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

                                    FORM 10-K

[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
    OF 1934

                   For the fiscal year ended DECEMBER 31, 2002

                                       OR

[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
    ACT OF 1934

             For the transition period from __________ to __________

                         COMMISSION FILE NUMBER: 0-4366

                               REGAN HOLDING CORP.
             (Exact name of registrant as specified in its charter)

          CALIFORNIA                                             68-0211359
(State or other jurisdiction of                               (I.R.S. Employer
incorporation or organization)                               Identification No.)

                 2090 MARINA AVENUE, PETALUMA, CALIFORNIA 94954
              (Address of principal executive offices and Zip Code)

                                 (707) 778-8638
              (Registrant's telephone number, including area code)

                           Securities registered under
                       Section 12(g) of the Exchange Act:
                           COMMON STOCK, NO PAR VALUE
                                (Title of Class)

Indicate  by check  mark  whether  the  registrant:  (1) has filed  all  reports
required to be filed by Section 13 or 15 (d) of the  Securities  Exchange Act of
1934  during  the  preceding  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 the past 90 days. YES [X] NO [ ]

Indicate by check mark if disclosure of delinquent  filers  pursuant to Item 405
of Regulation  S-K is not 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-K or any amendment to this
Form 10-K. [X]

Indicate  by check mark  whether  the  registrant  is an  accelerated  filer (as
defined in Exchange Act Rule 12b-2). YES [ ] NO [X ]

State the aggregate market value of the voting stock held by  non-affiliates  of
the registrant. The aggregate market value shall be computed by reference to the
price at which the common  equity was sold,  or the average bid and asked prices
of such common equity,  as of June 28, 2002.

                                   $23,429,000

<PAGE>

There is currently no trading market for the  registrant's  stock.  Accordingly,
the  foregoing  aggregate  market value is as of June 28, 2002 and is based upon
the  price at which  the  registrant  has  repurchased  its stock as of the last
business day of the registrant's most recently completed second fiscal quarter.

As of March 15,  2003,  the  number of shares  outstanding  of the  registrant's
Series A Common Stock was 24,158,000 and the number of shares outstanding of the
registrant's  Series B Common Stock was  560,000.  The  registrant  has no other
shares outstanding.

                       DOCUMENTS INCORPORATED BY REFERENCE

Portions of the  Definitive  Proxy  Statement for Regan Holding  Corp.'s  Annual
Meeting of Stockholders to be held on June 6, 2003 are incorporated by reference
into Part III of this Form 10-K.

                                       2

<PAGE>



                                TABLE OF CONTENTS
<TABLE>
<CAPTION>
                                                                                                               Page

<S>  <C>                                                                                                         <C>
Item 1.         Description Of Business...........................................................................4
Item 2.         Properties........................................................................................7
Item 3.         Legal Proceedings.................................................................................7
Item 4.         Submission Of Matters To A Vote Of Security Holders...............................................7
Item 5.         Market For Registrant's Common Equity And Related Shareholder Matters.............................8
Item 6.         Selected Consolidated Financial Data..............................................................8
Item 7.         Management's Discussion And Analysis Of Financial Condition And Results Of Operations.............8
Item 7a.        Quantitative And Qualitative Disclosure About Market Risk........................................19
Item 8.         Financial Statements And Supplementary Data......................................................21
Item 9.         Changes In And Disagreements With Accountants On Accounting And Financial Disclosure.............44
Item 10.        Directors And Executive Officers Of The Company..................................................44
Item 11.        Executive Compensation...........................................................................44
Item 12.        Security Ownership Of Certain Beneficial Owners And Management...................................44
Item 13.        Certain Relationships And Related Transactions...................................................44
Item 14.        Controls And Procedures..........................................................................44
Item 15.        Exhibits, Financial Statement Schedules, And Reports On Form 8-K.................................45
</TABLE>

                                       3

<PAGE>

                                     PART I

Item 1. Description of Business

         Except  for  historical   information  contained  herein,  the  matters
discussed in this report contain forward-looking statements,  within the meaning
of the Private Securities  Litigation Reform Act of 1995, that involve risks and
uncertainties that could cause actual results to differ materially.

General Development of Business

         Regan Holding Corp. is a non-operating holding company, incorporated in
the  State of  California,  whose  primary  operating  subsidiaries  are  Legacy
Marketing  Group  ("Legacy  Marketing")  and  Legacy  Financial  Services,  Inc.
("Legacy Financial").  During 2002, Legacy Marketing generated approximately 95%
of our consolidated revenues.  Legacy Marketing designs, markets and administers
fixed annuity products on behalf of certain  unaffiliated  insurance carriers in
each of the United  States,  except  Alabama and New York,  and the  District of
Columbia.

         Legacy  Marketing  has  marketing  agreements  with  Transamerica  Life
Insurance and Annuity Company, American National Insurance Company, John Hancock
Variable Life  Insurance  Company,  and  Investors  Insurance  Corporation.  The
marketing  agreements  grant us the  exclusive  right to  market  certain  fixed
annuity products issued by these insurance carriers.  Fixed annuity products are
insurance  products  that  are  sold to  purchasers  in the  form  of  insurance
policies. Under the terms of these agreements, we are responsible for appointing
independent  insurance  producers  (who we  refer  to as  "Producers")  who have
contracted  with us to sell fixed  annuity  products.  For these  services,  the
insurance  carriers pay us marketing  allowances  and  commissions  based on the
volume of insurance policies placed inforce. We are responsible for paying sales
commissions to the Producers.

         Legacy  Marketing  sells fixed  annuity  products  through a network of
approximately  26,000 Producers,  of whom approximately 4,000 generated business
for us during 2002.  Each  Producer has entered into a  non-exclusive  agreement
with Legacy  Marketing  which defines the parties'  business  relationship.  The
agreement  may be  terminated  with up to ninety  days prior  written  notice by
either the Producer or Legacy Marketing, with or without cause.

         Our  sales  network  is  built  on a  multi-level  structure  in  which
Producers may sponsor other  Producers.  Sponsored  Producers are referred to as
"downline"  Producers  within  the  sponsoring  Producer's  network.   Sponsored
Producers  may also  sponsor  other  Producers,  creating a hierarchy  under the
original sponsoring Producer. The Producer contract contains a nine-level design
in  which a  Producer  may  advance  from one  level to the next  based on sales
commission  amounts  and  the  size of the  Producer's  downline  network.  As a
Producer  advances  to higher  levels  within the  system,  he  receives  higher
commissions on sales made through his downline network. This creates a financial
incentive  for  Producers  to build a  hierarchy  of downline  Producers,  which
contributes to their financial growth and to the growth of Legacy Marketing.  If
a Producer leaves the network, his downline can still receive sales commissions.
Advancements  to  higher  levels  can  occur as often  as  every  three  months.
Producers at the highest levels are called  "Wholesalers."  We had approximately
500 Wholesalers who generated business for Legacy Marketing during 2002.

         We provide tools and services that assist  Wholesalers with recruiting,
training and support  responsibilities  associated  with the  Producers in their
hierarchy.  In addition,  we assist Producers with programs designed to increase
their sales and better serve their  clients.  Recruiting  and training  programs
include visual presentations,  product videos and seminars, advertising material
guidelines and sales flip charts.  We also produce  product  information,  sales
brochures, pre-approved advertisements and recruiting material.

         Legacy Marketing also assists the insurance  carriers in product design
and development. Our marketing and actuarial departments work with the insurance
carriers to design  proprietary  fixed annuity products to be marketed by Legacy
Marketing.  All  of  these  products  include  guarantees  for  the  benefit  of
policyholders.  Although  the  guarantees  are  known  as  Legacy's  Cornerstone
Guarantees,  they are  guaranteed by the issuing  insurance  carriers.  Legacy's
Cornerstone Guarantees generally include:

     o    a contractually guaranteed minimum interest rate,

     o    a contractually guaranteed maximum administrative fee, and

     o    the ability to allocate among various cash value strategies.


                                       4
<PAGE>

         In  addition  to  the  marketing   agreements,   Legacy  Marketing  has
administrative  agreements with each of the four insurance carriers listed above
and with IL Annuity and Insurance  Company,  whose  marketing  agreement with us
terminated  effective  during the first quarter of 2002.  Under the terms of the
administrative  agreements,  we provide clerical,  administrative and accounting
services with respect to the insurance policies. These services include billing,
collecting and remitting premium for the policies. For providing these services,
the insurance carriers pay us a fee per transaction,  with the amount of the fee
depending  on the type of policy and type of  service.  Administrative  services
with respect to the  insurance  policies are  performed at our  headquarters  in
Petaluma, California and at our facilities in Rome, Georgia.

         Neither the  marketing  agreements  nor the  administrative  agreements
prevent  us  from  entering  into  similar  arrangements  with  other  insurance
carriers.  However, the marketing agreements with Transamerica and John Hancock,
in general,  prevent us from  marketing  products with other  carriers which are
defined as unique and  proprietary  under the terms of our marketing  agreements
with Transamerica and John Hancock.

         The marketing  agreement with American National expires on November 15,
2007,  and the  administrative  agreement  with  American  National  expires  on
February  15,  2008.  Both  agreements  may be renewed by mutual  agreement  for
successive one-year terms. The agreements may be terminated by either party upon
twelve  months prior  written  notice  without  cause,  and may be terminated by
either party immediately for cause. The marketing and administrative  agreements
with Transamerica and John Hancock do not have fixed terms but may be terminated
by either party upon twelve months prior written notice  without cause,  and may
be terminated by either party immediately for cause.

         The  marketing  and  administrative  agreements  with John Hancock were
entered into in January 2001, and we began marketing and administering  products
during the fourth quarter of 2001.

         In December  2001,  Legacy  Marketing and IL Annuity agreed that the IL
Annuity  product  mix being  marketed  by  Legacy  Marketing  did not  provide a
sufficient  rate of return to IL Annuity.  Accordingly,  Legacy  Marketing began
phasing out the  marketing of IL Annuity  products.  The phase-out was completed
during the first quarter of 2002. A number of policyholders  continue to hold IL
Annuity products, however, which require certain administrative services. Legacy
Marketing  continues to  administer  IL Annuity  products  under the terms of an
administrative  services agreement with IL Annuity and intends to continue doing
so for the foreseeable future.

         In  June  2002,   Legacy   Marketing   entered   into   marketing   and
administrative  services  agreements with Investors  Insurance  Corporation,  an
unaffiliated  insurance carrier.  Under these agreements,  Legacy Marketing will
sell  and  administer   annuity  products  on  behalf  of  Investors   Insurance
Corporation.   Legacy  Marketing  has  an  option  to  buy  Investors  Insurance
Corporation within the next five years.  Sales on behalf of Investors  Insurance
Corporation began in June 2002.

         In November 2002, we announced a strategic plan to consolidate the life
and  annuity  product  portfolio  marketing  business of Legacy  Marketing.  The
product  consolidation  will allow Legacy  Marketing to focus its resources more
efficiently.

         Legacy Marketing  discontinued marketing life insurance products issued
by American National  effective during the first quarter of 2003. These products
accounted  for a  nominal  amount of  revenue  during  each of the years  ending
December 31, 2002, 2001, and 2000.  Legacy Marketing will continue to administer
American  National  life  insurance  products,  including  acceptance of renewal
premium.  Certain  Legacy  Marketing  employees  who  were  supporting  the life
insurance  product  operations  were either  terminated  or  reassigned to other
positions in Legacy Marketing.

         In  addition,  during  the  first  quarter  of 2003,  Legacy  Marketing
discontinued  the marketing of several annuity  products issued by Transamerica.
Legacy  Marketing  will  continue to administer  these  annuity  products and to
accept additional  premium payments,  subject to applicable  additional  deposit
rules for these products.  The discontinued products accounted for approximately
31%, 59%, and 45% of our total consolidated revenue for the years ended December
31, 2002, 2001, and 2000. However, our sales of recently introduced Transamerica
products have been strong.  Furthermore,  sales on behalf of our other  carriers
have increased during the two months ended February 28, 2003, and total sales of
annuity  products have increased by 26% during this period  compared to the same
period in 2002.  Legacy Marketing is also developing new products that we expect
will result in increased sales in 2003.


