UNITED
STATES
 SECURITIES
AND EXCHANGE COMMISSION
 WASHINGTON,
D.C. 20549
  FORM
10-K
  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 28, 2009
  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 Drive
                  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)
              NASDAQ
      Global Select
                (Name
      of exchange on which registered)
  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  ̈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.  ̈
  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 xNo  ̈
  Indicate
by check mark whether the registrant has submitted electronically and posted on
its corporate Web site, if any, every Interactive Data File required to be
submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding
12 months (or for such shorter period that the registrant was required to submit
and post such files).
 Yes  ̈No  x
  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. x
  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   ̈
                  
                  Accelerated
      filer  xNon-accelerated
      filer  ̈
                  
                  Smaller
      reporting company   ̈
  Indicated
by check mark whether the registrant is a shell company (as defined in
Section 12b-2 of the Exchange Act).
 Yes  ̈No x
  The
aggregate market value of the Common Stock held by non-affiliates of the
Registrant as of August 31, 2008, was $169,282,508, based on the last
reported sale price of $23.17 (adjusted for 2008 and 2009 splits) on that date
on the NASDAQ Global Select Market.
  Shares of
Common Stock, $.01 par value, outstanding as of May 1, 2009:
15,024,354.
  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.
  
  2009
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
                                                                                  
                                                                                  
                                                                                  91b.
                                                                                  Unresolved
      Staff Comments
                                                                                  
                                                                                  
                                                                                  112.
                                                                                  Description
      of Properties
                                                                                  
                                                                                  
                                                                                  113.
                                                                                  Legal
      Proceedings
                                                                                  
                                                                                  
                                                                                  124.
                                                                                  Submission
      of Matters to a Vote of Security Holders
                                                                                  
                                                                                  
                                                                                  14Part
      II5.
                                                                                  Market
      for Our Common Stock, Related Shareholder Matters and Our Purchases of
      Equity Securities
                                                                                  
                                                                                  
                                                                                  146.
                                                                                  Selected
      Financial Data
                                                                                  
                                                                                  
                                                                                  167.
                                                                                  Management’s
      Discussion and Analysis of Financial Condition and Results
      of Operations
                                                                                  
                                                                                  
                                                                                  177a.
                                                                                  Quantitative
      and Qualitative Disclosures about Market Risk
                                                                                  
                                                                                  
                                                                                  248.
                                                                                  Financial
      Statements and Supplementary Data
                                                                                  
                                                                                  
                                                                                  249.
                                                                                  Changes
      in and Disagreements with Accountants on Accounting and Financial
      Disclosures
                                                                                  
                                                                                  
                                                                                  249a.
                                                                                  Controls
      and Procedures
                                                                                  
                                                                                  
                                                                                  259b.
                                                                                  Other
      Information
                                                                                  
                                                                                  
                                                                                  28Part
      III10.
                                                                                  Directors,
      Executive Officers and Corporate Governance
                                                                                  
                                                                                  
                                                                                  2811.
                                                                                  Executive
      Compensation
                                                                                  
                                                                                  
                                                                                  2812.
                                                                                  Security
      Ownership of Certain Beneficial Owners and Management and 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
                                                                                  
                                                                                  
                                                                                  30Table
      of Contents to Consolidated Financial Statements and Notes
                                                                                  
                                                                                  
                                                                                  31Exhibit
      Index
                                                                                  
                                                                                  
                                                                                  54
  2
  PART
I
  Special
Note Regarding Forward-Looking Statements
  Certain
statements in this annual report on Form 10-K for the fiscal year ended
February 28, 2009 (“fiscal 2009”) 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
specialty financial services company, providing purchasing services for life
settlements to our client base.  We facilitate these transactions by
identifying, examining, and purchasing the policies as agent for the
purchasers.  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 84,000 purchaser transactions involving over 6,000 policies
totaling over $1.8 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 act as
a purchasing agent for life settlement purchasers.  In performing
these services, we identify, qualify and purchase policies on behalf of our
clients which match their buying parameters and return
expectations.  Because we must work within these parameters, we must
make offers which are competitive from the seller’s point of view, but still fit
within the buying parameters of our clients.  This success-based
compensation formula insures that we bring value to both parties to the
transaction and that both buyer and seller are satisfied.  We locate
potential policy owners 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.  Broker referrals accounted for 99% of our total business as
measured by policy face value in each of fiscal 2009 and 2008.  In
fiscal 2009, three brokers made referrals whose policy face value represented
over 10% of our total business.  Referrals from these brokers
accounted for 44% of e total business.  In fiscal 2008, we had three
brokers with 10% or more of our total business and they accounted for 69% of our
total business.  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 have sponsored funds ourselves and may do so in
the future.  Institutional purchasers continue to be a large part of
our purchaser base reflecting the increasing acceptance of life settlements
within the financial community.  Institutional purchasers accounted
for 8% and 6% of our total revenues in fiscal 2009 and fiscal 2008,
respectively.
  Most of
our earlier purchasers were, and continue to be, 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 an
insured’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
$1.8 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 has 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.  Since 2006, however, generally accepted accounting methods
have permitted purchasers to account for their 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.  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.
  We
estimate that the total face value of life settlement transactions for the
entire industry during calendar year 2008 was approximately $9 to
10 billion, which gives us a market share of approximately 8%, compared
with an estimated 6% last year.  This market share is higher than in
previous periods.  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.  Our estimate of 2008 market activity is based on reported
transactions and known transaction volumes with allowance for unreported data
and multiple reports of the same transaction.
  5
  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.  We believe that two of our
largest industry competitors currently have about 35% of the total market share
which is evenly divided between the two.  The remaining 65% of the
market is divided among approximately 30 other market participants, only five of
which have between 5 to 10% of the total market share.  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,
increasing commodity prices or the currently uncertain credit
market.  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.
  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 5.1% in
2007.  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.
  6
  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 diminished greatly to fewer than 10 consistently
active companies in the market, compared with approximately 35 last
year.  We believe this is a direct result of competing business models
which relied heavily on leverage and a single or preferred client
model.  In contrast, our business model uses no leverage and is a
multi-client model.  As credit markets tightened over the past year,
the strength of our business model was demonstrated as our business increased,
while companies with leveraged business models failed or substantially curtailed
their business activities.
  Although
we are one of the largest 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 $1 billion in face value for fiscal 2010, which is a 44% increase
over our total business volume of $694 million in fiscal 2009.  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 43% increase in total
business volume between fiscal 2008 and fiscal 2009.
  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:
  2007
                  
                  
                  2008
                  
                  
                  2009Number
      of settlements
                  
                  
                  220
                  
                  
                  
                  200
                  
                  
                  
                  196Face
      value of policies
                  
                  $
                  151,397,000
                  
                  
                  $
                  415,293,000
                  
                  
                  $
                  693,715,000Average
      revenue per settlement
                  
                  $
                  135,433
                  
                  
                  $
                  356,891
                  
                  
                  $
                  528,645Total
      net revenues derived  (1)
                  
                  $
                  12,231,000
                  
                  
                  $
                  36,823,000
                  
                  
                  $
                  54,421,000
 _______________
  (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 40
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.
  7
  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 offers protection to all
insureds or policyholders (including those living in states that have no
licensing requirement).  However, other states have their own
licensing requirements in order to purchase policies from policyowners in those
states and we comply with those requirements.  In addition to Texas,
we are licensed in the following states: Arkansas, Connecticut, Illinois,
Maryland, Mississippi, Nevada, New Jersey, North Carolina, Oklahoma,
Pennsylvania, Tennessee and Virginia.  Many other states have clearly
identified exemptions from licensing requirements which permit us to purchase
from policyowners in those states according to those
exemptions.  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&company
Name=Life%20Partners,%20Inc.&sysTypeCode=PA.
  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.  While it has been held under federal law that our transaction
structure is not a security, the State of Colorado was successful in obtaining a
judicial determination that our transaction structure was a security under
Colorado law.  See Item 3. Legal Proceedings
below.  We resolved this jurisdictional issue with the State of
Colorado and have modified our transaction structure to comply with that state’s
requirements and do not believe that our transaction modifications will have any
significant impact on our operations.
  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 senior Americans attempting to sell their
policies 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 collectability 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 28, 2009, we had 56 direct employees, none of whom are represented by a
labor union, as well as 5,300 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.
  8
  More
about Life Partners
  Our
executive offices are located at 204 Woodhew Drive, 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 potential sellers and
purchasers is www.lifepartnersinc.com.
  Item
1a.  Risk Factors
  In
addition to other information in this annual report on Form 10-K, 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 identify sufficient numbers of qualified policies to meet
      demand;
  ·
              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 life settlement brokers and they are free to do
business with our competitors.  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.
  9
  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 by several years.  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 realize smaller returns, 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, requiring purchasers
to invest further proceeds 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 policy sellers, 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 certain
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 defending 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.
  10
  We
Are Operating in an Evolving Market 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.  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
demonstrated 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 50% of Our Common Stock
and, as a Result, Can Exercise Significant Influence over Our
Company
  Under SEC
regulations, Mr. Brian D. Pardo, our Chairman and Chief Executive Officer, may
be considered the beneficial owner of approximately 50% 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.
  Item
1b.  Unresolved Staff Comments
  We have
not received within 180 days before February 28, 2009, 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 Drive in Waco, Texas.  We
own two buildings on adjacent lots at this location and our offices occupy both
buildings, which together total 24,000 square feet.  One building was
built in 1985 and the other in 1986.
  11
  Item
3.  Legal Proceedings
  During
the fiscal years ended February 28, 2009, February 29, 2008 and February 28,
2007, we incurred settlement expenses of $1,382,140, $173,954 and $415,312,
respectively, for the resolution of litigation or potential
litigation.  Most settlements involved purchaser claims and relatively
minor settlement amounts.  In some instances, we have purchased
interests in policies to settle claims.  In these cases, only the
excess (if any) of the settlement payment over the investment value of the
purchased 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.”
  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 sought 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.  This action was settled
amicably on December 10, 2008, with the entry of a consent injunction against
the Company and LPI and the agreement that LPI would offer to purchase the
interests of certain Colorado clients.  Neither the Company, LPI, nor
the individuals admitted or denied the Commissioner’s
allegations.  Despite the initial allegations in the action, there was
no finding of fraud by the Court and the Commissioner acknowledged that “no
investor has alleged or asserted any impropriety against LPI with respect to
their investment and all purchasers represented themselves to be accredited
investors prior to investing.” The injunction permits LPI to offer life
settlements in Colorado that are registered or are exempt from registration
under the Colorado Securities Act.  Under the terms of the settlement,
Life Partners, Inc. agreed to offer to purchase the life settlements from the
Colorado investors alleged in the complaint, and all purchasers that accepted
the offer to purchase received additional compensation for the purchase equal to
statutory interest.  Of those to whom we made an offer to purchase,
74% chose to sell all of their interest and 4% elected to sell only a portion of
their interest.  LPI has completed this purchase offer, and the amount
paid to the investors who accepted our offer totaled $12,760,290 of which
$2,700,741 represents additional compensation which is equal to statutory
interest.  The total face value of interests in policies which we
purchased is $18,752,910.
  On June
9, 2006, a putative class action case entitled Earl Parchia et al. v. Life
Partners, Inc.,Cause No. 2006-2258-4was filed against us in
the 170th
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.
  12
  On April
24, 2001, the State of Texas initiated a suit against LPI for alleged violations
of the Texas Deceptive Trade Practices Act (DTPA).  This suit is
currently in the 74th
District Court in McLennan County, Texas.  This 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 10th 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 10th 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 appealed issues
to the Supreme Court of Texas.  LPI appealed 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 appealed
the appellate court decision that venue was proper in McLennan County and sought
to have venue returned to Travis County.  Separate petitions on these
issues were filed before the Texas Supreme Court.  On September 8,
2008, the Texas Supreme Court declined to hear the petitions of either party,
which preserved the trial court’s venue ruling in favor of LPI and the State’s
standing to continue the action.  The case has been remanded back to
the trial court for further proceedings, but no hearings or proceedings are
currently scheduled.
  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.  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 filed a motion for summary
judgment to dismiss this case, which was denied.  The suit is still in
the discovery phase, and we intend to defend ourselves vigorously in this
matter.
  On
December 9, 2005, we were served with a civil action by M. Smith in a case
styled M. Smith v. Life
Partners, Inc., et. al., in the Superior Court of New Jersey, Chancery
Division.  This suit involves a claim that LPI is obligated to pay M.
Smith’s health insurance premiums pursuant to the contract to purchase M.
Smith’s life insurance.  The trial court ruled that LPI is obligated
to pay these heath insurance premiums for M. Smith and ordered an amount be paid
to the Clerk of Court to fund a constructive trust to fund these future
premiums.  LPI appealed this ruling, and on appeal, the court remanded
the case to the trial court for further hearing on an appropriate
remedy.  LPI has filed a third party complaint in the suit against the
insurance company who issued the life and health insurance policy at
issue.  There are no hearings or discovery proceedings currently
scheduled as we are in active settlement negotiations among all three
parties.
  On March
28, 2008, in response to a Notice of Hearing received from the Florida Office of
Insurance Regulation, LPI filed a declaratory judgment action against the
Florida Commissioner of the Office of Insurance Regulation in the United States
District Court for the Northern District of Florida to determine whether LPI is
required to be licensed as a life settlement provider in order to purchase
policies from Florida residents.  We claimed that the Florida Office
of Insurance Regulation does not have jurisdiction over LPI and that to assert
just jurisdiction violates the Commerce Clause, Contracts Clause, and the Due
Process Clause of the United States Constitution.  On December 1,
2008, the District Court dismissed all of our claims except the due process
claim.  The matter is still ongoing.
  13
  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
  Our
common stock is traded on the Nasdaq Global Select Market under the symbol
LPHI.  On April 30, 2009, there were approximately 96 shareholders of
record of our Common Stock.  Most of our common stock is held
beneficially in “street name” through various securities brokers, dealers and
registered clearing agencies.  We believe that there are approximately
6,500 beneficial owners of shares of our common stock who hold in street
name.
  The
following table reflects the high and low sales prices of our common stock for
each quarterly period during the last two fiscal years.
 High
                    
                    
                    Low
                    
                    
                    Cash
                      DividendsYear
      Ended 2/29/08First
      Quarter
                    
                    $
                    15.30
                    
                    
                    $
                    8.04
                    
                    
                    $
                    .0625Second
      Quarter
                    
                    $
                    41.20
                    
                    
                    $
                    14.69
                    
                    
                    $
                    .0600Third
      Quarter
                    
                    $
                    42.32
                    
                    
                    $
                    22.60
                    
                    
                    $
                    .0700Fourth
      Quarter
                    
                    $
                    28.65
                    
                    
                    $
                    11.82
                    
                    
                    $
                    .0600Year
      Ended 2/28/09First
      Quarter
                    
                    $
                    15.91
                    
                    
                    $
                    9.66
                    
                    
                    $
                    .0700Second
      Quarter
                    
                    $
                    23.33
                    
                    
                    $
                    14.69
                    
                    
                    $
                    .0700Third
      Quarter
                    
                    $
                    33.81
                    
                    
                    $
                    17.06
                    
                    
                    $
                    .0800Fourth
      Quarter
                    
                    $
                    36.06
                    
                    
                    $
                    14.89
                    
                    
                    $
                    .0700
  14
  On May 1,
2009, the last reported sale price of our common stock on The Nasdaq Global
Select Market was $17.43 per share.  Our total share volume for April
2009 was 3,968,900 shares compared to 1,121,800 shares for the same period last
year.
  Dividends
  We paid
common stock dividends of $0.2900 per share in fiscal 2009 and $0.2525 per share
in fiscal 2008.  The dividend declared by the Board of Directors has
been at least $0.05 per share in each quarter since March 1, 2005 with an
additional $0.01 “Christmas Bonus” dividend in the third quarters of fiscal
years 2009, 2008 and 2007.
  Purchases
of Equity Securities
  We made
no purchases of our equity securities during the fourth quarter of our fiscal
year ended February 28, 2009.
  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 29,
2004, 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.
  
  15
  2004
                    
                    
                    2005
                    
                    
                    2006
                    
                    
                    2007
                    
                    
                    2008
                    
                    
                    2009Life
      Partners
                    
                    $
                    100
                    
                    
                    $
                    102
                    
                    
                    $
                    103
                    
                    
                    $
                    188
                    
                    
                    $
                    354
                    
                    
                    $
                    508Russell
      Microcap Index
                    
                    $
                    100
                    
                    
                    $
                    103
                    
                    
                    $
                    120
                    
                    
                    $
                    128
                    
                    
                    $
                    104
                    
                    
                    $
                    55Nasdaq
      Financial Index
                    
                    $
                    100
                    
                    
                    $
                    102
                    
                    
                    $
                    123
                    
                    
                    $
                    130
                    
                    
                    $
                    108
                    
                    
                    $
                    60
  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.
  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 2009, 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
                      ProgramsMar.
      1 to 31, 2008
                    
                    
                    6,250
                    
                    
                    $
                    11.22
                    
                    
                    
                    6,250
                    
                    
                    
                    961,806Apr.
      1 to 30, 2008
                    
                    
                    23,424
                    
                    
                    $
                    14.14
                    
                    
                    
                    23,424
                    
                    
                    
                    938,382May
      1 to 31, 2008
                    
                    
                    21,250
                    
                    
                    $
                    14.01
                    
                    
                    
                    21,250
                    
                    
                    
                    917,132Total
                    
                    
                    50,924
                    
                    
                    $
                    13.73
                    
                    
                    
                    50,924
                    
                    
                    
                    917,132
  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.
  16
  Year
      Ended February 28/29,(millions, except per share
      information)2009
                    
                    
                    2008
                    
                    
                    2007
                    
                    
                    2006
                    
                    
                    2005Operating
      ResultsRevenues
                    
                    $
                    103.6
                    
                    
                    $
                    72.6
                    
                    
                    $
                    29.8
                    
                    
                    $
                    20.1
                    
                    
                    $
                    18.7Income
      from Operations
                    
                    $
                    40.2
                    
                    
                    $
                    27.2
                    
                    
                    $
                    3.9
                    
                    
                    $
                    1.9
                    
                    
                    $
                    4.4Pre-tax
      Income
                    
                    $
                    41.9
                    
                    
                    $
                    28.7
                    
                    
                    $
                    4.7
                    
                    
                    $
                    2.0
                    
                    
                    $
                    4.0Net
      Income
                    
                    $
                    27.2
                    
                    
                    $
                    18.8
                    
                    
                    $
                    3.4
                    
                    
                    $
                    1.1
                    
                    
                    $
                    2.7
  Year Ended February 28/29,
                      (millions, except per share information)2009
                    
                    
                    2008
                    
                    
                    2007
                    
                    
                    2006
                    
                    
                    2005(Restated)Balance Sheet Data at Fiscal Year EndCurrent
      Assets
                    
                    $
                    29.2
                    
                    
                    $
                    20.9
                    
                    
                    $
                    8.7
                    
                    
                    $
                    4.3
                    
                    
                    $
                    3.7Current
      Liabilities
                    
                    $
                    7.6
                    
                    
                    $
                    8.0
                    
                    
                    $
                    8.5
                    
                    
                    $
                    6.0
                    
                    
                    $
                    3.5Working
      Capital
                    
                    $
                    21.6
                    
                    
                    $
                    12.9
                    
                    
                    $
                    .2
                    
                    
                    $
                    (1.7
                    )
                    
                    $
                    0.2Total
      Assets
                    
                    $
                    52.4
                    
                    
                    $
                    31.9
                    
                    
                    $
                    16.6
                    
                    
                    $
                    12.0
                    
                    
                    $
                    10.3Total
      Liabilities
                    
                    $
                    8.4
                    
                    
                    $
                    9.1
                    
                    
                    $
                    8.9
                    
                    
                    $
                    6.8
                    
                    
                    $
                    4.0Shareholder
      Equity
                    
                    $
                    44.0
                    
                    
                    $
                    22.8
                    
                    
                    $
                    7.7
                    
                    
                    $
                    5.2
                    
                    
                    $
                    6.3Return
      on Assets
                    
                    
                    64.5
                    %
                    
                    
                    77.4
                    %
                    
                    
                    23.5
                    %
                    
                    
                    10.3
                    %
                    
                    
                    27.8
                    %Return
      on Equity
                    
                    
                    81.3
                    %
                    
                    
                    123.1
                    %
                    
                    
                    51.9
                    %
                    
                    
                    19.9
                    %
                    
                    
                    47.8
                    %Per
      Share Data(1)Earnings
      Per Share
                    
                    $
                    1.83
                    
                    
                    $
                    1.25
                    
                    
                    $
                    0.23
                    
                    
                    $
                    0.08
                    
                    
                    $
                    0.18Dividends
      Per Share
                    
                    $
                    0.29
                    
                    
                    $
                    0.25
                    
                    
                    $
                    0.21
                    
                    
                    $
                    0.20
                    
                    
                    $
                    0.20Financial
      RatiosCurrent
      Ratio
                    
                    3.8
      : 1
                    
                    
                    2.6
      : 1
                    
                    
                    1.0
      : 1
                    
                    
                    0.7
      : 1
                    
                    
                    1.1
      : 1Quick
      Ratio
                    
                    3.8
      : 1
                    
                    
                    2.6
      : 1
                    
                    
                    1.0
      : 1
                    
                    
                    0.7
      : 1
                    
                    
                    1.1
      : 1
  (1)
Earnings per share data has been restated for the fiscal 2008 and 2009 stock
splits.
  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 28, 2009, and results of operations for the years ended
February 28, 2009, February 29, 2008, and February 28, 2007.  As
you read this discussion, refer to our Consolidated Financial Statements and
Notes thereto.  We analyze and explain the differences between periods
in the material line items of these statements.
  17
  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 that 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 $100 per viatical settlement
and $200 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 make short-term advances 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 collectable, as we are repaid the
advance before any of the other parties involved in the transaction receive
funds.
  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 a purchaser 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, a purchaser recognizes 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.  Under the fair value method, a purchaser recognizes
the initial investment at the purchase price.  In subsequent periods,
the purchaser re-measures the investment at fair value in its entirety at each
reporting period and recognizes changes 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 28, 2009, our investments in life settlements
held for our own account were valued at $8,878,715.  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.
  18
  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.
  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 28, 2009.
  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.
  19
  Other
recent accounting pronouncements have been issued including FASB Statements
No. 157, 159, 160, 161, 162 and FIN 48.  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.
  Comparison
of Years Ended February 28, 2009 and February 29, 2008 and February 28,
2007
  We had
net income of $27,159,116 for the year ended February 28, 2009 (fiscal 2009),
compared to net income of $18,756,271 for the year ended February 29, 2008
(fiscal 2008) and $3,360,230 for the year ended February 28, 2007 (fiscal
2007).  The 45% increase in net income in fiscal 2009 is attributable
primarily to a 43% increase in revenues and a 48% 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
48%.  The 458% increase in net income in fiscal 2008 was attributable
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
595%.  Legal and professional costs were $1,839,782, $1,660,176 and
$2,150,126 in fiscal 2009, 2008 and 2007, respectively, 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 Colorado, Virginia, Florida and Utah and in defending ourselves in the
arbitration against M. Smith and a former investment banking
firm.  See Item 3.
Legal Proceedings.
  Revenues - Revenues increased
by $31,005,185, or 43% from $72,609,255 in fiscal 2008 to $103,614,440 in fiscal
2009.  This increase was due primarily to a 67% increase in our total
business volume as measured by the face value of all policy settlements
transacted through us and a 48% increase in the average revenue per settlement
from $356,891 in fiscal 2008 to $528,645 in fiscal 2009.  The number
of settlements we transacted in fiscal 2009 decreased by 2% from last year
continuing a trend toward fewer transactions, but with larger face
amounts.  Revenues in fiscal 2008 increased by $42,813,932 or 144%
from $29,795,323 in fiscal 2007 to $72,609,255.  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 remained
constant.  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.
  20
  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 2009, approximately 80% of our business was from
domestic purchasers while approximately 20% was from foreign
purchasers.  This is consistent with fiscal 2008.  In fiscal
2007, this ratio was 81% from domestic business and 19% 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.
  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 38% or $13,407,342 from $35,786,521 in
fiscal 2008 to $49,193,863 in fiscal 2009.  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 constituted
47% of revenues in fiscal 2009 compared to 49% in fiscal 2008 and 59% in fiscal
2007.   In fiscal 2009, broker referrals accounted for 99% of the
total face value of policies transacted, while this percentage for fiscal 2008
was 99% and for fiscal 2007 was 94%.  Policies presented from three
brokers who each represented more than 10% of all completed transactions totaled
44% of the total face value in fiscal 2009.  Policies presented from
three brokers who each represented more than 10% of all completed transactions
totaled 69% of the total face value in 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.
  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 policy owner 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.
  Brokerage
fees associated with the purchase of policies for our own investment are not
included in this line item, but are expensed and are included in the line
“General and Administrative” expenses on the income statement.
  21
  Operating Expense - General
and administrative expenses increased by 35% or $2,830,002 from $8,186,195 in
fiscal 2008 to $11,016,197 in fiscal 2009.  Executive and employee
bonuses increased $966,715 from $1,321,240 in fiscal 2008 to $2,287,955 in
fiscal 2009.  These payments are a direct result of the increased
company profitability, which is linked to executive compensation plans and
bonuses given to all employees.  This is the single largest expense
increase.   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.
  Also
included in fiscal 2009 general and administrative expenses are substantial
legal and professional expenses of $1,839,782 primarily associated with the
prosecution of legal actions against the State of Colorado, the State of
Virginia and the State of Florida and in defending ourselves in the M. Smith and
Maxim cases.  This compares with $1,660,176 in fiscal 2008 and
$2,150,125 in fiscal 2007.  See Item 3. Legal
Proceedings.
  For
various other legal actions or claims in which we believe we might incur
liability, we paid non-recurring settlement expenses of $1,382,140 in fiscal
2009 compared to $173,954 in fiscal 2008 and $415,312 in fiscal
2007.
  We made
advances on policy premiums primarily to maintain certain older viatical
settlement transactions.  During fiscal 2009, 2008 and 2007, we made
premium advances of $1,916,693, $1,195,018 and $1,242,314, respectively, and
were reimbursed $472,217, $216,251 and $389,938, 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 $957,363 in fiscal 2007 to $1,656,204 in
fiscal 2008 and to $1,804,290 in fiscal 2009.  The increase in income
corresponds to higher investment balances.  Interest expense declined
from $207,238 in fiscal 2007 to $162,508 in fiscal 2008 and $61,182 in fiscal
2009.  Interest expense relates primarily to the long-term debt
financing on our property.
  Income Taxes - Income tax
expense increased by $4,823,252 or 49% from $9,935,487 in fiscal 2008 to
$14,758,739 in fiscal 2009 due to a 46% increase in income before
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.
  Liquidity
and Capital Resources
  Operating Activities - Net
cash flows provided by operating activities during fiscal 2009 increased by 135%
or $16,360,571 to $28,445,291 compared with net cash flows provided by operating
activities of $12,084,720 for fiscal 2008 and $4,155,409 in fiscal
2007.  This increase in cash flows from operating activities was
attributable primarily to a 45% or $8,402,845 increase in net income from
$18,756,271 in fiscal 2008 to $27,159,116 in fiscal 2009, and a 458% or
$15,396,041 increase in net income in fiscal 2008 versus fiscal
2007.  Fiscal 2009’s increase in cash flow was also aided by a
$1,481,812 decline in accounts receivable.  In 2008, the increase was
helped by an increase in accounts payable of $1,568,755.  In fiscal
2009, the increase in operating activities’ cash flow was diminished by a
reduction in accounts payable of $759,191.  In fiscal 2008, cash flow
from operating activities was diminished by (i) an increase in accounts
receivable of $6,704,623; and (ii) a decrease in net income tax payable of
$520,128.
  22
  Investing and Financing Activities
- We used cash of $15,878,496 in investing activities in fiscal 2009
versus $4,867,162 in fiscal 2008 and $241,499 in fiscal 2007.  We
purchased policies of $8,013,324 in fiscal 2009 compared to $464,212 in fiscal
2008 and $89,775 in fiscal 2007.  In fiscal 2009 we made an investment
in a life settlement fund partnership of $5,000,000.  In fiscal 2009,
we made purchases of property and equipment of $413,734 while in fiscal 2008 it
was $2,380,558 and in fiscal 2007 it was $98,554.  Investments in
certificates of deposit were $1,948,651 in fiscal 2009 versus $1,084,952 in
fiscal 2008 and zero in 2007.  Investments in marketable securities
were $502,787 in fiscal 2009, $1,727,440 in fiscal 2008 and $53,171 in fiscal
2007.  The purchases of property and equipment in 2008 were primarily
the purchase of the land and building adjacent to our corporate headquarters and
the company plane, which was also sold in fiscal 2008.
  We used
$4,418,125 in financing activities in fiscal 2009 versus $3,626,032 in fiscal
2008 and $2,180,128 in fiscal 2007.  We paid down $2,387,399 on our
operating line of credit and loans in fiscal 2009 compared with payments of
$3,206,168 in fiscal 2008 and $761,849 in fiscal 2007.  We received
proceeds from loans of $2,000,000 in fiscal 2009 and $2,289,226 in fiscal
2008.  We paid dividends of $3,331,675 in fiscal 2009, $2,445,218 in
fiscal 2008 and $2,024,279 in fiscal 2007.  We purchased shares on the
open market (treasury shares) for $699,051 in fiscal 2009 and $563,872 in fiscal
2008.
  Working Capital and Capital
Availability - As of February 28, 2009, we had working capital of
$21,589,464.  Our cash during fiscal 2009 increased by a total of
$8,148,670 compared with an increase of $3,591,526 in fiscal 2008 and an
increase of $1,733,782 in fiscal 2007.  In the event we require credit
to facilitate our short-term cash flow management and operating capital
requirements, we maintain two credit lines.  One credit line is
secured by cash and securities on deposit.  As of February 28, 2009,
it carried an interest rate at Wall Street Journal Prime Rate of 3.25% and
had a borrowing base of $1.8 million.  There was no outstanding
balance as of February 28, 2009, and a $1,621 balance at February 29,
2008.  The other line of credit is secured by a certificate of
deposit.  This line of credit carried an interest rate of 5.55% and
had a borrowing base of $1 million.  There was no outstanding
balance on this line as of February 28, 2009 and February 29, 2008.
  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 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.
  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 28, 2009.  Long-term debt includes
interest.
 Contractual Obligations
                    
