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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549





Form 10-Q/A

Amendment No. 1





(Mark One)

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

For the quarterly period ended March 31, 2013

or



| ̈ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
|- | ----------------------------------------------------------------------------------------

Commission file number: 001-35064





IMPERIAL
HOLDINGS, INC.

(Exact name of registrant as specified in its charter)







|                                                               |  |                                     
|-------------------------------------------------------------- |  | ------------------------------------
|Florida                                                        |  | 30-0663473                          
|(State or other jurisdiction of
incorporation or organization) |  | (I.R.S. Employer
Identification No.)

701 Park of Commerce BoulevardSuite 301

Boca Raton, Florida 33487

(Address of principal executive offices, including zip code)

(561) 995-4200

(Registrants telephone number, including area code)





Indicate by check mark whether the Registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the
Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past
90 days.    Yes  þ    No   ̈

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive
Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post
such files).    Yes  þ    No   ̈

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller
reporting company. See the 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         |  |  ̈
|                        |  |                                                  | 
|Non-accelerated filer   |  | þ  (Do not check if a smaller reporting company) |  | Smaller reporting company |  |  ̈

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

As of May 6, 2013, the Registrant had 21,219,880 shares of common stock outstanding.









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Explanatory Note

This Amendment No. 1 to the Quarterly Report on Form 10-Q of Imperial Holdings, Inc. (the Company) for the quarter ended March 31,
2013, filed with the Securities and Exchange Commission (SEC) on May 14, 2013 (the Original Filing), is filed solely for the purpose of filing Exhibits 31.1, 31.2, 32.1 and 32.2. Other than the foregoing and corresponding
changes to the Exhibit Index, no changes have been made from the Original Filing.

The certifications pursuant to Section 302 and Section
906 of the Sarbanes-Oxley Act of 2002, filed as Exhibits 31.1, 31.2, 32.1 and 32.2, respectively, to the Original Filing, have been revised, re-executed and re-filed as of the date of this Amendment No. 1.

This Amendment No. 1 on Form 10-Q does not reflect events occurring after the filing of the Original Filing, and no attempt has been made
herein to modify or update the other disclosures that may have been affected by subsequent events. Accordingly, this Amendment No. 1 should be read in conjunction with our other filings with the SEC.



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IMPERIAL HOLDINGS, INC.

FORM 10-Q REPORT FOR THE QUARTER ENDED MARCH 31, 2013

TABLE OF CONTENTS



|                                                                                                |  |          |    | 
|----------------------------------------------------------------------------------------------- |  | -------- | -- | 
|                                                                                                |  | Page No. |   
|PART IFINANCIAL INFORMATION                                                                    |  |          |    | 
|Item 1. Financial Statements (Unaudited)                                                        |  |          | 5  | 
|Consolidated Balance Sheets as of March 31, 2013 and December 31, 2012                          |  |          | 5  | 
|Consolidated Statements of Operations for the three months ended March 31, 2013 and 2012        |  |          | 6  | 
|Consolidated Statement of Comprehensive Loss for the three months ended March 31, 2013 and 2012 |  |          | 7  | 
|Consolidated Statement of Stockholders Equity for the three months ended March 31, 2013        |  |          | 8  | 
|Consolidated Statements of Cash Flows for the three months ended March 31, 2013 and 2012        |  |          | 9  | 
|Condensed Notes to Consolidated Financial Statements                                            |  |          | 10 | 
|Item 2. Managements Discussion and Analysis of Financial Condition and Results of
Operations   |  |          | 38 | 
|Item 3. Quantitative and Qualitative Disclosures About Market Risk                              |  |          | 60 | 
|Item 4. Controls and Procedures                                                                 |  |          | 62 | 
|PART IIOTHER INFORMATION                                                                       |  |          |    | 
|Item 1. Legal Proceedings                                                                       |  |          | 62 | 
|Item 1A. Risk Factors                                                                           |  |          | 65 | 
|Item 2. Unregistered Sales of Equity Securities and Use of Proceeds                             |  |          | 65 | 
|Item 3. Defaults Upon Senior Securities                                                         |  |          | 65 | 
|Item 4. Mine Safety Disclosures                                                                 |  |          | 65 | 
|Item 5. Other Information                                                                       |  |          | 65 | 
|Item 6. Exhibits                                                                                |  |          | 65 | 



2



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Forward Looking Statements

This Quarterly Report on Form 10-Q contains forward-looking statements that are subject to risks and uncertainties. All statements other
than statements of historical fact included in this Quarterly Report on Form 10-Q are forward-looking statements. Forward-looking statements give our current expectations and projections relating to our financial condition, results of
operations, plans, objectives, future performance and business. You can identify forward-looking statements by the fact that they do not relate strictly to historical or current facts. These statements may include words such as
anticipate, estimate, expect, project, plan, intend, believe, may, will, should, can have, likely and
other words and terms of similar meaning in connection with any discussion of the timing or nature of future operating or financial performance or other events. These forward-looking statements are not historical facts, and are based on current
expectations, estimates and projections about the Companys industry, managements beliefs and certain assumptions made by management, many of which, by their nature, are inherently uncertain and beyond the Companys control.
Accordingly, readers are cautioned that any such forward-looking statements are not guarantees of future performance and are subject to certain risks, uncertainties and assumptions that are difficult to predict. Although the Company believes that
the expectations reflected in such forward-looking statements are reasonable as of the date made, results may prove to be materially different. Unless otherwise required by law, the Company disclaims any obligation to update its view of any such
risks or uncertainties or to announce publicly the result of any revisions to the forward-looking statements made in this report.

Factors
that could cause our actual results to differ materially from those indicated in our forward-looking statements include, but are not limited to, the following:



| |  |  | our results of operations;
| | - |  | --------------------------



| |  |  | continuing costs associated with the USAO investigation, SEC investigation, derivative actions, the class action lawsuits and similar matters;
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | adverse developments, including financial ones, associated with the USAO and SEC investigations, derivative actions or class action lawsuits, other litigation and judicial actions or similar matters;
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | our ability to continue to comply with the covenants and other obligations, including the conditions precedent for additional fundings, under our revolving credit facility;
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | our inability to obtain financing on favorable terms or at all for life insurance policies that have not been pledged as collateral under our revolving credit facility;
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | our ability to continue to make premium payments on the life insurance policies that we own;
| | - |  | --------------------------------------------------------------------------------------------



| |  |  | obligations, including payments that may be undertaken by the Company to settle derivative actions or class action lawsuits;
| | - |  | ----------------------------------------------------------------------------------------------------------------------------



| |  |  | loss of business due to negative press from the USAO investigation, SEC investigation, Non-Prosecution Agreement, class action lawsuits or otherwise;
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | failure to enter into definitive settlement agreements or settle the class action lawsuits and related litigation on the terms contemplated by the Term Sheet for Global Settlement Regarding Imperial Holdings, Inc.
matters;
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | costs in excess of our directors & officers insurance coverage;
| | - |  | -----------------------------------------------------------------



| |  |  | refusal by our directors and officers insurance carriers to reimburse us for claims submitted;
| | - |  | ------------------------------------------------------------------------------------------------



| |  |  | loss of revenue associated with the termination of our premium finance business;
| | - |  | --------------------------------------------------------------------------------



| |  |  | further adjustments to the discount rates used to value the life insurance policies that we own;
| | - |  | ------------------------------------------------------------------------------------------------



| |  |  | inaccurate estimates regarding the likelihood and magnitude of death benefits related to life insurance policies that we own;
| | - |  | -----------------------------------------------------------------------------------------------------------------------------



| |  |  | changes in mortality rates and inaccurate assumptions about life expectancies;
| | - |  | ------------------------------------------------------------------------------



| |  |  | changes in life expectancy calculation methodologies by third party medical underwriters;
| | - |  | -----------------------------------------------------------------------------------------



| |  |  | changes to actuarial life expectancy tables;
| | - |  | --------------------------------------------



| |  |  | lack of mortalities of insureds of the life insurance policies that we own;
| | - |  | ---------------------------------------------------------------------------



| |  |  | increased carrier challenges to the validity of our life insurance policies;
| | - |  | ----------------------------------------------------------------------------



| |  |  | delays in the receipt of death benefits from our portfolio of life insurance policies;
| | - |  | --------------------------------------------------------------------------------------



| |  |  | costs related to obtaining death benefits from our portfolio of life insurance policies;
| | - |  | ----------------------------------------------------------------------------------------



| |  |  | the effect on our financial condition as a result of any lapse of life insurance policies;
| | - |  | ------------------------------------------------------------------------------------------



| |  |  | deterioration of the market for life insurance policies and life settlements;
| | - |  | -----------------------------------------------------------------------------



3



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| |  |  | our inability to re-sell the life insurance policies we own at favorable prices, if at all;
| | - |  | -------------------------------------------------------------------------------------------



| |  |  | adverse developments associated with uncooperative co-trustees;
| | - |  | ---------------------------------------------------------------



| |  |  | loss of the services of any of our executive officers;
| | - |  | ------------------------------------------------------



| |  |  | adverse court decisions interpreting insurable interest or the obligation of a life insurance carrier to return premiums upon a successful rescission or contest;
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | our inability to continue to grow our businesses;
| | - |  | -------------------------------------------------



| |  |  | changes in laws and regulations applicable to premium finance transactions, life settlements or structured settlements;
| | - |  | -----------------------------------------------------------------------------------------------------------------------



| |  |  | increased competition for the acquisition of structured settlements;
| | - |  | --------------------------------------------------------------------



| |  |  | adverse developments in capital markets;
| | - |  | ----------------------------------------



| |  |  | disruption of our information technology systems;
| | - |  | -------------------------------------------------



| |  |  | our failure to maintain the security of personally identifiable information pertaining to our customers and counterparties;
| | - |  | ---------------------------------------------------------------------------------------------------------------------------



| |  |  | regulation of life settlement transactions as securities;
| | - |  | ---------------------------------------------------------



| |  |  | our limited operating experience;
| | - |  | ---------------------------------



| |  |  | refusal by our lender protection insurer to pay claims;
| | - |  | -------------------------------------------------------



| |  |  | deterioration in the credit worthiness of the life insurance companies that issue the policies serving as collateral for our premium finance loans;
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | increases in premiums on life insurance policies that we own or finance;
| | - |  | ------------------------------------------------------------------------



| |  |  | changes in current tax law regarding the treatment of structured settlements;
| | - |  | -----------------------------------------------------------------------------



| |  |  | our ability to grow our database of structured settlement holders;
| | - |  | ------------------------------------------------------------------



| |  |  | the effects of United States involvement in hostilities with other countries and large-scale acts of terrorism, or the threat of hostilities or terrorist acts; and
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | changes in general economic conditions, including inflation, changes in interest or tax rates and other factors.
| | - |  | ----------------------------------------------------------------------------------------------------------------

All written and oral forward-looking statements attributable to the Company, or persons acting on its behalf, are expressly qualified in their
entirety by these cautionary statements. See Risk Factors below and in our Annual Report on Form 10-K for the year ended December 31, 2012 filed with the U.S. Securities and Exchange Commission on March 28, 2013. You should
evaluate all forward-looking statements made in this Form 10-Q in the context of these risks and uncertainties. The Company cautions you that the important factors referenced above may not contain all of the factors that are important to you.

All statements in this Form 10-Q to Imperial, Company, we, us, or our
refer to Imperial Holdings, Inc. and its consolidated subsidiaries unless the context suggests otherwise.



4



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|Item 1 | Financial Statements.
|------ | ---------------------

Imperial Holdings, Inc. and Subsidiaries

CONSOLIDATED BALANCE SHEETS



|                                                                                                                   |  |                                  |          |   |                   |   |          |  
|------------------------------------------------------------------------------------------------------------------ |  | -------------------------------- | -------- | - | ----------------- | - | -------- | -
|                                                                                                                   |  | March 31,2013                    |          |   | December 31,2012* |  
|                                                                                                                   |  | (Unaudited)                      |          |   |                   |  
|                                                                                                                   |  | (In thousands except share data) |         
|ASSETS                                                                                                             |  |                                  |          |   |                   |   |          |  
|Assets                                                                                                             |  |                                  |          |   |                   |   |          |  
|Cash and cash equivalents                                                                                          |  | $                                | 11,729   |   |                   | $ | 7,001    |  
|Cash and cash equivalents (VIE restricted, Note 5)                                                                 |  |                                  | 38,929   |   |                   |   |         |  
|Restricted cash                                                                                                    |  |                                  |         |   |                   |   | 1,162    |  
|Investment securities available for sale, at estimated fair value                                                  |  |                                  |         |   |                   |   | 12,147   |  
|Deferred costs, net                                                                                                |  |                                  |         |   |                   |   | 7        |  
|Deferred costs, net (VIE restricted, Note 5)                                                                       |  |                                  | 426      |   |                   |   |         |  
|Prepaid expenses and other assets                                                                                  |  |                                  | 15,860   |   |                   |   | 14,165   |  
|Depositsother                                                                                                     |  |                                  | 3,551    |   |                   |   | 2,855    |  
|Interest receivable, net                                                                                           |  |                                  | 497      |   |                   |   | 822      |  
|Loans receivable, net                                                                                              |  |                                  | 1,769    |   |                   |   | 3,044    |  
|Structured settlement receivables at estimated fair value                                                          |  |                                  | 2,050    |   |                   |   | 1,680    |  
|Structured settlement receivables at cost, net                                                                     |  |                                  | 1,593    |   |                   |   | 1,574    |  
|Investment in life settlements, at estimated fair value                                                            |  |                                  | 8,499    |   |                   |   | 113,441  |  
|Investment in life settlements, at estimated fair value (VIE restricted, Note 5)                                   |  |                                  | 109,233  |   |                   |   |         |  
|Receivable for maturity of life settlements (VIE restricted, Note 5)                                               |  |                                  | 6,039    |   |                   |   |         |  
|Fixed assets, net                                                                                                  |  |                                  | 182      |   |                   |   | 232      |  
|Investment in affiliates                                                                                           |  |                                  | 2,276    |   |                   |   | 2,212    |  
|                                                                                                                   |  |                                  |          |   |                   |   |          |  
|Total assets                                                                                                       |  | $                                | 202,633  |   |                   | $ | 160,342  |  
|                                                                                                                   |  |                                  |          |   |                   |   |          |  
|LIABILITIES AND STOCKHOLDERS EQUITY                                                                               | 
|Liabilities                                                                                                        |  |                                  |          |   |                   |   |          |  
|Accounts payable and accrued expenses                                                                              |  | $                                | 7,586    |   |                   | $ | 6,606    |  
|Accounts payable and accrued expenses (VIE restricted, Note 5)                                                     |  |                                  | 19       |   |                   |   |         |  
|Other liabilities                                                                                                  |  |                                  | 24,731   |   |                   |   | 20,796   |  
|Interest payable (VIE restricted, Note 5)                                                                          |  |                                  | 60       |   |                   |   |         |  
|Notes payable, net of discount (VIE restricted, Note 5)                                                            |  |                                  | 41,435   |   |                   |   |         |  
|Income taxes payable                                                                                               |  |                                  | 6,295    |   |                   |   | 6,295    |  
|                                                                                                                   |  |                                  |          |   |                   |   |          |  
|Total liabilities                                                                                                  |  |                                  | 80,125   |   |                   |   | 33,697   |  
|Commitments and Contingencies (Note 15)                                                                            |  |                                  |          |   |                   |   |          |  
|Stockholders Equity                                                                                               |  |                                  |          |   |                   |   |          |  
|Common stock (80,000,000 authorized; 21,206,121 issued and outstanding as of March 31, 2013 and December 31, 2012) |  |                                  | 212      |   |                   |   | 212      |  
|Additional paid-in-capital                                                                                         |  |                                  | 238,255  |   |                   |   | 238,064  |  
|Accumulated other comprehensive loss                                                                               |  |                                  |         |   |                   |   | (3       | )
|Accumulated deficit                                                                                                |  |                                  | (115,959 | ) |                   |   | (111,628 | )
|                                                                                                                   |  |                                  |          |   |                   |   |          |  
|Total stockholders equity                                                                                         |  |                                  | 122,508  |   |                   |   | 126,645  |  
|                                                                                                                   |  |                                  |          |   |                   |   |          |  
|Total liabilities and stockholders equity                                                                         |  | $                                | 202,633  |   |                   | $ | 160,342  |  
|                                                                                                                   |  |                                  |          |   |                   |   |          |  



|* | Derived from audited consolidated financial statements.
|- | -------------------------------------------------------

The accompanying notes are an integral
part of these financial statements.



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Imperial Holdings, Inc. and Subsidiaries

CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)



|                                                                   |  |                                                 |            |   |      |   |            |  
|------------------------------------------------------------------ |  | ----------------------------------------------- | ---------- | - | ---- | - | ---------- | -
|                                                                   |  | For the Three Months EndedMarch 31,             |           
|                                                                   |  | 2013                                            |            |   | 2012 |  
|                                                                   |  | (in thousands, except share and per share data) |           
|Income                                                             |  |                                                 |            |  
|Interest income                                                    |  | $                                               | 87         |   |      | $ | 906        |  
|Interest and dividends on investment securities available for sale |  |                                                 | 14         |   |      |   | 128        |  
|Origination fee income                                             |  |                                                 |           |   |      |   | 250        |  
|Realized gain on sale of structured settlements                    |  |                                                 | 3,541      |   |      |   | 2,475      |  
|Gain on sale of life settlements, net                              |  |                                                 |           |   |      |   | 236        |  
|Change in fair value of life settlements                           |  |                                                 | 1,840      |   |      |   | 4,255      |  
|Unrealized change in fair value of structured settlements          |  |                                                 | 545        |   |      |   | 610        |  
|Servicing fee income                                               |  |                                                 | 234        |   |      |   | 358        |  
|Other income                                                       |  |                                                 | 92         |   |      |   | 748        |  
|                                                                   |  |                                                 |            |   |      |   |            |  
|Total income                                                       |  |                                                 | 6,353      |   |      |   | 9,966      |  
|                                                                   |  |                                                 |            |   |      |   |            |  
|Expenses                                                           |  |                                                 |            |   |      |   |            |  
|Interest expense                                                   |  |                                                 | 103        |   |      |   | 774        |  
|Gain on loan payoffs and settlements, net                          |  |                                                 |           |   |      |   | (9         | )
|Amortization of deferred costs                                     |  |                                                 | 7          |   |      |   | 982        |  
|Personnel costs                                                    |  |                                                 | 3,332      |   |      |   | 3,689      |  
|Marketing costs                                                    |  |                                                 | 811        |   |      |   | 2,162      |  
|Legal fees                                                         |  |                                                 | 4,077      |   |      |   | 7,890      |  
|Professional fees                                                  |  |                                                 | 1,101      |   |      |   | 1,919      |  
|Insurance                                                          |  |                                                 | 519        |   |      |   | 470        |  
|Other selling, general and administrative expenses                 |  |                                                 | 694        |   |      |   | 1,001      |  
|                                                                   |  |                                                 |            |   |      |   |            |  
|Total expenses                                                     |  |                                                 | 10,644     |   |      |   | 18,878     |  
|                                                                   |  |                                                 |            |   |      |   |            |  
|Loss before income taxes                                           |  |                                                 | (4,291     | ) |      |   | (8,912     | )
|Provision (benefit) for income taxes                               |  |                                                 | 40         |   |      |   | (41        | )
|                                                                   |  |                                                 |            |   |      |   |            |  
|Net loss                                                           |  | $                                               | (4,331     | ) |      | $ | (8,871     | )
|                                                                   |  |                                                 |            |   |      |   |            |  
|Loss per share:                                                    |  |                                                 |            |   |      |   |            |  
|                                                                   |  |                                                 |            |   |      |   |            |  
|Basic                                                              |  | $                                               | (0.20      | ) |      | $ | (0.42      | )
|                                                                   |  |                                                 |            |   |      |   |            |  
|Diluted                                                            |  | $                                               | (0.20      | ) |      | $ | (0.42      | )
|                                                                   |  |                                                 |            |   |      |   |            |  
|Weighted average shares outstanding:                               |  |                                                 |            |   |      |   |            |  
|                                                                   |  |                                                 |            |   |      |   |            |  
|Basic                                                              |  |                                                 | 21,206,121 |   |      |   | 21,204,618 |  
|                                                                   |  |                                                 |            |   |      |   |            |  
|Diluted                                                            |  |                                                 | 21,206,121 |   |      |   | 21,204,618 |  
|                                                                   |  |                                                 |            |   |      |   |            |  

The accompanying notes are an integral part of these financial statements.



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Imperial Holdings, Inc. and Subsidiaries

CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS (UNAUDITED)



|                                                              |  |                                     |        |   |      |   |        |  
|------------------------------------------------------------- |  | ----------------------------------- | ------ | - | ---- | - | ------ | -
|                                                              |  | For the Three Months EndedMarch 31, |       
|                                                              |  | 2013                                |        |   | 2012 |  
|                                                              |  | (In thousands)                      |       
|Net loss                                                      |  | $                                   | (4,331 | ) |      | $ | (8,871 | )
|Other comprehensive income, net of tax:                       |  |                                     |        |   |      |   |        |  
|Unrealized gains on investment securities available for sale  |  |                                     |       |   |      |   | 66     |  
|Reclassification adjustment for losses included in net income |  |                                     | 3      |   |      |   |       |  
|                                                              |  |                                     |        |   |      |   |        |  
|Comprehensive loss                                            |  | $                                   | (4,328 | ) |      | $ | (8,805 | )
|                                                              |  |                                     |        |   |      |   |        |  

The accompanying notes are an integral part of these financial statements.



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Imperial Holdings, Inc.

CONSOLIDATED STATEMENT OF STOCKHOLDERS EQUITY (UNAUDITED)

For the Three Months Ended March 31, 2013



|                           |  |              |            |  |                           |  |     |                     |  |   |                                             |  |  |       |          |   |  |   |    |   |  |   |         |  
|-------------------------- |  | ------------ | ---------- |  | ------------------------- |  | --- | ------------------- |  | - | ------------------------------------------- |  |  | ----- | -------- | - |  | - | -- | - |  | - | ------- | -
|                           |  | Common Stock |            |  | AdditionalPaid-in Capital |  |     | Accumulated Deficit |  |   | AccumulatedOther ComprehensiveIncome (Loss) |  |  | Total |         
|                           |  | Shares       |            |  | Amount                    |  |     |                     |  |  
|Balance, December 31, 2012 |  |              | 21,206,121 |  |                           |  | 212 |                     |  |   | 238,064                                     |  |  |       | (111,628 | ) |  |   | (3 | ) |  | $ | 126,645 |  
|Comprehensive loss         |  |              |           |  |                           |  |    |                     |  |   |                                            |  |  |       | (4,331   | ) |  |   | 3  |   |  |   | (4,328  | )
|Stock-based compensation   |  |              |           |  |                           |  |    |                     |  |   | 191                                         |  |  |       |         |   |  |   |   |   |  |   | 191     |  
|                           |  |              |            |  |                           |  |     |                     |  |   |                                             |  |  |       |          |   |  |   |    |   |  |   |         |  
|Balance, March 31, 2013    |  |              | 21,206,121 |  |                           |  | 212 |                     |  | $ | 238,255                                     |  |  | $     | (115,959 | ) |  | $ |   |   |  | $ | 122,508 |  
|                           |  |              |            |  |                           |  |     |                     |  |   |                                             |  |  |       |          |   |  |   |    |   |  |   |         |  

The accompanying notes are an integral part of these financial statements.



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Imperial Holdings, Inc. and Subsidiaries

CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)



|                                                                                      |  |                                     |        |   |      |   |         |  
|------------------------------------------------------------------------------------- |  | ----------------------------------- | ------ | - | ---- | - | ------- | -
|                                                                                      |  | For the Three Months EndedMarch 31, |       
|                                                                                      |  | 2013                                |        |   | 2012 |  
|                                                                                      |  | (In thousands)                      |       
|Cash flows from operating activities                                                  |  |                                     |        |   |      |   |        |  
|Net loss                                                                              |  | $                                   | (4,331 | ) |      | $ | (8,871  | )
|Adjustments to reconcile net loss to net cash used in operating activities:           |  |                                     |        |   |      |   |         |  
|Depreciation and amortization                                                         |  |                                     | 53     |   |      |   | 136     |  
|Amortization of premiums and accretion of discounts on available for sale securities  |  |                                     | 21     |   |      |   | 361     |  
|Stock-based compensation                                                              |  |                                     | 191    |   |      |   | 17      |  
|Gain on loan payoffs and settlements, net                                             |  |                                     |       |   |      |   | (9      | )
|Origination fee income                                                                |  |                                     |       |   |      |   | (250    | )
|Change in fair value of life settlements                                              |  |                                     | (1,840 | ) |      |   | (4,255  | )
|Unrealized change in fair value of structured settlements                             |  |                                     | (545   | ) |      |   | (610    | )
|Gain on sale of life settlements                                                      |  |                                     |       |   |      |   | (236    | )
|Interest income on loans                                                              |  |                                     | (87    | ) |      |   | (906    | )
|Amortization of deferred costs                                                        |  |                                     | 7      |   |      |   | 982     |  
|Amortization of bridge facility discount                                              |  |                                     | 40     |   |      |   |        |  
|Gain on sale and prepayment of investment securities available for sale               |  |                                     | (22    | ) |      |   | (57     | )
|Change in assets and liabilities:                                                     |  |                                     |        |   |      |   |         |  
|Depositsother                                                                        |  |                                     | (696   | ) |      |   |        |  
|Investment in affiliates                                                              |  |                                     | (62    | ) |      |   | (675    | )
|Structured settlement receivables                                                     |  |                                     | 223    |   |      |   | 10,251  |  
|Deferred costs, net                                                                   |  |                                     | (430   | ) |      |   |        |  
|Prepaid expenses and other assets                                                     |  |                                     | (1,701 | ) |      |   | (1,960  | )
|Accounts payable and accrued expenses                                                 |  |                                     | 999    |   |      |   | 2,121   |  
|Other liabilities                                                                     |  |                                     | 3,933  |   |      |   | (2,745  | )
|Interest receivable                                                                   |  |                                     | 95     |   |      |   | 52      |  
|Interest payable                                                                      |  |                                     | 60     |   |      |   | (2,046  | )
|Deferred income tax                                                                   |  |                                     | 40     |   |      |   | (41     | )
|                                                                                      |  |                                     |        |   |      |   |         |  
|Net cash used in operating activities                                                 |  |                                     | (4,052 | ) |      |   | (8,741  | )
|                                                                                      |  |                                     |        |   |      |   |         |  
|Cash flows from investing activities                                                  |  |                                     |        |   |      |   |         |  
|Purchase of fixed assets, net of disposals                                            |  |                                     | (1     | ) |      |   | (3      | )
|Purchase of investment securities available for sale                                  |  |                                     |       |   |      |   | (14,924 | )
|Proceeds from sale and prepayments of investment securities available for sale        |  |                                     | 12,111 |   |      |   | 27,699  |  
|Premiums paid on investments in life settlements                                      |  |                                     | (6,963 | ) |      |   | (6,260  | )
|Proceeds from sale of investments in life settlements                                 |  |                                     |       |   |      |   | 1,536   |  
|Proceeds from loan payoffs and lender protection insurance claims received in advance |  |                                     |       |   |      |   | 10,666  |  
|                                                                                      |  |                                     |        |   |      |   |         |  
|Net cash provided by investing activities                                             |  |                                     | 5,147  |   |      |   | 18,714  |  
|                                                                                      |  |                                     |        |   |      |   |         |  
|Cash flows from financing activities                                                  |  |                                     |        |   |      |   |         |  
|Repayment of borrowings under credit facilities                                       |  |                                     |       |   |      |   | (7,777  | )
|Restricted cash                                                                       |  |                                     | 1,162  |   |      |   |        |  
|Borrowings from bridge facility                                                       |  |                                     | 41,400 |   |      |   |        |  
|                                                                                      |  |                                     |        |   |      |   |         |  
|Net cash provided by (used in) financing activities                                   |  |                                     | 42,562 |   |      |   | (7,777  | )
|                                                                                      |  |                                     |        |   |      |   |         |  
|Net increase in cash and cash equivalents                                             |  |                                     | 43,657 |   |      |   | 2,196   |  
|Cash and cash equivalents, at beginning of the period                                 |  |                                     | 7,001  |   |      |   | 16,255  |  
|                                                                                      |  |                                     |        |   |      |   |         |  
|Cash and cash equivalents, at end of the period                                       |  | $                                   | 50,658 |   |      | $ | 18,451  |  
|                                                                                      |  |                                     |        |   |      |   |         |  
|Supplemental disclosures of cash flow information:                                    |  |                                     |        |   |      |   |         |  
|Cash paid for interest during the period                                              |  | $                                   |       |   |      | $ | 2,811   |  
|                                                                                      |  |                                     |        |   |      |   |         |  
|Supplemental disclosures of non-cash investing activities:                            |  |                                     |        |   |      |   |         |  
|Investment in life settlements acquired in foreclosure                                |  | $                                   | 1,524  |   |      | $ | 2,163   |  
|                                                                                      |  |                                     |        |   |      |   |         |  

The accompanying notes are an integral part of these financial statements.



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Imperial Holdings, Inc. and Subsidiaries

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

March 31, 2013

(1) Description of Business

Imperial Holdings, Inc. (Imperial, the Company, we or us) was formed
initially as a Florida limited liability Company pursuant to an operating agreement dated December 15, 2006 between IFS Holdings, Inc., IMEX Settlement Corporation, Premium Funding, Inc. and Red Oak Finance, LLC. In connection with the
Companys initial public offering on February 3, 2011, the Company succeeded to the business, assets and liabilities of the limited liability Company.

The Company, operating through its subsidiaries, is a specialty finance company with its corporate office in Boca Raton, Florida. The Company
operates in two reportable business segments: life finance (formerly referred to as premium finance) and structured settlements. In the life finance business, the Company earns revenue/income from interest accruing on outstanding loans and loan
origination fees over the life of the outstanding loans, servicing income, changes in the fair value of life settlements the Company acquires and receipt of death benefits with respect to matured life insurance policies it owns. In the structured
settlement business, the Company purchases structured settlements at a discounted rate and sells such assets to third parties.

In
February 2011, the Company completed the sale of 17,602,614 shares of common stock in its initial public offering at a price of $10.75 per share. The Company received net proceeds of approximately $174.2 million after deducting the
underwriting discounts and commissions and its offering expenses.

On September 27, 2011, the Company was informed that it was being
investigated by the U.S. Attorneys Office for the District of New Hampshire (the USAO Investigation). At that time, the Company was informed that, among other individuals, its former president and chief operating officer, former
general counsel, three former life finance sales executives, two vice presidents and a funding manager were considered targets of the USAO Investigation. The USAO Investigation focused on the Companys premium finance loan business.

On February 17, 2012, the Company received a subpoena issued by the staff of the U.S. Securities and Exchange Commission (the
SEC) seeking documents from 2007 through the present, generally related to the Companys premium finance business and corresponding financial reporting. The SEC is investigating whether any violations of federal securities laws have
occurred and the Company has been cooperating with the SEC regarding this matter. The Company is unable to predict what action, if any, might be taken in the future by the SEC or its staff as a result of the matters that are the subject of the
subpoena or what impact, if any, the cost of responding to the subpoena might have on the Companys financial position, results of operations, or cash flows. The Company has not established any provision for losses in respect of this matter.

On April 30, 2012, the Company entered into a Non-Prosecution Agreement (the Non-Prosecution Agreement) with the USAO,
which agreed not to prosecute the Company for its involvement in the making of misrepresentations on life insurance applications in connection with its premium finance business or any potential securities fraud claims related to its premium finance
business. In the Non-Prosecution Agreement, the USAO and the Company agreed among other things, that the following facts are true and correct: (i) at all relevant times (x) certain insurance companies required that the prospective insured
applying for a life insurance policy, and sometimes the agent, disclose information relating to premium financing on applications for life insurance policies, and (y) the questions typically required the prospective insured to disclose if he or
she intended to seek premium financing in connection with the policy and sometimes required the agent to disclose if he or she was aware of any such intent on the part of the applicant; (ii) in connection with a portion of the Companys
retail operation known as retail non-seminar that began in December 2006 and was discontinued in January 2009, Imperial had a practice of disclosing on applications that the prospective insured was seeking premium financing when the life
insurance company allowed premium financing from Imperial; however, in certain circumstances, Imperial internal life agents facilitated and/or made misrepresentations on applications that the prospective insured was not seeking premium financing
when the insurance carrier was likely to deny the policy on the basis of premium financing; and (iii) to the extent that external agents, brokers and insureds caused other misrepresentations to be made in life insurance applications in
connection with the retail non-seminar business, Imperial failed to appropriately tailor controls to prevent potential fraudulent practices in that business. As of March 31, 2013, the Company had 12 policies in its portfolio that once served as
collateral for premium finance loans derived through the retail non-seminar business.

In connection with the Non-Prosecution Agreement,
Imperial voluntarily agreed to terminate its premium finance business, which historically accounted for the majority of the Companys revenues and terminated certain senior sales staff associated with the premium finance business. Additionally,
the Company paid the United States Government $8.0 million, and agreed to cooperate fully with the USAOs ongoing investigation and to refrain from and self-report any criminal conduct. The Non-Prosecution Agreement has a term of three years
until April 30, 2015, but after April 30, 2014 the Company may petition the USAO to forego the final year of the Non-Prosecution Agreement, if the Company otherwise complies with all of its obligations under the Non-Prosecution Agreement.
Should the USAO conclude that Imperial has not abided by its obligations under the Non-Prosecution Agreement, the USAO could choose to terminate the Non-Prosecution Agreement, resume its investigation of the Company, or bring charges against
Imperial.



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##### Table of Contents

As of March 31, 2013, the Company had approximately $50.7 million of cash and cash
equivalents. As previously reported in earlier periodic reports filed with the SEC, the Company anticipated a liquidity shortfall in the second quarter of 2013. Accordingly, to avoid lapsing policies, the Company sought additional capital and, on
March 27, 2013, Greenwood Asset Portfolio, LLC (Greenwood), a subsidiary of the Company, borrowed $45.0 million in aggregate principal amount under the terms of an eighteen-month bridge facility (the Bridge Facility),
funded by entities associated with certain of the Companys shareholders (including entities associated with two of the Companys directors) and secured by substantially all of the Companys portfolio of life insurance policies.
Principal was borrowed under the facility at 92% resulting in net proceeds after transaction expenses of $41.4 million. Effective April 29, 2013, a subsidiary of the Company, White Eagle Asset Portfolio, LLC (White Eagle), entered
into a 15-year revolving credit agreement (the Credit Agreement) and a portion of the proceeds from the initial borrowings under the Credit Agreement were used to repay all outstanding amounts under the Bridge Facility. See Note
18Subsequent Events.

Life Finance

Our life finance segment is comprised of our premium finance loan and life settlements businesses. The Company historically provided premium
finance loans for individual life insurance policies and, commencing in 2011, began using its life settlement provider licenses to purchase life insurance policies. As described above, the Company voluntarily terminated its premium finance business
in connection with the Non-Prosecution Agreement with the USAO.

Structured Settlements

Washington Square Financial, LLC, a wholly-owned subsidiary of the Company, purchases structured settlements from individuals. Structured
settlements refer to a contract between a plaintiff and defendant, whereby the plaintiff agrees to settle a lawsuit (usually a personal injury, product liability or medical malpractice claim) in exchange for periodic payments over time. A
defendants payment obligation with respect to a structured settlement is usually assumed by a casualty insurance company. This payment obligation is then satisfied by the casualty insurer through the purchase of an annuity from a highly rated
life insurance company, thereby providing a high credit quality stream of payments to the plaintiff.

Recipients of structured settlements
are permitted to sell their deferred payment streams to a structured settlement purchaser pursuant to state statutes that require certain disclosures, notice to the obligors and state court approval. Through such sales, the Company purchases a
certain number of fixed, scheduled future settlement payments on a discounted basis in exchange for a single lump sum payment.

(2) Principles of Consolidation and Basis of Presentation

The accompanying unaudited consolidated financial statements include the accounts of the Company, all of its wholly-owned
subsidiaries and its special purpose entities, with the exception of Imperial Settlements Financing 2010, LLC (ISF 2010), an unconsolidated special purpose entity (see Note 11). The special purpose entity has been created to fulfill
specific objectives. All significant intercompany balances and transactions have been eliminated in consolidation.

The unaudited
consolidated financial statements have been prepared in conformity with the rules and regulations of the SEC for Form 10-Q and therefore do not include certain information, accounting policies, and footnote disclosures information or footnotes
necessary for a complete presentation of financial position, results of operations and cash flows in conformity with generally accepted accounting principles. However, all adjustments (consisting of normal recurring accruals), which, in the opinion
of management, are necessary for a fair presentation of the financial statements, have been included. Operating results for the three months ended March 31, 2013 are not necessarily indicative of the results that may be expected for the year
ending December 31, 2013. These interim financial statements should be read in conjunction with the Consolidated Financial Statements and Notes thereto included in Imperials Annual Report on Form 10-K for the fiscal year ended
December 31, 2012.

Use of Estimates

The preparation of these consolidated financial statements, in conformity with accounting principles generally accepted in the United States of
America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reporting period. Actual
results could differ from these estimates and such differences could be material. Significant estimates made by management include the loan impairment valuation, income taxes, valuation of securities available for sale, valuation of structured
settlement receivables and the valuation of investments in life settlements.

(3) Recent Accounting Pronouncements

In February 2013, the Financial Accounting Standards Board (FASB) issued final guidance on the presentation of
reclassifications out of other comprehensive income. The amendments require an entity to provide information about the amounts reclassified out of other comprehensive income



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##### Table of Contents

by component. In addition, an entity is required to present, either on the face of the income statement or in a footnote, significant amounts reclassified out of accumulated other comprehensive
income by the respective line items of net income, only if the amount reclassified is required by Generally Accepted Accounting Principles (GAAP) to be reclassified to net income in its entirety in the same reporting period. For other
amounts that are not required under GAAP to be reclassified in their entirety to net income, an entity is required to cross-reference to other disclosures required under GAAP that provide detail about those amounts. This amendment is effective for
interim and fiscal years beginning after December 15, 2012. The Company adopted this new guidance beginning with its first quarter in 2013 as of the filing of this Quarterly Report on Form 10-Q. The amended standard has not had an impact on the
Companys financial position or results of operations.

(4) Changes in Accumulated Other Comprehensive Loss, Net of Tax

The following table presents changes in accumulated other comprehensive loss, net of tax, by component for the three months
ended March 31, 2013 (in thousands):



|                                                               |  |                                                           |    |  
|-------------------------------------------------------------- |  | --------------------------------------------------------- | -- | -
|                                                               |  | UnrealizedGains andLosses onAvailable-for-Sale Securities |   
|Balance as of December 31, 2012                                |  | $                                                         | (3 | )
|                                                               |  |                                                           |    |  
|Amounts reclassified from accumulated other comprehensive loss |  |                                                           | 3  |  
|                                                               |  |                                                           |    |  
|Balance as of March 31, 2013                                   |  | $                                                         |   |  
|                                                               |  |                                                           |    |  

Reclassifications out of accumulated other comprehensive loss, net of tax, for the three months ended
March 31, 2013 are as follows (in thousands):



|                                                                                                               |  |                                                             |     |   |                                                         |                         
|-------------------------------------------------------------------------------------------------------------- |  | ----------------------------------------------------------- | --- | - | ------------------------------------------------------- | ------------------------
|                                                                                                               |  | Amount Reclassifiedfrom AccuumulatedOther ComprehensiveLoss |     |   | Affected Line in theConsolidated Statement ofOperations
|Loss on available for sale securities                                                                          |  | $                                                           | (22 | ) |                                                         | Other Expenses          
|Tax effect                                                                                                     |  |                                                             | 25  |   |                                                         | Provision for Income Tax
|                                                                                                               |  |                                                             |     |   |                                                         |                         
|Total amount reclassified from accumualted other comprehensive loss, for the three months ended March 31, 2013 |  | $                                                           | 3   |   |                                                         |                         
|                                                                                                               |  |                                                             |     |   |                                                         |                         

(5) Consolidation of Variable Interest Entities

The Company evaluates its interests in variable interest entities (VIEs) on an ongoing basis and consolidates those VIEs in
which it has a controlling financial interest and is thus deemed to be the primary beneficiary. A controlling financial interest has both of the following characteristics: (i) the power to direct the activities of the VIE that most
significantly impact its economic performance; and (ii) the obligation to absorb losses of the VIE that could potentially be significant to it or the right to receive benefits from the VIE that could be significant to the VIE.

The following table presents the consolidated assets and consolidated liabilities of VIEs for which the Company has concluded that it is the
primary beneficiary and which are consolidated in the Companys consolidated financial statements as of March 31, 2013, as well as non-consolidated VIEs for which the Company has determined it is not the primary beneficiary (in thousands):



|                  |  |                     |         |  |                        |   |        |             |  |   |                        |  |  |   |       | 
|----------------- |  | ------------------- | ------- |  | ---------------------- | - | ------ | ----------- |  | - | ---------------------- |  |  | - | ----- | 
|                  |  | Primary Beneficiary |         |  | Not PrimaryBeneficiary |  
|                  |  | Consolidated VIEs   |         |  | Non-consolidatedVIEs   |  
|                  |  | Assets              |         |  | Liabilities            |   |        | TotalAssets |  |   | MaximumExposureTo Loss | 
|March 31, 2013    |  | $                   | 154,627 |  |                        | $ | 41,514 |             |  | $ | 2,276                  |  |  | $ | 2,276 | 
|December 31, 2012 |  | $                   |        |  |                        | $ |       |             |  | $ | 2,212                  |  |  | $ | 2,212 | 



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##### Table of Contents

On December 21, 2012, Greenwood opened a securities intermediary account which provides for
a securities intermediary to hold Greenwoods life insurance policies on its behalf. As of December 31, 2012, OLIPP IV, LLC, a wholly-owned subsidiary of the Company, contributed 191 life settlements with an estimated fair value of
approximately $104.6 million to Greenwood. On March 27, 2013, Greenwood, as issuer, and the Company and OLIPP IV, LLC, as guarantors, entered into an indenture with Wilmington Trust Company, as indenture trustee, under which an aggregate
principal amount of $45.0 million of 12% increasing rate senior secured bridge notes were issued (the Bridge Facility) to certain entities associated with certain of the Companys shareholders, including to entities associated with
two of the Companys directors. Interest under the Bridge Facility accrued at 12% per annum for the first nine months from the issue date, and increases of 600 basis points thereafter to 18% per annum were scheduled. Up to 25% of the
net proceeds from the Bridge Facility after transaction expenses could be used by the Company for general corporate purposes, including for premium payments on life insurance policies not owned by Greenwood, with the balance used to pay fees and
expenses associated with the Bridge Facility and for premiums on life insurance policies owned by Greenwood. The Bridge Facility was guaranteed by the Company and secured by the cash on account at Greenwood and its portfolio of life insurance
policies. The Bridge Facility was also secured by pledges of the equity interests of Greenwoods direct parent and each subsidiary of the Company, other than its licensed life settlement provider, that held life insurance policies that were not
subject to the subrogation rights of the Companys lender protection insurance carrier. The Company acted as portfolio manager and servicer for life insurance policies owned by Greenwood and absorbed all of the losses and received all of the
expected residual return form Greenwood. Therefore, the Company was determined to be the primary beneficiary of Greenwood as it had a controlling financial interest and the power to direct the activities that most significantly impacted
Greenwoods economic performance and the obligation to absorb economic gains and losses. In accordance with ASC 810, Consolidation, the Company consolidated Greenwood in its financial statements beginning in the first quarter of 2013.
Effective April 29, 2013, White Eagle entered into a 15-year revolving Credit Agreement and a portion of the proceeds from the initial borrowings were used to repay all outstanding amounts under the Bridge Facility. See Note
18Subsequent Events.

Imperial Settlements Financing 2010, LLC (ISF 2010), is an unconsolidated special purpose
entity formed to allow the Company to sell structured settlements and assignable annuities, and to borrow against certain of its receivables to provide ISF 2010 liquidity. In determining whether the Company is the primary beneficiary, the Company
concluded that it does not control the servicing, which is the activity that most significantly impacts the VIEs performance. An independent third party is the master servicer and they can only be replaced by the control party, which is the
entity that holds the majority of the outstanding notes. The Company is a back-up servicer and is insignificant to ISF 2010s performance. The Companys maximum exposure related to ISF 2010 is limited to 5% of the dollar value of the ISF
2010 transactions, which is held back by ISF 2010 at the time of sale, and is designed to absorb potential losses in collecting the receivables. The obligations of ISF 2010 are non-recourse to the Company. The total funds held back by ISF 2010 as of
March 31, 2013 and December 31, 2012 were approximately $2.3 million and $2.2 million, respectively and are included in investment in affiliate in the accompanying consolidated balance sheet.

(6) Earnings Per Share

Basic net income per share is computed by dividing the net earnings attributable to common shareholders by the weighted
average number of common shares outstanding during the period.

Diluted earnings per share is computed by dividing net income attributable
to common shareholders by the weighted average number of common shares outstanding, increased to include the number of additional common shares that would have been outstanding if the dilutive potential common shares had been issued. Conversion or
exercise of the potential common shares is not reflected in diluted earnings per share, unless the effect is dilutive. The dilutive effect, if any, of outstanding common share equivalents is reflected in diluted earnings per share by application of
the treasury stock method, as applicable. In determining whether outstanding stock options, restricted stock, and common stock warrants should be considered for their dilutive effect, the average market price of the common stock for the period has
to exceed the exercise price of the outstanding common share equivalent.

The following tables reconcile actual basic and diluted earnings
per share for the three months ended March 31, 2013 and 2012 (in thousands except share and per share data).



|                                            |  |                                     |            |   |      |   |            |  
|------------------------------------------- |  | ----------------------------------- | ---------- | - | ---- | - | ---------- | -
|                                            |  | For the Three MonthsEnded March 31, |           
|                                            |  | 2013                                |            |   | 2012 |  
|Basic loss per share:                       |  |                                     |            |   |      |   |            |  
|Numerator:                                  |  |                                     |            |   |      |   |            |  
|Net loss available to common stockholders   |  | $                                   | (4,331     | ) |      | $ | (8,871     | )
|                                            |  |                                     |            |   |      |   |            |  
|Denominator:                                |  |                                     |            |   |      |   |            |  
|Weighted average common shares outstanding  |  |                                     | 21,206,121 |   |      |   | 21,204,618 |  
|                                            |  |                                     |            |   |      |   |            |  
|Basic loss per share                        |  | $                                   | (0.20      | ) |      | $ | (0.42      | )
|                                            |  |                                     |            |   |      |   |            |  
|Diluted loss per share:                     |  |                                     |            |   |      |   |            |  
|Numerator:                                  |  |                                     |            |   |      |   |            |  
|Net loss available to common stockholders   |  | $                                   | (4,331     | ) |      | $ | (8,871     | )
|                                            |  |                                     |            |   |      |   |            |  
|Denominator:                                |  |                                     |            |   |      |   |            |  
|Diluted weighted average shares outstanding |  |                                     | 21,206,121 |   |      |   | 21,204,618 |  
|                                            |  |                                     |            |   |      |   |            |  
|Diluted loss per share(1)(2)                |  | $                                   | (0.20      | ) |      | $ | (0.42      | )
|                                            |  |                                     |            |   |      |   |            |  



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##### Table of Contents

|(1) | The computation of diluted EPS did not include 622,596 outstanding options and 4,240,521 outstanding warrants for the three months ended March 31, 2012, as the effect of their inclusion would have been
anti-dilutive.
|--- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(2) | The computation of diluted EPS did not include 485,695 outstanding options and 4,240,521 outstanding warrants for the three months ended March 31, 2013, as the effect of their inclusion would have been
anti-dilutive.
|--- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

(7) Investment Securities Available for Sale

The Company had no securities available for sale at March 31, 2013. The Company liquidated its entire portfolio of
investment securities available for sale during the first quarter of 2013. Proceeds from sale and prepayment of investment securities available for sale during the three months ended March 31, 2013 and 2012 amounted to approximately $12.1
million and $27.7 million, respectively, resulting in gross realized gains of approximately $22,000 and $57,000, respectively.

The
amortized cost and estimated fair values of securities available for sale at December 31, 2012 are as follows (in thousands):



|                                    |  |                   |        |  |                       |   |     |                        |  |   |                     |   |  |   |        | 
|----------------------------------- |  | ----------------- | ------ |  | --------------------- | - | --- | ---------------------- |  | - | ------------------- | - |  | - | ------ | 
|                                    |  | December 31, 2012 |       
|Description of Securities           |  | AmortizedCost     |        |  | Gross UnrealizedGains |   |     | Gross UnrealizedLosses |  |   | EstimatedFair Value |  
|Corporate bonds                     |  | $                 | 8,275  |  |                       |   | 25  |                        |  | $ | (67                 | ) |  | $ | 8,233  | 
|Government bonds                    |  |                   | 3,524  |  |                       |   | 76  |                        |  |   |                    |   |  |   | 3,600  | 
|Other bonds                         |  |                   | 310    |  |                       |   | 4   |                        |  |   |                    |   |  |   | 314    | 
|                                    |  |                   |        |  |                       |   |     |                        |  |   |                     |   |  |   |        | 
|Total available for sale securities |  | $                 | 12,109 |  |                       | $ | 105 |                        |  | $ | (67                 | ) |  | $ | 12,147 | 
|                                    |  |                   |        |  |                       |   |     |                        |  |   |                     |   |  |   |        | 

The scheduled maturities of securities at December 31, 2012, by contractual maturity, are shown below.
Expected maturities may differ from contractual maturities because borrowers may have the right to call or prepay obligations with or without call or prepayment penalties (in thousands).



|                                             |  |                   |        |  |                      |   |        | 
|-------------------------------------------- |  | ----------------- | ------ |  | -------------------- | - | ------ | 
|                                             |  | December 31, 2012 |       
|                                             |  | Amortized Cost    |        |  | Estimated Fair Value |  
|Due in one year or less                      |  | $                 | 6,172  |  |                      | $ | 6,197  | 
|Due after one year but less than five years  |  |                   | 2,413  |  |                      |   | 2,350  | 
|Due after five years but less than ten years |  |                   | 3,524  |  |                      |   | 3,600  | 
|                                             |  |                   |        |  |                      |   |        | 
|Total available for sale securities          |  | $                 | 12,109 |  |                      | $ | 12,147 | 
|                                             |  |                   |        |  |                      |   |        | 

Information pertaining to securities with gross unrealized losses at December 31, 2012, aggregated by
investment category and length of time that the individual securities have been in a continuous unrealized loss position is as follows (in thousands):



|                                    |  |                     |       |  |                   |   |     |                     |  |   |                |  |  |                     |   |  |                |   |       |  |  |   |     |  
|----------------------------------- |  | ------------------- | ----- |  | ----------------- | - | --- | ------------------- |  | - | -------------- |  |  | ------------------- | - |  | -------------- | - | ----- |  |  | - | --- | -
|                                    |  | December 31, 2012   |      
|                                    |  | Less than 12 Months |       |  | 12 Months or More |   |     | Total               | 
|Description of Securities           |  | EstimatedFair Value |       |  | UnrealizedLoss    |   |     | EstimatedFair Value |  |   | UnrealizedLoss |  |  | EstimatedFair Value |   |  | UnrealizedLoss |  
|Corporate bonds                     |  |                     | 1,932 |  |                   |   | (67 | )                   |  |   |               |  |  |                     |  |  |                |   | 1,932 |  |  |   | (67 | )
|Government bonds                    |  |                     |      |  |                   |   |    |                     |  |   |               |  |  |                     |  |  |                |   |      |  |  |   |    |  
|Other bonds                         |  |                     |      |  |                   |   |    |                     |  |   |               |  |  |                     |  |  |                |   |      |  |  |   |    |  
|                                    |  |                     |       |  |                   |   |     |                     |  |   |                |  |  |                     |   |  |                |   |       |  |  |   |     |  
|Total available for sale securities |  | $                   | 1,932 |  |                   | $ | (67 | )                   |  | $ |               |  |  | $                   |  |  |                | $ | 1,932 |  |  | $ | (67 | )
|                                    |  |                     |       |  |                   |   |     |                     |  |   |                |  |  |                     |   |  |                |   |       |  |  |   |     |  

The Company monitors its investment securities available for sale for other-than-temporary impairment, or
OTTI, on an individual security basis considering numerous factors including the Companys intent to sell securities in an unrealized loss position, the likelihood that the Company will be required to sell these securities before an anticipated
recovery in value, the length of time and extent to which fair value has been less than amortized cost, the historical and implied volatility of the fair value of the security, failure of the issuer of the security to make scheduled interest or
principal payments, any changes to the rating of the security by a rating agency and recoveries or additional declines in fair value subsequent to the balance sheet date. The relative significance of each of these factors varies depending on the
circumstances related to each security.



14



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At March 31, 2012, 16 securities were in unrealized loss positions. The amount of unrealized
losses related to all of these securities was considered insignificant, totaling approximately $57,000.

(8) Loans Receivable

A summary of loans receivables at March 31, 2013 and December 31, 2012 is as follows (in thousands):



|                           |  |               |        |   |                  |   |        |  
|-------------------------- |  | ------------- | ------ | - | ---------------- | - | ------ | -
|                           |  | March 31,2013 |        |   | December 31,2012 |  
|Loan principal balance     |  | $             | 3,356  |   |                  | $ | 5,255  |  
|Loan origination fees, net |  |               | 814    |   |                  |   | 1,157  |  
|Loan impairment valuation  |  |               | (2,401 | ) |                  |   | (3,368 | )
|                           |  |               |        |   |                  |   |        |  
|Loans receivable, net      |  | $             | 1,769  |   |                  | $ | 3,044  |  
|                           |  |               |        |   |                  |   |        |  

The Company also had interest receivable, net which consisted of approximately $497,000 and $727,000 in
accrued and unpaid interest at March 31, 2013 and December 31, 2012, respectively and a related impairment valuation of approximately $711,000 and $947,000, respectively.

An analysis of the changes in loans receivable principal balance during three months ended March 31, 2013 and 2012 is as follows (in
thousands):



|                                                     |  |                                     |        |   |      |   |        |  
|---------------------------------------------------- |  | ----------------------------------- | ------ | - | ---- | - | ------ | -
|                                                     |  | For the Three Months EndedMarch 31, |       
|                                                     |  | 2013                                |        |   | 2012 |  
|Loan principal balance, beginning                    |  | $                                   | 5,255  |   |      | $ | 31,264 |  
|Loan write-offs/foreclosed                           |  |                                     | (1,899 | ) |      |   |       |  
|Loan payoffs                                         |  |                                     |       |   |      |   | (6,694 | )
|Loans transferred to investments in life settlements |  |                                     |       |   |      |   | (3,490 | )
|                                                     |  |                                     |        |   |      |   |        |  
|Loan principal balance, ending                       |  | $                                   | 3,356  |   |      | $ | 21,080 |  
|                                                     |  |                                     |        |   |      |   |        |  

Loan origination fees include origination fees that are payable to the Company on the date the loan matures.
The loan origination fees are reduced by any direct costs that are directly related to the creation of the loan receivable in accordance with ASC 310-20, ReceivablesNonrefundable Fees and Other Costs, and the net balance is
accreted over the life of the loan using the effective interest method. Discounts include purchase discounts, net of accretion, which are attributable to loans that were acquired from affiliated companies under common ownership and control.

In accordance with ASC 310, Receivables, the Company specifically evaluates all loans for impairment based on the fair value of
the underlying policies as foreclosure is considered probable. The loans are considered to be collateral dependent as the repayment of the loans is expected to be provided by the underlying policies. See Note 13.

An analysis of the loan impairment valuation for the three months ended March 31, 2013 is as follows (in thousands):



|                               |  |                 |       |   |                    |   |      |       |  |   |        |  
|------------------------------ |  | --------------- | ----- | - | ------------------ | - | ---- | ----- |  | - | ------ | -
|                               |  | LoansReceivable |       |   | InterestReceivable |   |      | Total | 
|Balance at beginning of period |  | $               | 3,368 |   |                    | $ | 947  |       |  | $ | 4,315  |  
|Charge-offs                    |  |                 | (967  | ) |                    |   | (236 | )     |  |   | (1,203 | )
|                               |  |                 |       |   |                    |   |      |       |  |   |        |  
|Balance at end of period       |  | $               | 2,401 |   |                    | $ | 711  |       |  | $ | 3,112  |  
|                               |  |                 |       |   |                    |   |      |       |  |   |        |  



15



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##### Table of Contents

An analysis of the loan impairment valuation for the three months ended March 31, 2012 is as
follows (in thousands):



|                               |  |                 |        |   |                    |   |       |       |  |   |        |  
|------------------------------ |  | --------------- | ------ | - | ------------------ | - | ----- | ----- |  | - | ------ | -
|                               |  | LoansReceivable |        |   | InterestReceivable |   |       | Total | 
|Balance at beginning of period |  | $               | 10,195 |   |                    | $ | 1,920 |       |  | $ | 12,115 |  
|Charge-offs                    |  |                 | (2,707 | ) |                    |   | (252  | )     |  |   | (2,959 | )
|                               |  |                 |        |   |                    |   |       |       |  |   |        |  
|Balance at end of period       |  | $               | 7,488  |   |                    | $ | 1,668 |       |  | $ | 9,156  |  
|                               |  |                 |        |   |                    |   |       |       |  |   |        |  

An analysis of the allowance for loan losses and recorded investment in loans by loan type for the three
months ended March 31, 2013 is as follows (in thousands):



|                                                      |  |                |       |   |              |   |     |       |  |   |       |  
|----------------------------------------------------- |  | -------------- | ----- | - | ------------ | - | --- | ----- |  | - | ----- | -
|                                                      |  | UninsuredLoans |       |   | InsuredLoans |   |     | Total | 
|Loan impairment valuation                             |  |                |       |   |              |   |     |       |  |   |       |  
|Balance at beginning of period                        |  | $              | 2,692 |   |              | $ | 676 |       |  | $ | 3,368 |  
|Charge-offs                                           |  |                | (968  | ) |              |   | 1   |       |  |   | (967  | )
|                                                      |  |                |       |   |              |   |     |       |  |   |       |  
|Ending balance                                        |  | $              | 1,724 |   |              | $ | 677 |       |  | $ | 2,401 |  
|                                                      |  |                |       |   |              |   |     |       |  |   |       |  
|Ending balance: individually evaluated for impairment |  | $              | 1,724 |   |              | $ | 677 |       |  | $ | 2,401 |  
|                                                      |  |                |       |   |              |   |     |       |  |   |       |  

An analysis of the allowance for loan losses and recorded investment in loans by loan type for the three months ended
March 31, 2012 is as follows (in thousands):



|                                                      |  |                |        |   |              |   |       |       |  |   |        |  
|----------------------------------------------------- |  | -------------- | ------ | - | ------------ | - | ----- | ----- |  | - | ------ | -
|                                                      |  | UninsuredLoans |        |   | InsuredLoans |   |       | Total | 
|Loan impairment valuation                             |  |                |        |   |              |   |       |       |  |   |        |  
|Balance at beginning of period                        |  | $              | 7,103  |   |              | $ | 3,092 |       |  | $ | 10,195 |  
|Charge-offs                                           |  |                | (1,777 | ) |              |   | (930  | )     |  |   | (2,707 | )
|                                                      |  |                |        |   |              |   |       |       |  |   |        |  
|Ending balance                                        |  | $              | 5,326  |   |              | $ | 2,162 |       |  | $ | 7,488  |  
|                                                      |  |                |        |   |              |   |       |       |  |   |        |  
|Ending balance: individually evaluated for impairment |  | $              | 5,326  |   |              | $ | 2,162 |       |  | $ | 7,488  |  
|                                                      |  |                |        |   |              |   |       |       |  |   |        |  

All loans were individually evaluated for impairment as of March 31, 2013 and 2012. There were no loans
collectively evaluated for impairment and there were no loans acquired with deteriorated credit quality. See Note 13.



