UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
[X] Quarterly Report Pursuant to Section 13 or 15 (d) of the Securities Exchange
Act of 1934
For the quarterly period ended: May 31, 2000
or
[ ] Transition Report Pursuant to Section 13 or 15 (d) of the Securities
Exchange Act of
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.)
204 Woodhew
Waco, Texas 76712
--------------------------------------------------
(Address of Principal Executive Offices)(Zip Code)
Issuer's telephone number, including area code: 254-751-7797
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 [ ]
Shares of Common Stock, $.01 par value, outstanding as of July 14, 2000:
10,000,000
Transitional Small Business Disclosure Format: Yes [X] No [ ]
<PAGE>
LIFE PARTNERS HOLDINGS, INC.
INDEX
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Independent Accountants' Review Report
Consolidated Condensed Balance Sheet - May 31, 2000
Consolidated Condensed Statements of Income -
For the Three Months Ended May 31, 2000 and 1999
Consolidated Condensed Statements of Stockholders Equity -
For the Three Months Ended May 31, 2000 and 1999
Consolidated Condensed Statements of Cash Flows -
For the Three Months Ended May 31, 2000 and 1999
Notes to Consolidated Condensed Financial Statements
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
<PAGE>
LIFE PARTNERS HOLDINGS, INC.
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements - May 31, 2000 and 1999
Forming a part of Form 10-QSB Quarterly Report to the
Securities and Exchange Commission
This quarterly report on Form 10-QSB should be read in conjunction with Life
Partners Holdings, Inc.'s Annual Report on Form 10-KSB for the year ended
February 29, 2000
<PAGE>
Independent Accountants' Review Report
To the Board of Directors
Life Partners Holdings, Inc.
We have reviewed the accompanying consolidated condensed balance sheet of LIFE
PARTNERS HOLDINGS, INC. as of May 31, 2000, and the related consolidated
condensed statements of income, cash flows, and stockholders' equity, for the
three month periods ended May 31, 2000 and 1999, included in the accompanying
Securities and Exchange Commissions For 10QSB for the period ended May 31, 2000.
These financial statements are the responsibility for the Company's management.
We conducted our review in accordance with standards established by the American
Institute of Certified Public Accountants. A review of interim financial
information consists principally of applying analytical procedures to financial
data and making inquiries of persons responsible for financial accounting
matters. It is substantially less in scope than an audit conducted in accordance
with generally accepted auditing standards, the objective of which is the
expression of an opinion regarding the financial statements taken as a whole.
Accordingly, we do not express such an opinion.
Based on our reviews, we are not aware of any material modifications that should
be made to the accompanying financial statements for them to be in conformity
with generally accepted accounting principles.
July 14, 2000
<PAGE>
LIFE PARTNERS HOLDINGS, INC.
CONSOLIDATED CONDENSED BALANCE SHEET
MAY 31, 2000
(UNAUDITED)
Page 1 of 2
ASSETS
<TABLE>
CURRENT ASSETS:
<S> <C>
Cash $ 237,961
Accounts receivable - trade 52,930
Accounts receivable due from employees 17,436
Current portion - long-term notes receivable 3,419
Prepaid expenses 3,277
---------
Total current assets 315,023
---------
PROPERTY AND EQUIPMENT:
Machinery and equipment 39,564
Transportation equipment 173,775
---------
213,339
Accumulated depreciation (125,062)
---------
88,277
---------
OTHER ASSETS:
Notes receivable, net of current portion, shown above,
and allowance for bad debt of $40,798 14,775
Other 12,429
---------
27,204
---------
Total Assets $ 430,504
=========
</TABLE>
See accompanying notes and accountants' report.
<PAGE>
LIFE PARTNERS HOLDINGS, INC.
CONSOLIDATED CONDENSED BALANCE SHEET
MAY 31, 2000
(UNAUDITED)
Page 2 of 2
LIABILITIES AND STOCKHOLDERS' DEFICIT
<TABLE>
CURRENT LIABILITIES:
<S> <C>
Accounts payable $ 78,365
Income tax payable 96,360
Accrued liabilities 71,752
---------
Total current liabilities 246,477
---------
CONTINGENCIES -
---------
STOCKHOLDERS' EQUITY:
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 (4,621,790)
Less: Treasury stock - 1,842,228 shares -
---------
Total Stockholders' Equity 184,027
---------
Total Liabilities and Stockholders' Equity $ 430,504
=========
</TABLE>
See accompanying notes and accountants' report.
