UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C.  20549

FORM 10-Q

x Quarterly Report Pursuant to Section 13 or 15 (d) of the Securities Exchange Act of 1934

For the quarterly period ended: November 30, 2008

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.

(Exact name of small business issuer as specified in its charter)

Texas (State of incorporation)	74-2962475 (I.R.S. Employer ID no.)
204 Woodhew Drive Waco, Texas (Address of Principal Executive Offices)	76712 (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 Exchange Act 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 the filing requirements for at least the past 90 days.  Yes x No o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company.  See definitions of “large accelerated filer”, “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer ¨ Accelerated filer x Non-accelerated filer ¨ (Do not check if a smaller reporting company) Smaller reporting company ¨

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

Shares of Common Stock, $.01 par value, outstanding as of November 30, 2008: 11,887,213

Transitional Small Business Disclosure Format: Yes ¨ No x

LIFE PARTNERS HOLDINGS, INC.

TABLE OF CONTENTS

PART I.	FINANCIAL INFORMATION
Item 1.	Financial Statements
	Consolidated Condensed Balance Sheets – November 30, 2008 and February 29, 2008	3-4
	Consolidated Condensed Statements of Income - For the Three and Nine Months Ended November 30, 2008 and 2007	5
	Consolidated Condensed Statements of Cash Flows - For the Nine Months Ended November 30, 2008 and 2007	6
	Notes to Consolidated Condensed Financial Statements	7-13
Item 2.	Management's Discussion and Analysis of Financial Condition and Results of Operations	13-22
Item 3.	Quantitative and Qualitative Disclosures about Market Risk	22
Item 4.	Controls and Procedures	22
PART II.  OTHER INFORMATION
Item 1.	Legal Proceedings	22
Item 1A.	Risk Factors	24
Item 6.	Exhibits	24
Signatures		25
Exhibit Index		26

2

PART I - FINANCIAL INFORMATION

LIFE PARTNERS HOLDINGS, INC.

CONSOLIDATED CONDENSED BALANCE SHEETS

NOVEMBER 30, 2008 (Unaudited) AND FEBRUARY 29, 2008

Page 1 of 2

ASSETS

	November 30, 2008			February 29, 2008
CURRENT ASSETS:
Cash and cash equivalents	$	19,983,508		$	8,197,499
Investment in securities		2,512,222			4,568,494
Accounts receivable - trade		6,120,203			11,514,717
Accounts receivable - employees and others		187,563			181,629
Notes receivable		548,517			525,000
Prepaid expenses		179,694			495,645
Total current assets		29,531,707			25,482,984
PROPERTY AND EQUIPMENT:
Land and building		2,131,285			2,163,252
Proprietary software		499,046			421,187
Furniture, fixtures and equipment		1,220,883			930,757
Transportation equipment		145,300			145,300
		3,996,514			3,660,496
Accumulated depreciation		(1,383,975	)		(1,140,851	)
		2,612,539			2,519,645
OTHER ASSETS:
Premium advances net of reserve for uncollectible of $5,153,733 and $4,304,062, respectively		-			-
Investments in policies		7,497,856			1,017,201
Investment in partnership		1,750,000			-
Artifacts and other		831,700			831,700
Deferred income taxes		3,165,624			2,010,427
		13,245,180			3,859,328
Total assets	$	45,389,426		$	31,861,957

See the accompanying summary of accounting policies and notes to the financial statements.

3

LIFE PARTNERS HOLDINGS, INC.

CONSOLIDATED CONDENSED BALANCE SHEETS

NOVEMBER 30, 2008 (Unaudited) AND FEBRUARY 29, 2008

Page 2 of 2

LIABILITIES AND SHAREHOLDERS' EQUITY

	November 30, 2008			February 29, 2008
CURRENT LIABILITIES:
Accounts payable	$	5,242,125		$	6,526,820
Accrued liabilities - contingencies and other		892,395			944,300
Current portion of long-term debt		45,678			97,338
Short-term notes payable		-			1,621
Deferred revenue		225,450			268,850
Income taxes payable		286,053			178,070
Total current liabilities		6,691,701			8,016,999
LONG-TERM DEBT, net of current portion shown above		743,370			1,067,513
SHAREHOLDERS' EQUITY:
Common stock, $.01 par value 18,750,000 shares authorized;12,019,483 shares issued and outstanding
Additional paid-in capital		120,194			120,194
Retained earnings		11,490,360			11,490,360
Accumulated other comprehensive loss, net of taxes		30,364,492			12,865,732
Less:  Treasury stock – 132,270 and 91,531 shares, respectively		(2,385,627	)		(762,828	)
		(1,635,064	)		(936,013	)
Total shareholders' equity		37,954,355			22,777,445
Total liabilities and shareholders' equity	$	45,389,426		$	31,861,957

See the accompanying summary of accounting policies and notes to the financial statements.

4

LIFE PARTNERS HOLDINGS, INC.

CONSOLIDATED CONDENSED STATEMENTS OF INCOME

FOR THE THREE AND NINE MONTHS ENDED NOVEMBER 30, 2008 AND 2007

(Unaudited)

	Three Months						Nine Months
	2008			2007			2008			2007
REVENUES	$	28,103,930		$	19,298,726		$	77,330,801		$	54,523,811
BROKERAGE FEES		13,857,587			9,424,871			37,412,230			27,151,344
REVENUES, NET OF BROKERAGE FEES		14,246,343			9,873,855			39,918,571			27,372,467
OPERATING AND ADMINISTRATIVE EXPENSES:
General and administrative		2,878,139			2,168,305			8,104,979			6,005,064
Premium advances, net		292,717			232,316			1,061,081			582,088
Settlement costs		390,510			( 81,658	)		952,881			246,560
Depreciation		82,514			65,498			243,125			220,293
		3,643,880			2,384,461			10,362,066			7,054,005
INCOME FROM OPERATIONS		10,602,463			7,489,394			29,556,505			20,318,462
OTHER INCOME (EXPENSES):
Interest and other income		650,433			520,635			1,535,688			1,352,138
Interest expense		(13,513	)		(50,804	)		(48,151	)		(133,533	)
Realized gain on investments		-			-			-			10,540
		636,920			469,831			1,487,537			1,229,145
INCOME BEFORE INCOME TAXES		11,239,383			7,959,225			31,044,042			21,547,607
INCOME TAXES:
Current tax expense		4,030,839			2,768,030			11,186,052			7,377,254
Deferred tax benefit		(74,334	)		(24,500	)		(276,952	)		(110,399	)
		3,956,505			2,743,530			10,909,100			7,266,855
NET INCOME	$	7,282,878		$	5,215,695		$	20,134,942		$	14,280,752
EARNINGS:
Per share – Basic and Diluted	$	.61		$	0.44		$	1.69		$	1.19
AVERAGE COMMON AND COMMON EQUIVALENT SHARES OUTSTANDING:  Basic and diluted		11,887,213			11,967,637			11,894,806			11,965,342
THE COMPONENTS OF COMPREHENSIVE INCOME:
Net income	$	7,282,878		$	5,215,695		$	20,134,942		$	14,280,752
Unrealized gain (loss) on investment securities, net of taxes		(1,168,911	)		(328,990	)		(1,625,806	)		(941,987	)
COMPREHENSIVE INCOME	$	6,113,967		$	4,886,705		$	18,509,136		$	13,338,765
BASIC AND DILUTED EARNINGS:
Per share – Basic and Diluted	$	.51		$	0.41		$	1.56		$	1.11

See the accompanying summary of accounting policies and notes to the financial statements.

5

LIFE PARTNERS HOLDINGS, INC.

CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS

FOR THE NINE MONTHS ENDED NOVEMBER 30, 2008 AND 2007

(Unaudited)

	2008			2007
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income	$	20,134,942		$	14,280,752
Adjustments to reconcile net income to operating activities:
Depreciation		243,125			220,293
(Increase) decrease in operating assets:
Accounts receivable		5,388,580			(11,740,520	)
Note receivable		(23,517	)		(100,000	)
Prepaid expenses		315,951			(104,261	)
Deferred income taxes		(276,951	)		(110,399	)
Increase (decrease) in operating liabilities:
Accounts payable		(1,539,724	)		1,571,128
Accrued liabilities		(46,802	)		(232,465	)
Income taxes payable		107,983			1,137,056
Deferred revenue		(43,400	)		9,150
Net cash provided by operating activities		24,260,187			4,930,734
CASH FLOWS FROM INVESTING ACTIVITIES:
Investment in income funds		(460,053	)		(1,737,705	)
Purchases of property and equipment		(336,018	)		(2,067,051	)
Investment in partnership		(1,750,000	)		-
Purchase of artifacts		-			(110,000	)
Purchase of policies for investment purposes and capitalized premiums		(6,480,655	)		(390,570	)
Net cash used in investing activities		(9,026,726	)		(4,305,326	)
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from short-term notes payable		2,000,000			1,321,881
Payments on short-term notes payable		(2,001,621	)		(1,697,161	)
Proceeds from long-term debt		-			960,000
Payments on long-term debt		(375,803	)		(126,108	)
Stock options exercised		-			300,000
Purchase of treasury stock		(699,051	)		-
Dividends paid		(2,370,977	)		(1,636,107	)
Net cash used in financing activities		(3,447,452	)		(877,495	)
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS		11,786,009			(252,087	)
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD		8,197,499			3,521,021
CASH AND CASH EQUIVALENTS, END OF PERIOD	$	19,983,508		$	3,268,934
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Interest paid, net of capitalized amounts	$	48,151		$	133,533
Income taxes paid	$	11,078,000		$	5,524,198
SUPPLEMENTAL DISCLOSURES OF NONCASH ITEMS:
Accrued interest receivable	$	23,517		$	-
Unrealized loss on marketable securities, net of taxes	$	(1,625,806	)	$	(941,987	)
Dividends declared and not paid by period end	$	953,697		$	839,597

See accompanying summary of accounting policies and notes to financial statements.

6

Life Partners Holdings, Inc.

Notes to Consolidated Condensed Financial Statements

November 30, 2008

(Unaudited)

Reclassifications

Certain reclassifications have been made to the prior periods’ financial statements to conform to the current year presentation.  The reclassifications had no effect on previously reported results of operations or retained earnings.

Special Note Regarding Forward-Looking Statements

Certain statements in this quarterly report on Form 10-Q concerning our business prospects or future financial performance, anticipated revenues, expenses, profitability or other financial items, estimates as to size, growth in or projected revenues from the life settlement market, 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.  You should carefully review the risks described herein and in other documents we file from time to time with the Securities and Exchange Commission, including our Annual Report on Form 10-K for the year ended February 29, 2008 (“Fiscal 2008”), particularly in the sections entitled “Item 1A – Risk Factors” and “Item 7 – Management’s Discussion and Analysis of Financial Condition and Results of Operations”.  We do 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.

Unaudited Interim Financial Information

These Consolidated Condensed Financial Statements have been prepared without audit, pursuant to the rules and regulations of the Securities and Exchange Commission (SEC), and reflect all adjustments that 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 adjustments 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 we believe 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 our most recent Annual Report on Form 10-K.

(1) DESCRIPTION OF BUSINESS

Life Partners Holdings, Inc. (”we” or “Life Partners”) is a financial services company and the parent company of Life Partners, Inc. (“LPI”).  LPI is the oldest and one of the most active companies in the United States engaged in the secondary market for life insurance known generally as “life settlements”. These financial transactions involve the purchase of life insurance policies at a discount to their face value for investment purposes.

7

(2) CASH AND CASH EQUIVALENTS

For purposes of the statements of cash flows, the Company considers all highly liquid investments available for current use with an initial maturity of twelve months or less to be cash equivalents.  The average balance of our general checking account is generally in excess of $250,000.  The Federal Deposit Insurance Corporation (FDIC) currently insures all bank accounts up to $250,000.  The amount of our cash accounts in excess of the FDIC insurance limit at November 30, 2008 was $13,888,017.  Management believes the exposure to loss is minimal considering only the amounts in excess of $250,000 are at risk and the depository banks are well established and the largest national financial institutions.

(3) INVESTMENTS IN SECURITIES

Our securities investments are income and equity mutual funds and are classified as trading securities.  Trading securities are recorded at fair value on the balance sheet in current assets, with the change in fair value during the period included in earnings.

Securities investments that we have the positive intent and ability to hold to maturity are classified as held-to-maturity securities and are recorded at amortized cost in investments and other assets.  Securities investments not classified as either held-to-maturity or trading securities are classified as available-for-sale securities.  Available-for-sale securities are recorded at fair value in investments on the balance sheet, with the change in fair value during the period excluded from earnings and recorded net of tax as a component of other comprehensive income.

Our securities investments had unrealized losses of $3,670,494 and $1,169,255 at November 30, and February 29, 2008, respectively.  Based on our analysis of these securities we have concluded that the gross unrealized losses are temporary in nature.  However, facts and circumstances may change which could result in a decline in market value considered to be other than temporary.

The cost and estimated market value of the investment securities classified as available-for-sale as of November 30, 2008, are as follows:

	Cost		Gross Unrealized Losses			Fair Value
Market income funds	$	6,182,716	$	(3,670,494	)	$	2,512,222

(4) ACCOUNTS RECEIVABLE – TRADE

The amounts shown on the balance sheet termed Accounts Receivable – Trade are amounts reflecting transactions that have closed, and revenue has been recognized, before the final funds are received to settle the transactions.  We also sometimes make non-interest bearing advances to facilitate a settlement transaction.  We collect the advances generally within 30 days after the transactions close, and we receive payment before any of the parties involved in the transaction receive funds.  Our business model does not use leverage, so there are no issues of collectability or adverse effects due to the current credit environment.  The amounts at November 30, 2008, and February 29, 2008, were $6,120,203 and $11,514,717, respectively.

(5) INVESTMENT IN PARTNERSHIP

The amount shown on the balance sheet termed Investment in Partnership is an investment in an unaffiliated limited partnership created for the acquisition of life settlements.  On August 26, 2008, we entered into a contractual agreement to purchase an 11% interest in the partnership at a total cost of $5 million.  LPI performs policy-purchasing services for this limited partnership and earns fees from it as it would from any other LPI client.  This investment is accounted for under the equity method of accounting and the preferred interest return is accrued as earned.  The partnership, in its initial stages of development and investment in life settlement policies, has had limited business activity to date.  We believe any operating results through November 30, 2008 are inconsequential to the financial statements and therefore no adjustment to the original investment value has been made.  As of November 30, 2008, LPI had contributed $1,750,000 to the partnership.