                    Total
                    
                    
                    Due in less
                      than 1 year
                    
                    
                    Due in
                      1 to 3 years
                    
                    
                    Due in
                      4 to 5 years
                    
                    
                    Due after
                      5 yearsLong-term
      debt
                    
                    $
                    1,078,074
                    
                    
                    $
                    92,023
                    
                    
                    $
                    184,046
                    
                    
                    $
                    184,046
                    
                    
                    $
                    617,959Operating
      leases
                    
                    
                    96,235
                    
                    
                    
                    39,432
                    
                    
                    
                    56,803
                    
                    
                    
                    -
                    
                    
                    
                    -Total
      obligations
                    
                    $
                    1,174,309
                    
                    
                    $
                    131,455
                    
                    
                    $
                    240,849
                    
                    
                    $
                    184,046
                    
                    
                    $
                    617,959
  23
  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 32 of
this report.
 The
following tables set forth our unaudited consolidated financial data regarding
operations for each quarter of fiscal 2009, 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 20091stQuarter
                    
                    
                    2ndQuarter
                    
                    
                    3rdQuarter
                    
                    
                    4thQuarterRevenues
                    
                    $
                    24,438,146
                    
                    
                    $
                    24,788,725
                    
                    
                    $
                    28,103,930
                    
                    
                    $
                    26,283,639Income
      from Operations
                    
                    $
                    9,433,148
                    
                    
                    $
                    9,520,893
                    
                    
                    $
                    10,602,463
                    
                    
                    $
                    10,682,368Pre-tax
      Income
                    
                    $
                    9,800,431
                    
                    
                    $
                    10,004,229
                    
                    
                    $
                    11,239,383
                    
                    
                    $
                    10,873,812Net
      Income
                    
                    $
                    6,248,574
                    
                    
                    $
                    6,603,491
                    
                    
                    $
                    7,282,878
                    
                    
                    $
                    7,024,173Net
      Income Per Share
                    
                    $
                    0.42
                    
                    
                    $
                    0.45
                    
                    
                    $
                    0.48
                    
                    
                    $
                    0.48
  Fiscal 20081stQuarter
                    
                    
                    2ndQuarter
                    
                    
                    3rdQuarter
                    
                    
                    4thQuarterRevenues
                    
                    $
                    17,578,976
                    
                    
                    $
                    17,646,109
                    
                    
                    $
                    19,298,726
                    
                    
                    $
                    18,085,444Income
      from Operations
                    
                    $
                    6,689,483
                    
                    
                    $
                    6,133,682
                    
                    
                    $
                    7,489,394
                    
                    
                    $
                    6,845,980Pre-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
                    
                    $
                    0.31
                    
                    
                    $
                    0.29
                    
                    
                    $
                    0.35
                    
                    
                    $
                    0.30
  Fiscal 20071stQuarter
                    
                    
                    2ndQuarter
                    
                    
                    3rdQuarter
                    
                    
                    4thQuarterRevenues
                    
                    $
                    6,166,797
                    
                    
                    $
                    6,586,609
                    
                    
                    $
                    7,318,909
                    
                    
                    $
                    9,723,008Income
      from Operations
                    
                    $
                    319,648
                    
                    
                    $
                    397,902
                    
                    
                    $
                    1,093,260
                    
                    
                    $
                    2,096,462Pre-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
                    
                    $
                    0.03
                    
                    
                    $
                    0.02
                    
                    
                    $
                    0.06
                    
                    
                    $
                    0.12
  Item
9.  Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure
  None.
  24
  Item 9a.     
Controls and Procedures
  Attached
as exhibits to this Annual Report are certifications of the CEO and the CFO,
which are required in accordance with Rule 13a-14 of the Securities
Exchange Act of 1934, as amended (the “Exchange
Act”).  This Controls and Procedures section includes the
information concerning the controls evaluation referred to in the
certifications, and it should be read in conjunction with the certifications for
a more complete understanding of the topics presented.
  Evaluation
of Disclosure Controls and Procedures
  We
maintain disclosure controls and procedures that are designed to ensure that
information required to be disclosed in our reports under the Exchange Act is
recorded, processed, summarized and reported within the time periods specified
in the SEC’s rules and forms, and that such information is accumulated and
communicated to management, including our Chief Executive Officer and Chief
Financial Officer, as appropriate, to allow timely decisions regarding required
disclosure.  Our management, with participation of our Chief Executive
Officer and Chief Financial Officer, has evaluated the effectiveness of the
Company’s disclosure controls and procedures as of the end of the fiscal year
covered by this Annual Report on Form 10-K.  As described below
under “Report of Management on Internal Control over Financial Reporting”, we
have identified material weaknesses in the internal control over financial
reporting as of February 28, 2009.  Our Chief Executive Officer and
Chief Financial Officer have concluded that, as of the end of the period covered
by this Annual Report, our disclosure controls and procedures (as defined in
Rules 13a-15(e) and 15d-15(e) under the Exchange Act) were not effective as
a result of the reported material weaknesses.
  Report
of Management on Internal Control over Financial Reporting
  Our
management is responsible for establishing and maintaining adequate internal
control over financial reporting as defined in Rules 13a-15(f) and
15d-15(f) under the Exchange Act.  Our internal control system has
been designed to provide reasonable, not absolute, assurance to our management
and Board of Directors that the objectives of our control system with respect to
the integrity, reliability and fair presentation of published financial
statements are met.  A control system, no matter how well designed and
operated, can provide only reasonable, not absolute, assurance that the control
system’s objectives will be met.  Further, the design of a control
system must reflect the fact that there are resource
constraints.  Because of the inherent limitations in all control
systems, no evaluation of controls can provide absolute assurance that all
control issues and instances of fraud, if any, within our company have been
detected.  Under the supervision and with the participation of our
management, including our Chief Executive Officer and Chief Financial Officer,
we assessed the effectiveness of our internal control over financial reporting
as of February 28, 2009.  In making this assessment, we used the
criteria established in the framework on Internal Control – Integrated
Framework issued by the Committee of Sponsoring Organizations (“COSO”) of the Treadway
Commission.  Based on our assessment, which was conducted according to
the COSO criteria, we have concluded that our internal control over financial
reporting was not effective in achieving its objectives as of February 28, 2009,
due to material weaknesses that existed in our internal controls relating to our
financial reporting as of that date.
  A
material weakness is a deficiency, or combination of deficiencies, in internal
control over financial reporting, such that there is a reasonable possibility
that a material misstatement of the company’s annual or interim financial
statements will not be prevented or detected on a timely basis.  Based
on management’s assessment of our internal control over financial reporting as
of February 28, 2009, the following material weaknesses existed as of
that date:
  ·
              Our
      controls lacked adequate financial oversight including appropriate levels
      of monitoring and review.  Specifically, we did not have a
      systematic procedure for ensuring that the disclosure and presentation of
      information in the financial statement footnotes would be presented in
      accordance with accounting principles generally accepted in the United
      States and the various regulatory requirements. Additionally, we did not
      have sufficient accounting oversight to ensure that the classification of
      all financial information is presented in accordance with accounting
      principles generally accepted in the United
  States.
  25
  ·
              We
      lacked adequate internal controls to ensure the proper financial reporting
      in new and emerging or non-routine accounting areas, especially relating
      to accounting for and disclosure of investment
      activity.  Specifically, we did not have procedures in place for
      testing our purchased policies for possible impairment and we did not
      assemble adequate documentation to allow for the required disclosures
      relating to purchased policies.  Further, our controls did not
      adequately address accounting for investment in outside
      ventures.  As a result, a partnership in which we invested
      lacked sufficient financial statements to allow us to properly report our
      investment on the equity method, and we failed to properly record a
      component of the partnership investment accounted for using the
      equity method.
  In
addition, our independent registered public accounting firm, Eide Bailly, LLP,
has issued an attestation report, set forth below, that our internal control
over financial reporting was not effective as of February 28, 2009.
  Remediation
Plan to Address the Material Weaknesses in Internal Control over Financial
Reporting
  We are
planning on taking the following steps, which we believe are necessary to
address the issues associated with our material weaknesses over financial
footnote disclosures, which involve implementing process-focused changes to
improve the design and operation of the controls.  Such planned
changes include:
  ·
              Development
      and improved maintenance of internal controls regarding the accounting for
      investments in policies and in
partnerships,
  ·
              Development
      of a system for periodically reviewing internal control documents,
      revising and supplementing as needed, and documenting the
      review,
  ·
              Increased
      oversight and monitoring of accounting procedures and review of our
      financial statement and footnote disclosures by our outside accounting
      consultants, and,
  ·
              Use
      of standard financial regulation checklists for disclosure and
      presentation.
  We expect
the above mentioned changes in internal controls to be fully implemented by the
quarter ended August 31, 2009, and testing of our internal controls subsequent
to this date we believe will determine that the enhanced controls are operating
effectively.
  Changes
in Internal Control over Financial Reporting During the Fiscal Quarter Ended
February 28, 2009
  Subsequent
to the evaluation and through the date of this filing of Form 10-K for fiscal
year 2009, other than the material weaknesses noted above, during the fiscal
quarter ended February 28, 2009, there were no changes in our internal
control over financial reporting that have materially affected, or are
reasonable likely to materially affect, our internal control over financial
reporting.
  Report
of Independent Registered Public Accounting Firm
  To the
Board of Directors and Stockholders of Life Partners Holdings, Inc.
  We have
audited Life Partners Holdings, Inc.’s internal control over financial reporting
as of February 28, 2009, 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 Report on
Internal Control Over Financial Reporting.  Our responsibility is to
express an opinion on the company’s internal control over financial reporting
based on our audit.
  26
  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 of internal control over financial
reporting 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.
  A
material weakness is a control deficiency, or combination of deficiencies, in
internal control over financial reporting, such that there is a reasonable
possibility that a material misstatement of the Company’s annual or interim
financial statements will not be prevented or detected on a timely
basis.  The following material weaknesses have been identified and
included in management’s assessment.
  Life
Partners Holdings, Inc. lacked adequate financial oversight including
appropriate levels of monitoring and review.  Specifically, Life
Partners Holdings, Inc. did not have a systematic procedure for ensuring that
the disclosure and presentation of information in the financial statement
footnotes would be presented in accordance with accounting principles generally
accepted in the United States of America and the various regulatory
requirements.  Additionally, Life Partners Holdings, Inc. did not have
sufficient accounting oversight to ensure that the classification of all
financial information is presented in accordance with accounting principles
generally accepted in the United States of America.
  In
addition, Life Partners Holdings, Inc. lacked adequate internal controls to
ensure the proper accounting treatment and financial reporting for new, emerging
or non-routine business transactions, especially relating to the accounting for
and disclosure of its various investment activities, most notably, its
investments in life insurance policies and a limited partnership.
  These
material weaknesses were considered in determining the nature, timing, and
extent of audit tests applied in our audit of the February 28, 2009 financial
statements, and this report does not affect our report dated May 29, 2009 on
those financial statements.
  In our
opinion, because of the effect of the material weaknesses described above on the
achievement of the objectives of the control criteria, Life Partners Holdings,
Inc. has not maintained effective internal control over financial reporting as
of February 28, 2009, based on criteria established in Internal Control—Integrated
Framework issued by the Committee of Sponsoring Organizations of the
Treadway Commission (COSO).
  27
  We have
also audited, in accordance with the standards of the Public Company Accounting
Oversight Board (United States), the consolidated balance sheets and the related
consolidated statements of income, shareholders’ equity, and cash flows of Life
Partners Holdings, Inc., and our report dated May 29, 2009 expressed an
unqualified opinion.
  /s/ Eide
Bailly LLP
  Oklahoma
City, OK
 May 29,
2009
  Item
9b.  Other Information
  None.
  PART
III
  Item
10.  Directors and Executive Officers; Corporate
Governance
  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 28, 2009, February 29, 2008 and February
28, 2007 are included in this Annual Report beginning on
page 32.
  28
  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 Annual Report.
  29
  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
      29, 2009
                Life
      Partners Holdings, Inc.By:
                /s/
      Brian D.
      PardoBrian D. Pardo
                  President
      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
                            
