Special Note: Certain statements set forth below under this caption constitute “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995. See Special Note Regarding Forward-Looking Statements for additional factors relating to such statements. We have restated our Consolidated Financial Statements for fiscal 2010. The nature of the restatement is discussed more fully below.
We review the carrying value of our investments in policies for impairment whenever events and circumstances indicate that we might not recover the carrying value of the policies from future maturities. In cases where undiscounted expected proceeds from future maturities are less than the carrying value, we recognize an impairment loss equal to an amount by which the carrying value (including expected future costs to maintain the policies) exceeds the expected proceeds. Based on this assessment, we recorded impairment costs for investments in policies of $906,451, $6,212,150 and $2,139,183 during fiscal 2012, 2011 and 2010, respectively.
We must make estimates of the collectability of accounts and notes receivable and premium advances. The accounts associated with these areas are critical to recognizing the correct amount of revenue and expenses in the proper period. Within the last quarter of fiscal 2010, issues were resolved which have enabled us to better estimate the collectability of premium advances. The agreement with the State of Texas allowed us to specifically identify a class of investors for whom we made premium advances and which, under the terms of the agreement, will be uncollectible. Our historical success of collecting premium advances enabled us to build a body of evidence by which we can demonstrate full collectability of the remaining balance of advanced premiums. As a result of the resolution of the suit, the reserve for uncollectible premium advances is based on our best estimate and historical data and premium advances are no longer fully reserved.
We review the carrying value of our property and equipment for impairment whenever events and circumstances indicate that the carrying value of an asset may not be recoverable from the estimated future cash flows expected to result from its use and eventual disposition. In cases where undiscounted expected future cash flows are less than the carrying value, an impairment loss is recognized equal to an amount by which the carrying value exceeds the fair value of assets. The factors considered by management in performing this assessment includes current operating results, trends and prospects, the manner in which the property is used, and the effects of obsolescence, demand, competition and other economic factors. Based on this assessment, there was no impairment for property and equipment during fiscal 2012, 2011 and 2010.
The global economic recession in fiscal 2009 and its aftermath resulted in declines in the estimated life settlements market. The well-regarded Conning reports for 2010 and 2011 indicated that the life settlement industry completed $11.8 billion in face value of transactions in calendar 2008, but dropped to $7.6 billion in 2009 and to $3.8 billion in 2010. Despite these industry trends, in fiscal 2010, demand for our services remained strong. The number of policies that met our purchasing qualifications remained constant, and we continued to see a supply of policies with higher face values. The demand side also showed promise in fiscal 2010 with increases in average revenue per settlement and in total revenues derived from settlements. We believe this demand resulted from our broad-based, retail oriented purchasing model and referrals from a large licensee network, in contrast to many of our competitors, which rely on the credit markets or a single institutional provider of investment capital.
Demand for life settlements generally is supported by a desire to diversify investment portfolios and avoid economically sensitive investments. Returns on life settlements are linked to the lives of the insureds. As such, settlements function independently from, and are not correlated to, traditional equity and debt markets and commodity investments. The industry benefits from the investment community searching for returns higher than what is currently available in the traditional marketplace. The financial markets have remained somewhat unsteady following the 2008 financial crisis. While this would appear to benefit the life settlement market, the life settlement market declines in 2009 and 2010 suggest retreating investor capital and a lack of confidence in the industry.
Demand for our services was especially hurt by the critical news articles and the uncertainty related to the SEC investigation and lawsuit, which affected our licensee network and purchaser base. Our business model is somewhat unique in the industry in that we are the only publicly held, life settlement company and the only prominent company with a broad, retail base. We believe the adverse publicity affected our client base more acutely than the publicity might have affected a company with an institutional-oriented base. We believe the news articles portrayed us in a false light, and we have worked with our licensees and clients to restore lost confidence and rebut the charges in the articles. Our ability to return to fiscal 2009 or 2010 levels will not occur until and unless we can resolve the SEC suit satisfactorily. Until the SEC suit is resolved, we anticipate that our operating results in fiscal 2013 will be no better than fiscal 2012 and could decline further.
Brokerage and Referral Fees - Brokerage and referral fees decreased 54.3%, or $25,240,789 from $46,448,548 in fiscal 2011 to $21,207,759 in fiscal 2012. Brokerage and referral fees decreased 5.7%, or $2,803,237, from $49,251,785 in fiscal 2010 to $46,448,548 in fiscal 2011. Brokerage and referral fees constituted 64.4%, 45.7% and 45.3%, of revenues in fiscal 2012, 2011 and 2010, respectively. In fiscal 2012, 2011 and 2010, broker referrals accounted for 99% of the total face value of policies transacted. Policies presented from two brokers each represented more than 10% of all completed transactions in fiscal 2012 and represented 24.3% in total. Policies presented from two brokers each represented more than 10% of all completed transaction in fiscal 2011 and represented 26.9% in total. Policies presented from one broker represented more than 10% of all completed transactions in fiscal 2010 at 15%.
