We must evaluate the useful lives of our property and equipment to assure that an adequate amount of depreciation is being charged to operations. Useful lives are based generally on specific knowledge of life for specific types of assets.
Revenues - Revenues decreased by $14,017,352, or 42.6%, from $32,922,189 in fiscal 2012 to $18,904,837 in fiscal 2013. This decrease was due primarily to the decreased number of settlements, from 62 in fiscal 2012 to 35 in fiscal 2013, along with lower revenues, net of brokerage fees, as a percentage of gross revenue. Revenues decreased by $68,657,024, or 67.6%, from $101,579,213 in fiscal 2011 to $32,922,189 in fiscal 2012. This decrease was due primarily to the decreased number of settlements, from 166 in fiscal 2011 to 62 in fiscal 2012, along with lower revenues, net of brokerage fees, as a percentage of gross revenue. Revenues, net of brokerage fees, were $5,729,582 in fiscal 2013 or 30.3% of gross revenue in fiscal 2013, versus $11,714,430 or 35.6% of gross revenue in fiscal 2012 and $55,130,665 or 54.3% of gross revenue in fiscal 2011, as we increased promotional bonuses and lowered our fees to obtain business. Average revenue per settlement, net of brokerage fees, increased 1.7%, or $9,135 to $540,138 in fiscal 2013 compared to $531,003 in fiscal 2012 and $611,923 in fiscal 2011.
Although the general market for life settlements has declined among all industry participants since 2008, it is difficult to discern the respective impacts of the general decline in the life settlement markets as compared to the adverse publicity affecting us specifically. Since the filing of a civil action by the Securities and Exchange Commission (the “SEC”) in January 2012 and related private litigation, demand for our services has been negatively impacted. Since that time, we have devoted substantial resources and the personal time of our senior management to improve licensee relations, develop new clients and work to rebuild confidence in our company. During the 2012 calendar year, over 2,800 of our clients were paid more than $74 million in proceeds from their life settlement transactions. We believe these payouts will result in an increased demand for our services and will enable us to gradually rebuild our markets and expand our client base. We have observed an increase in new clients and deposits into escrow and greater interest in our services. We intend to continue devoting resources to rebuild our client base and increase demand for our services fiscal 2014. However, restoration of demand approaching levels we recorded in fiscal 2011 may not occur, until and unless we are able to resolve the civil actions filed by the SEC and other private litigants favorably.
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. To counter declining revenues and to stimulate transaction interest, we have implemented licensee-directed, promotional programs, which have increased referral fees as a percentage of revenues. We also have reduced our fees on select brokerage transactions to remain competitive in the marketplace.
Impairment expense for fiscal 2013 declined $161,049 to $745,402, as many of the remaining older viatical policies that were fully impaired in previous periods were sold in fiscal 2013. We decreased impairment expense for our investments in policies from $6,212,150 in fiscal 2011 to $906,451 in fiscal 2012 again because many of the older viatical policies that we owned were fully impaired in previous periods and were sold. General and administrative expenses had a modest increase of $35,012 from $7,778,958 in fiscal 2012 to $7,813,970 in fiscal 2013. Increases of $295,813 in aircraft expenses and $160,100 in other outside expenses were mitigated by decreases of $115,670 in advertising and promotions, $192,594 in donations, and $133,535 in travel.
Employee bonuses increased $126,064 in fiscal 2013, due in part to $81,798 in executive bonuses paid in the second quarter after positive first quarter results. However, no executive bonuses were paid in fiscal 2012 compared to $2,044,135 paid in fiscal 2011.
Premium advances, net of reimbursements, in fiscal 2013, 2012 and 2011 were $1,526,547, $1,363,915 and $882,920, respectively. 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.
We must make estimates of the collectability of these premium advances. We recorded an allowance against the premium advances at the time of the advance and treated reimbursements as a reduction of the allowance. Our historical success of collecting premium advances has enabled us to build a body of evidence by which we can demonstrate full collectability of the remaining balance of advanced premiums.
Interest and Other Income - Interest and other income decreased $349,329 to $187,036 in fiscal 2013 from $536,365 in fiscal 2012. Interest and other income decreased $230,405 from $766,770 in fiscal 2011 to $536,365 in fiscal 2012. The decrease in interest and other income in fiscal 2013 was primarily a result of lower interest rates on cash deposits and investment accounts. The decrease in interest and other income in fiscal 2012 was due to a lower amount of cash available for investment.
Earnings from Life Settlement Trust - Earnings from life settlement trust increased $429,570 to $458,377 in fiscal 2013 from $28,807 in fiscal 2012. Earnings from life settlement trust decreased $182,087 from $210,834 in fiscal 2011 to $28,807 in fiscal 2012. Increases and decreases between years are due to the timing of maturities of the life settlements owned by Life Assets Trust as well as due to the sale of certain policies by the Trust. See Footnote 12 to the Consolidated Financial Statements.
Realized Gain/Loss on Investments - We realized a gain on sales of investment securities of $22 in fiscal 2013, a loss of $185,456 in fiscal 2012, and a gain of $88,492 in fiscal 2011.