                            President,
      Principal Executive
                            
                            May
      29, 2009Brian
      D. Pardo
                            
                            Officer,
      and Director/s/ David M. Martin
                            
                            Chief
      Financial Officer
                            
                            May
      29, 2009David
      M. Martin/s/ R. Scott Peden
                            
                            Secretary,
      Director
                            
                            May
      29, 2009R.
      Scott Peden/s/Tad
      Ballantyne
                            
                            Director
                            
                            May
      29, 2009Tad
      Ballantyne/s/ Harold Rafuse
                            
                            Director
                            
                            May
      29, 2009Harold
      Rafuse/s/  Fred Dewald
                            
                            Director
                            
                            May
      29, 2009Fred
      Dewald
  30


LIFE
PARTNERS HOLDINGS, INC.
 CONSOLIDATED
FINANCIAL STATEMENTS
 FEBRUARY
28, 2009, FEBRUARY 29, 2008 AND FEBRUARY 28, 2007
 
 Contents
 
 Reports
      of Independent Registered Public Accounting Firm
                              
                              
                              32-33Audited
      Consolidated Financial Statements:Consolidated
      Balance Sheets
                              
                              
                              34Consolidated
      Statements of Income
                              
                              
                              36Consolidated
      Statements of Shareholders’ Equity
                              
                              
                              37Consolidated
      Statements of Cash Flows
                              
                              
                              38Notes
      to Consolidated Financial Statements
                              
                              
                              39
  31
 
 REPORT
OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
  To the
Board of Directors and Stockholders of 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 the related consolidated
statements of income, cash flows and shareholders’ equity for each of the years
in the two-year period ended February 29, 2008.  These consolidated
financial statements are the responsibility of the 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
consolidated financial statements are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the consolidated 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, except for the error described in Note 17, 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 the consolidated results of their operations, cash
flows and shareholders’ equity for each of the years ended February 29, 2008,
and February 28, 2007, in conformity with U.S. generally accepted
accounting principles.
  We were
not engaged to audit, review, or apply any procedures to the adjustments for the
correction of the error described in Note 17 and, accordingly, we do not express
an opinion or any other form of assurance about whether such adjustments are
appropriate and have been properly applied.  Those adjustments were
audited by Eide Bailly LLP.
  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.
  /s/
Murrell, Hall, McIntosh & Co. PLLP
  Oklahoma
City, OK
 May 14,
2008
  32
 
 REPORT
OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
  To the
Board of Directors and Stockholders of Life Partners Holdings, Inc.
  We have
audited the accompanying consolidated balance sheet of Life Partners Holdings,
Inc. as of February 28, 2009, and the related consolidated statements of income,
shareholders’ equity, and cash flows for the year ended February 28, 2009. Life
Partners Holdings, Inc.’s management is responsible for these consolidated
financial statements. Our responsibility is to express an opinion on these
financial statements 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 audits to obtain reasonable assurance about whether the
consolidated financial statements are free of material misstatement. Our audit
of the consolidated financial statements included examining, on a test basis,
evidence supporting the amounts and disclosures in the consolidated financial
statements, assessing the accounting principles used and significant estimates
made by management. We believe that our audit provides a reasonable basis for
our opinion.
  In our
opinion, the consolidated financial statements referred to above present fairly,
in all material respects, the financial position of Life Partners Holdings, Inc.
as of February 28, 2009, and the results of its operations and its cash flows
for the year ended February 28, 2009 in conformity with accounting principles
generally accepted in the United States of America.
  We also
audited the adjustments described in Note 17 that were applied to restate the
February 29, 2008 consolidated financial statements.  As discussed in
Note 17 to the consolidated financial statements, Life Partners Holdings, Inc.
has restated its February 29, 2008 consolidated balance sheet and statement of
cash flows for the year then ended to correct errors in its classification of
cash and cash equivalents and investments.  In our opinion, such
adjustments are appropriate and have been properly applied.
  We have
also audited, in accordance with the standards of the Public Company Accounting
Oversight Board (United States), Life Partners Holdings, Inc.’s internal control
over financial reporting as of February 28, 2009 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 29,
2009, expressed an adverse opinion on the Company’s internal control over
financial reporting.
  /s/ Eide
Bailly LLP
 
 Oklahoma
City, OK
 May 29,
2009
  33
 
 LIFE
PARTNERS HOLDINGS, INC.
 CONSOLIDATED
BALANCE SHEETS
 FEBRUARY
28, 2009 AND FEBRUARY 29, 2008
 
 Page
1 of  2
  ASSETS
 
 Feb.
      28, 2009
                
                
                Feb.
      29, 2008(Restated)CURRENT
      ASSETS:Cash
      and cash equivalents
                
                $
                15,261,217
                
                
                $
                7,112,547Certificates
      of deposit
                
                
                3,033,603
                
                
                
                1,084,952Accounts
      receivable - trade
                
                
                10,057,386
                
                
                
                11,514,717Accounts
      receivable - employees
                
                
                51,731
                
                
                
                62,913Accounts
      receivable – others
                
                
                105,417
                
                
                
                118,716Notes
      receivable
                
                
                554,918
                
                
                
                525,000Prepaid
      expenses
                
                
                141,286
                
                
                
                495,645Total
      current assets
                
                
                29,205,558
                
                
                
                20,914,490PROPERTY
      AND EQUIPMENT:Land
      and building
                
                
                2,131,285
                
                
                
                2,163,252Proprietary
      software
                
                
                499,046
                
                
                
                421,187Machinery
      and equipment
                
                
                1,298,599
                
                
                
                930,757Transportation
      equipment
                
                
                9,800
                
                
                
                145,3003,938,730
                
                
                
                3,660,496Accumulated
      depreciation
                
                
                (1,344,243
                )
                
                
                (1,140,851
                )2,594,487
                
                
                
                2,519,645OTHER
      ASSETS:Premium
      advances, net of reserve for uncollectable of
                    $5,416,621
      in 2009 and $4,304,062 in 2008
                
                
                -
                
                
                
                -Investment
      in securities
                
                
                2,704,063
                
                
                
                4,568,494Investment
      in policies
                
                
                8,878,715
                
                
                
                1,017,201Investment
      in partnership
                
                
                4,935,875
                
                
                
                -Other
                
                
                831,700
                
                
                
                831,700Deferred
      income taxes
                
                
                3,227,427
                
                
                
                2,010,42720,577,780
                
                
                
                8,427,822Total
      Assets
                
                $
                52,377,825
                
                
                $
                31,861,957
 
 See the
accompanying summary of accounting policies and notes to the consolidated
financial statements.
  34
  LIFE
PARTNERS HOLDINGS, INC.
 CONSOLIDATED
BALANCE SHEETS
 FEBRUARY
28, 2009 AND FEBRUARY 29, 2008
 
 Page
2 of 2
  LIABILITIES
AND SHAREHOLDERS' EQUITY
 
 Feb.
      28, 2009
                
                
                Feb.
      29, 2008(Restated)CURRENT
      LIABILITIES:Accounts
      payable
                
                $
                5,068,961
                
                
                $
                5,828,152Accrued
      liabilities
                
                
                527,126
                
                
                
                461,508Dividends
      payable
                
                
                1,043,316
                
                
                
                698,668Accrued
      settlement expense
                
                
                462,341
                
                
                
                482,792Current
      portion of long-term debt
                
                
                42,717
                
                
                
                97,338Short-term
      notes payable
                
                
                -
                
                
                
                1,621Deferred
      revenue
                
                
                227,300
                
                
                
                268,850Income
      taxes payable
                
                
                244,333
                
                
                
                178,0707,616,094
                
                
                
                8,016,999LONG-TERM
      DEBT, net of current portion shown above
                
                
                736,356
                
                
                
                1,067,513SHAREHOLDERS'
      EQUITY:Common
      stock, $0.01 par value 18,750,000 sharesauthorized;
      15,024,354 shares issued and outstanding
                
                
                150,243
                
                
                
                150,243Additional
      paid-in capital
                
                
                11,460,311
                
                
                
                11,460,311Retained
      earnings
                
                
                36,348,525
                
                
                
                12,865,732Accumulated
      other comprehensive loss
                
                
                (2,298,640
                )
                
                
                (762,828
                )Less:
      Treasury stock – 165,338 shares
                
                
                (1,635,064
                )
                
                
                (936,013
                )Total
      shareholders’ equity
                
                
                44,025,375
                
                
                
                22,777,445Total
      liabilities and shareholders’ equity
                
                $
                52,377,825
                
                
                $
                31,861,957
 
 See the
accompanying summary of accounting policies and notes to the consolidated
financial statements.
  35
 
 LIFE
PARTNERS HOLDINGS, INC.
 CONSOLIDATED
STATEMENTS OF INCOME
 FOR
THE YEARS ENDED FEBRUARY 28, 2009, FEBRUARY 29, 2008 AND FEBRUARY 28,
2007
 
 2009
                                                                                
                                                                                
                                                                                2008
                                                                                
                                                                                
                                                                                2007REVENUES
                                                                                
                                                                                $
                                                                                103,614,440
                                                                                
                                                                                
                                                                                $
                                                                                72,609,255
                                                                                
                                                                                
                                                                                $
                                                                                29,795,323BROKERAGE
      FEES
                                                                                
                                                                                
                                                                                49,193,863
                                                                                
                                                                                
                                                                                
                                                                                35,786,521
                                                                                
                                                                                
                                                                                
                                                                                17,564,122REVENUES,
      NET OF BROKERAGE FEES
                                                                                
                                                                                
                                                                                54,420,577
                                                                                
                                                                                
                                                                                
                                                                                36,822,734
                                                                                
                                                                                
                                                                                
                                                                                12,231,201OPERATING
      AND ADMINISTRATIVE EXPENSES:General
      and administrative
                                                                                
                                                                                
                                                                                11,016,197
                                                                                
                                                                                
                                                                                
                                                                                8,186,195
                                                                                
                                                                                
                                                                                
                                                                                6,822,105Premium
      advances, net
                                                                                
                                                                                
                                                                                1,444,476
                                                                                
                                                                                
                                                                                
                                                                                978,767
                                                                                
                                                                                
                                                                                
                                                                                852,376Settlement
      costs
                                                                                
                                                                                
                                                                                1,382,140
                                                                                
                                                                                
                                                                                
                                                                                173,954
                                                                                
                                                                                
                                                                                
                                                                                415,312Depreciation
      and amortization
                                                                                
                                                                                
                                                                                338,892
                                                                                
                                                                                
                                                                                
                                                                                325,279
                                                                                
                                                                                
                                                                                
                                                                                234,13614,181,705
                                                                                
                                                                                
                                                                                
                                                                                9,664,195
                                                                                
                                                                                
                                                                                
                                                                                8,323,929INCOME
      FROM OPERATIONS
                                                                                
                                                                                
                                                                                40,238,872
                                                                                
                                                                                
                                                                                
                                                                                27,158,539
                                                                                
                                                                                
                                                                                
                                                                                3,907,272OTHER
      INCOME (EXPENSES):Interest
      and other income
                                                                                
                                                                                
                                                                                1,804,290
                                                                                
                                                                                
                                                                                
                                                                                1,656,204
                                                                                
                                                                                
                                                                                
                                                                                957,363Interest
      expense
                                                                                
                                                                                
                                                                                (61,182
                                                                                )
                                                                                
                                                                                
                                                                                (162,508
                                                                                )
                                                                                
                                                                                
                                                                                (207,238
                                                                                )Loss
      on investment in partnership
                                                                                
                                                                                
                                                                                (64,125
                                                                                )
                                                                                
                                                                                
                                                                                -
                                                                                
                                                                                
                                                                                
                                                                                -Impairment
      of partnership
                                                                                
                                                                                
                                                                                -
                                                                                
                                                                                
                                                                                
                                                                                -
                                                                                
                                                                                
                                                                                