Brokerage and referral fees generally increase or decrease with revenues, face value of policies transacted and the volume of transactions, although the exact ratio may vary according to a number of factors. Brokers may adjust their fees with the individual policyholders whom they represent. In some instances, several brokers may compete for representation of the same seller, which will result in lower broker fees. Referral fees also vary depending on factors such as varying contractual obligations, market demand for a particular kind of policy or life expectancy category and individual agreements between clients and their referring financial planners. Referral fees have increased as a percentage of revenues due to added promotional programs to stimulate transaction interest. We also have reduced our fees on select brokerage transactions to remain competitive in the marketplace. No broker fees are paid when a policy owner is not represented by a broker and presents a policy to us directly.
Operating Expense - General and administrative expenses decreased 20.9%, or $2,049,717, from $9,828,675 in fiscal 2011 to $7,778,958 in fiscal 2012. General and administrative expenses decreased 5.9%, or $618,584, from $10,447,259 in fiscal 2010 to $9,928,675 in fiscal 2011.
Legal and professional expenses were higher in fiscal 2012; $6,522,221 compared to $1,986,648 in fiscal 2011. These expenses are primarily associated with the SEC investigation and lawsuit, the private litigation that followed disclosure of the SEC investigation, and auditing fees. Legal and professional expenses in fiscal 2010 were $1,311,637.
Premium advances, net of reimbursements, in fiscal 2012, 2011 and 2010 were $1,363,915, $882,920 and a negative $1,715,265, respectively. In fiscal 2010, the allowance account for net premium advances was reduced. For business goodwill, we make advances on policy premiums to maintain certain policies. In the typical life settlement, policy premiums for the insured’s projected life expectancy are added to the purchase price and those future premium amounts are set aside in an escrow account to pay future premiums. When the future premium amounts are exhausted, purchasers are contractually obligated to pay the additional policy premiums. In some instances, purchasers have failed to pay the premiums and we have repurchased the policy or advanced the premiums to maintain the policies. While we have no contractual or other legal obligation to do so, and do not do so in every instance, we have made premium advances or purchased the policies as an accommodation to certain purchasers based on our assumptions that we will ultimately recoup the advances and upon our desire to preserve business goodwill. While some purchasers repay the advances directly, reimbursements of these premiums will come most likely as a priority payment from the policy proceeds when an insured dies.
Realized Loss on Investments - We realized a loss on sales of investment securities of $185,456 in fiscal 2012, a gain of $88,492 in fiscal 2011 and a loss of $1,823,364 in fiscal 2010.
Operating Activities - Net cash flows used by operating activities in fiscal 2012 were $5,730,997, primarily as a result of a net loss of $3,123,478, a decrease in income taxes payable, a decrease in accounts payable and a gain on sales of investments in policies, while impairment of policies and deferred income taxes had a positive impact. Net cash flows provided by operating activities decreased by 118.7%, decreasing $36,464,220 from $30,733,223 in fiscal 2011 to $(5,730,997) in fiscal 2012. Net cash flows provided by operating activities decreased $468,653 from $31,201,876 in fiscal 2010 to $30,733,223 in fiscal 2011. Fiscal 2011’s cash flow was primarily from net income of $23,425,749 and increased by impairment of owned policies and an increase in accounts payable. Fiscal 2010’s cash flow was primarily from net income of $26,077,214 increased by impairment of owned policies, impairment of investment in securities, an increase in accrued liabilities and a decrease in accounts receivable.
Sales of marketable securities were $4,663,547 in fiscal 2012 and $14,764,648 in fiscal 2011, with purchases in fiscal 2011 resulting in a net source of $2,308,658. At February 29, 2012, we held $400,000 in marketable securities, compared to $5,110,677 at February 28, 2011. Purchases of investment securities were $3,051,996 in 2010. In fiscal 2012, we made purchases of property and equipment of $47,291 and in fiscal 2011, we made purchases of property and equipment of $117,947 versus $382,567 in fiscal 2010. Investments in certificates of deposit were $111 in fiscal 2012, $203 in fiscal 2011 and zero in fiscal 2010. Maturities of certificates of deposit were zero in fiscal 2012 and 2011 versus $2,933,069 in fiscal 2010.
Working Capital and Capital Availability - As of February 29, 2012, we had cash and cash equivalents of $11,362,688 and working capital of $14,500,384, compared to $27,610,564 as of February 28, 2011. Our cash during fiscal 2012 decreased by $16,247,876, compared to an increase in 2011 of $7,741,836 and an increase in fiscal 2010 of $4,607,511. Our investments in marketable securities decreased by $4,710,677 from $5,110,677 at February 28, 2011, to $400,000 at February 29, 2012.
While our working capital position remains relatively strong, the large drops in revenues, the significant legal and professional fees, and large operating losses have eroded the strength of our financial condition. The SEC suit has been highly damaging to our business, and we do not anticipate a recovery in our revenues and net income while the SEC suit continues. We are conserving our cash in anticipation that the suit will not be quickly resolved. We have decreased our stock dividends and may make further cuts. We are reducing our investments, including investments in policies. We have eliminated executive and employee bonuses and are trimming general and administrative expense in other ways. At this point, we believe we have more than sufficient cash and cash equivalents to support our short and long-term operations. We do not anticipate a need for future borrowings or stock sales.
Our outstanding contractual obligations and commitments as of February 29, 2012 were: