LIFE PARTNERS HOLDINGS INC, 10KSB, 2000-06-02

LIFE PARTNERS HOLDINGS INC
10KSB, 2000-06-02
OIL ROYALTY TRADERS

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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 10-KSB

[X] Annual Report Pursuant to Section 13 or 15 (d) of the Securities Exchange
Act of 1934

For the fiscal year ended: February 29, 2000
or
[ ] Transition Report Pursuant to Section 13 or 15 (d) of the Securities
Exchange Act of 1934

Commission File Number: 0-7900

LIFE PARTNERS HOLDINGS, INC.
(Name of small business issuer in its charter)

Massachusetts 14-2488828
(State of incorporation) (I.R.S. Employer ID no.)

6614 Sanger
Waco, Texas 76710
(Address of Principal Executive Offices)(Zip Code)

Issuer's telephone number, including area code: 254-751-9700

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

None

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

Common Stock (par value $0.01 per share)
(Title of Class)

Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Securities Exchange Act of 1934 during the past 12 months (or
for such shorter period that the Registrant was required to file such reports),
and (2) has been subject to such filing requirements for at least the past 90
days. Yes [X] No [ ]

Check if there is no disclosure of delinquent filers pursuant to Item 405 of
Regulation S-B contained herein, and will not be contained, to the best of
Registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-KSB or any amendment to
this Form 10-KSB. [X]

Revenues of issuer for year ended February 29, 2000: $5,023,000

Aggregate market value of voting stock held by non-affiliates as of May 15,
2000: $52,752,100

Shares of Common Stock, $.01 par value, outstanding as of May 15, 2000:
10,000,000

DOCUMENTS INCORPORATED BY REFERENCE
The Company's definitive proxy statement in connection with the Annual Meeting
of Shareholders to be filed with the Commission pursuant to Regulation 14A, is
incorporated by reference into Part III of this report.

<PAGE>

STATEMENTS IN THIS ANNUAL REPORT ON FORM 10-KSB CONCERNING OUR BUSINESS
PROSPECTS OR FUTURE FINANCIAL PERFORMANCE; ANTICIPATED REVENUES, EXPENSES,
PROFITABILITY OR OTHER FINANCIAL ITEMS, GROWTH IN THE VIATICAL OR LIFE
SETTLEMENT MARKETS OR OUR PROJECTED SALES IN SUCH MARKETS; DEVELOPMENTS IN
INDUSTRY REGULATIONS AND THE APPLICATION OF SUCH REGULATIONS, AND OUR
STRATEGIES, PLANS AND OBJECTIVES, TOGETHER WITH OTHER STATEMENTS THAT ARE NOT
HISTORICAL FACTS, ARE FORWARD-LOOKING STATEMENTS" AS THAT TERM IS DEFINED UNDER
THE FEDERAL SECURITIES LAWS. ALL OF THESE FORWARD LOOKING STATEMENTS ARE BASED
ON INFORMATION AVAILABLE TO US ON THE DATE HEREOF, AND WE ASSUME NO OBLIGATION
TO UPDATE ANY SUCH FORWARD-LOOKING STATEMENTS. FORWARD-LOOKING STATEMENTS
INVOLVED A NUMBER OF RISKS, UNCERTAINTIES AND OTHER FACTORS WHICH COULD CAUSE
ACTUAL RESULTS TO DIFFER MATERIALLY FROM THOSE STATED IN SUCH STATEMENTS.
FACTORS THAT COULD CAUSE OR CONTRIBUTE TO SUCH DIFFERENCES INCLUDE, BUT ARE NOT
LIMITED TO, THOSE DISCUSSED IN THIS ANNUAL REPORT ON FORM 10-KSB, PARTICULARLY
IN THE SECTIONS ENTITLED "ITEM 1--BUSINESS--RISK FACTORS" AND
"ITEM--7--MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS". LIFE PARTNERS DOES NOT UNDERTAKE ANY OBLIGATION TO
RELEASE PUBLICLY ANY REVISIONS TO SUCH FORWARD-LOOKING STATEMENTS TO REFLECT
EVENTS OR UNCERTAINTIES AFTER THE DATE HEREOF OR REFLECT THE OCCURRENCE OF
UNANTICIPATED EVENTS.

PART I

Item 1. Description of Business

The Company

General. Life Partners Holdings, Inc. ("We", the "Company" or "Life
Partners") is the parent company of Life Partners, Inc. ("LPI") and Extended
Life Services, Inc. ("ELSI"). LPI is the oldest and one of the largest viatical
settlement companies in the United States. To supplement LPI's viatical
business, we acquired ELSI in January 2000 to engage in senior life settlement
transactions, a strongly emerging market similar to our viatical settlement
business.

Our Viatical Settlement Business. LPI was incorporated in 1991 and has
conducted business under the registered service mark "Life Partners" since 1992.
To date, our revenues have been principally derived from fees for facilitating
the purchase of viatical settlement contracts. A viatical settlement is the sale
of a life insurance policy covering a person who is terminally ill. By selling
the policy, the insured (a viator) receives an immediate cash payment to use as
he or she wishes. The purchaser takes an ownership interest in the policy at a
discount to its face value and receives the death benefit under the policy when
the viator dies.

As a leader in the viatical settlement industry for almost a decade, we
match viators with viatical settlement purchasers. We facilitate these
transactions by identifying, examining and purchasing viatical settlements as
agent for the purchasers. LPI locates potential viators through a network of
viatical brokers and through referrals and internet and print media advertising.
Brokers are typically compensated based on a percentage of the face amount of a
viator's policy, which is paid upon the closing of a settlement. We have
long-term relationships with most of the country's viatical settlement brokers
and believe that these brokers adhere to applicable regulatory requirements when

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conducting their business. In the fiscal year ended February 29, 2000, broker
referrals accounted for 76% of our viatical settlement business, of which 38%
was from one broker. We do not consider ourselves to be dependent on any single
broker for referrals.

Generally, purchasers are introduced to us through a network of
financial planners, which we originate through referrals. Most of the financial
planners have long-standing relationships with us. Although these financial
planners can be compensated through fee-based consultations paid by the
purchaser, most are compensated by us on the basis of the amount of funds placed
by a purchaser. The compensation of financial planners may consist of cash paid
on settlement, and in certain cases, through a stock option plan provided by us
based on the volume of a financial planner's activity.

To purchase a viatical settlement, a prospective purchaser first submits
a purchaser application (available on our website), which contains name and
address and background information. A purchaser will also submit an agency
agreement and special power of attorney (also available on our website), which
appoints us as a limited agent of the purchaser to act on his or her behalf in
purchasing a viatical settlement. Unless specifically waived by a purchaser, the
agency agreement limits our authority to policies issued by an insurance carrier
having an A.M. Best rating of A- or better, to policies beyond their contestable
period (generally two years or older), and to insureds diagnosed as terminally
ill and having a probable life expectancy of 48 months or less. We issue each
financial planner a user identification number and password which allows access
to our restricted website containing lists of available policies and medical
case histories (with the viator's name and other identifying information
redacted). We also make available to each financial planner standard disclosures
discussing the nature and risks of viatical settlement purchases. A purchaser
can then, in consultation with his financial planner or other professionals
available to them, select one or more policies, specify the portion of the
policy or policies to be purchased (to diversify their positions, purchasers
generally buy fractional interests in one or more policies and not an entire
policy), and submit electronically or by fax a reservation form. At the same
time, the purchaser mails or wires the acquisition price and mails or faxes a
policy funding agreement to us. The policy funding agreement identifies the
policy or policies to be purchased, the acquisition price, the administrative
services provided, and the escrow arrangements for receipt and disbursement of
funds. In essence, we act upon the instructions of the purchasers as their
purchasing agent .

For the protection of the viator's ownership interest and the
purchaser's monetary interest, the viatical settlements are closed through an
independent escrow agent, Sterling Trust Co. ("Sterling"), which is a wholly
owned subsidiary of Matrix Bancorp, Inc. (Nasdaq NMS: MTXC). Sterling will close
a purchase when it receives from purchasers executed policy funding agreements
and the entire acquisition price for a policy, it verifies that the policy is in
full force and effect and that no security interest has attached to the policy,
and it receives from the viator a transfer of policy ownership acknowledged by
the insurance company. Sterling then pays the viator the offer price (net of
fees and costs). After the closing, we send confirmation of the transaction to
the purchaser as well as a copy of the assignment documents.

