to the Sarbanes-Oxley
        Act of 2002.




**2008
      Form 10-K Annual Report**


**Table
      of Contents**




**Item**
            
            **Page No.**Part ISpecial Note Regarding Forward-Looking Statements
            31.
            Description of Business
            31A.
            Risk Factors
            101B.
            Unresolved Staff Comments
            132.
            Description of Properties
            133.
            Legal Proceedings
            134.
            Submission of Matters to a Vote of Security Holders
            15Part II5.
            Market for Our Common Stock, Related Shareholder Mattersand Our Purchases of Equity Securities
            156.
            Selected Financial Data
            187.
            Management’s Discussion and Analysis of Financial Condition andResults of Operations
            197A.
            Quantitative and Qualitative Disclosures about Market Risk
            268.
            Financial Statements and Supplementary Data
            269.
            Changes in and Disagreements with Accountants onAccounting and Financial Disclosures
            279A.
            Controls and Procedures
            279B.
            Other Information
            27Part III10.
            Directors, Executive Officers and Corporate Governance
            2811.
            Executive Compensation
            2812.
            Security Ownership of Certain Beneficial Owners and Managementand Related Shareholder Matters
            2813.
            Certain Relationships and Related Transactions, and Director Independence
            2814.
            Principal Accountant Fees and Services
            28Part IV15.
            Exhibits and Financial Statement Schedules
            28Signatures
            29Table of Contents to Consolidated Financial Statements and Notes
            30Exhibit Index
            50




2




**PART
      I**




**Special
      Note Regarding Forward-Looking Statements**




Certain
      statements in this annual report on Form 10-K concerning our business prospects
      or future financial performance, anticipated revenues, expenses, profitability
      or other financial items, estimates as to size, growth in or projected revenues
      from the life settlement market, developments in industry regulations and the
      application of such regulations, and our strategies, plans and objectives,
      together with other statements that are not historical facts, are
“forward-looking statements” as that term is defined under the federal
      securities laws. All of these forward-looking statements are based on
      information available to us on the date hereof, and we assume no obligation
      to
      update any such forward-looking statements. Forward-looking statements involve
      a
      number of risks, uncertainties, and other factors, which could cause actual
      results to differ materially from those stated in such statements.  Factors
      that could cause or contribute to such differences include, but are not limited
      to, those discussed in this annual report on Form 10-K, particularly in the
      sections entitled “Item 1A – Risk Factors” and “Item 7 – Management’s
      Discussion and Analysis of Financial Condition and Results of Operations”. We do
      not undertake any obligation to release publicly any revisions to such
      forward-looking statements to reflect events or uncertainties after the date
      hereof or reflect the occurrence of unanticipated events.




**Item
      1. Description of Business**




**Life
      Partners**




*General* .
      Life
      Partners Holdings, Inc. ("we” or “Life Partners”) is a financial services
      company and the parent company of Life Partners, Inc. (“LPI”). LPI is the oldest
      and one of the most active companies in the United States engaged in the
      secondary market for life insurance known generally as “life settlements.” These
      financial transactions involve the purchase of life insurance policies at a
      discount to their face value for investment purposes.




*The
      Secondary Market for Life Insurance Policies* .
      LPI was
      incorporated in 1991 and has conducted business under the registered service
      mark “Life Partners” since 1992. Our operating revenues are derived from fees
      for facilitating life settlement transactions. Life settlement transactions
      involve the sale of an existing life insurance policy to another party. By
      selling the policy, the policyholder receives an immediate cash payment to
      use
      as he or she wishes. The purchaser takes an ownership interest in the policy
      at
      a discount to its face value and receives the death benefit under the policy
      when the insured dies.




We
      are a
      financial services company, providing purchasing services for life settlements
      to our client base. We do this by matching life settlors with purchasers. We
      facilitate these transactions by identifying, examining, and purchasing the
      policies as agent for the purchasers. In order to meet market demand and
      maximize our value to our clients, we have made significant investment in
      proprietary software and processes that enable us to facilitate a higher volume
      of transactions while maintaining our quality controls. Since our inception,
      we
      have facilitated over 50,000 purchaser transactions involving over 5,700
      policies totaling over $1 billion in face value. We believe our experience,
      infrastructure and intellectual capital gives us a unique market position and
      will enable us to maintain sustainable growth within the life settlement market.


3




We
      match
      life settlors with purchasers. We act as agent for settlement purchasers, for
      whom we identify and qualify policies. We locate potential life settlors through
      a network of brokers, insurance, financial and estate planning professionals,
      through personal referrals and through Internet and print media advertising.
      Brokers are typically compensated based on a percentage of the face value of
      the
      policy sold, which is paid upon the closing of a settlement. Estate planning
      professionals and financial planners typically operate on a fee-for-service
      basis, which is paid directly by their client. We have long-term relationships
      with most of the country's life settlement brokers and believe that these
      brokers adhere to applicable regulatory requirements when conducting their
      business. In the fiscal year ended February 29, 2008, broker referrals accounted
      for 99% of the total face value of policies transacted, compared to 94% in
      fiscal 2007. Policies presented from four brokers constituted 81% of the total
      face value of all completed transactions presented by brokers during fiscal
      2008. This compares to a concentration of 73% of the total face value of all
      completed transactions from only two brokers in fiscal 2007. We believe this
      reduction in concentration as well as the addition of a number of new brokers
      indicates a reduction in concentration of market share among brokers.




We
      categorize our purchasers of life settlements as institutional or retail.
      Institutional purchasers are typically investment funds designed to acquire
      and
      hold life settlements. These funds are often affiliated with large investment
      firms. We have acted as the funds’ purchasing agent. We may sponsor funds
      ourselves. Institutional purchasers are a growing part of our purchaser base
      reflecting the increasing acceptance of life settlements within the financial
      community. Most of our earlier purchasers were high net worth individuals,
      which
      we refer to as retail purchasers. Our retail purchasers generally come to us
      through a network of financial planners, whom we call licensees. We develop
      this
      network through referrals and have long-standing relationships with most of
      the
      financial planners. Although these financial planners can be compensated through
      fee-based consultations paid by the purchaser, we compensate most of the
      financial planners based on the amount invested. The compensation of financial
      planners is paid in cash generally upon the closing date of the transaction.




To
      purchase a life settlement, a prospective retail purchaser typically submits
      a
      purchaser application containing personal information such as the purchaser’s
      name and address as well as affirmative representations establishing the
      purchaser as financially sophisticated. A purchaser will also submit an agency
      agreement and special power of attorney, which appoints us as a limited agent
      of
      the purchaser to act on his or her behalf in purchasing a life settlement.
      Unless specifically waived by a purchaser, the agency agreement limits our
      authority to policies issued by an insurance carrier having an A.M. Best rating
      of B+ or better and to policies beyond their contestable period (generally
      two
      years or older). While in the past most insureds have had a life expectancy
      of
      60 months or less, we have expanded this market to include insureds with life
      expectancies of up to 10 years or more depending on the purchasing parameters
      of
      each client. As we identify and qualify policies fitting generally within the
      purchasing parameters of our clients, we distribute insurance and current
      medical status information on these policies (with the insured’s name and other
      identifying information redacted) throughout our financial planner network.
      We
      also make available to each financial planner standard disclosures discussing
      the nature and risks of making a life settlement purchase. Purchasers can then,
      in consultation with their financial planner or other professionals, select
      one
      or more policies, specify the portion of the policy or policies to be purchased
      and submit a reservation form either electronically or by fax. To diversify
      their positions, retail purchasers generally buy fractional interests in one
      or
      more policies and not an entire policy, while institutional purchasers tend
      to
      purchase entire policies. At the same time, purchasers mail or wire the
      acquisition price to the escrow agent and mail or fax a policy funding agreement
      to us. The policy funding agreement identifies the policy or policies to be
      purchased, the acquisition price, the administrative services provided, and
      the
      escrow arrangements for receipt and disbursement of funds. In essence, we act
      upon the instructions of the purchasers as their purchasing agent.


4




For
      the
      protection of the seller’s ownership interest and the purchaser’s monetary
      interest, all transactions are closed through an independent escrow agent.
      The
      escrow agent will close a purchase when it receives from purchasers executed
      policy funding agreements and the acquisition price for a policy, verifies
      that
      the policy is in full force and effect and that no security interest has
      attached to the policy, and receives a transfer of policy ownership form
      acknowledged by the insurance company. The escrow agent then pays the seller
      the
      offer price (net of fees and costs). We send confirmation of the transaction
      to
      the purchaser as well as a copy of the assignment documents.




After
      closing the transaction, we generally hold title to the policy as nominee for
      the purchaser. Responsibility for policy premium costs passes to the purchaser,
      who typically funds the premium costs through deposits with the escrow agent.
      We
      strictly maintain the confidentiality of a life settlor’s personal information
      in accordance with regulations promulgated by the Texas Department of Insurance.
      A purchaser will receive evidence of the transfer of ownership of the policy
      (which identifies the insured), but will not receive contact information for
      the
      insured, which is available only to licensed life settlement companies like
      Life
      Partners. We monitor the insured’s health status and notify the escrow agent
      upon the insured’s death. We also notify purchasers in instances in which the
      premium escrow account has been exhausted so that the purchaser can replenish
      the account to keep the policy from lapsing.




We
      pioneered the foregoing transaction design and, since our formation, we have
      participated in the purchase of life settlement transactions totaling over
      $1
      billion in face value.




*The
      Life Settlement Market and Competition* .
      Life
      settlements provide a secondary market for existing life insurance policies
      that
      the owner no longer needs or wants and that insure a person whose life
      expectancy can be reasonably estimated. Over the past few years, the market
      for
      life settlements has grown substantially from both the demand and the supply
      sides of the transaction with an increase in the average face amount of policies
      presented for sale. The larger amount of capital required to meet the higher
      acquisition costs of the average life settlement has led us to develop
      relationships with institutional purchasers in addition to expanding our base
      of
      retail clients and increasing the minimum investment amount. We have devoted
      substantial marketing and client development resources to attracting both
      individual and institutional purchasers domestically and abroad, both directly
      and through their advisors. The number of retail purchasers and the amount
      of
      their average investment have increased substantially providing us with a
      significant market advantage by enabling us to reach the diversification goals
      of our clients as well as giving us greater flexibility in purchasing policies.
      We have also experienced success in attracting institutional clients and believe
      that we shall continue to attract institutional clients as we devote more time
      and resources into cultivating relationships with them.




One
      disincentive for domestic institutional investment had been the accounting
      treatment applied to the purchase of life insurance policies, which generally
      required that settlements be recorded at the cash surrender values of such
      policies instead of their purchase prices. This treatment often resulted in
      substantial write-downs for financial reporting purposes. However, a 2006 change
      by the Financial Accounting Standards Board in the preferred method of
      accounting for life settlement contracts held for investment significantly
      changes the prior accounting treatment. FASB Staff Position No.
      85-4-1 *Accounting for Life Settlement Contracts by Third-Party
      Investors* (FSP FTB
      85-4-1) states that an investor may elect to account for its investments in
      life
      settlement contracts based on 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 are capitalized. FSP FTB 85-4-1
      replaces FASB Technical Bulletin 85-4, which essentially required that a
      purchaser record the excess of the purchase price over the cash surrender value
      as expense when purchasing policies. We believe the adoption of this more
      favorable accounting treatment has spurred institutional investment, especially
      in the domestic market. This accounting change has also had a positive effect
      on
      policies that we own, and we expect to increase the amount of policies that
      we
      purchase for our own investment.


5




We
      believe that the total face value of life settlement transactions completed
      during 2008 was about $7 billion in face amount, which gives us a market share
      of approximately six percent, which is double our market share of approximately
      three percent last year. This estimate is only an approximation, since precise
      market data is not available publicly and thus our competition is difficult
      to
      quantify. We are the only publicly held company operating exclusively in this
      market. Some competitors file publicly available transaction activity with
      state
      insurance commissions. Not every company may report its transactions, however,
      and the accuracy of the information relies on the veracity of the filings made
      by each company. In 2007, Conning Research & Consulting, Inc. in its report
      entitled “Life Settlement Market: Increasing Capital and Investor Demand 2007”
estimated the face value of policies purchased in 2007 to be approximately
      $7.02
      billion. Conning had estimated the 2006 market to be from $5 billion to $6
      billion. Our estimate of 2007 market activity is based in part on the 2007
      Conning report data as well as on reported transactions and known transaction
      volumes with allowance for unreported data and multiple reports of the same
      transaction.




While
      the
      overall life settlement market has grown in size and the number of market
      participants appears to have grown, we believe the market has become more
      fractured among market participants. In earlier years, the market appeared
      to be
      dominated by one competitor, which had up to 40% of the market. Due to
      regulatory problems, this competitor’s position declined to the benefit of us
      and other competitors. We believe that our four largest industry competitors
      currently have about 40% of the market, but that none of them have more than
      15%. The remaining 60% of the market is divided among approximately 30 other
      market participants. Unlike some of our competitors, which may have more
      restrictive purchasing parameters or a single provider of investment capital,
      we
      have developed markets for all types of life expectancies in order to
      accommodate the investment goals of our clients as well as the individual
      circumstances of the policies presented to us. We believe this diversified
      capital business model makes us more competitive in the market and provides
      us
      with greater flexibility. We also believe that this model provides a stronger
      platform for our sustainable growth as a company. Markets are segmented by
      length of life expectancy and policy face value. The amount of competition
      in
      these markets varies according to the demand for such policies.




We
      believe the life settlement market in general will continue to increase
      substantially during the next year due to a number of factors. First, market
      demand from purchasers remains strong for these transactions. The competition
      for policies has increased, indicating that there is an increased awareness
      among the financial markets in general of the value of life settlements as
      an
      investment vehicle. Continued general economic uncertainty has led many
      purchasers to seek alternative investment strategies that diversify their
      portfolios and avoid economically sensitive investments. Life settlements
      provide diversification and produce returns that are not correlated to stock
      and
      bond market fluctuations or increasing commodity prices. We believe that
      interest from both retail and institutional purchasers will continue to grow
      steadily throughout the next fiscal year.




A
      second
      contributing factor to the increase in the life settlement market is the greater
      supply of higher face value policies. We
      believe there is a growing awareness of the secondary market for insurance
      policies among potential sellers, especially for those with higher face value
      policies. This growing awareness has resulted in an expansion of the supply
      of
      eligible policies, especially policies with higher face values. We believe
      much
      of our increased business is due to the greater supply of higher face value
      policies, and we believe this trend will continue. We
      expect
      to increase our market share by growing our client base and utilizing our
      substantial intellectual capital and infrastructure to provide superior value
      to
      both policyholders and our clients. Among our core competencies is the ability
      to process and close transactions quickly and more efficiently than our
      competitors. We believe our ability to deploy our assets into the market in
      this
      manner will enable us to continue to increase our market share.


6




Although
      a life settlement transaction places no burden on an insurance company other
      than to honor its contract, life settlements are disfavored by insurance
      companies because they adversely affect their profitability by keeping policies
      in force that would otherwise have lapsed. According to a December 2006 article
      in the *New
      York Times* ,
      insurance companies in 2005 reduced their financial exposure by $1.1 trillion when
      19.8 million policyholders stopped paying premiums, citing data from the
      Insurance Information Institute*. Thus,
      the
      windfall profits earned by life insurance companies from policies that lapse
      are
      readily apparent.




Data
      from
      the American Council of Life Insurers shows that the voluntary termination
      rates
      for individual policies has dropped steadily from 6.6% in 2002 to 4.9% in 2006.
      Because the decline in the lapse rate coincides with the increasing number
      of
      reported life settlement transactions, we believe this indicates that more
      policyholders are choosing to sell their policies in life settlement
      transactions rather than voluntarily terminating these policies. We also believe
      this corroborates predictions that the life settlement market will continue
      to
      grow in size as these transactions become more familiar to
      policyholders.




Access
      to
      capital, the insurance industry’s addition of pre-death cash benefits, law
      enforcement pressure on companies operating illegally, and increasing government
      regulation have contributed to a stabilization in the number and sophistication
      of life settlement companies, both those purchasing for their own accounts
      and
      those, like us, who act as agents for our clients. We estimate the number of
      life settlement companies actively purchasing for their own account or as agents
      for purchasers has grown to approximately 35 and the number of brokers to be
      approximately 40 with the majority of policies being presented by fewer than
      five brokers. While we believe we are one of the larger life settlement
      companies (based on face value of policies settled), competition within the
      life
      settlement market is active among the few companies in this sector and we will
      continue to experience competition for qualified policies to purchase. This
      competition will have an effect on the prices we pay for policies, the amount
      of
      brokerage and referral fees we pay, and the prices we set for the acquisition
      of
      policies. We believe the overall market for life settlements will increase
      as
      more seniors become aware of their option to liquidate an unwanted policy
      through a life settlement. In light of our experience in the market and our
      estimates concerning competition and supply and demand for policies, we believe
      our total business volume for life settlements will be approximately $600
      million in face value for fiscal 2009, which is a 45% increase over our total
      business volume of $415 million in fiscal 2008. This estimate is projected,
      in
      part, on the total face value of settlements we have already experienced during
      this fiscal year as well as the 174% increase in total business volume between
      fiscal 2007 and fiscal 2008.