                                                                                (123,149
                                                                                )Realized
      gain on investments
                                                                                
                                                                                
                                                                                -
                                                                                
                                                                                
                                                                                
                                                                                39,523
                                                                                
                                                                                
                                                                                
                                                                                173,0041,678,983
                                                                                
                                                                                
                                                                                
                                                                                1,533,219
                                                                                
                                                                                
                                                                                
                                                                                799,980INCOME
      BEFORE INCOME TAXES
                                                                                
                                                                                
                                                                                41,917,855
                                                                                
                                                                                
                                                                                
                                                                                28,691,758
                                                                                
                                                                                
                                                                                
                                                                                4,707,252INCOME
      TAXES:Current
      tax expense
                                                                                
                                                                                
                                                                                15,144,333
                                                                                
                                                                                
                                                                                
                                                                                10,220,070
                                                                                
                                                                                
                                                                                
                                                                                1,677,439Deferred
      tax benefit
                                                                                
                                                                                
                                                                                (385,594
                                                                                )
                                                                                
                                                                                
                                                                                (284,583
                                                                                )
                                                                                
                                                                                
                                                                                (330,417
                                                                                )14,758,739
                                                                                
                                                                                
                                                                                
                                                                                9,935,487
                                                                                
                                                                                
                                                                                
                                                                                1,347,022NET
      INCOME
                                                                                
                                                                                $
                                                                                27,159,116
                                                                                
                                                                                
                                                                                $
                                                                                18,756,271
                                                                                
                                                                                
                                                                                $
                                                                                3,360,230EARNINGS:Per
      share -  Basic and Diluted
                                                                                
                                                                                $
                                                                                1.83
                                                                                
                                                                                
                                                                                $
                                                                                1.25
                                                                                
                                                                                
                                                                                $
                                                                                0.23AVERAGE
      COMMON AND COMMON EQUIVALENT SHARES OUTSTANDING:Basic
                                                                                
                                                                                
                                                                                14,866,167
                                                                                
                                                                                
                                                                                
                                                                                14,993,434
                                                                                
                                                                                
                                                                                
                                                                                14,762,311Diluted
                                                                                
                                                                                
                                                                                14,866,167
                                                                                
                                                                                
                                                                                
                                                                                14,993,910
                                                                                
                                                                                
                                                                                
                                                                                14,771,905THE
      COMPONENTS OF COMPREHENSIVE INCOME:Net
      income
                                                                                
                                                                                $
                                                                                27,159,116
                                                                                
                                                                                
                                                                                $
                                                                                18,756,271
                                                                                
                                                                                
                                                                                $
                                                                                3,360,230Unrealized
      gain (loss) on investment securities net of taxes
                                                                                
                                                                                
                                                                                (1,535,812
                                                                                )
                                                                                
                                                                                
                                                                                (729,902
                                                                                )
                                                                                
                                                                                
                                                                                208,534COMPREHENSIVE
      INCOME
                                                                                
                                                                                $
                                                                                25,623,304
                                                                                
                                                                                
                                                                                $
                                                                                18,026,369
                                                                                
                                                                                
                                                                                $
                                                                                3,568,764BASIC
      AND DILUTED EARNINGS PER SHARE:Comprehensive
      income
                                                                                
                                                                                $
                                                                                1.72
                                                                                
                                                                                
                                                                                $
                                                                                1.20
                                                                                
                                                                                
                                                                                $
                                                                                0.24
  See the
accompanying summary of accounting policies and notes to the consolidated
financial statements
  36
  LIFE
PARTNERS HOLDINGS, INC.
 CONSOLIDATED
STATEMENTS OF SHAREHOLDERS' EQUITY
 FOR
THE YEARS ENDED FEBRUARY 28, 2009, FEBRUARY 29, 2008 AND FEBRUARY 28,
2007
 
 Common
      Stock
                                  
                                  
                                  Treasury
      StockNumber
      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’
                                    EquityBalance, February
      28, 2006
                                  
                                  
                                  15,024,354
                                  
                                  
                                  $
                                  150,243
                                  
                                  
                                  $
                                  10,554,311
                                  
                                  
                                  $
                                  (4,575,281
                                  )
                                  
                                  $
                                  (241,460
                                  )
                                  
                                  $
                                  (372,141
                                  )
                                  
                                  
                                  294,426
                                  
                                  
                                  $
                                  -
                                  
                                  
                                  $
                                  5,515,672Dividends
      declared
                                  
                                  
                                  -
                                  
                                  
                                  
                                  -
                                  
                                  
                                  
                                  -
                                  
                                  
                                  
                                  (1,984,913
                                  )
                                  
                                  
                                  -
                                  
                                  
                                  
                                  -
                                  
                                  
                                  
                                  -
                                  
                                  
                                  
                                  -
                                  
                                  
                                  
                                  (1,984,913
                                  )Other
      comprehensive gain
                                  
                                  
                                  -
                                  
                                  
                                  
                                  -
                                  
                                  
                                  
                                  -
                                  
                                  
                                  
                                  -
                                  
                                  
                                  
                                  208,534
                                  
                                  
                                  
                                  -
                                  
                                  
                                  
                                  -
                                  
                                  
                                  
                                  -
                                  
                                  
                                  
                                  208,534Shares
      issued to IGE shareholder
                                  
                                  
                                  -
                                  
                                  
                                  
                                  -
                                  
                                  
                                  
                                  -
                                  
                                  
                                  
                                  -
                                  
                                  
                                  
                                  -
                                  
                                  
                                  
                                  -
                                  
                                  
                                  
                                  (1,562
                                  )
                                  
                                  
                                  -
                                  
                                  
                                  
                                  -Options
      exercised
                                  
                                  
                                  -
                                  
                                  
                                  
                                  -
                                  
                                  
                                  
                                  606,000
                                  
                                  
                                  
                                  -
                                  
                                  
                                  
                                  -
                                  
                                  
                                  
                                  -
                                  
                                  
                                  
                                  (156,250
                                  )
                                  
                                  
                                  -
                                  
                                  
                                  
                                  606,000Net
      income for the year ended February 28, 2007
                                  
                                  
                                  -
                                  
                                  
                                  
                                  -
                                  
                                  
                                  
                                  -
                                  
                                  
                                  
                                  3,360,230
                                  
                                  
                                  
                                  -
                                  
                                  
                                  
                                  -
                                  
                                  
                                  
                                  -
                                  
                                  
                                  
                                  -
                                  
                                  
                                  
                                  3,360,230Balance, February
      28, 2007
                                  
                                  
                                  15,024,354
                                  
                                  
                                  $
                                  150,243
                                  
                                  
                                  $
                                  11,160,311
                                  
                                  
                                  $
                                  (3,199,964
                                  )
                                  
                                  $
                                  (32,926
                                  )
                                  
                                  $
                                  (372,141
                                  )
                                  
                                  
                                  136,614
                                  
                                  
                                  $
                                  -
                                  
                                  
                                  $
                                  7,705,523Dividends
      declared
                                  
                                  
                                  -
                                  
                                  
                                  
                                  -
                                  
                                  
                                  
                                  -
                                  
                                  
                                  
                                  (2,690,575
                                  )
                                  
                                  
                                  -
                                  
                                  
                                  
                                  -
                                  
                                  
                                  
                                  -
                                  
                                  
                                  
                                  -
                                  
                                  
                                  
                                  (2,690,575
                                  )Other
      comprehensive loss
                                  
                                  
                                  -
                                  
                                  
                                  
                                  -
                                  
                                  
                                  
                                  -
                                  
                                  
                                  
                                  -
                                  
                                  
                                  
                                  (729,902
                                  )
                                  
                                  
                                  -
                                  
                                  
                                  
                                  -
                                  
                                  
                                  
                                  -
                                  
                                  
                                  
                                  (729,902
                                  )Options
      exercised
                                  
                                  
                                  -
                                  
                                  
                                  
                                  -
                                  
                                  
                                  
                                  300,000
                                  
                                  
                                  
                                  -
                                  
                                  
                                  
                                  -
                                  
                                  
                                  
                                  -
                                  
                                  
                                  
                                  (78,125
                                  )
                                  
                                  
                                  -
                                  
                                  
                                  
                                  300,000Foreclosure
      on Texas 50 note for stock
                                  
                                  
                                  -
                                  
                                  
                                  
                                  -
                                  
                                  
                                  
                                  -
                                  
                                  
                                  
                                  -
                                  
                                  
                                  
                                  -
                                  
                                  
                                  
                                  372,141
                                  
                                  
                                  
                                  16,010
                                  
                                  
                                  
                                  (372,141
                                  )
                                  
                                  
                                  -Purchase
      of treasury stock
                                  
                                  
                                  -
                                  
                                  
                                  
                                  -
                                  
                                  
                                  
                                  -
                                  
                                  
                                  
                                  -
                                  
                                  
                                  
                                  -
                                  
                                  
                                  
                                  -
                                  
                                  
                                  
                                  39,930
                                  
                                  
                                  
                                  (563,872
                                  )
                                  
                                  
                                  (563,872
                                  )Shares
      issued to IGE shareholder
                                  
                                  
                                  -
                                  
                                  
                                  
                                  -
                                  
                                  
                                  
                                  -
                                  
                                  
                                  
                                  -
                                  
                                  
                                  
                                  -
                                  
                                  
                                  
                                  -
                                  
                                  
                                  
                                  (15
                                  )
                                  
                                  
                                  
                                  
                                  
                                  
                                  -Net
      income for the year ended February 29, 2008
                                  
                                  
                                  -
                                  
                                  
                                  
                                  -
                                  
                                  
                                  
                                  -
                                  
                                  
                                  
                                  18,756,271
                                  
                                  
                                  
                                  -
                                  
                                  
                                  
                                  -
                                  
                                  
                                  
                                  -
                                  
                                  
                                  
                                  -
                                  
                                  
                                  
                                  18,756,271Balance,  February
      29, 2008
                                  
                                  
                                  15,024,354
                                  
                                  
                                  $
                                  150,243
                                  
                                  
                                  $
                                  11,460,311
                                  
                                  
                                  $
                                  12,865,732
                                  
                                  
                                  $
                                  (762,828
                                  )
                                  
                                  $
                                  -
                                  
                                  
                                  
                                  114,414
                                  
                                  
                                  $
                                  (936,013
                                  )
                                  
                                  $
                                  22,777,445Dividends
      declared
                                  
                                  
                                  -
                                  
                                  
                                  
                                  -
                                  
                                  
                                  
                                  -
                                  
                                  
                                  
                                  (3,676,323
                                  )
                                  
                                  
                                  -
                                  
                                  
                                  
                                  -
                                  
                                  
                                  
                                  -
                                  
                                  
                                  
                                  -
                                  
                                  
                                  
                                  (3,676,323
                                  )Other
      comprehensive loss
                                  
                                  
                                  -
                                  
                                  
                                  
                                  -
                                  
                                  
                                  
                                  -
                                  
                                  
                                  
                                  -
                                  
                                  
                                  
                                  (1,535,812
                                  )
                                  
                                  
                                  -
                                  
                                  
                                  
                                  -
                                  
                                  
                                  
                                  -
                                  
                                  
                                  
                                  (1,535,812
                                  )Purchase
      of treasury stock
                                  
                                  
                                  -
                                  
                                  
                                  
                                  -
                                  
                                  
                                  
                                  -
                                  
                                  
                                  
                                  -
                                  
                                  
                                  
                                  -
                                  
                                  
                                  
                                  -
                                  
                                  
                                  
                                  50,924
                                  
                                  
                                  
                                  (699,051
                                  )
                                  
                                  
                                  (699,051
                                  )Net
      income for the year ended February 28, 2009
                                  
                                  
                                  -
                                  
                                  
                                  
                                  -
                                  
                                  
                                  
                                  -
                                  
                                  
                                  
                                  27,159,116
                                  
                                  
                                  
                                  -
                                  
                                  
                                  
                                  -
                                  
                                  
                                  
                                  -
                                  
                                  
                                  
                                  -
                                  
                                  
                                  
                                  27,159,116Balance,  February
      28, 2009
                                  
                                  
                                  15,024,354
                                  
                                  
                                  $
                                  150,243
                                  
                                  
                                  $
                                  11,460,311
                                  
                                  
                                  $
                                  36,348,525
                                  
                                  
                                  $
                                  (2,298,640
                                  )
                                  
                                  $
                                  -
                                  
                                  
                                  
                                  165,338
                                  
                                  
                                  $
                                  (1,635,064
                                  )
                                  
                                  $
                                  44,025,375
 
 See the
accompanying summary of accounting policies and notes to the consolidated
financial statements.
  37
 
 LIFE
PARTNERS HOLDINGS, INC.
 CONSOLIDATED
STATEMENTS OF CASH FLOWS
 FOR
THE YEARS ENDED FEBRUARY 28, 2009, FEBRUARY 29, 2008 AND FEBRUARY 28,
2007
  2009
                
                
                2008
                
                
                2007(Restated)CASH
      FLOWS FROM OPERATING ACTIVITIES:Net
      income
                
                $
                27,159,116
                
                
                $
                18,756,271
                
                
                $
                3,360,230Adjustments
      to reconcile net income to operating activities:Depreciation
                
                
                338,892
                
                
                
                325,279
                
                
                
                234,136Loss
      on investment in partnership
                
                
                64,125
                
                
                
                -
                
                
                
                663,344Gain
      on asset disposals
                
                
                -
                
                
                
                (61,538
                )
                
                
                -Impairment
      of investment in policies
                
                
                151,810
                
                
                
                -
                
                
                
                -(Increase)
      decrease in operating assets:Accounts
      receivable
                
                
                1,481,812
                
                
                