After closing the viatical settlement, we generally hold title to the
policy as nominee for the purchaser. Responsibility for policy premium costs
passes to the purchaser, who typically funds the premium costs through deposits
with Sterling. A viator's personal information is protected by regulations
promulgated by the Texas Department of Insurance. A purchaser will receive a
copy of the policy and the transfer of ownership (which has the viator named as
the insured), but will not receive viator contact information, which is
available only to licensed viatical companies (like Life Partners). We maintain
contact with viators and their health care providers through periodic telephone
contact and mailings. We also check social security records on a monthly basis
to determine a viator's status. We also notify purchasers in instances in which
the premium escrow account has been exhausted so that the purchaser can
replenish the account to keep the policy from lapsing.

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We pioneered the foregoing transaction design, which is used by most
viatical settlement companies today. Since our formation, we have has assisted
in viatical settlements totaling over $325 million in face amount of policies
giving us a 30% market share of the estimated $1.25 billion viatical settlement
market.

The following table shows the number of settlement contracts we have
transacted, the aggregate face values and purchase prices of those contracts,
and the revenues we derived, for our fiscal years ended February 28, 1998 and
1999 and February 29, 2000:
<TABLE>
<CAPTION>

1998 1999 2000
---- ---- ----
<S> <C> <C> <C>
Number of settlements 152 187 138
Face value of policies (in `000's) $18,996 $29,688 $20,030
Acquisition costs (in `000's)(1) $13,566 $21,145 $14,507
Revenues derived (2) $ 1,289 $ 2,188 $ 2,254
---------------
</TABLE>

(1) Acquisition costs include amounts paid to viators, the fees we have
received and the fees paid to the escrow agent and to originating
financial planners.
(2) The revenues derived are exclusive of referring broker commissions.

The Viatical Market and Competition. The market for viatical settlements
started in the early 1990's with the beginning of the AIDS epidemic and rapidly
grew to a market estimated at $1.2 billion in 1999.1 In recent years, the market
has stabilized due to a number of factors. Factors moderating market growth
include an increase in the life expectancy of persons living with AIDS due to
improved medical treatments, changes in insurance policies that provide for
pre-death cash benefits and the increase of government regulation with respect
to viatical settlements.

Despite these factors, we believe the viatical settlement market will
continue to slowly increase due to a number of contravening factors. While newer
medical treatments have improved the longevity and quality of life of some, the
treatments appear to offer only incremental improvements and do not promise the
ability to cure or suspend indefinitely the effects of the terminal illness. The
decline in the rates of AIDS incidence appears to be slowing (18% between 1996
and 1997 and 11% between 1997 and 1998), which may suggest that the benefits of
newer treatments have been largely realized. The number of people living with
AIDS increased 10% between 1997 and 1998, as reported by the U.S. Department of
Health and Human Services. Over 90% of the viatical settlements we facilitate
are with viators afflicted with AIDS. We have responded to the effects of the
newer medical treatments by adjusting our underwriting standards upwards and
reducing the offer prices to viators.

In response to the dramatic rise in viatical settlements, the insurance
industry has responded with policy features offering various pre-death, cash
benefits (sometimes called accelerated death benefits). While in some cases
accelerated death benefits may compete with viatical settlements, we do not
expect that the availability of accelerated death benefits to affect the
viatical market significantly at this time. The availability of accelerated
death benefits is generally more restricted than viatical settlements. For
example, policies often limit such benefits to persons who have a life
expectancy of less than one year, in contrast to viatical settlements that are
usually available to persons with remaining life expectancies of up to four
years. Viatical settlements generally offer viators greater amounts than they
would receive under accelerated death benefit provisions. An insurance company's
willingness to offer a competitive accelerated death benefit, and the amount of
such benefit, may be affected by imputed policy lapse rates. The availability

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and amount of an accelerated death benefit negatively impacts lapse rates, which
could increase policy rates. The competition for new policies limits policy
rates and may, indirectly, limit the availability and amount of accelerated
death benefits.

The viatical market has been negatively affected by some companies using
illegal or questionable business practices. In response to these abuses and the
accompanying adverse publicity, government regulators - particularly state
insurance regulators - have adopted regulations requiring the licensing of
viatical brokers and settlement companies, mandated disclosures to viators or
purchasers or both, and periodic reporting requirements, and setting forth
prohibited business practices. We believe these regulations have generally had a
positive effect on the industry and on our ability to compete in the viatical
marketplace. We are licensed as a viatical company in the State of Texas and
information about us is available through the Texas Department of Insurance.

The foregoing developments have decreased the number of viatical
settlement companies - both those purchasing for their own accounts and those,
like us, who act as agents for our purchasers. Industry trade groups estimate
the number of viatical companies purchasing for their own account or as agents
for purchasers at about 50, and the number of viatical brokers at about 150.
Most of these are companies or brokers with small operations and limited
capital. We estimate that there are fewer than ten active companies with
operations similar to ours. While we believe we are the largest viatical
settlement company (based on face value of policies settled), the viatical
market is active and we experience substantial competition for new viators and
with respect to the prices we pay viators and referring financial planners, and
the prices we set for the acquisition of policies. We believe the overall market
for viatical settlements should maintain its estimated level of approximately
$1.2 billion. In light of our experience in the market, our purchaser network
and continued regulatory pressure within the industry (from which we benefit),
we believe our market share for viatical settlements will remain steady at
approximately $20 to $30 million in face amount per year.

In sum, we believe the viatical market is nearly flat with limited
growth potential. That is why we have made a major shift in corporate strategy
focusing on the newly emerging senior life settlement business which is expected
to experience explosive growth over the next ten years.

Our New Senior Life Settlement Business. To supplement our viatical
settlement operations, we entered the market for "senior life settlements" in
1997 under contract with ELSI. We later acquired ELSI as a wholly owned
subsidiary to focus on this market which Conning & Co., an independent industry
analyst, estimates to be in excess of $100 billion in face amount. On behalf of
ELSI, we originated, reviewed and underwrote almost $600 million in face value
of senior life settlements in 1997. In underwriting these policies, we
quantified premium and life expectancy risks, but did not purchase any of the
policies for our own account or assume any risk associated therewith. A senior
life settlement differs from a viatical settlement in that the insured in a life
settlement is not terminally ill, is 65 years of age or older, and has a life
expectancy of ten years or more. Senior life settlements appeal to persons who
purchased life insurance for income protection or estate planning, but no longer
need the insurance due to growth in their investment portfolios or other changes
in circumstances. The settlements also appeal to persons who want to make
immediate gifts to their beneficiaries. In these instances, the insured may feel
the insurance is no longer needed.

Senior life settlements offer several benefits. The insured who sells
the policy receives a cash settlement for a policy he or she believes is
redundant and carries a benefit that he or she will never realize personally. A
seller avoids the liability of future premiums and may realize a tax loss (if
premiums paid exceed the cash settlement), which can be used to offset
investment gains. Because the policy stays in effect rather than lapsing, the
life insurance agent who sold the policy continues to receive compensation as
premiums are paid. The agent may also be the originating settlement broker, who
is compensated for the settlement. Further, the agent may earn additional
compensation from the reinvestment of the seller's cash settlement in other
insurance or investment products, such as annuities.

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Since sellers who participate in a senior life settlement have much
longer life expectancies than viators (who are terminally ill), the amount paid
to sellers is less than in a viatical settlement typically 5% to 25% of the
policy face value. Policies accepted by us in senior life settlements must have
a face value of at least $500,000. In determining the price we will offer a
senior life seller, we will examine the policy terms to ensure enforceability
and transferability and consider the type of policy (such as term, universal or
variable life) and future premium payments. Our underwriting department will
calculate the seller's remaining life expectancy, based on his or her age and
sex and whether the seller uses tobacco products. In order to insure a high
degree of accuracy, we have engaged the services of a consulting actuary to
review our underwriting procedures.