16



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##### Table of Contents

An analysis of the credit quality indicators by loan type at March 31, 2013 is presented in
the following table (dollars in thousands):



|                |  |                        |       |  |            |  |       |                        |  |   |         |  |  |  |       |  
|--------------- |  | ---------------------- | ----- |  | ---------- |  | ----- | ---------------------- |  | - | ------- |  |  |  | ----- | -
|                |  | Uninsured              |       |  | Insured(1) | 
|S&P Designation |  | UnpaidPrincipalBalance |       |  | Percent    |  |       | UnpaidPrincipalBalance |  |   | Percent | 
|AAA             |  | $                      |      |  |            |  | 0.00  | %                      |  | $ |        |  |  |  | 0.00  | %
|AA+             |  |                        |      |  |            |  | 0.00  | %                      |  |   |        |  |  |  | 0.00  | %
|AA              |  |                        |      |  |            |  | 0.00  | %                      |  |   |        |  |  |  | 0.00  | %
|AA-             |  |                        | 1,249 |  |            |  | 43.75 | %                      |  |   | 408     |  |  |  | 81.44 | %
|A+              |  |                        | 1,541 |  |            |  | 53.98 | %                      |  |   | 93      |  |  |  | 18.56 | %
|A1              |  |                        |      |  |            |  | 0.00  | %                      |  |   |        |  |  |  | 0.00  | %
|A               |  |                        |      |  |            |  | 0.00  | %                      |  |   |        |  |  |  | 0.00  | %
|A-              |  |                        | 65    |  |            |  | 2.27  | %                      |  |   |        |  |  |  | 0.00  | %
|                |  |                        |       |  |            |  |       |                        |  |   |         |  |  |  |       |  
|Total           |  | $                      | 2,855 |  |            |  | 100   | %                      |  | $ | 501     |  |  |  | 100   | %
|                |  |                        |       |  |            |  |       |                        |  |   |         |  |  |  |       |  



|(1) | All of the Companys insured loans have lender protection coverage with Lexington Insurance Company. As of March 31, 2013, Lexington had a financial strength rating of A with a stable outlook by
Standard & Poors (S&P).
|--- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

An analysis of the credit quality indicators by loan type at December 31, 2012 is
presented in the following table (dollars in thousands):



|                |  |                        |       |  |            |  |       |                        |  |   |         |  |  |  |       |  
|--------------- |  | ---------------------- | ----- |  | ---------- |  | ----- | ---------------------- |  | - | ------- |  |  |  | ----- | -
|                |  | Uninsured              |       |  | Insured(1) | 
|S&P Designation |  | UnpaidPrincipalBalance |       |  | Percent    |  |       | UnpaidPrincipalBalance |  |   | Percent | 
|AAA             |  | $                      |      |  |            |  | 0.00  | %                      |  | $ |        |  |  |  | 0.00  | %
|AA+             |  |                        |      |  |            |  | 0.00  | %                      |  |   |        |  |  |  | 0.00  | %
|AA              |  |                        |      |  |            |  | 0.00  | %                      |  |   |        |  |  |  | 0.00  | %
|AA-             |  |                        | 2,072 |  |            |  | 43.58 | %                      |  |   | 408     |  |  |  | 81.44 | %
|A+              |  |                        | 2,548 |  |            |  | 53.97 | %                      |  |   | 93      |  |  |  | 18.56 | %
|A1              |  |                        |      |  |            |  | 0.00  | %                      |  |   |        |  |  |  | 0.00  | %
|A               |  |                        |      |  |            |  | 0.00  | %                      |  |   |        |  |  |  | 0.00  | %
|BB-             |  |                        | 134   |  |            |  | 2.45  | %                      |  |   |        |  |  |  | 0.00  | %
|                |  |                        |       |  |            |  |       |                        |  |   |         |  |  |  |       |  
|Total           |  | $                      | 4,754 |  |            |  | 100   | %                      |  | $ | 501     |  |  |  | 100   | %
|                |  |                        |       |  |            |  |       |                        |  |   |         |  |  |  |       |  



|(1) | All of the Companys insured loans have lender protection coverage with Lexington Insurance Company. As of December 31, 2012, Lexington had a financial strength rating of A with a stable outlook by
Standard & Poors (S&P).
|--- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



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##### Table of Contents

A summary of our investment in impaired loans at March 31, 2013 and December 31, 2012
is as follows (in thousands):



|                             |  |               |       |  |                  |   |       | 
|---------------------------- |  | ------------- | ----- |  | ---------------- | - | ----- | 
|                             |  | March 31,2013 |       |  | December 31,2012 |  
|Loan receivable, net         |  | $             | 1,743 |  |                  | $ | 3,011 | 
|Interest receivable, net     |  |               | 492   |  |                  |   | 724   | 
|                             |  |               |       |  |                  |   |       | 
|Investment in impaired loans |  | $             | 2,235 |  |                  | $ | 3,735 | 
|                             |  |               |       |  |                  |   |       | 

An analysis of impaired loans with and without a related allowance at March 31, 2013 is presented in the
following table by loan type (in thousands):



|                                    |  |                    |       |  |                        |   |       |                  |  |   |                           |  |  |                          |       |  |  |   |       | 
|----------------------------------- |  | ------------------ | ----- |  | ---------------------- | - | ----- | ---------------- |  | - | ------------------------- |  |  | ------------------------ | ----- |  |  | - | ----- | 
|                                    |  | RecordedInvestment |       |  | UnpaidPrincipalBalance |   |       | RelatedAllowance |  |   | AverageRecordedInvestment |  |  | InterestIncomeRecognized |      
|With no related allowance recorded: |  |                    |       |  |                        |   |       |                  |  |   |                           |  |  |                          |       |  |  |   |       | 
|Uninsured Loans                     |  | $                  |      |  |                        | $ |      |                  |  | $ |                          |  |  | $                        |      |  |  | $ |      | 
|Insured Loans                       |  |                    |      |  |                        |   |      |                  |  |   |                          |  |  |                          |      |  |  |   |      | 
|With an allowance recorded:         |  |                    |       |  |                        |   |       |                  |  |   |                           |  |  |                          |       |  |  |   |       | 
|Uninsured Loans                     |  |                    | 2,119 |  |                        |   | 2,835 |                  |  |   | 2,190                     |  |  |                          | 2,871 |  |  |   | 960   | 
|Insured Loans                       |  |                    | 116   |  |                        |   | 501   |                  |  |   | 922                       |  |  |                          | 114   |  |  |   | 244   | 
|                                    |  |                    |       |  |                        |   |       |                  |  |   |                           |  |  |                          |       |  |  |   |       | 
|Total Impaired Loans                |  | $                  | 2,235 |  |                        | $ | 3,336 |                  |  | $ | 3,112                     |  |  | $                        | 2,985 |  |  | $ | 1,204 | 
|                                    |  |                    |       |  |                        |   |       |                  |  |   |                           |  |  |                          |       |  |  |   |       | 

An analysis of impaired loans with and without a related allowance at December 31, 2012 is presented in
the following table by loan type (in thousands):



|                                    |  |                    |       |  |                        |   |       |                  |  |   |                           |  |  |                          |        |  |  |   |       | 
|----------------------------------- |  | ------------------ | ----- |  | ---------------------- | - | ----- | ---------------- |  | - | ------------------------- |  |  | ------------------------ | ------ |  |  | - | ----- | 
|                                    |  | RecordedInvestment |       |  | UnpaidPrincipalBalance |   |       | RelatedAllowance |  |   | AverageRecordedInvestment |  |  | InterestIncomeRecognized |       
|With no related allowance recorded: |  |                    |       |  |                        |   |       |                  |  |   |                           |  |  |                          |        |  |  |   |       | 
|Uninsured Loans                     |  | $                  |      |  |                        | $ |      |                  |  | $ |                          |  |  | $                        |       |  |  | $ |      | 
|Insured Loans                       |  |                    |      |  |                        |   |      |                  |  |   |                          |  |  |                          |       |  |  |   |      | 
|With an allowance recorded:         |  |                    |       |  |                        |   |       |                  |  |   |                           |  |  |                          |        |  |  |   |       | 
|Uninsured Loans                     |  |                    | 3,623 |  |                        |   | 4,735 |                  |  |   | 3,413                     |  |  |                          | 6,887  |  |  |   | 1,444 | 
|Insured Loans                       |  |                    | 112   |  |                        |   | 501   |                  |  |   | 902                       |  |  |                          | 7,091  |  |  |   | 227   | 
|                                    |  |                    |       |  |                        |   |       |                  |  |   |                           |  |  |                          |        |  |  |   |       | 
|Total Impaired Loans                |  | $                  | 3,735 |  |                        | $ | 5,236 |                  |  | $ | 4,315                     |  |  | $                        | 13,978 |  |  | $ | 1,671 | 
|                                    |  |                    |       |  |                        |   |       |                  |  |   |                           |  |  |                          |        |  |  |   |       | 

The amount of the investment in impaired loans that had an allowance as of March 31, 2013 and of
December 31, 2012 was $2.2 million and $3.7 million, respectively. The amount of the investment in impaired loans that did not have an allowance was zero as of March 31, 2013 and December 31, 2012. The average investment in
impaired loans during the three months ended March 31, 2013 and 2012 was approximately $3.0 million and $21.3 million, respectively. The interest recognized on the impaired loans was approximately $19,000 and $311,000 for the
three months ended March 31, 2013 and 2012, respectively.

An analysis of past due loans at March 31, 2013 is presented in the
following table by loan type (in thousands):



|                |  |                    |   |  |                    |   |   |                             |  |   |               |  |  |   |     | 
|--------------- |  | ------------------ | - |  | ------------------ | - | - | --------------------------- |  | - | ------------- |  |  | - | --- | 
|                |  | 30-59 DaysPast Due |   |  | 60-89 DaysPast Due |   |   | Greater Than90 DaysPast Due |  |   | TotalPast Due | 
|Uninsured Loans |  | $                  |  |  |                    | $ |  |                             |  | $ | 599           |  |  | $ | 599 | 
|Insured Loans   |  |                    |  |  |                    |   |  |                             |  |   | 315           |  |  |   | 315 | 
|                |  |                    |   |  |                    |   |   |                             |  |   |               |  |  |   |     | 
|Total           |  | $                  |  |  |                    | $ |  |                             |  | $ | 914           |  |  | $ | 914 | 
|                |  |                    |   |  |                    |   |   |                             |  |   |               |  |  |   |     | 



18



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##### Table of Contents

An analysis of past due loans at December 31, 2012 is presented in the following table by
loan type (in thousands):



|                |  |                    |   |  |                    |   |   |                             |  |   |               |  |  |   |     | 
|--------------- |  | ------------------ | - |  | ------------------ | - | - | --------------------------- |  | - | ------------- |  |  | - | --- | 
|                |  | 30-59 DaysPast Due |   |  | 60-89 DaysPast Due |   |   | Greater Than90 DaysPast Due |  |   | TotalPast Due | 
|Uninsured Loans |  | $                  |  |  |                    | $ |  |                             |  | $ | 599           |  |  | $ | 599 | 
|Insured Loans   |  |                    |  |  |                    |   |  |                             |  |   | 315           |  |  |   | 315 | 
|                |  |                    |   |  |                    |   |   |                             |  |   |               |  |  |   |     | 
|Total           |  | $                  |  |  |                    | $ |  |                             |  | $ | 914           |  |  | $ | 914 | 
|                |  |                    |   |  |                    |   |   |                             |  |   |               |  |  |   |     | 

During the three months ended March 31, 2013 and the year ended December 31, 2012, the Company did
not originate any loans. Loan interest receivable at March 31, 2013 and December 31, 2012 was approximately $497,000 and $727,000 net of impairment of approximately $711,000, and $947,000, respectively. As of March 31, 2013, there
were 14 loans with the average loan balance of approximately $153,000.

The allowance for interest receivable represents interest that is
not expected to be collected. At the time the interest income was recognized and at the end of the reporting period in which the interest income was recognized, the interest income was believed to be collectible. The Company continually reassesses
whether interest income is collectible in conjunction with its loan impairment analysis. The allowance for interest receivable represents interest that was determined to be uncollectible during a reporting period subsequent to the initial
recognition of the interest income. As of March 31, 2013, the loan portfolio consisted of loans with original maturities of 2 to 4 years and variable interest rates at an average interest rate of 12.53%. During the three months ended
March 31, 2013, no loans were paid off with proceeds of lender protection insurance. During the three months ended March 31, 2012, 35 of our loans were paid off with proceeds of lender protection insurance totaling approximately
$10.6 million, of which approximately $6.7 million was for the principal of the loans and approximately $2.6 million was for accrued interest and accreted origination fees of approximately $2.8 million. The Company had an impairment
associated with these loans of approximately $1.7 million. We recognized a loss of approximately $73,000 on these transactions.

Our
premium finance borrowers were generally referred to us through independent insurance agents and brokers although, prior to January 2009, we originated some premium finance loans that were sold by life insurance agents that we employed. In certain
of these instances, the life insurance agents employed by the Company worked with external brokers and agents to obtain insurance for policyholders with the Company extending a premium finance loan to a borrower. We refer to these instances as the
retail non-seminar business, which began in December 2006 and was discontinued in January 2009. In total, the Company originated 114 premium finance loans as part of the retail non-seminar
business. As of March 31, 2013, the Company had 12 policies in its portfolio that once served as collateral for premium finance loans derived through the retail non-seminar business.

(9) Origination Fees

A summary of the balances of origination fees that are included in loans receivable in the consolidated balance sheet as of
March 31, 2013 and December 31, 2012 is as follows (in thousands):



|                                  |  |               |     |   |                  |   |       |  
|--------------------------------- |  | ------------- | --- | - | ---------------- | - | ----- | -
|                                  |  | March 31,2013 |     |   | December 31,2012 |  
|Loan origination fees gross       |  | $             | 859 |   |                  | $ | 1,334 |  
|Un-accreted origination fees      |  |               | (51 | ) |                  |   | (190  | )
|Amortized loan originations costs |  |               | 6   |   |                  |   | 13    |  
|                                  |  |               |     |   |                  |   |       |  
|                                  |  | $             | 814 |   |                  | $ | 1,157 |  
|                                  |  |               |     |   |                  |   |       |  

Loan origination fees are fees payable to the Company on the date of loan maturity or repayment. Loan
origination costs are deferred costs that are directly related to the creation of the loan receivable.



19



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##### Table of Contents

(10) Stock-Based Compensation

In connection with the Companys initial public offering, the Company established the Imperial Holdings 2011 Omnibus
Incentive Plan (the Omnibus Plan). The purpose of the Omnibus Plan is to attract, retain and motivate participating employees and to attract and retain well-qualified individuals to serve as members of the board of directors, consultants
and advisors through the use of incentives based upon the value of our common stock. Awards under the Omnibus Plan may consist of incentive awards, stock options, stock appreciation rights, performance shares, performance units, and shares of common
stock, restricted stock, restricted stock units or other stock-based awards as determined by the compensation committee. The Omnibus Plan provides that an aggregate of 1,200,000 shares of common stock are reserved for issuance under the Omnibus
Plan, subject to adjustment as provided in the Omnibus Plan. The Company recognized approximately $191,000 and $13,000 in stock-based compensation expense relating to stock options it granted under the Omnibus Plan during the three months ended
March 31, 2013 and 2012, respectively. The Company incurred additional stock-based compensation expense of approximately $4,000 in stock-based compensation relating to restricted stock granted to its board of directors during the three months
ended March 31, 2012.

Options

As of March 31, 2013, options to purchase 485,695 shares of common stock were outstanding and unexercised under the Omnibus Plan at a
weighted average exercise price of $10.75 per share. All of the outstanding options expire seven years after the date of grant and were granted with a strike price at $10.75 which was the offering price of our initial public offering or fair market
value (closing price) of the stock on the date of grant and vest over three years from the date of issue.

The Company has used the
Black-Scholes model to calculate fair values of options awarded. This model requires assumptions as to expected volatility, dividends, terms, and risk free rates. Assumptions used at the date of grant for stock-based compensation expensed in periods
covered herein, are outlined in the table below:



|                       |  |                                 
|---------------------- |  | --------------------------------
|                       |  | Three Months EndedMarch 31, 2013
|Expected Volatility    |  | 54.18%  54.23%                 
|Expected Dividend      |  | 0%                              
|Expected Term in Years |  | 4.5                             
|Risk Free Rate         |  | 2.16%  2.29%                   

The Company commenced its initial public offering of common stock in February 2011. Accordingly, there was no
public market for the Companys common stock prior to this date. Therefore, the Company identified comparable public entities and used the average volatility of those entities to reasonably estimate its expected volatility. The Company does not
expect to pay dividends on its common stock for the foreseeable future. Expected term is the period of time over which the options granted are expected to remain outstanding and is based on the simplified method as outlined in the SEC Staff
Accounting Bulletin 110. The Company will continue to estimate expected lives based on the simplified method until reliable historical data becomes available. The risk free rate is based on the U.S Treasury yield curve in effect at the time of
grant for the appropriate life of each option.



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##### Table of Contents

The following table presents the activity of the Companys outstanding stock options of
common stock for the three months ended March 31, 2013:



|                                       |  |                 |         |   |                                |   |       |                                         |  |  |      | 
|-------------------------------------- |  | --------------- | ------- | - | ------------------------------ | - | ----- | --------------------------------------- |  |  | ---- | 
|Common Stock Options                   |  | Number ofShares |         |   | WeightedAverage Priceper Share |   |       | WeightedAverageRemainingContractualTerm | 
|Options outstanding, December 31, 2012 |  |                 | 487,314 |   |                                | $ | 10.75 |                                         |  |  |     | 
|Options granted                        |  |                 |        |   |                                | $ |      |                                         |  |  |     | 
|Options exercised                      |  |                 |        |   |                                | $ |      |                                         |  |  |     | 
|Options forfeited                      |  |                 | (1,619  | ) |                                | $ | 10.75 |                                         |  |  |     | 
|Options expired                        |  |                 |        |   |                                | $ |      |                                         |  |  |     | 
|                                       |  |                 |         |   |                                |   |       |                                         |  |  |      | 
|Options outstanding March 31, 2013     |  |                 | 485,695 |   |                                | $ | 10.75 |                                         |  |  | 4.86 | 
|                                       |  |                 |         |   |                                |   |       |                                         |  |  |      | 
|Exercisable at March 31, 2013          |  |                 | 386,841 |   |                                | $ | 10.75 |                                         |  |  | 4.86 | 
|                                       |  |                 |         |   |                                |   |       |                                         |  |  |      | 
|Unvested at March 31, 2013             |  |                 | 98,854  |   |                                | $ | 10.75 |                                         |  |  | 4.86 | 
|                                       |  |                 |         |   |                                |   |       |                                         |  |  |      | 

As of March 31, 2013, all outstanding stock options had an exercise price above the fair market value of
the common stock on that date.

The remaining unamortized amounts of approximately $307,000 and $45,000 will be expensed during 2013 and
2014, respectively.

Restricted Stock

3,507 shares of restricted stock granted to our directors under the Omnibus Plan subject to a one year vesting schedule commencing on the
date of grant vested during the three months ended March 31, 2012. The fair value of the unvested restricted stock was valued at $38,000 based on the closing price of the Companys shares on the grant date. There were no unvested
restricted stock awards outstanding at March 31, 2013 and 2012.

(11) Structured Settlements

The balances of the Companys structured settlements are as follows (in thousands):



|                                       |  |           |       |  |              |   |       | 
|-------------------------------------- |  | --------- | ----- |  | ------------ | - | ----- | 
|                                       |  | March 31, |       |  | December 31, |  
|                                       |  | 2013      |       |  | 2012         |  
|Structured settlementsat cost         |  | $         | 1,593 |  |              | $ | 1,574 | 
|Structured settlementsat fair value   |  |           | 2,050 |  |              |   | 1,680 | 
|                                       |  |           |       |  |              |   |       | 
|Structured settlements receivable, net |  | $         | 3,643 |  |              | $ | 3,254 | 
|                                       |  |           |       |  |              |   |       | 

All structured settlements that were acquired subsequent to July 1, 2010 were marked to fair value.
Structured settlements that were acquired prior to July 1, 2010 were recorded at cost. During 2011, the Company reacquired certain structured settlements that were originally acquired prior to July 1, 2010 and the Company continued to
carry those structured settlements at cost upon reacquisition.

Certain financing arrangements for the Companys structured
settlements are described below:

Life-Contingent Structured Settlement Facility

On December 30, 2011, Washington Square Financial, LLC (WSF) entered into a forward purchase and sale agreement
(PSA) to sell up to $40.0 million of life contingent structured settlement receivables to Compass Settlements LLC (Compass), an entity managed by Beacon Annuity Fund, LP (Beacon). Subject to predetermined
eligibility criteria and on-going funding conditions, Compass committed, in increments of $5.0 million, up to $40.0 million to purchase life-contingent structured settlement receivables from WSF. The PSA obligates WSF to sell the life-contingent
structured settlement receivables it originates to Compass on an exclusive basis for twenty-four months, subject to Compass maintaining certain purchase commitment levels. Additionally, the Company has agreed to guaranty WSFs obligation to
repurchase any ineligible receivables sold under the PSA and certain other related obligations.



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For the three months ended March 31, 2013 and 2012, respectively, the Company sold 45 and
142 structured settlements under this facility, respectively, 5 and 107 of which were originated in 2012 and 2011, respectively, generating income of approximately $72,000 and $1.1 million, respectively, which was recorded as an unrealized change in
fair value of structured settlements in 2012 and 2011, respectively. The Company originated and sold 40 and 35 structured settlement transactions under this facility generating income of approximately $575,000 and $377,000, respectively, recorded as
gain on sale of structured settlements during the three months ended March 31, 2013 and 2012, respectively.

The Company also
recognized income of approximately $132,000 and $288,000 that was recorded as an unrealized change in fair value during the three months ended March 31, 2013 and 2012, respectively, on structured settlements that are intended for sale to
Compass. As of March 31, 2013, the Company had available commitments under this facility of $5.1million.

8.39% Fixed Rate
Asset Backed Variable Funding Notes

Imperial Settlements Financing 2010, LLC (ISF 2010) was formed as an
affiliate of the Company to serve as a special purpose financing entity to allow the Company to sell structured settlements and assignable annuities, which are referred to as receivables, to ISF 2010 and ISF 2010 to borrow against certain of its
receivables to provide ISF 2010 liquidity. ISF 2010 is a non-consolidated special purpose financing entity. On September 24, 2010, ISF 2010 entered into an arrangement to obtain up to $50.0 million in financing. Under this arrangement, a
subsidiary of Partner Re, Ltd. (the noteholder) became the initial holder of ISF 2010s 8.39% Fixed Rate Asset Backed Variable Funding Note issued under a master trust indenture and related indenture supplement (collectively, the
Indenture) pursuant to which the noteholder has committed to advance ISF 2010 up to $50.0 million upon the terms and conditions set forth in the Indenture. The note is secured by the receivables that ISF 2010 acquires from the Company
from time to time. The note is due and payable on or before January 1, 2057, but principal and interest must be repaid pursuant to a schedule of fixed payments from the receivables that secure the notes. The arrangement generally has a
concentration limit of 15% for the providers of the receivables that secure the notes. Wilmington Trust is the collateral trustee. As of March 31, 2013 and December 31, 2012, the balance of the notes outstanding on the special purpose
financing entitys books was $44.4 million and $43.2 million, respectively.

Upon the occurrence of certain events of default under
the Indenture, all amounts due under the note are automatically accelerated. The Companys maximum exposure related to ISF 2010 is limited to 5% of the dollar value of the ISF 2010 transactions, which is held back by ISF 2010 at the time of
sale, and is designed to absorb potential losses in collecting the receivables. The obligations of ISF 2010 are non-recourse to the Company. The total funds held back by ISF 2010 as of March 31, 2013 and December 31, 2012 were
approximately $2.3 million and $2.2 million and are included in investment in affiliate in the accompanying consolidated balance sheet.

During the three months ended March 31, 2013 and 2012, the Company sold 32 and 316 term certain structured settlements, respectively, 2
and 181 of which were originated in 2012 and 2011, respectively, generating income of approximately of $11,000 and $3.2 million, respectively, which was recorded as an unrealized change in fair value of structured settlements in 2012 and 2011,
respectively. The Company originated and sold 30 and 135 guaranteed structured settlement transactions under this facility generating income of approximately $478,000 and $2.0 million, respectively, which was recorded as a realized gain on sale of
structured settlements during the three months ended March 31, 2013 and 2012, respectively. The Company also recognized income of approximately $116,000 and $321,000 that was recorded as an unrealized change in fair value during the three
months ended March 31, 2013 and 2012, respectively, on structured settlements that are intended for sale to ISF 2010. The Company receives 95% of the purchase price in cash from ISF 2010. Of the remaining 5%, which represents the Companys
interest in ISF 2010, 1% is required to be contributed to a cash reserve account held by Wilmington Trust.

When the transfer of
receivables occurs, the Company records the transaction as a sale and derecognizes the asset from its balance sheet. In determining whether the Company is the primary beneficiary of the trust, the Company would determine that it does not control the
servicing, which is the activity that most significantly impacts the trust performance. An independent third party is the master servicer and it can only be replaced by the control partner, which is the entity that holds the majority of the
outstanding notes. The Company is a back-up servicer, which is insignificant to ISF 2010 performance.

Washington Square
Financial 3rd Party Sales

For the three months ended March 31, 2013 and 2012, respectively, in addition to its intended
sales to Compass and ISF 2010, the Company also sold 86 and 5 structured settlement deals to unrelated parties for $4.7 million and $125,000, respectively, generating income of $2.5 million and $122,000, respectively, recorded as a gain on sale of
structured settlements and $158,000 that was previously recorded as an unrealized change in fair value in 2012.

For the three months ended
March 31, 2013 and 2012, respectively, the Company recorded income of approximately $277,000 and zero, respectively, that was recorded as unrealized change in fair value on structured settlements that are intended for sale to other parties.

Total income recognized through accretion of interest income on structured settlement transactions for the three months ended
March 31, 2013 and 2012, respectively, was approximately $87,000 and $55,000, respectively. For the three months ended March 31,



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2013, $67,000 of accretion income, related to structured settlement receivables held at cost, was recognized in interest income and $20,000 related to structured settlement receivables held at
fair value, was recognized as unrealized change in fair value in the accompanying consolidated statement of operations.

The receivables
at March 31, 2013 and December 31, 2012 were approximately $3.6 million and $3.3 million, respectively, net of a discount of approximately $7.1 million and $4.6 million, respectively.

(12) Investment in Life Settlements (Life Insurance Policies)

During the three months ended March 31, 2013 and 2012, the Company acquired life insurance policies as a result of
certain of the Companys borrowers defaulting on premium finance loans and relinquishing the underlying policy to the Company in exchange for being released from further obligations under the loan. In 2011, the Company also began acquiring life
insurance policies in the secondary and tertiary markets. The Company elected to account for these policies using the fair value method in accordance with ASC 325-30-50 InvestmentsOtherInvestment in Insurance Contracts. Under the
fair value method, the Company recognizes the initial investment at the purchase price. For policies that were relinquished in satisfaction of premium finance loans at maturity, this is the loan carrying value and for policies purchased in the
secondary or tertiary markets, this is the amount of cash outlay at the time of purchase. At each reporting period, the Company re-measures the investment at fair value in its entirety and recognizes changes in fair value in earnings in the period
in which the changes occur. See Note 13Fair Value Measurements.

As of March 31, 2013 and December 31, 2012, the
Company owned 220 and 214 policies, respectively, with an aggregate estimated fair value of investments in life settlements of $117.7 million and 113.4 million, respectively. See Note 18Subsequent Events.

The weighted average life expectancy calculated based on death benefit of insureds in the policies owned by the Company at March 31, 2013
was 10.8 years. The following table describes the Companys investment in life settlements as of March 31, 2013 (dollars in thousands):



|                                     |  |                                   |     |  |           |   |         |           |  |   |           | 
|------------------------------------ |  | --------------------------------- | --- |  | --------- | - | ------- | --------- |  | - | --------- | 
|Remaining Life Expectancy (In Years) |  | Number ofLife SettlementContracts |     |  | FairValue |   |         | FaceValue | 
|0  1                                |  |                                   |    |  |           | $ |        |           |  | $ |          | 
|1  2                                |  |                                   |    |  |           |   |        |           |  |   |          | 
|2  3                                |  |                                   | 1   |  |           |   | 1,234   |           |  |   | 2,500     | 
|3  4                                |  |                                   | 5   |  |           |   | 6,957   |           |  |   | 16,450    | 
|4  5                                |  |                                   | 7   |  |           |   | 8,632   |           |  |   | 24,050    | 
|Thereafter                           |  |                                   | 207 |  |           |   | 100,909 |           |  |   | 1,056,906 | 
|                                     |  |                                   |     |  |           |   |         |           |  |   |           | 
|Total                                |  |                                   | 220 |  |           |   | 117,732 |           |  |   | 1,099,906 | 
|                                     |  |                                   |     |  |           |   |         |           |  |   |           | 

The weighted average life expectancy calculated based on death benefit of insureds in the policies owned by
the Company at December 31, 2012 was 10.6 years. The following table describes the Companys investment in life settlements as of December 31, 2012 (in thousands):



|                                     |  |                                   |     |  |           |   |         |           |  |   |           | 
|------------------------------------ |  | --------------------------------- | --- |  | --------- | - | ------- | --------- |  | - | --------- | 
|Remaining Life Expectancy (In Years) |  | Number ofLife SettlementContracts |     |  | FairValue |   |         | FaceValue | 
|0  1                                |  |                                   |    |  |           | $ |        |           |  | $ |          | 
|1  2                                |  |                                   |    |  |           |   |        |           |  |   |          | 
|2  3                                |  |                                   | 1   |  |           |   | 1,222   |           |  |   | 2,500     | 
|3  4                                |  |                                   | 4   |  |           |   | 3,319   |           |  |   | 11,450    | 
|4  5                                |  |                                   | 7   |  |           |   | 11,375  |           |  |   | 30,950    | 
|Thereafter                           |  |                                   | 202 |  |           |   | 97,525  |           |  |   | 1,028,256 | 
|                                     |  |                                   |     |  |           |   |         |           |  |   |           | 
|Total                                |  |                                   | 214 |  |           |   | 113,441 |           |  |   | 1,073,156 | 
|                                     |  |                                   |     |  |           |   |         |           |  |   |           | 



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Premiums to be paid during each of the five succeeding fiscal years to keep the life insurance
policies in force as of March 31, 2013, are as follows (in thousands):



|                  |  |   |         | 
|----------------- |  | - | ------- | 
|Remainder of 2013 |  | $ | 20,641  | 
|2014              |  |   | 26,288  | 
|2015              |  |   | 26,997  | 
|2016              |  |   | 27,708  | 
|2017              |  |   | 29,083  | 
|Thereafter        |  |   | 360,617 | 
|                  |  |   |         | 
|                  |  | $ | 491,334 | 
|                  |  |   |         | 

The amount of $491.3 million noted above represents the estimated total future premium payments required to
keep the life insurance policies in force during the life expectancies of all the underlying insured lives and does not give effect to projected receipt of death benefits. The estimated total future premium payments could increase or decrease
significantly to the extent that actual mortalities of insureds differs from the estimated life expectancies.

(13) Fair Value Measurements

We carry investments in life and structured settlements at fair value in the consolidated balance sheets. Fair value is
defined as an exit price, representing the amount that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. As such, fair value is a market based
measurement that should be determined based on assumptions that market participants would use in pricing an asset or liability. Fair value measurements are classified based on the following fair value hierarchy:

Level 1Valuation is based on unadjusted quoted prices in active markets for identical assets and liabilities
that are accessible at the reporting date. Since valuations are based on quoted prices that are readily and regularly available in an active market, valuation of these products does not entail a significant degree of judgment.

Level 2Valuation is determined from pricing inputs that are other than quoted prices in active markets that
are either directly or indirectly observable as of the reporting date. Observable inputs include quoted prices for similar assets or liabilities in active markets, quoted prices for identical or similar assets or liabilities in markets that are not
active, and interest rates and yield curves that are observable at commonly quoted intervals.

Level 3Valuation
is based on inputs that are both significant to the fair value measurement and unobservable. Level 3 inputs include situations where there is little, if any, market activity for the financial instrument. The inputs into the determination of
fair value generally require significant management judgment or estimation.