                                       5
<PAGE>

         Through our wholly-owned broker-dealer subsidiary, Legacy Financial, we
sell variable  annuity and life insurance  products,  mutual funds, and debt and
equity  securities.  Legacy  Financial  has entered into sales  agreements  with
investment  companies that give it the  non-exclusive  right to sell  investment
products  on  behalf  of those  companies.  Sales  of  investment  products  are
conducted  through  Legacy   Financial's   network  of  independent   registered
representatives  (who  we  refer  to  as  "Representatives").  Under  the  sales
agreements, we are compensated based upon predetermined percentages of the sales
generated by the  Representatives.  The  agreements  may be terminated by either
party upon thirty days prior  written  notice.  During  2002,  Legacy  Financial
accounted for approximately 5% of our consolidated revenues.

         Legacy Financial is registered as a broker-dealer  with, and is subject
to regulation by, the SEC, NASD, and Municipal Securities Rulemaking Board. As a
result of  federal  and state  broker-dealer  registration  and  self-regulatory
organization memberships,  Legacy Financial is subject to regulation that covers
many aspects of its securities business.  This regulation covers matters such as
capital   requirements,    recordkeeping   and   reporting   requirements,   and
employee-related  matters,  including qualification and licensing of supervisory
and  sales  personnel.   Also,  these   regulations   include   supervisory  and
organizational procedures intended to ensure compliance with securities laws and
prevent  improper  trading  on  material  nonpublic  information.  Rules  of the
self-regulatory   organizations  are  designed  to  promote  high  standards  of
commercial honor and just and equitable  principles of trade. A particular focus
of the applicable  regulations concerns the relationship between  broker-dealers
and their customers.  As a result,  many aspects of the  broker-dealer  customer
relationship are subject to regulation,  including "suitability"  determinations
as to customer  transactions,  limitations in the amounts that may be charged to
customers, and correspondence with customers.

         During 2000, we invested in  prospectdigital,  LLC, which is developing
an Internet-based  customer relationship management product. In January 2002, we
purchased all of the remaining  outstanding equity interests in prospectdigital.
Prospectdigital has generated nominal revenues to date.

         In December  2000, we acquired the assets and name of Values  Financial
Network,   Inc.  Values  Financial   Network  is  engaged  in  the  business  of
values-based investment screening, and has generated nominal revenues to date.

Competitive Business Conditions

         The annuity  business is rapidly  evolving and  intensely  competitive.
Legacy  Marketing's  primary market is fixed annuities sold through  independent
producers.  In addition,  Legacy  Marketing  administers  the  products  sold by
Producers on behalf of the issuing  insurance  carriers.  Fixed annuity sales in
the  United  States  were  approximately  $94  billion  in 2002.  Some of Legacy
Marketing's top competitors  selling fixed annuities  through  independent sales
channels are Allianz Life of North  America,  Midland  National  Life  Insurance
Company,  American Equity  Investment  Life, the North American Company for Life
and Health  Insurance,  the AmerUs Group,  and Jackson  National Life  Insurance
Company.  These  competitors  may have greater  financial  resources than we do.
However, our business model allows us greater flexibility,  as we can adjust the
mix of business sold if one, or more, of our carriers were to experience capital
constraints or other events that effect their business models.  They may respond
more  quickly  than us to new or  emerging  products  and  changes  in  customer
requirements.  We are not aware of any  significant  new  means of  competition,
products or services that our competitors provide or will soon provide. However,
in the highly competitive fixed annuity  marketplace,  new distribution  models,
product  innovations and technological  advances may occur at any time and could
present us with competitive  challenges.  There can be no assurance that we will
be able to compete  successfully.  In  addition,  our  business  model relies on
Producers  to  effectively  market  our  products   competitively.   Maintaining
relationships  with these  Producers  requires  introducing  new products to the
market in an  efficient  and  timely  manner,  offering  competitive  commission
schedules,  and providing  superior  marketing,  training,  and support.  In the
recent past, we have been  reasonably  successful  in  attracting  and retaining
Producers.  We are not aware of any top Producers who may discontinue  marketing
our  products.  Due to  competition  among  insurance  companies  and  insurance
marketing organizations for successful producers, there can be no assurance that
we will be able to retain some or all of our top Producers.

Regulatory Environment

         State insurance  regulations and the National  Association of Insurance
Commissioners  continually  reexamine  existing  laws and  regulations,  and may
impose  changes in the future that  materially  adversely  affect our  business,
results of operations  and financial  condition.  In  particular,  rate rollback
legislation and legislation to control premiums,  policy  terminations and other
policy terms may affect the  marketability of policies or the amount of premiums
that can be charged for such  policies,  and thus the  commissions  we can earn.
Also,  recently a committee of Congress has been considering the advisability of
enacting  federal statutes  providing for the regulation of insurance.  Although
there is not yet a specific proposal, additional regulation at the federal level
could also affect


                                       6
<PAGE>

our business,  results of operations and financial  condition.  The President of
the United States is currently  advocating  the  establishment  of  tax-deferred
savings  plans which would offer  taxpayers  the ability to  contribute  amounts
substantially  greater than IRA plans allow.  If these plans are enacted,  or if
the tax code is revised to reduce the tax-deferred status of annuity products or
to increase the tax-deferred status of competing products, our business could be
adversely impacted because our competitive advantage could be weakened.

         Legacy Financial is registered as a broker-dealer  with, and is subject
to regulation by, the SEC, NASD, and Municipal Securities Rulemaking Board. This
regulation  covers  matters  such as  capital  requirements,  recordkeeping  and
reporting requirements,  and employee-related  matters,  including qualification
and  licensing of  supervisory  and sales  personnel.  Any  proceeding  alleging
violation of, or  noncompliance  with, laws and regulations  applicable to us or
our  subsidiaries  could  harm our  business,  financial  condition,  results of
operations, and business prospects. In addition, changes in federal legislation,
state   legislation,   court   decisions  and   administrative   policies  could
significantly  and  adversely  affect the insurance  industry  generally and our
business in particular.

Employees

         As of  February  28,  2003,  we  employed  502  employees.  None of our
employees is represented by a collective bargaining  agreement.  We consider our
relations  with our  employees  to be good,  and we will  continue  to strive to
provide a positive work environment for our employees.

Financial Information about Segments

         The financial  information  about  segments  required by Item 101(b) of
Regulation S-K is contained in our financial  statements and supplementary data,
Part II, Item 8 of this Form 10-K.

Financial Information about Geographic Areas

         During the last three  fiscal  years,  we have not  depended on revenue
from sources  outside the United  States.  Also during that time, all long-lived
assets have been located in the United States.

Item 2. Properties

         In June 2001, we purchased  the building  that houses our  headquarters
and most of Legacy Marketing's operations in Petaluma, California.

Item 3. Legal Proceedings

         We are involved in various claims and legal proceedings  arising in the
ordinary  course of  business.  Although it is difficult to predict the ultimate
outcome of these cases, we believe that the ultimate disposition of these claims
will not have a material adverse effect on our financial  condition,  cash flows
or results of operations.

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

         No items were submitted to a vote of security holders during the fourth
quarter of 2002.


                                       7
<PAGE>

                                     PART II

Item 5. Market for Registrant's Common Equity and Related Shareholder Matters

         As of March 15, 2003,  Regan Holding  Corp.'s Series A Common Stock was
held by approximately 1,000 shareholders of record and our Series B Common Stock
was held by approximately 10,000 shareholders of record. There is no established
public trading market for our stock.

         Our Board of  Directors  may, at its sole  discretion,  declare and pay
dividends on common stock,  subject to capital and solvency  restrictions  under
California law. To date, we have not paid any dividends on our common stock. Our
ability  to pay  dividends  is  dependent  on the  ability  of our  wholly-owned
subsidiaries to pay dividends or make other  distributions to us. As of December
31, 2002, we do not anticipate paying dividends on any of our outstanding common
stock in the foreseeable future.

Item 6. Selected Consolidated Financial Data
<TABLE>
<CAPTION>
                                                                              Year Ended December 31,
                                                 ---------------------------------------------------------------------------------
                                                     2002              2001             2000             1999            1998
                                                 ------------    ---------------  ---------------  ---------------  --------------
<S>                                              <C>             <C>                <C>               <C>             <C>
      Selected Income Statement Data:
      Total revenue                              $ 50,049,000    $ 55,209,000       $ 42,432,000      $50,938,000     $ 46,575,000
      Net income (loss)                          $    (60,000)   $   (348,000)      $ (3,564,000)     $ 3,635,000     $  9,770,000
      Earnings (loss) per share - basic:
      Before cumulative effect of accounting
        change                                   $        --     $      (0.03)      $      (0.15)    $       0.11     $       0.37
      Cumulative effect of accounting change              --               --              (0.01)             --                --
                                                 -------------   ------------       ------------     -----------      -----------
                                                 $        --     $      (0.03)      $      (0.16)    $       0.11     $       0.37
      Earnings (loss) per share - diluted:
      Before cumulative effect of accounting
        change                                   $        --     $      (0.03)      $      (0.15)    $       0.10     $       0.36
      Cumulative effect of accounting change              --               --              (0.01)             --                --
                                                 -------------   ------------       ------------     -----------      -----------
                                                 $        --     $      (0.03)      $      (0.16)    $       0.10     $       0.36
      Selected Balance Sheet Data:
      Total assets                               $ 49,953,000    $ 46,260,000       $ 43,114,000      $47,158,000     $ 31,286,000
      Total non current liabilities              $ 11,630,000    $  4,578,000       $  3,578,000     $  4,258,000     $    663,000
      Redeemable common stock                    $ 10,115,000    $ 11,124,000       $ 11,237,000      $11,563,000     $ 11,225,000
      Cash dividends declared                             --               --                --               --                --
      Selected Operating Data:
      Total fixed premium placed inforce(1)      $1.3 billion    $1.6 billion       $1.1 billion   $  1.6 billion     $1.7 billion
      Total fixed policies placed inforce(1)           24,000          30,000             20,000           28,000           32,000
      Policies maintained at year end                 107,000         101,000             89,000           85,000           64,000
</TABLE>

(1)  When a policyholder remits a premium payment with an accurate and completed
     application  for an insurance  policy,  the policy is  considered  inforce.
     Inforce premium and policies are statistics of our carriers but are factors
     that directly affect our revenue.

Item 7. Management's  Discussion and Analysis of Financial Condition and Results
of Operations

Forward-Looking Statements

         Certain statements contained in this document,  including  Management's
Discussion and Analysis of Financial  Condition and Results of Operations,  that
are not historical facts,  constitute  "forward-looking  statements"  within the
meaning  of  the  Private  Securities   Litigation  Reform  Act  of  1995.  Such
forward-looking  statements  involve known and unknown risks,  uncertainties and
other factors that may cause the actual  results or performance of Regan Holding
Corp.  and its  businesses to be  materially  different  from that  expressed or
implied by such  forward-looking  statements.  These  risks,  uncertainties  and
factors  include,  among other  things,  the  following:  general  economic  and
business conditions;  political and social conditions;  government  regulations,
especially  regulations  affecting the insurance industry;  demographic changes;
the ability to adapt to changes resulting from acquisitions or new ventures; and
various other factors  referred to in  Management's  Discussion  and Analysis of
Financial Condition and Results of Operations.


                                       8
<PAGE>

         Regan  Holding Corp.  assumes no  obligation to update  forward-looking
statements to reflect  actual  results or changes in or additions to the factors
affecting such forward-looking statements.

General Overview of Our Business

     Regan  Holding  Corp.  is  a  holding  company,   whose  primary  operating
subsidiaries are Legacy Marketing and Legacy Financial.

         Legacy  Marketing  designs,   markets  and  administers  fixed  annuity
products  on behalf of certain  unaffiliated  insurance  carriers in each of the
United States, except Alabama and New York, and the District of Columbia. Legacy
Marketing has marketing  agreements with Transamerica,  American National,  John
Hancock,  and Investors Insurance  Corporation.  The marketing  agreements grant
Legacy  Marketing the exclusive  right to market certain fixed annuity  products
issued  by  these  insurance  carriers.  Legacy  Marketing  is  responsible  for
appointing  independent  insurance  producers  who have  contracted  with Legacy
Marketing to sell these products. For these services, the insurance carriers pay
Legacy Marketing commissions and marketing allowances.

         Legacy  Marketing also has  administrative  agreements with each of the
insurance carriers listed above, and with IL Annuity,  whose marketing agreement
with us was  terminated  effective  during the first quarter of 2002.  Under the
terms of the  administrative  agreements,  Legacy Marketing  provides  clerical,
administrative and accounting  services with respect to the insurance  policies.
For  providing  these  services,  the  insurance  carriers pay Legacy  Marketing
administrative fees.

         Through our wholly-owned broker-dealer subsidiary, Legacy Financial, we
sell variable  annuity and life insurance  products,  mutual funds, and debt and
equity  securities.  Sales of investment  products are conducted  through Legacy
Financial's network of independent registered representatives.

         The results of our operations are generally  affected by the conditions
that affect other companies that market annuity and life insurance products, and
third-party  administrators  of those products.  These  conditions are increased
competition, changes in the regulatory and legislative environments, and changes
in general economic and investment conditions.

Critical Accounting Policies

         Management's Discussion and Analysis of Financial Condition and Results
of Operations is based in large part on the consolidated financial statements of
Regan Holding  Corp.,  which have been prepared in  accordance  with  accounting
principles generally accepted in the United States. The preparation of financial
statements in conformity with generally accepted accounting  principles requires
management to make estimates and assumptions that affect the amounts reported in
the financial statements. Actual results could differ from those estimates.

         Legacy  Marketing  has  marketing and  administrative  agreements  with
certain  insurance  carriers,  listed  above.  Under the terms of the  marketing
agreements,  Legacy  Marketing is responsible for appointing  producers who have
contracted with Legacy  Marketing to sell fixed annuity  products to the general
public.

         Under  the terms of the  administrative  agreements,  Legacy  Marketing
provides clerical,  administrative  and accounting  services with respect to the
insurance  policies.  For providing these services,  the insurance  carriers pay
Legacy Marketing issuing, maintenance, and termination fees on a per transaction
basis,  with the amount of the fee  depending  on the type of policy and type of
service.

         There  are  no  significant   management   judgements  associated  with
reporting these revenues.  When a policyholder  remits a premium payment with an
accurate  and  completed  application  for an  insurance  policy,  the policy is
considered  inforce and Legacy  Marketing  recognizes  marketing  allowances and
commission income. Legacy Marketing's carriers grant policyholders a contractual
right to terminate the  insurance  contract ten to thirty days after a policy is
placed inforce.  This return period varies depending on the carrier, the type of
policy  and the  jurisdiction  in which  the  policy is sold.  Legacy  Marketing
gathers  historical  product return data that does not vary  significantly  from
quarter to quarter,  and has  historically  been  predictive  of future  events.
Returns  are  estimated   using  this  data  and  have  been  reflected  in  the
Consolidated  Financial Statements.  Legacy Marketing recognizes  administrative
fees on a per  transaction  basis as services are performed,  with the amount of
the fee depending on the type of policy and type of service.

         We capitalize  external  consulting fees, and salaries and benefits for
employees  who are  directly  associated  with the  development  of software for
internal use when both of the following occur:


                                       9
<PAGE>

          o    The  preliminary  project  stage is completed  and  therefore the
               project is in the application development stage; and

          o    Management  authorizes and commits to funding a software  project
               and it is probable  that the project  will be  completed  and the
               software will be used to perform the function desired.

         Modifications or enhancements made to an existing software product that
result in additional  functionality are also capitalized.  When the new software
is placed in production, we begin amortizing the asset over its estimated useful
life.  Training  and  maintenance  costs are  accounted  for as expenses as they
occur. We periodically review capitalized  internal use software to determine if
the carrying value is fairly stated.  If our review  determines that future cash
flows related to the software are insufficient,  or if new technology  indicates
that the value of  replacement  software  is less than our  carrying  value,  we
record an impairment loss.

         During 2002, we began an evaluation of an internal use software project
that we initially  licensed in 1998. We began this project  intending to replace
our  administration  system  after the vendor  required  us to migrate  from the
existing  system to an alternative  platform.  In late 2002, we learned from our
vendor that we might be able to retain our existing system. A financial analysis
completed in February  2003  indicated  that staying on the existing  system may
provide greater  benefit than converting to a new system even after  considering
the investment to date. Our evaluation of the new software project,  while still
ongoing, is nearing conclusion.  Our final decision is dependent upon successful
conclusion of negotiations with our software vendor,  allowing us to continue to
use  our  existing  system  for an  extended  period.  If we are  successful  in
favorably concluding our negotiations, we will probably abandon most of the work
associated  with  the  replacement   system.  To  date,  we  have  $4.4  million
capitalized  relating to this  software.  We estimate  that  approximately  $1.2
million  of this  asset  has  continuing  value and can be used to  upgrade  our
existing system. If our final decision is to abandon the new software, we expect
to write-off the remaining $3.2 million in the period we make our decision.

         We have issued Series A and Series B redeemable common stock to certain
shareholders.  We are obligated to repurchase the redeemable common stock at the
current fair market  value.  Because there is no active  trading  market for our
stock that would  establish  market  value,  our Board of  Directors  approved a
redemption  value of $2.20 per share and $1.82 per share for Series A and Series
B redeemable  common stock as of December 31, 2002. This valuation by management
was derived from an independent  appraisal of our stock value based on financial
information provided by us.

         When we purchased Values Financial  Network,  Inc. in 2000, part of the
purchase  price was for  goodwill.  Before  January 1, 2002,  we  amortized  the
goodwill on a straight-line  basis over 10 years, which was its estimated useful
life.  Pursuant to Statement of Financial  Accounting  Standards  No. 142 ("SFAS
142"),  "Goodwill and Other Intangible Assets," we ceased amortizing goodwill on
January 1, 2002 (see  Footnote 4 to the  financial  statements).  As required by
SFAS 142, we performed a transitional and annual goodwill impairment test during
2002. The impairment  test required by the provisions of SFAS 142 required us to
forecast the  discounted  value of future cash flows expected to be derived from
Values  Financial  Network,  Inc. During 2002, we revised the business model for
Values  Financial  Network Inc. to focus on corporate  and  individual  producer
sales. Current projections support the balance of goodwill.  When we perform our
2003 annual goodwill  impairment  analysis,  we may conclude that some amount of
goodwill impairment has occurred if revenues do not occur as planned.

         In  assessing  the  realizability  of deferred  tax assets,  management
considers  whether  it is more  likely  than not  that  some  portion  or all of
deferred tax assets will, or will not, be realized.  The ultimate realization of
deferred tax assets is dependent  upon the  generation of future  taxable income
during the periods in which temporary differences become deductible.  Management
believes  it is more  likely  than not  that the  deferred  tax  assets  will be
realized.

         Investments  classified as available-for-sale are periodically reviewed
to  determine  if declines  in fair value  below cost are  other-than-temporary.
Significant  and  sustained  decreases  in  quoted  market  prices,  a series of
historical and projected  operating  losses by the investee or other factors are
considered  as  part of the  review.  If the  decline  in fair  value  has  been
determined  to be  other-than-temporary,  an  impairment  loss  is  recorded  in
investment  income and the  individual  security  is written  down to a new cost
basis.  During 2001,  we  determined  that  certain  investment  securities  had
other-than-temporary  declines in fair value below cost. As a result, in 2001 we
recorded  impairment  losses of $642,000,  and the  individual  securities  were
written down to a new cost basis.


                                       10
<PAGE>

Regan Holding Corp. Consolidated

Year ended December 31, 2002 compared with year ended December 31, 2001

         We had  consolidated  net  losses  of  $60,000  in  2002,  compared  to
consolidated  net losses of $348,000 in 2001. The improved results are primarily
due to reduced losses at Values Financial  Network,  Inc. and Legacy  Financial,
and the  recognition of net income at our Other segments in 2002 compared to net
losses in 2001, partially offset by lower net income at Legacy Marketing.

Year ended December 31, 2001 compared with year ended December 31, 2000

         We experienced consolidated net losses of $348,000 in 2001, compared to
consolidated  net  losses  of $3.6  million  in 2000.  The  reduced  losses  are
attributable  to net income at Legacy  Marketing  during  2001  compared  to net
losses  during  2000,  and reduced net losses at our Other  segments,  partially
offset by increased losses by Values Financial Network,  Inc., Legacy Financial,
and Imagent Online, LLC.

Legacy Marketing

Year ended December 31, 2002 compared with year ended December 31, 2001

         During  2002,  Legacy  Marketing's  net income  totaled  $1.6  million,
compared  to net income of $2.8  million  during  2001.  This  decrease  of $1.2
million is primarily due to decreased  revenues,  partially  offset by decreased
expenses and the recognition of investment income in 2002 compared to investment
losses in 2001.

         Legacy  Marketing's  revenue decreased $5.6 million (10%) primarily due
to decreased marketing  allowances and commission income.  Marketing  allowances
and commission revenue, combined, decreased $5.9 million (14%) due to a decrease
in sales of fixed annuity and life policies. The sales decrease is primarily due
to a  shift  in the  marketplace  toward  more  traditional  fixed  income-based
annuities.  Administrative  fees  increased  $307,000  (3%)  primarily due to an
increase in the number of policies administered year over year, partially offset
by a lower number of policies issued in 2002.

         In November 2002, we announced a strategic plan to consolidate the life
and annuity product portfolio marketing business of Legacy Marketing. We believe
this product  consolidation  will allow Legacy  Marketing to focus its resources
more efficiently.

         Legacy Marketing  discontinued marketing life insurance products issued
by American National  effective during the first quarter of 2003. These products
accounted  for a  nominal  amount of  revenue  during  each of the years  ending
December 31, 2002, 2001, and 2000.  Legacy Marketing will continue to administer
American  National  life  insurance  products,  including  acceptance of renewal
premium.  Certain  Legacy  Marketing  employees  who  were  supporting  the life
insurance  product  operations  were either  terminated  or  reassigned to other
positions in Legacy Marketing.

         In  addition,  during  the  first  quarter  of 2003,  Legacy  Marketing
discontinued  the marketing of several annuity  products issued by Transamerica.
Legacy  Marketing  will  continue to administer  these  annuity  products and to
accept additional  premium payments,  subject to applicable  additional  deposit
rules for these products.  The discontinued products accounted for approximately
31%, 59%, and 45% of our total consolidated revenue for the years ended December
31, 2002, 2001, and 2000. However, our sales of recently introduced Transamerica
products have been strong.  Furthermore,  sales on behalf of our other  carriers
have increased during the two months ended February 28, 2003, and total sales of
annuity  products have increased by 26% during this period  compared to the same
period in 2002.  Legacy Marketing is also developing new products that we expect
to result in increased sales in 2003.

         As of December 31, 2002,  Legacy  Marketing  sold products on behalf of
four unaffiliated  insurance  carriers:  Transamerica,  American National,  John
Hancock and Investors Insurance  Corporation.  During the first quarter of 2002,
Legacy  Marketing  ceased  selling  products  on behalf of IL  Annuity,  as both
parties mutually agreed to terminate their marketing agreement. Legacy Marketing
currently intends to continue to administer IL Annuity products.  The agreements
with the following  carriers  generated a  significant  portion of the Company's
total consolidated  revenue (sales on behalf of Investors Insurance  Corporation
began in the second quarter of 2002):

                                                     2002        2001
                                                     ----        ----
Transamerica                                          52%         68%
American National                                     17%          5%
IL Annuity                                            12%         20%
John Hancock                                           8%          -


                                       11
<PAGE>

         Although Legacy  Marketing sells and  administers  several  products on
behalf  of  the  insurance  carriers,  our  consolidated  revenues  are  derived
primarily from sales and administration of the following annuity product series:

                                                                2002      2001
                                                                ----      ----
SelectMark(SM)  series  (sold on behalf of  Transamerica)        51%        67%
BenchMark(SM)  series (sold on behalf of American
National)                                                        16%         4%
VisionMark(SM) series (sold on behalf of IL Annuity)             11%        19%
AssureMark(SM) series (sold on behalf of John Hancock)            8%         -


         We expect  that sales of the  SelectMark  (SM) series sold on behalf of
Transamerica will decrease during 2003, as a result of the product consolidation
discussed above.

         Legacy  Marketing's  expenses  decreased  $2.9 million  (6%)  primarily
attributable  to  decreases  in selling,  general and  administrative  expenses.
Selling,  general  and  administrative  expenses  decreased  $2.9  million  (7%)
primarily due to decreases in professional fees, commissions,  compensation, and
occupancy   expenses.   Professional  fees  decreased  primarily  due  to  lower
consulting fees related to internal use software maintenance,  and reduced legal
expenses.  The decrease in  commissions  was  primarily  related to lower sales.
Compensation  decreased  primarily  due to the  effect of  attrition,  as Legacy
Marketing's  headcount decreased 4% in 2002. The decreased occupancy expense was
primarily a result of our purchasing the building that houses our  headquarters,
which resulted in no rent expense after June 2001, partially offset by increased
interest expense from financing the building purchase.

         Legacy  Marketing  recognized  investment  income of  $638,000  in 2002
compared to  investment  losses of $239,000  in 2001.  This shift was  primarily
because   2001   included    impairment    losses   of   $642,000   related   to
other-than-temporary declines in the value of certain investment securities.

Year ended December 31, 2001 compared with year ended December 31, 2000

         During  2001,  Legacy  Marketing's  net income  totaled  $2.8  million,
compared to losses of $1.6  million  during  2000,  primarily  due to  increased
revenues   partially  offset  by  increased  expenses  and  the  recognition  of
non-operating losses in 2001 compared to non-operating income in 2000.

         Legacy Marketing's revenue increased $14 million (36%) primarily due to
increased  marketing  allowances,  commission income,  and administrative  fees.
Marketing allowances and commission revenue,  combined,  increased $12.3 million
(43%) due to an increase in sales of fixed annuity and life policies.  The sales
increase was primarily due to: i) favorable  market  conditions for fixed return
investment  products,  ii) the  implementation of marketing programs designed to
strengthen relationships with existing producers and attract new producers, and,
iii) the  introduction of new products and  enhancements  of existing  products.
Administrative  fees increased $2.2 million (23%)  primarily due to increases in
the number of policies issued and administered.

         Legacy  Marketing's  expenses  increased  $2.8 million  (6%)  primarily
attributable  to  increases  in selling,  general and  administrative  expenses,
depreciation   and   amortization.   The   increase  in  selling,   general  and
administrative  expenses of $1.6 million  (4%) is primarily  due to increases in
compensation,   partially  offset  by  decreases  in  professional  fees,  sales
promotion and support expenses,  and occupancy expenses.  Compensation increased
primarily due to the effect of salary increases effective December 2000, and the
addition of employees  at higher  salary  levels.  Professional  fees  decreased
primarily  due to  lower  consulting  fees  related  to  internal  use  software
maintenance. Sales promotion and support expenses decreased primarily due to our
discontinuing  a  broad-based  stock option sales related  program in 2001.  The
decreased  occupancy  expense  was  primarily  a result  of our  purchasing  the
building that houses our  headquarters,  which resulted in no rent expense after
June 2001.  Depreciation  and  amortization  expense  increased  $670,000  (20%)
primarily related to a higher internal use software balance. During 2001, Legacy
Marketing determined that certain investment securities had other-than-temporary
declines  in fair value  below  cost.  As a result,  Legacy  Marketing  recorded
impairment losses of $642,000,  and the individual  securities were written down
to a new cost basis.


                                       12
<PAGE>

Legacy Financial

Year ended December 31, 2002 compared with year ended December 31, 2001

         Legacy Financial incurred net losses of $595,000 during 2002,  compared
to net losses of $837,000 during 2001. The improved results are primarily due to
increased revenues.

         Legacy Financial's major source of revenue is commission income,  which
is generated through sales of variable life and annuity products,  mutual funds,
and debt and equity securities. Levels of commission income are directly related
to the volume of sales of such  products.  Legacy  Financial  revenue  increased
$387,000 (18%)  primarily due to increases in the volume of sales resulting from
a more attractive  product mix for Legacy  Financial's  distribution  network of
registered representatives.

         Legacy  Financial's  total expenses were unchanged during 2002 compared
to 2001.

         Legacy Financial has incurred  cumulative losses since its inception in
1995.  We have  committed to make  sufficient  contributions  to support  Legacy
Financial's operations through February 2004.

Year ended December 31, 2001 compared with year ended December 31, 2000

         Legacy Financial incurred net losses of $837,000 during 2001,  compared
to net losses of $143,000 during 2000,  primarily due to decreased  revenues and
increased expenses.

         Legacy  Financial  revenue  decreased  $829,000 (28%)  primarily due to
decreases in the volume of sales  resulting from adverse  market  conditions for
variable investment products.

         Legacy  Financial's  expenses  increased $266,000 (8%) primarily due to
increases in selling, general and administrative expenses.  Selling, general and
administrative  expenses  increased  $316,000  (11%) primarily  attributable  to
compensation  due to a higher  number of  employees,  and  increases in rent and
legal fees,  partially offset by decreased sales promotion and support expenses.
Increased  rent expense  resulted from our sale in December 2000 of the building
that houses  Legacy  Financial's  operations  and the  subsequent  office  lease
payments  made  by  Legacy  Financial  to the new  building  owner.  Legal  fees
increased  primarily due to higher legal fees  associated with litigation in the
normal  course of  business.  Sales  promotion  and support  expenses  decreased
primarily  due to  costs  incurred  in  2000 to  purchase  sales  leads  and the
discontinuance of a broad-based stock option sales incentive program in 2001.

Values Financial Network, Inc.

Year ended December 31, 2002 compared with year ended December 31, 2001

         Values Financial  Network,  Inc. incurred net losses of $520,000 during
2002,  compared to net losses of $1.2  million  during  2001,  primarily  due to
reduced expenses  partially offset by lower revenues.  Total revenues  decreased
$38,000 (84%)  primarily due to decreased  sales leads  revenue.  Total expenses
decreased $1.2 million (58%) in 2002 primarily resulting from the termination of
employees and decreased IT consulting fees.

Year ended December 31, 2001 compared with year ended December 31, 2000

         We purchased Values Financial  Network,  Inc. in December 2000.  During
2001, Values Financial Network incurred net losses of $1.2 million,  compared to
net losses of $86,000 during 2000, primarily due to expenses incurred during the
entity's start-up phase.

Imagent Online

         In 2000,  we  purchased,  through  Imagent  Online,  a 33.3%  ownership
interest  in  a   development   stage   company   named   prospectdigital,   LLC
("prospectdigital") for $403,000.

         In January 2002, we purchased all of the remaining outstanding stock of
prospectdigital  for $225,000 in cash, a non-recourse note payable in the amount
of $75,000  and  payable  out of the  future  profits  of  prospectdigital,  and
$100,000 of contingent  consideration based on future income. Under the terms of
the purchase agreement,  prospectdigital remained liable for payment of the $1.5
million indebtedness, plus accrued interest, due to us. Prospectdigital is now a
wholly owned subsidiary,  and the results of  prospectdigital's  operations have
been  included  in the  Consolidated  Financial  Statements  since  the  date of
acquisition.


                                       13
<PAGE>

Year ended December 31, 2002 compared with year ended December 31, 2001

         Imagent Online had net losses of $648,000 during 2002,  compared to net
losses of $660,000  during 2001.  This favorable  change of $12,000 is primarily
due to  increased  revenues at  prospectdigital  in 2002.  As  discussed  above,
prospectdigital's  results  of  operations  are  included  in  the  Consolidated
Financial  Statements  since our acquisition of it in January 2002. Prior to the
acquisition, we accounted for our investment in prospectdigital under the equity
method of accounting.  Accordingly, our share of prospectdigital's losses during
2001 and 2000 were included in other expenses.  Imagent Online had no revenue in
2001  and  2000,  and  its  expenses   primarily   consisted  of  its  share  of
prospectdigital's losses.

Year ended December 31, 2001 compared with year ended December 31, 2000

         Imagent Online recorded net losses of $660,000 during 2001, compared to
net losses of $581,000 during 2000, primarily due to increased equity investment
losses from its investment in prospectdigital.

Other Segments

Year ended December 31, 2002 compared with year ended December 31, 2001

         During  2002,  combined  net income from other  entities  was  $61,000,
compared to combined net losses of $371,000 in 2001.  This  favorable  change of
$432,000  is  primarily  due  to  closing  the  operations  of  our  LifeSurance
Corporation subsidiary in late 2001.

Year ended December 31, 2001 compared with year ended December 31, 2000

         During 2001,  combined net losses from other  entities  were  $371,000,
compared to combined net losses of $1.1 million in 2000.  The reduced net losses
are primarily due to the dissolution of our subsidiary LifeSurance  Corporation,
resulting from a plan announced  during the first quarter of 2001. All employees
were  either  terminated  or  transferred  to  Legacy   Marketing.   LifeSurance
Corporation was dissolved in December 2001.

Liquidity and Capital Resources

         We  require  cash for the  following  purposes:  (i) to fund  operating
expenses,  which  consist  primarily  of  selling,  general  and  administrative
expenses;  (ii) to purchase and develop  fixed  assets,  primarily  internal use
software and computer  hardware,  in order to increase  operational  efficiency;
(iii) to fund  continued  product  development;  and (iv) as a reserve  to cover
possible redemptions of certain shares of our common stock, which are redeemable
at the option of the shareholders. Our primary source of cash is cash flows from
operating activities.

     Net cash  provided  by  operating  activities,  which  includes a series of
transactions where we purchased investment securities, was $410,000 for the year
ended  December  31,  2002.  During 2002,  we sold equity  securities  that were
classified as available-for-sale. The proceeds from these sales are reflected as
cash provided  from  investing  activities.  Subsequently,  we purchased  equity
securities  that we  classified  as  trading  securities.  These  purchases  are
reflected as cash used in operating  activities.  Operating cash flows were also
affected by improved operating results.

         Net cash provided by investing  activities was $1.9 million,  primarily
due to net sales of equity  securities  as  discussed  above,  offset in part by
development of internal use software and our purchase of prospectdigital.

         Net cash provided by financing  activities  was $1.1 million.  This was
primarily due to net proceeds from loans, partially offset by repurchases of our
common stock.  During 2001, we purchased  the office  building  which houses our
headquarters for $10.6 million. In conjunction with the acquisition,  we entered
into a bridge loan  agreement  for $4.8  million.  In July 2002, we replaced the
bridge loan with permanent financing in the amount of $7.4 million.  The note is
payable over ten years in monthly  installments  of principal and interest based
on a 25-year term. At the end of ten years, we must pay the balance of principal
due on the  note.  For the  first  five  years,  the  interest  rate  is  6.95%.
Thereafter,   the  interest  rate  is  equal  to  LIBOR  plus  2.55%,   adjusted
semi-annually,  subject to a maximum semi-annual 1.00%  increase/decrease in the
interest  rate.  The  maximum  interest  rate is  10.50%.  We are  obligated  to
repurchase certain shares of our common stock. At December 31, 2002 and December
31, 2001, the total redemption value of all redeemable  common stock outstanding
was $10.1  million  and $11.1  million.  Cash paid to  repurchase  some of these
shares totaled  $964,000  during 2002, and $500,000 during 2001. As the value of
our common stock rises,  our monetary  obligation with respect to the redeemable
common stock also increases.


                                       14
<PAGE>


         We lease office and  warehouse  premises and certain  office  equipment
under  non-cancelable  operating  leases.  As of December  31,  2002,  our total
contractual cash obligations,  including the building financing discussed above,
were as follows:
<TABLE>
<CAPTION>
                                               Payments Due by Period
--------------------- ------------------ ------------------- ------------------ ------------------- ------------------
Contractual
Obligations                 Total         Less than 1 year       1-3 years          4-5 years         After 5 years
--------------------- ------------------ ------------------- ------------------ ------------------- ------------------
<S>                      <C>               <C>                 <C>                  <C>                 <C>
Long-Term Debt           $7,308,000        $  109,000          $  241,000           $279,000            $6,679,000
Operating Leases          2,531,000         1,047,000           1,286,000            198,000                    --
--------------------- ------------------ ------------------- ------------------ ------------------- ------------------
Total    Contractual
Cash Obligations         $9,839,000        $1,156,000          $1,527,000           $477,000            $6,679,000
--------------------- ------------------ ------------------- ------------------ ------------------- ------------------
</TABLE>

         In 1998,  we  entered  into an  agreement  with Lynda L.  Regan,  Chief
Executive  Officer and  Chairman of the Board of  Directors.  Under the terms of
this  agreement,  in the event of the death of Ms.  Regan,  we are  obligated to
repurchase  from Ms.  Regan's  estate all of the shares of our common stock that
were owned by Ms. Regan at the time of her death or that were transferred by her
to one or more trusts prior to her death.  The  purchase  price to be paid by us
shall be equal to 125% of the fair  market  value of the  shares.  The  purchase
price was equal to $28 million at December 31, 2002. We have  purchased two life
insurance policies with a combined face amount of $29 million for the purpose of
funding this obligation in the event of Ms. Regan's death.

         Management  intends to continue to retain any  earnings  for use in its
business and does not anticipate  paying any cash  dividends in the  foreseeable
future.

         We generated $410,000 and $10.9 million of cash flow from operations in
2002 and 2001.  However,  if  requests to  repurchase  redeemable  common  stock
increase  significantly,  a cash shortfall could  ultimately  occur.  Management
believes that existing cash and investment  balances,  together with anticipated
cash flow from operations,  will provide  sufficient funding for the foreseeable
future.  However,  in the event that a cash shortfall were to occur,  management
believes that adequate  financing could be obtained to meet our cash flow needs.
There can be no assurances  that such financing  would be available on favorable
terms.

Recent Accounting Pronouncements

         In June 2002, the Financial  Accounting Standards Board ("FASB") issued
Statement of  Financial  Accounting  Standards  No. 146,  "Accounting  for Costs
Associated with Exit or Disposal  Activities"  ("SFAS 146").  SFAS 146 nullifies
Emerging Issues Task Force Issue No. 94-3 ("EITF 94-3"),  "Liability Recognition
for  Costs  to  Exit  an  Activity   (Including  Certain  Costs  Incurred  in  a
Restructuring)."  SFAS 146 requires that a liability for a cost  associated with
an exit or disposal activity be recognized when the liability is incurred. Under
EITF  94-3,  a  liability  for an exit  cost  was  recognized  at the date of an
entity's  commitment to an exit plan.  The  provisions of SFAS 146 are effective
for exit or disposal  activities that are initiated after December 31, 2002. Our
management  anticipates  that  the  implementation  of SFAS  146 will not have a
material effect on our consolidated results of operations or financial position.

         In  November  2002,  the  FASB  issued  FASB   Interpretation  No.  45,
"Guarantor's  Accounting and Disclosure  Requirements for Guarantees,  Including
Indirect Guarantees and Indebtedness of Others".  This  interpretation  requires
the initial recognition and initial measurement, on a prospective basis only, to
guarantees  issued or modified after December 31, 2002. The Company  anticipates
that the implementation of this  interpretation  will not have a material effect
on its 2003 consolidated results of operations or financial position.

RISK FACTORS
                          RISKS RELATED TO OUR COMPANY

         We have experienced losses in recent years and if losses continue,  our
business could suffer.

         We had a $60,000 net loss for the year ended December 31, 2002, and net
losses of $348,000  and $3.6  million for the years ended  December 31, 2001 and
2000. We intend to continue to invest in marketing, operations,  technology, and
product development.  As a result, we will need to generate increases in revenue
and reduce our operating costs to achieve  profitability.  If we fail to improve
our operating results, our financial condition and prospects could be weakened.


                                       15
<PAGE>

         We depend on a limited  number of  sources  for our  products,  and any
interruption,  deterioration, or termination of the relationship with any of our
insurance  carriers  could be disruptive to our business and harm our results of
operations and financial condition.

         Legacy  Marketing  has  marketing  agreements  with  Transamerica  Life
Insurance and Annuity Company, American National Insurance Company, John Hancock
Variable Life Insurance Company,  and Investors  Insurance  Corporation.  Legacy
Marketing has also entered into administrative  agreements with each of the four
insurance  carriers,  and IL Annuity  and  Insurance  Company,  whose  marketing
agreement  terminated  during the first quarter of 2002.  During 2002, 52%, 17%,
12%, and 8% of our total  consolidated  revenue  resulted from  agreements  with
Transamerica, American National, IL Annuity, and John Hancock.

         In December  2001,  Legacy  Marketing and IL Annuity agreed that the IL
Annuity  product  mix being  marketed  by  Legacy  Marketing  did not  provide a
sufficient  rate of return to IL Annuity.  Accordingly,  Legacy  Marketing began
phasing out the  marketing of IL Annuity  products.  The phase-out was completed
during the first quarter of 2002. A number of policyholders  continue to hold IL
Annuity products, however, which require certain administrative services. Legacy
Marketing  continues to  administer  IL Annuity  products  under the terms of an
administrative  services agreement with IL Annuity and intends to continue doing
so for the foreseeable future.

         In  June  2002,   Legacy   Marketing   entered   into   marketing   and
administrative  services  agreements with Investors  Insurance  Corporation,  an
unaffiliated  insurance carrier.  Under these agreements,  Legacy Marketing will
sell  and  administer   annuity  products  on  behalf  of  Investors   Insurance
Corporation.   Legacy  Marketing  has  an  option  to  buy  Investors  Insurance
Corporation within the next five years.  Sales on behalf of Investors  Insurance
Corporation began in June 2002.

         In November 2002, we announced a strategic plan to consolidate the life
and annuity product portfolio marketing business of Legacy Marketing. We believe
this product  consolidation  will allow Legacy  Marketing to focus its resources
more efficiently.

         Legacy Marketing  discontinued marketing life insurance products issued
by American National  effective during the first quarter of 2003. These products
accounted  for a  nominal  amount of  revenue  during  each of the years  ending
December 31, 2002, 2001, and 2000.  Legacy Marketing will continue to administer
American  National  life  insurance  products,  including  acceptance of renewal
premium.  Certain  Legacy  Marketing  employees  who  were  supporting  the life
insurance  product  operations  were either  terminated  or  reassigned to other
positions in Legacy Marketing.

         In addition,  Legacy  Marketing  discontinued  the marketing of several
annuity products issued by Transamerica during the first quarter of 2003. Legacy
Marketing  will  continue to  administer  these  annuity  products and to accept
additional premium payments,  subject to applicable additional deposit rules for
these products.  The discontinued products accounted for approximately 31%, 59%,
and 45% of our total consolidated revenue for the years ended December 31, 2002,
2001, and 2000.

         The marketing  agreement with American  National  expires  November 15,
2007,  and the  administrative  agreement  with  American  National  expires  on
February  15,  2008.  Both  agreements  may be renewed by mutual  agreement  for
successive one-year terms. The agreements may be terminated by either party upon
twelve  months prior  written  notice  without  cause,  and may be terminated by
either party immediately for cause. The marketing and administrative  agreements
with Transamerica and John Hancock do not have fixed terms but may be terminated
by either party upon twelve months prior written notice  without cause,  and may
be terminated by either party immediately for cause.

         Any  interruption,  deterioration,  or termination of the  relationship
with any of our insurance  carriers could be disruptive to our business and harm
our results of operations and financial condition.

         If we fail to attract and retain key personnel, our business, operating
results, and financial condition could be diminished.

         Our success depends  largely on the skills,  experience and performance
of certain  key  members of our  management.  In the recent  past,  we have been
successful at attracting and retaining key personnel. We have no agreements with
these  individuals  requiring them to maintain their  employment  with us. If we
lose one or more of these key employees,  particularly Lynda L. Regan,  Chairman
of the Board and Chief Executive Officer, or


                                       16
<PAGE>

R.  Preston  Pitts,  President,  Chief  Operating  Officer  and  Secretary,  our
business, operating results, and financial condition could be diminished because
we rely on their contacts,  insurance  carrier and Producer  relationships,  and
strategic direction to drive our revenues.  However, we are not aware of any key
personnel  who are  planning to retire or leave our company in the near  future.
Although  we  maintain  and are the  beneficiary  of key person  life  insurance
policies on the lives of Lynda L. Regan and R. Preston Pitts,  we do not believe
the proceeds would be adequate to compensate us for their loss.

         Our success also depends on our continued  ability to attract,  retain,
and  motivate  highly  skilled  employees.  In the  recent  past,  we have  been
successful  attracting and retaining highly skilled  personnel.  Competition for
employees in our industry is intense,  particularly  for personnel with training
and  experience.  We may be unable to retain our highly skilled  employees or to
attract, assimilate, or retain other highly qualified employees in the future.

         Our  performance   will  depend  on  the  continued  growth  of  Legacy
Marketing.  If Legacy Marketing fails to grow, our financial  performance  could
suffer.

         Our growth is, and for the  foreseeable  future  will  continue  to be,
dependent on Legacy Marketing's  ability to design,  market and administer fixed
annuity products.  The ability of Legacy Marketing to successfully perform these
services could be affected by many factors, including:

     o    The  ability of Legacy  Marketing  to  recruit,  train,  and  motivate
          Producers.

     o    The degree of market  acceptance of the products marketed on behalf of
          our insurance carriers.

     o    The relationship between Legacy Marketing and our insurance carriers.

     o    The  failure of Legacy  Marketing  to comply with  federal,  state and
          other regulatory requirements applicable to the sale or administration
          of insurance products.

     o    Competition  from other financial  services  companies in the sale and
          administration of insurance products.

         A large  percentage  of our  revenue  is  derived  from  sales of fixed
annuities.  The  historical  crediting  rates of fixed  annuities  are  directly
affected by financial market conditions. Changes in market conditions can affect
demand  for these  annuities.  Our  future  success  depends  on our  ability to
introduce and market new products and services that are  financially  attractive
and address our customers' changing demands. We may experience difficulties that
delay or prevent the successful design, development, introduction, marketing, or
administration of our products and services. These delays may cause customers to
forego  purchases of our products and services and instead purchase those of our
competitors.   The  failure  to  be   successful  in  our  sales  efforts  could
significantly decrease our revenue and operating results,  resulting in weakened
financial condition and prospects.

         We may be unable to effectively fund our working capital  requirements,
which could harm our operating results and earnings.

         If  our  cash  inflows  and  existing  cash  and   investments   become
insufficient to support future  operating  requirements or the redemption of our
common  stock,  we will need to obtain  additional  funding  either by incurring
additional  debt or issuing  equity to investors in either the public or private
capital markets.  Our cash flows are primarily dependent upon the commissions we
receive based on the premium generated from the sale of annuity products that we
sell. The market for these products is extremely  competitive.  New products are
constantly being developed to replace existing  products in the marketplace.  If
we are unable to keep pace with the  development of such new products,  our cash
inflows could decrease. Due to this changing environment in which we operate, we
are unable to predict  whether our cash  inflows will be  sufficient  to support
future operating  requirements.  Our failure to obtain  additional  funding when
needed could delay new product introduction or business expansion  opportunities
which could cause a decrease in our operating  results and financial  condition.
We are unaware of any material  limitations on our ability to obtain  additional
funding.  If  additional  funds  are  raised  through  the  issuance  of  equity
securities,  the ownership percentage of our then-current  shareholders would be
reduced.  Furthermore,  any  equity  securities  issued in the  future  may have
rights, preferences, or privileges senior to that of our existing common stock.


         Significant  repurchases of our common stock could materially  decrease
our cash position.


                                       17
<PAGE>

         As of December 31, 2002, we are obligated to redeem 3,822,000 shares of
Series A Common  Stock at the  option of the  holders  of these  shares.  Of the
560,000 shares of Series B Common Stock outstanding,  we are obligated to redeem
up to 10% of these shares at the option of the holders of these shares,  limited
to a specified  twenty-day period each year. The price per share is based on the
estimated fair market value of the stock on the redemption  date. The redemption
of all  eligible  shares  during 2003 would  require $8.5  million,  which would
materially decrease our cash position.

                          RISKS RELATED TO OUR INDUSTRY

         We may not be able to compete  successfully  with  competitors that may
have greater resources than we do.

         The annuity  business is rapidly  evolving and  intensely  competitive.
Legacy  Marketing's  primary market is fixed annuities sold through  independent
producers.  In addition,  Legacy  Marketing  administers  the  products  sold by
Producers on behalf of the issuing  insurance  carriers.  Fixed annuity sales in
the  United  States  were  approximately  $94  billion  in 2002.  Some of Legacy
Marketing's top competitors  selling fixed annuities  through  independent sales
channels are Allianz Life of North  America,  Midland  National  Life  Insurance
Company,  American Equity  Investment  Life, the North American Company for Life
and Health  Insurance,  the AmerUs Group,  and Jackson  National Life  Insurance
Company.  These  competitors  may have greater  financial  resources than we do.
However, our business model allows us greater flexibility,  as we can adjust the
mix of business sold if one or more of our carriers  were to experience  capital
constraints or other events that affect their business  models.  Our competitors
may respond  more  quickly  than us to new or emerging  products  and changes in
customer  requirements.  We are  not  aware  of any  significant  new  means  of
competition,  products or  services  that our  competitors  provide or will soon
provide.  However,  in the highly  competitive  fixed annuity  marketplace,  new
distribution models, product innovations and technological advances may occur at
any time and  could  present  us with  competitive  challenges.  There can be no
assurance  that  we  will be able to  compete  successfully.  In  addition,  our
business  model  relies  on  Producers  to   effectively   market  our  products
competitively.   Maintaining   relationships   with  these  Producers   requires
introducing  new  products  to the market in an  efficient  and  timely  manner,
offering  competitive  commission  schedules,  and providing superior marketing,
training, and support. In the recent past, we have been reasonably successful in
attracting  and retaining  Producers.  We are not aware of any top Producers who
are planning to discontinue  marketing our products.  Due to  competition  among
insurance  companies  and  insurance  marketing   organizations  for  successful
producers,  there can be no assurance that we will be able to retain some or all
of our top Producers.

         We may face increased governmental  regulation and legal uncertainties,
which could result in diminished financial performance.

         State  insurance  regulators and the National  Association of Insurance
Commissioners  continually  reexamine  existing  laws and  regulations,  and may
impose  changes in the future that  materially  adversely  affect our  business,
results of operations  and financial  condition.  In  particular,  rate rollback
legislation and legislation to control premiums,  policy  terminations and other
policy terms may affect the  marketability of policies or the amount of premiums
that can be charged for such  policies,  and thus the  commissions  we can earn.
Also,  recently a committee of Congress has been  considering,  in general,  the
advisability  of enacting  federal  statutes  providing  for the  regulation  of
insurance.  Although there is not yet a specific proposal, additional regulation
at the federal  level  could  affect our  business,  results of  operations  and
financial condition.

         Legacy Financial is registered as a broker-dealer  with, and is subject
to regulation by, the SEC, NASD, and Municipal Securities Rulemaking Board. This
regulation  covers  matters  such as  capital  requirements,  recordkeeping  and
reporting requirements,  and employee-related  matters,  including qualification
and  licensing of  supervisory  and sales  personnel.  Any  proceeding  alleging
violation of, or  noncompliance  with, laws and regulations  applicable to us or
our  subsidiaries  could  harm our  business,  financial  condition,  results of
operations, and business prospects. In addition, changes in federal legislation,
state   legislation,   court   decisions  and   administrative   policies  could
significantly  and  adversely  affect the insurance  industry  generally and our
business in particular.

         Adverse changes in tax laws could diminish the marketability of most of
our products, resulting in decreased revenue.

         Under the Internal Revenue Code of 1986, as amended, income tax payable
by  policyholders  on investment  earnings is deferred  during the  accumulation
period of most of the annuity products that we market. This favorable income tax
treatment results in our policyholders paying no income tax on their earnings in
the annuity  products until they take a cash  distribution.  We believe that the
tax deferral features  contained within the annuity products that we market give
our  products  a  competitive  advantage  over  other  non-insurance  investment
products where income taxes may be due on current earnings. The President of the
United States is currently  advocating the


                                       18
<PAGE>

establishment  of  tax-deferred  savings  plans which would offer  taxpayers the
ability to contribute  amounts  substantially  greater than IRA plans allow.  If
these  plans  are  enacted,  or if  the  tax  code  is  revised  to  reduce  the
tax-deferred  status of annuity products or to increase the tax-deferred  status
of competing  products,  our business  could be adversely  impacted  because our
competitive advantage could be weakened. In addition, some products that we sell
receive  favorable  estate tax treatment  under the tax code. If the tax code is
revised to change  existing  estate tax laws,  our  business  could be adversely
affected.  We cannot predict other future tax initiatives  that the President or
Congress may propose that may affect us.

         We  operate  in an  industry  in  which  there is  significant  risk of
litigation. Substantial claims against us could diminish our financial condition
or results of operations.

         As a  professional  services  firm  primarily  engaged in marketing and
administration of annuity products, we encounter litigation in the normal course
of business.  Although it is difficult to predict the ultimate  outcome of these
cases,  management believes,  based on discussions with legal counsel,  that the
ultimate  disposition of these claims will not have a material adverse effect on
our  financial  condition,  cash flows or results of  operations.  In  addition,
companies in the life insurance industry have been subject to substantial claims
involving  sales  practices,  agent  misconduct,  failure to properly  supervise
agents, and other matters in connection with sales of life insurance, annuities,
and other investment products. Increasingly, these lawsuits have resulted in the
award of substantial  judgments,  including material amounts of punitive damages
that are  disproportionate  to the actual  damages.  In some states  juries have
substantial  discretion in awarding  punitive damages that creates the potential
for material  adverse  judgments in litigation.  If any similar lawsuit or other
litigation  is brought  against us, such  proceedings  may  materially  harm our
business, financial condition, or results of operations.


Item 7a. Quantitative and Qualitative Disclosure About Market Risk

         Our  investments  are  categorized  as  trading  or  available-for-sale
securities.

         Investments in fixed income  instruments carry a degree of market risk.
Market risk  represents  the potential for losses due to adverse  changes in the
fair market value of financial investments.  The market risks faced by us relate
primarily to our  investment  portfolio,  which  exposes us to risks  related to
interest rates, credit quality and equity prices.

         Interest rate risk is the price  sensitivity of a fixed income security
to changes in interest rates. The following table provides information about our
fixed income  investments,  which are  sensitive  to changes in interest  rates.
Listed below are cash flows from principal  amounts and related weighted average
interest rates by expected  maturity dates for fixed income  investments held at
December  31,  2002 and 2001.  Actual  cash flows  could  differ  from  expected
amounts.

<TABLE>
<CAPTION>
                                                                                                     Amortized    Estimated
 December 31, 2002         2003         2004        2005       2006       2007     Thereafter        Cost         Fair Value
 -----------------         ----         ----        ----       ----       ----     ----------        ----         ----------
<S>                       <C>        <C>          <C>          <C>        <C>      <C>            <C>             <C>
 Fixed maturities       $4,588,000      $--         $--        $--        $--        $340,000     $4,928,000      $4,890,000
 Average interest
 rate                     4.58%          --          --         --         --         7.03%


                                                                                                     Amortized    Estimated
 December 31, 2001         2002         2003        2004       2005       2006     Thereafter        Cost         Fair Value
 -----------------         ----         ----        ----       ----       ----     ----------        ----         ----------
 Fixed maturities         $515,000   $6,407,000   $417,000     $--        $--      $1,025,000     $8,364,000      $8,243,000
 Average interest
 rate                     4.00%         4.53%       5.10%       --         --         7.03%
</TABLE>

         We invest in marketable  securities which are predominately  investment
grade. As a result, we believe we have minimal exposure to credit risk.

         Equity  price risk is the  potential  loss  arising from changes in the
value of equity securities. In general, equity securities have more year-to-year
price variability than intermediate term high-grade bonds. However, returns over
longer time frames have been consistently  higher. Our equity securities consist
primarily of  investments  in mutual funds.  As a result of  unfavorable  market
conditions related to our mutual fund investments,  the fair value of


                                       19
<PAGE>

our equity  securities is below original cost at December 31, 2002 and 2001. The
original  cost and fair values of our  marketable  equity  securities  are shown
below:

                                   Original Cost      Fair Value
                                   -------------      ----------
           December 31, 2002        $ 5,295,000      $ 4,261,000
           December 31, 2001        $ 5,018,000      $ 4,328,000

         All of the above risks are monitored on an ongoing basis. A combination
of  in-house  review  and  consultation  with our  investment  broker is used to
analyze individual securities, as well as the entire portfolio.


                                       20

<PAGE>

Item 8. Financial Statements and Supplementary Data

                        REPORT OF INDEPENDENT ACCOUNTANTS

To the Board of Directors and Shareholders of Regan Holding Corp.

In our opinion,  the  accompanying  consolidated  balance sheets and the related
consolidated  statements  of  operations,  shareholders'  equity  and cash flows
present  fairly,  in all  material  respects,  the  financial  position of Regan
Holding  Corp.  and its  subsidiaries  (the  "Company") at December 31, 2002 and
2001,  and the results of their  operations and their cash flows for each of the
three years in the period ended December 31, 2002 in conformity  with accounting
principles  generally accepted in the United States of America.  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 audits.  We conducted  our audits of these  statements  in  accordance  with
auditing  standards  generally  accepted in the United States of America,  which
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,  assessing the  accounting  principles
used and  significant  estimates made by management,  and evaluating the overall
financial  statement  presentation.   We  believe  that  our  audits  provide  a
reasonable basis for our opinion.

As discussed in Note 1, the Company  changed its method of  recognizing  revenue
for  contracts  with  sales  obligation  provisions  in  accordance  with  Staff
Accounting Bulletin 101, Revenue Recognition in Financial Statements, during the
year ended  December 31, 2000, and changed its method of accounting for goodwill
and other intangible assets in accordance with Statement of Financial Accounting
Standards No. 142, Goodwill and Other Intangible  Assets,  during the year ended
December 31, 2002.


/s/ PricewaterhouseCoopers LLP
San Francisco, California
March 27, 2003


                                       21
<PAGE>

                      REGAN HOLDING CORP. AND SUBSIDIARIES
                           Consolidated Balance Sheet
<TABLE>
<CAPTION>
                                                                                     December 31,
                                                                                 2002             2001
                                                                            -------------     ------------
<S>                                                                         <C>               <C>
Assets
Cash and cash equivalents                                                   $   4,793,000     $  1,376,000
Trading investments                                                             4,261,000                -
Available-for-sale investments                                                  4,890,000       12,571,000
Accounts receivable, net of allowance of $702,000 and $348,000 at
December 31, 2002 and 2001                                                      3,180,000        2,733,000
Prepaid expenses and deposits                                                   2,122,000        1,057,000
Income taxes receivable                                                                 -           76,000
                                                                            -------------     ------------
   Total current assets                                                        19,246,000       17,813,000
                                                                            -------------     ------------
Net fixed assets                                                               25,841,000       24,047,000
Deferred tax assets                                                             1,715,000        1,529,000
Goodwill, net                                                                   1,170,000        1,170,000
Intangible assets, net                                                            332,000          200,000
Other assets                                                                    1,649,000        1,501,000
                                                                            -------------     ------------
   Total non current assets                                                    30,707,000       28,447,000
                                                                            ------------      ------------
   Total assets                                                             $  49,953,000     $ 46,260,000
                                                                            =============     ============

Liabilities, redeemable common stock, and shareholders' equity
Liabilities
Accounts payable and accrued liabilities                                    $   8,812,000     $  8,302,000
Income taxes payable                                                            2,327,000               --
Loan payable                                                                           --        4,750,000
Current portion of note payable                                                   109,000               --
                                                                            -------------     ------------
   Total current liabilities                                                   11,248,000       13,052,000
                                                                            -------------     ------------
Deferred compensation payable                                                   4,241,000        4,356,000
Other liabilities                                                                 190,000          222,000
Note payable, less current portion                                              7,199,000               --
                                                                            -------------     ------------
   Total non current liabilities                                               11,630,000        4,578,000
                                                                            -------------     ------------
   Total liabilities                                                           22,878,000       17,630,000
                                                                            -------------     ------------

Redeemable common stock, Series A and B                                        10,115,000       11,124,000
                                                                            -------------     ------------
Shareholders' equity
Preferred stock, no par value:
Authorized: 100,000,000 shares; no shares issued or outstanding                        --               --
Series A common stock, no par value:
Authorized: 45,000,000 shares; issued and outstanding: 20,495,000 and
20,769,000 at December 31, 2002 and 2001                                        3,324,000        3,596,000
Common stock committed                                                             25,000           25,000
Paid-in capital                                                                 6,499,000        6,424,000
Retained earnings                                                               7,135,000        7,405,000
Accumulated other comprehensive income (loss)                                     (23,000)          56,000
                                                                            -------------     ------------
   Total shareholders' equity                                                  16,960,000       17,506,000
                                                                            -------------     ------------
   Total liabilities, redeemable common stock and shareholders' equity      $  49,953,000     $ 46,260,000
                                                                            =============     ============
</TABLE>

           See notes to financial statements.


                                       22
<PAGE>

                      REGAN HOLDING CORP. AND SUBSIDIARIES
                      Consolidated Statement of Operations
<TABLE>
<CAPTION>
                                                                          For the Year Ended December 31,
                                                                    2002               2001               2000
                                                                -----------        -----------        -----------
<S>                                                             <C>                <C>                <C>
Revenue
Marketing allowances                                            $21,178,000        $25,527,000        $17,525,000
Commissions                                                      16,044,000         17,304,000         13,841,000
Administrative fees                                              12,007,000         11,700,000          9,550,000
Other income                                                        820,000            678,000          1,516,000
                                                                -----------        -----------        -----------
   Total revenue                                                 50,049,000         55,209,000         42,432,000
                                                                -----------        -----------        -----------

Expenses
Selling, general and administrative                              43,521,000         47,575,000         45,590,000
Depreciation and amortization                                     4,339,000          4,578,000          3,518,000
Other                                                             2,859,000          3,459,000          2,730,000
                                                                -----------        -----------        -----------
   Total expenses                                                50,719,000         55,612,000         51,838,000
                                                                -----------        -----------        -----------

Operating loss                                                     (670,000)          (403,000)        (9,406,000)

Other income (loss)
Investment income (loss), net                                       652,000           (125,000)           999,000
Interest expense                                                    (76,000)           (40,000)          (260,000)
Gain on sale of building                                                 --                 --          3,574,000
                                                                -----------        -----------        -----------
   Total other income (loss)                                        576,000           (165,000)         4,313,000

Loss before income taxes and cumulative
effect of accounting change                                         (94,000)          (568,000)        (5,093,000)

Income tax benefit                                                  (34,000)          (220,000)        (1,755,000)
                                                                -----------        -----------        -----------

Net loss before cumulative effect of accounting
Change                                                              (60,000)          (348,000)        (3,338,000)
Cumulative effect of accounting change, net of tax                       --                 --           (226,000)
                                                                -----------        -----------        -----------

Net loss                                                        $   (60,000)       $  (348,000)       $(3,564,000)
                                                                ============       ===========        ===========

Basic and diluted loss per share:

Loss before cumulative effect of accounting change              $        --        $     (0.01)       $     (0.13)
Accretion of redeemable common stock                                     --              (0.02)             (0.02)
                                                                -----------        -----------        -----------
Loss available to common shareholders before
     cumulative effect of accounting change                              --              (0.03)             (0.15)
Cumulative effect of accounting change                                   --                 --              (0.01)
                                                                -----------        -----------        -----------
Basic and diluted loss available to common shareholders         $        --        $     (0.03)       $     (0.16)
                                                                ===========        ===========        ===========
Weighted average shares outstanding                              25,093,000         25,861,000         26,238,000
</TABLE>

            See notes to financial statements.


                                       23
<PAGE>

                      REGAN HOLDING CORP. AND SUBSIDIARIES
                 Consolidated Statement of Shareholders' Equity
<TABLE>
<CAPTION>
                                       Series A Common Stock                                          Accumulated
                             ---------------------------------------                                    Other
                                                        Common Stock    Paid-in        Retained      Comprehensive
                             Shares        Amount        Committed       Capital        Earnings      Income (Loss)        Total
                             ------        ------       ------------    -------        --------      -------------         -----
<C>                         <C>          <C>            <C>            <C>            <C>             <C>               <C>
Balance December 31,
1999                        20,863,000   $3,659,000     $      --      $5,204,000     $12,385,000     $ (572,000)       $20,676,000
Comprehensive
Loss, net of tax:
Net loss                                                                               (3,564,000)                       (3,564,000)
Net unrealized gains
on investments                                                                                            72,000             72,000
Less:
Reclassification
adjustment for losses
included in net
loss                                                                                                     (11,000)           (11,000)
                                                                                                                        -----------
Total comprehensive
loss                                                                                                                     (3,503,000)
Accretion to
redemption value                                                                         (495,000)                        (495,000)
Retirement upon
voluntary
repurchases of
common stock                   (86,000)     (89,000)                                      (82,000)                         (171,000)
Issuance of common
stock                           27,000       26,000                                                                          26,000
Common stock committed          66,000                    100,000                                                           100,000
Producer stock option
expense                                                                 1,114,000                                         1,114,000
                            ----------   ----------     ---------     -----------      -----------     -----------      -----------
Balance December 31,
2000                        20,870,000    3,596,000       100,000       6,318,000       8,244,000       (511,000)        17,747,000

Comprehensive income,
net of tax:
Net loss                                                                                 (348,000)                         (348,000)
Net unrealized gains
on investments                                                                                         1,036,000          1,036,000
Less:
Reclassification
adjustment for
losses included in
net loss                                                                                                (469,000)          (469,000)
                                                                                                                        -----------
Total comprehensive
income                                                                                                                      219,000
Retirement upon
voluntary
repurchases of
common stock                  (149,000)    (150,000)                                      (94,000)                         (244,000)
Retirement upon
mandatory redemption                                                       10,000                                            10,000
Accretion to
redemption value                                                                         (397,000)                         (397,000)
Issuance of common
Stock committed                 33,000      150,000      (150,000)                                                               -
Common stock
committed                       15,000                     75,000                                                            75,000
Producer stock option
expense                                                                    96,000                                            96,000
                            ----------   ----------     ---------     -----------      -----------     -----------      -----------
Balance December 31,
2001                        20,769,000    3,596,000        25,000       6,424,000       7,405,000         56,000         17,506,000

</TABLE>


                                       24
<PAGE>

<TABLE>
<CAPTION>
<C>                         <C>          <C>            <C>            <C>            <C>             <C>               <C>
Comprehensive
loss, net of tax:
Net loss                                                                                  (60,000)                          (60,000)
Net unrealized losses
on investments                                                                                          (211,000)          (211,000)
Less:
Reclassification
adjustment for
gains included in
net loss                                                                                                 132,000            132,000
                                                                                                                        -----------
Total
comprehensive loss                                                                                                         (139,000)
Retirement upon
voluntary
repurchases of
common stock                  (274,000)    (272,000)                                     (184,000)                         (456,000)
Retirement upon
mandatory redemption                                                       71,000                                            71,000
Accretion to
redemption value                                                                          (26,000)                          (26,000)
Producer stock option
expense                                                                     4,000                                             4,000
                            ----------   ----------     ---------     -----------      -----------     -----------      -----------
Balance December 31, 2002   20,495,000   $3,324,000     $  25,000     $ 6,499,000      $7,135,000      $ (23,000)       $16,960,000
                            ==========   ==========     =========     ===========      ===========     ===========      ===========
</TABLE>

                       See notes to financial statements.


                                       25
<PAGE>

            REGAN HOLDING CORP. AND SUBSIDIARIES
            Consolidated Statement of Cash Flows
<TABLE>
<CAPTION>
                                                                               For the Year Ended December 31,
                                                                          2002              2001             2000
                                                                      -------------     -------------     -----------
<S>                                                                   <C>                <C>             <C>
Cash flows from operating activities:
Net loss                                                              $    (60,000)      $  (348,000)    $ (3,564,000)
Adjustments to reconcile net loss to net cash provided
by operating activities:
Depreciation and amortization                                            4,339,000         4,578,000        3,518,000
Loss (gain), on sale or disposal of fixed assets                           255,000           381,000       (3,850,000)
Provision for bad debts                                                    393,000           342,000          369,000
Losses on equity investee                                                       --           896,000          721,000
Common stock awarded to non-employees                                           --            75,000          100,000
Producer stock option expense                                                4,000            96,000        1,114,000
Investment impairment loss                                                      --           642,000               --
Amortization (accretion) of investments                                     76,000            47,000         (138,000)
Realized (gains) losses on sales of investments, net                      (219,000)          138,000           18,000
Unrealized losses on trading securities, net                             1,034,000                --               --
Changes in operating assets and liabilities:
Purchases of trading securities, net                                    (5,276,000)               --               --
Accounts receivable                                                       (840,000)       (1,003,000)         200,000
Prepaid expenses and deposits                                           (1,065,000)          236,000         (201,000)
Income taxes receivable and payable                                      2,403,000         3,585,000         (767,000)
Deferred tax assets                                                       (134,000)         (133,000)       1,666,000
Accounts payable and accrued liabilities                                   510,000            15,000         (251,000)
Deferred compensation payable                                             (115,000)        1,359,000        1,632,000
Other operating assets and liabilities                                    (895,000)           14,000         (319,000)
                                                                      -------------     -------------     -----------
Net cash provided by operating activities                                  410,000        10,920,000          248,000
                                                                      -------------     -------------     -----------

Cash flows from investing activities:
Purchases of available-for-sale securities                                (959,000)      (10,150,000)      (7,687,000)
Proceeds from sales and maturities of available-for-sale
securities                                                               8,633,000         8,049,000       18,415,000
Proceeds from building sale                                                     --                --        8,400,000
Proceeds from (issuance of) note receivable                                     --         5,750,000       (5,750,000)
Purchases of fixed assets                                               (5,580,000)      (16,458,000)      (5,635,000)
Acquisition of Values Financial Network assets                                                    --       (2,350,000)
Acquisition of prospectdigital assets                                     (225,000)               --               --
Equity in and advances to investee                                              --          (358,000)      (1,503,000)
                                                                      -------------     -------------     -----------
Net cash provided by (used in) investing activities                      1,869,000       (13,167,000)       3,890,000
                                                                      -------------     -------------     -----------

Cash flows from financing activities:
Proceeds from loans payable                                              5,321,000         5,250,000        4,600,000
Payments toward loans payable                                          (10,071,000)       (2,765,000)      (6,985,000)
Proceeds from note payable                                               7,350,000                --               --
Payments toward note payable                                               (42,000)               --               --
Repurchases of redeemable common stock                                    (964,000)         (500,000)        (821,000)
Voluntary repurchases of common stock                                     (456,000)         (244,000)        (171,000)
Proceeds from stock option exercises                                            --                --           26,000
                                                                      -------------     -------------     -----------
Net cash provided by (used in) in financing activities                   1,138,000         1,741,000       (3,351,000)
                                                                      -------------     -------------     -----------
Net increase (decrease) in cash and cash equivalents                     3,417,000          (506,000)         787,000
Cash and cash equivalents, beginning of period                           1,376,000         1,882,000        1,095,000
                                                                      -------------     -------------     -----------
Cash and cash equivalents, end of period                              $  4,793,000      $  1,376,000      $ 1,882,000
                                                                      =============     =============     ===========

Supplemental cash flow information:
Taxes Paid                                                            $      7,000      $     14,000      $        --
Interest Paid                                                         $    411,000      $    180,000      $   224,000

</TABLE>

             See notes to financial statements.


                                       26
<PAGE>

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                      REGAN HOLDING CORP. AND SUBSIDIARIES

1.       Organization and Summary of Significant Accounting Policies

   a.    Organization

         Regan Holding Corp. (the "Company") is a holding company,  incorporated
in California in 1990, whose primary operating subsidiaries are Legacy Marketing
Group  ("Legacy  Marketing")  and  Legacy  Financial  Services,   Inc.  ("Legacy
Financial").