<PAGE>
LIFE PARTNERS HOLDINGS, INC.
CONSOLIDATED CONDENSED STATEMENTS OF INCOME
FOR THE THREE MONTHS ENDED MAY 31, 2000 AND 1999
(UNAUDITED)
<TABLE>
<CAPTION>
2000 1999
-------------- ---------------
<S> <C> <C>
REVENUES $ 1,774,073 $ 1,081,009
BROKERAGE FEES 907,268 726,561
----------- -----------
REVENUES, NET OF BROKERAGE FEES 866,805 354,448
----------- -----------
OPERATING AND ADMINISTRATIVE EXPENSES:
General and administrative 610,728 471,210
Depreciation 5,987 2,045
----------- -----------
616,715 473,255
----------- -----------
INCOME (LOSS) FROM OPERATIONS 250,090 (118,807)
----------- -----------
OTHER INCOME (EXPENSES):
Interest and other income 36,732 28,102
Interest expense (731) -
----------- -----------
36,001 28,102
----------- -----------
INCOME (LOSS) BEFORE INCOME TAXES 286,091 (90,705)
----------- -----------
INCOME TAXES
Current tax expense 104,127 -
----------- -----------
104,127 -
----------- -----------
NET INCOME (LOSS) 181,964 (90,705)
=========== ===========
PER SHARE EARNINGS OF
COMMON STOCK AMOUNTS $ 0.02 $ (0.01)
=========== ===========
AVERAGE COMMON AND COMMON
EQUIVALENT SHARES OUTSTANDING 10,000,000 9,930,000
=========== ===========
</TABLE>
See accompanying notes and accountants' report.
<PAGE>
LIFE PARTNERS HOLDINGS, INC.
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
FOR THE THREE MONTHS ENDED MAY 31, 2000 AND 1999
(UNAUDITED)
<TABLE>
<CAPTION>
2000 1999
-------------- ---------------
CASH FLOWS FROM OPERATING ACTIVITIES:
<S> <C> <C>
Net income (loss) $ 181,964 $ (90,705)
Adjustments to reconcile net income to
net cash provided by (used in)
operating activities -
Depreciation 5,987 2,045
(Increase) Decrease in accounts
receivable (52,277) 8,979
(Increase)in prepaid insurance 1,890 -
(Increase) Decrease in other assets (5,000) (562)
Increase (Decrease) in accounts payable (1,881) -
Increase in income taxes payable 32,860 -
(Decrease) in accrued liabilities (41,252) (31,177)
--------- ---------
Net cash provided by (used in) operating
activities 122,291 (111,420)
--------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment (105) (615)
--------- ----------
Net cash used in investing activities (105) (615)
--------- ----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Advances on notes payable - 60,730
--------- ----------
Net cash used in financing activities - 60,730
--------- ----------
NET INCREASE (DECREASE) IN CASH AND CASH
EQUIVALENTS 122,186 (51,305)
CASH AND CASH EQUIVALENTS,
BEGINNING OF PERIOD 115,775 171,151
--------- ----------
CASH AND CASH EQUIVALENTS,
END OF PERIOD $ 237,961 $ 119,846
========= ==========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Interest paid, net of capitalized amounts $ 731 $ -
========= ===========
Income taxes paid $ 71,267 $ -
========= ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
<PAGE>
LIFE PARTNERS HOLDINGS, INC.
CONSOLIDATED CONDENSED STATEMENTS OF STOCKHOLDERS' EQUITY
FOR THE THREE MONTHS ENDED MAY 31, 2000 AND 1999
(UNAUDITED)
<TABLE>
<CAPTION>
Common Stock
--------------------
Number $0.010 Additional Total
of par Paid-In Accumulated Stockholders'
Shares Value Capital Deficit Equity
Balance, ---------- -------- ----------- ----------- -------------
<S> <C> <C> <C> <C> <C>
February 28, 1999 9,930,000 $ 99,300 $ 4,292,876 $(4,906,774) $(514,598)
Net income for the three
months ended
May 31, 1999 - - - (90,705) (90,705)
---------- -------- ----------- ----------- ---------
Balance,
May 31, 1999 9,930,000 $ 99,300 $ 4,292,876 $(4,997,479) $(605,303)
========== ======== =========== =========== =========
Balance,
February 29, 2000 10,000,000 $100,000 $ 4,705,817 $(4,803,754) $ 2,063
Net income for the three
months ended
May 31, 2000 - - - 181,964 181,964
---------- -------- ----------- ----------- ---------
Balance,
May 31, 2000 10,000,000 $100,000 $ 4,705,817 $(4,621,790) $ 184,027
========== ======== =========== =========== =========
</TABLE>
See accompanying notes and accountants' report.