                (6,704,623
                )
                
                
                (2,849,728
                )Notes
      receivable
                
                
                (29,918
                )
                
                
                (425,000
                )
                
                
                -Prepaid
      expenses
                
                
                354,359
                
                
                
                (383,928
                )
                
                
                145,815Deferred
      income taxes
                
                
                (385,594
                )
                
                
                (284,583
                )
                
                
                (330,417
                )Increase
      (decrease) in operating liabilities:Accounts
      payable
                
                
                (759,191
                )
                
                
                1,568,755
                
                
                
                2,481,824Accrued
      liabilities
                
                
                65,618
                
                
                
                134,359
                
                
                
                (402,403
                )Accrued
      settlement expense
                
                
                (20,451
                )
                
                
                (332,594
                )
                
                
                259,969Income
      taxes payable
                
                
                66,263
                
                
                
                (520,128
                )
                
                
                581,239Deferred
      revenue
                
                
                (41,550
                )
                
                
                12,450
                
                
                
                11,400Net
      cash provided by operating activities
                
                
                28,445,291
                
                
                
                12,084,720
                
                
                
                4,155,409CASH
      FLOWS FROM INVESTING ACTIVITIES:Investment
      in certificates of deposit
                
                
                (1,948,651
                )
                
                
                (1,084,952
                )
                
                
                -Investment
      in marketable securities
                
                
                (502,787
                )
                
                
                (1,727,440
                )
                
                
                (53,170
                )Purchases
      of property and equipment
                
                
                (413,734
                )
                
                
                (2,380,558
                )
                
                
                (98,554
                )Proceeds
      from sale of property and equipment
                
                
                -
                
                
                
                900,000
                
                
                
                -Purchase
      of policies for investment purposes and capitalized
    premiums
                
                
                (8,013,324
                )
                
                
                (464,212
                )
                
                
                (89,775
                )Investment
      in partnership
                
                
                (5,000,000
                )
                
                
                -
                
                
                
                -Purchases
      of artifacts
                
                
                -
                
                
                
                (110,000
                )
                
                
                -Net
      cash used in investing activities
                
                
                (15,878,496
                )
                
                
                (4,867,162
                )
                
                
                (241,499
                )CASH
      FLOWS FROM FINANCING ACTIVITIES:Proceeds
      from notes payable
                
                
                2,000,000
                
                
                
                2,289,226
                
                
                
                -Payments
      on notes payable
                
                
                (2,387,399
                )
                
                
                (3,206,168
                )
                
                
                (761,849
                )Stock
      options exercised
                
                
                -
                
                
                
                300,000
                
                
                
                606,000Purchases
      of treasury shares
                
                
                (699,051
                )
                
                
                (563,872
                )
                
                
                -Dividends
      paid
                
                
                (3,331,675
                )
                
                
                (2,445,218
                )
                
                
                (2,024,279
                )Net
      cash used in financing activities
                
                
                (4,418,125
                )
                
                
                (3,626,032
                )
                
                
                (2,180,128
                )NET
      INCREASE IN CASH AND CASH EQUIVALENTS
                
                
                8,148,670
                
                
                
                3,591,526
                
                
                
                1,733,782CASH
      AND CASH EQUIVALENTS, BEGINNING OF PERIOD
                
                
                7,112,547
                
                
                
                3,521,021
                
                
                
                1,787,239CASH
      AND CASH EQUIVALENTS, END OF PERIOD
                
                $
                15,261,217
                
                
                $
                7,112,547
                
                
                $
                3,521,021SUPPLEMENTAL
      DISCLOSURES OF CASH FLOW INFORMATION:Interest
      paid, net of capitalized amounts
                
                $
                61,182
                
                
                $
                162,508
                
                
                $
                493,651Income
      taxes paid
                
                $
                15,078,000
                
                
                $
                10,024,198
                
                
                $
                1,032,381SUPPLEMENTAL
      DISCLOSURES OF NONCASH ITEMS:Accrued
      interest receivable
                
                $
                29,918
                
                
                $
                -
                
                
                $
                -Unrealized
      gain (loss) on marketable securities
                
                $
                (1,535,812
                )
                
                $
                (729,902
                )
                
                $
                208,534Dividends
      declared and not paid by period end
                
                $
                1,040,131
                
                
                $
                717,633
                
                
                $
                453,311
  See
accompanying summary of accounting policies and notes to consolidated financial
statements.
  38
  (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:
  Reclassifications.Certain
reclassifications have been made to the prior periods’ financial statements to
conform to the current year presentation.  The reclassifications had
no effect on previously reported results of operations or retained
earnings.
  Cash and Cash
Equivalents.  For purposes of the balance sheet and statement
of cash flows, we consider all highly liquid investments available for current
use with an original maturity of three months or less to be cash
equivalents.  Any investments with an original maturity of three
months or more are classified as Certificates of Deposit.  The average
balance of our general checking account balance is generally in excess of
$250,000.  The Federal Deposit Insurance Corporation (FDIC) currently
insures all bank accounts up to $250,000, with unlimited coverage on
non-interest bearing accounts.  The FDIC coverage in fiscal 2008 was
$100,000.  The amount of our cash accounts in excess of the FDIC
insurance limit at February 28, 2009, and February 29, 2008, was $13,289,475 and
$6,594,775, respectively.  Amounts in interest bearing accounts which
are in excess of $250,000 are at risk to the extent that their balances exceed
FDIC coverage.  Money market investments do not have FDIC
protection.  We believe we have mitigated our exposure to loss with
deposits in a combination of two smaller, local banks and three of the largest
national financial institutions.
  Certificates of
Deposit.Certificates of deposit are held in several banking
institutions.  Their original maturities are greater than 3 months but
do not exceed a year.  The FDIC currently insures all bank accounts up
to $250,000, with unlimited coverage on non-interest bearing
accounts.  The FDIC coverage in fiscal 2008 was
$100,000.  The amount of our certificate of deposit accounts in excess
of the FDIC insurance limit at February 28, 2009, and February 29, 2008, was
$1,933,244 and $984,952, respectively.
  Accounts Receivable –
Trade.  The amounts shown on the balance sheet termed Accounts
Receivable – Trade are amounts reflecting transactions that have closed, and
revenue has been recognized, before the final funds are received to settle the
transactions.  We also sometimes make non-interest bearing advances to
facilitate a settlement transaction.  We collect the advances
generally within 30 days after the transactions close, and we receive payment
before any of the parties involved in the transaction receive
funds.  Our business model does not use leverage, so there are no
issues of collectability or adverse effects due to the current credit
environment.  The receivable amounts at February 28, 2009, and
February 29, 2008, were $10,057,386 and $11,514,717, respectively.
  Notes
Receivable.  The amounts shown on the balance sheet termed
Notes Receivable represent a note, including interest at 5%, with a non-related
partnership originally dated January 8, 2008 and renewed with a guaranty and
security agreement on January 23, 2009.  The due date was February 28,
2009.  Although not collected by February 28, 2009, we believe this
note is fully recoverable within the next fiscal period.  The amounts,
including accrued interest, at February 28, 2009, and February 29, 2008, were
$554,918 and $525,000, respectively.
  Property and
Equipment.  Our property and equipment are depreciated over
their estimated useful lives using the straight-line
method.  Depreciation expense for the years ending February 28, 2009,
February 29, 2008 and February 28, 2007 were $338,892, $325,279 and $234,136,
respectively.  The useful lives of property and equipment for purposes
of computing depreciation are:
  39
 
 Building
      and components
                        7
      to 39 yearsMachinery
      and equipment
                        5
      to 7 yearsSoftware
                        3
      to 7 yearsTransportation
      equipment
                        5
      years
  Premium
Advances.  We record premium advances as an asset but reserve
100% of the balance due to the uncertainty of when the advances will be
collected.  We believe that the vast majority of the advances will
eventually be collected either through direct repayments from purchasers or at
the time when the policies mature.  The asset is related to ongoing
policies, most of which will require ongoing premium payments until
maturity.  Our current financial condition, cash flows and the general
legislative environment is stable and positive.  If these
circumstances were adversely impacted, collection of premium advances could be
adversely impacted as well.  When premium advances are repaid, the
repayments are offset against the premium expense.  During fiscal
2009, 2008 and 2007, we made premium advances of $1,916,693, $1,195,018 and
$1,242,314, respectively, and were reimbursed $472,217, $216,251 and $389,938,
respectively.  We have not experienced any material changes in our
estimates of collectability versus actual results in the current or prior
periods.
  Investment in
Policies.  From time to time, we purchase interests in policies
to hold for investment purposes.  FASB Staff Position No. 85-4-1
Accounting for Life Settlement
Contracts by Third-Party Investors (FSP FTB 85-4-1) states that a
purchaser 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
replaced FASB Technical Bulletin 85-4, which essentially required that we record
the excess of the purchase price over the cash surrender value as expense when
purchasing policies for our own account.  The balance of Investment in
Policies is routinely tested for impairment and valued accordingly.
  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 28, 2009 and 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 28, 2009,
there was $151,810 of impairment.  As of February 29, 2008, no
impairment had been recorded.
  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 $100 per viatical settlement and $200 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.
  40
  Income Taxes.  The
Company recognizes deferred tax assets and liabilities for the expected future
tax consequences of transactions and events.  Under this method,
deferred tax assets and liabilities are determined based on the difference
between the financial statement and tax bases of assets and liabilities using
enacted tax rates in effect for the year in which the differences are expected
to reverse.  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, recorded at
amounts expected to be more likely than not recoverable.  See Note 10
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 2009 and 2008, compensation to a
single licensee organization represented 20% of all brokerage and referral fees
in each year.  In fiscal 2009 and 2008, compensation to one broker
represented 20% and 39%, respectively, of all brokerage and referral
fees.
  (3)
NEW ACCOUNTING PRONOUNCEMENTS
  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 Generally Accepted
Accounting Principles (“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, 2007.  Effective March 1,
2008, management adopted SFAS 157 with the exception of certain non-financial
assets and non-financial liabilities that were specifically deferred by SFAS
No. 157-2.  In February 2008, the FASB issued Staff Position
No. SFAS 157-2 (FSP No.157-2), Effective Date of FASB StatementNo.157, that defers the
effective date of SFAS 157 for one year for certain nonfinancial assets and
nonfinancial liabilities.  SFAS 157-2 is effective for certain
nonfinancial assets and nonfinancial liabilities for financial statements issued
for fiscal years beginning after November 15, 2008.  Management
is assessing the impact of the adoption of SFAS 157-2.  It is not
anticipated that SFAS 157-2 will have a material impact on our financial
condition, 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”).  SFAS 159
permits entities to choose to measure many financial instruments and certain
other items at fair value.  The standard also establishes presentation
and disclosure requirements designed to facilitate comparison between entities
that choose different measurement attributes for similar types of assets and
liabilities.  If the fair value option is elected, the effect of the
first re-measurement to fair value is reported as a cumulative effect adjustment
to the opening balance of retained earnings.  The statement is applied
prospectively upon adoption.  We did not elect fair value treatment
for any assets or liabilities under SFAS 159 as of February 28,
2009.
  41
  In
December 2007, the FASB issued Statement No. 160, Non-Controlling Interests in Consolidated
Financial Statements—an amendment of ARBNo.51.  SFAS
No. 160, among other things, provides guidance and establishes amended
accounting and reporting standards for a parent company’s non-controlling
interest in a subsidiary.  SFAS No. 160 is effective for fiscal
years beginning on or after December 15, 2008.  The Company is
currently analyzing the impact this SFAS will have on its financial
statements.
  In
March 2008, the FASB issued Statement No. 161, Disclosures about Derivative
Instruments and Hedging Activities(“SFAS
161”).  SFAS No. 161 expands the disclosure requirements
in SFAS No. 133, Accounting for Derivative
Instruments and Hedging Activities about an entity’s derivative
instruments and hedging activities.  SFAS No. 161 is effective
for financial statements issued for fiscal years and interim periods beginning
after November 15, 2008.  We currently have no derivatives
and hedging activities and do not expect the adoption of SFAS No. 161 to
have a material impact on our financial condition, results of operations or cash
flows.
  In May
2008, the FASB issued Statement No. 162, The Hierarchy of Generally Accepted
Accounting Principles (“SFAS 162”).  FAS 162 identifies the
sources of accounting principles and the framework for selecting the principles
to be used in the preparation of financial statements of nongovernmental
entities that are presented in conformity with GAAP.  SFAS 162 directs
the GAAP hierarchy to the entity, not the independent auditors, as the entity is
responsible for selecting accounting principles for financial statements that
are presented in conformity with GAAP.  SFAS 162 became effective
60 days following the SEC’s approval of the Public Company Accounting Oversight
Board amendments to remove the GAAP hierarchy from the auditing standards, which
was November 15, 2008.  SFAS 162 does not have a material impact on
our financial condition, results of operations or cash flows.
  On April
9, 2009, FASB issued FSP No. 115-2 and FAS 124-2, Recognition and Presentation of
Other-Than-Temporary Impairments.  This FSP amends the
other-than-temporary impairment guidance in U.S. GAAP for debt securities to
make the guidance more operational and to improve the presentation and
disclosure of the other-than-temporary impairments on debt and equity securities
in the financial statements.  The FSP is effective for interim and
annual reporting periods ending after June 15, 2009.  The Company is
currently analyzing the impact this FSP will have on its financial
statements.
  In June 2006, the
Financial Accounting Standards Board (FASB) issued 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 on March 1, 2007, did not have a material effect on our
financial condition, results of operations or cash flows.
  42
  (4)
INVESTMENTS IN SECURITIES
  Our
securities investments are income and equity mutual funds and are classified as
investments in securities.  Investments in securities are recorded at
fair value on the balance sheet in other assets, with the unrealized change in
fair value during the period included in equity.
  Securities
investments that we have the positive intent and ability to hold to maturity are
classified as held-to-maturity securities and are 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.
  Our
securities investments had unrealized losses of $3,536,667 and $1,169,255 at
February 28, 2009, and February 29, 2008, respectively.  The tax
effect of these unrealized losses for the years ended February 28, 2009, and
February 29, 2008, was $831,600 and $308,651, respectively.  Based on
our analysis of these securities, we have concluded that the gross unrealized
losses are temporary in nature.  However, facts and circumstances may
change which could result in a decline in market value considered to be other
than temporary.
  The cost
and estimated market value of the investment securities classified as
available-for-sale as of February 28, 2009, and February 29, 2008 are as
follows:
  Cost
                    Basis
                  