*
        Duhigg,
        Charles, “Late in Life, Finding a Bonanza in Life Insurance,” *New* ** *York* ** *Times,* December
        17, 2006


7




The
      following table shows the number of life settlement contracts we have
      transacted, the aggregate face values and purchase prices of those contracts,
      and the revenues we derived, for our last three fiscal years:





**2006**
            
            **2007**
            
            **2008**Number
                of settlements
            
            
            259
            
            
            220
            
            
            200Face
                value of policies
            
            $
            87,275,000
            
            $
            151,397,000
            
            $
            415,293,000Average
                revenue per settlement
            
            $
            77,543
            
            $
            135,433
            
            $
            356,891Total
                net revenues derived(1)
            
            $
            8,485,000
            
            $
            12,231.000
            
            $
            36,823,000





(1)
            The
                revenues derived are exclusive of brokerage and referral
                fees.




**Industry
      Regulation and Taxation**




*General* .
      When
      the life settlement market was first established, it was sparsely regulated.
      Due
      in part to abuses within the industry, which were well-publicized, the federal
      government and various states moved to regulate the market in the mid-1990’s.
      These regulations generally took two forms. One sought to apply consumer
      protection-type regulations to the market. This application was designed to
      protect policyholders and purchasers. Another sought to apply securities
      regulations to the market, which was designed to protect purchasers. Various
      states have also used their insurance regulations to attack instances of
      insurance fraud within the industry.




*Consumer
      Protection Licensing* .
      The
      consumer protection-type regulations arose largely from the draft of a model
      law
      and regulations promulgated by the National Association of Insurance
      Commissioners (NAIC). At least 35 states have now adopted some version of this
      model law or another form of regulation governing life settlement companies
      in
      some way. These laws generally require the licensing of providers and brokers,
      require the filing and approval of settlement agreements and disclosure
      statements, describe the content of disclosures that must be made to insureds
      and sellers, describe various periodic reporting requirements for settlement
      companies and prohibit certain business practices deemed to be abusive.




*Licensing* .
      Many
      states require the licensing of life settlement brokers and providers, mandate
      disclosures to sellers or purchasers or both, require periodic reporting
      requirements, and set forth prohibited business practices. We are licensed
      as a
      viatical and life settlement company by the Texas Department of Insurance.
      Under
      the Texas requirements, we must file our transaction documents with the state
      for approval, make certain disclosures to insureds and sellers, offer a 15-day
      right of rescission to the seller, file certain annual reports with the state,
      and abstain from unfair business practices. Because all of our transactions
      are
      completed in Texas, the Department of Insurance has jurisdiction to investigate
      complaints from any insured or seller, irrespective of the state in which that
      insured or seller lives. Consequently, we believe Texas has exclusive regulatory
      authority and offers protection to all insureds or policyholders (including
      those living in states that have no licensing requirement). Other states may
      assert regulatory jurisdiction, however, and to moderate the risk of adverse
      legal outcomes, we have begun licensing in certain states that are important
      to
      our business model and where exemptions from licensing requirements might be
      questionable. We currently also hold a life settlement license in the following
      states: Maryland, North Carolina, Oklahoma, Pennsylvania and Tennessee. In
      addition, we also have license applications pending in New Jersey, Ohio
      Connecticut and Virginia. Many important states have clearly identified
      exemptions from insurance licensing requirements, which permit our doing
      business without significant regulatory effects. Information about us is
      available through the Texas Department of Insurance or on its website at: https://apps.tdi.state.tx.us/pcci/pcci_show_profile.jsp?tdiNum=8967842&companyName=Life%20Partners,%20Inc.&sysTypeCode=PA


8




*Securities
      Regulations* .
      Some
      states and the Securities and Exchange Commission have attempted to treat life
      settlements as securities under federal or state securities laws. We have
      structured our settlements to reduce the risk that they would be treated as
      securities under state or federal law, and, to date, no state or federal
      regulatory body or private litigant has successfully asserted that our
      settlements are securities. We have faced such claims, however, most recently
      from state securities regulators in Utah and Colorado. See *Item
      3. Legal Proceedings* below.
      These proceedings reflect the somewhat unsettled legal foundations of the life
      settlement industry. We have vigorously contested these proceedings not so
      much
      because of the financial impact of avoiding these particular states, which
      would
      not have a material adverse effect on our business, but to protect our business
      model from the more widespread encroachment of regulatory treatments that we
      believe are unfair or improper.




We
      believe that a combination of consumer protection-type laws and existing
      insurance regulations provide an appropriate framework for regulation of the
      industry. As a practical matter, the widespread application of securities laws
      would burden us and other life settlement companies in marketing settlements
      with little or no benefit to purchasers. Each of our purchasers has represented
      themselves to be financially sophisticated, high net worth individuals or
      institutions, which have little need for the protections afforded by the
      securities laws. At this point, due to the manner in which we structure our
      settlements and the availability, in some instances, of exceptions and
      exemptions under securities laws, such laws have not limited our business model
      to a significant extent. But we cannot give assurance that our business would
      not be materially and adversely impacted by securities-based regulation.




*Insurance
      Regulation* .
      As a
      life settlement company, we facilitate the transfer of ownership in life
      insurance policies, but do not participate in the issuance of policies. As
      such,
      we are not required to be licensed as an insurance company or insurance broker.
      We do deal, however, with insurance companies and professionals in our business
      and are indirectly affected by the regulations covering them. The insurance
      industry is highly regulated, and these regulations affect us in numerous ways.
      We must understand the regulations as they apply to policy terms and provisions
      and the entitlement to, and collectibility of, policy benefits. We rely upon
      the
      protections against fraudulent conduct that these regulations offer and we
      rely
      upon the licensing of companies and individuals with whom we do business.




**Employees**




As
      of
      February 29, 2008, we had 40 direct employees, none of whom are represented
      by a
      labor union, as well as almost 3,000 licensees who act as independent
      contractors and refer clients to us for the purchase of life settlements. We
      continuously review benefits and other matters of interest to our employees
      and
      consider our employee relations to be satisfactory.




**More
      about Life Partners**




Our
      executive offices are located at 204 Woodhew, Waco, Texas 76712 and our
      telephone number is 254-751-7797. Our corporate information website is www.lphi.com .
      We make
      available without charge our annual report on Form 10-K, our quarterly reports
      on Form 10-Q, current reports on Form 8-K, and amendments to these reports
      shortly after we file these reports with the SEC. Our informational website
      for
      insureds and policyholders is www.lifepartnersinc.com .


9




**Item
      1A. Risk Factors**




In
      addition to other information in this annual report on Form 10-K and in the
      documents we are incorporating by reference, the following risk factors should
      be carefully considered in evaluating us and our business. Such factors
      significantly affect or could significantly affect our business, operating
      results or financial condition. This annual report on Form 10-K contains
      forward-looking statements that have been made pursuant to the provisions of
      the
      Private Securities Litigation Reform Act of 1995. Actual results could differ
      materially from those projected in the forward-looking statements as a result
      of
      the risk factors set forth below and elsewhere in this annual report on Form
      10-K.




**We
      Depend on Growth in the Life Settlement Market**




Growth
      of
      the life settlement market and our expansion within the market may be affected
      by a variety of factors, including:


·
              The
                  inability to locate sufficient numbers of life
                  settlors;·
              The
                  inability to convince potential sellers of the benefits of life
                  settlements;·
              The
                  inability to attract sufficient qualified purchasers;·
              Competition
                  from other life settlement companies;·
              The
                  occurrence of illegal or abusive business practices resulting in
                  negative
                  publicity about the market; and·
              The
                  adoption of overly burdensome governmental
                  regulation.


In
      addition, the life settlement market may evolve in ways we have not anticipated
      and we may be unable to respond in a timely or cost-effective manner. If the
      life settlement market fails to grow as quickly as or in the directions we
      have
      anticipated, our business, financial condition and results of operations would
      be materially adversely affected as it relates to our large-scale
      growth.




**Our
      Success Depends on Maintaining Relationships Within Our Referral
      Networks**




We
      rely
      primarily upon brokers to refer potential sellers of policies to us and upon
      financial professionals, known as licensees, to refer retail purchasers to
      us.
      These relationships are essential to our operations and we must maintain these
      relationships to be successful. We do not have fixed contractual arrangements
      with the brokers or financial planners, and they are free to do business with
      our competitors. In addition, the pool of brokers and referring financial
      planners is relatively small, which can increase our reliance on our existing
      relationships and impair attempts to reduce brokerage fees. During fiscal 2008,
      four brokers accounted for 81% of the total face amount of policies we
      purchased. Our network of licensees is much broader, but no less important.
      Our
      ability to build and maintain relationships with our licensees will depend
      upon
      our closing rates, the value we bring to our retail clients and the level of
      compensation we pay to the referring professional. The compensation paid to
      the
      referring professional will affect the offer price to the seller and the
      compensation we receive. We must balance these interests successfully to build
      our referring network and attain greater profitability.


10




**Our
      Purchasers Depend on Our Ability to Predict Life Expectancies and Set
      Appropriate Prices; If Our Investment Returns Are Not Competitive, We May Lose
      Purchasers**




A
      purchaser’s investment return from a life settlement depends on three factors:
      the difference between the policy face amount and purchaser’s cost basis
      (consisting of the acquisition cost and premiums paid to maintain the policy),
      the length of the holding period, and the demise of the insured. We price
      settlements based on the policy face amount, the anticipated life expectancy
      of
      an insured and policy maintenance costs. Life expectancies are generally
      estimated from standard medical and actuarial data based on the historical
      experiences of similarly situated persons. The data is necessarily based on
      averages involving mortality and morbidity statistics. The outcome of a single
      settlement may vary significantly from the statistical average. It is impossible
      to predict any one insured’s life expectancy exactly. To mitigate the risk that
      an insured will outlive his or her predicted life expectancy, we price life
      settlements to yield competitive returns even if this life expectancy prediction
      is exceeded. In addition, life settlement purchasers must be able to bear a
      non-liquid investment for an indeterminate period.




If
      we
      underestimate the average life expectancies and price our transactions too
      high,
      our purchasers will not realize the returns they seek, demand may fall, and
      purchasers may invest their funds elsewhere. In addition, amounts escrowed
      for
      premiums may be insufficient to keep the policy in force and it is the
      responsibility of the purchasers to pay these additional premiums. If we
      overestimate the average life expectancies, the settlement prices we offer
      will
      fall below market levels, supply will decrease, and sellers may engage in
      business with our competitors or pursue other alternatives. Our ability to
      accurately predict life expectancies and price accordingly is affected by a
      number of factors, including:




·
            The
                accuracy of our life expectancy estimations, which must sufficiently
                account for factors including an insured’s age, medical condition, life
                habits (such as smoking), and geographic
                location;




·
              Our
                  ability to anticipate and adjust for trends, such as advances in
                  medical
                  treatments, that affect life expectancy data;
                  and




·
            Our
                ability to balance competing interests when pricing settlements,
                such as
                the amounts paid to life settlors, the acquisition costs paid by
                purchasers, and the compensation paid to ourselves and our referral
                networks.




To
      foster
      the integrity of our pricing systems, we use both in-house and outside experts,
      including medical doctors and published actuarial data. We cannot assure you
      that, despite our experience in settlement pricing, we will not err by
      underestimating or overestimating average life expectancies or miscalculating
      reserve amounts for future premiums.  If
      we do
      so, we could lose purchasers or policy sellers, and those losses could have
      a
      material adverse effect on our business, financial condition, and results of
      operations.




**Government
      Regulation Could Negatively Impact Our Business**




We
      are
      licensed and regulated by the Texas Department of Insurance as a viatical and
      life settlement company and hold licenses as a life settlement provider in
      other
      states as well. State laws requiring the licensing of life settlement providers
      govern many aspects of our conduct, operations, advertising and disclosures.
      The
      laws may vary from state to state, however, and our activities and those of
      brokers with whom we do business can be affected by changes in these laws or
      different interpretations of these laws . In
      addition, some states and the Securities and Exchange Commission treat life
      settlements as securities under state and federal securities laws. Because
      of
      legal precedent relating to our settlements and the possible availability of
      exceptions or exemptions under the securities laws, we do not believe that
      the
      application of securities laws will have a material adverse effect on our
      operations, but
      cannot assure you that securities regulators or private individuals will not
      attempt to apply the securities laws to our settlements or that such attempts
      would not have a material adverse effect on our business. Further, changes
      in
      laws or governmental regulation could affect our brokers or clients, which
      could
      have a material adverse effect on our business.


11




**We
      Are Operating in Evolving Markets that May Be Volatile**




We
      are
      operating in the life settlement market, which is a relatively new market within
      the financial services sector. Although it has grown exponentially in the past
      few years, how and to what extent it will continue to develop is uncertain.
      Because we are the only substantial publicly reporting company in this industry,
      measuring the market is difficult. In 2007, Conning Research & Consulting,
      Inc. estimated the life settlement market to be approximately $7.02 billion
      in
      face value in 2007. Based on our market experience and industry analysis, we
      believe this estimate is reasonable. As more insureds become aware of life
      settlements as a financial planning option, we expect the size of the market
      to
      grow substantially. While
      we
      have de monstrated
      our ability to originate, underwrite and place life settlements with our retail
      purchasers, any dramatic growth will depend heavily upon the entry of
      institutional purchasers and the increase in presentations of policies with
      face
      values in excess of $5 million. Whether we can maintain markets for such
      policies will depend on our ability to attract more institutional and accredited
      investors and convince these purchasers that we can originate sufficient numbers
      of qualified policies for purchase and that our policy analysis and pricing
      practices are sound. Until we attract a sufficient number of institutional
      clients to provide for consistent and predictable demand in addition to the
      demand from our retail clients, our financial performance during any period
      may
      be materially affected by the entry or departure of one or more of our
      institutional clients from the market.




While
      we
      are among the most experienced and largest companies within these markets,
      our
      prospects must be considered in light of the risks, expenses and difficulties
      encountered by those attempting to operate in evolving markets. We cannot assure
      you that we will be successful in addressing the risks we face. The failure
      to
      do so could have a material adverse effect on our business, financial condition,
      and results of future operations.




**Our
      Chairman and Chief Executive Officer Beneficially Owns 51% of Our Common Stock
      and, as a Result, Can Exercise Significant Influence over Our
      Company**




Mr.
      Brian
      D. Pardo, our Chairman and Chief Executive Officer, is defined under SEC
      regulations as the beneficial owner of approximately 51% of our common stock,
      largely as the result of exercising voting power by proxy over shares held
      by
      The Pardo Family Trust. He will be able to control most matters requiring
      approval by our shareholders, including the election of directors and approval
      of significant corporate transactions. His voting control affects indirectly
      the
      process for nominating directors, since theoretically he could nominate and
      elect directors without board involvement. This concentration of ownership
      may
      also have the effect of delaying or preventing a change in control of Life
      Partners, which in turn could have a material adverse effect on the market
      price
      of our common stock or prevent our shareholders from realizing a premium over
      the market price for their shares of common stock.


12




**Item
      1B. Unresolved Staff Comments**




We
      have
      not received within 180 days
      or
      more before February 29, 2008, written comments from the Securities and Exchange
      Commission regarding our periodic or current reports under the Securities
      Exchange Act of 1934, as amended, that remain unresolved.




**Item
      2. Description of Properties**




Our
      corporate offices are located at 204 Woodhew in Waco, Texas. We own 1.068 acres
      at this location and our offices occupy the entire 12,012 square foot office
      building, which was built on the lot in 1986. In addition, we purchased an
      adjacent office building on November 27, 2007, that is approximately the same
      size as our primary corporate office building. This building was built in 1985.
      We occupy approximately 3,900 square feet of this building and have leased
      8,100
      square feet to an unaffiliated entity through July 2009.




**Item
      3. Legal Proceedings**




D u **r** ing
      the
      fiscal year ended February 29, 2008, we incurred settlement expenses of $173,954
      for the resolution of litigation or potential litigation. A significant portion
      of this amount was related to litigation involving an alleged breach of contract
      which we settled to avoid the costs of litigation. Most other settlements
      involved purchaser claims and relatively minor settlement amounts. In some
      instances, we have repurchased interests in policies to settle claims. In these
      cases, only the excess (if any) of the settlement payment over the investment
      value of the repurchased policy interest is charged to settlement expense.
      The
      balance is recorded on our balance sheet as an asset under “Investments in
      policies” and the cash expenditure is recorded on our cash flow statement under
“ Purchase
      of policies for investment purposes and capitalized premiums.” For these types
      of settlements d uring
      fiscal 2008, we recorded $173,954 of settlement expense and $31,751 for purchase
      of policies for investment purposes.




On
      December 3, 2007, the United States Supreme Court denied our writ of certiorari
      to review our case entitled *Life
      Partners, Inc. et al v. Morrison, et al* (4 th Cir.,
      Docket #06-1370). We had contested the State of Virginia’s right to make us to
      qualify to do business in Virginia as a precondition to transacting life
      settlements with Virginia residents. At this point, we are working with
      regulators in Virginia to resolve any outstanding issues of non-compliance
      and
      to obtain a license from the state of Virginia. We expect the resolution of
      this
      legal action and the costs of compliance will not exceed $400,000.




On
      November 29, 2006, we served a declaratory judgment action seeking a judicial
      ruling that the Commissioner of the Utah Division of Securities applied the
      Utah
      Securities Act in an unconstitutional manner when he ordered an administrative
      show cause hearing to determine whether Life Partners and an independent
      financial planner violated the Utah Securities Act in connection with certain
      life settlements transacted through our subsidiary, Life Partners, Inc. The
      declaratory judgment action is styled *Life
      Partners, Inc. and Life Partners Holdings, Inc. v. R. Wayne Klein, in his
      official capacity as Director, Division of Securities, Department of Commerce
      of
      the State of Utah* ,
      U.S.
      Dist.Ct., D. Utah (Central Div.), Case No. 2:2007cv00508. On April 9, 2008,
      Life
      Partners and the Director of the Division of Securities for the State of Utah
      entered into a settlement agreement under which both the administrative action
      and our declaratory judgment action were dismissed with prejudice and, subject
      to the terms of the settlement agreement, each party released the other from
      any
      allegations or claims raised in the declaratory judgment action. As a result,
      this matter is now resolved.


13




On
      May
      29, 2007, the Securities Commissioner for the State of Colorado filed an action
      against Life Partners, Inc. and its President, Life Partners Holdings, Inc.
      and
      its Chairman, as well as several other unaffiliated individuals alleging
      violations of the Colorado Securities Act in connection with certain life
      settlements transacted through our subsidiary, Life Partners, Inc. The
      Commissioner obtained a temporary restraining order against Life Partners,
      Inc.
      and Life Partners Holdings, Inc. and is seeking restitution, disgorgement and
      other equitable relief as well as damages, rescission, interest, costs and
      reasonable attorney’s fees. This action is styled *Fred
      J. Joseph v. Life Partners, Inc. et al* .,
      Case
      No. 07CV5218 in the District Court for the City and County of Denver, Colorado.
      There are no pending motions and no discovery has been initiated, but we expect
      a trial date in October 2008 unless the matter is disposed of prior to that
      date. We intend to vigorously defend ourselves in this matter and we believe
      we
      have substantial legal arguments that support our position.




On
      June
      9, 2006, a putative class action case entitled *Earl
      Parchia et al. v. Life Partners, Inc.,* Cause
      No.
      2006-2258-4 ** was
      filed
      against us in the 170 th District
      Court of McLennan County, Texas. Although this action purports to represent
      a
      class of persons similarly situated, the Court has not certified this case
      as a
      class action. This action alleges breach of contract in connection with advising
      purchasers of premiums that come due on policies in which the escrow for
      premiums has been exhausted. The case also alleges that we breached our contract
      with purchasers by selecting life insurance policies insuring the lives of
      individuals who were not actually terminally ill. Although we have filed a
      partial motion for summary judgment and discovery has been authorized, there
      has
      been no significant action in this matter since February 29, 2008. We believe
      there are numerous and substantial legal and factual issues that will prevent
      this matter from being certified as a class action and that will not support
      the
      claims made in this case. We intend to vigorously defend this action, but we
      cannot predict or guarantee the outcome of the action.




On
      April
      24, 2001, the State of Texas initiated a suit against LPI for alleged violations
      of the Texas Deceptive Trade Practices Act (DTPA). The suit stems from a
      contract LPI used with purchasers which had an ambiguous provision which made
      it
      unclear who was responsible for paying premiums to keep life insurance policies
      purchased in force. LPI’s contention was that the purchasers of the policy
      interests were responsible to pay premiums, as they were the owners of the
      policies. The State of Texas alleged that this was not the case and that LPI
      had
      violated the DTPA by requesting premiums from purchasers. The case was initially
      filed in Travis County, but was transferred to McLennan County. On May 24,
      2006,
      the trial court ruled for LPI on summary judgment, holding that the contract
      was
      ambiguous, and thus LPI did not violate the DTPA by interpreting the contract
      to
      mean the purchasers were responsible to pay premiums. On June 9, 2006, the
      trial
      court entered a take-nothing judgment against the State because the State lacked
      standing to bring a DTPA case over an ambiguous provision in a contract. The
      State appealed this ruling to the 10 th Circuit
      Court of Appeals contending that venue was improper in McLennan County and
      that
      the trial court erred in holding the language of the contract was ambiguous.
      The
      10 th Circuit
      Court of Appeals originally ruled that the transfer of venue was improper,
      but
      later withdrew that opinion and ruled that the transfer of venue to McLennan
      County was proper, but that the trial court erred in holding that the language
      of the contract was ambiguous. Both the State and LPI have appealed issues
      to
      the Supreme Court of Texas. LPI appeals the decision of the appellate court
      on
      the basis that the question of ambiguity of language was not properly before
      the
      court and the court was not in a position to rule on the question of ambiguity
      of the contract language. The State has appealed the decision of the appellate
      court that venue was proper in McLennan County and seeks to have venue returned
      to Travis County. Separate petitions on these issues have been filed before
      the
      Texas Supreme Court, but the Texas Supreme Court has not ruled whether or not
      it
      will hear either or both of the petitions.


14




On
      September 17, 2007, we were served in a civil action by Maxim Group, LLC in
      a
      case styled *Maxim
      Group, LLC v. Life Partner (sic) Holdings, Inc.,* Case
      Number 07 CIV 8099 in the United States District Court for the Southern District
      of New York. Plaintiff is an investment banking firm. firm It claims that we
      entered into an investment banking contract with it in 2004 under which we
      agreed to issue a warrant for 100,000 shares of our common stock to Plaintiff
      exercisable at any time during a five-year period commencing on the date of
      the
      contract at an exercise price of $7.00 per share. We contend the warrant was
      consideration for Plaintiff’s services, that Plaintiff never performed, and that
      we owe nothing. We have filed a motion for summary judgment to dismiss this
      case, which is pending. We intend to defend ourselves vigorously in this matter.




We
      are
      subject to other legal proceedings in the ordinary course of business. When
      we
      determine that an unfavorable outcome is probable and the amount of the loss
      can
      be reasonably estimated, we reserve for such losses. Except as discussed
      above *:* (i) management has not concluded that it is probable that a loss has been
      incurred in any of our pending litigation; (ii) management is unable to
      estimate the possible loss or range of loss that could result from an
      unfavorable outcome of any pending litigation; and (iii) accordingly,
      management has not provided any amounts in the consolidated financial statements
      for unfavorable outcomes, if any.




It
      is
      possible that our consolidated results of operations, cash flows or financial
      position could be materially affected in a particular fiscal quarter or fiscal
      year by an unfavorable outcome or settlement of any pending litigation.
      Nevertheless, although litigation is subject to uncertainty, management believes
      and we have been so advised by counsel handling the respective cases, that
      we
      have a number of valid claims and defenses in all pending litigation to which
      we
      are a party, as well as valid bases for appeal of adverse verdicts against
      us.
      All such cases are, and will continue to be, vigorously defended and all valid
      counterclaims pursued. However, we may enter into settlement discussions in
      particular cases if we believe it is in the best interests of our shareholders
      to do so.




**Item
      4. Submission of Matters to a Vote of Security Holders**




No
      matter
      was submitted during the fourth quarter of the fiscal year covered by this
      Annual Report to a vote of our security holders.




**PART
      II**




**Item
      5. Market for Our Common Stock, Related Shareholder Matters and Our Purchases
      of
      Equity Securities**




**Market
      Information**




On
      April
      30, 2008, there were approximately 102 shareholders of record of our Common
      Stock. Most of our common stock is held beneficially by broker/dealers. We
      believe that there are approximately 6,354 beneficial owners of shares of our
      common stock who hold in street name through brokers.




The
      following table sets forth the high and low closing bid prices per share of
      our
      common stock for each full quarterly period during the three most recent fiscal
      years, as reported by The Nasdaq Stock Market.


15




**High**
              
              **Low**
              
              **Cash**
                **Dividends****Year
                  Ended 2/28/06**First
                  Quarter
              
              $
              7.50
              
              $
              4.00
              
              $
              .0500Second
                  Quarter
              
              $
              5.21
              
              $
              3.96
              
              $
              .0500Third
                  Quarter
              
              $
              4.64
              
              $
              3.21
              
              $
              .0500Fourth
                  Quarter
              
              $
              6.50
              
              $
              4.60
              
              $
              .0500**Year
                  Ended 2/28/07**First
                  Quarter
              
              $
              6.10
              
              $
              5.31
              
              $
              .0500Second
                  Quarter
              
              $
              5.85
              
              $
              4.05
              
              $
              .0500Third
                  Quarter
              
              $
              9.92
              
              $
              5.05
              
              $
              .0600Fourth
                  Quarter
              
              $
              12.00
              
              $
              9.60
              
              $
              .0500**Year
                  Ended 2/29/08**First
                  Quarter
              
              $
              19.12
              
              $
              10.05
              
              $
              .0625Second
                  Quarter
              
              $
              51.50
              
              $
              18.36
              
              $
              .0600Third
                  Quarter
              
              $
              52.90
              
              $
              28.25
              
              $
              .0700Fourth
                  Quarter
              
              $
              35.81
              
              $
              14.77
              
              $
              .0600




On
      May 1,
      2008, the last reported sale price of our common stock on The Nasdaq Global
      Market was $17.21 per share. Our total share volume for April 2008 was 1,121,800
      shares compared to 584,200 shares for the same period last year.




**Dividends**




We
      paid
      common stock dividends of $0.2525 per share in fiscal 2008 and $0.21 per share
      in fiscal 2007. The dividend declared by the Board of Directors has been at
      least $0.06 per share in each quarter since May 31, 2007 with an additional
      $0.01 “Christmas Bonus” dividend in the third quarters of fiscal years 2008 and
      2007.




**Performance
      Graph**




The
      line
      graph below compares the cumulative total shareholder return on our Common
      Stock
      for the last five fiscal years with cumulative total return on the Russell
      MicroCap Index and the Nasdaq Financial Index. This graph assumes a $100
      investment in each of Life Partners Holdings, Inc., the Russell Microcap Index
      and the Nasdaq Financial Index at the close of trading on February 28, 2003,
      and
      also assumes the reinvestment of all dividends. The
      points represent fiscal year-end levels based on the last trading day in each
      fiscal year. Return information is historical and not necessarily indicative
      of
      future performance.


16









**2003**
            
            **2004**
            
            **2005**
            
            **2006**
            
            **2007**
            
            **2008**Life
                Partners
            
            $
            100
            
            $
            208
            
            $
            212
            
            $
            214
            
            $
            390
            
            $
            736Russell
                Microcap Index
            
            $
            100
            
            $
            184
            
            $
            190
            
            $
            221
            
            $
            286
            
            $
            193Nasdaq
                Financial Index
            
            $
            100
            
            $
            144
            
            $
            147
            
            $
            172
            
            $
            181
            
            $
            148




We
      selected these indices because they include companies with similar market
      capitalizations to ours. We believe these are the most appropriate comparisons
      since we are the only publicly traded company operating exclusively in the
      life
      settlement industry and have no comparable industry “peer” group.




The
      performance graph above is being furnished solely to accompany this Annual
      Report on Form 10-K pursuant to Item 201(e) of Regulation S-K, is not being
      filed for purposes of Section 18 of the Securities Exchange Act of 1934, as
      amended, and is not to be incorporated by reference into any of our filings,
      whether made before or after the date hereof, regardless of any general
      incorporation language in such filing.




**Recent
      Sales of Unregistered Securities** ****




In
      April
      2007, we issued 62,500 shares upon exercise of a stock option at $4.80 per
      share
      ($300,000 total). The shares were issued to a single individual in reliance
      on
      the exemption afforded by Section 4(2) under the Securities Act and under a
      similar private offering exemption under the applicable state securities laws.


17




**Securities
      Authorized for Issuance under Equity Compensation Plans** ****




We
      have
      no outstanding options or shares subject to options or other purchase rights
      authorized, but not outstanding.




**Purchases
      of Equity Securities by the Issuer and Affiliated
      Purchasers** ****




During
      Fiscal 2008, we made the following purchases of our Common Stock.




**Total Number of**
              **Shares Purchased**
            
            **Average Price**
              **Paid per Share**
            
            **Total Number of**
              **Shares Purchased**
              **as Part of**
              **Publicly**
              **announced Plans**
              **or Programs**
            
            **Maximum**
              **Number of Shares**
              **that May Yet Be**
              **Purchased Under**
              **the Plans or**
              **Programs**Jan.
                1 to 31, 2008
            
            
            6,981
            
            $
            19.56
            
            
            6,981
            
            
            993,019Feb.
                1 to 29, 2008
            
            
            24,963
            
            $
            17.12
            
            
            24,963
            
            
            968,056Total
            
            
            31,944
            
            $
            17.65
            
            
            31,944
            
            
            968,056




**Item
      6. Selected Financial Data**




The
      following table sets forth certain information concerning our consolidated
      financial condition, operating results, and key operating ratios for the dates
      and periods indicated. This information does not purport to be complete, and
      should be read in conjunction with “Management's Discussion and Analysis of
      Financial Condition and Results of Operations” and our Consolidated Financial
      Statements and Notes thereto.





**Year Ended February 28/29,**
              **(millions, except per share information)****2008**
            
            **2007**
            
            **2006**
            
            **2005**
            
            **2004**Operating
                ResultsRevenues
            
            $
            72.6
            
            $
            29.8
            
            $
            20.1
            
            $
            18.7
            
            $
            15.6Income
                from Operations
            
            $
            28.1
            
            $
            4.8
            
            $
            1.9
            
            $
            4.4
            
            $
            3.6Pre-tax
                Income
            
            $
            28.7
            
            $
            4.7
            
            $
            2.0
            
            $
            4.0
            
            $
            3.4Net
                Income
            
            $
            18.8
            
            $
            3.4
            
            $
            1.1
            
            $
            2.7
            
            $
            2.5**Balance
                Sheet Data at Fiscal Year End**Current
                Assets
            
            $
            25.5
            
            $
            12.7
            
            $
            8.0
            
            $
            7.2
            
            $
            7.2Current
                Liabilities
            
            $
            8.0
            
            $
            8.5
            
            $
            6.0
            
            $
            3.5
            
            $
            3.5Working
                Capital
            
            $
            17.5
            
            $
            4.2
            
            $
            2.0
            
            $
            3.7
            
            $
            3.7Total
                Assets
            
            $
            31.9
            
            $
            16.6
            
            $
            12.0
            
            $
            10.3
            
            $
            9.0Total
                Liabilities
            
            $
            9.1
            
            $
            8.9
            
            $
            6.8
            
            $
            4.0
            
            $
            4.0Shareholder
                Equity
            
            $
            22.8
            
            $
            7.7
            
            $
            5.2
            
            $
            6.3
            
            $
            5.0Return
                on Assets
            
            
            77.4
            %
            
            23.5
            %
            
            10.3
            %
            
            27.8
            %
            
            31.4
            %Return
                on Equity
            
            
            123.1
            %
            
            51.9
            %
            
            19.9
            %
            
            47.8
            %
            
            56.5
            %**Per
                Share Data(1)**Earnings
                Per Share
            
            $
            1.56
            
            $
            0.28
            
            $
            0.10
            
            $
            0.23
            
            $
            0.21Dividends
                Per Share
            
            $
            0.2525
            
            $
            0.2100
            
            $
            0.2000
            
            $
            0.2000
            
            $
            0.14**Financial
                Ratios**Current
                Ratio
            
            
            3.2
                : 1
            
            
            1.5
                : 1
            
            
            1.3
                : 1
            
            
            2.1
                : 1
            
            
            2.0
                : 1Quick
                Ratio
            
            
            3.2
                : 1
            
            
            1.5
                : 1
            
            
            1.3
                : 1
            
            
            2.1
                : 1
            
            
            2.0
                : 1







(1)
            Per
                share data has been restated for the 2007 stock
                split.




18




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




Special
      Note: Certain statements set forth below under this caption constitute
“forward-looking statements” within the meaning of the Reform Act. See *Special
      Note Regarding Forward-Looking Statements* for
      additional factors relating to such statements.




We
      provide the following discussion to assist in understanding our financial
      position as of February 29, 2008, and results of operations for the years ended
      February 29, 2008, February 28, 2007, and February 28, 2006. As you read
      this discussion, refer to our Consolidated Statements of Income and our
      Consolidated Balance Sheet. We analyze and explain the differences between
      periods in the material line items of these statements.




**Critical
      Accounting Estimates, Assumptions and Policies**




Our
      discussion and analysis of financial condition and results of operations are
      based on our consolidated financial statements that were prepared in accordance
      with accounting principles generally accepted in the United States of America.
      To guide our preparation, we follow accounting policies, some of which represent
      critical accounting policies as defined by the SEC. The SEC defines critical
      accounting policies as those that are both most important to the portrayal
      of a
      company's financial condition and results and require management's most
      difficult, subjective, or complex judgment, often as a result of the need to
      make estimates about the effect of matters that are inherently uncertain and
      may
      change in subsequent periods. Certain accounting estimates involve significant
      judgments, assumptions and estimates by management that may have a material
      impact on the carrying value of certain assets and liabilities, disclosures
      of
      contingent liabilities, and the reported amounts of income and expenses during
      the reporting period which management considers to be critical accounting
      estimates. The judgments, assumptions and estimates used by management are
      based
      on historical experience, management’s experience, knowledge of the accounts and
      other factors that are believed to be reasonable. Because of the nature of
      the
      judgments and assumptions made by management, actual results may differ
      materially from these judgments and estimates, which could have a material
      impact on the carrying values of assets and liabilities and the results of
      operations of the Company. Areas affected by our estimates and assumptions
      are
      identified below.