<PAGE>
LIFE PARTNERS HOLDINGS, INC.
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
MAY 31, 2000
(UNAUDITED)
These consolidated condensed financial statements have been prepared by Life
Partners Holdings, Inc. (the "Company") without audit, pursuant to the rules and
regulations of the Securities and Exchange Commission, and reflect all
adjustments which are, in the opinion of management, necessary for a fair
statement of the results for the interim periods, on a basis consistent with the
annual audited financial statements. All such adjustment are of a normal
recurring nature. Certain information, accounting policies, and footnote
disclosures normally included in financial statements prepared in accordance
with generally accepted accounting principles have been omitted pursuant to such
rules and regulations, although the Company believes that the disclosures are
adequate to make the financial statements and information presented not
misleading. These financial statements should be read in conjunction with the
financial statements and the summary of significant accounting policies and
notes thereto included in the Company's most recent annual report on Form
10-KSB.
(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. On January 20, 2000, the
Company acquired all of the outstanding stock of Extended Life Services,
Inc. for $500.
The Company's subsidiaries are as follows:
LPI is a viatical settlement company established in 1991 and
incorporated in 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) 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 May 31, 2000 for each of the
next five years and in the aggregate are:
<TABLE>
<CAPTION>
Twelve months ending May 31, Amount
---------------------------- ------
<S> <C>
2001 $ 109,009
2002 6,708
2003 5,590
2004 -
2005 -
-----------
Total minimum future rental payments $ 121,307
===========
</TABLE>
<PAGE>
Rental expense consisted of minimum lease payments of $40,306 and $39,451
for the three months ended May 31, 2000 and 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.
(3) INCOME TAXES
As of February 29, 2000, the Company has unused charitable contribution
deduction carryforwards of approximately $218,320.
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>
<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 difference between the Company's effective income tax rate and the
United States statutory rate is reconciled below for the three months
ended May 31, 2000:
<TABLE>
<CAPTION>
2000
----
<S> <C>
United States statutory rate 34.0%
State of Texas statutory rate 4.5%
----
Expected combined rate 38.5%
Benefit of utilization of charitable
contribution carryforward (2.0%)
----
Combined effective tax rate 36.5%
====
</TABLE>
<PAGE>
(4) 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 May 31, 2000, the Company had issued 1,157,772 shares under this
plan for which it received notes receivable totaling $9,078 and recognized
compensation expense of $2,500.
(5) 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-viaticator 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 $10,000 on a monthly basis for its
services. The Company recorded management services expense concerning this
agreement with ESP of approximately $38,500 and $24,500 for the three
months ended May 31, 2000 and 1999, respectively.
(6) 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 10,000,000 in
2000 and 9,930,000 in 1999.
Diluted earnings per share was not computed as of May 31, 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.
(7) CONTINGENCIES
During the year ended February 29, 2000, the Company entered into
settlements in connection with three lawsuits. These settlements have been
recorded as accrued reserves on the Company's financial statements as of
May 31, 2000. In the opinion of management, no other legal matters will
have a material impact on the Company's financial statements.
(8) SUBSEQUENT EVENTS
On June 14, 2000, the Company purchased an existing office building to
house its corporate offices. The contracted price for the land and
improvements is $800,000. The Company is financing $640,000 of this
acquisition at 9.25% over 15 years.
<PAGE>
Item 2. Management's Discussion and Analysis of Financial Position and Results
of Operations
Statements in this quarterly report on Form 10-QSB 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. 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.