                  
                  Gross
                    Unrealized
                    Gains
                  
                  
                  Gross
                    Unrealized
                    Losses
                  
                  
                  Recorded
                    BasisMarket
      income funds as of 2/28/2009
                  
                  $
                  6,240,730
                  
                  
                  $
                  -
                  
                  
                  $
                  3,536,667
                  
                  
                  $
                  2,704,063Market
      income funds as of 2/29/2008
                  
                  $
                  5,737,749
                  
                  
                  $
                  -
                  
                  
                  $
                  1,169,255
                  
                  
                  $
                  4,568,494
  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 28, 2009, and
February 29, 2008:
  Less than 12 Months
                                          
                                          
                                          12 Months or More
                                          
                                          
                                          TotalDescription of Securities
                                          
                                          Fair
                                            Value
                                          
                                          
                                          Unrealized
                                            Losses
                                          
                                          
                                          Fair
                                            Value
                                          
                                          
                                          Unrealized
                                            Losses
                                          
                                          
                                          Fair
                                            Value
                                          
                                          
                                          Unrealized
                                            LossesAs
      of February 28, 2009Market
      income funds
                                          
                                          $
                                          355,715
                                          
                                          
                                          $
                                          147,267
                                          
                                          
                                          $
                                          2,348,348
                                          
                                          
                                          $
                                          3,389,400
                                          
                                          
                                          $
                                          2,704,063
                                          
                                          
                                          $
                                          3,536,667Total
      temporarily impaired securities
                                          
                                          $
                                          355,715
                                          
                                          
                                          $
                                          147,267
                                          
                                          
                                          $
                                          2,348,348
                                          
                                          
                                          $
                                          3,389,400
                                          
                                          
                                          $
                                          2,704,063
                                          
                                          
                                          $
                                          3,536,667
 
 As
      of February 29, 2008Market
      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
  43
  (5)
INVESTMENT IN POLICIES
  From time
to time, we purchase interests in policies to hold for investment
purposes.  FASB Staff Position No. 85-4-1 Accounting for Life Settlement
Contracts by Third-Party Investors (FSP FTB 85-4-1) states that a
purchaser 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, statutory interest, and
direct external costs, if any) to keep the policy in force are
capitalized.  FSP FTB 85-4-1 replaced FASB Technical Bulletin 85-4,
which essentially required that we record the excess of the purchase price over
the cash surrender value as expense when purchasing policies for our own
account.  The balance of Investment in Life Insurance Policies is
routinely tested for impairment and valued accordingly.  Impairment
for the year ended February 28, 2009 was $151,810.  There was no
impairment recorded for the year ended February 29, 2008.  The balance
of Investment in Policies increased significantly during fiscal 2009, the
majority of which resulted from a settlement of a case with the State of
Colorado.  The Securities Commissioner for the State of Colorado filed
an action alleging violations of the Colorado Securities Act in connection with
certain life settlements transacted through our subsidiary, Life Partners,
Inc.  This action was settled with the agreement that LPI would offer
to purchase the interests of certain Colorado clients.  Under the
terms of the settlement, Life Partners, Inc. agreed to offer to purchase the
life settlements from the Colorado investors alleged in the complaint, and all
purchasers that accepted the purchase offer received additional compensation for
the purchase equal to statutory interest.  As of February 28, 2009, we
had purchased interests in 260 policies and paid $6,318,665, including
$1,286,833 of statutory interest related to the Colorado
settlement.  After February 28, 2009, we purchased interests in an
additional 264 policies related to the Colorado settlement and paid $6,441,625,
including $1,413,908 of statutory interest.  LPI has completed this
purchase offer.  The total amount paid to the purchasers who accepted
this offer totaled interests in 524 policies and $12,760,290, of which
$2,700,741 represented the payment of statutory interest.
  The table
below describes the Investment in Policies account at February 28,
2009.  The carrying value noted includes $1,286,833 of statutory
interest.
  Remaining
      Life Expectancy
                      (in
      years)
                    
                    Number
      of Life
                      Settlement Contracts
                    
                    
                    Carrying
                      Value
                    
                    
                    Face Value0-1
                    
                    
                    331
                    
                    
                    $
                    2,647,822
                    
                    
                    $
                    5,103,2411-2
                    
                    
                    83
                    
                    
                    
                    2,001,137
                    
                    
                    
                    2,856,2772-3
                    
                    
                    94
                    
                    
                    
                    2,584,926
                    
                    
                    
                    4,457,2633-4
                    
                    
                    51
                    
                    
                    
                    1,228,156
                    
                    
                    
                    2,086,2604-5
                    
                    
                    13
                    
                    
                    
                    416,674
                    
                    
                    
                    1,078,196Thereafter
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    -Total
                    
                    
                    572
                    
                    
                    $
                    8,878,715
                    
                    
                    $
                    15,581,237
  Remaining
life expectancy for year 0-1 includes all policies that have exceeded their
original life expectancy plus those policies that are scheduled to reach their
original life expectancy during the next 12 months.  Remaining life
expectancy is based on original life expectancy estimates and is not an
indication of expected maturity.  Actual maturity dates in any
category may vary significantly (either earlier or later) from the remaining
life expectancies reported above.
  Premiums
to be paid for each of the five succeeding fiscal years to keep the life
settlement contracts in force as of February 28, 2009 are as
follows.
  Year
      1
                  
                  $
                  73,230Year
      2
                  
                  
                  136,557Year
      3
                  
                  
                  394,726Year
      4
                  
                  
                  318,050Year
      5
                  
                  
                  149,140Total
      estimated premiums
                  
                  $
                  1,071,703
  44
  (6) INVESTMENT IN
PARTNERSHIP
  The
amount shown on the balance sheet termed Investment in Partnership is an
investment in an unaffiliated limited partnership created for the acquisition of
life settlements.  On August 26, 2008, we entered into a contractual
agreement to purchase an interest in the partnership at a total cost of
$5.0 million, resulting in an interest of 23% as of February 28,
2009.  LPI performs policy-purchasing services for this limited
partnership and earns fees from it as it would from any other LPI
client.  For the year ended February 28, 2009, LPI performed
policy-purchasing services for 14 life settlement contracts and recognized
$2,305,310 of gross revenue from those contracts.  This investment is
accounted for under the equity method of accounting.  As of
February 28, 2009, LPI’s valuation of the investment, with $64,125, our
equity portion of the partnership’s operating loss subtracted from the initial
investment of $5,000,000, was $4,935,875.  There was no balance in
this account as of February 29, 2008.
  The
Partnership is accounted for under the cash basis method of
accounting.  Therefore, the Company’s share of the net income or loss
of the Partnership is based on when revenue is received less the expenses when
they are paid.  The following table represents summarized information
of the Partnership’s balance sheet and results of operations as of and for the
12-month period ended February 28, 2009:
  As of Feb. 28, 2009Assets:
      Cash and Life Settlements
                  
                  $
                  130,882,844Liabilities:
      Bank Loan and Accrued Preferred Return
                  
                  $
                  109,898,985Gross
      Revenue:
                  
                  $
                  3,072,141Gross
      Profit:
                  
                  $
                  724,552Net
      Loss:
                  
                  $
                  780,920LPI’s
      Share of Net Loss:
                  
                  $
                  64,125
  (7)
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 28, 2009, for each of the next five
years and in the aggregate are:
  Feb. 28, 20092010
                  
                  $
                  39,4322011
                  
                  
                  39,4322012
                  
                  
                  17,3712013
                  
                  
                  -2014
                  
                  
                  -Total
      minimum future rental payments
                  
                  $
                  96,235
  Rental
expense was $54,556, $53,232 and $36,675 for the years ended February 28, 2009,
February 29, 2008, and February 28, 2007, 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.
  45
  (8)
SHORT TERM NOTES PAYABLE
  In the
event we require credit to facilitate our short-term cash flow management and
operating capital requirements, we maintain two credit lines.  One
credit line is secured by cash and securities on deposit.  As of
February 28, 2009, $1.8 million of credit was available and it carried an
interest rate at Wall Street Journal Prime Rate of 3.25%.  There
was no outstanding balance as of February 28, 2009, and a $1,621 balance at
February 29, 2008.  The other line of credit is secured by a
certificate of deposit.  This line of credit is $1.0 million, is
available, and carried an interest rate of 5.55%.  There was no
outstanding balance on this line as of February 28, 2009, and February 29,
2008.
  (9)
LONG-TERM DEBT
  As of
April 28, 2009 we retired all of our outstanding long-term debt.
  As of
February 28, 2009, we had the following long-term debt:
  Current
                  
                  
                  Long-Term6.49%
      note payable to a bank, due in installments of $7,669 through December
      2017, secured by land and office building with a net book value of
      $895,366
                  
                  $
                  42,717
                  
                  
                  $
                  736,356
  As of
February 29, 2008, we had the following long-term debt:
  6.49%
      note payable to a bank, due in installments of $7,669 through December
      2017, secured by land and office building with a net book value of
      $919,995
                        
                        $
                        40,321
                        
                        
                        $
                        774,5875.625%
      note payable to a bank, due in installments of $6,270 through July 2013,
      secured by land and office building with a net book value of
      $748,215
                        
                        
                        57,017
                        
                        
                        
                        292,926$
                        97,338
                        
                        
                        $
                        1,067,513
  Maturities
on long-term debt for each of the next five years and thereafter are as
follows:
 Feb. 28, 20092010
                  
                  $
                  42,7172011
                  
                  
                  45,5742012
                  
                  
                  48,6202013
                  
                  
                  51,8712014
                  
                  
                  55,340Thereafter
                  
                  
                  534,951$
                  779,073Less
      Current Portion Long-Term Debt
                  
                  
                  (42,717
                  )$
                  736,356
  (10)
INCOME TAXES
  Temporary
timing differences between the reporting of income and expenses for financial
and income tax reporting purposes at February 28, 2009, and February 29, 2008,
resulted in an increase in the deferred tax asset of $1,217,000 and $691,010,
respectively.  We believe the deferred tax asset to be fully
realizable.
  Following
are the components of the net deferred tax asset:
  46
 
 Feb. 28, 2009
                  
                  
                  Feb. 29, 2008Deferred
      tax liability:Depreciation
                  
                  $
                  (152,732
                  )
                  
                  $
                  (74,211
                  )Deferred
      tax assets:Unrealized
      loss on investments, included in other comprehensive
income
                  
                  
                  1,237,834
                  
                  
                  
                  409,239Accrued
      contingency costs
                  
                  
                  117,124
                  
                  
                  
                  111,458Accrued
      vacation costs
                  
                  
                  31,555
                  
                  
                  
                  -Reserve
      for premium advances
                  
                  
                  1,895,817
                  
                  
                  
                  1,506,422Reserve
      for policy impairment
                  
                  
                  53,134
                  
                  
                  
                  -Reserve
      for loss on acquired life insurance policies
                  
                  
                  44,695
                  
                  
                  
                  57,519Total
      deferred tax assets
                  
                  
                  3,380,159
                  
                  
                  
                  2,084,638Net
      deferred tax asset
                  
                  $
                  3,227,427
                  
                  
                  $
                  2,010,427
 For the
fiscal periods ending February 28, 2009, and February 29, 2008, the amount of
non-deductible penalties paid, primarily due to underpayment of estimated income
taxes, was $63,941 and $4,351, respectively.  There were no penalties
paid in the year ended February 28, 2007.
 The
difference between our effective income tax rate and the United States statutory
rate is reconciled below for the years ended February 28, 2009 and February 29,
2008:
 2009
                  
                  
                  2008
                  
                  
                  2007United
      States statutory rate
                  
                  
                  35.0
                  %
                  
                  
                  35.0
                  %
                  
                  
                  34.0
                  %Additional
      tax associated with expenses not deductible for tax
                  
                  
                  0.4
                  %
                  
                  
                  0.1
                  %
                  
                  
                  24.3
                  %Surtax
      and other
                  
                  
                  (0.2
                  )%
                  
                  
                  (0.5
                  )%
                  
                  
                  (29.7
                  )%Combined
      effective tax rate
                  
                  
                  35.2
                  %
                  
                  
                  34.6
                  %
                  
                  
                  28.6
                  %
 With a
few insignificant exceptions, we are no longer subject to U.S. federal, state or
local examinations by tax authorities for fiscal years 2005 and
prior.
 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 StatementNo.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 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.
  47
 The
adoption of FIN 48 at March 1, 2007, did not have a material effect on
the Company’s financial position.
  (11)
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:
  Date Declared
                          
                          Date Paid
                          
                          Dividend Amount02/21/06
                          
                          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
                          
                          $
                          0.060005/21/08
                          
                          06/16/08
                          
                          $
                          0.070008/07/08
                          
                          09/15/08
                          
                          $
                          0.070010/22/08
                          
                          12/15/08
                          
                          $
                          0.080002/24/09
                          
                          03/16/09
                          
                          $
                          0.0700
  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 28 2009, 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 28, 2009, February 29, 2008 and February 28, 2007, and
all previously issued awards had been fully vested, there was no share based
compensation expense in any year.
  48
 