Income Taxes - The income tax benefit was $1,212,363 in fiscal 2013 and $1,429,921 in fiscal 2012 as we had negative pretax earnings in each fiscal year. Income tax expense was $12,786,633 in fiscal 2011. Income tax expense is in direct correlation to pretax earnings, taxed at 35% at the Federal level. Fiscal 2013’s income tax benefit of $1,212,363 is comprised of current Federal expense benefit of $(3,755,397), current state tax benefit of $(14,021), and deferred tax expense of $2,557,055. Fiscal 2013 tax expense includes an accrual of Texas margin tax in the amount of $50,069 that was paid with the filing of the 2013 annual return on May 15, 2013. Income tax expense was also affected by the impact of establishing a $611,298 valuation allowance within the deferred income tax asset account in 2011. This allowance was established to recognize the uncertainty of netting future capital gains against a current capital loss. In fiscal 2011 and 2012, we had net capital losses of $91,729. This increased the valuation allowance to $643,403 at February 29, 2012 and February 28, 2013.
Operating Activities - Net cash flows used by operating activities in fiscal 2013 were $5,710,843, primarily as a result of a net loss of $2,877,025 along with income from investments in policies, earnings from life settlements trust, increase in income tax overpayment, and an increase in premium advances. Decreases in note receivable, impairment, and deferred taxes, and increase in accounts payable had a positive impact. Net cash flows used by operating activities decreased by 10.6%, decreasing $676,851 from $6,387,694 in fiscal 2012 to $5,710,843 in fiscal 2013. Net cash flows provided by operating activities decreased by 123.2%, decreasing $34,420,590 from $28,032,896 in fiscal 2011 to $(6,387,694) in fiscal 2012. Fiscal 2012’s cash flow was primarily from a net loss of $(3,123,478) and 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 and a positive impact. Fiscal 2011’s cash flow was primarily from a net income of $23,425,749 and increased by impairment of owned policies and an increase in accounts payable.
Investing and Financing Activities - Our investing activities provided cash of $9,387,419 in fiscal 2013, primarily from $9,817,929 of proceeds from sales of investments in policies and $691,682 from proceeds from life settlements trust, less $369,611 used for purchases of investments in policies. We generated cash of $5,060,534 in investing activities in fiscal 2012 versus using $915,410 of cash in fiscal 2011. We used available cash to purchase policy interests for our own account. We purchased policies of $369,611 in fiscal 2013, $769,835 in fiscal 2012 and $3,654,183 in fiscal 2011. Of the policies purchased in fiscal 2010, $6,441,625 represented policies that we acquired in connection with a settlement with the state of Colorado. We have continued to acquire policy interests on a discretionary basis as those opportunities are presented to us by existing clients and on terms that are agreeable to both parties. We believe that we will profit from the investment in these policies when they mature. We also used cash to make net premium advances, which were $2,591,934, $1,287,358 and $3,322,994 in fiscal 2013, 2012 and 2011, respectively. We have invested in a life settlements trust, which experienced some maturities during fiscal 2013, 2012 and 2011, and paid us $691,682, $84,443 and $464,796, respectively.
Sales of marketable securities were $400,022 in fiscal 2013, $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 28, 2013, we held no investments in marketable securities. At February 29, 2012, we held $400,000 in marketable securities, compared to $5,110,677 at February 28, 2011. We sold these marketable securities in April 2012 for $400,022.
We used $7,463,685 in financing activities in fiscal 2013 versus $14,920,716 in 2012 and $19,375,650 in fiscal 2011. Financing activities in all three years were solely for dividends.
We are confronting a general decline in the life settlement markets and the fallout of the SEC action and the resulting private litigation. The general decline in the life settlement market followed the 2008 financial crisis. The Conning reports, which track the life settlement industry, indicate a drop in the face value of transactions from $7.6 billion in 2009 to $3.8 billion in 2010, $1.2 billion in 2011, and $1.0 billion in 2012. While we believe the 2012 market was closer to $2.0 billion, the data indicates that life settlements are currently out of favor with investors. The Conning reports suggest investor concerns about liquidity and predict a relatively flat market for the next few years. The reports further indicate, and we agree, that life settlements have desirable investment features that will eventually restore their attractiveness in the marketplace. The supply of qualified life settlements is expected to remain strong and the low correlation of life settlements returns to fixed-income and equity securities and their competitive rates offer an attractive alternative investment.
To counter the fallout of the SEC action and the private litigation, we are working to rebuild confidence among our licensees and clients and to expand our client base. We continue to invest significantly in programs to develop and strengthen our relationships with new and inactive licensees. We have increased our communication with our client base, emphasizing the inherent benefits of life settlements as an asset class and the particular advantages of our settlements, which have no annual management fees and do not cap investor returns as do many of the settlements offered in the industry. We believe we have made substantial progress in restoring the confidence and interest of our clients. Quarterly revenues have increased in the third and fourth quarters of fiscal 2013, reversing a downward trend that began with announcement of the SEC investigation in the fourth quarter of fiscal 2011. During the 2012 calendar year, our clients experience over $74 million in payouts from transactions. We have observed an increase in new clients and are experiencing higher rates of deposits into escrow.
Our audited Consolidated Financial Statements, together with the report of auditors and the notes to the Consolidated Financial Statements, are included in this Annual Report beginning on page 34.