The following discussion is intended to assist in understanding of the
Company's financial position as of May 31, 2000, and its results of operations
for the three month periods ended May 31, 2000 and 1999. The financial
statements and notes included in this report contain additional information and
should be referred to in conjunction with this discussion. It is presumed that
the readers have read or have access to Life Partners Holdings, Inc.'s annual
report on Form 10-KSB for the year ended February 29, 2000.
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.
The following table shows the number of settlement contracts we have
transacted, the aggregate face values, the average revenues per settlement, and
the revenues we derived, for the quarterly periods ended May 31, 1999 and 2000:
<TABLE>
<CAPTION>
1999 2000
---- ----
<S> <C> <C>
Number of settlements 65 55
Face value of policies (in `000's) $ 4,563 $ 4,463
Average revenue per settlement $16,631 $32,256
Net revenues derived (in `000's) (1) $ 354 $ 867
</TABLE>
------------------------------------
(1) The revenues derived are exclusive of referring broker commissions.
<PAGE>
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.
Comparison Of The Three Months Ended May 31, 2000 And 1999
The Company reported net income of $181,964 for the three months ended
May 31, 2000, as compared to a net loss of $90,705 for the three months ended
May 31, 1999. This increase in net income is attributable primarily to the
following factors: (1) a 94% increase in the average revenues per settlement
offset in part by, (2) a 30% increase in general and administrative costs and by
(3) an 18% decrease in the number of cases settled.
Revenues - Revenues increased by $693,064 or 64% in 2000 as compared
with 1999. This increase was due primarily due to a 94% increase in the average
revenue per settlement from $16,631 in 1999 to $32,256 in 2000 offset in part by
a 18% decrease in the number of settlements. 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 increased 25% or $180,707 from $726,561
in 1999 to $907,268 in 2000. This increase is due to an increase in the
brokerage fees per settlement, which increased from $11,178 in 1999 to $16,496
in 2000, in conjunction with higher brokerage fees due to higher gross revenues,
offset in part by an 18% decrease in the number of settlements.
General and Administrative Expenses - General and Administrative
expenses increased by 30% or $139,518 from $471,210 in 1999 to $610,728 in 2000.
This increase was due primarily to increases in operational costs related to
commencing activity in the senior life settlement market.
Interest and Other Income - Interest and other income increased 31% or
$8,630 from $28,102 in 1999 to $36,732 in 2000. This increase was due primarily
to the increase in dollar volume of settlements and the interest earned on those
funds held in escrow by Sterling Trust prior to their being disbursed.
Interest Expense - Interest Expense increased from $0 in 1999 to $731 in
2000.
Income Taxes - Income tax expense increased by $104,127 from $0 in 1999
to $104,127 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 provided by operating activities for the three months
ended May 31, 2000 was $122,291 compared with net cash flows used in operating
activities of $111,420 for the three months ended May 31, 1999. This increase in
cash flows from operating activities was attributable primarily to net income of
$181,964.
<PAGE>
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 May 31, 2000 the Company had working capital of $68,546. Management
believes future viatical settlement operations will generate sufficient profits
and cash flows to meet the Company's anticipated working capital needs for this
business segment. Management anticipates investing directly in senior life
policies in the future. Outside funding will be required to develop this
business segment.
The Company has acquired land and an office building for $800,000. It
has obtained a loan from Bank of America to finance $640,000 of this acquisition
with the balance of $160,000 coming from operating cash flows.
PART II - OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
None
(b) Reports on Form 8-K:
We filed the following Form 8-K's during the quarter ended May 31, 2000:
1. A Form 8-K dated May 3, 2000, reporting the entering into an
agreement with a single institution to originate, underwrite and
process up to $1 billion per calendar quarter of Senior Life
Settlements over the next five years.
<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.
July 14, 2000 Life Partners Holdings, Inc.
By:/s/Brian D. Pardo
--------------------------------------
Brian D. Pardo
President and Chief Exeucutive Officer
In accordance with the Exchange Act, this report has been signed below
by the following persons on behalf of the registrant and in the capacities and
on the dates indicated.
Name Title Date
---- ----- ----
/s/Brian D. Pardo President, Principal Executive July 14, 2000
-----------------------
Officer, and Director
/s/Jacquelyn Davis Chief Financial Officer, July 14, 2000
-----------------------
Treasurer, and Director
/s/R. Scott Peden Corporate Clerk (Secretary), July 14, 2000
-----------------------
Director