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(6) SHORT-TERM NOTES PAYABLE

In the event we require credit to facilitate our short-term cash flow management and operating capital requirements, we maintain two credit lines.  One credit line is secured by cash and securities on deposit.  As of November 30, 2008, it carried an interest rate at Wall Street Journal Prime Rate and had a borrowing base of $1.6 million.  There was no outstanding balance as of November 30, 2008, and a $1,621 balance at February 29, 2008.  The other line of credit is secured by a certificate of deposit.  This line of credit carried an interest rate of 5.55% and had a borrowing base of $1 million.  There was no outstanding balance on this line as of November 30 and February 29, 2008.

(7) LONG-TERM DEBT

As of November 30, 2008, we had the following long-term debt:

6.49% note payable to a bank, due in installments of $7,669 through December 2017 secured by land and office building	$	789,048
Less current portion of long term debt		(45,678	)
Total net of current portion	$	743,370

Maturities on long-term debt for each of the next five years and thereafter are as follows:

November 30,
2009	$	45,678
2010		45,104
2011		48,120
2012		51,338
2013		54,770
Thereafter		544,038
	$	789,048
Less current portion		(45,678	)
Long term debt, net of current portion	$	743,370

(8) INCOME TAXES

Temporary timing differences between the reporting of income and expenses for financial and income tax reporting purposes at November 30, 2008, result in an increase in the deferred tax asset of $1,155,197 which we believe to be fully realizable.

Following are the components of the deferred tax asset as of November 30, 2008:

Excess tax over financial accounting -
Depreciation	$	(91,832	)
Excess financial accounting over tax –
Unrealized loss on investments		1,284,673
Accrued contingency costs		111,458
Reserve for premium advances		1,803,806
Acquired life insurance policies		57,519
Net deferred tax asset	$	3,165,624

9

Accounting for Uncertainty in Income Taxes.  In June 2006, the Financial Accounting Standards Board (FASB) issued Interpretation of FASB Statement No. 109 (FIN 48).  FIN 48 is intended to clarify the accounting for uncertainty in income taxes recognized in a company’s financial statements and prescribes the recognition and measurement of a tax position taken or expected to be taken in a tax return.  FIN 48 also provides guidance on de-recognition, classification, interest and penalties, accounting in interim periods, disclosure and transition.

Under FIN 48, evaluation of a tax position is a two-step process.  The first step is to determine whether it is more-likely-than-not that a tax position will be sustained upon examination, including the resolution of any related appeals or litigation based on the technical merits of that position.  The second step is to measure a tax position that meets the more-likely-than-not threshold to determine the amount of benefit to be recognized in the financial statements.  A tax position is measured at the largest amount of benefit that is greater than 50% likely of being realized upon the ultimate settlement.

Tax positions that previously failed to meet the more-likely-than-not recognition threshold should be recognized in the first subsequent period in which the threshold is met.  Previously recognized tax positions that no longer meet the more-likely-than-not criteria should be de-recognized in the first subsequent financial reporting period in which the threshold is no longer met.

The adoption of FIN 48 on March 1, 2007, did not have a material effect on our financial position.

(9) SHAREHOLDERS’ EQUITY, STOCK TRANSACTIONS AND COMMON STOCK OPTIONS

Dividends.We declared and paid dividends when and in the amounts as set forth in the following table:

Date Declared	Date Paid	Dividend Amount*
05/10/07	06/18/07	$	0.0625
08/13/07	09/14/07	$	0.0600
11/13/07	12/15/07	$	0.0700
02/08/08	03/14/08	$	0.0600
05/21/08	06/16/08	$	0.0700
08/07/08	09/15/08	$	0.0700
10/22/08	12/15/08	$	0.0800

________________

*      The dividend amounts reflect historical payments and are not adjusted for the stock split.

Stock Split.On August 14, 2007, our board of directors authorized a five-for-four split of the common stock affected in the form of a stock dividend to be distributed on or about September 28, 2007, to holders of record on September 14, 2007.  Accordingly, all references to numbers of common shares and per share data in the accompanying financial statements have been adjusted to reflect the stock split on a retroactive basis.  The par value of the additional shares of common stock issued in connection with the stock split was credited to “Common stock” and a like amount charged to “Additional paid-in-capital”.  Also, on August 15, 2007, we increased our authorized common stock from 10,000,000 shares to 18,750,000 shares.

10

Stock-Based Compensation.  In December 2004, the Financial Accounting Standards Board (“FASB”) issued FASB Statement No. 123 (revised 2004), Share-Based Payment.  Statement 123(R) replaces FASB Statement No. 123, Accounting for Stock-Based Compensation, supersedes APB Opinion No. 25, Accounting for Stock Issued to Employees and amends FASB Statement No. 95, Statement of Cash Flows.  Statement 123(R) requires that all share-based payments to employees, including grants of employee stock options, be recognized in the financial statements based on their fair values.  We adopted FAS 123(R) during Fiscal 2006.  Since no employee options were granted, modified or settled during the three or nine months ended November 30, 2008 or 2007, there was no stock-based compensation expense included in net income for such periods.

As of November 30 and February 29, 2008, there were no stock options outstanding.

(10) FAIR VALUE MEASUREMENTS

In September 2006, the FASB issued Statement No. 157, “Fair Value Measurements” (“SFAS No. 157”).  SFAS No. 157 addresses how companies should measure fair value when they are required to use a fair value measure for recognition or disclosure purposes under GAAP. SFAS No. 157 defines fair value, establishes a framework for measuring fair value and expands disclosures about fair value measurements.  SFAS No. 157 is effective for fiscal years beginning after November 15, 2007.  Effective March 1, 2008, management adopted SFAS No. 157 with the exception of certain non-financial assets and non-financial liabilities that were specifically deferred by SFAS No. 157-2.  In February 2008, the FASB issued Staff Position No. SFAS 157-2 (FSP No.157-2), Effective Date of FASB Statement No. 157, that defers the effective date of SFAS No. 157 for one year for certain nonfinancial assets and nonfinancial liabilities.  Management is assessing the impact of the adoption of SFAS No. 157-2.

In February 2008, the FASB agreed to defer the effective date of SFAS No. 157 for one year for certain nonfinancial assets and liabilities, except those that are recognized or disclosed at fair value in the financial statements on a recurring basis (at least annually).  Examples of items that would be deferred include:

· Nonfinancial assets and nonfinancial liabilities that initially are measured at fair value in a business combination or other new basis event, but are not measured at fair value in subsequent periods

· Asset retirement obligations that are measured at fair value at initial recognition, but are not measured at fair value in subsequent periods

· Nonfinancial liabilities for exit or disposal activities that are measured at fair value at initial  recognition, but are not measured at fair value in subsequent periods

The term inputs refers to the assumptions that market participants use in pricing the asset or liability.  SFAS No. 157 distinguishes between observable inputs and unobservable inputs.  Observable inputs reflect the assumptions market participants would use in pricing the asset or liability based on market data obtained from independent sources.  Unobservable inputs reflect an entity’s own assumptions about the assumptions market participants would use in pricing the asset or liability.  SFAS No. 157 indicates that valuation techniques should maximize the use of observable inputs and minimize the use of unobservable inputs.  SFAS No. 157 establishes a fair value hierarchy that prioritizes the inputs used in valuation techniques and creates the following three broad levels, with Level 1 being the highest priority:

· Level 1 inputs: Level 1 inputs are quoted market prices in active markets for identical assets or liabilities that are accessible at the measurement date (e.g., equity securities traded on the New York Stock Exchange).

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· Level 2 inputs: Level 2 inputs are from other than quoted market prices included in Level 1 that are observable for the asset or liability, either directly or indirectly (e.g., quoted market prices of similar assets or liabilities in active markets, or quoted market prices for identical or similar assets or liabilities in markets that are not active).

· Level 3 inputs: Level 3 inputs are unobservable (e.g., a company’s own data) and should be used to measure fair value to the extent that observable inputs are not available.

The following are the major categories of assets measured at fair value on a recurring basis during the quarter and nine months ended November 30, 2008, using quoted prices in active markets for identical assets (Level 1); significant other observable inputs (Level 2); and significant unobservable inputs (Level 3).

Description	Level 1: Quoted Prices in Active Markets for Identical Assets		Level 2: Significant Other Observable Inputs		Level 3: Significant Unobservable Inputs		Total
Market income funds	$	2,512,222		-		-	$	2,512,222
Total	$	2,512,222		-		-	$	2,512,222

There are no liabilities required to be measured at fair value.

(11) CONTINGENCIES

LPI is aware of certain instances wherein the insurance companies denied payment on policies in which it arranged the settlement with purchasers.  Most of these denials related to unforeseeable reductions in face value.  Face value of the policies in question total $318,450 and are recorded in accrued liabilities at November 30, 2008.  During the three months ended November 30, 2008, we did not accrue any additional liability for future claims that might arise in relation to these policies.

We record provisions in the Consolidated Condensed Financial Statements for pending litigation when we determine that an unfavorable outcome is probable and the amount of the loss can be reasonably estimated.  Except as discussed elsewhere in this note: (i) management has not concluded that it is probable that a loss has been incurred in any pending litigation; or (ii) management is unable to estimate the possible loss or range of loss that could result from an unfavorable outcome of any pending litigation; and (iii) accordingly, management has not provided any amounts in the Consolidated Condensed Financial Statements for unfavorable outcomes, if any.

It is possible that our consolidated results of operations, cash flows or financial position could be materially affected in a particular fiscal quarter or fiscal year by an unfavorable outcome or settlement of certain pending litigation.  Nevertheless, although litigation is subject to uncertainty, management believes and we have been so advised by counsel handling the respective cases that we have a number of valid claims and defenses in all pending litigation to which we are a party, as well as valid bases for appeal of adverse verdicts against us.  All such cases are, and will continue to be, vigorously defended and all valid counterclaims pursued.  However, we may enter into settlement discussions in particular cases if we believe it is in the best interests of our shareholders to do so.

(12)  PURCHASE OF LIFE SETTLEMENT POLICIES FOR INVESTMENT PURPOSES AND ACCOUNTING PRINCIPLE REGARDING SUCH POLICIES

From time to time, we purchase interests in policies to hold for investment purposes. FASB Staff Position No. 85-4-1 Accounting for Life Settlement Contracts by Third-Party Investors (FSP FTB 85-4-1) states that an investor may elect to account for its investments in life settlement contracts based on the initial investment at the purchase price plus all initial direct costs.  Continuing costs (policy premiums and direct external costs, if any) to keep the policy in force are capitalized.  FSP FTB 85-4-1 replaced FASB Technical Bulletin 85-4, which essentially required that we record the excess of the purchase price over the cash surrender value as expense when purchasing policies for our own account.

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In accordance with FSP FTB 85-4-1, we estimate our premium obligation for the policies that we own for investment purposes to be $383,211 over the next five years.

ITEM 2.  MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

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” in the Notes to Consolidated Condensed Financial Statements.

We provide the following discussion to assist in understanding our financial position as of November 30, 2008, and results of operations for the three and nine months ended November 30, 2008 and 2007.  As you read this discussion, refer to our Consolidated Condensed Statements of Income and our Consolidated Condensed Balance Sheet.  We analyze and explain the differences between periods in the material line items of these statements.  We presume that readers have read or have access to our Annual Report on Form 10-K for Fiscal 2008.  The Notes to the Consolidated Condensed Financial Statements contained in our Annual Report note the significant accounting policies used in preparing our financial statements, including policies relating to the recognition of revenue and the recording of investments in life insurance policies.  We presume that readers understand the effect of these policies.

Critical Accounting Estimates, Assumptions and Policies

Our discussion and analysis of financial condition and results of operations are based on our consolidated condensed financial statements that were prepared in accordance with accounting principles generally accepted in the United States of America.  To guide our preparation, we follow accounting policies, some of which represent critical accounting policies as defined by the SEC.  The SEC defines critical accounting policies as those that are both most important to the portrayal of a company's financial condition and results and require management's most difficult, subjective, or complex judgment, often as a result of the need to make estimates about the effect of matters that are inherently uncertain and may change in subsequent periods.  Certain accounting estimates involve significant judgments, assumptions and estimates by management that may have a material impact on the carrying value of certain assets and liabilities, disclosures of contingent liabilities, and the reported amounts of income and expenses during the reporting period which management considers to be critical accounting estimates.  The judgments, assumptions and estimates used by management are based on historical experience, management’s experience, knowledge of the accounts and other factors that are believed to be reasonable.  Because of the nature of the judgments and assumptions made by management, actual results may differ materially from these judgments and estimates, which could have a material impact on the carrying values of assets and liabilities and the results of our operations.  Areas affected by our estimates and assumptions are identified below.

We recognize income at the time a settlement closes and the purchaser has obligated itself to make the purchase.  We defer $100 per viatical settlement and $200 per life settlement to cover minor monitoring services provided subsequent to the settlement date. We amortize this deferred cost over the anticipated life expectancy of the insureds.

For life insurance policies purchased for our own account in Fiscal 2006 and before, we followed Financial Standards Board Technical Bulletin 85-4 Accounting for Purchases of Life Insurance (FTB 85-4), which required that we reduce our investment in the policies to the cash surrender value of such policies with any differences between cost and cash surrender value being charged to expense.

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On March 27, 2006, FASB Staff Position No. FTB 85-4-1 Accounting for Life Settlement Contracts by Third-Party Investors (FSP FTB 85-4-1) was issued.  The FASB Staff Position states that an investor may elect to account for its investments in life settlement contracts using either the investment method or the fair value method.  The election shall be made on an instrument-by instrument basis and is irrevocable.  Under the investment method, an investor shall recognize the initial investment at the purchase price plus all initial direct costs.  Continuing costs (policy premiums and direct external costs, if any) to keep the policy in force shall be capitalized.  Under the fair value method, an investor shall recognize the initial investment at the purchase price.  In subsequent periods, the investor re-measures the investment at fair value in its entirety at each reporting period and shall recognize change in fair value earnings (or other performance indicators for entities that do not report earnings) in the period in which the changes occur.  We adopted FSP FTB 85-4-1 as of March 1, 2006 (the beginning of Fiscal 2007) and chose to value all of our investments in life settlement contracts using the investment method.  As of November 30, 2008, the total of our investment in life settlements held for our own account was valued at $7,497,856.

We establish litigation and policy analysis loss reserves based on our best estimates as to the ultimate outcome of contingent liabilities.  This reserve analysis is necessary to properly match current expenses to currently recognized revenues and to recognize that there is a certain amount of liability associated with litigation and policy losses.  Through this reserve, we recognize the estimated cost to settle pending litigation as an expense.  These estimates are reviewed on a quarterly basis and adjusted to management’s best estimate of the anticipated liability on a case-by-case basis.  A high degree of judgment is required in determining these estimated reserve amounts since the outcomes are affected by numerous factors, many of which are beyond our control.  As a result, there is a risk that the estimates of future litigation and policy analysis loss costs could differ from our currently estimated amounts.  Any difference between estimates and actual final outcomes should not have a material impact on our financial statements.  We have not experienced any material changes between estimates and actual results in the current or prior periods.

We must make estimates of the collectability of accounts and notes receivable and premium advances.  The accounts associated with these areas are critical to recognizing the correct amount of revenue in the proper period.  Because of the uncertainty about when policy advances will be collected, we follow the practice of reserving all premium advances at the time such advances are made.  When premium advances are repaid, the repayments are netted against premium expense.  We have not experienced any material changes in our estimates of collectability versus actual results in the current or prior periods.

We review the carrying value of the property and equipment for impairment whenever events and circumstances indicate that the carrying value of an asset may not be recoverable from the estimated future cash flows expected to result from its use and eventual disposition.  In cases where undiscounted expected future cash flows are less than the carrying value, an impairment loss is recognized equal to an amount by which the carrying value exceeds the fair value of assets.  The factors considered by management in performing this assessment includes current operating results, trends and prospects, the manner in which the property is used, and the effects of obsolescence, demand, competition and other economic factors. Based on this assessment, there was no impairment at November 30, 2008.

We must evaluate the useful lives of our property and equipment to assure that an adequate amount of depreciation is being charged to operations.  Useful lives are based generally on specific knowledge of an asset’s life in combination with the Internal Revenue Service rules and guidelines for depreciable lives for specific types of assets.

We are required to estimate our income taxes.  This process involves estimating our current tax exposure together with assessing temporary differences resulting from differing treatment of items for tax and accounting purposes. These differences result in deferred tax assets and liabilities.  We must then assess the likelihood that our deferred tax assets will be recovered from future taxable income, and, to the extent we believe that recovery is not likely, we must establish a valuation allowance.  To the extent we establish a valuation allowance or increase this allowance in a period, we must include a tax provision or reduce our tax benefit in the statements of income.  We use our judgment to determine our provision or benefit for income taxes, deferred tax assets and liabilities and any valuation allowance recorded against our net deferred tax assets.

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We cannot predict what future laws and regulations might be passed that could have a material effect on our results of operations.  We assess the impact of significant changes in laws and regulations on a regular basis and update the assumptions and estimates used to prepare our financial statements when we deem it necessary.

We have not made any material changes to our critical accounting estimates or assumptions or the judgments affecting the application of those estimates or assumptions.

New Accounting Pronouncements

In September 2006, the FASB issued Statement No. 157, “Fair Value Measurements” (“SFAS No. 157”).  SFAS No. 157 addresses how companies should measure fair value when they are required to use a fair value measure for recognition or disclosure purposes under GAAP. SFAS No. 157 defines fair value, establishes a framework for measuring fair value and expands disclosures about fair value measurements.  SFAS No. 157 is effective for fiscal years beginning after November 15, 2007.  Effective March 1, 2008, management adopted SFAS 157 with the exception of certain non-financial assets and non-financial liabilities that were specifically deferred by SFAS No. 157-2.  In February 2008, the FASB issued Staff Position No. SFAS 157-2 (FSP No.157-2), Effective Date of FASB Statement No. 157, that defers the effective date of SFAS 157 for one year for certain nonfinancial assets and nonfinancial liabilities.  SFAS 157-2 is effective for certain nonfinancial assets and nonfinancial liabilities for financial statements issued for fiscal years beginning after November 15, 2008.  Management is assessing the impact of the adoption of SFAS 157-2.

In February 2007, the FASB issued Statement No. 159, The Fair Value Option for Financial Assets and Financial Liabilities (“SFAS 159”).  SFAS 159 permits entities to choose to measure many financial instruments and certain other items at fair value.  The standard also establishes presentation and disclosure requirements designed to facilitate comparison between entities that choose different measurement attributes for similar types of assets and liabilities.  If the fair value option is elected, the effect of the first re-measurement to fair value is reported as a cumulative effect adjustment to the opening balance of retained earnings.  The statement is applied prospectively upon adoption.  We did not elect fair value treatment for any assets or liabilities under SFAS 159 as of November 30, 2008.

In December 2007, the FASB issued Statement No. 160, Non-Controlling Interests in Consolidated Financial Statements — an amendment of ARB No. 51.  SFAS No. 160, among other things, provides guidance and establishes amended accounting and reporting standards for a parent company’s non-controlling interest in a subsidiary.  SFAS No. 160 is effective for fiscal years beginning on or after December 15, 2008.  We currently have no such interests and do not expect the adoption of SFAS No. 160 to have a material impact on our financial condition, results of operations or cash flows.

In March 2008, the FASB issued Statement No. 161, Disclosures about Derivative Instruments and Hedging Activities (“SFAS 161”).  SFAS No. 161 expands the disclosure requirements in SFAS No. 133, Accounting for Derivative Instruments and Hedging Activities about an entity’s derivative instruments and hedging activities.  SFAS No. 161 is effective for financial statements issued for fiscal years and interim periods beginning after November 15, 2008.  We are currently evaluating the impact SFAS No. 161 will have on our consolidated financial statements.

In May 2008, the FASB issued Statement No. 162, The Hierarchy of Generally Accepted Accounting Principles (“SFAS 162”).  FAS 162 identifies the sources of accounting principles and the framework for selecting the principles to be used in the preparation of financial statements of nongovernmental entities that are presented in conformity with GAAP.  SFAS 162 directs the GAAP hierarchy to the entity, not the independent auditors, as the entity is responsible for selecting accounting principles for financial statements that are presented in conformity with GAAP.  SFAS 162 became effective 60 days following the SEC’s approval of the Public Company Accounting Oversight Board amendments to remove the GAAP hierarchy from the auditing standards, which was November 15, 2008.  SFAS 162 does not have a material impact on our financial statements.

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Life Partners

General.  Life Partners Holdings, Inc. (“We” or “Life Partners”) is a financial services company and the parent company of Life Partners, Inc. (“LPI”).  LPI is the oldest and one of the most active companies in the United States engaged in the secondary market for life insurance known generally as “life settlements”.  These financial transactions involve the purchase of the life insurance policies of terminally ill persons (viatical settlements) or elderly persons (life settlements) at a discount to their face value for investment purposes.

The Secondary Market for Life Insurance Policies.  LPI was incorporated in 1991 and has conducted business under the registered service mark “Life Partners” since 1992.  Our operating revenues are derived from fees for facilitating viatical and life settlement transactions.  Both viatical and life settlement transactions involve the sale of an existing life insurance policy to another party.  By selling the policy, the policyholder 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 insured dies.

Over the past few years, the distinction between viatical and life settlements has diminished and the markets have largely merged.  Many state regulations govern both types of transactions in the same manner and the services we provide for both types of transactions are the same.  Thus, we view both viatical and life settlements to be within the same line of business and do not distinguish between them for financial reporting purposes.  Throughout this report, we refer to all of our transactions generally as “life settlements”.

We are a financial services company, providing purchasing services for life settlements to our client base.  We do this by matching life settlors with purchasers.  We facilitate these transactions by identifying, examining, and purchasing the policies as agent for the purchasers.  In order to meet market demand and maximize our value to our clients, we have made significant investment in proprietary software and processes that enable us to facilitate a higher volume of transactions while maintaining our quality controls.  Since our inception, we have facilitated over 77,000 purchaser transactions associated with the purchase of almost 6,000 policies totaling over $1.4 billion in face value.  We believe our experience, infrastructure and intellectual capital gives us a unique market position and will enable us to maintain sustainable growth within the life settlement market.

The following table shows the number of settlement contracts we have transacted, the aggregate face values of those contracts, and the revenues we derived, for the periods ended November 30, 2008 and 2007:

	Periods Ended November 30, 2008				Periods Ended November 30, 2007
	Three Months		Nine Months		Three Months		Nine Months
Number of settlements		56		154		52		153
Face value of policies	$	195,459,950	$	564,630,481	$	125,897,330	$	293,303,574
Average revenue per settlement	$	501,856	$	502,148	$	371,129	$	356,365
Net revenues derived*	$	14,246,000	$	39,919,000	$	9,874,000	$	27,372,000

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*The revenues derived are exclusive of brokerage and referral fees.

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We have increased our efforts to market our services to institutional clients and have been successful in attracting institutional clients.  We will continue these marketing efforts to institutions and seek to develop services and lines of business specifically tailored for the needs of institutional clients.

Comparison of the Three Months Ended November 30, 2008 and 2007

We reported net income of $7,282,878 for the three months ended November 30, 2008 (hereafter “the Third Quarter of this year”), compared to net income of $5,215,695 for the three months ended November 30, 2007 (hereafter “the Third Quarter of last year”).  Our stronger net income resulted primarily from a 46% increase in revenues and our ability to keep brokerage fees and operating and administrative expenses in line with revenues.  While the number of settlements transacted increased from 52 to 56, the average revenue per settlement increased by 35%, and total revenues net of brokerage fees increased by 44%.

Revenues - Revenues increased by $8,805,204 or 46% from $19,298,726 in the Third Quarter of last year to $28,103,930 in the Third Quarter of this year.  This increase was due primarily to a 55% increase in our total business volume (i.e. the total face value of all settlements transacted by us during a period) from $125,897,330 in the Third Quarter of last year to $195,459,950 in the Third Quarter of this year, continuing a trend toward transactions with larger face amounts.  This resulted in a 35% increase in the average revenue per settlement.

During the periods, demand for our services remained strong and the number of policies presented to us which met our purchasing qualificatio