Assets and liabilities measured at fair value on a
recurring basis

The balances of the Companys assets measured at fair value on a recurring basis as of
March 31, 2013, are as follows (in thousands):



|                                  |  |         |   |  |         |   |   |         |  |   |            |  |  |   |         | 
|--------------------------------- |  | ------- | - |  | ------- | - | - | ------- |  | - | ---------- |  |  | - | ------- | 
|                                  |  |         |   |  |         |   |   |         |  |   | Total      | 
|                                  |  | Level 1 |   |  | Level 2 |   |   | Level 3 |  |   | Fair Value | 
|Assets:                           |  |         |   |  |         |   |   |         |  |   |            |  |  |   |         | 
|Investment in life settlements    |  | $       |  |  |         | $ |  |         |  | $ | 117,732    |  |  | $ | 117,732 | 
|Structured settlement receivables |  |         |  |  |         |   |  |         |  |   | 2,050      |  |  |   | 2,050   | 
|                                  |  |         |   |  |         |   |   |         |  |   |            |  |  |   |         | 
|                                  |  | $       |  |  |         | $ |  |         |  | $ | 119,782    |  |  | $ | 119,782 | 
|                                  |  |         |   |  |         |   |   |         |  |   |            |  |  |   |         | 



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The balances of the Companys assets measured at fair value on a recurring basis as of
December 31, 2012, are as follows (in thousands):



|                                         |  |         |   |  |         |   |        |         |  |   |            |  |  |   |         | 
|---------------------------------------- |  | ------- | - |  | ------- | - | ------ | ------- |  | - | ---------- |  |  | - | ------- | 
|                                         |  | Level 1 |   |  | Level 2 |   |        | Level 3 |  |   | Fair Value | 
|Assets:                                  |  |         |   |  |         |   |        |         |  |   |            |  |  |   |         | 
|Investment in life settlements           |  | $       |  |  |         | $ |       |         |  | $ | 113,441    |  |  | $ | 113,441 | 
|Structured settlement receivables        |  |         |  |  |         |   |       |         |  |   | 1,680      |  |  |   | 1,680   | 
|Investment securities available for sale |  |         |  |  |         |   | 12,147 |         |  |   |           |  |  |   | 12,147  | 
|                                         |  |         |   |  |         |   |        |         |  |   |            |  |  |   |         | 
|                                         |  | $       |  |  |         | $ | 12,147 |         |  | $ | 115,121    |  |  | $ | 127,268 | 
|                                         |  |         |   |  |         |   |        |         |  |   |            |  |  |   |         | 

The Company values its investment in life settlement portfolio in two classes, non-premium
financed and premium financed. In considering the categories, it is generally believed that market participants would require a lower risk premium for policies that were non-premium financed, while a higher risk premium would be required for
policies that were premium financed.



|                                   |  |                                                                |         |  |                                 |   |           |                        |  |                      |  |                               |  |                
|---------------------------------- |  | -------------------------------------------------------------- | ------- |  | ------------------------------- | - | --------- | ---------------------- |  | -------------------- |  | ----------------------------- |  | ---------------
|($ in thousands)                   |  | Quantitative Information about Level 3 Fair Value Measurements
|                                   |  | Fair Valueat 3/31/2013                                         |         |  | Aggregatedeath benefit3/31/2013 |   |           | Valuation Technque (s) |  | Unobservable Input   |  | Range(Weighted Average)      
|Non-premium financed               |  | $                                                              | 33,109  |  |                                 | $ | 206,450   |                        |  | Discounted cash flow |  | Discount rate                 |  | 14.80% - 24.80%
|                                   |  |                                                                |         |  |                                 |   |           |                        |  |                      |  | Life expectancy evaluation    |  | (9.4 years)    
|Premium financed                   |  | $                                                              | 84,623  |  |                                 | $ | 893,456   |                        |  | Discounted cash flow |  | Discount rate                 |  | 16.80% - 33.80%
|                                   |  |                                                                |         |  |                                 |   |           |                        |  |                      |  |                               |  |                
|                                   |  |                                                                |         |  |                                 |   |           |                        |  |                      |  | Life expectancy evaluation    |  | (11.1 years)   
|Investment in life settlements     |  | $                                                              | 117,732 |  |                                 | $ | 1,099,906 |                        |  | Discounted cash flow |  | Discount rate                 |  | (22.58%)       
|                                   |  |                                                                |         |  |                                 |   |           |                        |  |                      |  | Life expectancy evaluation    |  | (10.8 years)   
|                                   |  |                                                                |         |  |                                 |   |           |                        |  |                      |  |                               |  |                
|Structured settlements receivables |  | $                                                              | 2,050   |  |                                 |   | N/A       |                        |  | Discounted cash flow |  | Facility sales discount rates |  | 6.73% - 13.20% 
|                                   |  |                                                                |         |  |                                 |   |           |                        |  |                      |  |                               |  |                

Following is a description of the methodologies used to estimate the fair values of assets and liabilities
measured at fair value on a recurring basis and within the fair value hierarchy.

Investment in life settlementsThe Company
has elected to account for the life settlement policies it acquires using the fair value method.Due to the inactive market for life settlements, the Company uses a present value technique to estimate the fair value of our investments in life
settlements, which is a Level 3 fair value measurement as the significant inputs are unobservable and require significant management judgment or estimation. The Company currently uses a probabilistic method of valuing life insurance policies, which
we believe to be the preferred valuation method in the industry. The most significant assumptions are the estimates of life expectancy of the insured and the discount rate.

In determining the life expectancy estimate, we analyze medical reviews from independent secondary market life expectancy providers (each a
LE provider). An LE provider reviews the medical records and identifies all medical conditions it feels are relevant to the life expectancy of the insured. Debits and credits are then assigned by each LE provider to the individuals
health based on identified medical conditions. The debit or credit that an LE provider assigns to a medical condition is derived from the experience of mortality attributed to this condition in the portfolio of lives that the LE provider monitors.
The health of the insured is summarized by the LE provider into a life assessment of the individuals life expectancy expressed both in terms of months and in mortality factor.

The resulting mortality factor represents an indication as to the degree to which the given life can be considered more or less impaired than
a standard life having similar characteristics (e.g. gender, age, smoking, etc.). For example, a standard insured (the average life for the given mortality table) would carry a mortality rating of 100%. A similar but impaired life bearing a
mortality rating of 200% would be considered to have twice the chance of dying earlier than the standard life. The probability of mortality for an insured is then calculated by applying the blended life expectancy estimate to a mortality table. The
mortality table is created based on the rates of death among groups categorized by gender, age, and smoking status. By measuring how many deaths occur during each year, the table allows for a calculation of the probability of death in a given year
for each category of insured people. The probability of mortality for an insured is found by applying the mortality rating from the life expectancy assessment to the probability found in the actuarial table for the insureds age, sex and
smoking status. The Company has historically applied an actuarial table developed by a third party. However, beginning in the quarter ended September 30, 2012, the Company transitioned to a table developed by the U.S. Society of Actuaries known
as the 2008 Valuation Basic Table, or the 2008 VBT. However, because the 2008 VBT table does not account for anticipated improvements in mortality in the insured population, the table was modified by outside consultants to reflect these expected
mortality improvements. The Company believes that the change in mortality table does not materially impact the valuation of its life insurance policies and that its adoption of a modified 2008 VBT table is consistent with modified tables used by



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market participants and third party medical underwriters.

The mortality rating is
used to create a series of best estimate probabilistic cash flows. This probability represents a mathematical curve known as a mortality curve. This curve is then used to generate a series of expected cash flows over the remaining expected lifespan
of the insured and the corresponding policy. A discounted present value calculation is then used to determine the value of the policy. If the insured dies earlier than expected, the return will be higher than if the insured dies when expected or
later than expected.

The calculation allows for the possibility that if the insured dies earlier than expected, the premiums needed to
keep the policy in force will not have to be paid. Conversely, the calculation also considers the possibility that if the insured lives longer than expected, more premium payments will be necessary. Based on these considerations, each possible
outcome is assigned a probability and the range of possible outcomes is then used to create a value for the policy.

Historically, the
Company has procured the majority of its life expectancy reports from two life expectancy report providers and only used AVS Underwriting LLC (AVS) life expectancy reports for valuation purposes. Beginning in the quarter ended
September 30, 2012, the Company began utilizing life expectancy reports from 21st Services, LLC (21st Services) for valuation purposes and began averaging or blending, the results of the two life expectancy reports to
establish a composite mortality factor.

On January 22, 2013, 21st Services announced revisions to its underwriting methodology and
on February 4, 2013, announced that it was correcting errors discovered in its previously announced revised methodology. According to the 21st Services, these revisions have generally been understood to lengthen the average reported life
expectancy furnished by the LE Provider by 19%. As of March 31, 2013, the Company has not, however, received updated life expectancy reports from 21st Services that utilize its revised methodology nor has the Company completed an evaluation of
the impact the revised methodology may have on the fair value of the Companys portfolio of life insurance policies. As a result of the 21st Services revisions and based on managements assessment of the reaction of other market
participants to the revisions, for the three months ended March 31, 2013, the Company increased the life expectancies furnished by 21st Services by 13% prior to blending them with the life expectancy reports furnished by AVS.

As a general matter, the Company expects that it will need to procure updated life expectancies no less frequently than every 24 months
on policies pledged as collateral under the Credit Agreement and, in time, expects that it will procure updated life expectancy reports from 21st Services on the majority of its policies (assuming the Company does not cease utilizing 21st Services
as a LE Provider). The fair value calculations in future periods will, accordingly, then reflect the actual impact of the revised 21st Services methodology on a policy by policy basis as such updated life expectancy reports are procured.



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Life expectancy sensitivity analysis

As is the case with most market participants at March 31, 2013, the Company used a blend of life expectancies that are provided by two
third-party LE providers. These are estimates of an insureds remaining years. If all of the insured lives in the Companys life settlement portfolio live six months shorter or longer than the life expectancies provided by these third
parties, the change in fair market value would be as follows (dollars in thousands):



|                                  |  |       |         |  |                 |   |         |  
|--------------------------------- |  | ----- | ------- |  | --------------- | - | ------- | -
|Life Expectancy Months Adjustment |  | Value |         |  | Change in Value |  
|+6                                |  | $     | 98,706  |  |                 | $ | (19,026 | )
|-                                 |  | $     | 117,732 |  |                 | $ |        |  
|-6                                |  | $     | 138,153 |  |                 | $ | 20,421  |  

As noted above, the Company takes an average, or blend, of the two life expectancy reports to derive a
composite mortality factor, except in instances where the probability of mortality between the reports is greater than 150%. In such instances and as reflected in the fair market value at March 31, 2013 and December 31, 2012, the Company
will cap the higher mortality factor at amount that is 150% above the lower mortality factor, which ultimately reduces the mortality factor inputted into the Companys fair value model. At March 31, 2013 and December 31, 2012, had the
Company not implemented such a cap on affected policies, the fair value of the Companys portfolio would have increased from the reported amount by $5.9 million and $5.8 million, respectively

Discount rate

The
discount rate incorporates current information about market interest rates, the credit exposure to the insurance company that issued the life insurance policy and our estimate of the risk premium an investor in the policy would require.

The Company believes that investors in esoteric assets such as life insurance policies typically target yields averaging between 12%17%
for investments of more than a 5 year duration, and had historically used a 15%17% range of discount rates to value its life insurance policies. In the third quarter of 2011 and in the immediate aftermath of becoming aware of the USAO
investigation, the Company substantially increased the discount rates inputted into its fair value model as it believed that the USAO Investigation along with certain unfavorable court decisions unrelated to the Company contributed to a contraction
in the marketplace that has continued to reverberate. Since that time, the Company has been re-evaluating its discount rates at the end of every reporting period in order to reflect the estimated discount rates that could reasonably be used in a
market transaction involving the Companys portfolio of life insurance policies. In doing so, the Company relies on management insight, engages third party consultants to corroborate its assessment, engages in discussions with other market
participants and potential financing sources and extrapolates the discount rate underlying actual sales of policies.

Although the Company
believes that its entry into the Non-Prosecution Agreement had a positive effect on the market generally and for premium financed life insurance policies specifically, the Company believes that, when given the choice to invest in a policy that was
associated with the Companys premium finance business and a similar policy without such an association, all else being equal, an investor would have generally opted to invest in the policy that was not associated with the Companys
premium finance business. However, since entering into the Non-Prosecution Agreement, we believe investors have required less of a risk premium to transact in these policies and the Company expects that, in time, investors will continue to require
less of a risk premium to transact in policies associated with its premium finance business.

Credit exposure of insurance company

The Company considers the financial standing of the issuer of each policy and typically, we seek to hold policies issued by insurance
companies with investment-grade ratings of at least single-A. At March 31, 2013, the Company had six life insurance policies issued by one carrier that was rated non-investment grade by S&P at March 31, 2013. In order to compensate a
market participant for the perceived credit and challenge risks associated with these policies, the Company applied an additional 300 basis point risk premium.

Estimated risk premium

As of March 31, 2013, the Company owned 220 policies with an aggregate investment in life settlements of $117.7 million. Of these 220
policies, 177 were previously premium financed and are valued using discount rates that range from 16.80% to 33.80%. The remaining 43 policies are valued using discount rates that range from 14.80% to 24.80%. As of March 31, 2013, the weighted
average discount rate calculated based on death benefit used in valuing the policies in our life settlement portfolio was 22.58%.



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The discount rate incorporates current information about market interest rates, the credit
exposure to the insurance company that issued the life insurance policy and our estimate of the risk premium an investor in the policy would require. The extent to which the fair value could vary in the near term has been quantified by evaluating
the effect of changes in the weighted average discount rate on the death benefit used to estimate the fair value. If the weighted average discount rate were increased or decreased by 1/2 of 1% and the other assumptions used to estimate fair value
remained the same, the change in fair market value would be as follows (dollars in thousands):

Market interest rate sensitivity
analysis



|                                                        |  |                 |     |   |       |   |         |                 |  |   |        |  
|------------------------------------------------------- |  | --------------- | --- | - | ----- | - | ------- | --------------- |  | - | ------ | -
|Weighted Average Rate Calculated Based on Death Benefit |  | Rate Adjustment |     |   | Value |   |         | Change in Value | 
|22.08%                                                  |  |                 | -50 | % |       | $ | 120,664 |                 |  | $ | 2,932  |  
|22.58%                                                  |  |                 |    |   |       | $ | 117,732 |                 |  |   |       |  
|23.08%                                                  |  |                 | 50  | % |       | $ | 114,918 |                 |  | $ | (2,814 | )

Future changes in the discount rates we use to value life insurance policies could have a material effect on
our yield on life settlement transactions, which could have a material adverse effect on our business, financial condition and results of our operations.

At the end of each reporting period we re-value the life insurance policies using our valuation model in order to update our loan impairment
valuation for loans receivable and our estimate of fair value of investments in policies held on our balance sheet. This includes reviewing our assumptions for discount rates and life expectancies, as well as incorporating current information for
premium payments and the passage of time.

Structured settlement receivablesAll structured settlements that were acquired
subsequent to July 1, 2010 were marked to fair value. Structured settlements that were acquired prior to July 1, 2010 were recorded at cost. We make this election because it is our intention to sell these assets within the next twelve
months. Structured settlements are purchased at effective yields that are fixed. Purchase discounts are accreted into interest income using the effective-interest method for those structured settlements marked to fair value. As of March 31,
2013, the Company had 45 structured settlements with an estimated fair value of $2.1 million and an average sales discount rate of 9.17%.

Changes
in Fair Value

The following tables provide a roll-forward in the changes in fair value for the three months ended March 31, 2013,
for all assets for which the Company determines fair value using a material level of unobservable (Level 3) inputs (in thousands):



|                                                                                                    |  |   |         |  
|--------------------------------------------------------------------------------------------------- |  | - | ------- | -
|Life Settlements:                                                                                   |  |   |         |  
|Balance, December 31, 2012                                                                          |  | $ | 113,441 |  
|Acquired in foreclosure                                                                             |  |   | 1,524   |  
|Unrealized change in fair value                                                                     |  |   | (3,036  | )
|Matured policies                                                                                    |  |   | (1,160  | )
|Premiums paid                                                                                       |  |   | 6,963   |  
|Transfers into level 3                                                                              |  |   |        |  
|Transfer out of level 3                                                                             |  |   |        |  
|                                                                                                    |  |   |         |  
|Balance,March 31, 2013                                                                              |  | $ | 117,732 |  
|                                                                                                    |  |   |         |  
|Changes in fair value included in earnings for the period relating to assets held at March 31, 2013 |  | $ | (2,865  | )
|                                                                                                    |  |   |         |  

The Company recorded change in fair value of approximately $1.8 million and approximately $4.3 million for the
three months ended March 31, 2013 and 2012, respectively.



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|                                                                                                    |  |   |        |  
|--------------------------------------------------------------------------------------------------- |  | - | ------ | -
|Structured Settlements:                                                                             |  |   |        |  
|Balance, December 31, 2012                                                                          |  | $ | 1,680  |  
|Purchase of contracts                                                                               |  |   | 5,539  |  
|Unrealized change in fair value                                                                     |  |   | 545    |  
|Sale of contracts                                                                                   |  |   | (5,689 | )
|Collections                                                                                         |  |   | (25    | )
|Transfers into level 3                                                                              |  |   |       |  
|Transfer out of level 3                                                                             |  |   |       |  
|                                                                                                    |  |   |        |  
|Balance, March 31, 2013                                                                             |  | $ | 2,050  |  
|                                                                                                    |  |   |        |  
|Changes in fair value included in earnings for the period relating to assets held at March 31, 2013 |  | $ | 545    |  
|                                                                                                    |  |   |        |  

The following tables provide a roll-forward in the changes in fair value for the three months ended
March 31, 2012, for all assets for which the Company determines fair value using a material level of unobservable (Level 3) inputs (in thousands).



|                                                                                                    |  |   |         |  
|--------------------------------------------------------------------------------------------------- |  | - | ------- | -
|Life Settlements:                                                                                   |  |   |         |  
|Balance, December 31, 2011                                                                          |  | $ | 90,917  |  
|Acquired in foreclosure                                                                             |  |   | 2,163   |  
|Unrealized change in fair value                                                                     |  |   | 4,255   |  
|Sale of policies                                                                                    |  |   | (1,300  | )
|Premiums paid                                                                                       |  |   | 6,260   |  
|Transfers into level 3                                                                              |  |   |        |  
|Transfer out of level 3                                                                             |  |   |        |  
|                                                                                                    |  |   |         |  
|Balance, March 31, 2012                                                                             |  | $ | 102,295 |  
|                                                                                                    |  |   |         |  
|Changes in fair value included in earnings for the period relating to assets held at March 31, 2012 |  | $ | 4,224   |  
|                                                                                                    |  |   |         |  
|                                                                                                    | 
|Structured Settlements:                                                                             |  |   |         |  
|Balance, December 31, 2011                                                                          |  | $ | 12,376  |  
|Purchase of contracts                                                                               |  |   | 5,318   |  
|Unrealized change in fair value                                                                     |  |   | 610     |  
|Sale of contracts                                                                                   |  |   | (15,390 | )
|Collections                                                                                         |  |   | (80     | )
|Transfers into level 3                                                                              |  |   |        |  
|Transfer out of level 3                                                                             |  |   |        |  
|                                                                                                    |  |   |         |  
|Balance, March 31, 2012                                                                             |  | $ | 2,834   |  
|                                                                                                    |  |   |         |  
|Changes in fair value included in earnings for the period relating to assets held at March 31, 2012 |  | $ | 610     |  
|                                                                                                    |  |   |         |  

There were no transfers of financial assets between levels of the fair value hierarchy during the three months
ended March 31, 2013 and 2012.

Assets and liabilities measured at fair value on a non-recurring basis

Following is a description of the methodologies used to estimate the fair values of assets and liabilities measured at fair value on a
non-recurring basis, and the level within the fair value hierarchy in which those measurements are typically classified.

The
Companys impaired loans are measured at fair value on a non-recurring basis, as the carrying value is based on the fair value of the underlying collateral. The method used to estimate the fair value of impaired collateral-dependent loans
depends on the nature of the collateral. For collateral that has lender protection insurance coverage, the fair value measurement is considered to be Level 2 as the insured value is an observable input and there are no material unobservable
inputs. For collateral that does not have lender protection insurance coverage, the fair value measurement is considered to be Level 3 as the estimated fair value is based on a model whose significant inputs are the life expectancy of the
insured and the discount rate, which are not observable inputs. As of March 31, 2013 and December 31, 2012, the Company had insured impaired loans with a net carrying value, which includes principal, accrued interest, and accreted
origination fees, net of impairment, of approximately $116,000 and $112,000, respectively. As



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described below in Note 18Subsequent EventsSubrogation Rights, net, as a result of the entry into the Termination Agreement, the lender protection insurance carrier will cease
paying claims on insured loans in future periods. As of March 31, 2013 and December 31, 2012, the Company had uninsured impaired loans (Level 3) with a net carrying value of approximately $2.1 million and $3.6 million,
respectively. The provision for losses on loans receivable related to impaired loans was zero for the three months ended March 31, 2013 and 2012. See Notes 8 and 12.

(14) Segment Information

The Company operates in two segments: life finance and structured settlements. Prior to the fourth quarter of 2011, the life
finance segment provided financing in the form of loans to trusts and individuals for the payment of premiums of life insurance policies. Beginning in 2011, in this segment, the Company also acquired life insurance policies through purchases in the
secondary and tertiary markets. The structured settlements segment purchases structured settlements from individuals.

Recipients of
structured settlements are permitted to sell their deferred payment streams to a structured settlement purchaser pursuant to state statutes that require certain disclosures, notice to the obligors and state court approval. Through such sales, the
Company purchases a certain number of fixed, scheduled future settlement payments on a discounted basis in exchange for a single lump sum payment.

The performance of the segments is evaluated by members of the Companys senior management team. Cash and income taxes generally are
managed centrally. Performance of the segments is based on revenue and cost control.



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Segment results and reconciliation to consolidated net income were as follows (in thousands):



|                                                                   |  |                                     |        |   |      |   |        |  
|------------------------------------------------------------------ |  | ----------------------------------- | ------ | - | ---- | - | ------ | -
|                                                                   |  | For the Three Months EndedMarch 31, |       
|                                                                   |  | 2013                                |        |   | 2012 |  
|Life finance                                                       |  |                                     |        |   |      |   |        |  
|Income                                                             |  |                                     |        |   |      |   |        |  
|Interest income                                                    |  | $                                   | 20     |   |      | $ | 845    |  
|Origination income                                                 |  |                                     |       |   |      |   | 250    |  
|Change in fair value of life settlements                           |  |                                     | 1,840  |   |      |   | 4,255  |  
|Gain on sale of life settlements, net                              |  |                                     |       |   |      |   | 236    |  
|Servicing fee income                                               |  |                                     | 234    |   |      |   | 358    |  
|Other                                                              |  |                                     | 45     |   |      |   | 24     |  
|                                                                   |  |                                     |        |   |      |   |        |  
|                                                                   |  |                                     | 2,139  |   |      |   | 5,968  |  
|                                                                   |  |                                     |        |   |      |   |        |  
|Direct segment expenses                                            |  |                                     |        |   |      |   |        |  
|Interest expense                                                   |  |                                     | 100    |   |      |   | 773    |  
|Gain on loans payoffs and settlements, net                         |  |                                     |       |   |      |   | (9     | )
|Amortization of deferred costs                                     |  |                                     | 7      |   |      |   | 982    |  
|Personnel costs                                                    |  |                                     | 1,447  |   |      |   | 1,309  |  
|Legal fees                                                         |  |                                     | (99    | ) |      |   | 1,008  |  
|Professional fees                                                  |  |                                     | 177    |   |      |   | 433    |  
|Insurance                                                          |  |                                     | 212    |   |      |   | 211    |  
|Other selling, general and administrative expenses                 |  |                                     | 263    |   |      |   | 433    |  
|                                                                   |  |                                     |        |   |      |   |        |  
|                                                                   |  |                                     | 2,107  |   |      |   | 5,140  |  
|                                                                   |  |                                     |        |   |      |   |        |  
|Segment operating income                                           |  | $                                   | 32     |   |      | $ | 828    |  
|                                                                   |  |                                     |        |   |      |   |        |  
|Structured settlements                                             |  |                                     |        |   |      |   |        |  
|Income                                                             |  |                                     |        |   |      |   |        |  
|Realized gain on sale of structured settlements                    |  | $                                   | 3,541  |   |      | $ | 2,475  |  
|Interest income                                                    |  |                                     | 67     |   |      |   | 61     |  
|Unrealized change in fair value of structured settlements          |  |                                     | 545    |   |      |   | 610    |  
|Other income                                                       |  |                                     | 39     |   |      |   | 87     |  
|                                                                   |  |                                     |        |   |      |   |        |  
|                                                                   |  |                                     | 4,192  |   |      |   | 3,233  |  
|                                                                   |  |                                     |        |   |      |   |        |  
|Direct segment expenses                                            |  |                                     |        |   |      |   |        |  
|Personnel costs                                                    |  |                                     | 1,767  |   |      |   | 2,154  |  
|Marketing costs                                                    |  |                                     | 811    |   |      |   | 2,162  |  
|Legal fees                                                         |  |                                     | 428    |   |      |   | 590    |  
|Professional fees                                                  |  |                                     | 319    |   |      |   | 413    |  
|Insurance                                                          |  |                                     | 212    |   |      |   | 212    |  
|Other selling, general and administrative expenses                 |  |                                     | 412    |   |      |   | 558    |  
|                                                                   |  |                                     |        |   |      |   |        |  
|                                                                   |  |                                     | 3,949  |   |      |   | 6,089  |  
|                                                                   |  |                                     |        |   |      |   |        |  
|Segment operating income (loss)                                    |  | $                                   | 243    |   |      | $ | (2,856 | )
|                                                                   |  |                                     |        |   |      |   |        |  
|Consolidated                                                       |  |                                     |        |   |      |   |        |  
|Segment operating income (loss)                                    |  |                                     | 275    |   |      |   | (2,028 | )
|Unallocated income                                                 |  |                                     |        |   |      |   |        |  
|Interest and dividends on investment securities available for sale |  |                                     | 14     |   |      |   | 128    |  
|Other income                                                       |  |                                     | 8      |   |      |   | 636    |  
|                                                                   |  |                                     |        |   |      |   |        |  
|                                                                   |  |                                     | 22     |   |      |   | 764    |  
|                                                                   |  |                                     |        |   |      |   |        |  
|Unallocated expenses                                               |  |                                     |        |   |      |   |        |  
|Interest expense                                                   |  |                                     | 3      |   |      |   | 1      |  
|Personnel costs                                                    |  |                                     | 117    |   |      |   | 226    |  
|Legal fees                                                         |  |                                     | 3,747  |   |      |   | 6,292  |  
|Professional fees                                                  |  |                                     | 605    |   |      |   | 1,073  |  
|Insurance                                                          |  |                                     | 95     |   |      |   | 47     |  
|Other selling, general and administrative expenses                 |  |                                     | 21     |   |      |   | 9      |  
|                                                                   |  |                                     |        |   |      |   |        |  
|                                                                   |  |                                     | 4,588  |   |      |   | 7,648  |  
|                                                                   |  |                                     |        |   |      |   |        |  
|Loss before income taxes                                           |  |                                     | (4,291 | ) |      |   | (8,912 | )
|Provision (benefit) for income taxes                               |  |                                     | 40     |   |      |   | (41    | )
|                                                                   |  |                                     |        |   |      |   |        |  
|Net loss                                                           |  | $                                   | (4,331 | ) |      | $ | (8,871 | )
|                                                                   |  |                                     |        |   |      |   |        |  



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Segment assets and reconciliation to consolidated total assets were as follows (in thousands):



|                         |  |               |         |  |                  |   |         | 
|------------------------ |  | ------------- | ------- |  | ---------------- | - | ------- | 
|                         |  | March 31,2013 |         |  | December 31,2012 |  
|Direct segment assets    |  |               |         |  |                  |   |         | 
|Life finance             |  | $             | 171,159 |  |                  | $ | 123,581 | 
|Structured settlements   |  |               | 6,756   |  |                  |   | 6,862   | 
|                         |  |               |         |  |                  |   |         | 
|                         |  |               | 177,915 |  |                  |   | 130,443 | 
|Other unallocated assets |  |               | 24,718  |  |                  |   | 29,899  | 
|                         |  |               |         |  |                  |   |         | 
|                         |  | $             | 202,633 |  |                  | $ | 160,342 | 
|                         |  |               |         |  |                  |   |         | 

Amounts are attributed to the segment that holds the assets. There are no intercompany sales and all
intercompany account balances are eliminated in segment reporting.

(15) Commitments and Contingencies

In accordance with applicable accounting guidance, the Company establishes an accrued liability for litigation and
regulatory matters when those matters present loss contingencies that are both probable and estimable. In such cases, there may be an exposure to loss in excess of any amounts accrued. When a loss contingency is not both probable and estimable, the
Company does not establish an accrued liability. As a litigation or regulatory matter develops, the Company, in conjunction with any outside counsel handling the matter, evaluates on an ongoing basis whether such matter presents a loss contingency
that is probable and estimable. If, at the time of evaluation, the loss contingency related to a litigation or regulatory matter is not both probable and estimable, the matter will continue to be monitored for further developments that would make
such loss contingency both probable and estimable. Once the loss contingency related to a litigation or regulatory matter is deemed to be both probable and estimable, the Company will establish an accrued liability with respect to such loss
contingency and record a corresponding amount of litigation-related expense. The Company continues to monitor the matter for further developments that could affect the amount of the accrued liability that has been previously established. Excluding
expenses of external legal service providers, litigation-related fees of $1.4 million and $5.5 million were recognized for the three months ended March 31, 2013 and 2012, respectively.

Employment Agreements

In connection with our initial public offering, we entered into employment agreements with certain of our executive officers. The agreement for
our chief executive officer provides for substantial payments in the event that the executive terminates his employment with us due to a material change in the geographic location where such officer performs his duties or upon a material diminution
of his base salary or responsibilities, with or without cause. For our chief executive officer, payments are equal to three times the sum of base salary and the average of the three years annual cash bonus, unless the triggering event occurs
during the first three years of his employment agreement, in which case the payments are equal to six times base salary. For our chief executive officer, the agreement provides for bonus incentives based on pre-tax income thresholds.



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On April 26, 2012, the Company entered into a Separation Agreement and General Release of
Claims (the Separation Agreement) with its chief operating officer, Jonathan Neuman. As part of the Separation Agreement, Mr. Neuman resigned as a member of the Companys board of directors and as an employee of Company.
Pursuant to the Separation Agreement, the Company paid Mr. Neuman a separation payment of $1.4 million. The Separation Agreement does not include a covenant by Mr. Neuman to refrain from competing with Imperial, but does contain customary
non-disparagement and non-solicitation provisions. The Separation Agreement provides releases by each party and also obligates the Company to continue to indemnify Mr. Neuman for his legal expenses substantially in the same manner contemplated
by his employment agreement with the Company.

On February 15, 2012, the Company entered into a retention arrangement with its Chief
Financial Officer and Chief Credit Officer, Richard OConnell, Jr. The arrangement provides that, in the event Mr. OConnells employment is terminated without cause or Mr. OConnell terminates his employment with the
Company for good reason, in each case, prior to December 31, 2013, Mr. OConnell will be entitled to 24 months base salary in addition to any accrued benefits. Additionally, unless Mr. OConnells employment is
terminated for cause, Mr. OConnell will be entitled to a minimum bonus of $250,000 for each of 2012 and 2013, subject to the Companys Board of Directors right to terminate the bonus payment in respect of 2013 prior to
January 1, 2013. Except for the provisions relating to severance and other termination benefits, the terms of Mr. OConnells Employment and Severance Agreement entered into with the Company as of November 4, 2010 remain in
effect during the term of the retention arrangement and the provisions of the employment agreement relating to severance and other termination benefits will again be in effect following any termination of the retention arrangement if
Mr. OConnell is then employed by the Company.

During the first quarter of 2012, the Company also entered into severance
and retention award agreements with certain of its executive officers (other than the CEO and CFO). The agreements generally provide for a minimum guaranteed bonus in each of 2012 and 2013 as well as severance payments equal to two years base
salary in the event of termination by the Company without Cause (as defined in the respective agreement) provided the executive executes a general release of claims against the Company.

We do not have any general policies regarding the use of employment agreements, but may, from time to time, enter into such a written
agreement to reflect the terms and conditions of employment of a particular named executive officer, whether at the time of hire or thereafter.