We use a network of referring insurance, legal and financial
professionals to originate potential sellers. We have created this network
through direct contact with managing general insurance agents as well as other
insurance and financial professional contacts as well as by word-of-mouth
contacts. We also use print media advertising and our internet website.

Since senior life settlements are long-term investments (typically
averaging 8-10 years), the predominant purchasers of senior life settlements are
institutional investors seeking long-term, portfolio diversity. These
settlements represent an investment alternative since their yields are not
dependent upon the domestic and global debt markets or interest rate
fluctuations. For this reason, we established a division dedicated exclusively
to attracting and interacting with large financial institutions. Our
institutional division is managed by an executive experienced in the capital
markets. Our Institutional Funding Division will place our anticipated capacity
in excess of four billion dollars in face amount per year with other
institutional investors through direct purchases and/or securitizations of bond
portfolios.

In May 2000, we entered into an acquisition agreement through an
intermediary for one of the top ten world banks. Under this agreement, ELSI will
originate, underwrite and process for purchase by the institution up to one
billion dollars in face amount of senior settlements per calendar quarter for
five years with a five year renewal option.

While the institution does not have the obligation to purchase, but
rather has a first right of refusal to purchase such policies processed by ELSI,
we believe the institution intends to purchase the full amount of senior life
settlements as provided for in the contract. To our knowledge, this is the
largest such purchasing agreement ever entered into in the senior life
settlement industry to date.

As stated in our press release dated May 3, 2000, we believe it may take
us six to nine months to reach the desired consistent level of one billion
dollars in face amount of senior life settlement policies per calendar quarter.

As of this date, ELSI is receiving senior life settlement applications
totaling approximately ten million dollars per day in face amount of policies
and we expect this amount to increase. However, many of these policies may not
pass our underwriting standards for one reason or another. Therefore, our
ability to reach a goal of one billion dollars of face value of policies is
dependent upon the ratio of policies presented to those which pass our
underwriting standards, the ratio of sellers which accept our offer price and
the ratio of policies ultimately accepted for purchase by the institution.

Should the institution decline to purchase any senior life settlement
policy presented by ELSI, ELSI is free to present the policy to any other
purchaser. Further, the institution has agreed never to purchase any policy it
has declined under our agreement. The institution has five working days to
accept or decline any policy submitted to it by ELSI under the agreement.

The procedures we use to facilitate senior life settlements are
substantially similar to the procedures we use in viatical settlements. Sterling
Trust acts as escrow agent and confirms receipt of the acquisition funds and all
necessary agreements and authorizations, and verifies that the policy is fully
paid and that no security interest has attached. When Sterling Trust has

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completed these tasks, it distributes funds to the seller and to us and sends a
purchase confirmation to the purchaser. Unlike with viatical settlements, the
purchasing institutions generally hold title to the policies and perform all
post-sale services, such as the payment of premiums and mortality tracking. We
can perform post-sale services upon request.

The Senior Life Market and Competition. The market for senior life
settlements is new, first appearing in 1997. Despite is newness, Conning & Co.,
an independent industry analyst, has estimated the total face amount of senior
life settlements purchased in 1998 at $0.5 billion and the potential market for
senior life settlements at over $100 billion. The attraction for senior life
brokers and settlement companies lies in the potential size of the market. The
market is expected to grow given predicted increases in the aging population and
their greater economic wealth.

Most of the senior life settlement purchases are presently conducted by
fewer than ten companies. Of these, one is a subsidiary of a large financial
institution and has ready access to capital. We are dependent upon outside
sources of capital for growth in this market. The loss of an institutional
purchaser could significantly affect our ability to compete in this market.

Other factors may influence the growth of the senior life market. To
meet the needs of institutional purchasers and the need for substantial amounts
of capital to service the market, settlement companies may need to reduce the
risks of senior life settlements, especially those associated with "life
extension" risks. One way to reduce this risk is to reinsure the life extension
risks. Other companies have explored reinsurance possibilities for senior life
settlements. If viable reinsurance programs evolve to reduce life expectancy
risk, we expect to see other senior life settlement companies securitizing
blocks of senior life settlements, which should increase capital availability
and assist in the development of the senior life market in general, but will
also potentially increase competition.

Industry Regulation and Taxation

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

Consumer Protection Licensing. The consumer protection-type regulations
arose largely from the draft of a model law and regulations promulgated by the
National Association of Insurance Commissioners (NAIC). At least 29 states have
now adopted some version of this model law or another form of regulation
governing viatical settlement companies in some way. These laws generally
require the licensing of viatical providers and brokers, requires the filing and
approval of viatical settlement agreements and disclosure statements, and
describes the content of disclosures that must be made to potential viators,
describes various periodic reporting requirements for viatical settlement
companies and prohibits certain business practices deemed to be abusive.

Licensing in Texas. We are licensed by the Texas Department of
Insurance. Under the Texas requirements, we must file our transaction documents
with the state for approval, make certain disclosures to viators, offer a 15 day
right of rescission to the viator, file certain annual reports with the state,
and prohibits unfair business practices. Because all of our transactions occur
in Texas, the Department of Insurance has jurisdiction to investigate complaints
from any viator, irrespective of the state in which that viator lives.

In 1999, Texas became the first state to regulate life settlements as
well as viatical settlements. The Texas regulatory scheme for life settlements
is similar to the regulatory scheme applicable to viatical settlements. It
requires licensing of providers and brokers, implements various reporting

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requirements and mandates required disclosures. Although the regulations have
not yet been implemented, we will also be licensed as a life settlement company
as soon the regulations take effect.

Securities Regulations. Despite the apparent success of consumer
protection-type laws in regulating the viatical industry, some states and the
Securities and Exchange Commission have attempted to treat viatical settlements
as securities under Federal or state securities laws. How viatical settlements
will be regulated as securities and the effect of such regulation on the market
is uncertain. Such regulation will not affect senior life settlements involving
institutional purchasers. In 1994, we were sued by the SEC, which asserted that
we were violating Federal securities laws by selling interests in life insurance
policies. In 1996, we received a favorable decision from the U.S. Court of
Appeals for the District of Columbia, which ruled that our sales were not
securities under the Federal securities laws. The SEC's request for rehearing
was denied, and the SEC did not appeal the decision to the U.S Supreme Court and
the SEC's case was dismissed with prejudice in 1997. In early 1999, the
California Department of Securities issued a cease and desist order against us
based on similar assertions. However, at our challenge, the order was
immediately lifted and we continue to facilitate viatical settlements with
purchasers residing in California.

Five states - Iowa, Maine, North and South Dakota and Virginia - have
amended their securities laws to define viatical settlements as securities. Some
other states have asserted that viatical settlements are securities and
announced their intention to regulate the offer and sale viatical settlements.

We believe that a combination of consumer protection-type laws and
existing insurance regulations provide an appropriate framework for regulation
of the industry. The wide-spread application of securities laws would, as a
practical matter, prevent us and other viatical settlement companies from
marketing settlements with little or no benefit to purchasers. Currently, the
vast majority of purchasers are sophisticated individuals who have little need
for the protections afforded by the securities laws. At this point, the possible
application of such laws has not had an adverse, material effect on our business
nor do we expect any such adverse impact in the future primarily due to our
redirected emphasis on the senior life settlement market.

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

Taxation. In 1996, Congress passed the Health Insurance Portability and
Accountability Act. This act exempts from taxation proceeds received in a
viatical settlement paid to terminally ill viators (those having a life
expectancy of 24 months or less) and chronically ill viators (those who are
incapable of at least two daily-living activities, such as eating and bathing,
and require supervision). The tax exemption applies only if the viatical
settlement company is licensed in the state in which the viator resides, or if
the viator resides in a state that does not license viatical companies, if the
viatical company can certify that it complies with the model act provisions.
Because we are licensed in Texas, we believe that, under 1996 act, viators will
not be subject to federal income tax from viatical settlements which we
facilitate. Since most states follow the Federal income tax definitions, the
receipt of settlement proceeds is generally exempt for state income tax purposes
also.

The act does not exempt the receipt of senior life settlement proceeds.
Senior life settlement proceeds would typically be taxed as capital gains to the
extent that the proceeds exceed the cash surrender value of the insurance
policy. If the cash surrender value exceeds the total premiums paid, the excess

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is taxed as ordinary income. In many instances, the total premiums paid will
exceed the settlement amount, allowing the seller to realize a capital loss for
the difference.

Employees

As of February 29, 2000, we had 26 direct employees, none of whom are
represented by a labor union, as well as over 1,000 licensees who act as
independent contractors. We continuously review benefits and other matters of
interest to its employees and consider our employee relations to be
satisfactory.

More about Life Partners

Life Partners is the successor name to IGE, Inc., a publicly held,
Massachusetts corporation that was formed in 1971, but had been dormant and
without operations since 1985. On January 21, 2000, IGE, Inc. acquired LPI in a
share exchange and its name was then changed to Life Partners. Prior to January
21, 2000, we were a privately-held corporation. Our executive offices are
located at 6614 Sanger, Waco, Texas 76710 and our telephone number is
254-751-9700. Our websites are www.lifepartnersinc.com, www.lpi-investments.com
----------------------- -----------------------
and www.lphiseniorsettlements.com
---------------------------------

RISK FACTORS

Please remember to be cautious in reading forward-looking statements.

Important Factors regarding Forward-Looking Statements.

IN ADDITION TO OTHER INFORMATION IN THIS ANNUAL REPORT ON FORM 10-KSB
AND IN THE DOCUMENTS WE ARE INCORPORATING BY REFERENCE, THE FOLLOWING RISK
FACTORS SHOULD BE CAREFULLY CONSIDERED IN EVALUATING LIFE PARTNERS AND OUR
BUSINESS BECAUSE SUCH FACTORS CURRENTLY HAVE A SIGNIFICANT IMPACT OR MAY HAVE A
SIGNIFICANT IMPACT ON OUR BUSINESS, OPERATING RESULTS OR FINANCIAL CONDITION.
THIS ANNUAL REPORT ON FORM 10-KSB CONTAINS FORWARD-LOOKING STATEMENTS THAT HAVE
BEEN MADE PURSUANT TO THE PROVISIONS OF THE PRIVATE SECURITIES LITIGATION REFORM
ACT OF 1995. ACTUAL RESULTS COULD DIFFER MATERIALLY FROM THOSE PROJECTED IN THE
FORWARD-LOOKING STATEMENTS AS A RESULT OF THE RISK FACTORS SET FORTH BELOW AND
ELSEWHERE IN THIS ANNUAL REPORT ON FORM 10-KSB.

We Are Operating in Markets That May Change Dramatically

We are operating in the viatical and senior life settlement markets. The
viatical settlement market is just over a decade old. While the market saw
tremendous growth in its initial years, the market growth in recent years has
moderated and future market growth we consider to be flat.

The senior life settlement market is less than three years old and is
just now beginning to rapidly expand. How and to what extent it will develop is
uncertain. While the potential market is estimated at over $100 billion, our
ability to originate, underwrite and place senior life settlements has yet to be
tested in large numbers. The development of the senior life settlement market
will depend heavily upon the entry of institutional purchasers. Whether we can
attract institutional purchasers will depend on our ability to convince these
purchasers that we can originate sufficient numbers of sellers and that our
pricing practices are sound. The market may also depend on the ability of
purchasers to insure against "extended life" risks (the risk that sellers will
live longer than predicted). The ability to insure against extended life risks
is still undeveloped at this time.

9
<PAGE>

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

Our Operating Results in One or More Future Periods Are Likely To Fluctuate and
May Fail To Meet Expectations.

Our operating results in the viatical market have fluctuated in the past
and may fluctuate significantly in the future depending on purchaser demand for
viatical settlements. Our operating results in the senior life settlement market
may fluctuate significantly depending on our ability to develop this new market.
As a result of these or other factors, our operating results may, in some future
period, fall below market expectations. In such event, the market price of our
securities might fall. Moreover, fluctuations in our viatical operating results
may also result in volatility in the market price of our securities.

Our Success Depends on Maintaining Relationships Within Our Referral Networks

In the viatical market, we rely primarily upon brokers to refer
potential viators to us and upon financial planners to refer viatical purchasers
to us. These relationships are essential to our operations and we must maintain
these relationships to be successful. We do not have fixed contractual
arrangements with the brokers or financial planners and they are free to do
business with our competitors. In addition, the pool of viatical brokers and
referring financial planners is relatively small, which can increase our
reliance on our existing relationships.

In the senior life market, we rely primarily on insurance professionals
to refer potential sellers to us. These professional are typically compensated
by us upon closing. Our ability to maintain these relationships will depend upon
our closing rates and the level of compensation we pay to the referring
professional. The compensation paid to the referring professional will affect
the offer price to the seller and the compensation we receive. We must balance
these interests successfully to build our referring network and attain greater
profitability.

Our Success in the Senior Life Settlement Market Depends on Institutional
Sources of Capital

We entered the senior life market at its inception in 1997 under
contract for ELSI. On behalf of ELSI, we originated, reviewed and underwrote
almost $600 million in face value of senior life settlements in 1997. In
underwriting these policies, we quantified premium and life expectancy risks,
but did not purchase any of the policies for our own account or assumed any risk
associated therewith.

In May 2000, we announced an agreement with the representative of a
large financial institution, which gives the institution, through its
representative, a five-day, right of first refusal to examine and acquire the
senior life settlements we originate. The agreement provides for a volume of up
to $1.0 billion of policy face amount per calendar quarter. While this agreement
is significant to our expansion into the senior life settlements market, it
carries certain risks for us. The institution is not required to purchase any
senior life settlements from us. To the extent the institution does not purchase
senior life settlements we originate, our development of this market will be
slowed and our financial results could be adversely affected.

We Must Expand Our Senior Life Referral Network

An impediment to our expansion in the senior life settlement market
could be the difficulty in identifying a large volume of potential sellers.

10
<PAGE>

These sellers are typically affluent persons over the age of 70 and not
terminally or chronically ill. The target market is relatively narrow and
advertising methods such as direct mailings or print media advertising are not
likely to be cost-effective. We believe the best way to reach this market is
generally through life insurance professionals and, to a lesser extent, through
professionals engaged in estate planning, such as attorneys, accountants and
financial planners. Our business plan focuses on insurance professionals and we
intend to rapidly expand our referring network of insurance professionals to
build our senior life market. We are expanding our network through direct
solicitation, calls to managing general insurance agents, and by word-of-mouth
contacts. To a lesser extent, we are also using advertising in estate planning
trade publications and our internet website. This is a new market and building
our referral network will depend on our ability to educate insurance
professionals about the benefits of senior life settlements to potential sellers
and to the professionals themselves. While we believe we have been successful in
publicizing the benefits of viatical settlements, we cannot assure you that our
past successes will carry over into this new market. Our business, financial
condition and results of operations could be materially adversely affected to
the extent we fail to expand the referral network.

We Depend on Growth in the Senior Life Settlement Market

We believe the viatical market is firm and will provide a stable base
for our operations. Our growth, however, will depend on growth in the senior
life settlement market. The senior life market is new and its growth uncertain.
The senior life market may fail to grow due to a variety of factors, including:

o the inability to locate sufficient numbers of senior life sellers;

o the inability to convince potential sellers of the benefits of
senior life settlements;

o the inability to attract institutional purchasers;

o the failure to develop adequate financial risk management
mechanisms, such as reinsurance or hedging arrangements, to mitigate
"life extension" risks,

o competition from life insurance companies offering comparable
products;

o the occurrence of illegal or abusive business practices resulting
in negative publicity about the market; and

o the adoption of burdensome governmental regulation.