 Information
with respect to stock options and warrants outstanding to certain service
providers are as follows:
  2008Shares
                  
                  
                  Average Exercise PriceOutstanding
      at beginning of year
                  
                  
                  62,500
                  
                  
                  $
                  4.80Exercised
                  
                  
                  (62,500
                  )
                  
                  $
                  4.80Issued
                  
                  
                  -
                  
                  
                  
                  -Expired
                  
                  
                  -
                  
                  
                  
                  -Outstanding
      at end of year
                  
                  
                  -
                  
                  
                  
                  -
 
 2007Shares
                  
                  
                  Average Exercise PriceOutstanding
      at beginning of year
                  
                  
                  250,000
                  
                  
                  $
                  4.82Exercised
                  
                  
                  (125,000
                  )
                  
                  $
                  4.85Issued
                  
                  
                  -
                  
                  
                  
                  -Expired
                  
                  
                  (62,500
                  )
                  
                  
                  4.80Outstanding
      at end of year
                  
                  
                  62,500
                  
                  
                  
                  4.80
  Stock Splits.  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.  On January 6, 2009, 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 February 16, 2009, to holders of record
on February 6, 2009.  The par value of the additional shares of common
stock issued in connection with the stock splits was credited to “Common stock”
and a like amount charged to “Additional paid-in-capital” in the period the
shares were distributed.  Accordingly, all references to numbers of
common shares and per share data in the accompanying financial statements have
been adjusted to reflect the stock splits on a retroactive basis.  To
accommodate these splits, 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 splits.
  For
      the Year Ended February 28/29,2009
                        
                        
                        2008
                        
                        
                        2007Before
                          Stock
                          Splits
                        
                        
                        After
                          Stock
                          Splits
                        
                        
                        Before
                          Stock
                          Splits
                        
                        
                        After
                          Stock
                          Splits
                        
                        
                        Before
                          Stock
                          Splits
                        
                        
                        After
                          Stock
                          SplitsShares
      Outstanding: Common Stock issued and outstanding
                        
                        
                        11,887,213
                        
                        
                        
                        14,859,016
                        
                        
                        
                        9,542,361
                        
                        
                        
                        14,909,940
                        
                        
                        
                        9,528,153
                        
                        
                        
                        14,887,740Treasury
      Stock
                        
                        
                        132,270
                        
                        
                        
                        165,338
                        
                        
                        
                        73,225
                        
                        
                        
                        114,414
                        
                        
                        
                        87,433
                        
                        
                        
                        136,614Average
      Common and Common Equivalent Shares Outstanding:
           Basic and Diluted
                        
                        
                        11,892,934
                        
                        
                        
                        14,866,167
                        
                        
                        
                        9,595,798
                        
                        
                        
                        14,993,434
                        
                        
                        
                        9,447,879
                        
                        
                        
                        14,762,311Basic
      and Diluted Earnings per ShareNet
      Income
                        
                        
                        2.28
                        
                        
                        
                        1.83
                        
                        
                        
                        1.95
                        
                        
                        
                        1.25
                        
                        
                        
                        0.36
                        
                        
                        
                        0.23Basic
      and Diluted Earnings per ShareComprehensive
      Income
                        
                        
                        2.15
                        
                        
                        
                        1.72
                        
                        
                        
                        1.88
                        
                        
                        
                        1.20
                        
                        
                        
                        0.38
                        
                        
                        
                        0.24
  49
  Treasury Stock.  On
January 22, 2008, we began buying shares on the open market to hold
fo r
treasury stock purposes.  We purchased a total of 39,930 shares (split
adjusted) in fiscal 2008 at a total cost of $563,872.  We purchased a
total of 50,924 shares in fiscal 2009 at a total cost of
$699,051.  These shares are reflected on the Statements of
Shareholders’ Equity and are considered in the non-affiliated market value
calculation.
  (12)
FAIR VALUE MEASUREMENTS
 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, 2007.  Effective March 1, 2008,
management adopted SFAS No. 157 with the exception of certain non-financial
assets and non-financial liabilities that were specifically deferred by SFAS
No. 157-2.  In February 2008, the FASB issued Staff Position
No. SFAS 157-2 (FSP No.157-2), Effective Date of FASB StatementNo.157, that defers the
effective date of SFAS No. 157 for one year for certain nonfinancial assets
and nonfinancial liabilities.  Management is assessing the impact of
the adoption of SFAS No. 157-2.
  In
February 2008, the FASB agreed to defer the effective date of SFAS No. 157
for one year for certain nonfinancial assets and liabilities, except those that
are recognized or disclosed at fair value in the financial statements on a
recurring basis (at least annually).  Examples of items that would be
deferred include:
  ·
              Nonfinancial
      assets and nonfinancial liabilities that initially are measured at fair
      value in a business combination or other new basis event, but are not
      measured at fair value in subsequent
periods
  ·
              Asset
      retirement obligations that are measured at fair value at initial
      recognition, but are not measured at fair value in subsequent
      periods
  ·
              Nonfinancial
      liabilities for exit or disposal activities that are measured at fair
      value at initial  recognition, but are not measured at fair value in
      subsequent periods
  The term
“inputs” refers to the assumptions that market participants use in pricing the
asset or liability.  SFAS No. 157 distinguishes between
“observable inputs” and “unobservable inputs”.  Observable inputs
reflect the assumptions market participants would use in pricing the asset or
liability based on market data obtained from independent
sources.  Unobservable inputs reflect an entity’s own assumptions
about the assumptions market participants would use in pricing the asset or
liability.  SFAS No. 157 indicates that valuation techniques
should maximize the use of observable inputs and minimize the use of
unobservable inputs.  SFAS No. 157 establishes a fair value
hierarchy that prioritizes the inputs used in valuation techniques and creates
the following three broad levels, with Level 1 being the highest
priority:
  ·
              Level 1
      inputs are quoted market prices in active markets for identical assets or
      liabilities that are accessible at the measurement date (e.g., equity
      securities traded on the New York Stock Exchange or Nasdaq Global Select
      Market).
  ·
              Level 2
      inputs are from other than quoted market prices included in Level 1
      that are observable for the asset or liability, either directly or
      indirectly (e.g., quoted market prices of similar assets or liabilities in
      active markets, or quoted market prices for identical or similar assets or
      liabilities in markets that are not
active).
  ·
              Level 3
      inputs are unobservable (e.g., a company’s own data) and should be used to
      measure fair value to the extent that observable inputs are not
      available.
  50
  The
following are the major categories of assets measured at fair value on a
recurring basis during the years ended February 28, 2009 and February 29, 2008,
using quoted prices in active markets for identical assets (Level 1);
significant other observable inputs (Level 2); and significant unobservable
inputs (Level 3).
  Description
                  
                  Level
      1:
                    Quoted Prices
      in
                    Active
      Markets for
                    IdenticalAssets
                  
                  
                  Level
      2:
                    Significant
      Other
                    ObservableInputs
                  
                  
                  Level
      3:
                    Significant
                    UnobservableInputs
                  
                  
                  TotalMarket
      income funds, February 28, 2009
                  
                  $
                  2,704,063
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  $
                  2,704,063Market
      income funds, February 29, 2008
                  
                  $
                  4,568,494
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  $
                  4,568,494
  The
Company’s financial assets and liabilities are cash and cash equivalents,
certificates of deposit, accounts receivable, investments in securities,
investments in policies, accounts payable, accrued liabilities and notes
payable.  The recorded values of cash and cash equivalents,
certificates of deposit, accounts receivable, accounts payable, and accrued
liabilities approximate their fair values based on their short-term
nature.  The recorded value of investments in securities is based on
fair value and is discussed in Note 4.  The recorded values of
financial instruments in notes payable approximate their fair values, as
interest approximates market rates.  The carrying value of the
company’s investment in policies totaled $8,878,715, which has an estimated fair
value of $8,839,650.  Fair
value of the investment in policies account was calculated by performing a net
present value calculation of the face amount of the life policies for the total
portfolio.
  (13)
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 $180,000 in each of fiscal 2009, 2008 and
2007.
  We have a
23% equity interest in a limited partnership.  See Note 6 for
additional details.
  (14)
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.  During fiscal year ended February 28, 2009, we paid
$905,176 to these purchasers and have accrued another $334,641 for future claims
that might arise on these policies.  During fiscal 2008, we paid
$419,202 and accrued another $211,207.  Accrued future claims are
included in accrued settlement expense on the balance sheet.
  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 purchasers might fail
to make premium payments.  During fiscal years 2009, 2008 and 2007, we
advanced premiums totaling $1,916,693, $1,195,018 and $1,242,314, respectively,
and received repayments of advances of $472,217, $216,251 and $389,938,
respectively.
  51
  (15)
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
employment 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 2009 was $69,902 and for fiscal 2008 was
$8,615.
  (16)
QUARTERLY FINANCIAL DATA
  The
following tables set forth our unaudited consolidated financial data regarding
operations for each quarter of fiscal 2009, 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 20091stQuarter
                    
                    
                    2ndQuarter
                    
                    
                    3rdQuarter
                    
                    
                    4thQuarterRevenues
                    
                    $
                    24,438,146
                    
                    
                    $
                    24,788,725
                    
                    
                    $
                    28,103,930
                    
                    
                    $
                    26,283,639Income
      from Operations
                    
                    $
                    9,433,148
                    
                    
                    $
                    9,520,893
                    
                    
                    $
                    10,602,463
                    
                    
                    $
                    10,682,368Pre-tax
      Income
                    
                    $
                    9,800,431
                    
                    
                    $
                    10,004,229
                    
                    
                    $
                    11,239,383
                    
                    
                    $
                    10,873,812Net
      Income
                    
                    $
                    6,248,574
                    
                    
                    $
                    6,603,491
                    
                    
                    $
                    7,282,878
                    
                    
                    $
                    7,024,173Net
      Income Per Share
                    
                    $
                    0.42
                    
                    
                    $
                    0.45
                    
                    
                    $
                    0.48
                    
                    
                    $
                    0.48
 
 Fiscal 20081stQuarter
                    
                    
                    2ndQuarter
                    
                    
                    3rdQuarter
                    
                    
                    4thQuarterRevenues
                    
                    $
                    17,578,976
                    
                    
                    $
                    17,646,109
                    
                    
                    $
                    19,298,726
                    
                    
                    $
                    18,085,444Income
      from Operations
                    
                    $
                    6,689,483
                    
                    
                    $
                    6,133,682
                    
                    
                    $
                    7,489,394
                    
                    
                    $
                    6,845,980Pre-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
                    
                    $
                    0.31
                    
                    
                    $
                    0.29
                    
                    
                    $
                    0.35
                    
                    
                    $
                    0.30
  Fiscal 20071stQuarter
                    
                    
                    2ndQuarter
                    
                    
                    3rdQuarter
                    
                    
                    4thQuarterRevenues
                    
                    $
                    6,166,797
                    
                    
                    $
                    6,586,609
                    
                    
                    $
                    7,318,909
                    
                    
                    $
                    9,723,008Income
      from Operations
                    
                    $
                    319,648
                    
                    
                    $
                    397,902
                    
                    
                    $
                    1,093,260
                    
                    
                    $
                    2,096,462Pre-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
                    
                    $
                    0.03
                    
                    
                    $
                    0.02
                    
                    
                    $
                    0.06
                    
                    
                    $
                    0.12
  52
  (17)
CORRECTION OF ERRORS IN PREVIOUSLY ISSUED FINANCIAL STATEMENTS
  We made
two changes which affected the fiscal 2008 Consolidated Balance Sheets and
Consolidated Statement of Cash Flows.  On the Consolidated Balance
Sheets, we moved $1,084,952 from Cash and Cash Equivalents to a new line item
called Certificates of Deposit, and we moved the $4,568,494 of Investment in
Securities from Current Assets to Other Assets.  These changes more
accurately describe their nature.  Cash held in certificates of
deposit with original maturity dates of more than three months are more properly
described as certificates of deposit.  Investment in securities with
the intention of holding them for longer than 12 months are more properly
long-term assets rather than current assets.  These changes are
considered corrections of errors in previously issued financial statements and,
accordingly, the Consolidated Balance Sheets and Consolidated Statement of Cash
Flows for fiscal 2008 are noted as “Restated.”  These changes had no
effect on retained earnings, components of shareholders’ equity or results of
operations as reported in previous periods.
  Balance Sheets
                  
                  Corrected
                  
                  
                  As
      Originally
                    ShownCash
      and cash equivalents
                  
                  $
                  7,112,547
                  
                  
                  $
                  8,197,499Certificates
      of deposit
                  
                  $
                  1,084,952
                  
                  
                  $
                  -
  
 Statement of Cash Flows
                  
                  Corrected
                  
                  
                  As
      Originally
                    ShownInvestment
      in certificates of deposit
                  
                  $
                  (1,084,952
                  )
                  
                  $
                  -Net
      increase in cash and cash equivalents
                  
                  $
                  3,591,526
                  
                  
                  $
                  4,676,478Cash
      and cash equivalents, end of period
                  
                  $
                  7,112,547
                  
                  
                  $
                  8,197,499
  53




EXHIBIT
INDEX
  DESCRIPTION
OF EXHIBIT
  Number
                        
                        Description
                        
                        Page3.2
                        
                        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
                        
                        5531
                        
                        Rule
      13a-14(a) Certifications
                        
                        5632
                        
                        Section
      1350 Certification
                        
                        58
 
 *
                  Denotes
      a management contract or compensatory plans or
      arrangements.  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.
  (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.




54