Subrogation Rights, net

Every credit facility entered into by subsidiaries of the Company between December 2007 and December 2010 to finance the premium finance
lending business required lender protection insurance for each loan originated under such credit facility. Generally, when the Company exercises its right to foreclose on collateral, the Companys lender protection insurer has the right to
direct control or take beneficial ownership of the life insurance policy, subject to the terms and conditions of the lender protection insurance policy, including notice and timing requirements. Otherwise, the lender protection insurer maintains its
salvage collection and subrogation rights. The lender protection insurers salvage collection and subrogation rights generally provide a remedy by which the insurer can seek to recover the amount of the lender protection claim paid plus
premiums paid by it, expenses and interest thereon.

In those instances where the Company has foreclosed on the collateral, the lender
protection insurer has maintained its salvage collection and subrogation rights and has been covering the cost of the ongoing premiums needed to maintain certain of these life insurance policies. However, the lender protection insurer may elect at
any time to discontinue the payment of premiums which would result in lapse of the policies if the Company does not otherwise pay the premiums. The Company views these policies as having uncertain value because the lender protection insurer controls
what happens to the policy from a payment of premium standpoint, and the amount of the lender protection insurers salvage collection and subrogation claim rights on any individual life insurance policy could equal the cash flow received by the
Company with respect to any such policy. For these reasons, , the Company does not rely on these policies for revenue generation, and these policies are considered contingent assets and are not included in the amount of life settlements on the
accompanying consolidated balance sheet.

The Company accounts for the maturities of life settlements with subrogation rights net of
subrogation expenses as contingent gains in accordance with ASC 450,Contingencies and recognizes the revenue from the maturities of these policies when all contingencies are resolved. See Note 18Subsequent Events.

Class Action Litigation, Derivative Demands and the Insurance Coverage Declaratory Relief Complaint

The Class Action Litigation

Initially on September 29, 2011, the Company, and certain of its officers and directors were named as defendants in a putative securities
class action filed in the Circuit Court of the 15th Judicial Circuit in and for Palm Beach County, Florida, entitled Martin J. Fuller v. Imperial Holdings, Inc. et al. Also named as defendants were the underwriters of the Companys initial
public offering. That complaint asserted claims under Sections 11, 12 and 15 of the Securities Act of 1933, as amended, alleging that the Company should have, but failed to disclose in the registration statement for its initial public offering
purported wrongful conduct relating to its life finance business that gave rise to the USAO Investigation. On October 21, 2011, an amended complaint was filed that asserts claims under Sections 11, 12 and 15 of the Securities Act of 1933, based
on similar allegations. On October 25, 2011, defendants removed the case to the United States District Court for the Southern District of Florida.



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On October 31, 2011, another putative class action case was filed in the Circuit Court of
the 15th Judicial Circuit in and for Palm Beach County, Florida, entitled City of Roseville Employees Retirement System v. Imperial Holdings, et al, naming the same defendants and also bringing claims under Sections 11, 12 and 15 of the Securities
Act based on similar allegations. On November 28, 2011, defendants removed the case to the United States District Court for the Southern District of Florida. The plaintiffs in the Fuller and City of Roseville cases moved to remand their cases
back to state court. Those motions were fully briefed and argued.

On November 18, 2011, a putative class action case was filed in
the United States District Court for the Southern District of Florida, entitled Sauer v. Imperial Holdings, Inc., et al, naming the same defendants and bringing claims under Sections 11 and 15 of the Securities Act of 1933 based on similar
allegations.

On December 14, 2011, another putative class action case filed in United States District Court for the Southern
District of Florida, entitled Pondick v. Imperial Holdings, Inc., et al., naming the same defendants and bringing claims under Sections 11, 12, and 15 of the Securities Act of 1933 based on similar allegations.

On February 24, 2012, the four putative class actions were consolidated and designated: Fuller v. Imperial Holdings et al. in the United
States District Court for the Southern District of Florida, and lead plaintiffs were appointed.

In addition, the underwriters of the
Companys initial public offering have asserted that the Company is required by its Underwriting Agreement to indemnify the underwriters expenses and potential liabilities in connection with the litigation.

The Insurance Coverage Declaratory Relief Complaint

On June 13, 2012, Catlin Insurance Company (UK) Ltd. (Catlin) filed a declaratory relief action against the Company in the
United States District Court for the Southern District of Florida. The complaint seeks a determination that there is no coverage under Catlins primary Directors, Officers and Company Liability Policy (the Policy) issued to the
Company for the period February 3, 2012 to February 3, 2012, based on a prior and pending litigation exclusion (the Exclusion). Catlin also seeks a determination that it is entitled to reimbursement of the approximately
$800,000 in defense costs and fees advanced to the Company in the first quarter of 2012 under the Policy if it is determined that the Exclusion precludes coverage. As of the filing of this Quarterly Report on Form 10-Q, the Company has not yet been
served with the complaint.

Derivative Demands

On November 16, 2011, the Companys Board of Directors received a shareholder derivative demand from Harry Rothenberg (the
Rothenberg Demand), which was referred to the special committee for a thorough investigation of the issues, occurrences and facts relating to, connected to, and arising from the USAO Investigation referenced in the Rothenberg Demand. On
May 8, 2012, the Companys Board of Directors received a derivative demand made by another shareholder, Robert Andrzejczyk (the Andrzejczyk Demand). The Andrzejczyk Demand, like the Rothenberg Demand was referred to the special
committee, which determined that it did not contain any allegations that differed materially from those alleged in the Rothenberg Demand. On July 20, 2012, the Company (as nominal defendant) and certain of the Companys officers,
directors, and a former director were named as defendants in a shareholder derivative action filed in the Circuit Court of the 15th Judicial Circuit in and for Palm Beach County, Florida, entitled
Robert Andrzejczyk v. Imperial Holdings, Inc. et al. The complaint alleges, among other things, that the Special Committees refusal of the Andrzejczyk Demand was improper.

The Proposed Settlement

On December 18, 2012, attorneys for the Company signed a Term Sheet for Global Settlement Regarding Imperial Holdings, Inc. Matters (the
Term Sheet) setting forth the terms upon which each of the parties to the matters described in Class Action Litigation, Derivative Demands and the Insurance Coverage Declaratory Relief Complaint would be willing to
settle the class action litigation and derivative actions as well as the declaratory relief action filed by Catlin, respectively. In addition to the Companys attorneys, the Term Sheet was signed by attorneys representing the plaintiffs in the
class action lawsuits and derivative actions instituted against the Company, as well attorneys for the Companys director and officer liability insurance carriers (D&O Carriers), certain individual defendants named in the class
actions and the underwriters in the Companys initial public offering.

While non-binding and subject to certain contingencies, the
Term Sheet provides that each of the parties will endeavor to enter into definitive settlement agreements in respect of the class action litigation, derivative action and insurance coverage declaratory relief complaint. Although definitive
settlement agreements have not been executed as of the filing of this Quarterly Report on Form 10-Q, the Company does expect to continue to work in good faith with the other parties to the Term Sheet to execute settlement agreements as soon as is
practicable.



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The terms of the class action settlement include a cash payment of $12.0 million, of which $11.0
million is to be contributed by the Companys primary and excess D&O Carriers and the issuance of two million warrants for shares of the Companys stock with an estimated value of $3.1 million at the date of the signing of the Term
Sheet. The value of the warrants were reassessed at March 31, 2013 and resulted in an increase of $2.3 million. The estimated fair value at March 31, 2013 was $5.4 million. The warrants will have a five-year term with an exercise price of $10.75 and
will be issued when the settlement proceeds are distributed to the claimants. In addition, the underwriters in Companys initial public offering are to waive their rights to indemnity and contribution by the Company. The Company established a
reserve related to the proposed settlement of $15.1 million, which is included in other liabilities and a receivable for insurance recoverable from the Companys D&O Carrier of $11.0 million, which is included in prepaid and other assets.
The $4.1 million net effect of the proposed settlement is included in legal fees in the statement of operations for the year ended December 31, 2012 and an additional $2.3 million is included in the three month period ended March 31, 2013.

The derivative actions would be settled for implementation of certain compliance reforms. The Term Sheet also contemplates payment by the
Companys primary D&O carrier of $1.5 million for legal fees in respect of the derivative actions and the contribution of $500,000 in the Companys stock.

In addition, the Term Sheet contemplates that the Company will contribute $500,000 to a trust to cover certain claims under its director and
officer liability insurance policies.

The Company established a reserve to the proposed derivative settlement and insurance trust of $2.5
million, which is included in other liabilities and a receivable for insurance recoverable from the Companys D&O Carrier of $1.5 million, which is included in prepaid and other assets. The net effect of the settlement of $1.0 million is
included in legal fees in the settlement of operations for the year ended December 31, 2012.

The proposed settlement also requires
the Company to advance legal fees to and indemnify certain individuals covered under the policies. The obligation to advance and indemnify on behalf of these individuals, while currently unquantifiable, may be substantial and could have a material
adverse effect on the Companys financial position and results of operations.

SEC Investigation

On February 17, 2012, the Company received a subpoena issued by the staff of the SEC seeking documents from 2007 through the present,
generally related to the Companys premium finance business and corresponding financial reporting. The SEC is investigating whether any violations of federal securities laws have occurred and the Company has been cooperating with the SEC
regarding this matter. The Company is unable to predict what action, if any, might be taken in the future by the SEC or its staff as a result of the matters that are the subject of the subpoena or what impact, if any, the cost of responding to the
subpoena might have on the Companys financial position, results of operations, or cash flows. The Company has not established any provision for losses in respect of this matter.

Litigation

We are party to various other legal proceedings that arise in the ordinary course of business. We believe that the resolution of these other
proceedings will not, based on information currently available to us, have a material adverse effect on our financial position or results of operations. See Note 18Subsequent Events.

(16) Stockholders Equity

On February 3, 2011, the Company converted from a Florida limited liability company to a Florida corporation at which
time the members of Imperial Holdings, LLC became shareholders of Imperial Holdings, Inc. As a limited liability company, the Company was treated as a partnership for United States federal and state income tax purposes and, as such, the Company was
not subject to taxation. For all periods subsequent to such conversion, the Company will be subject to corporate-level United States federal and state income taxes.

On February 11, 2011, the Company closed its initial public offering of 16,666,667 shares of common stock at $10.75 per share. On
February 15, 2011 Imperial Holdings, Inc. sold an additional 935,947 shares of common stock. The sale was in connection with the over-allotment option Imperial Holdings, Inc. granted to its underwriters in connection with Imperials
initial public offering. As a result, the total initial public offering size was 17,602,614 shares. All shares were sold to the public at a price of $10.75. The Company received net proceeds of approximately $174.2 million after deducting
the underwriting discounts and commissions and our offering expenses.



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(17) Income Taxes

Except as noted below, our provision for income taxes is estimated to result in an annual effective tax rate of 0.0% in
2013, except as noted below. The 0.0% effective tax rate is a result of our recording of a valuation allowance for those deferred tax assets that are more likely than not expected to be recovered in the future. Due to large losses in 2011 and 2012,
the uncertainties that resulted from the USAO Investigation, SEC investigation, Non-Prosecution Agreement and the class action lawsuits and expectation of taxable losses in the foreseeable future, we may not have sufficient taxable income of the
appropriate character in the future to realize any portion of the net deferred tax asset.

Generally, the amount of tax expense or benefit
allocated to continuing operations is determined without regard to the tax effects of other categories of income or loss, such as other comprehensive income. However, an exception to the general rule is provided when, in the presence of a valuation
allowance against deferred tax assets, there is a pretax loss from continuing operations and pretax income from other categories. In such instances, income from other categories must offset the current loss from operations, the tax benefit of such
offset being reflected in continuing operations. For the three months ended March 31, 2012 we reduced the deferred tax valuation allowance from continuing operations on $41,000 to reflect the future taxable income associated with unrealized gains in
accumulated other comprehensive income. As the Company sold all of its remaining investment securities in the first quarter of 2013, this allocation between continuing operations and other comprehensive income was reversed.

On February 3, 2011, we converted from a Florida limited liability company to a Florida corporation (the Conversion). Prior
to the Conversion we were treated as a partnership for federal and state income tax purposes. As a partnership our taxable income and losses were attributed to our members, and accordingly, no provision or liability for income taxes was reflected in
the accompanying consolidated financial statements for periods prior to the Conversion.

In February of 2013 the Company was notified by
the Internal Revenue Service of its intention to examine the Companys partnership return for the year ended December 31, 2010. In April of 2013, the Internal Revenue Service notified the Company that it had decided not to proceed with the
examination.

The Company and its subsidiaries are subject to U.S. federal income tax, as well as to income tax in Florida and other
states in which it operates.

At March 31, 2013, income taxes payable includes an estimated liability for unrecognized tax benefits
of $6.3 million that relate to the Conversion and was charged to paid-in-capital in the first quarter of 2011.

(18) Subsequent Events

Revolving Credit Facility

Effective April 29, 2013, White Eagle Asset Portfolio, LLC (White Eagle), a subsidiary of the Company, entered into a 15-year
revolving credit agreement (the Credit Agreement) with LNV Corporation, as initial lender, Imperial Finance & Trading, LLC, as servicer and portfolio manager and CLMG Corp., as administrative agent (the Agent).

General & Security. The Credit Agreement provides for an asset-based revolving credit facility backed by White Eagles portfolio of life
insurance policies with an initial aggregate lender commitment of up to $300.0 million, subject to borrowing base availability. Upon the closing of the Credit Agreement, White Eagle owns a portfolio of 459 life insurance policies with an aggregate
death benefit of approximately $2.28 billion, which has been pledged as collateral under the Credit Agreement. In addition, the equity interests of White Eagle have been pledged under the Credit Agreement.

Borrowing Base. Borrowing availability under the Credit Agreement is subject to a borrowing base, which at any time is equal to the lesser of
(A) the sum of all of the following amounts that have been funded or are to be funded through the next distribution date (i) the initial advance and all additional advances in respect of newly pledged policies that are not for ongoing
maintenance advances, plus (ii) 100% of the sum of the ongoing maintenance costs, plus (iii) 100% of debt service (other than the rate floor described below), plus (iv) 100% of any other fees and expenses funded and to be funded as
approved by the required lenders, less (v) any required payments of principal and interest previously distributed and to be distributed through the next distribution date; (B) 75% of the valuation of the policies pledged as collateral as
determined by the lenders; (C) 50% of the aggregate face amount of the policies pledged as collateral (excluding certain specified life insurance policies); and (D) the then applicable facility limit.





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Amortization & Distributions. Proceeds from the policies pledged as collateral under the Credit
Agreement will be distributed pursuant to a waterfall. Absent an event of default, after premium payments and fees to service providers, 100% of the remaining proceeds will be directed to pay outstanding interest and principal on the loan, unless
the lenders determine otherwise. Generally, after payment of interest and principal, collections from policy proceeds are to be paid to White Eagle up to $76.1 million, then 50% of the remaining proceeds are to be directed to the lenders with the
remainder paid to White Eagle and for any unpaid fees to service providers. With respect to approximately 25% of the face amount of policies pledged as collateral under the Credit Agreement, White Eagle has agreed that if policy proceeds that are
otherwise due are not paid by an insurance carrier, the foregoing distributions will be altered such that the lenders will receive any catch-up payments in respect of amounts that they would have received in the waterfall prior to
distributions being made to White Eagle. During the continuance of events of default or unmatured events of default, the amounts from collections of policy proceeds that might otherwise be paid to White Eagle may instead be applied to fund certain
operating and third party expenses, interest and principal, catch-up payments or percentage payments that would go to the lenders as described above.

Initial Advance and Use of Proceeds. Amounts advanced to White Eagle following effectiveness of the Credit Agreement were approximately $83.0 million,
with certain of the proceeds used to pay transaction expenses, and with a distribution to the Company used, in part, to redeem the notes outstanding under the Bridge Facility and to fund the Release Payment described below underSubrogation
Rights, net. Generally, ongoing advances may be made for paying premiums on the life insurance policies pledged as collateral, to pay debt service (other than the greater of LIBOR and 1.5%), and to pay the fees of service providers. Subsequent
advances in respect of newly pledged policies are at the discretion of the lenders and the use of proceeds from those advances are at the discretion of the lenders.

Interest.Borrowings under the Credit Agreement bear interest at a rate equal to LIBOR or, if LIBOR is unavailable, the base rate, in each case plus an
applicable margin of 4.00% and subject to a rate floor of 1.5%. The base rate under the Credit Agreement equals the sum of (i) the weighted average of the interest rates on overnight federal funds transactions or, if unavailable, the average of
three federal funds quotations received by the Agent plus 0.75% and (ii) 0.5%.

Maturity.The term of the Credit Agreement expires
April 28, 2028.

Covenants/Events of Defaults. The Credit Agreement contains covenants and events of default, including those that are
customary for asset-based credit agreements of this type and including cross defaults under the servicing, contribution and pledge agreements entered into in connection with the Credit Agreement, changes in control of or insolvency or bankruptcy of
the Company and relevant subsidiaries and performance of certain obligations by certain relevant subsidiaries, White Eagle and third parties. The Credit Agreement does not contain any financial covenants, but does contain certain tests relating to
asset maintenance, performance and valuation with determinations as to the satisfaction of such tests made by the lenders with a high degree of discretion.

Repayment of Bridge Notes

On April 30, 2013, in connection with the borrowings described above under Revolving Credit Facility, Greenwood, redeemed all of its
outstanding 12% Senior Secured Increasing Rate Bridge Notes due 2014 issued under the Bridge Facility. Total payments of principal and interest from the issuance of the notes through redemption were $45.5 million. Effective as of the redemption
date, the life insurance policies that were owned by Greenwood were released as collateral under the Indenture and were contributed to White Eagle.

Subrogation Rights, net

On April 30, 2013, the Company and its subsidiaries, Imperial Premium Finance, LLC, Imperial PFC Financing, LLC, Imperial PFC Financing
II, LLC, Imperial Life Financing II, LLC and Imperial Life & Annuity Services, LLC (together, the Imperial Parties) entered into a Master Termination Agreement and Release (the Termination Agreement) with CTL
Holdings, LLC (CTL and together with the Imperial Parties, the LPIC Parties) and Lexington Insurance Company (the LPIC Provider). Under the Termination Agreement, the LPIC Parties made a payment of $48.5 million
to the LPIC Provider (the Release Payment) and the LPIC Provider and the LPIC Parties provided full releases to each other in respect of the lender protection insurance coverage issued by the LPIC Provider and the claims paid by the LPIC
Provider in respect of that coverage.

Pursuant to the Termination Agreement, the LPIC Provider released any and all subrogation claims
and related salvage rights in 323 life insurance policies with an aggregate death benefit of approximately $1.66 billion that have historically been characterized as Life Settlements with Subrogation rights, net. 267 of these 323 life
insurance policies, with an aggregate death benefit of approximately $1.34 billion, have been contributed to White Eagle and have been pledged as collateral securing the Credit Agreement described above underRevolving Credit Facility. The
Company is currently evaluating the remaining policies that were subject to the LPIC Providers subrogation claims and salvage rights and may determine to intentionally lapse certain policies that have a low return profile or as its portfolio
management strategy dictates.



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Additionally, with the Termination Agreement, the Company no longer expects to receive servicing
fees from the LPIC Provider from servicing polices with subrogation rights. For the quarter ended March 31, 2013 and 2012, the LPIC Provider paid servicing fees of $234,000 and $1.2 million, respectively.

Policy Acquisitions

On April 30, 2013, OLIPP III, LLC, a subsidiary of the Company purchased all of the membership interests in CTL from Monte Carlo
Securities, Ltd. Prior to this acquisition, the LPIC Provider maintained subrogation rights in the life insurance policies owned by CTL. Those rights were terminated pursuant to the Termination Agreement described above underSubrogation
Rights, net. CTL was acquired in exchange for $7.0 million and for assuming the amount of the Release Payment allocated to CTL. Antony Mitchell, the Companys chief executive officer is the manager of CTL and was recused from participating in
the Companys Board of Directors consideration and approval of the transaction.

CTL owns a portfolio of 93 life insurance
policies with an aggregate death benefit of approximately $340.0 million. None of these policies have been pledged as collateral for the Credit Agreement although the Company may seek to borrow against these policies in the future. The Company is in
the process of evaluating each of the acquired policies and may determine to intentionally lapse certain policies that have a low return profile or as its portfolio management strategy dictates.

Certain Balance Sheet Items

Giving effect to the Termination Agreement and the acquisition of CTL, the Companys portfolio of life insurance policies consists of 639
at May 14, 2013, with 459 of the 639 being pledged as collateral under the Credit Agreement. The Company is currently evaluating the remaining 180 policies that have not been pledged as collateral under the Credit Agreement and estimates that
it will need to pay aggregate premium payments of approximately $9.4 million to maintain these policies in force through 2013. As of May 13, 2013, the Company had approximately $31.7 million in cash and cash equivalents.

Certain Litigation Related Matters

On April 18, 2013, Sun Life Assurance Company of Canada (Sun Life) filed a complaint against the Company and several of its
affiliates in the United States District Court for the Southern District of Florida. The complaint seeks to contest the validity of at least twenty-nine (29) policies issued by Sun Life. The complaint also asserts the following claims:
(1) violations of the federal Racketeer Influenced and Corrupt Organizations Act, (2) common law fraud, (3) civil conspiracy, (4) tortious interference with contractual obligations, and (5) an equitable
accounting. Based on a preliminary assessment of the complaint, the Company believes that it is without merit and intends to defend itself vigorously. No reserve has been established for this litigation.

On April 27, 2012, after the conclusion of a jury trial in the matter styled Steven A. Sciaretta, as Trustee of the Barton Cotton
Irrevocable Trust a/k/a the Amended and Restated Barton Cotton Irrevocable Trust v. The Lincoln National Life Insurance Company (Lincoln), the defendant, Lincoln, filed a motion seeking sanctions against the Companys
subsidiary, Imperial Premium Finance (IPF), a non-party to the litigation, relating to its corporate representative deposition and trial testimony. On May 6, 2013, the Court issued an order sanctioning IPF and ordering it to pay
$850,000.00. The Company is currently reviewing the order and recorded a reserve of $850,000 that is included in legal fees for the three months ended March 31, 2013.

Item 2.Managements Discussion and Analysis of Financial Condition and Results of
Operations

The following discussion summarizes the significant factors affecting the consolidated operating results, financial
condition, liquidity, and cash flows of our Company as of and for the periods presented below and should be read in conjunction with the financial statements and accompanying notes included with this Quarterly Report on Form 10-Q. This discussion
contains forward-looking statements that are based on the beliefs of our management, as well as assumptions made by, and information currently available to, our management. Actual results could differ materially from those discussed in or implied by
forward-looking statements as a result of various factors. See Forward-Looking Statements.

Overview

We were founded in December 2006 as a Florida limited liability company and in connection with our initial public offering, in February 2011,
Imperial Holdings, Inc. succeeded to the business of Imperial Holdings, LLC and its assets and liabilities.

Imperial Holdings, Inc. (the
Company or Imperial) operates in two reportable business segments: life finance (formerly referred to as premium finance) and structured settlements. In the life finance business, the Company earns revenue/income from changes
in the fair value of life insurance policies that the Company acquires and receipt of death benefits with respect to matured life insurance policies it owns as well as from interest accruing on outstanding loans and loan origination fees recognized
over the life of outstanding loans. In the structured settlement business, the Company purchases structured settlement receivables at a discounted rate and sells these receivables to third parties.



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Our Annual Report on Form 10-K for the fiscal year ended December 31, 2012 provides
additional information about our business, operations and financial condition.

Recent Developments,Uncertainties & Outlook

As a consequence of the unanticipated expenses incurred by the Company in connection with
the USAO Investigation, the SEC Investigation and the related shareholder litigation, the Company had been anticipating a liquidity shortfall in the second quarter of 2013. On March 27, 2013, a subsidiary of the Company borrowed $45.0 million
in aggregate principal amount under an 18-month senior secured bridge facility while the Company continued in its efforts to source longer-term capital.

Effective April 29, 2013, a subsidiary of the Company entered into a 15-year revolving credit facility providing for up to $300.0 million
in borrowings to pay premiums on the policies pledged as collateral under the facility, debt service and for the fees and expenses of certain service providers. The initial advance under this facility was approximately $83.0 million, with a portion
of such borrowings used to retire the debt outstanding under the senior-secured bridge facility. In addition, proceeds of the initial advance were used to pay transaction fees and expenses, a distribution to the Company and to fund a $48.5 million
release payment to the Companys lender protection insurance provider who released all of its salvage and subrogation rights in 323 policies that the Company has historically treated as contingent assets and described as Life Settlements
with Subrogation rights, net as well as in 93 policies that were owned by CTL Holdings, LLC (CTL). On April 30, 2013, the Company acquired CTL and its 93 policies and, as of the filing of this quarterly report the
Companys portfolio consists of 639 policies, with an aggregate death benefit of $3.1 billion.

459 of the Companys policies,
with an aggregate death benefit of $2.3 billion, have been pledged as collateral under the revolving credit facility and the Company can use subsequent draws to pay premiums on these policies. The Company is presently evaluating the 180 policies
that have not been pledged as collateral, the majority of which had historically been maintained by the Companys lender protection insurance carrier, and may pledge certain of these policies in the future. It may also determine to sell or
lapse certain of these policies as its portfolio strategy and liquidity needs dictate. Should it choose maintain all of these policies in force, the Company estimates that it will need to pay approximately $9.4 million to maintain these 180 policies
in force through 2013 and may seek to raise additional capital to maintain some or all of these policies.

Two policies owned by the
Company matured during the quarter ended March 31, 2013 with death benefits of $5.0 million and $1.0 million, respectively. The death benefits, together with interest, were collected during the second quarter of 2013.

Proposed Settlement of Shareholder Litigation

On December 18, 2012, attorneys for Imperial signed a Term Sheet for Global Settlement Regarding Imperial Holdings, Inc. Matters (the
Term Sheet). Also signing the Term Sheet were attorneys representing the plaintiffs in the previously disclosed class action lawsuits and derivative actions instituted against the Company as well attorneys for Imperials director
and officer liability insurance carriers (D&O Carriers), certain individual defendants named in the class actions and the underwriters in Imperials initial public offering. The Term Sheet provides the terms upon which each of
the parties represented by the signatories would be willing to settle the class action litigation and derivative actions as well as the declaratory relief action filed by Catlin, Imperials primary D&O Carrier.

While non-binding and subject to certain contingencies, the terms of the class action settlement include a cash payment of $12.0 million, of
which $11.0 million is to be contributed by Imperials primary and excess D&O Carriers, and the issuance of two million warrants for shares of the Companys stock with an estimated value of $3.1 million at the date of the signing of
the Term Sheet. The value of the warrants will be re-assessed at issuance. The warrants will have a five-year term with an exercise price of $10.75 and will be issued when the settlement proceeds are distributed to the claimants. In addition, the
underwriters in Imperials initial public offering are to waive their rights to indemnity and contribution by Imperial. The Company established a reserve related to the proposed settlement of $15.1 million, which is included in other
liabilities and a receivable for insurance recoverable from the Companys D&O Carrier of $11.0 million, which is included in prepaid and other assets. The $4.1 million net effect of the settlement was included in legal fees in the statement
of operations for the year ended December 31, 2012.

The derivative would be settled for implementation of certain compliance
reforms. The Term Sheet also contemplates payment by Imperials primary D&O carrier of $1.5 million for legal fees in respect of the derivative actions and the contribution of $500,000 in Imperial stock.

In addition, the Term Sheet contemplates that Imperial will contribute $500,000 to a trust to cover certain claims under its director and
officer liability insurance policies.



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The Company established a reserve related to the proposed derivative settlement and insurance
trust of $2.5 million, which is included in other liabilities and a receivable for insurance recoverable from the Companys D&O Carrier of $1.5 million, which is included in prepaid and other assets. The net effect of the settlement of $1.0
million was included in legal fees in the statement of operations for the year ended December 31, 2012.

The proposed settlement also
requires Imperial to advance legal fees to and indemnify certain individuals covered under the policies. The obligation to advance and indemnify on behalf of these individuals, while currently unquantifiable, may be substantial and could have a
material adverse effect on the Companys financial position and results of operations.

Use of Updated Life
Expectancies & Recent Announcements by Life Expectancy Providers

During the second half of 2012, in anticipation of a
potential financing transaction, the Company began receiving updated life expectancy reports on the insureds represented in the Companys portfolio of life insurance policies from both its historical provider of life expectancy reports, AVS
Underwriting LLC (AVS), and another third party life expectancy provider, 21st Services, LLC (21st Services). Beginning with the quarter ended September 30, 2012 and consistent with the practice of many participants in
the secondary and tertiary markets, the Company began utilizing a blend of the life expectancy reports furnished by these life expectancy providers to establish a composite mortality factor input into its fair value model.

On January 22, 2013, 21st Services announced revisions to its underwriting methodology and, on February 4, 2013, announced that it
was correcting errors discovered in its previously announced revised methodology. According to 21st Services, these revisions have generally been understood to lengthen the average reported life expectancy furnished by the LE Provider by 19%. As of
March 31, 2013, the Company has not, however, received updated life expectancy reports from 21st Services that utilize its revised methodology nor has the Company completed an evaluation of the impact the revised methodology may have on the
fair value of the Companys portfolio of life insurance policies. As a result of the 21st Services revisions and based on managements assessment of the reaction of other market participants to the revisions, for the three months ended
March 31, 2013, the Company increased the life expectancies furnished by 21st Services by 13% prior to blending them with the life expectancy reports furnished by AVS. As a general matter, we expect that we will need to procure updated life
expectancies no less frequently than every 24 months on the 459 policies pledged as collateral under the revolving credit facility discussed above under Recent Developments, Uncertainties &Outlook and, in time, expect that we will procure
updated life expectancy reports from 21st Services on the majority of our policies (assuming the Company does not cease utilizing 21st Services as a LE Provider). The fair value calculations in future periods will, accordingly, then reflect the
actual impact of the revised 21st Services methodology on a policy by policy basis as such updated life expectancy reports are procured. At March 31, 2013, had the Company not applied a 13% increase to the 21st Services life expectancy reports,
the fair value of the Companys portfolio of life insurance policies would have increased from the reported amount of $117.7 million by $21.4 million.

Additionally, the Companys other life expectancy provider, AVS Underwriting LLC (AVS), filed for federal bankruptcy
protection under Chapter 11 on February 12, 2013. The Company cannot, at this time, predict what impact the bankruptcy filing will have on the Companys ability to procure life expectancy reports from AVS in the future, AVSs ability
to continue its operations or whether other market participants will continue to use AVS life expectancy reports for valuation purposes going forward. As a result of these developments, the Company may need to adjust the application of life
expectancy reports in its fair value methodology or source reports from different life expectancy providers in future periods, which could have a material impact on the Companys fair value calculations and materially and adversely affect our
business, financial condition and results of operations.

Critical Accounting Policies

Critical Accounting Estimates

The preparation of the financial statements requires us to make judgments, estimates and assumptions that affect the reported amounts of assets
and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. We base our judgments, estimates and assumptions on historical experience and on various other factors that are
believed to be reasonable under the circumstances. Actual results could differ materially from these estimates under different assumptions and conditions. We evaluate our judgments, estimates and assumptions on a regular basis and make changes
accordingly. We believe that the judgments, estimates and assumptions involved in the accounting for the loan impairment valuation, allowance for doubtful accounts, income taxes, valuation of structured settlements and the valuation of investments
in life settlements have the greatest potential impact on our financial statements and accordingly believe these to be our critical accounting estimates. Below we discuss the critical accounting policies associated with the estimates as well as
selected other critical accounting policies.



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Life Finance Loans Receivable

We report loans receivable acquired or originated by us at cost, adjusted for any deferred fees or costs in accordance with Financial
Accounting Standards Board (FASB) Accounting Standards Codification (ASC) 310-20, ReceivablesNonrefundable Fees and Other Costs, discounts, and loan impairment valuation. All loans are collateralized by life
insurance policies. Interest income is accrued on the unpaid principal balance on a monthly basis based on the applicable rate of interest on the loans.

In accordance with ASC 310, Receivables, we specifically evaluate all loans for impairment based on the fair value of the
underlying policies as collectability is primarily collateral dependent. The loans are considered to be collateral dependent as the repayment of the loans is expected to be provided by the underlying insurance policies. In the event of default, the
borrower typically relinquishes ownership of the policy to us in exchange for our release of the debt (or we enforce our security interests in the beneficial interests in the trust that owns the policy). For loans that have lender protection
insurance, we make a claim against the lender protection insurance policy and, subject to terms and conditions of the lender protection insurance policy, our lender protection insurer has the right to direct control or take beneficial ownership of
the policy upon payment of our claim. For loans without lender protection insurance, we have the option of selling the policy or maintaining it on our balance sheet for investment.

We evaluate the loan impairment valuation on a monthly basis based on our periodic review of the estimated value of the underlying collateral.
This evaluation is inherently subjective as it requires estimates that are susceptible to significant revision as more information becomes available. The loan impairment valuation is established as losses on loans are estimated and the provision is
charged to earnings. Once established, the loan impairment valuation cannot be reversed to earnings.

In order to originate premium
finance transactions our lenders required that we procure lender protection insurance. This lender protection insurance mitigates our exposure to losses which may be caused by declines in the fair value of the underlying policies. At the end of each
reporting period, for loans that have lender protection insurance, a loan impairment valuation is established if the carrying value of the loan receivable exceeds the amount of coverage. The lender protection insurance program was terminated as of
December 31, 2010, and all loans originated after December 31, 2010, do not carry lender protection insurance coverage. Thus, for all loans originated in 2011 and beyond, a loan impairment valuation is established if the carrying value of
a loan receivable exceeds the fair value of the underlying collateral. The Company ceased originating loans in the fourth quarter of 2011.

Fair Value Option

As of July 1, 2010, we elected to adopt the fair value option, in accordance with ASC 825, Financial Instruments, to record
newly-acquired structured settlements at fair value. We have the option to measure eligible financial assets, financial liabilities, and commitments at fair value on an instrument-by-instrument basis. This option is available when we first recognize
a financial asset or financial liability or enter into a firm commitment. Subsequent changes in the fair value of assets, liabilities, and commitments where we have elected the fair value option are recorded in our consolidated statement of
operations. We have made this election for our structured settlement assets because it is our intention to sell these assets within the next twelve months, and we believe it significantly reduces the disparity that exists between the GAAP carrying
value of these structured settlements and our estimate of their economic value.

Fair Value Measurement Guidance

We follow ASC 820, Fair Value Measurements and Disclosures, which defines fair value as an exit price representing the amount that
would be received if an asset were sold or that would be paid to transfer a liability in an orderly transaction between market participants at the measurement date. As such, fair value is a market-based measurement that should be determined based on
assumptions that market participants would use in pricing an asset or liability. As a basis for considering such assumptions the guidance establishes a three-level fair value hierarchy that prioritizes the inputs used to measure fair value.
Level 1 relates to quoted prices in active markets for identical assets or liabilities. Level 2 relates to observable inputs other than quoted prices included in Level 1. Level 3 relates to unobservable inputs that are supported
by little or no market activity and that are significant to the fair value of the assets or liabilities. Our investments in life insurance policies and structured settlements are considered Level 3 assets as there is currently no active market
where we are able to observe quoted prices for identical assets and our valuation model incorporates significant inputs that are not observable. Our impaired loans are measured at fair value on a non-recurring basis, as the carrying value is based
on the fair value of the underlying collateral. The method used to estimate the fair value of impaired collateral-dependent loans depends on the nature of the collateral. For collateral that has lender protection insurance coverage, the fair value
measurement is considered to be Level 3 as the insured value is an observable input to the Company, but not observable to market participants. For collateral that does not have lender protection insurance coverage, the fair value measurement is
considered to be Level 3 as the estimated fair value is based on a model whose significant inputs are the life expectancy of the insured and the discount rate, which are not observable.



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Ownership of Life Insurance Policies

In the ordinary course of business, a large portion of our borrowers default by not paying off the loan and relinquish ownership of the life
insurance policy to us in exchange for our release of the obligation to pay amounts due. We also buy life insurance policies in the secondary and tertiary markets. We account for life insurance policies that we own as investments in life settlements
(life insurance policies) in accordance with ASC 325-30, Investments in Insurance Contracts, which requires us to use either the investment method or the fair value method. The election is made on an instrument-by-instrument basis and is
irrevocable. We have elected to account for these life insurance policies as investments using the fair value method.

We initially record
investments in life settlements at the transaction price. For policies acquired upon relinquishment by our borrowers, we determine the transaction price based on fair value of the acquired policies at the date of relinquishment. The difference
between the net carrying value of the loan and the transaction price is recorded as a gain (loss) on loan payoffs and settlement. For policies acquired for cash, the transaction price is the amount paid.

Valuation of Insurance Policies

Our valuation of insurance policies is a critical component of our estimate for the loan impairment valuation and the fair value of our
investments in life settlements (life insurance policies). We currently use a probabilistic method of valuing life insurance policies, which we believe to be the preferred valuation method in the industry. The most significant assumptions which we
estimate are the life expectancy of the insured and the discount rate.

In determining the life expectancy estimate, we analyze medical
reviews from independent secondary market life expectancy providers (each a LE provider). An LE provider reviews the medical records and identifies all medical conditions it feels are relevant to the life expectancy of the insured.
Debits and credits are then assigned by each LE provider to the individuals health based on these medical conditions. The debit or credit that an LE provider assigns to a medical condition is derived from the experience of mortality attributed
to this condition in the portfolio of lives that it monitors. The health of the insured is summarized by the LE provider into a life assessment of the individuals life expectancy expressed both in terms of months and in mortality factor.

The resulting mortality factor represents an indication as to the degree to which the given life can be considered more or less impaired than
a standard life having similar characteristics (e.g. gender, age, smoking, etc.). For example, a standard insured (the average life for the given mortality table) would carry a mortality rating of 100%. A similar but impaired life bearing a
mortality rating of 200% would be considered to have twice the chance of dying earlier than the standard life. Historically, the Company has procured the majority of its life expectancy reports from two life expectancy report providers and only used
AVS life expectancy reports for valuation purposes. Beginning in the quarter ended September 30, 2012, the Company began utilizing life expectancy reports from 21st Services for valuation purposes and began averaging or blending,
the results of the two life expectancy reports to establish a composite mortality factor. However, when blending the AVS and 21st Services life expectancy reports, if the difference in the probability of mortality between the reports is
greater than 150%, the Company will reduce the higher mortality factor until the difference is 150%.

The probability of mortality for an
insured is then calculated by applying the blended life expectancy estimate to a mortality table. The mortality table is created based on the rates of death among groups categorized by gender, age, and smoking status. By measuring how many deaths
occur before the start of each year, the table allows for a calculation of the probability of death in a given year for each category of insured people. The probability of mortality for an insured is found by applying the mortality rating from the
life expectancy assessment to the probability found in the actuarial table for the insureds age, sex and smoking status. The Company has historically applied an actuarial table developed by a third party. However, beginning in the quarter
ended September 30, 2012, the Company transitioned to a table developed by the U.S. Society of Actuaries known as the 2008 Valuation Basic Table, or the 2008 VBT. However, because the 2008 VBT table does not account for anticipated improvements
in mortality in the insured population, the table was modified in conjunction with outside consultants to reflect these expected mortality improvements. The Company believes that the change in mortality table does not materially impact the valuation
of its life insurance policies and that its adoption of a modified 2008 VBT table is consistent with modified tables used by market participants and third party medical underwriters.

The mortality rating is used to create a series of best estimate probabilistic cash flows. This probability represents a mathematical curve
known as a mortality curve. This curve is then used to generate a series of expected cash flows over the remaining expected lifespan of the insured and the corresponding policy. A discounted present value calculation is then used to determine the
value of the policy. If the insured dies earlier than expected, the return will be higher than if the insured dies when expected or later than expected.



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The calculation allows for the possibility that if the insured dies earlier than expected, the
premiums needed to keep the policy in force will not have to be paid. Conversely, the calculation also considers the possibility that if the insured lives longer than expected, more premium payments will be necessary. Based on these considerations,
each possible outcome is assigned a probability and the range of possible outcomes is then used to create a price for the policy.

As is
the case with most market participants at March 31, 2013, the Company used a blend of life expectancies that are provided by two third-party LE providers. These are estimates of an insureds remaining years. If all of the insured lives in
the Companys life settlement portfolio live six months shorter or longer than the life expectancies provided by these third parties, the change in fair market value would be as follows (dollars in thousands):



|                                  |  |       |         |  |                 |   |         |  
|--------------------------------- |  | ----- | ------- |  | --------------- | - | ------- | -
|Life Expectancy Months Adjustment |  | Value |         |  | Change in Value |  
|+6                                |  | $     | 98,706  |  |                 | $ | (19,026 | )
|-                                 |  | $     | 117,732 |  |                 | $ |        |  
|-6                                |  | $     | 138,153 |  |                 | $ | 20,421  |  

As noted above, the Company takes an average, or blend, of the two life expectancy reports to derive a
composite mortality factor, unless the difference in the probability of mortality between the reports is greater than 150%. In such instances and as reflected in the fair market value at December 31, 2012 and March 31, 2013, the Company
will cap the higher mortality factor at amount that is 150% above the lower mortality factor, which ultimately reduces the mortality factor inputted into the Companys fair value model. At December 31, 2012 and March 31, 2013, had the
Company not implemented such a cap on affected policies, the fair value of the Companys portfolio would have increased from the reported amount by $5.9 million and $5.8 million, respectively. Additionally, the Company increased the life
expectancies furnished by 21st Services by 13% at March 31, 2013 prior to blending them with the life expectancy reports furnished by AVS. Had the Company not implemented such an adjustment, the fair value of the Companys portfolio would
have increased from the reported amount of $117.7 million by $21.4 million.

The Company believes that investors in esoteric assets, such
as life insurance policies, typically target yields averaging between 12%17% for investments of more than a 5 year duration, and had historically used a 15%17% range of discount rates to value its life insurance policies. In the third
quarter of 2011 and in the immediate aftermath of becoming aware of the USAO investigation, the Company substantially increased the discount rates inputted into its fair value model as it believed that USAO Investigation along with certain
unfavorable court decisions unrelated to the Company contributed to a contraction in the marketplace that has continued to reverberate. Since that time, the Company has been re-evaluating its discount rates at the end of every reporting period in
order to reflect the estimated discount rates that could reasonably be used in a market transaction involving the Companys portfolio of life insurance policies. In doing so, the Company relies on management insight, engages third party
consultants to corroborate its assessment, engages in discussions with other market participants and potential financing sources and extrapolates the discount rate underlying actual sales of policies.

Although the Company believes that its entry into the Non-Prosecution Agreement had a positive effect on the market generally and for premium
financed life insurance policies specifically, the Company believes that, when given the choice to invest in a policy that was associated with the Companys premium finance business and a similar policy without such an association, all else
being equal, an investor would have generally opted to invest in the policy that was not associated with the Companys premium finance business. However, since entering into the Non-Prosecution Agreement, investors have required less of a risk
premium to transact in these policies and the Company expects that, in time, investors will continue to require less of a risk premium to transact in policies associated with its premium finance business.

As of March 31, 2013, the Company owned 220 policies with an aggregate investment in life settlements of $117.7 million. Of these 220
policies, 177 were previously premium financed and are valued using discount rates that range from 16.80% to 33.80%. The remaining 43 policies are valued using discount rates that range from 14.80% to 24.80%.



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The discount rate incorporates current information about market interest rates, the credit
exposure to the insurance company that issued the life insurance policy and our estimate of the risk premium an investor in the policy would require. The extent to which the fair value could vary in the near term has been quantified by evaluating
the effect of changes in the weighted average discount rate on the death benefit used to estimate the fair value. If the weighted average discount rate were increased or decreased by 1/2 of 1% and the other assumptions used to estimate fair value
remained the same, the change in fair market value would be as follows (dollars in thousands):



|                                                        |  |                 |     |   |       |   |         |                 |  |   |        |  
|------------------------------------------------------- |  | --------------- | --- | - | ----- | - | ------- | --------------- |  | - | ------ | -
|Weighted Average Rate Calculated Based on Death Benefit |  | Rate Adjustment |     |   | Value |   |         | Change in Value | 
|22.08%                                                  |  |                 | -50 | % |       | $ | 120,664 |                 |  | $ | 2,932  |  
|22.58%                                                  |  |                 |    |   |       | $ | 117,732 |                 |  |   |       |  
|23.08%                                                  |  |                 | 50  | % |       | $ | 114,918 |                 |  | $ | (2,814 | )

Future changes in the discount rates we use to value life insurance policies could have a material effect on
our yield on life settlement transactions, which could have a material adverse effect on our business, financial condition and results of our operations.

At the end of each reporting period we re-value the life insurance policies using our valuation model in order to update our loan impairment
valuation for loans receivable and our estimate of fair value for investments in policies held on our balance sheet. This includes reviewing our assumptions for discount rates and life expectancies as well as incorporating current information for
premium payments and the passage of time.

Revenue/Income Recognition

Our primary sources of revenue/income are in the form of unrealized change in fair value of life settlements, interest income, and origination
fee income, servicing income and realized gains on sales of structured settlements. Our revenue/income recognition policies for these sources of revenue/income are as follows:



| |  |  | Change in Fair Value of Life SettlementsWhen the Company acquires certain life insurance policies we initially record these investments at the transaction price, which is the fair value of the policy for
those acquired upon relinquishment or the amount paid for policies acquired for cash. The fair value of the investment in insurance policies is evaluated at the end of each reporting period. Changes in the fair value of the investment based on
evaluations are recorded as changes in fair value of life settlements in our consolidated statement of operations. The fair value is determined on a discounted cash flow basis that incorporates current life expectancy assumptions. The discount rate
incorporates current information about market interest rates, the credit exposure to the insurance company that issued the life insurance policy and our estimate of the risk premium an investor in the policy would require. Changes in the fair value
of the investment is also recognized upon the receipt of death notice or verified obituary of insured.
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Gains on Life Settlement, NetThe Company recognizes gains from life settlement contracts that the Company owns upon the signed sale agreement and/or filing of ownership forms and funds transferred to
escrow.
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Interest IncomeInterest income on premium finance loans is recognized when it is realizable and earned, in accordance with ASC 605, Revenue Recognition. Once the premium finance loans on our
balance sheet mature, we will no longer have any revenue generated from interest income from premium finance loans. Discounts on structured settlement receivables are accreted over the life of the settlement using the effective interest method.
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Origination Fee IncomeLoans often include origination fees which are fees payable to us on the date the loan matures. The fees are negotiated at the inception of the loan on a transaction by transaction
basis. The fees are accreted into income over the term of the loan using the effective interest method. Once the premium finance loans on our balance sheet mature, we will no longer have any revenue generated from origination income.
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Servicing IncomeWe receive income from servicing life insurance policies controlled by a third party. These services include verifying premiums are paid and correctly applied and updating files for medical
history and ongoing premiums. Upon the effectiveness of the Termination Agreement discussed in Note 18 to the accompanying financial statements, the Company will not receive servicing income from its lender protection insurance carrier in future
periods.
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Realized Gains on Sales of Structured SettlementsRealized gains on sales of structured settlements are recorded when the structured settlements have been transferred to a third party and we no longer have
continuing involvement, in accordance with ASC 860, Transfers and Servicing.
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Interest and origination income on impaired loans is recognized when it is realizable and earned in accordance with ASC 605, Revenue
Recognition. Persuasive evidence of an arrangement exists through a loan agreement which is signed by a borrower prior to funding and sets forth the agreed upon terms of the interest and origination fees. Interest income
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



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| | and origination income are earned over the term of the loan and are accreted using the effective interest method. The interest and origination fees are fixed and determinable based on the loan
agreement. For impaired loans, we do not recognize interest and origination income that we believe is uncollectible. At the end of the reporting period, we review the accrued interest and accrued origination fees in conjunction with our loan
impairment analysis to determine our best estimate of uncollectible income that is then reversed. We continually reassess whether the interest and origination income are collectible as the fair value of the collateral typically increases over the
term of the loan. Since our loans are due upon maturity, we cannot determine whether a loan is performing or non-performing until maturity. For impaired loans, our estimate of proceeds to be received upon maturity of the loan is generally correlated
to our current fair value estimate of the collateral, but also incorporates expected increases in fair value of the collateral over the term of the loan, trends in the market, sales activity for life insurance policies and our experience with loans
payoffs.
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

Deferred Costs

Deferred costs include costs incurred in connection with acquiring and maintaining credit facilities and costs incurred in connection with
securing lender protection insurance. These costs are amortized over the life of the related loan using the effective interest method and are classified as amortization of deferred costs in the accompanying consolidated statement of operations.

Loss in Loan Payoffs and Settlements, Net

When a premium finance loan matures, we record the difference between the net carrying value of the loan and the cash received, or the fair
value of the life insurance policy that is obtained in the event of payment default, as a gain or loss on loan payoffs and settlements, net.

Income Taxes

Prior to our initial public offering in 2011, we converted from a Florida limited liability company to a Florida corporation (the
Conversion). Prior to the Conversion we were treated as a partnership for federal and state income tax purposes. As a partnership our taxable income and losses were attributed to our members, and accordingly, no provision or liability
for income taxes was reflected in the accompanying consolidated financial statements for periods prior to the Conversion.

After the
Conversion, we began to account for income taxes in accordance with ASC 740, Income Taxes.Under ASC 740, deferred income taxes are determined based on the estimated future tax effects of differences between the financial statement
and tax basis of assets and liabilities given the provisions of enacted tax laws. Deferred income tax provisions and benefits are based on changes to the assets or liabilities from year to year. In providing for deferred taxes, we consider tax
regulations of the jurisdictions in which we operate, estimates of future taxable income and available tax planning strategies. If tax regulations, operating results or the ability to implement tax-planning strategies varies adjustments to the
carrying value of the deferred tax assets and liabilities may be required. Valuation allowances are based on the more likely than not criteria of ASC 740.

At March 31, 2013 and 2012, due to the large losses and the uncertainties that resulted from the USAO Investigation, SEC investigation,
Non-Prosecution Agreement and class action lawsuits, we recorded a full valuation allowance against our net deferred tax asset. as it is more likely than not that the net deferred tax asset is not realizable. As a result of these increases in the
valuation allowance, we recorded no income tax benefit for the period ended March 31 2013 and 2012.

The accounting for uncertain tax
positions guidance under ASC 740 requires that we recognize the financial statement benefit of a tax position only after determining that the relevant tax authority would more likely than not sustain the position following an audit. For tax
positions meeting the more-likely-than-not threshold, the amount recognized in the financial statements is the largest benefit that has a greater than 50 percent likelihood of being realized upon ultimate settlement with the relevant tax
authority. We recognize interest and penalties (if any) on uncertain tax positions as a component of income tax expense.

In February of
2013 the Company was notified by the Internal Revenue Service of its intention to examine the Companys partnership return for the year ended December 31, 2010. In April of 2013, the Internal Revenue Service notified the Company that it
had decided not to proceed with the examination.

Stock-Based Compensation

We have adopted ASC 718, CompensationStock Compensation.ASC 718 addresses accounting for share-based awards, including
stock options, with compensation expense measured using fair value and recorded over the requisite service or performance period of the award. The fair value of equity instruments awarded upon or after the closing of our initial public offering will
be determined based on a valuation using an option pricing model which takes into account various assumptions that are subjective. Key assumptions used in the valuation will include the expected term of the equity award taking into account both the
contractual term of the award, the effects of expected exercise and post-vesting termination behavior, expected volatility, expected dividends and the risk-free interest rate for the expected term of the award.



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Investment Securities Available for Sale

Investment securities available for sale are carried at fair value, inclusive of unrealized gains and losses, and net of discount accretion and
premium amortization computed using the level yield method. Net unrealized gains and losses are included in other comprehensive income (loss) net of applicable income taxes. Gains or losses on sales of investment securities available for sale are
recognized on the specific identification basis.

Management evaluates securities for other than-temporary-impairment on a quarterly
basis. Impairment is evaluated considering numerous factors, and their relative significance varies depending on the situation. Factors considered include the Companys intent to hold the security until maturity or for a period of time
sufficient for a recovery in value, whether it is more likely than not that the Company will be required to sell the security prior to recovery of its amortized cost basis, the length of time and extent to which fair value has been less than
amortized cost, the historical and implied volatility of the fair value of the security, failure of the issuer of the security to make scheduled interest or principal payments, any changes to the rating of the security by a rating agency and
recoveries or additional declines in fair value subsequent to the balance sheet date. The Company liquidated its entire portfolio of investment securities available for sale during the first quarter of 2013.

Recent Accounting Pronouncements

Note 2 of the Condensed Notes to Consolidated Financial Statements discusses accounting standards adopted during the three months ended
March 31, 2013. The adoption of these standards has not had an impact on the Companys financial position or results of operations.

Results of Operations

The following is our analysis of the results of operations for the periods indicated below. This analysis should be read in conjunction with
our financial statements, including the related condensed notes to the financial statements. Our results of operations are discussed below in two parts: (i) our consolidated results of operations and (ii) our results of operations by
segment.



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Imperial Holdings, Inc. and Subsidiaries

CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)



|                                                                   |  |                                                 |            |   |      |   |            |  
|------------------------------------------------------------------ |  | ----------------------------------------------- | ---------- | - | ---- | - | ---------- | -
|                                                                   |  | For the Three Months EndedMarch 31,             |           
|                                                                   |  | 2013                                            |            |   | 2012 |  
|                                                                   |  | (in thousands, except share and per share data) |           
|Income                                                             |  |                                                 |            |  
|Interest income                                                    |  | $                                               | 87         |   |      | $ | 906        |  
|Interest and dividends on investment securities available for sale |  |                                                 | 14         |   |      |   | 128        |  
|Origination fee income                                             |  |                                                 |           |   |      |   | 250        |  
|Realized gain on sale of structured settlements                    |  |                                                 | 3,541      |   |      |   | 2,475      |  
|Gain on sale of life settlements, net                              |  |                                                 |           |   |      |   | 236        |  
|Change in fair value of life settlements                           |  |                                                 | 1,840      |   |      |   | 4,255      |  
|Unrealized change in fair value of structured settlements          |  |                                                 | 545        |   |      |   | 610        |  
|Servicing fee income                                               |  |                                                 | 234        |   |      |   | 358        |  
|Other income                                                       |  |                                                 | 92         |   |      |   | 748        |  
|                                                                   |  |                                                 |            |   |      |   |            |  
|Total income                                                       |  |                                                 | 6,353      |   |      |   | 9,966      |  
|                                                                   |  |                                                 |            |   |      |   |            |  
|Expenses                                                           |  |                                                 |            |   |      |   |            |  
|Interest expense                                                   |  |                                                 | 103        |   |      |   | 774        |  
|Gain on loan payoffs and settlements, net                          |  |                                                 |           |   |      |   | (9         | )
|Amortization of deferred costs                                     |  |                                                 | 7          |   |      |   | 982        |  
|Personnel costs                                                    |  |                                                 | 3,332      |   |      |   | 3,689      |  
|Marketing costs                                                    |  |                                                 | 811        |   |      |   | 2,162      |  
|Legal fees                                                         |  |                                                 | 4,077      |   |      |   | 7,890      |  
|Professional fees                                                  |  |                                                 | 1,101      |   |      |   | 1,919      |  
|Insurance                                                          |  |                                                 | 519        |   |      |   | 470        |  
|Other selling, general and administrative expenses                 |  |                                                 | 694        |   |      |   | 1,001      |  
|                                                                   |  |                                                 |            |   |      |   |            |  
|Total expenses                                                     |  |                                                 | 10,644     |   |      |   | 18,878     |  
|                                                                   |  |                                                 |            |   |      |   |            |  
|Loss before income taxes                                           |  |                                                 | (4,291     | ) |      |   | (8,912     | )
|Provision (benefit) for income taxes                               |  |                                                 | 40         |   |      |   | (41        | )
|                                                                   |  |                                                 |            |   |      |   |            |  
|Net loss                                                           |  | $                                               | (4,331     | ) |      | $ | (8,871     | )
|                                                                   |  |                                                 |            |   |      |   |            |  
|Loss per share:                                                    |  |                                                 |            |   |      |   |            |  
|                                                                   |  |                                                 |            |   |      |   |            |  
|Basic                                                              |  | $                                               | (0.20      | ) |      | $ | (0.42      | )
|                                                                   |  |                                                 |            |   |      |   |            |  
|Diluted                                                            |  | $                                               | (0.20      | ) |      | $ | (0.42      | )
|                                                                   |  |                                                 |            |   |      |   |            |  
|Weighted average shares outstanding:                               |  |                                                 |            |   |      |   |            |  
|                                                                   |  |                                                 |            |   |      |   |            |  
|Basic                                                              |  |                                                 | 21,206,121 |   |      |   | 21,204,618 |  
|                                                                   |  |                                                 |            |   |      |   |            |  
|Diluted                                                            |  | $                                               | 21,206,121 |   |      | $ | 21,204,618 |  
|                                                                   |  |                                                 |            |   |      |   |            |  



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Life Finance Segment Results (in thousands)



|                         |  |                                     |       |  |      |   |       | 
|------------------------ |  | ----------------------------------- | ----- |  | ---- | - | ----- | 
|                         |  | For the Three Months EndedMarch 31, |      
|                         |  | 2013                                |       |  | 2012 |  
|Income                   |  | $                                   | 2,139 |  |      | $ | 5,968 | 
|Expenses                 |  |                                     | 2,107 |  |      |   | 5,140 | 
|                         |  |                                     |       |  |      |   |       | 
|Segment operating income |  | $                                   | 32    |  |      | $ | 828   | 
|                         |  |                                     |       |  |      |   |       | 

Structured Settlements Segment Results (in thousands)



|                                |  |                                     |       |  |      |   |        |  
|------------------------------- |  | ----------------------------------- | ----- |  | ---- | - | ------ | -
|                                |  | For the Three Months EndedMarch 31, |      
|                                |  | 2013                                |       |  | 2012 |  
|Income                          |  | $                                   | 4,192 |  |      | $ | 3,233  |  
|Expenses                        |  |                                     | 3,949 |  |      |   | 6,089  |  
|                                |  |                                     |       |  |      |   |        |  
|Segment operating income (loss) |  | $                                   | 243   |  |      | $ | (2,856 | )
|                                |  |                                     |       |  |      |   |        |  



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Reconciliation of Segment Results to Consolidated Results (in thousands)



|                                                                   |  |                                     |        |   |      |   |        |  
|------------------------------------------------------------------ |  | ----------------------------------- | ------ | - | ---- | - | ------ | -
|                                                                   |  | For the Three Months EndedMarch 31, |       
|                                                                   |  | 2013                                |        |   | 2012 |  
|Life finance                                                       |  |                                     |        |   |      |   |        |  
|Income                                                             |  |                                     |        |   |      |   |        |  
|Interest income                                                    |  | $                                   | 20     |   |      | $ | 845    |  
|Origination income                                                 |  |                                     |       |   |      |   | 250    |  
|Change in fair value of life settlements                           |  |                                     | 1,840  |   |      |   | 4,255  |  
|Gain on sale of life settlements, net                              |  |                                     |       |   |      |   | 236    |  
|Servicing fee income                                               |  |                                     | 234    |   |      |   | 358    |  
|Other                                                              |  |                                     | 45     |   |      |   | 24     |  
|                                                                   |  |                                     |        |   |      |   |        |  
|                                                                   |  |                                     | 2,139  |   |      |   | 5,968  |  
|                                                                   |  |                                     |        |   |      |   |        |  
|Direct segment expenses                                            |  |                                     |        |   |      |   |        |  
|Interest expense                                                   |  |                                     | 100    |   |      |   | 773    |  
|Gain on loans payoffs and settlements, net                         |  |                                     |       |   |      |   | (9     | )
|Amortization of deferred costs                                     |  |                                     | 7      |   |      |   | 982    |  
|Personnel costs                                                    |  |                                     | 1,447  |   |      |   | 1,309  |  
|Legal fees                                                         |  |                                     | (99    | ) |      |   | 1,008  |  
|Professional fees                                                  |  |                                     | 177    |   |      |   | 433    |  
|Insurance                                                          |  |                                     | 212    |   |      |   | 211    |  
|Other selling, general and administrative expenses                 |  |                                     | 263    |   |      |   | 433    |  
|                                                                   |  |                                     |        |   |      |   |        |  
|                                                                   |  |                                     | 2,107  |   |      |   | 5,140  |  
|                                                                   |  |                                     |        |   |      |   |        |  
|Segment operating income                                           |  | $                                   | 32     |   |      | $ | 828    |  
|                                                                   |  |                                     |        |   |      |   |        |  
|Structured settlements                                             |  |                                     |        |   |      |   |        |  
|Income                                                             |  |                                     |        |   |      |   |        |  
|Realized gain on sale of structured settlements                    |  | $                                   | 3,541  |   |      | $ | 2,475  |  
|Interest income                                                    |  |                                     | 67     |   |      |   | 61     |  
|Unrealized change in fair value of structured settlements          |  |                                     | 545    |   |      |   | 610    |  
|Other income                                                       |  |                                     | 39     |   |      |   | 87     |  
|                                                                   |  |                                     |        |   |      |   |        |  
|                                                                   |  |                                     | 4,192  |   |      |   | 3,233  |  
|                                                                   |  |                                     |        |   |      |   |        |  
|Direct segment expenses                                            |  |                                     |        |   |      |   |        |  
|Personnel costs                                                    |  |                                     | 1,767  |   |      |   | 2,154  |  
|Marketing costs                                                    |  |                                     | 811    |   |      |   | 2,162  |  
|Legal fees                                                         |  |                                     | 428    |   |      |   | 590    |  
|Professional fees                                                  |  |                                     | 319    |   |      |   | 413    |  
|Insurance                                                          |  |                                     | 212    |   |      |   | 212    |  
|Other selling, general and administrative expenses                 |  |                                     | 412    |   |      |   | 558    |  
|                                                                   |  |                                     |        |   |      |   |        |  
|                                                                   |  |                                     | 3,949  |   |      |   | 6,089  |  
|                                                                   |  |                                     |        |   |      |   |        |  
|Segment operating income (loss)                                    |  | $                                   | 243    |   |      | $ | (2,856 | )
|                                                                   |  |                                     |        |   |      |   |        |  
|Consolidated                                                       |  |                                     |        |   |      |   |        |  
|Segment operating income (loss)                                    |  |                                     | 275    |   |      |   | (2,028 | )
|Unallocated income                                                 |  |                                     |        |   |      |   |        |  
|Interest and dividends on investment securities available for sale |  |                                     | 14     |   |      |   | 128    |  
|Other income                                                       |  |                                     | 8      |   |      |   | 636    |  
|                                                                   |  |                                     |        |   |      |   |        |  
|                                                                   |  |                                     | 22     |   |      |   | 764    |  
|                                                                   |  |                                     |        |   |      |   |        |  
|Unallocated expenses                                               |  |                                     |        |   |      |   |        |  
|Interest expense                                                   |  |                                     | 3      |   |      |   | 1      |  
|Personnel costs                                                    |  |                                     | 117    |   |      |   | 226    |  
|Legal fees                                                         |  |                                     | 3,747  |   |      |   | 6,292  |  
|Professional fees                                                  |  |                                     | 605    |   |      |   | 1,073  |  
|Insurance                                                          |  |                                     | 95     |   |      |   | 47     |  
|Other selling, general and administrative expenses                 |  |                                     | 21     |   |      |   | 9      |  
|                                                                   |  |                                     |        |   |      |   |        |  
|                                                                   |  |                                     | 4,588  |   |      |   | 7,648  |  
|                                                                   |  |                                     |        |   |      |   |        |  
|Loss before income taxes                                           |  |                                     | (4,291 | ) |      |   | (8,912 | )
|Provision (benefit) for income taxes                               |  |                                     | 40     |   |      |   | (41    | )
|                                                                   |  |                                     |        |   |      |   |        |  
|Net loss                                                           |  | $                                   | (4,331 | ) |      | $ | (8,871 | )
|                                                                   |  |                                     |        |   |      |   |        |  



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Three Months Ended March 31, 2013 Compared to Three Months Ended March 31, 2012

Net loss for the three months ended March 31, 2013 was $4.3 million as compared to a net loss of $8.9 million for the three months
ended March 31, 2012, a decrease of $4.6 million or 52%. Total income was $6.3 million for the three months ended March 31, 2013, a 37% decrease over total income of $10.0 million during the three months ended March 31, 2012. Total
expenses were $10.6 million for the three months ended March 31, 2013 compared to total expenses of $18.9 million incurred during the three months ended March 31, 2012, a reduction of $8.3 million, or 44%.

In our life finance segment, operating profit decreased by $796,000 to $32,000 for the quarter ended March 31, 2013. We recorded a change
in fair value of life settlements of $1.8 million, which resulted in a decrease of $2.5 million versus the first quarter of 2012. As a result of the voluntary termination of our premium finance business, we had decreases in interest income
of $825,000 and origination income of $250,000 versus the first quarter of 2012.

Life finance segment expenses were $2.1 million during
the three months ended March 31, 2013 compared to $5.1 million during the three months ended March 31, 2012, a decline of $3.5 million, or 59%. These declines were driven primarily by a $975,000 reduction in amortization of deferred costs,
a $673,000 reduction in interest expense and a $256,000 reduction in professional services offset by legal fees of $1.1 million recouped related to litigation settlement of life insurance policies.

As of March 31, 2013, we had loans receivable totaling $1.8 million compared to $19.3 million as of March 31, 2012, a decrease of
$17.5 million, or 91%. Loans outstanding declined from 94 to 14. As a result, origination income and interest income, which accrue over the life of the loan and are therefore a function of the amount of loans outstanding, declined from $250,000 and
$845,000, respectively, during the three months ended March 31, 2012, to zero and $20,000, respectively, during the same period in 2013, a reduction of $250,000 and $825,000 or 100% and 98%, respectively.

Interest expense declined to $103,000 during the three months ended March 31, 2013, compared to $774,000 during the three months ended
March 31, 2012, a reduction of $671,000 or 87%, as notes payable increased from $11.5 million as of March 31, 2012 to $41.4 million, net of discount as of March 31, 2013. During the year ended December 31, 2012, the company
repaid all outstanding notes payable which was associated with its LPIC financing facilities, resulting in a zero balance for the quarter ended March 31, 2013. The amount of $41.4 million outstanding at March 31, 2012 relates to a Bridge
Facility issued during the quarter ended March 31, 2013 with a face value of $45.0 million and discount of $3.6 million, that is collateralized by the life insurance policies owned by Greenwood Asset Portfolio, LLC, a subsidiary of the Company.
Interest expense of $100,000 is associated with this facility. See Note 12 and 18 to the accompanying consolidated financial statements.

Amortization of deferred costs, which are comprised primarily of upfront premiums previously paid to the LPIC insurer, was $7,000 during the
three months ended March 31, 2013 as compared to $982,000 during the three months ended March 31, 2012, a decrease of $975,000. As described previously, the lender protection insurance program was terminated as of December 31, 2010.
As of March 31, 2013, there are no lender protection insurance related costs remaining to be amortized.

As of March 31, 2013,
the Company owned 220 policies with a fair market value of $117.7 million compared to $102.3 million at March 31, 2012, an increase of $15.4 million or 15%. During the three months ended March 31, 2013, the Company acquired 8
life insurance policies compared to 9 policies during the three months ended March 31, 2012. Total aggregate death benefit of polices acquired was $32.8 million and $61.5 million for the three months ended March 31, 2013 and March 31,
2012, respectively. Of the 8 policies acquired during 2013, all were as a result of certain of the Companys borrowers defaulting on premium finance loans and relinquishing the underlying policy to the Company, compared to 9 policies acquired
in the same manner for 2012. As of March 31, 2013, the aggregate death benefit of the Companys investment in life settlements is $1.1 billion. During the first quarter of 2013, two life insurance policies owned by the Company with face
amounts of $5.0 million and $1.0 million, respectively, matured. Change in fair value of life settlements of $4.9 million from these settlements was recorded in the consolidated statement of operations for the three months ended March 31, 2013.



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These 220 policies owned as of March 31, 2013, 177 were previously premium financed and are
valued using discount rates that range from 16.80%  33.80%. The remaining 43 policies are valued using discount rates that range from 14.80%  24.80%.

Change in fair value of life settlements was approximately $1.8 million for the three months ended March 31, 2013 compared to $4.3
million for the three months ended March 31, 2012, a decrease of $2.5 million. This loss was primarily driven by increased life expectancy inputs to the Companys fair value model. During the three months ended March 31, 2013, 8
policies compared to 9 policies for the same period in 2012 were acquired resulting in a change in fair value of $920,000 and $153,000, respectively. During the first quarter of 2013, two life insurance policies owned by the Company with face
amounts of $5.0 million and $1.0 million, respectively, matured. Change in fair value of life settlements of $4.9 million from these settlements was recorded in the consolidated statement of operations for the three months ended March 31, 2013.

In our structured settlements segment, total income was $4.2 million for the three months ended March 31, 2013 compared to $3.2
million in March 31, 2012, an increase of $1.0 million or 31%. This was due to an increase in transaction size of the deals being sold. During the three months ended March 31, 2013, 163 structured settlements that were sold that resulted
in a gain of $3.5 million compared to 463 structured settlements that were sold that resulted in a gain of $2.5 million during the three months ended March 31, 2012. Unrealized change in fair value of structured settlements receivable was
$545,000 for the three months ended March 31, 2013 compared to $610,000 in for the three months ended March 3,1 2012, a decrease of $65,000 or 11%.

Selling, general and administrative expenses decreased by $2.1 million to $4.0 million. Significant expense reductions were made in marketing
costs of $1.4 million associated with a reduction in advertising and other promotional activities, reduction in personnel costs of $400,000, and a reduction in legal fees of $162,000.

This segment continues to be characterized by high growth in lead generation and sales as well as high operating costs. Segment operating
profit was $243,000 for the three months ended March 31, 2013, an increase of $3.1 million over the segment operating loss of $2.9 million recorded during the three months ended March 2012.

Non-direct segment expense was $4.6 million for the three months ended March 31, 2013 compared to $7.7 million for the three months ended
March 31, 2012, a decrease of $3.1 million or 40%. This is primarily driven by a decrease in legal fees of $2.6 million or 41%, professional fees reduced by $495,000 or 45% and personnel costs decreased by $109,000 or 48%. Total legal expenses
for 2013 were $3.7 million which is mainly associated with the USAO Investigation, compared $5.5 million for the three months ended March 31, 2012.

Due to the USAO Investigation, SEC investigation, Non-Prosecution Agreement and the class action lawsuits and the effect that they and related
matters have had on our business, the Company determined that it was more likely than not that the net deferred tax asset at March 31, 2013 and 2012 was not realizable and accordingly, established a 100 percent valuation allowance against it
net deferred tax asset at March 31, 2013 and 2012. For the period ended March 31, 2012, we recorded the deferred tax valuation allowance from continued operations by $41,000 to reflect the future taxable income associated with unrealized
gains in accumulated other comprehensive income. As the Company sold all of its remaining investment securities in the first quarter of 2013, this allocation between continued operations and other comprehensive income was reversed.



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Life Finance Business

Our results of operations for our life finance segment for the periods indicated are as follows (in thousands):



|                                                   |  |                                     |       |   |      |   |       |  
|-------------------------------------------------- |  | ----------------------------------- | ----- | - | ---- | - | ----- | -
|                                                   |  | For the Three Months EndedMarch 31, |      
|                                                   |  | 2013                                |       |   | 2012 |  
|Life finance                                       |  |                                     |       |   |      |   |       |  
|Income                                             |  |                                     |       |   |      |   |       |  
|Interest income                                    |  | $                                   | 20    |   |      | $ | 845   |  
|Origination income                                 |  |                                     |      |   |      |   | 250   |  
|Change in fair value of life settlements           |  |                                     | 1,840 |   |      |   | 4,255 |  
|Gain on sale of life settlements, net              |  |                                     |      |   |      |   | 236   |  
|Servicing fee income                               |  |                                     | 234   |   |      |   | 358   |  
|Other                                              |  |                                     | 45    |   |      |   | 24    |  
|                                                   |  |                                     |       |   |      |   |       |  
|                                                   |  |                                     | 2,139 |   |      |   | 5,968 |  
|                                                   |  |                                     |       |   |      |   |       |  
|Direct segment expenses                            |  |                                     |       |   |      |   |       |  
|Interest expense                                   |  |                                     | 100   |   |      |   | 773   |  
|Gain on loans payoffs and settlements, net         |  |                                     |      |   |      |   | (9    | )
|Amortization of deferred costs                     |  |                                     | 7     |   |      |   | 982   |  
|Personnel costs                                    |  |                                     | 1,447 |   |      |   | 1,309 |  
|Legal fees                                         |  |                                     | (99   | ) |      |   | 1,008 |  
|Professional fees                                  |  |                                     | 177   |   |      |   | 433   |  
|Insurance                                          |  |                                     | 212   |   |      |   | 211   |  
|Other selling, general and administrative expenses |  |                                     | 263   |   |      |   | 433   |  
|                                                   |  |                                     |       |   |      |   |       |  
|                                                   |  |                                     | 2,107 |   |      |   | 5,140 |  
|                                                   |  |                                     |       |   |      |   |       |  
|Segment operating income                           |  | $                                   | 32    |   |      | $ | 828   |  
|                                                   |  |                                     |       |   |      |   |       |  



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The following table highlights certain selected operating data in our life finance segment for
the periods indicated (in thousands except number of loans percentage, age and life expectancy):



|                                                                |  |                                     |           |   |      |   |         |  
|--------------------------------------------------------------- |  | ----------------------------------- | --------- | - | ---- | - | ------- | -
|                                                                |  | For the Three Months EndedMarch 31, |          
|                                                                |  | 2013                                |           |   | 2012 |  
|Period AcquisitionsPolicies Owned                              |  |                                     |           |   |      |   |         |  
|Number of policies acquired                                     |  |                                     | 8         |   |      |   | 9       |  
|Average age of insured at acquisition                           |  |                                     | 76.8      |   |      |   | 75.8    |  
|Average life expectancyCalculated LE (Years)                   |  |                                     | 12.3      |   |      |   | 12.6    |  
|Average death benefit                                           |  | $                                   | 4,094     |   |      | $ | 6,833   |  
|Aggregate purchase price                                        |  | $                                   | 1,524     |   |      | $ | 2,163   |  
|                                                                |  |                                    
|End of PeriodPolicies Owned                                    |  |                                     |           |   |      |   |         |  
|Number of policies owned                                        |  |                                     | 220       |   |      |   | 197     |  
|Average Life ExpectancyCalculated LE (Years)                   |  |                                     | 10.8      |   |      |   | 10.5    |  
|Aggregate Death Benefit                                         |  | $                                   | 1,099,906 |   |      | $ | 991,966 |  
|Aggregate fair value                                            |  | $                                   | 117,732   |   |      | $ | 102,295 |  
|Monthly premiumaverage per policy                              |  | $                                   | 10.4      |   |      | $ | 8.2     |  
|                                                                |  |                                    
|End of Period Loan Portfolio                                    |  |                                     |           |   |      |   |         |  
|Loans receivable, net                                           |  | $                                   | 1,769     |   |      | $ | 19,300  |  
|Number of policies underlying loans receivable                  |  |                                     | 14        |   |      |   | 94      |  
|Aggregate death benefit of policies underlying loans receivable |  | $                                   | 56,900    |   |      | $ | 431,350 |  
|Number of loans with insurance protection                       |  |                                     | 5         |   |      |   | 56      |  
|Loans receivable, net (insured loans only)                      |  | $                                   | 93        |   |      | $ | 12,789  |  
|Average Per Loan:                                               |  |                                     |           |   |      |   |         |  
|Age of insured in loans receivable                              |  |                                     | 75.8      |   |      |   | 75.1    |  
|Life expectancy of insured (years)                              |  |                                     | 15.6      |   |      |   | 15.5    |  
|Monthly premium                                                 |  | $                                   | 5         |   |      | $ | 5       |  
|Loan receivable, net                                            |  | $                                   | 126       |   |      | $ | 205     |  
|Interest rate                                                   |  |                                     | 12.5      | % |      |   | 12.4    | %

Life Finance Business

Three Months Ended March 31, 2013 Compared to Three Months Ended March 31, 2012

Income

Interest
Income. Interest income was $20,000 for the three months ended March 31, 2013 compared to $845,000 for the comparable period in 2012, a decrease of $825,000, or 98%. During the three months ended March 31, 2013 and March 31,
2012, the Company originated no loans. Interest income declined as the balance of loans receivable, net decreased from $19.3 million as of March 31, 2012 to $1.8 million as of March 31, 2013 due to significant loan maturities. There were
no significant changes in interest rates. The weighted average per annum interest rate for life finance loans outstanding as of March 31, 2013 and 2012 was 14.0% and 12.5%, respectively. As a result of the voluntary termination of our premium
finance business, we will cease earning interest income once our outstanding premium finance loans mature.

Origination Fee
Income. Origination fee income was zero for the three months ended March 31, 2013, compared to $250,000 for the comparable period in 2012. Origination fee income decreased due to a decline in the average balance of loans receivable,
net, as noted above. Also, the Company reduced origination fees charged after ceasing the LPIC program, under which the majority of origination fees were passed along to the LPIC provider. As a result of the voluntary termination of our premium
finance business, we did not originate any loans or origination fees during 2012 or 2013. We will cease accruing origination fee income once our outstanding premium finance loans mature.

Change in Fair Value of Life Settlements. Change in fair value of life settlements was approximately $1.8 million for the three
months ended March 31, 2013 compared to $4.3 million in March 31, 2012, a decrease of $2.5 million. This reduction was primarily driven by increased life expectancy inputs to the Companys fair value model. During the
three months ended March 31, 2013, 8 policies compared to 9 policies for the same period in 2012 were acquired resulting in a change in fair value of $920,000 and $153,000, respectively.



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The discount rates used in the fair value calculation for the three months ended March 31,
2013 ranged from 14.80% to 33.80% with a range of 16.65% to 32.25% utilized for the three months ended March 31, 2012. See Note 13 to the accompanying consolidated financial statements.

Servicing Fee Income. Servicing income was $234,000 for the three months ended March 31, 2013 compared to $358,000 for the
comparable period in 2012, a decrease of $124,000 or 35%. Servicing fee income is earned in providing asset servicing for third parties, which we began providing during the fourth quarter of 2010. This decrease was primarily due to a reduction in
the number of policies serviced.

Gain on sale of life settlements, net.Gain on sale of life settlements, net was $236,000 for the
three months ended March 31, 2012 is associated with the sale of 2 policies during that period. There was no sale for the three months ended March 31, 2013.

Expenses

Interest
Expense. Interest expense was $100,000 for the three months ended March 31, 2013 compared to $773,000 for the comparable period in 2012, a decrease of $673,000, or 87%. The decrease in interest expense is due to a decline in notes
payable related to LPIC financing facilities from $11.5 million as of March 31, 2012 to zero as of March 31, 2013. A Bridge Facility was issued during the quarter ended March 31, 2013 with a face value of $45.0 million and discount of
$3.6 million, the facility is collateralized by the life insurance policies owned by Greenwood Asset Portfolio, LLC, a subsidiary of the Company. Interest expense of $100,000 is associated with this facility. See Notes 12 and 18 to the accompanying
consolidated financial statements.

Gains on Loan Payoffs and Settlements, Net. Gain on loan payoffs and settlements, net, was
zero for the three months ended March 31, 2013 compared to $9,000 for the comparable period in 2012, a decrease of $9,000. The amount for 2012 is associated with the pay off of 1 loan during the period.

Amortization of Deferred Costs. Amortization of deferred costs was $7,000 during the three months ended March 31, 2013 as
compared to $982,000 for the comparable period in 2012, a decrease of $975,000, or 99%. Lender protection insurance related costs accounted for zero and $767,000 of total amortization of deferred costs during the three months ended March 31,
2013 and 2012, respectively. As described previously, the lender protection insurance program was terminated as of December 31, 2010 and 5 loans with lender protection insurance remained outstanding as of March 31, 2013. No lender
protection insurance related costs remain to be amortized.

Selling, General and Administrative Expenses. SG&A expenses were $2.0 million
for the three months ended March 31, 2013 compared to $3.4 million for the comparable period in 2012, a decrease of $1.4 million or 41%. This was due primarily to a decrease in professional services of $256,000 and other expenses of $170,000.
These were offset by a $100,000 increase in personnel costs.



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Structured Settlements

Our results of operations for our structured settlement business segment for the periods indicated are as follows (in thousands):



|                                                          |  |   |       |  |  |   |        |  
|--------------------------------------------------------- |  | - | ----- |  |  | - | ------ | -
|Income                                                    |  |   |       |  |  |   |        |  
|Realized gain on sale of structured settlements           |  | $ | 3,541 |  |  | $ | 2,475  |  
|Interest income                                           |  |   | 67    |  |  |   | 61     |  
|Unrealized change in fair value of structured settlements |  |   | 545   |  |  |   | 610    |  
|Other income                                              |  |   | 39    |  |  |   | 87     |  
|                                                          |  |   |       |  |  |   |        |  
|                                                          |  |   | 4,192 |  |  |   | 3,233  |  
|                                                          |  |   |       |  |  |   |        |  
|Direct segment expenses                                   |  |   |       |  |  |   |        |  
|Personnel costs                                           |  |   | 1,767 |  |  |   | 2,154  |  
|Marketing costs                                           |  |   | 811   |  |  |   | 2,162  |  
|Legal fees                                                |  |   | 428   |  |  |   | 590    |  
|Professional fees                                         |  |   | 319   |  |  |   | 413    |  
|Insurance                                                 |  |   | 212   |  |  |   | 212    |  
|Other selling, general and administrative expenses        |  |   | 412   |  |  |   | 558    |  
|                                                          |  |   |       |  |  |   |        |  
|                                                          |  |   | 3,949 |  |  |   | 6,089  |  
|                                                          |  |   |       |  |  |   |        |  
|Segment operating income (loss)                           |  | $ | 243   |  |  | $ | (2,856 | )
|                                                          |  |   |       |  |  |   |        |  

The following table highlights certain selected operating data in our structured settlements segment for the
periods indicated (dollars in thousands):



|                                                                                        |  |                                     |        |   |      |   |        |  
|--------------------------------------------------------------------------------------- |  | ----------------------------------- | ------ | - | ---- | - | ------ | -
|                                                                                        |  | For the Three Months EndedMarch 31, |       
|                                                                                        |  | 2013                                |        |   | 2012 |  
|Period Originations:                                                                    |  |                                     |        |   |      |   |        |  
|Number of transactions                                                                  |  |                                     | 171    |   |      |   | 241    |  
|Number of transactions from repeat customers                                            |  |                                     | 85     |   |      |   | 70     |  
|Average purchase discount rate                                                          |  |                                     | 17.4   | % |      |   | 18.5   | %
|Face value of undiscounted future payments purchased                                    |  | $                                   | 30,721 |   |      | $ | 30,429 |  
|Amount paid for settlements purchased                                                   |  | $                                   | 5,539  |   |      | $ | 5,653  |  
|Marketing costs                                                                         |  | $                                   | 811    |   |      | $ | 2,162  |  
|Selling, general and administrative (excluding marketing costs)                         |  | $                                   | 3,138  |   |      | $ | 3,927  |  
|Average Per Origination During Period:                                                  |  |                                     |        |   |      |   |        |  
|Face value of undiscounted future payments purchased                                    |  | $                                   | 180    |   |      | $ | 126    |  
|Amount paid for settlement purchased                                                    |  | $                                   | 32     |   |      | $ | 23     |  
|Time from funding to maturity (months)                                                  |  |                                     | 12.9   |   |      |   | 131.7  |  
|Marketing cost per transaction                                                          |  | $                                   | 5      |   |      | $ | 9      |  
|Segment selling, general and administrative (excluding marketing costs) per transaction |  | $                                   | 18     |   |      | $ | 16     |  
|Period Sales:                                                                           |  |                                     |        |   |      |   |        |  
|Number of transactions originated and sold                                              |  |                                     | 163    |   |      |   | 175    |  
|Realized gain on sale of structured settlements                                         |  | $                                   | 3,541  |   |      | $ | 2,475  |  
|Average sale discount rate                                                              |  |                                     | 9.8    | % |      |   | 10.5   | %
|End of Period Portfolio:                                                                |  |                                     |        |   |      |   |        |  
|Number of transactions on balance sheet                                                 |  |                                     | 97     |   |      |   | 132    |  

Structured Settlements

Three Months Ended March 31, 2013 Compared to Three Months Ended March 31, 2012

Income

Interest
Income. Interest income was $67,000 for three months ended March 31, 2013 compared to $61,000 for the three months ended March 31, 2012, an increase of $6,000 or 10% primarily as a result of the timing of payments for assets held
during the three months ended March 31, 2013. Interest income is accretion during the period on the structured settlement assets held on our balance sheet.



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Realized Gain on Sale of Structured Settlements. During the three months ended
March 31, 2013, 163 structured settlements were sold which resulted in a gain of $3.5 million compared to 463 structured settlements sold with a gain of $2.5 million during the three months ended March 31, 2012. Of the 463 structured
settlements sold, 175 were originated during the first quarter of 2012, and 288 were originated during the fourth quarter of 2011 and held on balance sheet pending the resumption of funding under the Companys credit facilities. In addition,
segment financing costs remained high during the first quarter of 2012 as a result of the USAO Investigation, which impacted the realized gain on sale of structured settlements.

Unrealized Change in Fair Value of Structured Settlement Receivables. Unrealized change in fair value of investments and
structured receivables was $545,000 for the three months ended March 31, 2013 compared to $610,000 for the same period in 2012. At March 31, 2013 we had 23 structured receivables on our balance sheet compared with 133 structured settlement
receivables on our balance sheet as of March 31, 2012. The decrease was due to the Companys ability to finance these receivables in the dedicated Imperial Settlements Financing 2010, LLC financing facility during 2013.

Expenses

Selling,
General and Administrative Expenses. Selling, general and administrative expenses decreased by $2.1 million to $4.0 million for the three months ended March 21, 2013. Significant expense reductions were made in marketing costs of $1.4
million associated with a reduction in advertising and other promotional activities, personnel costs of $400,000, legal fees of $162,000 and other expenses of $147,000.

This segment continues to be characterized by high growth in lead generation and sales, as well as high operating costs. Segment operating
profit was $243,000 during the three months ended March 31, 2013; an increase of $3.1 million over the segment operating loss of $2.9 million recorded during three months ended March 31, 2012.

Liquidity and Capital Resources

The Company has expended considerable resources resolving the USAO Investigation, as well as responding to the SEC investigation and related
litigation, advancing indemnification costs on behalf of certain employees and in conducting an independent investigation of the facts and circumstances surrounding the USAO Investigation. As of March 31, 2013, the Companys cumulative
legal and related fees in respect of these matters were $30.5 million, including $1.4 million paid during the three months ended March 31, 2013 and we believe we will continue to spend significant amounts on legal matters related to the USAO
and SEC investigations, shareholder litigation and other litigation and judicial proceedings, as well as for potential claims over the next year, and possibly beyond.

We expect to meet our liquidity needs for the next year primarily through our cash resources and, to a lesser extent, through cash flows from
sales and financings of structured settlements. While the Company owned 220 policies at March 31, 2013, as of May 14, 2013 the Companys total portfolio consists of 639 life insurance policies. As discussed below, effective April 29,
2013, a subsidiary of the Company entered into a revolving credit facility, which we expect will be used to pay premiums on the 459 life insurance policies pledged as collateral under the facility. The Company is currently evaluating the 180
policies that have not been pledged as collateral under the revolving credit facility and may seek to sell, borrow against or lapse some of these policies as its liquidity and portfolio management needs dictate. Should it choose to do so, the
Company estimates that it will need to pay approximately $9.4 million to maintain these 180 policies in force through 2013 and may seek to raise additional capital to maintain some or all of these policies. We may also seek to reduce our operating
expenses in order to preserve the value of our existing portfolio of policies. The lapsing of policies, if any, would create losses as such assets would be written down to zero.

As of March 31, 2013, we had approximately $50.7 million of cash and cash equivalents. See Note 18 to the accompanying financial
statements.

The Company also expects during the next 12 months that, as part of the framework for the settlement embodied by the Term
Sheet, it will, among other things, agree to pay $1.0 million of a $12.0 million payment to settle the class action litigation and will agree to contribute $500,000 to a trust to cover certain claims under its director and officer liability
insurance policies, which will further stress the Companys liquidity position. In addition, under the Term Sheet, the Company will undertake to advance legal fees and indemnify certain individuals covered under the director and officer
liability insurance policies. The obligation to advance and indemnify on behalf of these individuals, while currently unquantifiable, may be substantial and could have an adverse effect on the Companys financial position and results of
operations.

Financing Arrangements Summary

Bridge Facility

On
March 27, 2013, Greenwood, as issuer, and the Company and OLIPP IV, LLC, as guarantors, entered into an indenture with Wilmington Trust Company, as indenture trustee, under which an aggregate principal amount of $45.0 million in 12% increasing
rate senior secured bridge notes were issued (the Bridge Facility).



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Interest under the Bridge Facility accrues at 12% per annum for the first nine months from
the issue date, and would increase by 600 basis points thereafter to 18% per annum. Up to 25% of the net proceeds from the Bridge Facility after transaction expenses were to be used by the Company for general corporate purposes, including for
premium payments on life insurance policies not owned by Greenwood, with the balance used to pay fees and expenses associated with the Bridge Facility and for premiums on life insurance policies owned by Greenwood. The Bridge Facility was guaranteed
by the Company and secured by the cash on account at Greenwood and its portfolio of life insurance policies. The Bridge Facility was also secured by pledges of the equity interests of Greenwoods direct parent and each subsidiary of the
Company, other than its licensed life settlement provider, that holds life insurance policies that were not subject to the subrogation rights of the Companys lender protection insurance carrier.

Notes under the Bridge Facility were issued at 92% of their face amount and were pre-payable at par at any time. The Bridge Facility was
subject to mandatory prepayment provisions upon the issuance of additional debt, equity raises and asset sales. Mandatory prepayments are generally at par although certain asset sales and a change of control would each trigger a mandatory prepayment
obligation at 109%. The Bridge Facility required the maintenance of a 2 times asset coverage ratio and six months of cash on hand to pay interest on the Bridge Facility and premiums on life insurance policies owned by Greenwood. Upon a failure to
maintain requisite cash on hand, the Company may have been obligated to sell policies to repay the lenders under the Bridge Facility.

On
April 30, 2013, borrowings under the revolving credit facility described below were used to repay all outstanding amounts due under and retire the Bridge Facility and the vast majority of the assets owned by Greenwood were ultimately
contributed to White Eagle.

Revolving Credit Facility

Effective April 29, 2013, White Eagle, a subsidiary of the Company, entered into a 15-year revolving credit agreement (the Credit
Agreement) with LNV Corporation, as initial lender, Imperial Finance & Trading, LLC, as servicer and portfolio manager and CLMG Corp., as administrative agent (the Agent).

General & Security. The Credit Agreement provides for an asset-based revolving credit facility backed by White Eagles
portfolio of life insurance policies with an initial aggregate lender commitment of up to $300.0 million, subject to borrowing base availability. Upon the closing of the Credit Agreement, White Eagle owned a portfolio of 459 life insurance
policies with an aggregate death benefit of approximately $2.28 billion, which has been pledged as collateral under the Credit Agreement. In addition, the equity interests of White Eagle have been pledged under the Credit Agreement.

Borrowing Base. Borrowing availability under the Credit Agreement is subject to a borrowing base, which at any time is equal to the
lesser of (A) the sum of all of the following amounts that have been funded or are to be funded through the next distribution date (i) the initial advance and all additional advances in respect of newly pledged policies that are not for
ongoing maintenance advances, plus (ii) 100% of the sum of the ongoing maintenance costs, plus (iii) 100% of debt service (other than the rate floor described below), plus (iv) 100% of any other fees and expenses funded and to be
funded as approved by the required lenders, less (v) any required payments of principal and interest previously distributed and to be distributed through the next distribution date; (B) 75% of the valuation of the policies pledged as
collateral as determined by the lenders; (C) 50% of the aggregate face amount of the policies pledged as collateral (excluding certain specified life insurance policies); and (D) the then applicable facility limit.

Amortization & Distributions. Proceeds from the policies pledged as collateral under the Credit Agreement will be distributed
pursuant to a waterfall. Absent an event of default, after premium payments and fees to service providers, 100% of the remaining proceeds will be directed to pay outstanding interest and principal on the loan unless the lenders determine otherwise.
Generally, after payment of interest and principal, collections from policy proceeds are to be paid to White Eagle up to $76.1 million, then 50% of the remaining proceeds are to be directed to the lenders with the remainder paid to White Eagle and
for any unpaid fees to service providers. With respect to approximately 25% of the face amount of policies pledged as collateral under the Credit Agreement, White Eagle has agreed that if policy proceeds that are otherwise due are not paid by an
insurance carrier, the foregoing distributions will be altered such that the lenders will receive any catch-up payments in respect of amounts that they would have received in the waterfall prior to distributions being made to White
Eagle. During the continuance of events of default or unmatured events of default, the amounts from collections of policy proceeds that might otherwise be paid to White Eagle may instead be applied to fund certain operating and third party expenses,
interest and principal, catch-up payments or percentage payments that would go to the lenders as described above.

Use of
Proceeds. Generally, ongoing advances may be made for paying premiums on the life insurance policies pledged as collateral, to pay debt service (other than the greater of LIBOR and 1.5%), and to pay the fees of service providers. Subsequent
advances in respect of newly pledged policies are at the discretion of the lenders and the use of proceeds from those advances are at the discretion of the lenders.