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

Our Purchasers Depend on Our Abilities To Predict Life Expectancies; If We Are
Not Accurate, We Will Lose Purchasers; We Must Purchase in Large Numbers

A purchaser's investment return from a senior life settlement depends
primarily on the demise of the insured. We price settlements based on the
anticipated life expectancy of an insured. Life expectancies are determined from
actuarial data based on the historical experiences of similarly situated
persons. The data is necessarily based on averages involving the laws of large
numbers and it is impossible to predict any one insured's life expectancy
exactly. To mitigate the risk that an insured will outlive his or her predicted
life expectancy, purchasers must have the potential to buy senior life
settlements in large numbers.

11
<PAGE>

If we underestimate the average life expectancies, our purchasers will
not realize the returns they seek and will invest their funds elsewhere. Our
ability to accurately predict life expectancies is affected by a number of
factors, including:

o the accuracy of our actuarial and other historical data, which must
sufficiently account for factors including an insured's age, medical
condition, life habits (such as smoking), and geographic location;

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

o our ability to balance competing interests when pricing settlements,
such as the amounts paid to viators or senior life sellers, the
acquisition costs paid by purchasers, and the compensation paid to
ourselves and our referral networks.

To foster the integrity of our pricing systems, we use both in-house and
outside experts, including a medical doctor and an actuary. We cannot assure you
that, despite our experience in settlement pricing, we will not err in
underestimating average life expectancies. If we do so, we could lose purchasers
and the loss of purchasers could have a material adverse effect on our business,
financial condition and results of operations.

The Senior Life Settlement Market Could Become Extremely Competitive and We May
Not Be Able To Compete Effectively In The Future

We face limited competition in the senior life settlement market at this
time. One of our competitors, Viaticus, is a subsidiary of CNA Financial Corp.,
one of the nation's largest insurance companies. As a subsidiary of CNA,
Viaticus has internal sources of funding for the purchase of settlements and
market development, and access to the CNA network of insurance professionals.
Our ability to compete successfully in the market will depend greatly on our
abilities to build our referral network and to secure a low cost of funds. As a
result, present and future competitors may be able to develop and expand their
referral networks quickly, secure lower cost funding sources, or may be able to
take advantage of other opportunities more readily than we can. If we are unable
to compete successfully in the senior life settlement market, we will not
realize the growth we expect from this market.

Government Regulation Could Negatively Impact Our Business

We are licensed in the State of Texas as a viatical settlement company
and, when proposed Texas regulations are adopted, will be licensed as a senior
life settlement company. The Texas licensing laws and regulations are based in
part on a model law and regulations promulgated by the National Association of
Insurance Commissioners. At least 28 other states have now adopted some version
of this model law or another form of regulation governing viatical settlement
companies in some way. These laws generally require the licensing of viatical
providers and brokers, requires the filing and approval of viatical settlement
agreements and disclosure statements, and describes the content of disclosures
that must be made to potential viators, describes various periodic reporting
requirements for viatical settlement companies and prohibits certain business
practices deemed to be abusive. The Federal Securities and Exchange Commission
and certain states have also attempted to regulate the industry through the
application of Federal and state securities laws. In a suit filed against us,
the SEC's attempts to apply the securities laws were rebuffed by the U.S. Court
of Appeals for the District of Columbia, which ruled that our transactions were
not securities under the Federal securities laws. Based on this ruling, the SEC
has discontinued any further attempts to apply the Federal securities laws to

12
<PAGE>

viatical settlements as transacted by us. The Court of Appeals decision was
based on federal law and, while persuasive authority, is not binding upon the
states. Several states have indicated that they may apply their securities laws
to include viatical settlements. To our knowledge, no state has yet attempted to
apply its securities laws to senior life settlements, but such application is
possible and could occur in the future. While we welcome reasonable regulation
of the viatical and senior life markets and believe that such regulation will
benefit these markets, state attempts to regulate these markets through
application of their securities laws may adversely affect the markets. We cannot
assure you that we will not encounter regulatory difficulties in the future,
some of which could have a material adverse effect on our business. In addition,
government regulation could affect our referral networks or settlement
purchasers, which could in turn have a material adverse effect on our business.

We Depend upon Certain Key People

Our success depends to a significant degree upon the continued
contributions of Mr. Brian D. Pardo, our Chairman and Chief Executive Officer.
Mr. Pardo founded Life Partners and has guided its development. His involvement
in the viatical market has greatly influenced the development of that market.
The loss of his services could have a material adverse effect on us. We have no
employment agreement with Mr. Pardo, and we have no key man life insurance on
him. Our success will also depend on the other members of our senior management
team and our technical and marketing personnel. The loss of key personnel, or
the inability to attract additional, qualified personnel, could have a material
adverse effect upon our results of operations, our ability to price settlement
offers accurately and our ability to expand our referral network.

Our Chairman and Chief Executive Officer Beneficially Owns 83% of Our Common
Stock and, as a Result, Can Exercise Significant Influence Over Our Company

Mr. Brian D. Pardo, our Chairman and Chief Executive Officer,
beneficially owns approximately 83% of our common stock. He will be able to
control most matters requiring approval by our stockholders, including the
election of directors and approval of significant corporate transactions. This
concentration of ownership may also have the effect of delaying or preventing a
change in control of Life Partners, which in turn could have a material adverse
effect on the market price of our common stock or prevent our stockholders from
realizing a premium over the market price for their shares of common stock.

Our Stock Is Currently Thinly Traded and the Stock Price May Be Volatile

Our common stock is traded on the Nasdaq OTC Bulletin Board, which is a
quotation service facilitating trades in over-the-counter equity securities. The
OTC Bulletin Board is generally the market for any security that is not listed
or traded on Nasdaq or a national securities exchange. The OTC Bulletin Board
does not provide the same qualitative standards available with Nasdaq or the
national securities exchanges, order execution is manually processed, and as a
result the trading and pricing of these securities is not as efficient as Nasdaq
or the national securities exchanges. Our share price during the last 90 days
has generally been over $20 per share, giving us a market capitalization of over
$200 million. Our total share volume for April 2000 was less than 16,000 shares.
The trading volumes are thin, therefore the market presently offers shareholders
little or no apparent liquidity.

Our share prices may be volatile due to actual or anticipated variations
in our quarterly operating results, positive or negative developments within the
industry or the general economy, and positive or negative announcements
regarding material developments in our business. We cannot assure you that the
market for our shares will be sufficient to permit you to sell our shares when
you want at the prices you want.

13
<PAGE>

Item 2. Description of Properties

Our corporate offices are located at 6614 Sanger Ave., Waco, Texas where
we have been located for almost ten years. We have a two-year lease agreement on
the property at 6614 Sanger Ave. that expires on December 31, 2000. We pay
$9,835 per month for the lease on the 13,844 square feet office building.

We have contracted to purchase an existing office building, located at
204 Woodhew in Waco, Texas, to house our new corporate offices. A tentative
closing date has been set for June 15, 2000. The contract is for the purchase of
1.068 acres with a 12,012 square foot office building built in 1986. The
contracted price for the land and improvements is $800,000. The financing for
the property has been approved by Bank of America. The terms of the loan
provides for a loan to value ratio of 80% at a 9.25% fixed interest rate with a
full amortization period of 15 years.

Item 3. Legal Proceedings

We are engaged from time to time in various legal actions and
administrative proceedings incident to the nature of our business. We believe
that none of the litigation or proceedings will have a material effect,
individually or in the aggregate, on our consolidated financial position or
results of operations.

Item 4. Submission of Matters To a Vote of Security Holders

On January 19, 2000 the Share Exchange Plan by which IGE, Inc. acquired
Life Partners, Inc. was submitted to and approved by the shareholders of IGE,
Inc. At that meeting, 9,948,324 shares voted in favor of the share exchange and
100 shares abstained. There were no votes against the proposed share exchange.

PART II

Item 5. Market for Our Common Stock and Related Stockholder Matters

Market Information. On May 18, 2000, there were approximately 700
shareholders of record of our Common Stock. We believe that there are
approximately 2,500 beneficial owners of shares of our common stock who hold in
street name through brokers. After our share exchange transaction on January 21,
2000, with our predecessor, I.G.E., Inc., our common stock began trading on the
Nasdaq OTC Bulletin Board under the symbol "LPHI". Prior to January 21, 2000,
the I.G.E. common stock was listed on the Nasdaq OTC Bulletin Board under the

symbol "IGEE". I.G.E. was a "blank check" company with no operating business and
no income from operations. Prior to January 21, 2000, the I.G.E. common stock
traded, if at all, at nominal volumes and values, and we have not presented
market information for the prior periods believing such information is not
meaningful.

The following table sets forth the high and low closing bid prices per
share of our common stock for each full quarterly period during the two most
recent fiscal years as reported by the Nasdaq OTC Bulletin Board. Bid prices for
the Nasdaq OTC Bulletin Board reflect inter-dealer prices, do not include retail
mark-ups, mark-downs and commissions, and do not necessarily reflect actual
transactions.
<TABLE>
<CAPTION>

Fiscal Year Ended
February 29, 2000
------------------------------
High Low
-------------- --------------
<S> <C> <C>
Fourth quarter (from $32.00 $0
January 21, 2000)
</TABLE>

On May 18, 2000, the last reported sale price of our common stock on the
Nasdaq OTC Bulletin Board was $25 per share.

Dividends. The Company has never declared a cash dividend with respect
to its Common Stock and intends to retain future earnings to support the
Company's growth. There are no contractual restrictions on the Company's present
or future ability to pay dividends. Future dividend policy is subject to the
discretion of the Board of Directors and is dependent upon a number of factors,
including future earnings, capital requirements and the financial condition of
the Company.

Item 6. Management's Discussion and Analysis or plan of Operation

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

The following discussion and analysis should be read in conjunction with
the Company's Consolidated Financial Statements and Notes thereto appearing
elsewhere in this Report.

Comparison Of Years Ended February 29, 2000 And February 28, 1999

The Company reported net income of $103,020 for the year ended February
29, 2000, as compared to net income of $2,752 for the year ended February 28,
1999. This increase in net income is attributable primarily to the following
factors: (1) a 15% increase in the average revenues per settlement, (2) a 6%
decrease in general and administrative costs offset in part by (3) a 26%
decrease the number of cases settled.

Revenues - Revenues decreased by $918,301 or 15% in 2000 as compared
with 1999. This decrease was due primarily due to a 26% decrease in the number
of settlements offset in part by a 15% increase in the average revenue per
settlement from $31,774 in 1999 to $36,401 in 2000. The decrease in the number
of settlements was due to management's efforts to be more selective in the cases
it selected for settlement.

Brokerage Fees - Brokerage fees decreased 43% or $983,830 from
$3,753,643 in 1999 to $2,769,813 in 2000. This decrease is due to a 26% decrease
in the number of settlements. Brokerage fees per settlement remained constant at
$20,073 during the two years ended February 29, 2000

General and Administrative Expenses - General and Administrative
expenses decreased by 6% or $129,164 from $2,311,122 in 1999 to $2,181,958 in
2000. This decrease was due in primarily to reductions in the medical review
costs combined with management's efforts to reduce other general and
administrative costs.

15
<PAGE>

Interest and Other Income - Interest and other income decreased 24% or
$41,099 from $171,825 in 1999 to $130,726 in 2000. This decrease was due
primarily to a reduction in the time funds are held in escrow by Sterling Trust
prior to their being disbursed.

Interest Expense - Interest Expense decrease by 38% or $6,983 from
$18,375 in 1999 to $11,392 in 2000. This decrease was due to the repayment of
the Company's interest bearing debt in 2000.

Income Taxes - Income tax expense increased by $60,260 from $1,620 in
1999 to $61,880 in 2000. This increase is proportionate to the increase in net
income before income taxes in 2000 as compared to 1999.

Liquidity And Capital Resources

Operating Activities

Net cash flows used in operating activities for the fiscal year ended
February 29, 2000 was $15,838 compared with net cash flows provided by operating
activities of $56,954 for the fiscal year ended February 28, 1999. This decrease
in cash flows from operating activities was attributable primarily to the
following factors: (1) a reduction in accrued liabilities of $456,809 offset in
part by (2) net income of $103,020 and (2) a decrease in accounts receivable of
$188,242.

The Company's strategy is to increase cash flows generated from
operations by increasing revenues while controlling brokerage and general and
administrative expenses.

Capital Requirements And Resources

At February 29, 2000 the Company had a working capital deficit of
$115,156. Management anticipates that continued profitable operations will
result in an improved working capital position. Management believes that it can
achieve sufficient working capital though operations and will not need to borrow
funds or obtain additional capital contributions to achieve this goal.

The Company anticipates acquiring land and an office building for
$800,000. It has obtained a commitment from Bank of America to finance $640,000
of this acquisition with the balance of $160,000 coming from operating cash
flows.

ITEM 7. Financial Statements and Supplementary Data

The Company's audited financial statements, together with the report of
auditors, are included in the report after the signature page.

Item 8. Changes In and Disagreements With Accountants on Accounting and
Financial Disclosure

Not applicable.

PART III

Item 9. Directors, Executive Officers, Promoters and Control Persons;
Compliance With Section 16(a) of the Exchange Act

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

16
<PAGE>

Item 10. Executive Compensation

Item 11. Security Ownership Of Certain Beneficial Owners And Management

Item 12. Certain Relationships And Related Transactions

ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K

(a) Exhibits

Exhibit No. 10.2 is a management contract or compensatory plans or
arrangements.

EXHIBIT INDEX
DESCRIPTION OF EXHIBIT

Number Description
------ -----------
2.1 Share Exchange agreement between I.G.E., Inc. and Life
Partners, Inc. dated January 18, 2000
3.1 Articles of Organization, dated May 20, 1971
3.1(a) Articles of Amendment, Dated January 20, 2000
3.2 Bylaws
10.1 LPHI Omnibus Equity Compensation Plan
21 Subsidiaries of the Issuer
27.1 Financial Data Schedule

(b) Reports on Form 8-K:

We filed the following Form 8-K's during the quarter ended February 29,
2000:
1. A Form 8-K dated January 21, 2000, reporting a share exchange between
Life Partners, Inc. and I.G.E., Inc., effective January 19, 2000, in
which Life Partners became a wholly-owned subsidiary of I.G.E. and
I.G.E. changed its name to Life Partners Holdings, Inc. (the Issuer).

17
<PAGE>

SIGNATURES

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

May 30, 2000 Life Partners Holdings, Inc.

By: /s/ Brian D. Pardo
-----------------------------------
Brian D. Pardo
President and Chief Executive
Officer

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

Name Title Date

/s/ Brian D. Pardo President, Principal May 30, 2000
------------------------
Executive Officer, and
Director

/s/ Jacquelyn Davis Treasurer May 30, 2000
------------------------

/s/ R. Scott Peden Corporate Clerk May 30, 2000
------------------------
(Secretary), Director

<PAGE>
LIFE PARTNERS HOLDINGS, INC.

CONSOLIDATED FINANCIAL STATEMENTS

YEARS ENDED FEBRUARY 29, 2000
AND FEBRUARY 28, 1999

<PAGE>

TABLE OF CONTENTS

INDEPENDENT AUDITORS' REPORT
ON FINANCIAL STATEMENTS....................................................1

FINANCIAL STATEMENTS

Consolidated Balance Sheet...............................................2-3

Consolidated Statements of Income..........................................4

Consolidated Statements of Stockholders' Deficit.........................5-6

Consolidated Statements of Cash Flows......................................7

Notes to Consolidated Financial Statements..............................8-12

<PAGE>

Independent Auditors' Report
----------------------------

To the Board of Directors
Life Partners Holdings, Inc.

We have audited the accompanying consolidated balance sheet of LIFE PARTNERS
HOLDINGS, INC. as of February 29, 2000, and the related consolidated statements
of income, stockholders' deficit, and cash flows for the years ended February
29, 2000 and February 28, 1999. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audit.

We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.

In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Life Partners Holdings, Inc. as
of February 29, 2000, and the results of its operations and its cash flows for
the years ended February 29, 2000 and February 28, 1999, in conformity with
generally accepted accounting principles.