We
      recognize income at the time a settlement closes and the purchaser has obligated
      itself to make the purchase. We defer $50 per viatical settlement and $100
      per
      life settlement to cover minor monitoring services provided subsequent to the
      settlement date. We amortize this deferred cost over the anticipated life
      expectancy of the insureds.




We
      sometimes advance loans to facilitate a life settlement transaction. These
      amounts are included in Accounts receivable – trade, and are collected as
      the life settlement transactions close. All amounts are considered collectible,
      as we are repaid the advance loan before any of the other parties involved
      in
      the transaction receive funds.


19




For
      life
      insurance policies purchased for our own account in fiscal year 2006 and before,
      we followed Financial Standards Board Technical Bulletin 85-4 *Accounting
      for Purchases of Life Insurance* (FTB
      85-4), which required that we reduce our investment in the policies to the
      cash
      surrender value of such policies with any differences between cost and cash
      surrender value being charged to expense.




On
      March
      27, 2006, FASB Staff Position No. FTB 85-4-1 *Accounting
      for Life Settlement Contracts by Third-Party Investors* (FSP FTB
      85-4-1) was issued, which amends FTB 85-4. The FASB Staff Position states that
      an investor may elect to account for its investments in life settlement
      contracts 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 change in fair value earnings (or other performance
      indicators for entities that do not report earnings) in the period in which
      the
      changes occur.  FSP
      FTB
      85-4-1 is required to be applied to fiscal years beginning after June 15,
      2006. We elected to adopt FSP FTB 85-4-1 as of March 1, 2006 (the beginning
      of
      fiscal 2007) and to value our investments in life settlement contracts using
      the
      investment method. As of February 29, 2008, our investments in life settlements
      held for our own account were valued at $1,017,201. This change in accounting
      principle resulted in an increase in the value of life settlements which we
      hold
      for our own account of $457,070.




We
      establish litigation and policy analysis loss reserves based on our best
      estimates as to the ultimate outcome of contingent liabilities. This reserve
      analysis is necessary to properly match current expenses to currently recognized
      revenues and to recognize that there is a certain amount of liability associated
      with litigation and policy losses. Through this reserve, we recognize the
      estimated cost to settle pending litigation as an expense. These estimates
      are
      reviewed on a quarterly basis and adjusted to management’s best estimate of the
      anticipated liability on a case-by-case basis. A high degree of judgment is
      required in determining these estimated reserve amounts since the outcomes
      are
      affected by numerous factors, many of which are beyond our control. As a result,
      there is a risk that the estimates of future litigation and policy analysis
      loss
      costs could differ from our currently estimated amounts. Any difference between
      estimates and actual final outcomes should not have a material impact on our
      financial statements. We have not experienced any material changes between
      estimates and actual results in the current or prior periods.




We
      must
      make estimates of the collectability of accounts and notes receivable and
      premium advances. The accounts associated with these areas are critical to
      recognizing the correct amount of revenue in the proper period. Because of
      the
      uncertainty about when policy advances will be collected, we follow the practice
      of reserving all premium advances at the time such advances are made. When
      premium advances are repaid, the repayments are netted against premium expense.
      We have not experienced any material changes in our estimates of collectability
      versus actual results in the current or prior periods.


20




We
      review
      the carrying value of the property and equipment for impairment whenever events
      and circumstances indicate that the carrying value of an asset may not be
      recoverable from the estimated future cash flows expected to result from its
      use
      and eventual disposition. In cases where undiscounted expected future cash
      flows
      are less than the carrying value, an impairment loss is recognized equal to
      an
      amount by which the carrying value exceeds the fair value of assets. The factors
      considered by management in performing this assessment includes current
      operating results, trends and prospects, the manner in which the property is
      used, and the effects of obsolescence, demand, competition and other economic
      factors. Based on this assessment, there was no impairment at February 29,
      2008.




We
      must
      evaluate the useful lives of our property and equipment to assure that an
      adequate amount of depreciation is being charged to operations. Useful lives
      are
      based generally on specific knowledge of an asset’s life in combination with the
      Internal Revenue Service rules and guidelines for depreciable lives for specific
      types of assets.




We
      are
      required to estimate our income taxes. This process involves estimating our
      current tax exposure together with assessing temporary differences resulting
      from differing treatment of items for tax and accounting purposes. These
      differences result in deferred tax assets and liabilities. We must then assess
      the likelihood that our deferred tax assets will be recovered from future
      taxable income, and, to the extent we believe that recovery is not likely,
      we
      must establish a valuation allowance. To the extent we establish a valuation
      allowance or increase this allowance in a period, we must include a tax
      provision or reduce our tax benefit in the statements of income. We use our
      judgment to determine our provision or benefit for income taxes, deferred tax
      assets and liabilities and any valuation allowance recorded against our net
      deferred tax assets.




We
      cannot
      predict what future laws and regulations might be passed that could have a
      material effect on our results of operations. We assess the impact of
      significant changes in laws and regulations on a regular basis and update the
      assumptions and estimates used to prepare our financial statements when we
      deem
      it necessary.




We
      have
      not made any material changes to our critical accounting estimates or
      assumptions or the judgments affecting the application of those estimates or
      assumptions. We discuss our significant accounting policies, including those
      policies that are not critical, in Note 2 of our Consolidated Financial
      Statements.




**New
      Accounting Pronouncements**




On
      March
      27, 2006, FASB Staff Position No. 85-4-1 *Accounting
      for Life Settlement Contracts by Third-Party Investors* (FSP FTB
      85-4-1) was issued. See *Critical
      Accounting Estimates, Assumptions and Policies* above.




Other
      recent accounting pronouncements have been issued including FASB Statements
      No.
      123(R), 155, 156, 157, 158 and 159, FIN 48 and SAB 108. For a discussion of
      these pronouncements, refer to Footnote 3 to the Consolidated Financial
      Statements.




**Life
      Partners**




We
      are
      the world's oldest and only publicly traded company operating exclusively in
      the
      life settlement industry. Our revenues are primarily derived from fees
      associated with facilitating life settlement transactions.


21




**Comparison
      of Years Ended February 29, 2008 and February 28, 2007 and
      2006**




We
        had
        net income of $18,756,271 for the year ended February 29, 2008 (fiscal 2008),
        as
        compared to net income of $3,360,230 for the year ended February 28, 2007
        (fiscal 2007) and $1,143,751 for the year ended February 28, 2006 (fiscal
        2006).
        The 458% increase in net income in fiscal 2008 is attributable primarily
        to a
        144% increase in revenues and a 201% increase in revenues net of brokerage
        and
        licensee fees. The large increase in revenues, net of brokerage fees, resulted
        in an increase in income from operations of 491%. The 194% increase in net
        income in fiscal 2007 was attributable to an almost 150% increase in income
        from
        operations, and, to a lesser extent, to increases in interest income and
        in
        realized gains on investments. Fiscal 2006 operating income of $1,911,605
        was
        aided by gains on sales of policies held for investment of $1,100,967. Legal
        costs in fiscal 2008 were $1,660,176, $2,150,126 in fiscal 2007 and $1,545,149
        in fiscal 2006 and, after payroll, comprised the largest single general and
        administrative expense. The costs were attributable primarily to our prosecution
        of lawsuits against the States of Virginia and Utah and in defending ourselves
        in the arbitration against our former investment bankers. *See
        Item 3. Legal Proceedings.*


*Revenues* -
        Revenues increased by $42,813,932, or 144% from $29,795,323 in fiscal 2007
        to
        $72,609,255 in fiscal 2008. This increase was due primarily to a 174% increase
        in our total business volume as measured by the face value of all policy
        settlements transacted through us and a 164% increase in the average revenue
        per
        settlement from $135,433 in fiscal 2007 to $356,891 in fiscal 2008. The number
        of settlements we transacted in fiscal 2008 decreased by 9% from last year
        continuing a trend toward fewer transactions, but with larger face amounts.
        Revenues in fiscal 2007 increased by $9,711,670 or 48% from $20,083,653 in
        fiscal 2006 to $29,795,323 in fiscal 2007. This increase was also a result
        of
        the increase in policy face amounts and in average revenue per
        settlement.


During
      the periods, demand for our services remained strong and the number of policies
      presented to us and meeting our purchasing qualifications grew. Growth in demand
      was especially strong for policies with higher face values among both
      institutional and retail clients, and we anticipate this demand trend to
      continue for the foreseeable future. Most of our competitors have adopted a
      single or preferred client business model, which relies on a relatively narrow
      purchaser base. In contrast, we employ a broad based, multi-client business
      model and our purchaser base is much broader. While a single purchaser may
      account for a substantial share of revenues during a particular quarterly
      period, we do not intend to become reliant upon any single purchaser and expect
      that no single purchaser will account for a substantial share of revenues during
      the long-term. With our multi-client business model, we believe we can serve
      the
      demand for all our current and future clients. We believe this business model
      will permit us to achieve sustainable growth for the foreseeable future, without
      the risks associated with a single or limited number of clients.




We
      believe the increasing demand for our services results from several factors,
      one
      of which is an investment trend toward diversifying investment portfolios and
      avoiding economically sensitive investments. Returns on life settlements are
      linked to the lives of the insureds. As such, settlements function independently
      from, and are not correlated to, traditional equity and debt markets and
      commodity investments. We benefit from the investment community searching for
      returns higher than what is currently available in the traditional marketplace.
      Demand for our services emanates from both domestic and international
      purchasers, and the ratio of domestic clients to international clients was
      relatively unchanged from last year. In fiscal 2008, approximately 80% of our
      business was from domestic purchasers while approximately 20% was from foreign
      purchasers. In fiscal 2007, this ratio was 81% from domestic business and 19%
      from foreign business and in fiscal 2006, the ratio was 86% from domestic
      business and 14% from foreign business. We do not anticipate significant changes
      in the ratio between domestic and foreign business.




Another
      contributing factor has been the greater supply of higher face value policies.
      We believe there is a growing awareness of the secondary market for insurance
      policies among potential sellers, especially for those with higher face value
      policies. This growing awareness has resulted in an expansion of the supply
      of
      eligible policies, especially policies with higher face values. We believe
      much
      of our increased business is due to the greater supply of higher face value
      policies, and we believe this trend will continue.


22




Increased
      demand for our services was also aided by the institution of legal proceedings
      against the industry’s largest life settlement provider. In October 2006, the
      Attorney General for the State of New York filed a civil lawsuit against our
      principal competitor claiming it violated fraud and antitrust laws by making
      secret payments to brokers that stifled bidding and that were unknown to policy
      sellers. In May 2007, the State of Florida filed a show cause order against
      the
      same competitor alleging similar unfair business practices. While we cannot
      assess the merits of the allegations in these proceedings, our total business
      volume increased after the filing of the New York proceeding, and we believe
      we
      have sufficient empirical data to classify this increase as a trend that
      continued into fiscal 2008. In addition to any direct effect on our operating
      results, we believe these proceedings had a profoundly positive effect on the
      life settlement market in general, promoting fair dealing in the market and
      underscoring the fiduciary duty owed by brokers to sellers. A cleaner, more
      transparent market will have lasting benefits for the industry generally and
      us
      particularly.




*Brokerage
        and Referral Fees* -
        Brokerage and referral fees increased 104% or $18,222,399 from $17,564,122
        in
        fiscal 2007 to $35,786,521 in fiscal 2008. Brokerage and referral fees increased
        51% or $5,965,512 from $11,598,610 in fiscal 2006 to $17,564,122 in fiscal
        2007.
        Brokerage and referral fees constituted 49% of revenues in fiscal 2008 compared
        to 59% in fiscal 2007 and 58% in fiscal 2006. In
        fiscal
        2008, broker referrals accounted for 99% of the total face value of policies
        transacted, while this percentage for fiscal 2007 was 94% and for fiscal
        2006
        was 89%. Policies presented from four brokers constituted 81% of the total
        face
        value of all completed transactions presented by brokers during fiscal 2008.
        This compares to a concentration of 73% of the total face value of all completed
        transactions from only two brokers in fiscal 2007 and 68% in fiscal
        2006.




Brokerage
      and referral fees generally increase or decrease with revenues, face values
      of
      policies transacted and the volume of transactions, although the exact ratio
      may
      vary according to a number of factors. Brokers may adjust their fees with the
      individual policyholders whom they represent. In some instances, several brokers
      may compete for representation of the same seller, which will result in lower
      broker fees. Referral fees also vary depending on factors such as varying
      contractual obligations, market demand for a particular kind of policy or life
      expectancy category, individual agreements between clients and their referring
      financial planners. No broker fees are paid when a viator or life settlor is
      not
      represented by a broker and presents a policy to us directly.




Some
      states are moving to license life settlement brokerage activity, which may
      result in the capping of fees or the disclosure of fees, either of which would
      tend to lower the fees. The New York Attorney General’s suit discussed above may
      further encourage the disclosure or regulation of brokerage compensation.




Brokerage
      fees associated with the purchase of policies for our own investment are not
      included in this line item, but are included under the line item entitled
“policy acquisition expense.”


*Operating
        Expense* -
        General and administrative expenses increased by 20% or $1,364,090 from
        $6,822,105 in fiscal 2007 to $8,186,195 in fiscal 2008, although such expense
        as
        a percentage of revenues was 12% lower in fiscal 2008. Executive bonuses
        increased $1,105,554 from $215,686 in fiscal 2007 to $1,321,240 in fiscal
        2008.
        These payments are a direct result of the increased company profitability,
        which
        is linked to executive compensation plans. General and administrative expenses
        increased by 14% or $850,857 from $5,971,248 in fiscal 2006 to $6,822,105
        in
        fiscal 2007.


23




Also
      included in fiscal 2008 general and administrative expenses are substantial
      legal expenses of $1,660,176 primarily associated with the prosecution of legal
      actions against the State of Virginia and the State of Utah and in defending
      ourselves in an arbitration action filed by an investment banking group. This
      compares favorably with $2,150,125 for non-recurring legal expenses in fiscal
      2007. Legal expenses were $1,545,149 in fiscal 2006, with essentially the same
      cases as fiscal 2007. *See
      Item 3. Legal Proceedings* .
      In
      unrelated legal actions, we experienced non-recurring settlement expenses of
      $173,954 in fiscal 2008 compared to $415,312 in fiscal 2007 and $388,808 in
      fiscal 2006.




We
      made
      advances on policy premiums primarily to maintain certain older viatical
      settlement transactions. During fiscal 2008, 2007 and 2006, we made premium
      advances of $1,180,797, $1,242,314 and $1,187,095, respectively, and were
      reimbursed $216,251, $407,687 and $284,249, respectively. The settlements,
      most
      of which were made before 1998, allegedly lacked sufficient disclosure about
      the
      purchaser’s obligation to pay premiums in order to maintain an acquired policy.
      While we have steadfastly denied any legal liability or contractual obligation
      to do so, we have advanced premiums as an accommodation to some purchasers.
      Reimbursements for these premiums will come either from the purchasers or from
      the distribution of such purchaser’s proceeds paid when the insured dies.
      Premium advances have been recorded as an expense at the time they are made
      with
      collections being treated as a reduction in this expense. We are unable to
      estimate the amount of any future advances we may elect to make or the amount
      of
      reimbursements we are likely to receive. Because of our inability to estimate
      these amounts, we do not accrue amounts for future advances or reimbursements.




*Interest
      Income and Expense -* Interest
      and other income grew from $671,152 in fiscal 2006 to $957,363 in fiscal 2007
      and $1,656,204 in fiscal 2008. The increase corresponds to higher investment
      account balances in those years. Interest expense varied from $162,508 in fiscal
      2008 to $207,238 in fiscal 2007 and $138,063 in fiscal 2006. Our interest
      expense relates primarily to the long-term debt financing on our property.


*Income
        Taxes* -
        Income
        tax expense increased by $8,588,465 or 638% from $1,347,022 in fiscal 2007
        to
        $9,935,487 in fiscal 2008 due to a 510% increase in income before taxes.
        Income
        tax expense increased by $508,291 or 61% from $838,731 in fiscal 2006 to
        $1,347,022 in fiscal 2007 due to a 137% increase in income before taxes.
  **Liquidity
        and Capital Resources**
  *Operating
        Activities* - Net
        cash flows provided by operating activities during fiscal 2008 increased
        by 255%
        or $8,986,917 to $12,509,720 compared with net cash flows provided by operating
        activities of $3,522,803 for fiscal 2007 and $1,184,725 in fiscal 2006. This
        increase in cash flows from operating activities was attributable primarily
        to a
        458% or $15,396,041 increase in net income from $3,360,230 in fiscal 2007
        to
        $18,756,271 in fiscal 2008, and a 194% or $2,216,479 increase in net income
        in
        fiscal 2007 vs. fiscal 2006. The increase was helped by an increase in accounts
        payable of $1,568,755 compared to an increase of $1,849,218 in fiscal 2007.
        The
        increase in operating activities cash flow was diminished by (i) an
        increase in accounts receivable of $6,704,623 compared to an increase of
        $2,849,728 in fiscal 2007; and (ii) a decrease in net income tax payable of
        $520,128 versus an increase in fiscal 2007 of $581,239.


24




In
      fiscal
      2007, we expensed costs of $663,344 in connection with the formation of a
      limited
      partnership arrangement with a large
      U.S.-based investment firm. When the limited partnership did not make any
      settlement purchases, we terminated the partnership without penalty according
      to
      the terms of the limited partnership agreement. When we terminated the
      arrangement, we were required to recognize those capitalized costs as an
      expense. Of these expensed costs, $550,000 were funds advanced to an investment
      banker, which we recovered in an arbitration action after the close of fiscal
      2007. The recovery resulted in a reduction to our impairment of investment
      in
      limited partnership by that amount. The increase in our accounts receivable
      stems largely from the increased amount of revenue attributable to policies
      for
      which a closing was imminent, but which had not been released from escrow by
      the
      end of the period. The increase in our accounts payable was largely the result
      of the increased brokerage and referral fees associated with transactions that
      had not been released from escrow by the end of the period.


*Investing
        and Financing Activities -* We
        used
        cash of $4,207,210 in investing activities in fiscal 2008 vs. $241,500 in
        fiscal
        2007 and $746,685 in fiscal 2006. We purchased $1,727,440 in income funds
        in
        fiscal 2008 compared to $53,171 in fiscal 2007 and $413,055 in fiscal 2006.
        We
        invested $2,380,558 in property and equipment in fiscal 2008 versus $98,554
        in
        fiscal 2007 and $145,006 in fiscal 2006. In fiscal 2008, this was primarily
        due
        to the purchase of the land and building adjacent to our corporate headquarters
        and the company plane, which was also sold in fiscal 2008. We issued notes
        receivable totaling $425,000 for cash advanced to a company in fiscal 2008.
        We
        purchased policies for investment purposes in fiscal 2008 for $464,212 vs.
        $89,775 in fiscal 2007 and $1,176,269 in 2006. In fiscal 2006, we received
        proceeds from the sale of policies of $1,651,208.
  We
        used
        $3,626,032 in financing activities in fiscal 2008 vs. $1,547,521 in fiscal
        2007
        and a source of $246,910 in fiscal 2006. We paid down $3,206,168 on our
        operating line of credit and loans in fiscal 2008 compared with payments
        of
        $761,849 in fiscal 2007 and $147,866 in fiscal 2006. We received proceeds
        from
        loans of $2,289,226 in fiscal 2008 and $2,291,018 in fiscal 2006. We used
        cash
        to pay dividends of $2,445,218 in fiscal 2008, which increased the prior
        dividend level. We paid dividends of $1,391,672 in fiscal 2007 and $1,896,242
        in
        fiscal 2006. We purchased shares on the open market (treasury shares) for
        $563,872 in fiscal 2008.




*Working
        Capital and Capital Availability* - As of
        February 29, 2008, we had working capital of $17,465,985. Our cash during
        fiscal
        2008 increased by $4,676,478 compared with an increase of $1,733,782 in fiscal
        2007 and $684,950 in fiscal 2006. To
        facilitate the purchase of policies for our own account and for short-term
        cash
        flow management and operating capital requirements, we maintain a credit
        line.
        The credit line is secured by our cash and securities on deposit. As of
        February 29, 2008, the line of credit carried an interest rate at New York
        prime and had a borrowing base of $2.4 million. The balance outstanding at
        February 29, 2008, consisted of unpaid interest and was
        $1,621.




We
      believe future income from operating activities will generate sufficient profits
      and cash flows to meet our anticipated working capital needs. In addition,
      we
      continue to explore the formation of life settlement investment funds, whether
      sponsored externally or internally and other types of financing opportunities,
      which will provide more capital for us to purchase more policies for our own
      investment.




Our
      financial strategy is to increase cash flows generated from operations by
      increasing revenues while controlling brokerage and general and administrative
      expenses. We believe that domestic and international demand for life
      settlements, especially from institutional purchasers, will continue to grow
      during the next year as the prospects for economic conditions remain uncertain,
      as the popularity of non-correlated assets continues to grow, and as we gain
      competitive advantage in a growing market. In addition to our traditional retail
      base, we have expanded our services to accommodate institutional purchasers.
      We
      have acted as a fund advisor for three institutional funds and anticipate
      expanding these services in combination with our current life settlement
      provider services.


25




**Off-Balance
      Sheet Arrangements**




We
      do not
      engage in any off-balance sheet arrangements or transactions.




**Contractual
      Obligations and Commitments**




The
      following table reflects our outstanding contractual obligations and commitments
      as of February 29, 2008:




**Contractual Obligations**
            
            **Total**
            
            **Due in less**
              **than 1 year**
            
            **Due in**
              **1 to 3 years**
            
            **Due in**
              **4 to 5 years**
            
            **Due after**
              **5 years**Line
                of Credit
            
            $
            1,621
            
            $
            1,621
            
            $
            -
            
            $
            -
            
            $
            -Long-term
                debt
            
            
            1,164,851
            
            
            97,338
            
            
            213,008
            
            
            240,036
            
            
            614,469Operating
                leases
            
            
            113,400
            
            
            32,400
            
            
            64,800
            
            
            16,200
            
            
            -Total
                obligations
            
            $
            1,279,873
            
            $
            131,359
            
            $
            277,808
            
            $
            256,236
            
            $
            614,469




**Item
      7A. Quantitative and Qualitative Disclosures about Market
      Risk**




None.




**Item
      8. Financial Statements and Supplementary Data**




Our
      audited Consolidated Financial Statements, together with the report of auditors
      and the notes to the Consolidated Financial Statements, beginning on page 34
      of
      this report.




The
      following tables set forth our unaudited consolidated financial data regarding
      operations for each quarter of Fiscal 2008 and 2007. This information, in the
      opinion of management, includes all adjustments necessary, consisting only
      of
      normal and recurring adjustments, to state fairly the information set forth
      therein. Certain amounts previously reported have been reclassified to conform
      to the current presentation. These reclassifications had no net impact on the
      results of operations.




**Fiscal 2008****1****st****Quarter**
            
            **2****nd****Quarter**
            
            **3****rd****Quarter**
            
            **4****th****Quarter**Revenues
            
            $
            17,578,976
            
            $
            17,646,109
            
            $
            19,298,726
            
            $
            18,085,444Income
                from Operations
            
            $
            6,832,106
            
            $
            6,340,831
            
            $
            7,721,710
            
            $
            7,242,659Pre-tax
                Income
            
            $
            7,023,606
            
            $
            6,564,777
            
            $
            7,959,225
            
            $
            7,144,150Net
                Income
            
            $
            4,723,946
            
            $
            4,341,111
            
            $
            5,215,695
            
            $
            4,475,519Net
                Income Per Share
            
            $
            0.39
            
            $
            0.36
            
            $
            0.44
            
            $
            0.37




**Fiscal 2007****1st Quarter**
            
            
            **2****nd****Quarter**
            
            
            **3****rd****Quarter**
            
            
            **4****th****Quarter**Revenues
            
            $
            6,166,797
            
            $
            6,586,609
            
            $
            7,318,909
            
            $
            9,723,008Income
                from Operations
            
            $
            571,073
            
            $
            639,202
            
            $
            1,229,316
            
            $
            2,320,057Pre-tax
                Income
            
            $
            258,922
            
            $
            151,743
            
            $
            1,249,371
            
            $
            3,047,216Net
                Income
            
            $
            470,992
            
            $
            223,743
            
            $
            847,606
            
            $
            1,817,889Net
                Income Per Share
            
            $
            0.04
            
            $
            0.02
            
            $
            0.07
            
            $
            0.15


26




**Item
      9. Changes in and Disagreements with Accountants on
      Accounting** **and Financial Disclosure**




None.




**Item
      9A. Controls and Procedures**




**Management's
      Report on Internal Controls over Financial Reporting**




Our
      management is responsible for establishing and maintaining adequate internal
      controls over financial reporting, as such term is defined in Rules 13a -15(f)
      under the Securities Exchange Act of 1934 (the “Exchange Act”). Under the
      supervision and with the participation of our management, including our Chief
      Executive Officer and Chief Financial Officer, we conducted an evaluation of
      the
      effectiveness of our internal controls over financial reporting based on the
      framework in Internal Control - Integrated Framework issued by the Committee
      of
      Sponsoring Organizations of the Treadway Commission. Based on our evaluation
      under the framework in Internal Control - Integrated Framework, our management
      concluded that our internal controls over financial reporting were effective
      as
      of February 29, 2008.




The
      effectiveness of our internal controls over financial reporting as of
      February 29, 2008, has been audited by Murrell, Hall, McIntosh & Co.,
      PLLP, an independent registered public accounting firm, as stated in their
      report, which is included herein.




**Internal
      Control over Financial Reporting**




There
      has
      been no change in our internal control over financial reporting that occurred
      during our last fiscal quarter that has materially affected, or is reasonably
      likely to affect materially, our internal control over financial
      reporting.




**Disclosure
      Controls and Procedures**




Our
      management has evaluated, under the supervision and with the participation
      of
      our Chief Executive Officer and Chief Financial Officer, the effectiveness
      of
      our disclosure controls and procedures as of the end of the period covered
      by
      this report pursuant to Exchange Act Rule 13a-15(b). Based on that evaluation,
      our Chief Executive Officer and Chief Financial Officer have concluded that,
      as
      of the end of the period covered by this report, our disclosure controls and
      procedures are effective in ensuring that information required to be disclosed
      in our Exchange Act reports is (a) recorded, processed, summarized and
      reported in a timely manner, and (b) accumulated and communicated to our
      management, including our Chief Executive Officer and Chief Financial Officer,
      as appropriate to allow timely decisions regarding required disclosure.




**Item
      9B. Other Information**




None.


27




**PART
      III**




**Item
      10. Directors and Executive Officers; Corporate Governance; Compliance with
      Section 16(a) of the Exchange Act.**




The
      information required in response to this Item is incorporated herein by
      reference to our proxy statement to be filed with the Securities and Exchange
      Commission pursuant to Regulation 14A, not later than 120 days after the end
      of
      the fiscal year covered by this report.




**Item
      11. Executive Compensation**




The
      information required in response to this Item is incorporated herein by
      reference to our proxy statement to be filed with the Securities and Exchange
      Commission pursuant to Regulation 14A, not later than 120 days after the end
      of
      the fiscal year covered by this report.




**Item
      12. Security Ownership of Certain Beneficial Owners and Management and Related
      Shareholder Matters**




The
      information required in response to this Item is incorporated herein by
      reference to our proxy statement to be filed with the Securities and Exchange
      Commission pursuant to Regulation 14A, not later than 120 days after the end
      of
      the fiscal year covered by this report.




**Item
      13. Certain Relationships and Related Transactions; and Director
      Independence**




The
      information required in response to this Item is incorporated herein by
      reference to our proxy statement to be filed with the Securities and Exchange
      Commission pursuant to Regulation 14A, not later than 120 days after the end
      of
      the fiscal year covered by this report.




**Item
      14. Principal Accountant Fees and Services**




The
      information required in response to this Item is incorporated herein by
      reference to our proxy
      statement to be filed with the Securities and Exchange Commission pursuant
      to
      Regulation 14A, not later than 120 days after the end of the fiscal year covered
      by this report.




**Part
      IV**




**Item
      15. Exhibits and Financial Statement Schedules**




*Financial
      Statements* .
      The
      consolidated financial statements for the fiscal years ended February 29,
      2008, and February 28, 2007 and 2006, are included in this report beginning
      on page 33.




*Financial
      Statement Schedules* .
      All
      schedules have been omitted because the information is not required, not
      applicable, not present in amounts sufficient to require submission of the
      schedule, or is included in the financial statements or notes thereto.




*Exhibits* .
      The
      exhibit list and accompanying footnote disclosures in the Index to Exhibits
      immediately following the Notes to our Consolidated Financial Statements is
      incorporated herein by reference in response to the requirements of this part
      of
      the report.


28




**SIGNATURES**




In
      accordance with Section 13 or 15(d) of the Exchange Act, the registrant caused
      this report to be signed on its behalf by the undersigned, thereunto duly
      authorized.





May
                16, 2008
            Life
                Partners Holdings, Inc.By:
            /s/
                Brian D. PardoBrian
                D. PardoPresident
                and Chief Executive Officer




In
      accordance with the Exchange Act, this report has been signed below by the
      following persons on behalf of the registrant and in the capacities and on
      the
      dates indicated.





**Name**
            
            **Title**
            
            **Date**/s/
                Brian D. Pardo
              Brian
                D. Pardo
            
            President,
                Principal Executive Officer, and Director
            
            May
                16, 2008/s/
                David M. Martin
              David
                M. Martin
            
            Chief
                Financial Officer
            
            May
                16, 2008/s/
                R. Scott Peden
              R.
                Scott Peden
            
            Secretary,
                Director
            
            May
                16, 2008/s/Tad
                Ballantyne
              Tad
                Ballantyne
            
            Director
            
            May
                16, 2008/s/
                Harold Rafuse
              Dr.
                Harold Rafuse
            
            Director
            
            May
                16, 2008/s/
                Fred Dewald
              Fred
                Dewald
            
            Director
            
            May
                16, 2008


29





**LIFE
      PARTNERS HOLDINGS, INC.**


**CONSOLIDATED
      FINANCIAL STATEMENTS**


**FEBRUARY
      29, 2008 AND FEBRUARY 28, 2007 AND 2006**




**Contents**




Report
                of Independent Registered Public Accounting Firm
            31Report
                of Independent Registered Public Accounting Firm on Internal
                Controls
            32Audited
                Consolidated Financial Statements:Consolidated
                Balance Sheets
            33Consolidated
                Statements of Income
            35Consolidated
                Statements of Shareholders’ Equity
            36Consolidated
                Statements of Cash Flows
            37Notes
                to Consolidated Financial Statements
            38


30


**REPORT
      OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING**


**FIRM
      ON CONSOLIDATED FINANCIAL STATEMENTS**




To
      the
      Board of Directors and Stockholders


Life
      Partners Holdings, Inc.




We
      have
      audited the accompanying consolidated balance sheets of Life Partners Holdings,
      Inc. and subsidiaries as of February 29, 2008, and February 28, 2007, and the
      related consolidated statements of operations, cash flows and stockholders’
equity for each of the years ended February 29, 2008, and February 28, 2007
      and
      2006. These consolidated financial statements are the responsibility of Life
      Partners Holdings, Inc.’s management. Our responsibility is to express an
      opinion on these consolidated financial statements 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. An audit includes examining,
      on a
      test basis, evidence supporting the amounts and disclosures in the financial
      statements. An audit also includes 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 consolidated financial position of Life Partners
      Holdings, Inc. and subsidiaries as of February 29, 2008, and February 28, 2007,
      and the consolidated results of their operations, cash flows and stockholders’
equity for each of the years ended February 29, 2008, and February 28, 2007
      and
      2006, in conformity with U.S. generally accepted accounting
      principles.




We
      also
      have audited, in accordance with the standards of the Public Company Accounting
      Oversight Board (United States), Life Partners Holdings, Inc. and subsidiaries’
internal control over financial reporting as of February 29, 2008, based on
      criteria established in Internal Control — Integrated Framework issued by the
      Committee of Sponsoring Organizations of the Treadway Commission (COSO), and
      our
      report dated May 14, 2008 expressed an unqualified opinion on the effectiveness
      of the Company’s internal control over financial reporting.




As
      described in Note 3 to the financial statements, the Company values their life
      settlement contracts using the investment method in accordance with FSP FTB
      85-4-1 *Accountng for Life Settlement Contracts*. The February 28, 2007
      financial statements have been restated to properly reflect the accounting
      treatment required upon adoption of FSP FTB 85-4-1. The details of this change
      and its' impact on the financial statements are further discussed in Note
      13.




/s/
      Murrell, Hall, McIntosh & Co. PLLP


Oklahoma
      City, Oklahoma





May
      14,
      2008


31





**REPORT
      OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING**


**FIRM
      ON INTERNAL CONTROL OVER FINANCIAL REPORTING**




To
      the
      Board of Directors and Stockholders


Life
      Partners Holdings, Inc.:




We
      have
      audited Life Partners Holdings, Inc. and subsidiaries’ internal control over
      financial reporting as of February 29, 2008, based on criteria established
      in
      Internal Control — Integrated Framework issued by the Committee of Sponsoring
      Organizations of the Treadway Commission (COSO). Life Partners Holdings, Inc.’s
      management is responsible for maintaining effective internal control over
      financial reporting and for its assessment of the effectiveness of internal
      control over financial reporting, included in the accompanying Management’s
      Annual Report on Internal Control Over Financial Reporting in Item 9A —
Controls and Procedures. Our responsibility is to express an opinion on Life
      Partners Holdings, Inc.’s internal control over financial reporting based on our
      audit.




We
      conducted our audit 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 effective
      internal control over financial reporting was maintained in all material
      respects. Our audit included obtaining an understanding of internal control
      over
      financial reporting, assessing the risk that a material weakness exists, and
      testing and evaluating the design and operating effectiveness of internal
      control based on the assessed risk. Our audit also included performing such
      other procedures as we considered necessary in the circumstances. We believe
      that our audit provides a reasonable basis for our opinion.




A
      company’s internal control over financial reporting is a process designed to
      provide reasonable assurance regarding the reliability of financial reporting
      and the preparation of financial statements for external purposes in accordance
      with generally accepted accounting principles. A company’s internal control over
      financial reporting includes those policies and procedures that (1) pertain
      to the maintenance of records that, in reasonable detail, accurately and fairly
      reflect the transactions and dispositions of the assets of the company;
      (2) provide reasonable assurance that transactions are recorded as
      necessary to permit preparation of financial statements in accordance with
      generally accepted accounting principles, and that receipts and expenditures
      of
      the company are being made only in accordance with authorizations of management
      and directors of the company; and (3) provide reasonable assurance
      regarding prevention or timely detection of unauthorized acquisition, use,
      or
      disposition of the company’s assets that could have a material effect on the
      financial statements.




Because
      of its inherent limitations, internal control over financial reporting may
      not
      prevent or detect misstatements. Also, projections of any evaluation of
      effectiveness to future periods are subject to the risk that controls may become
      inadequate because of changes in conditions, or that the degree of compliance
      with the policies or procedures may deteriorate.




In
      our
      opinion, Life Partners Holdings, Inc. and its subsidiaries maintained, in all
      material respects, effective internal control over financial reporting as of
      February 29, 2008, based on criteria established in Internal Control —
Integrated Framework issued by the Committee of Sponsoring Organizations of
      the
      Treadway Commission (COSO).




We
      also
      have audited, in accordance with the standards of the Public Company Accounting
      Oversight Board (United States), the consolidated balance sheets of Life
      Partners Holdings, Inc. and subsidiaries as of February 29, 2008, and February
      28, 2007, and the related consolidated statements of operations, cash flows,
      and
      stockholders’ equity for each of the years ended February 29, 2008, and February
      28, 2007 and 2006, and our report dated May 14, 2008 expressed an unqualified
      opinion on those consolidated financial statements.







/s/
      Murrell, Hall, McIntosh & Co. PLLP


Oklahoma
      City, Oklahoma





May
      14,
      2008


32


**LIFE
      PARTNERS HOLDINGS, INC.**


**CONSOLIDATED
      BALANCE SHEETS**


**FEBRUARY
      29, 2008 AND FEBRUARY 28, 2007**




**Page
      1 of 2**




ASSETS





CURRENT
                ASSETS:
            
            **Feb.
                29, 2008**
            
            **Feb.
                28, 2007**Cash
            
            $
            8,197,499
            
            $
            3,521,021Investment
                in securities
            
            
            4,568,494
            
            
            3,977,383Accounts
                receivable - trade
            
            
            11,514,717
            
            
            4,451,299Accounts
                receivable - employees
            
            
            62,913
            
            
            90,424Accounts
                receivable – others
            
            
            118,716
            
            
            450,000Notes
                receivable
            
            
            525,000
            
            
            100,000Prepaid
                expenses
            
            
            495,645
            
            
            111,717Total
                current assets
            
            
            25,482,984
            
            
            12,701,844PROPERTY
                AND EQUIPMENT:Land
                and building
            
            
            2,163,252
            
            
            954,103Proprietary
                software
            
            
            421,187
            
            
            421,187Machinery
                and equipment
            
            
            930,757
            
            
            669,147Transportation
                equipment
            
            
            145,300
            
            
            139,5003,660,496
            
            
            2,183,937Accumulated
                depreciation
            
            
            (1,140,851
            )
            
            (881,109
            )2,519,645
            
            
            1,302,828OTHER
                ASSETS:Premium
                  advances net of reserve for uncollectible of $4,304,062 in 2008
                  and
                  $3,339,516 in 2007
            
            
            -
            
            
            -Investments
                  in policies
            
            
            1,017,201
            
            
            552,989Other
            
            
            831,700
            
            
            721,700Deferred
                  income taxes
            
            
            2,010,427
            
            
            1,319,4173,859,328
            
            
            2,594,106Total
                Assets
            
            $
            31,861,957
            
            $
            16,598,778




See
      the
      accompanying summary of accounting policies and notes to the consolidated
      financial statements.


33




**LIFE
      PARTNERS HOLDINGS, INC.**


**CONSOLIDATED
      BALANCE SHEETS**


**FEBRUARY
      29, 2008 AND FEBRUARY 28, 2007**


**Page
      2 of 2**




LIABILITIES
      AND SHAREHOLDERS' EQUITY





**Feb.
                29, 2008**
            
            **Feb.
                28, 2007**CURRENT
                LIABILITIES:Accounts
                payable
            
            $
            6,526,820
            
            $
            4,712,708Accrued
                liabilities - contingencies and other
            
            
            944,300
            
            
            1,142,535Current
                portion of long-term debt
            
            
            97,338
            
            
            53,929Short-term
                notes payable
            
            
            1,621
            
            
            1,679,837Deferred
                revenue
            
            
            268,850
            
            
            256,400Income
                taxes payable
            
            
            178,070
            
            
            698,1988,016,999
            
            
            8,543,607LONG-TERM
                DEBT, net of current portion shown above
            
            
            1,067,513
            
            
            349,648SHAREHOLDERS'
                EQUITY:Common
                stock, $0.01 par value 18,750,000 sharesauthorized;
                12,019,483 shares issued and outstanding
            
            
            120,194
            
            
            120,194Additional
                paid-in capital
            
            
            11,490,360
            
            
            11,190,360Retained
                earnings
            
            
            12,865,732
            
            
            (3,199,964
            )Accumulated
                other comprehensive loss
            
            
            (762,828
            )
            
            (32,926
            )Less:
                Notes receivable issued for common stock
            
            
            -
            
            
            (372,141
            )Less:
                Treasury stock – 91,531 shares
            
            
            (936,013
            )
            
            -Total
                shareholders’ equity
            
            
            22,777,445
            
            
            7,705,523Total
                liabilities and shareholders’ equity
            
            $
            31,861,957
            
            $
            16,598,778




See
      the
      accompanying summary of accounting policies and notes to the consolidated
      financial statements.


34


**LIFE
      PARTNERS HOLDINGS, INC.**


**CONSOLIDATED
      STATEMENTS OF INCOME**


**FOR
      THE YEARS ENDED FEBRUARY 29, 2008 AND FEBRUARY 28, 2007 AND
      2006**





**Restated****2008**
            
            **2007**
            
            **2006**REVENUES
            
            $
            72,609,255
            
            $
            29,795,323
            
            $
            20,083,653BROKERAGE
                FEES
            
            
            35,786,521
            
            
            17,564,122
            
            
            11,598,610REVENUES,
                NET OF BROKERAGE FEES
            
            
            36,822,734
            
            
            12,231,201
            
            
            8,485,043OPERATING
                AND ADMINISTRATIVE EXPENSES:General
                and administrative
            
            
            8,186,195
            
            
            6,822,105
            
            
            5,971,248Settlement
                costs
            
            
            173,954
            
            
            415,312
            
            
            388,808Depreciation
                and amortization
            
            
            325,279
            
            
            234,136
            
            
            213,3828,685,428
            
            
            7,471,553
            
            
            6,573,438INCOME
                FROM OPERATIONS
            
            
            28,137,306
            
            
            4,759,648
            
            
            1,911,605OTHER
                INCOME (EXPENSES):Interest
                and other income
            
            
            1,656,204
            
            
            957,363
            
            
            671,152Interest
                expense
            
            
            (162,508
            )
            
            (207,238
            )
            
            (138,063
            )Impairment
                of partnership
            
            
            -
            
            
            (123,149
            )
            
            -Premium
                advances, net
            
            
            (978,767
            )
            
            (852,376
            )
            
            (902,845
            )Policy
                acquisition expense
            
            
            -
            
            
            -
            
            
            (620,764
            )Gain
                on sale of policies for investment purposes
            
            
            -
            
            
            -
            
            
            1,100,967Realized
                gain (loss) on investments
            
            
            39,523
            
            
            173,004
            
            
            (39,570
            )554,452
            
            
            (52,396
            )
            
            70,877INCOME
                BEFORE INCOME TAXES
            
            
            28,691,758
            
            
            4,707,252
            
            
            1,982,482INCOME
                TAXES:Current
                tax expense
            
            
            10,220,070
            
            
            1,677,439
            
            
            1,186,731Deferred
                tax benefit
            
            
            (284,583
            )
            
            (330,417
            )
            
            (348,000
            )9,935,487
            
            
            1,347,022
            
            
            838,731NET
                INCOME
            
            $
            18,756,271
            
            $
            3,360,230
            
            $
            1,143,751EARNINGS:Per
                share - Basic and Diluted
            
            $
            1.56
            
            $
            0.28
            
            $
            0.10AVERAGE
                COMMON AND COMMON EQUIVALENT SHARES OUTSTANDING:Basic
            
            
            11,994,747
            
            
            11,809,849
            
            
            11,761,378Diluted
            
            
            11,995,128
            
            
            11,817,524
            
            
            11,761,378THE
                COMPONENTS OF COMPREHENSIVE INCOME:Net
                income
            
            $
            18,756,271
            
            $
            3,360,230
            
            $
            1,143,751Unrealized
                gain (loss) on investment securities net of taxes
            
            
            (729,902
            )
            
            208,534
            
            
            (228,226
            )COMPREHENSIVE
                INCOME
            
            $
            18,026,369
            
            $
            3,568,764
            
            $
            915,525BASIC
                AND DILUTED EARNINGS PER SHARE:Comprehensive
                income
            
            $
            1.50
            
            $
            0.30
            
            $
            0.08




See
      the
      accompanying summary of accounting policies and notes to the consolidated
      financial statements


35


**LIFE
      PARTNERS HOLDINGS, INC.**


**CONSOLIDATED
      STATEMENTS OF SHAREHOLDERS' EQUITY**


**FOR
      THE YEARS ENDED FEBRUARY 29, 2008 AND FEBRUARY 28, 2007 AND
      2006**


**Common
                    Stock**
                
                **Treasury
                    Stock****Number
                    of****Shares**
                
                **$0.01****par****Value**
                
                **Additional**
                  **Paid-In**
                  **Capital**
                
                **Retained
                    Earnings**
                  **(Accumulated**
                  **Deficit)**
                
                **Accumulated**
                  **Other**
                  **Comprehensive**
                  **Gain
                    (Loss)**
                
                **Note**
                  **Receivable**
                
                **Number
                    of**
                  **Shares**
                
                **Amount**
                
                **Total**
                  **Shareholders’**
                  **Equity**Balance,  February
                    28, 2005
                
                
                12,019,483
                
                $
                120,194
                
                $
                10,584,360
                
                $
                (4,103,860
                )
                $
                (13,234
                )
                $
                (323,631
                )
                
                258,269
                
                $
                -
                
                $
                6,263,829Dividends
                    declared
                
                
                -
                
                
                -
                
                
                -
                
                
                (1,896,242
                )
                
                -
                
                
                -
                
                
                -
                
                
                -
                
                
                (1,896,242
                )Other
                    comprehensive loss
                
                
                -
                
                
                -
                
                
                -
                
                
                -
                
                
                (228,226
                )
                
                -
                
                
                -
                
                
                -
                
                
                (228,226
                )Note
                    for stock - accrued interest
                
                
                -
                
                
                -
                
                
                -
                
                
                -
                
                
                -
                
                
                (48,510
                )
                
                -
                
                
                -
                
                
                (48,510
                )Replacement
                    shares issued
                
                
                -
                
                
                -
                
                
                -
                
                
                -
                
                
                -
                
                
                -
                
                
                (22,728
                )
                
                -
                
                
                -Net
                    income for the year ended
                  February
                    28, 2006
                
                
                -
                
                
                -
                
                
                -
                
                
                1,143,751
                
                
                -
                
                
                -
                
                
                -
                
                
                -
                
                
                1,143,751Balance,   February
                    28, 2006
                
                
                12,019,483
                
                $
                120,194
                
                $
                10,584,360
                
                $
                (4,856,351
                )
                $
                (241,460
                )
                $
                (372,141
                )
                
                235,541
                
                $
                -
                
                $
                5,234,602Cumulative
                    effect of accounting
                  change,net
                    of income tax
                  of
                    $176,000 - Restated
                
                
                -
                
                
                -
                
                
                -
                
                
                281,070
                
                
                -
                
                
                -
                
                
                -
                
                
                -
                
                
                281,070Adjusted
                    balance, February 28, 2006 - Restated
                
                
                12,019,483
                
                $
                120,194
                
                $
                10,584,360
                
                $
                (4,575,281
                )
                $
                (241,460
                )
                $
                (372,141
                )
                
                235,541
                
                $
                -
                
                $
                5,515,672Dividends
                    declared
                
                
                -
                
                
                -
                
                
                -
                
                
                (1,984,913
                )
                
                -
                
                
                -
                
                
                -
                
                
                -
                
                
                (1,984,913
                )Other
                    comprehensive gain
                
                
                -
                
                
                -
                
                
                -
                
                
                -
                
                
                208,534
                
                
                -
                
                
                -
                
                
                -
                
                
                208,534Shares
                    issued to IGE shareholder
                
                
                -
                
                
                -
                
                
                -
                
                
                -
                
                
                -
                
                
                -
                
                
                (1,250
                )
                
                -
                
                
                -Options
                    exercised
                
                
                -
                
                
                -
                
                
                606,000
                
                
                -
                
                
                -
                
                
                -
                
                
                (125,000
                )
                
                -
                
                
                606,000Net
                    income for the year ended
                  February
                    28, 2007
                
                
                -
                
                
                -
                
                
                -
                
                
                3,360,230
                
                
                -
                
                
                -
                
                
                -
                
                
                -
                
                
                3,360,230Balance,  February
                    28, 2007 - Restated
                
                
                12,019,483
                
                $
                120,194
                
                $
                11,190,360
                
                $
                (3,199,964
                )
                $
                (32,926
                )
                $
                (372,141
                )
                
                109,291
                
                $
                -
                
                $
                7,705,523Dividends
                    declared
                
                
                -
                
                
                -
                
                
                -
                
                
                (2,690,575
                )
                
                -
                
                
                -
                
                
                -
                
                
                -
                
                
                (2,690,575
                )Other
                    comprehensive loss
                
                
                -
                
                
                -
                
                
                -
                
                
                -
                
                
                (729,902
                )
                
                -
                
                
                -
                
                
                -
                
                
                (729,902
                )Options
                    exercised
                
                
                -
                
                
                -
                
                
                300,000
                
                
                -
                
                
                -
                
                
                -
                
                
                (62,500
                )
                
                -
                
                
                300,000Foreclosure
                    on Texas 50 Note for Stock
                
                
                -
                
                
                
                
                
                -
                
                
                -
                
                
                -
                
                
                372,141
                
                
                12,808
                
                
                (372,141
                )
                
                -Purchase
                    of treasury stock
                
                
                -
                
                
                -
                
                
                -
                
                
                -
                
                
                -
                
                
                -
                
                
                31,944
                
                
                (563,872
                )
                
                (563,872
                )Shares
                    Issued to IGE shareholder
                
                
                -
                
                
                -
                
                
                -
                
                
                -
                
                
                -
                
                
                -
                
                
                (12
                )
                
                -
                
                
                -Net
                    income for the year ended ended
                  February
                    29, 2008
                
                
                -
                
                
                -
                
                
                -
                
                
                18,756,271
                
                
                -
                
                
                -
                
                
                -
                
                
                -
                
                
                18,756,271Balance,
                    February 29, 2008
                
                
                12,019,483
                
                $
                120,194
                
                $
                11,490,360
                
                $
                12,865,732
                
                $
                (762,828
                )
                $
                -
                
                
                91,531
                
                $
                (936,013
                )
                $
                22,777,445See
                    the accompanying summary of accounting policies and notes to
                    the
                    consolidated financial
                    statements.


36


**LIFE
      PARTNERS HOLDINGS, INC.**


**CONSOLIDATED
      STATEMENTS OF CASH FLOWS**


**FOR
      THE YEARS ENDED FEBRUARY 29, 2008 AND FEBRUARY 28, 2007 AND
      2006**




**2008**
            
            **2007**
            
            **2006**CASH
                FLOWS FROM OPERATING ACTIVITIES:Net
                income
            
            $
            18,756,271
            
            $
            3,360,230
            
            $
            1,143,751Adjustments
                to reconcile net income to operating activities:Depreciation
            
            
            325,279
            
            
            234,136
            
            
            213,382Policy
                acquisition expense
            
            
            -
            
            
            -
            
            
            620,764Gain
                on sale of policies for investment purposes
            
            
            -
            
            
            -
            
            
            (1,100,967
            )Impairment
                of investment in partnership
            
            
            -
            
            
            663,344
            
            
            -Gain
                on asset disposals
            
            
            (61,538
            )
            
            -
            
            
            -(Increase)
                decrease in operating assets:Accounts
                receivable
            
            
            (6,704,623
            )
            
            (2,849,728
            )
            
            288,033Prepaid
                expenses
            
            
            (383,928
            )
            
            145,815
            
            
            (240,496
            )Deferred
                income taxes
            
            
            (284,583
            )
            
            (330,417
            )
            
            (348,000
            )Increase
                (decrease) in operating liabilities:Accounts
                payable
            
            
            1,568,755
            
            
            1,849,218
            
            
            289,016Accrued
                liabilities
            
            
            (198,235
            )
            
            (142,434
            )
            
            249,177Income
                taxes payable
            
            
            (520,128
            )
            
            581,239
            
            
            3,715Deferred
                revenue
            
            
            12,450
            
            
            11,400
            
            
            66,350Net
                cash provided by operating activities
            
            
            12,509,720
            
            
            3,522,803
            
            
            1,184,725CASH
                FLOWS FROM INVESTING ACTIVITIES:Increase
                in notes receivable
            
            
            (425,000
            )
            
            -
            
            
            -Investment
                in income funds
            
            
            (1,727,440
            )
            
            (53,171
            )
            
            (413,055
            )Purchases
                of property and equipment
            
            
            (2,380,558
            )
            
            (98,554
            )
            
            (145,006
            )Proceeds
                  from sale of property and equipment
            
            
            900,000
            
            
            -
            
            
            -Investment
                in partnership
            
            
            -
            
            
            -
            
            
            (663,344
            )Purchase
                of policies for investment purposes and capitalized
                premiums
            
            
            (464,212
            )
            
            (89,775
            )
            
            (1,176,269
            )Proceeds
                from sale of policies for investment purposes
            
            
            -
            
            
            -
            
            
            1,651,208Purchases
                of artifacts
            
            
            (110,000
            )
            
            -
            
            
            (219
            )Net
                cash used in investing activities
            
            
            (4,207,210
            )
            
            (241,500
            )
            
            (746,685
            )CASH
                FLOWS FROM FINANCING ACTIVITIES:Proceeds
                from notes payable
            
            
            2,289,226
            
            
            -
            
            
            2,291,018Payments
                on notes payable
            
            
            (3,206,168
            )
            
            (761,849
            )
            
            (147,866
            )Stock
                options exercised
            
            
            300,000
            
            
            606,000
            
            
            -Purchases
                of treasury shares
            
            
            (563,872
            )
            
            -
            
            
            -Dividends
                paid
            
            
            (2,445,218
            )
            
            (1,391,672
            )
            
            (1,896,242
            )Net
                cash used in financing activities
            
            
            (3,626,032
            )
            
            (1,547,521
            )
            
            246,910NET
                INCREASE IN CASH AND CASH EQUIVALENTS
            
            
            4,676,478
            
            
            1,733,782
            
            
            684,950CASH
                AND CASH EQUIVALENTS, BEGINNING OF PERIOD
            
            
            3,521,021
            
            
            1,787,239
            
            
            1,102,289CASH
                AND CASH EQUIVALENTS, END OF PERIOD
            
            $
            8,197,499
            
            $
            3,521,021
            
            $
            1,787,239SUPPLEMENTAL
                DISCLOSURES OF CASH FLOW INFORMATION:Interest
                paid, net of capitalized amounts
            
            $
            162,508
            
            $
            493,651
            
            $
            94,084Income
                taxes paid
            
            $
            10,024,198
            
            $
            1,032,381
            
            $
            1,070,581SUPPLEMENTAL
                DISCLOSURES OF NONCASH ITEMS:Unrealized
                gain (loss) on marketable securities, net of taxes
            
            $
            (729,902
            )
            $
            208,534
            
            $
            (228,226
            )





See
      accompanying summary of accounting policies and notes to consolidated financial
      statements.


37




**(1)
      DESCRIPTION OF BUSINESS**




Life
      Partners Holdings, Inc. ("we” or “Life Partners”) is
      a
      financial services company and the parent company of Life Partners, Inc.
      (“LPI”). LPI is the oldest and one of the most
      active companies in the United States engaged in the secondary market for life
      insurance known generally as “life settlements.” These financial transactions involve
      the purchase
      of life insurance policies at a discount to their face value for investment
      purposes.




**(2)
      SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES**




The
      following is a summary of significant accounting policies followed by Life
      Partners:




Cash
      and
      Cash Equivalents – For purposes of the statement of cash flows, we consider
      all short-term debt securities purchased with a maturity of three months or
      less
      to be cash equivalents. The average balance of our general checking account
      balance is generally in excess of $100,000. The Federal Deposit Insurance
      Corporation (FDIC) insures all bank accounts up to $100,000. The amount of
      our
      cash accounts in excess of the FDIC insurance limit at February 29, 2008 was
      $7,579,727. Management believes its exposure to loss is minimal considering
      only
      the amounts in excess of $100,000 are at risk and the depository bank is a
      well
      established national bank and one of the nation's largest financial
      institutions.




Accounts
      Receivable – Trade - We sometimes advance loans to facilitate a life
      settlement transaction. These amounts are shown as “Accounts receivable –
trade,” and are collected as the life settlement transactions close. All amounts
      are considered collectible, as we are repaid the advance loan before any of
      the
      other parties involved in the transaction receive funds.




Premium
      Advances – We follow the practice of fully reserving all premium advances
      at the time such advances are made. When premium advances are repaid, the
      repayments are offset against the premium expense. During the fiscal years
      ended
      February 29, 2008 (“fiscal 2008”) and February 28, 2007 (“fiscal 2007”) and 2006
      (“fiscal 2006”), we advanced premiums totaling $1,180,797, $1,242,314, and
      $1,187,095, respectively, and received repayments of advances of $216,251,
      $407,687 and $284,249, respectively.




Consolidation –
      The consolidated financial statements include the accounts of Life Partners
      and
      its wholly owned subsidiaries, as described in Note 1 above. All significant
      inter-company accounts and transactions have been eliminated in consolidation.




Revenue
      Recognition – We recognize income at the time a settlement has been closed
      and the purchaser has obligated itself to make the purchase. We defer $50 per
      viatical settlement and $100 per life settlement to cover minor monitoring
      services provided subsequent to the settlement date and to amortize this
      deferred cost over the anticipated life expectancy of the insureds.




Investment
      in Life Insurance Policies – For fiscal 2006 and prior fiscal years, in
      accordance with Financial Standards Board Technical Bulletin 85-4 *Accounting
      for Purchases of Life Insurance* (FTB
      85-4), we reduced our investment in life insurance policies to their cash
      surrender value with any differences between cost and cash surrender value
      being
      charged to expense.




On
      March
      27, 2006, the FASB Staff Position No. FTB 85-4-1 *Accounting
      for Life Settlement Contracts by Third-Party Investors* (FSP FTB
      85-4-1) was issued, which amended FTB 85-4. FSP FTB 85-4-1 states that an
      investor may elect to account for its investments in life settlement contracts
      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 change in fair value earnings (or other performance
      indicators for entities that do not report earnings) in the period in which
      the
      changes occur. We have elected to adopt FSP FTB 85-4-1 as of March 1, 2006
      (the
      beginning of fiscal 2007) and value our investments in life settlement contracts
      using the investment method.


38




As
      a
      policy matter, we generally do not purchase policies for our own account. We
      have purchased, however, policies for our own account when an attractive
      opportunity arises and the opportunity is not suitable for our institutional
      or
      retail purchasers. Certain policies may be unsuitable for institutional
      purchasers because the policies do not conform to the standards they have
      adopted. Retail purchasers typically avoid larger policies, preferring policies
      with smaller face amounts. We have also purchased interests in policies from
      settlors who wish to liquidate their interests or in settlement of claims that
      may have some validity. These purchases usually involve the acquisition of
      settlors’ fractional interests in the policies. Our decision to make these
      purchases weighs primarily the likelihood of the claim’s success, the financial
      risk posed by the claim, and the reasonableness of the purchase
      terms.




We
      test
      all life settlement contracts that we own for impairment on a quarterly basis.
      Our testing includes such factors as expected proceeds from the insurance
      policies, changes in expected mortality, changes in the credit worthiness of
      the
      issuer, and anticipated future premiums. Upon adoption of FSP FTB 85-4-1, we
      compared the capitalized cost of our policies to the expected proceeds
      recoverable, adjusted for anticipated future premiums. We then recognized these
      policies at the lower of the capitalized cost or the expected net proceeds
      recoverable. As of February 29, 2008, the total of the acquisition cost and
      capitalized premiums amounted to $1,133,517. However, due to the impairment
      of
      $116,316 assessed at the time of adoption of FSP FTB 85-4-1, we recorded our
      investments in life settlements held for our own account at $1,017,201.




In
      fiscal
      2008 and fiscal 2007 we purchased for our own account 26 gross (7.1 net) and
      16
      gross (3.8 net) policies having aggregate face amounts of $5,197,374 ($691,864
      net) and $2,758,600 ($352,219 net), respectively. As of February 29, 2008 we
      held for our own account 76 gross (18.3 net) un-matured policies having
      aggregate face amounts of $13,023,884 ($1,457,068 net).




Property
      and Equipment – Our property and equipment are depreciated over their
      useful lives using the straight-line method. The useful lives of property and
      equipment for purposes of computing depreciation are:




Building
            30 yearsMachinery and equipment
            5 yearsTransportation equipment
            5 to 9 years




Artifacts
      and Other – The artifacts and other assets are stated at cost. We have
      evaluated these assets and believe there is no impairment in their value as
      of
      February 29, 2008.




Impairment
      of Long-Lived Assets – We account for the impairment and disposition of
      long-lived assets in accordance with SFAS 144, *Accounting
      for the Impairment or Disposal of Long-Lived Assets.* We
      review the carrying value of property and equipment for impairment whenever
      events and circumstances indicate that the carrying value of an asset may not
      be
      recoverable from the estimated future cash flows expected to result from its
      use
      and eventual disposition. In cases where undiscounted expected future cash
      flows
      are less than the carrying value, an impairment loss would be recognized equal
      to an amount by which the carrying value exceeds the fair value of assets.
      The
      factors considered by management in performing this assessment include current
      operating results, trends and prospects, the manner in which the property is
      used, and the effects of obsolescence, demand, competition and other economic
      factors. As of February 29, 2008, no impairment has been
      recorded.


39




Income
      Taxes – Timing differences between the reporting of income and expenses for
      financial and income tax reporting purposes are reported as deferred tax assets,
      net of valuation allowances, or as deferred tax liabilities depending on the
      cumulative effect of all timing differences. See Note 8 for further details.




Use
      of
      Estimates – The preparation of financial statements in conformity with
      generally accepted accounting principles requires management to make estimates
      and assumptions that affect the amounts reported and contingent assets and
      liabilities disclosed in the financial statements and accompanying notes. Actual
      results inevitably will differ from those estimates and such differences may
      be
      material to the financial statements.




Earnings
      Per Share – Basic earnings (loss) per share computations are calculated on
      the weighted-average of common shares and common share equivalents outstanding
      during the year, reduced by the treasury stock. Common stock options and
      warrants are considered to be common share equivalents and are used to calculate
      diluted earnings per common and common share equivalents except when they are
      anti-dilutive.




Concentrations
      of Credit Risk and Major Customers – In fiscal 2008, compensation to a
      single licensee organization comprised 20% of all brokerage and referral fees
      compared to compensation to two licensee organizations which constituted 37%
      of
      all brokerage and referral fees in fiscal 2007. Compensation to one broker
      in
      fiscal 2008 comprised 13% of all brokerage and referral fees compared to
      compensation to two brokers which constituted 27% of all brokerage and referral
      fees in fiscal 2007.




**(3)
      NEW ACCOUNTING PRONOUNCEMENTS**




On
      March
      27, 2 006,
      the
      FASB Staff Position No. FTB 85-4-1 *Accounting
      for Life Settlement Contracts by Third-Party Investors* (FSP FTB
      85-4-1) was issued. The FASB Staff Position states that an investor may elect
      to
      account for its investments in life settlement contracts 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 change
      in fair value earnings (or other performance indicators for entities that do
      not
      report earnings) in the period in which the changes occur.  We
      elected to adopt FSP FTB 85-4-1 as of March 1, 2006 (the beginning of fiscal
      2007) and value our investments in life settlement contracts using the
      investment method. This change in accounting principle resulted in an increase
      in the value of life settlements which we hold for our own account of $457,070.
      As of February 29, 2008, our investments in life settlements held for our own
      account were valued at $1,017,201.




During
      the fiscal year ended February 29, 2008, we incurred settlement expenses of
      $173,954 for the resolution of litigation or potential litigation. A significant
      portion of this amount was related to the settlement of litigation involving
      an
      alleged breach of contract in order to avoid the costs of litigation. Most
      other
      settlements involve purchaser claims and relatively minor settlement amounts.
      In
      some instances, we have repurchased some interests in policies to settle claims.
      In these cases, only the excess (if any) of the settlement payment over the
      expected net proceeds recoverable of the repurchased policy is charged to
      settlement expense. In accordance with the investment method described in FSP
      FTB 85-4-1, the policy is recorded as an asset under “Investments in policies”
and the cash expenditure is recorded on our cash flow statement under “Purchase
      of policies for investment purposes and capitalized premiums.” For these types
      of settlements during the period, we recorded $173,954 of settlement expense
      and
      $72,820 for purchase of policies for investment purposes. These policies are
      tested for impairment as required under FSP FTB 85-4-1.


40




In
      February 2006, the FASB issued Statement No. 155, *“Accounting
      for Certain Hybrid Financial Instruments”* (“SFAS No. 155”), which amends FASB Statements No. 133 and 140.
      This Statement permits fair value re-measurement for any hybrid financial
      instrument containing an embedded derivative that would otherwise require
      bifurcation, and broadens a Qualified Special Purpose Entity’s (“QSPE”)
      permitted holdings to include passive derivative financial instruments that
      pertain to other derivative financial instruments. This Statement is effective
      for all financial instruments acquired, issued or subject to a re-measurement
      event occurring after the beginning of an entity’s first fiscal year beginning
      after September 15, 2006. The adoption of this Statement did not have a
      material impact on our financial position, results of operations or cash
      flows.




In
      March
      2006, the FASB issued Statement No. 156, *“Accounting
      for Servicing of Financial Assets – an amendment of FASB Statement No.
      140”* (“SFAS No. 156”). This Statement is effective for fiscal years
      beginning after September 15, 2006. This Statement requires that all
      separately recognized servicing assets and servicing liabilities be initially
      measured at fair value, if practicable. The adoption of this Statement did
      not
      have a material impact on our financial position, results of operations or
      cash
      flows.




In
      2006,
      the Financial Accounting Standards Board (FASB) issued FIN 48, “ *Accounting
      for Uncertainty in Income Taxes* ,”
which
      clarifies the application of SFAS 109 by defining a criterion that an individual
      income tax position must meet for any part of the benefit of that position
      to be
      recognized in an enterprise’s financial statements and provides guidance on
      measurement, de-recognition, classification, accounting for interest and
      penalties, accounting in interim periods, disclosure and transition. In
      accordance with the transition provisions, we adopted FIN 48 effective March
      1,
      2007. We do not
      have
      any uncertain tax positions. The adoption of this Statement did not have a
      material impact on our financial position, results of operations or cash
      flows.




In
      September 2006, the FASB issued Statement No. 157, *“Fair
      Value Measurements”* (“SFAS No. 157”). SFAS No. 157 addresses how companies
      should measure fair value when they are required to use a fair value measure
      for
      recognition or disclosure purposes under GAAP. SFAS No. 157 defines
      fair value, establishes a framework for measuring fair value and expands
      disclosures about fair value measurements. SFAS No. 157 is effective
      for fiscal years beginning after November 15, 2008, with earlier adoption
      permitted. Management is assessing the impact of the adoption of this
      Statement.




In
      September 2006, the FASB issued Statement No. 158, *“Employers’
      Accounting for Defined Benefit Pension and Other Postretirement
      Plans”* (“SFAS No. 158”), an amendment of FASB Statements No. 87, 88, 106
      and 132(R). SFAS No. 158 requires (a) recognition of the funded
      status (measured as the difference between the fair value of the plan assets
      and
      the benefit obligation) of a benefit plan as an asset or liability in the
      employer’s statement of financial position, (b) measurement of the funded
      status as of the employer’s fiscal year-end with limited exceptions, and
      (c) recognition of changes in the funded status in the year in which the
      changes occur through comprehensive income. The requirement to recognize the
      funded status of a benefit plan and the disclosure requirements are effective
      as
      of the end of the fiscal year ending after December 15, 2006. The
      requirement to measure the plan assets and benefit obligations as of the date
      of
      the employer’s fiscal year-end statement of financial position is effective for
      fiscal years ending after December 15, 2008. This Statement has no current
      applicability to our financial statements, and it is anticipated the adoption
      of
      SFAS No. 158 will not have a material impact to our financial
      position, results of operations, or cash flows.


41




In
      September 2006, the Securities Exchange Commission issued Staff Accounting
      Bulletin No. 108 (“SAB No. 108”). SAB No. 108
      addresses how the effects of prior year uncorrected misstatements should be
      considered when quantifying misstatements in current year financial statements.
      SAB No. 108 requires companies to quantify misstatements using a
      balance sheet and income statement approach and to evaluate whether either
      approach results in quantifying an error that is material in light of relevant
      quantitative and qualitative factors. When the effect of initial adoption is
      material, companies will record the effect as a cumulative effect adjustment
      to
      beginning of year retained earnings and disclose the nature and amount of each
      individual error being corrected in the cumulative adjustment.
      SAB No. 108 was effective beginning January 1, 2007 and the
      initial adoption of SAB No. 108 did not have a material impact on our
      financial position, results of operations, or cash flows.




In
      February 2007, the FASB issued Statement No. 159 “The Fair Value Option for
      Financial Assets and Financial Liabilities” (SFAS 159). This statement permits
      companies to choose to measure many financial assets and liabilities at fair
      value. Unrealized gains and losses on items for which the fair value option
      has
      been elected are reported in earnings. SFAS 159 is effective for fiscal years
      beginning after November 15, 2007. We are currently assessing the impact of
      SFAS
      159 on our consolidated financial statements.




**(4)
      INVESTMENTS IN SECURITIES**




Our
      securities investments that are bought and held principally for the purpose
      of
      selling them in the near term are classified as trading securities. Trading
      securities are recorded at fair value on the balance sheet in current assets,
      with the change in fair value during the period included in
      earnings.




Securities
      investments that we have the positive intent and ability to hold to maturity
      are
      classified as held-to-maturity securities and recorded at amortized cost in
      investments and other assets. Securities investments not classified as either
      held-to-maturity or trading securities are classified as available-for-sale
      securities. Available-for-sale securities are recorded at fair value in
      Investments on the balance sheet, with the change in fair value during the
      period excluded from earnings and recorded net of tax as a component of other
      comprehensive income.




The
      cost and estimated market value of the investment
      securities classified as available-for-sale as of February 29, 2008 and February
      28, 2007 are as follows:


**Cost**
                  **Basis**
                
                **Gross**
                  **Unrealized**
                  **Gains**
                
                **Gross**
                  **Unrealized**
                  **Losses**
                
                **Recorded**
                  **Basis**
 Market
                      Income Funds at 2/29/08
                  
                  $
                  5,737,749
                  
                  $
                  -
                  
                  $
                  1,169,255
                  
                  $
                  4,568,494
 Market
                    Income Funds at 2/28/07
                
                $
                4,010,309
                
                $
                97,776
                
                $
                130,702
                
                $
                3,977,383




The
      following table shows our investments’ gross unrealized losses and fair value,
      aggregated by investment category and length of time that individual securities
      have been in a continuous unrealized loss position, at February 29, 2008:


**Less
                  than 12 Months**
              
              **12
                  Months or More****Description
                  of Securities**
              
              **Fair**
                **Value**
              
              **Unrealized**
                **Losses**
              
              **Fair**
                **Value**
              
              **Unrealized**
                **Losses**
              
              **Fair**
                **Value**
              
              **Total****Unrealized**
                **Losses**
 **As
                    of****February
                    29, 2008**Market
                    Income Funds
                
                $
                2,070,045
                
                $
                1,053,246
                
                $
                2,498,449
                
                $
                116,009
                
                $
                4,568,494
                
                $
                1,169,255Total
                    temporarily impaired securities
                
                $
                2,070,045
                
                $
                1,053,246
                
                $
                2,498,449
                
                $
                116,009
                
                $
                4,568,494
                
                $
                1,169,255
 **As
                  of February 28, 2007**Market
                  Income Funds
              
              $
              47,100
              
              $
              3,393
              
              $
              1,578,015
              
              $
              127,309
              
              $
              1,625,115
              
              $
              130,702Total
                  temporarily impaired securities
              
              $
              47,100
              
              $
              3,393
              
              $
              1,578,015
              
              $
              127,309
              
              $
              1,625,115
              
              $
              130,702
  *Market
        Income Funds* .
        The
        unrealized losses on our investments in Market Income Funds resulted from
        decreases in market prices from the initial public  offering
        prices as part of the general stock market trend. Because we have the ability
        to
        hold these investments for an indeterminate period of time, with no immediate
        intent to sell, we do not consider these investments to be other than
        temporarily impaired at February 29, 2008.


42




In
      fiscal
      2007, we incurred capitalized costs of $663,344 in connection with a
      limited
      partnership arrangement with a large
      U.S.-based investment firm. The limited
      partnership was designed to
      invest
      $50 million in life settlement contracts purchased through Life Partners during
      fiscal 2007, but the limited partnership did not make any purchases and was
      terminated by us without penalty according to the terms of the limited
      partnership agreement. Because the arrangement was terminated, we were required
      to recognize those capitalized costs as an expense during the third and fourth
      quarters of fiscal 2007 when the impairment to the limited partnership became
      evident. Of these expensed costs, $550,000 were funds advanced to our investment
      banker, which were recovered in an arbitration action resulting in a reduction
      to our impairment of investment in limited partnership by that
      amount.




**(5)
      LEASES**




We
      lease
      office equipment under non-cancelable operating leases expiring in various
      years
      through 2012.




Minimum
      future rental payments under non-cancelable operating leases having remaining
      terms in excess of one year as of February 29, 2008 for each of the next five
      years and in the aggregate are:





**Amount**2009
            
            $
            32,4002010
            
            
            32,4002011
            
            
            32,4002012
            
            
            16,2002013
            
            
            -Total
                minimum future rental payments
            
            $
            113,400




Rental
      expense was $53,232, $36,675 and $36,675 for the years ended February 29, 2008,
      February 28, 2007 and 2006, respectively.




Certain
      operating leases provide for renewal and/or purchase options. Generally,
      purchase options are at prices representing the expected fair market value
      of
      the property at the expiration of the lease term. Renewal options are for
      periods of one year at the rental rate specified in the lease.




**(6)
      NOTE PAYABLE**




We
      maintain a revolving credit line of $2,400,000 for the purchase of policies
      for
      our own account and for short-term cash flow management. The credit line is
      secured by our cash and securities on deposit. As of February 29, 2008, the
      line
      of credit carried an interest rate of New York prime and had an outstanding
      balance of $1,621.




**(7)
      LONG-TERM DEBT**




As
      of
      February 29, 2008, we had the following long-term debt:





**Current**
            
            **Long-Term**6.49%
                note payable to a bank, due in installments of $7,669 through December,
                2017, secured by land and office building
            
            $
            40,321
            
            $
            774,5875.625%
                note payable to a bank, due in installments of $6,270through
                July 2013, secured by land and office building
            
            $
            57,017
            
            $
            292,926$
            97,338
            
            $
            1,067,513


43




Maturities
      on long-term debt for each of the next five years and thereafter are as follows:





**Amount**2009
            
            $
            97,3382010
            
            
            103,3252011
            
            
            109,6832012
            
            
            116,4342013
            
            
            123,651Thereafter
            
            
            614,469$
            1,164,851Less
                Current Portion Long-Term Debt
            
            
            (97,338
            )$
            1,067,513




**(8)
      INCOME TAXES**




Temporary
      timing differences between the reporting of income and expenses for financial
      and income tax reporting purposes at February 29, 2008, result in an increase
      in
      the deferred tax asset of $284,583, which we believe to be fully realizable.




Following
      are the components of the deferred tax asset as of February 29,
      2008:





Excess
                tax over financial accounting -Depreciation
            
            $
            (72,000
            )Excess
                financial accounting over tax –Unrealized
                loss on investments
            
            
            406,000Accrued
                contingency costs
            
            
            112,000Reserve
                for premium advances
            
            
            1,506,000Acquired
                life insurance policies
            
            
            58,000Net
                deferred tax asset
            
            $
            2,010,000




*Accounting
        for Uncertainty in Income Taxes* *.* In June
        2006, the Financial Accounting Standards Board (FASB) issued Interpretation
        No.
        48, *Accounting
        for Uncertainty in Income Taxes - an Interpretation of FASB Statement No.
        109* (FIN
        48). FIN
        48 is
        intended to clarify the accounting for uncertainty in income taxes recognized
        in
        a company’s financial statements and prescribes the recognition and measurement
        of a tax position taken or expected to be taken in a tax return. FIN 48 also
        provides guidance on de-recognition, classification, interest and penalties,
        accounting in interim periods, disclosure and transition.
 
 Under
        FIN
        48, evaluation of a tax position is a two-step process. The first step is
        to
        determine whether it is more-likely-than-not that a tax position will be
        sustained upon examination, including the resolution of any related appeals
        or
        litigation based on the technical merits of that position. The second step
        is to
        measure a tax position that meets the more-likely-than-not threshold to
        determine the amount of benefit to be recognized in the financial statements.
        A
        tax position is measured at the largest amount of benefit that is greater
        than
        50% likely of being realized upon the ultimate settlement.
 
 Tax
        positions that previously failed to meet the more-likely-than-not recognition
        threshold should be recognized in the first subsequent period in which the
        threshold is met. Previously recognized tax positions that no longer meet
        the
        more-likely-than-not criteria should be de-recognized in the first subsequent
        financial reporting period in which the threshold is no longer met.
 
 The
        adoption of FIN 48 at March 1, 2007 did not have a material effect on the
        Company’s financial position.




**(9)
      SHAREHOLDERS’ EQUITY, STOCK TRANSACTIONS AND COMMON STOCK OPTIONS**




**Dividends** .
      We
      declared and paid dividends on a quarterly basis and in the amounts as set
      forth
      in the following table:


44




**Date Declared**
            
            **Date Paid**
            
            **Dividend Amount**02/21/06
            
            
            03/15/06
            
            $
            0.050005/18/06
            
            
            06/15/06
            
            $
            0.050009/01/06
            
            
            09/30/06
            
            $
            0.050011/21/06
            
            
            12/15/06
            
            $
            0.060002/19/07
            
            
            03/15/07
            
            $
            0.050005/10/07
            
            
            06/18/07
            
            $
            0.062508/13/07
            
            
            09/14/07
            
            $
            0.060011/13/07
            
            
            12/15/07
            
            $
            0.070002/08/08
            
            
            03/14/08
            
            $
            0.0600




**Stock
      Options.** We
      account for share-based payments under the provisions of Statement of Financial
      Accounting Standards No. 123 (revised 2004), “Share-Based Payment,” (“SFAS
      123(R)”), which requires the measurement and recognition of compensation expense
      for all share-based payment awards made to employees, directors and service
      providers based on estimated fair values.




SFAS
      123(R) requires companies to estimate the fair value of share-based payment
      awards on the date of grant using an option-pricing model. The value of the
      portion of the award that is ultimately expected to vest is recognized as
      expense over the requisite service period (if any) in our financial statements.
      Stock-based compensation expense is recognized in the Consolidated Statements
      of
      Income for the years ended February 29, 2008 and February 28, 2007 based on
      awards ultimately expected to vest and it has been reduced for estimated
      forfeitures. SFAS 123(R) requires forfeitures to be estimated at the time of
      grant and revised, if necessary, in subsequent periods if actual forfeitures
      differ from those estimates.




For
      purposes of determining estimated fair value of share-based payment awards
      on
      the date of grant under SFAS 123(R), we use the Black-Scholes option-pricing
      model (“Black-Scholes Model”). The Black-Scholes Model requires the input of
      highly subjective assumptions. Because employee stock options may have
      characteristics significantly different from those of traded options, and
      because changes in the subjective input assumptions can materially affect the
      fair value estimate, in management’s opinion, the existing models may not
      provide a reliable single measure of the fair value of its employee stock
      options. In addition, management will continue to assess the assumptions and
      methodologies used to calculate estimated fair value of share-based
      compensation. Circumstances may change and additional data may become available
      over time, which result in changes to these assumptions and methodologies,
      which
      could materially impact our fair value determination. As no share based awards
      were granted or modified for the years ended February 29, 2008 and February
      28,
      2007 and 2006, and all previously issued awards had been fully vested, there
      was
      no share based compensation expense in any year.




Information
      with respect to stock options and warrants outstanding to certain employees,
      directors and service
      providers are as follows:




**2008****Shares**
            
            **Average Exercise Price**Outstanding
                at beginning of year
            
            
            62,500
            
            $
            4.80Exercised
            
            
            (62,500
            )
            $
            4.80Issued
            
            
            -
            
            
            -Expired
            
            
            -
            
            
            -Outstanding
                at the end of year
            
            
            -
            
            
            -


45




**Stock
      Split.** On
      August
      14, 2007, our board of directors authorized a five-for-four split of the common
      stock effected in the form of a stock dividend to be distributed on or about
      September 28, 2007, to holders of record on September 14, 2007. Accordingly,
      all
      references to numbers of common shares and per share data in the accompanying
      financial statements have been adjusted to reflect the stock split on a
      retroactive basis. The par value of the additional shares of common stock issued
      in connection with the stock split will be credited to “Common stock” and a like
      amount charged to “Additional paid-in-capital” in the period the shares are
      distributed. Also, on August 15, 2007, we increased our authorized common stock
      from 10,000,000 shares to 18,750,000 shares. The following table represents
      the
      number of common shares and per share data before and after the stock
      split.





**For
                the Year Ended February 29/28,****2008**
            
            **2007**
            
            **2006****Before**
              **Stock**
              **Split**
            
            **After**
              **Stock**
              **Split**
            
            **Before**
              **Stock**
              **Split**
            
            **After**
              **Stock**
              **Split**
            
            **Before**
              **Stock**
              **Split**
            
            **After**
              **Stock**
              **Split**Shares
                Outstanding:Common
                Stock issued and outstanding
            
            
            9,542,361
            
            
            11,927,951
            
            
            9,528,153
            
            
            11,910,191
            
            
            9,427,153
            
            
            11,783,941Treasury
                Stock
            
            
            73,225
            
            
            91,531
            
            
            87,433
            
            
            109,291
            
            
            188,433
            
            
            235,541Average
                Common and Common Equivalent Shares Outstanding:Basic
                and Diluted
            
            
            9,595,798
            
            
            11,994,747
            
            
            9,447,879
            
            
            11,809,849
            
            
            9,409,102
            
            
            11,761,378Basic
                and Diluted Earnings per ShareNet
                Income
            
            
            1.95
            
            
            1.56
            
            
            0.36
            
            
            0.28
            
            
            0.12
            
            
            0.10Basic
                and Diluted Earnings per ShareComprehensive
                Income
            
            
            1.88
            
            
            1.50
            
            
            0.38
            
            
            0.30
            
            
            0.10
            
            
            0.08




**Treasury
      Stock.** On
      January 22, 2008, we began buying shares on the open market to hold for treasury
      stock purposes. We purchased a total of 31,944 shares in fiscal 2008 at a total
      cost of $563,872. These shares are reflected on the Statements of Shareholders’
Equity and are considered in the non-affiliated market value
      calculation.




**(10)
      RELATED PARTY TRANSACTIONS**




We
      currently operate under an agreement with ESP Communications, Inc. (ESP), which
      is owned by the spouse of our Chief Executive Officer. Under the agreement,
      ESP
      performs specified administrative duties on behalf of us. Either party may
      cancel the agreement with a thirty day written notice. We currently pay ESP
      $7,500 on a semi-monthly basis for its services. We recorded management services
      expense concerning this agreement with ESP of approximately $180,000 in each
      of
      fiscal 2008, 2007 and 2006.




**(11)
      CONTINGENCIES**




LPI
      is
      aware of certain instances wherein the insurance companies denied payment on
      policies in which it arranged the settlement with purchasers. Most of these
      denials relate to policies settled before 1998 and involve technical legal
      issues that were not fully appreciated when the policies were initially
      reviewed. Face value of the policies in question total $318,450. During fiscal
      year ended February 29, 2008, we paid $419,202 to these purchasers and have
      accrued another $211,207 for future claims that might arise on these policies.
      During fiscal 2007, we paid $148,772 and accrued another $119,400.


46




We
      have
      elected to advance premiums on certain older polices on which the initial
      premium payment reserves have been fully utilized. We have no legal obligation
      to make these advances and do so only in cases when there is a risk of policy
      lapse due to the failure of a purchaser to pay the premiums. We initiated and
      continue to follow this practice as a goodwill gesture. On final settlement,
      we
      are usually reimbursed for these advances. We have elected to reserve advances
      when collection is not certain and, if collectible, the time to collection
      is
      not certain. We believe we cannot reasonably estimate the future cost of the
      advances because we cannot predict the rate at which investors might fail to
      make premium payments. During fiscal 2008, 2007 and 2006, we advanced premiums
      totaling $1,180,797, $1,242,314 and $1,187,095, respectively, and received
      repayments of advances of $216,251, $407,687 and $284,249,
      respectively.




**(12)
      PENSION AND OTHER POST-RETIREMENT BENEFITS**




We
      established a 401(k) retirement plan on March 1, 2007. All employees were
      eligible to participate effective January 1, 2008, if they met specified
      requirements. The 401(k) has a match feature whereby we will make an annual
      matching contribution to each participant’s plan account equal to 100% of the
      lesser of the participant’s contribution to the plan for the year or 4% of the
      participant’s eligible compensation for that year. The contribution expense for
      our matching contributions to the 401(k) plan for fiscal 2008 was
      $8,615.




**(13)
      CORRECTION OF AN ERROR IN PREVIOUSLY
      ISSUED FINANCIAL STATMENTS**




During
      the year ending February 28, 2007, the Company
      adopted FSP FTB 85-4-1 *Accounting for Life Settlement Contracts*. Upon
      adoption, a gain of $281,070 was initially recorded as an increase in current
      year net income. In accordance with FTB 85-4-1, we have reclassified the gain
      as
      a cumulative effect adjustment to beginning retained earnings and restated
      the
      February 28, 2007 financial statements. The effective of this restatement was
      a
      decrease in 2007 earnings of $281,070 and an increase in beginning retained
      earnings of $281,070.


47




**EXHIBIT
      INDEX**


**DESCRIPTION
      OF EXHIBIT**


**Number**
              
              **Description**
              
              **Page**3.2
              
              Amended
                  Articles of Incorporation, dated February 19, 2003 (1)3.2
              
              Bylaws
                  (2)4.1
              
              Form
                  of stock certificate for our common stock (2)10.1
              
              LPHI
                  Omnibus Equity Compensation Plan* (2)14
              
              Code
                  of Ethics for Directors and Executive Officers (1)21
              
              Subsidiaries
                  of the Registrant
              
              5131
              
              Rule
                  13a-14(a) Certifications
              
              5232
              
              Section
                  1350 Certification
              
              54







*  Denotes
      a
      management contract or compensatory plans or arrangements.




(1)
            These
                exhibits were filed with our Annual Report on Form 10-KSB for the
                year
                ended February 29, 2004, and are incorporated by reference
                herein.




(2)
            These
                exhibits were filed with our Annual Report on Form 10-KSB for the
                year
                ended February 29, 2000, and are incorporated by reference
                herein.


48