Interest.Borrowings under the Credit Agreement bear interest at a rate equal to LIBOR or, if LIBOR is unavailable, the base rate, in
each case plus an applicable margin of 4.00% and subject to a rate floor of 1.5%. The base rate under the Credit Agreement equals the sum of (i) the weighted average of the interest rates on overnight federal funds transactions or, if
unavailable, the average of three federal funds quotations received by the Agent plus 0.75% and (ii) 0.5%.

Maturity.The term
of the Credit Agreement expires April 28, 2028.



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Covenants/Events of Defaults. The Credit Agreement contains covenants and events of
default, including those that are customary for asset-based credit agreements of this type and including cross defaults under the servicing, contribution and pledge agreements entered into in connection with the Credit Agreement, changes in control
of or insolvency or bankruptcy of the Company and relevant subsidiaries and performance of certain obligations by certain relevant subsidiaries, White Eagle and third parties. The Credit Agreement does not contain any financial covenants, but does
contain certain tests relating to asset maintenance, performance and valuation with determinations as to the satisfaction of such tests involving determinations made by the lenders with a high degree of discretion.

Structured Settlement Financing Arrangements

8.39% Fixed Rate Asset Backed Variable Funding Notes. We formed Imperial Settlements Funding (ISF) as a subsidiary of
Washington Square Financial, LLC (WSF) to serve as a special purpose financing entity to allow us to borrow against certain of our structured settlements and assignable annuities, which we refer to as receivables, to provide us
liquidity. On September 24, 2011, we entered into an arrangement to provide financing up to $50.0 million in financing. Under this arrangement, a subsidiary of Partner Re, Ltd., or the noteholder, became the initial holder of ISF
2011s 8.39% Fixed Rate Asset Backed Variable Funding Notes issued under a master trust indenture and related indenture supplement, or the indenture, pursuant to which the noteholder has committed to advance up to $50.0 million upon the
terms and conditions set forth in the indenture. The note is secured by the receivables that ISF 2011 acquires from Washington Square from time to time. The note is due and payable on or before January 1, 2057, but principal and interest must
be repaid pursuant to a schedule of fixed payments from the receivables that secure the notes. The arrangement generally has a concentration limit of 15% for the providers of the receivables that secure the notes. Wilmington Trust is the collateral
trustee.

Upon the occurrence of certain events of default under the indenture, all amounts due under the note are automatically
accelerated. ISF 2011 is subject to several restrictive covenants under the terms of the indenture. The restrictive covenants include that ISF 2011 cannot: (i) create, incur, assume or permit to exist any lien on or with respect to any assets
other than certain permitted liens, (ii) create, incur, assume, guarantee or permit to exist any additional indebtedness, (iii) declare or pay any dividend or other distribution on account of any equity interests of ISF 2011 other than
certain permitted distributions from available cash, (iv) make any repurchase or redemption of any equity interests of ISF 2011 other than certain permitted repurchases or redemptions from available cash, (v) enter into any transactions
with affiliates other than the transactions contemplated by the indenture, or (vi) liquidate or dissolve.

During the third quarter
of 2011, the Company suspended financing under this agreement, but resumed financing on January 12, 2012 pursuant to an acknowledgement that provided for WSF to make a $258,000 payment in respect of, the transfer of the ownership of certain
lock-box accounts associated with the facility. As of December 31, 2012, the Company had available commitments under this facility of $6.8 million. We also have other parties to whom we have sold term-certain structured settlement assets and to
whom we believe we can sell such assets in the future.

The Life-contingent Structured Settlement Facility. On December 30,
2011, WSF entered into a forward purchase and sale agreement (PSA) to sell up to $40.0 million of life-contingent structured settlement receivables to Compass Settlements, LLC (Compass). Subject to predetermined eligibility
criteria and on-going funding conditions, Compass committed, in increments of $5.0 million, up to $40.0 million to purchase life-contingent structured settlement receivables from WSF. The PSA obligates WSF to sell the eligible life-contingent
structured settlement receivables it originates to Compass on an exclusive basis for twenty-four months, subject to Compass maintaining certain purchase commitment levels. Additionally, the Company agreed to guaranty WSFs obligation to
repurchase any ineligible receivables sold under the PSA and certain other related obligations. As of March 31, 2013, the Company had available commitments under this facility of $5.1 million.



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Premium Finance Loan Maturities

The following table summarizes the maturities of our premium finance loans outstanding as of March 31, 2013 (dollars in thousands):



|                                                                                                    |  |                                        |       |   |                       |   |   | 
|--------------------------------------------------------------------------------------------------- |  | -------------------------------------- | ----- | - | --------------------- | - | - | 
|                                                                                                    |  | Principal and Origination Fee Maturity |      
|                                                                                                    |  | Total at3/31/2013                      |       |   | Year Ending12/31/2013 |  
|Carrying value (loan principal balance, accreted origination fees, and accrued interest receivable) |  | $                                      | 5,371 |   |                       | $ |  | 
|Weighted average per annum interest rate                                                            |  |                                        | 14.0  | % |                       |   |  | 
|Per annum origination fee as a percentage of the principal balance of the loan at origination       |  |                                        | 12.0  | % |                       |   |  | 

Cash Flows

The following table summarizes our cash flows from operating, investing and financing activities for the three months ended March 31, 2013
and 2012 (in thousands):



|                                      |  |                                     |        |   |      |   |        |  
|------------------------------------- |  | ----------------------------------- | ------ | - | ---- | - | ------ | -
|                                      |  | For the Three Months EndedMarch 31, |       
|                                      |  | 2013                                |        |   | 2012 |  
|Statement of Cash Flows Data:         |  |                                     |        |   |      |   |        |  
|Total cash (used in) provided by:     |  |                                     |        |   |      |   |        |  
|Operating activities                  |  | $                                   | (4,052 | ) |      | $ | (8,741 | )
|Investing activities                  |  |                                     | 5,147  |   |      |   | 18,714 |  
|Financing activities                  |  |                                     | 42,562 |   |      |   | (7,777 | )
|                                      |  |                                     |        |   |      |   |        |  
|Increase in cash and cash equivalents |  | $                                   | 43,657 |   |      | $ | 2,196  |  
|                                      |  |                                     |        |   |      |   |        |  

Operating Activities

During the three months ended March 31, 2013, operating activities used cash of $4.1 million. Our net loss of $4.3 million was adjusted
for depreciation and amortization of $53,000, amortization of discounts and premiums of $21,000, amortization of deferred financing costs and original issue discount of $40,000, stock-based compensation expense of $191,000, change in fair value of
life settlements of $1.8 million, change in unrealized fair value of structured settlements of $545,000, interest income of $87,000, gain on sale of investment securities available for sale of $22,000, and a net positive change in the components of
operating assets and liabilities of $2.5 million. This positive change in operating assets and liabilities resulted in part from a $223,000 increase in structured settlements receivables, $696,000 increase in deposits, $62,000 increase in investment
in affiliates, $1.7 million increase in prepaid expenses and other assets, $999,000 increase in accounts payable, $3.9 million increase in other liabilities, $95,000 decrease in interest receivable, and $60,000 increase in interest payable.

During the three months ended March 31, 2012, operating activities used cash of $8.7 million. Our net loss of $8.9 million was adjusted
for depreciation and amortization of $136,000, amortization of discounts and premiums of $361,000, stock-based compensation expense of $17,000, origination fee income of $250,000, change in unrealized fair value of life settlements of $4.3 million,
change in unrealized fair value of structured settlements of $610,000, interest income of $906,000, amortization of deferred costs of $982,000, realized gain on life settlements, net of $236,000, gain on sale of investment securities available for
sale of $57,000, and a net positive change in the components of operating assets and liabilities of $4.9 million. This positive change in operating assets and liabilities resulted in part from a $10.3 million increase in structured settlements
receivables, $675,000 increase in investment in affiliates, $2.0 million increase in prepaid expenses and other assets, $624,000 increase in accounts payable, $41,000 increase in deferred income tax, $52,000 decrease in interest receivable, and $2.0
million decrease in interest payable.

Investing Activities

For the quarter ended March 31, 2013, cash flows provided by investing activities was $5.1 million and includes $12.1 million in proceeds
received from sale of investment securities available for sale, offset by $7.0 million for premiums paid on investments in life settlements.

For the fiscal year ended March 31, 2012, cash flows provided by in investing activities was $18.7 million and includes $27.7 million in
proceeds received from sale of investment securities available for sale, $1.5 million in proceeds received from sale of investments in life settlements, and $10.7 million in proceeds from loan payoffs. These were offset by $14.9 million used for
purchases of investment securities available for sale and $6.3 million for premiums paid on investments in life settlements.



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Financing Activities

For the fiscal year ended March 31, 2013, cash provided by financing activities was $42.6 million and includes $41.4 million in proceeds
from the bridge facility and $1.2 million in restricted cash for indemnification deposits received.

For the fiscal year ended
March 31, 2012, cash used in financing activities was $7.8 million for the repayment of borrowings under credit facilities.

Contractual Obligations

The following table summarizes our contractual obligations as of March 31, 2013 (in thousands):



|                 |  |       |         |  |                        |   |         |              |  |   |              |  |  |                  |   |  |  |  |   | 
|---------------- |  | ----- | ------- |  | ---------------------- | - | ------- | ------------ |  | - | ------------ |  |  | ---------------- | - |  |  |  | - | 
|                 |  | Total |         |  | Due in Lessthan 1 Year |   |         | Due1-3 Years |  |   | Due3-5 Years |  |  | More than5 Years |  
|Operating leases |  | $     | 892,000 |  |                        | $ | 554,000 |              |  | $ | 338,000      |  |  |                  |  |  |  |  |  | 

Inflation

Our assets and liabilities are, and will be in the future, interest-rate sensitive in nature. As a result, interest rates may influence our
performance far more than does inflation. Changes in interest rates do not necessarily correlate with inflation or changes in inflation rates. We do not believe that inflation had any material impact on our results of operations in the periods
presented in our financial statements presented in this report.

Off-Balance Sheet Arrangements

Except as described in Subrogation Rights, Net, there are no off-balance sheet arrangements between us and any other entity
that have, or are reasonably likely to have, a current or future effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources that is material to
stockholders. See Note 18 to the accompanying financial statements.

Item 3.QUANTITATIVE AND
QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Market risk is the risk of potential economic loss principally arising from
adverse changes in the fair value of financial instruments. The major components of market risk are credit risk, interest rate risk and foreign currency risk. We have no exposure in our operations to foreign currency risk.

Credit Risk

In our life
finance business segment, with respect to life insurance policies collateralizing our loans or that we acquire upon relinquishment, credit risk consists primarily of the potential loss arising from adverse changes in the financial condition of the
issuers of the life insurance policies. We manage our credit risk related to these life insurance policy issuers by generally only funding premium finance loans for policies issued by companies that have a credit rating of at least A by
Standard & Poors, at least A2 by Moodys, at least A by A.M. Best Company or at least A- by Fitch. At March 31, 2013, all of our loan collateral was for policies issued by companies
rated investment grade (credit ratings of A+ to BBB-) by Standard & Poors, and we owned 7 policies issued by a carrier rated below investment grade.



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The following table shows the percentage of the total number of loans outstanding with lender
protection insurance and the percentage of our total loans receivable balance covered by lender protection insurance as of the dates indicated below:



|                                                                                         |  |           |      |   |      |  |      |  
|---------------------------------------------------------------------------------------- |  | --------- | ---- | - | ---- |  | ---- | -
|                                                                                         |  | March 31, |     
|                                                                                         |  | 2013      |      |   | 2012 | 
|Percentage of total number of loans outstanding with lender protection insurance         |  |           | 35.7 | % |      |  | 59.6 | %
|Percentage of total loans receivable, net balance covered by lender protection insurance |  |           | 19.6 | % |      |  | 65.3 | %

For the loans that had lender protection insurance and that matured during the three months ended
March 31, 2013 and 2012, the lender protection insurance claims paid to us were 0.0% and 88.0%, respectively, of the contractual amount of the insured loans.

Our premium finance loans are originated with borrowers residing throughout the United States. We do not believe there are any geographic
concentrations of loans that would cause them to be similarly impacted by economic or other conditions. However, there is concentration in the life insurance carriers that issued these life insurance policies that serve as our loan collateral. The
following table provides information about the life insurance issuer concentrations that exceed 10% of total death benefit of the collateral and 10% of outstanding loan balance as of March 31, 2013:



|                                               |  |                                            |      |   |                                 |  |      |               |  |  |           |  |  |  |     | 
|---------------------------------------------- |  | ------------------------------------------ | ---- | - | ------------------------------- |  | ---- | ------------- |  |  | --------- |  |  |  | --- | 
|Carrier                                        |  | Percentage ofTotal OutstandingLoan Balance |      |   | Percentage ofTotal DeathBenefit |  |      | MoodysRating |  |  | S&PRating | 
|Lincoln National Life Insurance Company        |  |                                            | 36.1 | % |                                 |  | 20.7 | %             |  |  | A2        |  |  |  | AA- | 
|Lincoln Benefit Life Company                   |  |                                            | 32.9 | % |                                 |  | 26.4 | %             |  |  | A1        |  |  |  | A+  | 
|Transamerica Occidental Life Insurance Carrier |  |                                            | 12.2 | % |                                 |  | 17.8 | %             |  |  | A1        |  |  |  | AA- | 

As of March 31, 2013, our lender protection insurer, Lexington, had a financial strength rating of
A with a stable outlook by Standard & Poors.

The following table provides information about the life insurance
issuer concentration that exceed 10% of total death benefit and 10% of total fair value of our investment in life settlements as of March 31, 2013:



|                                        |  |                              |      |   |                                 |  |      |               |  |  |           |  |  |  |     | 
|--------------------------------------- |  | ---------------------------- | ---- | - | ------------------------------- |  | ---- | ------------- |  |  | --------- |  |  |  | --- | 
|Carrier                                 |  | Percentage ofTotalFair Value |      |   | Percentage ofTotal DeathBenefit |  |      | MoodysRating |  |  | S&PRating | 
|Lincoln National Life Insurance Company |  |                              | 20.8 | % |                                 |  | 14.8 | %             |  |  | A2        |  |  |  | AA- | 
|AXA Equitable Life Insurance Company    |  |                              | 12.4 | % |                                 |  | 16.1 | %             |  |  | Aa3       |  |  |  | A+  | 

In our structured settlements segment, credit risk consists of the potential loss arising principally from
adverse changes in the financial condition of the issuers of the annuities that arise from a structured settlement. Although certain purchasers of structured settlements may require higher credit ratings, we manage our credit risk related to the
obligors of our structured settlements by generally requiring that they have a credit rating of A- or better by Standard & Poors. The risk of default in our structured settlement portfolio is mitigated by the relatively
short period of time that we hold structured settlements as investments. We have not experienced any credit losses in this segment and we believe such risk is minimal.

Interest Rate Risk

At March 31, 2013, fluctuations in interest rates did not impact interest expense in the life finance segment. As discussed above in
Liquidity and Capital Resourcesin Managements Discussion and Analysis of Financial Condition and Results of Operations,the new revolving credit facility entered into by a subsidiary of the Company accrues interest at LIBOR plus
an applicable margin. LIBOR under the facility is subject to a floor of 1.5% and the Company does not expect a fluctuation in interest rates to have a meaningful impact on the Company in the short term. Additional increases in interest rates may
impact the rates at which we are able to obtain financing in the future.

We currently earn revenue from interest charged on loans and
loan origination fees. In addition, we earn income on the unrealized changes in fair value of life insurance policies we acquire in the life settlement and secondary markets. However, if the fair value of the life insurance policies we own
decreases, we record this reduction as a loss. We receive interest income that accrues over



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the life of the life finance loan and is due at maturity. Substantially all of the interest rates we charged on our premium finance loans were floating rates that are calculated at the one-month
LIBOR rate plus an applicable margin. In addition, our life finance loans have a floor interest rate and are capped at 16.0% per annum. For loans with floating rates, each month the interest rate is recalculated to equal one-month LIBOR plus
the applicable margin, and then, if necessary, adjusted so as to remain at or above the stated floor rate and at or below the capped rate of 16.0% per annum. While the floor and cap interest rates mitigate our exposure to changes in interest
rates, our interest income may nonetheless be impacted by changes in interest rates. Origination fees are fixed and are therefore not subject to changes based on movements in interest rates, although we do charge interest on origination fees.

As of March 31, 2013, we owned investments in life settlements (life insurance policies) in the amount of $117.7 million. A rise in
interest rates could potentially have an adverse impact on the sale price if we were to sell some or all of these assets. There are several factors that affect the market value of life settlements (life insurance policies), including the age and
health of the insured, investors demand, available liquidity in the marketplace, duration and longevity of the policy, and interest rates. We currently do not view the risk of a decline in the sale price of life settlements (life insurance
policies) due to normal changes in interest rates as a material risk.

In our structured settlements segment, our profitability is
affected by levels of and fluctuations in interest rates. Such profitability is largely determined by the difference , or spread, between the discount rate at which we purchase the structured settlements and the discount rate at which we
can resell these assets or the interest rate at which we can finance those assets. Structured settlements are purchased at effective yields that are fixed, while rates at which structured settlements are sold, with the exception of forward purchase
arrangements, are generally a function of the prevailing market rates for short-term borrowings. As a result, increases in prevailing market interest rates after structured settlements are acquired could have an adverse effect on our yield on
structured settlement transactions. Currently, we do not view this risk to be material because nearly all of our structured settlements acquired are sold into forward purchase arrangements.



|Item 4. | CONTROLS AND PROCEDURES
|------- | -----------------------

Evaluation of Disclosure Controls and Procedures

Our management, with the participation of our chief executive officer and chief financial officer, conducted an evaluation of our
disclosure controls and procedures, as such term is defined under Rule 13a-15(e) promulgated under the Securities Exchange Act of 1934, as amended (the Exchange Act). Based on this evaluation, our chief executive officer and chief
financial officer concluded that our disclosure controls and procedures were effective as of the end of the period covered by this Quarterly Report on Form 10-Q.

Limitations on Controls

Our disclosure
controls and procedures and internal control over financial reporting are designed to provide reasonable assurance of achieving their objectives as specified above. Management does not expect, however, that our disclosure controls and procedures or
our internal controls over financial reporting will prevent or detect all error and fraud. Any control system, no matter how well designed and operated, is based on certain assumptions and can provide only reasonable, not absolute, assurance that
its objectives will be met. Further, no evaluation of controls can provide absolute assurance that misstatements due to error or fraud will not occur or that all control issues and instances of fraud, if any, within the Company have been detected.

Changes in Internal Control Over Financial Reporting

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

PART IIOTHER INFORMATION

Item 1.      Litigation

The SEC Investigation

We are subject to an investigation by the SEC. We received a subpoena issued by the staff of the SEC on February 17, 2012, seeking
documents from 2007 through the present that are generally related to the Companys premium finance business and corresponding financial reporting. The SEC is investigating whether any violations of federal securities laws have occurred and the
Company is cooperating with the SEC regarding this matter. The Company is unable to predict the outcome of the SEC Investigation or estimate the amount of any possible sanction, which could include a fine, penalty, or court order prohibiting
specific conduct, any of which could be material. No provision for losses has been recorded for this exposure.



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Class Action Litigation, Derivative Demands and the Insurance Coverage Declaratory Relief
Complaint

The Class Action Litigation

Initially on September 29, 2011, the Company, and certain of its officers and directors were named as defendants in a putative securities
class action filed in the Circuit Court of the 15th Judicial Circuit in and for Palm Beach County, Florida, entitled Martin J. Fuller v. Imperial Holdings, Inc. et al. Also named as defendants were the underwriters of the Companys initial
public offering. That complaint asserted claims under Sections 11, 12 and 15 of the Securities Act of 1933, as amended, alleging that the Company should have but failed to disclose in the registration statement for its initial public offering
purported wrongful conduct relating to its life finance business which gave rise to the USAO Investigation. On October 21, 2011, an amended complaint was filed that asserts claims under Sections 11, 12 and 15 of the Securities Act of 1933,
based on similar allegations. On October 25, 2011, defendants removed the case to the United States District Court for the Southern District of Florida.

On October 31, 2011, another putative class action case was filed in the Circuit Court of the 15th Judicial Circuit in and for Palm Beach
County, Florida, entitled City of Roseville Employees Retirement System v. Imperial Holdings, et al, naming the same defendants and also bringing claims under Sections 11, 12 and 15 of the Securities Act based on similar allegations. On
November 28, 2011, defendants removed the case to the United States District Court for the Southern District of Florida. The plaintiffs in the Fuller and City of Roseville cases moved to remand their cases back to state court. Those motions
were fully briefed and argued.

On November 18, 2011, a putative class action case was filed in the United States District Court for
the Southern District of Florida, entitled Sauer v. Imperial Holdings, Inc., et al, naming the same defendants and bringing claims under Sections 11 and 15 of the Securities Act of 1933 based on similar allegations.

On December 14, 2011, another putative class action case filed in United States District Court for the Southern District of Florida,
entitled Pondick v. Imperial Holdings, Inc., et al., naming the same defendants and bringing claims under Sections 11, 12, and 15 of the Securities Act of 1933 based on similar allegations.

On February 24, 2012, the four putative class actions were consolidated and designated: Fuller v. Imperial Holdings et al. in the United
States District Court for the Southern District of Florida, and lead plaintiffs were appointed.

In addition, the underwriters of the
Companys initial public offering have asserted that the Company is required by its Underwriting Agreement to indemnify the underwriters expenses and potential liabilities in connection with the litigation.

The Insurance Coverage Declaratory Relief Complaint

On June 13, 2012, Catlin Insurance Company (UK) Ltd. (Catlin) filed a declaratory relief action against the Company in the
United States District Court for the Southern District of Florida. The complaint seeks a determination that there is no coverage under Catlins primary Directors, Officers and Company Liability Policy (the Policy) issued to the
Company for the period February 3, 2012 to February 3, 2012, based on a prior and pending litigation exclusion (the Exclusion). Catlin also seeks a determination that it is entitled to reimbursement of approximately $800,000 in
defense costs and fees advanced to the Company in the first quarter of 2012 under the Policy if it is determined that the Exclusion precludes coverage. As of the filing of this Quarterly Report on Form 10-Q, the Company has not yet been served with
the complaint.



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Derivative Demands

On November 16, 2011, the Companys Board of Directors received a shareholder derivative demand from Harry Rothenberg (the
Rothenberg Demand), which was referred to the special committee for a thorough investigation of the issues, occurrences and facts relating to, connected to, and arising from the USAO Investigation referenced in the Rothenberg Demand. On
May 8, 2012, the Companys Board of Directors received a derivative demand made by another shareholder, Robert Andrzejczyk (the Andrzejczyk Demand). The Andrzejczyk Demand, like the Rothenberg Demand was referred to the special
committee, which determined that it did not contain any allegations that differed materially from those alleged in the Rothenberg Demand. On July 20, 2012, the Company (as nominal defendant) and certain of the Companys officers,
directors, and a former director were named as defendants in a shareholder derivative action filed in the Circuit Court of the 15th Judicial Circuit in and for Palm Beach County, Florida, entitled
Robert Andrzejczyk v. Imperial Holdings, Inc. et al. The complaint alleges, among other things, that the Special Committees refusal of the Andrzejczyk Demand was improper.

The Proposed Settlement

On December 18, 2012, attorneys for the Company signed a Term Sheet for Global Settlement Regarding Imperial Holdings, Inc. Matters (the
Term Sheet) setting forth the terms upon which each of the parties to the matters described in Class Action Litigation, Derivative Demands and the Insurance Coverage Declaratory Relief Complaint would be willing to
settle the class action litigation and derivative actions as well as the declaratory relief action filed by Catlin, respectively. In addition to the Companys attorneys, the Term Sheet was signed by attorneys representing the plaintiffs in the
class action lawsuits and derivative actions instituted against the Company as well attorneys for the Companys director and officer liability insurance carriers (D&O Carriers), certain individual defendants named in the class
actions and the underwriters in the Companys initial public offering.

While non-binding and subject to certain contingencies, the
Term Sheet provides that each of the parties will endeavor to enter into definitive settlement agreements in respect of the class action litigation, derivative action and insurance coverage declaratory relief complaint. Although definitive
settlement agreements have not been executed as of the filing of this Annual Report on Form 10-K, the Company does expect to continue to work in good faith with the other parties to the Term Sheet to
execute settlement agreements as soon as is practicable.

The terms of the class action settlement include a cash payment of $12.0
million, of which $11.0 million is to be contributed by the Companys primary and excess D&O Carriers and the issuance of two million warrants for shares of the Companys stock. In addition, the underwriters in Companys initial
public offering are to waive their rights to indemnity and contribution by the Company.

The derivative actions would be settled for
implementation of certain compliance reforms. The Term Sheet also contemplates payment by the Companys primary D&O carrier of $1.5 million for legal fees in respect of the derivative actions and the contribution of $500,000 in the
Companys stock.

In addition, the Term Sheet contemplates that the Company will contribute $500,000 to a trust to cover certain
claims under its director and officer liability insurance policies.

The proposed settlement also requires the Company to advance legal
fees to and indemnify certain individuals covered under the policies. The obligation to advance and indemnify on behalf of these individuals, while currently unquantifiable, may be substantial and could have a material adverse effect on the
Companys financial position and results of operations.

Sun Life Litigation

On April 18, 2013, Sun Life Assurance Company of Canada (Sun Life) filed a complaint against the Company and several of its
affiliates in the United States District Court for the Southern District of Florida. The complaint seeks to contest the validity of at least twenty-nine (29) policies issued by Sun Life. The complaint also asserts the following claims:
(1) violations of the federal Racketeer Influenced and Corrupt Organizations Act, (2) common law fraud, (3) civil conspiracy, (4) tortious interference with contractual obligations, and (5) an equitable
accounting. Based on a preliminary assessment of the complaint, the Company believes that it is without merit and intends to defend itself vigorously. No reserve has been established for this litigation.

Other Matters

In addition to the
proceedings above, we are party to various legal proceedings that arise in the ordinary course of business. From time to time, we also finance the cost of a policyholders defense of litigation initiated by a carrier to challenge the
policyholders life insurance policy. While we cannot predict with certainty the outcome of these proceedings, we believe that the resolution of these other proceedings will not, based on information currently available to us, have a material
adverse effect on our financial position or results of operations.



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|Item 1A. | Risk Factors
|-------- | ------------

Updates to our risk factors are discussed below.
Other than the risk factors set forth below, our risk factors have not changed materially from those disclosed in our Annual Report on Form 10-K filed for the year ended December 31, 2012 with the SEC on March 28, 2013.

The Company may not have access to cash flows from proceeds of policies pledged as collateral under the revolving credit facility.

There are currently 459 life insurance policies pledged as collateral under the revolving credit facility with an aggregate death benefit of
approximately $2.3 billion. Proceeds from these policies will be distributed pursuant to a waterfall. After payments to customary service providers, 100% of available proceeds will be directed to pay outstanding interest and principal on the loan
unless the lenders under the revolving credit facility determine otherwise. Accordingly, there can be no assurance as to when proceeds from these policies will be distributed to the Company by White Eagle. Any prolonged delay in access to cash flows
from these proceeds may adversely affect the Companys ability to fund its operations and to pay the premiums required to maintain policies that are not pledged as collateral under the revolving credit facility.

The Company will not control decisions regarding collateral pledged under the revolving credit facility.

The lenders will control substantially all matters related to collateral securing the revolving credit facility, including the 459 life
insurance policies pledged by the Company and the membership interests in White Eagle. Upon an event of default, absent a waiver, in addition to principal and interest, the lenders rights to proceeds from collections under the revolving credit
facility will become due. If these obligations cannot be satisfied, the lenders, or their agent, may dispose of, release, or foreclose on (including by means of strict foreclosure), or take other actions with respect to, the collateral with which
the Company or its shareholders may disagree or that may be contrary to the interests of its shareholders.

The Company may not be able to raise
additional capital in a timely manner on favorable terms or at all.

The Company estimates that it will need to pay $9.4 million
and an additional $10.1 million in premiums to keep the 180 life insurance policies that have not been pledged as collateral under the revolving credit facility in force through December 31, 2013 and December 31, 2014, respectively. As of May
13, 2013, the Company had approximately $31.7 million of cash and cash equivalents. The Company may need to seek additional capital to pay premiums on these policies and there can be no assurance that the Company will be able to consummate a
financing on favorable terms or at all. If the Company cannot obtain necessary financing, it may need to sell certain of these policies (or may determine to sell policies if its portfolio management needs otherwise dictate), but there can be no
assurance that the Company can consummate any sales or that, if consummated, sales of policies will be at or above their carrying values. The Company may also determine to lapse certain of these policies that have a low return profile or as its
portfolio management needs dictate. The lapsing of policies, if any, would create losses as the assets would be written down to zero.



|Item 2. | Unregistered Sales of Equity Securities and Use of Proceeds
|------- | -----------------------------------------------------------

None.



|Item 3. | Default Upon Senior Securities
|------- | ------------------------------

None.



|Item 4. | Mine Safety Disclosures
|------- | -----------------------

None.



|Item 5. | Other Information
|------- | -----------------

None.



|Item 6. | Exhibits
|------- | --------

See the Exhibit Index following the Signatures page
of this Quarterly Report on Form 10-Q.



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SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to
be signed on its behalf by the undersigned, thereunto duly authorized.



|                              |  |  |  |                                                 
|----------------------------- |  |  |  | ------------------------------------------------
|                              |  |  |  | IMPERIAL HOLDINGS, INC.                         
|                              |  | 
|/s/ Richard S. OConnell, Jr. |  |  |  | Chief Financial Officer and Chief Credit Officer
|Richard S. OConnell, Jr.     |  |  |  | (Principal Financial Officer)                   

Date November 14, 2013



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EXHIBIT INDEX



|                   |  |                                                                                                    
|------------------ |  | ---------------------------------------------------------------------------------------------------
|Exhibit No.        |  | Description                                                                                        
|                   | 
|Exhibit 31.1       |  | Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
|                   | 
|Exhibit 31.2       |  | Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
|                   | 
|Exhibit 32.1       |  | Certification of Chief Executive Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
|                   | 
|Exhibit 32.2       |  | Certification of Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
|                   | 
|Exhibit 101.*      |  | Interactive Data Files                                                                             
|                   | 
|Exhibit 101.INS**+ |  | XBRL Instance Document                                                                             
|                   | 
|Exhibit 101.SCH**+ |  | XBRL Taxonomy Extension Schema Document                                                            
|                   | 
|Exhibit 101.CAL**+ |  | XBRL Taxonomy Extension Calculation Linkbase Document                                              
|                   | 
|Exhibit 101.DEF**+ |  | XBRL Taxonomy Definition Linkbase Document                                                         
|                   | 
|Exhibit 101.LAB**+ |  | XBRL Taxonomy Extension Label Linkbase Document 10.1 & 10.2                                        
|                   | 
|Exhibit 101.PRE**+ |  | XBRL Taxonomy Extension Presentation Linkbase Document                                             



|* | Furnished, not filed
|- | --------------------

|** | Pursuant to Rule 406T of Regulation S-T, these interactive data files are deemed not filed or part of a registration statement or prospectus for purposes of Sections 11 or 12 of the Securities Act of 1933
not filed for such purposes of Section 18 of the Securities Exchange Act of 1934 and otherwise are not subject to liability under such sections.
|-- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|+ | Submitted with the Original Filing
|- | ----------------------------------



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