/s/Gray & Northcutt, Inc.
April 26, 2000

-1-
<PAGE>

LIFE PARTNERS HOLDINGS, INC.
CONSOLIDATED BALANCE SHEET
FEBRUARY 29, 2000
PAGE 1 of 2

ASSETS

<TABLE>
<S> <C>
Cash 115,775
Accounts receivable due from employees 17,233
Current portion - long-term notes receivable 3,419
Prepaid expenses 5,167
------------
Total current assets 141,594
------------

Machinery and equipment 39,460
Transportation equipment 173,775
------------
213,235
Accumulated depreciation (119,076)
------------
94,159
------------

Notes receivable, net of current portion, shown above,
and allowance for bad debt of $40,798 15,631
Other 7,429
------------
23,060
------------

258,813
============
</TABLE>
The accompanying notes are an integral part of these financial statements.

-2-
<PAGE>

LIFE PARTNERS HOLDINGS, INC.
CONSOLIDATED BALANCE SHEET
FEBRUARY 29, 2000
PAGE 2 of 2

LIABILITIES AND STOCKHOLDERS' DEFICIT
<TABLE>

Current Liabilities:
<S> <C>
Accounts payable 67,385
Due to related party 12,861
Income tax payable 63,500
Accrued liabilities 113,004
------------
Total current liabilities 256,750
------------
Contingencies -
------------

Stockholders' Deficit:

Common stock, $0.01 par value, 10,000,000 shares
authorized; 10,000,000 shares issued and
outstanding 100,000
Additional paid-in capital 4,705,817
Accumulated deficit (4,803,754)
Less: Treasury stock - 1,842,228 shares -
------------
Total Stockholders' Deficit 2,063
------------

Total Liabilities and Stockholders' Deficit 258,813
============
</TABLE>

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

-3-
<PAGE>

LIFE PARTNERS HOLDINGS, INC.
CONSOLIDATED STATEMENTS OF INCOME
FOR THE YEARS ENDED FEBRUARY 29, 2000 AND FEBRUARY 28, 1999

2000 1999
------------ ------------

<S> <C> <C>
REVENUES $ 5,023,389 $ 5,941,690

BROKERAGE FEES 2,769,813 3,753,643
------------ ------------

REVENUES, NET OF BROKERAGE FEES 2,253,576 2,188,047
------------ ------------

OPERATING AND ADMINISTRATIVE EXPENSES:
General and administrative 2,181,958 2,311,122
Depreciation 26,052 26,003
------------ ------------

2,208,010 2,337,125
------------ ------------

INCOME (LOSS) FROM OPERATIONS 45,566 (149,078)
------------ ------------

OTHER INCOME (EXPENSES):
Interest and other income 130,726 171,825
Interest expense (11,392) (18,375)
------------- ------------

119,334 153,450
------------- ------------

INCOME BEFORE INCOME TAXES 164,900 4,372
------------- ------------

INCOME TAXES
Current tax expense 61,880 1,620
------------- ------------

61,880 1,620
------------- ------------

NET INCOME $ 103,020 $ 2,752
============= ============

PER SHARE EARNINGS OF
COMMON STOCK AMOUNTS $ .01 $ .00
============= ============
AVERAGE COMMON AND COMMON
EQUIVALENT SHARES OUTSTANDING 9,938,033 9,930,000
============= ============
</TABLE>

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

-4-
<PAGE>

LIFE PARTNERS HOLDINGS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED FEBRUARY 29, 2000 AND FEBRUARY 28, 1999
PAGE 1 OF 2

<TABLE>
<CAPTION>
2000 1999
------------ ----------

Cash Flows from Operating Activities:
<S> <C> <C>
Net income 103,020 2752
Adjustments to reconcile net
income to net cash provided by
(used in) operating activities -
Depreciation 26,052 26,003
Consulting fees paid with treasury stock 2,500 -
(Increase) Decrease in
accounts receivable 188,242 86,181
(Increase) Decrease in prepaid insurance (1,149) 701
(Increase) Decrease in other assets 424 (2,351)
Increase (Decrease) in accounts payable 60,002 (16,793)
Increase (Decrease) in income taxes payable 61,880 (19,355)
(Decrease) in accrued liabilities (456,809) (20,184)
---------- ----------

Net cash provided by (used in)
operating activities (15,838) 56,954
---------- ----------

Cash Flows from Investing Activities:
Purchases of property and equipment (15,331) (14,293)
---------- ----------

Net cash used in investing activities (15,331) (14,293)
---------- ----------

Cash Flows from Financing Activities:
Payments on notes payable (24,207) (15,130)
---------- ----------

Net cash used in financing activities (24,207) (15,130)
---------- ----------

Net Increase (Decrease) in Cash and Cash Equivalent (55,376) 27,531

Cash and Cash Equivalents,
Beginning of Year 171,151 143,620
---------- ----------

Cash and Cash Equivalents,
End of Year 115,775 171,151
========== ==========
</TABLE>

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

-5-
<PAGE>

LIFE PARTNERS HOLDINGS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED FEBRUARY 29, 2000 AND FEBRUARY 28, 1999
PAGE 2 OF 2
<TABLE>
<CAPTION>
2000 1999
------------ ----------

Supplemental Disclosures of Cash Flow Information:
<S> <C> <C>
Interest, net of capitalized amounts 11,392 18,375
============ ==========

Income taxes 0 0
============ ==========

</TABLE>

Supplemental Disclosure of Non-Cash Transactions:
During November 1999, LPI converted a note
payable due to a corporation of $350,000 and
the related accrued interest totaling $52,063
to 70,000 shares of common stock, resulting in
additional paid-in capital of $401,363.

During January 2000, the Company sold 907,772 shares of treasury stock for
$9,078 in notes receivable. Also, in January 2000, the Company gave 250,000
shares of treasury stock to consultatnts for services rended. This transaction
was valued at $2,500 for financial reporting purposes.

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

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<PAGE>

LIFE PARTNERS HOLDINGS, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' DEFICIT
FOR THE YEARS ENDED FEBRUARY 29, 2000 AND FEBRUARY 28, 1999

Common Stock
-----------------------------
Number $0.010 Additional Total
of par Paid-In Accumulated Stockholders'
Shares Value (1) Capital (1) Deficit Equity
-------------------------------------------------------------------------

Balanace, February 28, 1998
<S> <C> <C> <C> <C> <C>
as previously reported 9,948,324 $ 99,483 $4,213,168 $(4,381,540) (68,889)

Adjustment for reverse stock split (9,448,324) (94,483) 94,483 - -

Adjustment in connection with
reverse merger 9,430,000 94,300 (14,775) (527,986) (448,461)
-------------------------------------------------------------------------

Balance, February 28, 1998 9,930,000 99,300 4,292,876 (4,909,526) (517,350)

Net income for the
year ended
February 28, 1999 - - - 2,752 2,752
-------------------------------------------------------------------------

Balance, February 28, 1999 9,930,000 99,300 4,292,876 (4,906,774) (514,598)

Common stock issued
for note payable 70,000 700 401,363 - 402,063

Proceeds from the sale of
treasury stock - - 11,578 - 11,578

Net income for
year ended
February 29, 2000 - - - 103,020 103,020
-------------------------------------------------------------------------

Balance, February 29, 2000 10,000,000 100,000 4,705,817 (4,803,754) 2,063
=========================================================================

</TABLE>

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

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<PAGE>

LIFE PARTNERS HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FEBRUARY 29, 2000

(1) DESCRIPTION OF BUSINESS

Life Partners Holdings, Inc. (the "Company") formerly IGE, Inc. was
organized under the laws of the Commonwealth of Massachusetts in 1971, but
had been dormant and without operations since 1985. On January 18, 2000,
the shareholders of Life Partners Holdings, Inc. and Life Partners, Inc.
(LPI) entered into a share exchange agreement whereby LPI became a wholly-
owned operating subsidiary of the Company. The acquisition was treated
as a pooling of interest for financial reporting purposes (See Note 4 for
further details.) On January 20, 2000, the Company acquired all of the
outstanding stock of Extended Life Services, Inc. for $500. (See Note 4
for further details).

The Company's subsidiaries are as follows:

LPI is a viatical settlement company established in 1991 and
incorporated in the State of Texas for the purpose of assisting persons
in facilitating the purchase of the life insurance policies of
terminally ill persons at a discount to their face value.

Extended Life Services, Inc. was established in 1998 and incorporated
in the State of Texas to engage in senior life settlement transactions
by assisting elderly individuals to reallocate their assets from
insurance policies into assets used for long-term care coverage,
annuities, investments, etc.

(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

The following is a summary of significant accounting policies followed by
the Company:

Cash and Cash Equivalents - For purposes of the statement of cash
flows, the Company considers all short-term debt securities purchased
with a maturity of three months or less to be cash equivalents. The
balance of the Company's general checking account was in excess of
$100,000 as of February 29,2000 and the account's average account
balance is generally in excess of $100,000. The Federal Deposit
Insurance Corporation insures all bank accounts up to $100,000.
Management believes its exposure to loss is minimal considering only
the amounts in excess of $100,000 are at risk and the depository bank
is a well established national bank and one of the nation's largest
financial institutions.

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

Depreciation - The Company's property and equipment are depreciated
over their useful lives of five to nine years using the straight-line
method.

Income Taxes - Income tax expense includes federal income and Texas
franchise taxes currently payable. Deferred timing differences between
the reporting of income and expenses for financial and income tax
reporting purposes are reported as deferred tax assets, net of
valuation allowances, or as deferred tax liabilities depending on the
cumulative effect of all timing differences. See Note 3 for further
details.

-8-

<PAGE>

LIFE PARTNERS HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FEBRUARY 29, 2000

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

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

Liquidation of LPI Entertainment, Inc. - On September 7, 1999, LPI
liquidated LPI Entertainment, Inc. ("Entertainment"), its wholly-owned
subsidiary. Entertainment's only remaining asset was a motor home with
a cost basis of $173,775, which was transferred to the Company at its
net book value. Entertainment had been inactive since 1995. No gain or
loss was recognized for financial reporting purposes on this
liquidation.

(3) LEASES

The Company leases office space and various equipment under noncancelable
operating leases expiring in various years through 2004.

Minimum future rental payments under noncancelable operating leases having
remaining terms in excess of one year as of February 29, 2000 for each of
the next five years and in the aggregate are:
<TABLE>
<CAPTION>

Twelve months ending February 28, Amount
--------------------------------- ------

<S> <C>
2001 $ 141,555
2002 12,790
2003 6,708
2004 559
2005 -
----------

Total minimum future rental payments $ 161,612
==========
</TABLE>

Rental expense consisted of minimum lease payments of $158,375 and
$154,446 for the years ended February 29, 2000 and February 28, 1999,
respectively.

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

(4) INCOME TAXES

As of February 29, 2000, the Company has unused charitable contribution
deduction carryforwards of approximately $218,320.

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<PAGE>

These charitable contributions carryforward will expire as follows:
<TABLE>
<CAPTION>

Fiscal Year Ended
February 28, Amount
----------------- -------------

<S> <C>
2001 $ 129,110
2002 15,312
2003 36,239
2004 37,659
----------

$ 218,320
=========
</TABLE>

Temporary timing differences between the reporting of income and expenses
for financial and income tax reporting purposes give rise at February 29,
2000, to a deferred tax asset of approximately $53,800, which was fully
reserved as of that date.

Following are the components of this deferred tax asset as of February 29,
2000:
<TABLE>
<CAPTION>

<S> <C>
Charitable deduction carryforwards $ 74,200
Excess tax over financial accounting
depreciation (20,400)
---------

Net deferred tax asset 53,800
Less valuation allowance (53,800)
---------

Deferred tax asset net of valuation allowance $ -
=========
</TABLE>

The Company's effective income tax rate for the fiscal year ended February
29, 2000, is lower than what would be expected if the federal statutory
rate were applied to income from continuing operations primarily due to
the utilization of the Company's remaining net operating loss carryforward
to partially offset current year taxable income.

The difference between the Company's effective income tax rate and the
United States statutory rate is reconciled below for the years ended
February 29, 2000 and February 28, 1999: United States statutory rate
34.0% State of Texas statutory rate 4.5%.

Expected combined rate 38.5% 38.5%

Benefit of utilization of net operating
Loss carryforward (1.0%) (1.5%)
------ ------
Combined effective tax rate 37.5% 37.0%
====== ======

(5) COMMON STOCK OPTIONS AND CHANGES IN CAPITALIZATION

Conversion of debt to equity

During November 1999, LPI converted its 5.25% note payable of $350,000 and
the related accrued interest totaling $52,063 due to Descartes, Ltd. into
70,000 shares of common stock in Life Partners, Inc.

-10-
<PAGE>

LIFE PARTNERS HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FEBRUARY 29, 2000

Reverse Stock Split

On November 30, 1999, the stockholders of the Company authorized a 20-to-1
reverse stock split, thereby decreasing the number of issued and
outstanding shares to 500,000.

Reverse Merger

On January 18, 2000, the Company acquired LPI in a share exchange whereby
LPI became a wholly-owned subsidiary of the Company. This transaction was
treated as a pooling of interest for financial reporting purposes. The
Company issued LPI stockholders 9,500,000 shares of common stock. The
Company approved transfer of its assets to LPI and the existing Board of
Directors and Officers resigned.

Acquisition of Treasury Stock

On January 21, 2000 the Company's principal shareholder contributed
3,000,000 shares of the Company's common stock back to the Compant to be
used in accordance with the terms of its Omnibus Equity Compensation Plan.
Any shares not optioned by January 31, 2001 would revert to this
shareholder.

Acquisition of Extended Life Services, Inc.

On January 20, 2000, the Company acquired all of the outstanding stock of
Extended Life Services, Inc. for $500 in a transaction treated as a
purchase for financial reporting purposes.

(6) OMNIBUS EQUITY COMPENSATION PLAN

The Company has adopted an Omnibus Equity Compensation Plan. This plan
allows the Company to issue up to 3,000,000 shares of its treasury stock
to its employees and agents at prices and terms to be determined by the
Company on the date of issuance.

As of February 29, 2000, the Company had issued 1,157,772 shares under
this plan for which it received notes receivables totaling $9,078 and
recognized compensation expense of $2,500.

(7) RELATED PARTY TRANSACTIONS

The Company currently operates under an agreement with ESP Communications,
Inc. (ESP), which is owned by the wife of the Company's president. Under
the agreement, ESP performs specified administrative duties on behalf of
the Company concerning post-transaction contact. In addition, ESP also
provides facilities and various administrative personnel for the Company.
Either party may cancel the agreement with a thirty day written notice.
The Company currently pays ESP $7,000 on a monthly basis for its services.
The Company recorded management services expense concerning this agreement
with ESP of approximately $91,000 and $94,500 for the years ended February
29, 2000 and February 28, 1999, respectively.

On January 21, 2000, the Company sold 907,772 of its treasury stock to
employees and agents in exchange for notes receivable totaling $9,078.
These notes bear interest at 8% per anaum and are due on January 21, 2002.

(7) EARNINGS (LOSS) PER SHARE

Basic earnings per share amounts are computed based on the weighted
average number of shares outstanding on that date during the applicable
periods. The number of shares used in the computations were 9,938,033 in
2000 and 9,930,000 in 1999.

Diluted earnings per share was not computed as of February 29, 2000 as all
stock options and shares held for issuance in connection with the licensee
stock reward program were held as treasury stock and were considered
outstanding for purposes of the computation of basic earnings per share.

-11-
<PAGE>

(8) CONTINGENCIES

During the year ended February 29, 2000, the Company entered into
settlements in connection with three lawsuits. The liability associated
with these settlements is included in accrued liabilities on the Company's
financial statements as of February 29, 2000. In the opinion of
management, no other legal matters will have a material impact on the
Company's financial statements.

(9) SUBSEQUENT EVENTS

The Company has contracted to purchase an existing office building to
house its corporate offices. The contracted price for the land and
improvements is $800,000. The Company anticipates that it will be able to
finance $640,000 of this acquisition at 9.25% over 15 years.

-12-