         Legacy  Marketing  has  marketing  agreements  with  Transamerica  Life
Insurance and Annuity  Company  ("Transamerica"),  American  National  Insurance
Company  ("American  National"),  John Hancock  Variable Life Insurance  Company
("John Hancock"),  and Investors Insurance Corporation (the "carriers").  During
2002,  Legacy Marketing  terminated its marketing  agreement with IL Annuity and
Insurance  Company  ("IL  Annuity").   The  marketing  agreements  grant  Legacy
Marketing the exclusive right to market certain fixed annuity products issued by
the carriers (the "policies").  In addition, Legacy Marketing is responsible for
appointing independent insurance producers who contract with Legacy Marketing to
sell  policies.  The  highest  producers  are  referred to as  wholesalers.  For
providing  these  services,  the carriers pay Legacy  Marketing  commissions and
marketing allowances.

         Legacy Marketing also has  administrative  agreements with the carriers
(including IL Annuity)  pursuant to which Legacy  Marketing  provides  clerical,
administrative,  and  accounting  services with respect to the  policies.  These
services include billing, collecting and remitting premium for the policies. For
providing these services, the carriers pay Legacy Marketing administrative fees.

         Through its wholly-owned  broker-dealer  subsidiary,  Legacy Financial,
the Company sells variable annuity and life insurance products, mutual funds and
debt and equity  securities.  Legacy Financial has entered into sales agreements
with  investment  companies  that  give  it  the  non-exclusive  right  to  sell
investment  products on behalf of those companies.  Sales of investment products
are conducted  through  Legacy  Financial's  network of  independent  registered
representatives.

   b.    Basis of Presentation

         The consolidated  financial  statements are prepared in conformity with
accounting  principles  generally  accepted in the United  States of America and
include  the  accounts  of  Regan  Holding  Corp.  and  its  subsidiaries  after
elimination of intercompany accounts and transactions.

         The  preparation of financial  statements in conformity  with generally
accepted  accounting  principles  requires  management  to  make  estimates  and
assumptions that affect the amounts reported in the financial statements. Actual
results could differ from those estimates.

   c.    Revenue Recognition

         When a  policyholder  remits a premium  payment  with an  accurate  and
completed  application for an insurance policy, the policy is considered inforce
and Legacy  Marketing  recognizes  marketing  allowances and commission  income.
Legacy Marketing's carriers grant policyholders a contractual right to terminate
the insurance contract ten to thirty days after a policy is placed inforce. This
return  period  varies  depending  on the  carrier,  the type of policy  and the
jurisdiction in which the policy is sold.  Legacy Marketing  gathers  historical
product  return data that does not vary  significantly  from quarter to quarter,
and has  historically  been  predictive of future events.  Returns are estimated
using  this  data  and  have  been  reflected  in  the  Consolidated   Financial
Statements. Legacy Marketing recognizes administrative fees on a per transaction
basis as services  are  performed,  with the amount of the fee  depending on the
type of policy and type of service.


                                       27
<PAGE>

         Legacy  Financial  recognizes  commission  revenue when  clients  remit
payment with a signed and completed  variable  annuity or  investment  contract.
Under the terms of the sales  agreements  between  Legacy  Financial and various
investment  companies,  Legacy Financial is compensated based upon predetermined
percentages of actual sales levels.

         Effective January 1, 2000, the Company changed its revenue  recognition
policy  in order to comply  with SEC  Staff  Accounting  Bulletin  No.  101 with
respect  to a  production  premium  deficiency  requirement  under  one  of  its
marketing agreements. This change is reflected in the statement of operations as
a cumulative effect of accounting change of $226,000,  net of taxes of $149,000,
during the year ended December 31, 2000.

   d.    Cash and Cash Equivalents

         Cash  and  cash  equivalents  include  marketable  securities  with  an
original maturity of ninety days or less.

   e.    Investments

         The  Company's  investments  are  classified as  available-for-sale  or
trading  securities  and are  carried  at  fair  value.  For  available-for-sale
securities,  unrealized  gains and losses,  net of the  related tax effect,  are
reported  as  a  separate   component  of  shareholders'   equity.  For  trading
securities,  unrealized  gains and losses are  reported in Selling,  general and
administrative expenses.

         Premiums and  discounts  are amortized or accreted over the life of the
related  investment  as an  adjustment  to yield  using the  effective  interest
method.  Interest income is recognized when earned. Realized gains and losses on
sales of  investments  are  recognized  in the period  sold  using the  specific
identification method for determining cost.

         Investments  classified as available-for-sale are periodically reviewed
to  determine  if declines  in fair value  below cost are  other-than-temporary.
Significant  and  sustained  decreases  in  quoted  market  prices,  a series of
historical and projected  operating  losses by the investee or other factors are
considered  as  part of the  review.  If the  decline  in fair  value  has  been
determined  to be  other-than-temporary,  an  impairment  loss  is  recorded  in
Investment  income and the  individual  security  is written  down to a new cost
basis.

   f.    Fixed Assets

         Fixed  assets are stated at cost,  less  accumulated  depreciation  and
amortization. The Company capitalizes consulting fees, and salaries and benefits
for employees who are directly  associated  with the development of software for
internal use when both of the following occur:

         o        The  preliminary  project stage is completed and therefore the
                  project is in the application development stage; and

         o        Management  authorizes  and  commits  to  funding  a  software
                  project and it is probable  that the project will be completed
                  and the software will be used to perform the function desired.

         Modifications or enhancements made to an existing software product that
result in additional  functionality are also capitalized.  When the new software
is placed in production, we begin amortizing the asset over its estimated useful
life.  Training  and  maintenance  costs are  accounted  for as expenses as they
occur.

         Depreciation  is  computed  using  the  straight-line  method  over the
estimated useful life of each type of asset, as follows:

                  Computer hardware and purchased software         3-5 years
                  Internal use software development costs          3-5 years
                  Leasehold improvements                           2-10 years
                  Furniture and equipment                          5 years
                  Building                                         40 years


                                       28
<PAGE>

   g.    Goodwill and Other Intangible Assets

         Goodwill and Other  Intangible  assets were  acquired in the  Company's
purchase of Values Financial Network,  Inc. in 2000 and prospectdigital,  LLC in
2002. Prior to January 1, 2002,  goodwill was amortized on a straight-line basis
over 10 years,  which is its  estimated  useful  life.  Pursuant to Statement of
Financial  Accounting  Standards  No.  142  ("SFAS  142"),  "Goodwill  and Other
Intangible  Assets," the Company ceased amortizing goodwill beginning January 1,
2002 (see Note 4). As required by SFAS 142, the Company performed a transitional
and annual  goodwill  impairment  test during 2002, and determined that goodwill
was not impaired.  Intangible assets are amortized on a straight-line basis over
their estimated useful lives of 5 years.

   h.    Impairment of Long-Lived Assets

         In accordance with Statement of Accounting  Standards ("SFAS") No. 144,
"Accounting  for the  Impairment or Disposal of Long-Lived  Assets," the Company
reviews  long-lived assets and intangible assets for impairment  whenever events
or changes in circumstances indicate that the carrying value of an asset may not
be recoverable. Measurement of the impairment of long-lived assets is based upon
management's  estimate of undiscounted future cash flows. We periodically review
capitalized  internal use software to determine if the carrying  value is fairly
stated.  If our review determines that future cash flows directly related to the
software  or the  business  unit of  which  it is a  part,  as  applicable,  are
insufficient,  or if new  technology  indicates  that the  value of  replacement
software is less than our  carrying  value,  we record an  impairment  loss.  If
software in  development  is abandoned,  the Company takes a charge to write off
the capitalized amount in the period the decision is made to abandon it.

   i.    Redeemable Common Stock

         Redeemable common stock is carried at the greater of the issuance value
or the redemption value.  Periodic adjustments to reflect increases or decreases
in redemption value are recorded as accretion,  with an offsetting adjustment to
retained earnings.

   j.    Income Taxes

         The Company  provides  deferred taxes based on the enacted tax rates in
effect on the dates temporary  differences between the book and the tax bases of
assets and liabilities reverse.

   k.    Stock Options

         At  December  31,  2002,   the  Company  has  a  stock-based   employee
compensation plan (see Note 12) and accounts for this plan under the recognition
and  measurement  principles  of  Accounting  Principles  Board  Opinion No. 25,
"Accounting  for Stock Issued to  Employees,"  and related  Interpretations.  No
stock-based employee  compensation cost is reflected in net loss, as all options
granted  under the plan had an exercise  price equal to the fair market value of
the underlying common stock on the date of grant.


         The  following  table  illustrates  the effect on net loss and loss per
share if the Company had applied the fair value  recognition  provisions of SFAS
No. 123,  "Accounting for  Stock-Based  Compensation,"  to stock-based  employee
compensation:

<TABLE>
<CAPTION>
                                                       2002         2001           2000
                                                       ----         ----           ----
<S>                                                 <C>           <C>            <C>
Net loss, as reported:                              $ (60,000)    $(348,000)     $(3,564,000)
  Deduct:  Total stock-based employee
    compensation expense
    determined under fair value method for all
    awards, net of related tax effects               (478,000)     (411,000)        (414,000)
                                                    ---------     ---------      -----------
 Pro forma net loss                                 $(538,000)    $(759,000)     $(3,978,000)
Basic and diluted loss per share:
 As reported                                        $       -     $   (0.03)     $     (0.16)
 Pro forma                                          $   (0.02)    $   (0.04)     $     (0.17)
</TABLE>


                                       29
<PAGE>

The fair value of the employee option grants for pro forma  disclosure  purposes
was estimated using the minimum value method, with the following assumptions:

                                    2002             2001            2000
                                ------------     ------------    --------
    Risk-free interest rates    4.08%-4.52%      4.50%-4.88%     5.92%-6.67%
    Expected life               4 years          3-5 years       3-5 years
    Dividend yield              None             None            None

l.       Accounting Pronouncement to be Adopted Subsequent to December 31, 2002

         In June 2002, the Financial  Accounting Standards Board ("FASB") issued
Statement of  Financial  Accounting  Standards  No. 146,  "Accounting  for Costs
Associated with Exit or Disposal  Activities"  ("SFAS 146").  SFAS 146 nullifies
Emerging Issues Task Force Issue No. 94-3 ("EITF 94-3"),  "Liability Recognition
for  Costs  to  Exit  an  Activity   (Including  Certain  Costs  Incurred  in  a
Restructuring)."  SFAS 146 requires that a liability for a cost  associated with
an exit or disposal activity be recognized when the liability is incurred. Under
EITF  94-3,  a  liability  for an exit  cost  was  recognized  at the date of an
entity's  commitment to an exit plan.  The  provisions of SFAS 146 are effective
for exit or disposal  activities that are initiated after December 31, 2002. The
Company's  management  anticipates that the  implementation of SFAS 146 will not
have a material  effect on its  consolidated  results of operations or financial
position.

         In  November  2002,  the  FASB  issued  FASB   Interpretation  No.  45,
"Guarantor's  Accounting and Disclosure  Requirements for Guarantees,  Including
Indirect Guarantees and Indebtedness of Others".  This  interpretation  requires
the initial recognition and initial measurement, on a prospective basis only, to
guarantees  issued or modified after December 31, 2002. The Company  anticipates
that the implementation of this  interpretation  will not have a material effect
on its 2003 consolidated results of operations or financial position.

2.       Investments
<TABLE>
<CAPTION>
                                                                Maturity in years:
                                   -------------------------------------------------------------------------
                                      1 to 5          5 to 10        Longer Than
                                       Years           Years          10 Years      Other          Total
                                   ----------     -----------       ----------    ----------     -----------
<S>                                <C>            <C>              <C>            <C>            <C>
December 31, 2002
Corporate bonds                    $4,588,000     $        --      $  340,000     $       --     $ 4,928,000
Mutual funds                               --              --              --      5,295,000       5,295,000
                                   ----------     -----------       ----------    ----------     -----------
Amortized cost                      4,588,000              --         340,000      5,295,000      10,223,000
Gross unrealized gains                  4,000              --              --             --           4,000
Gross unrealized losses                    --              --         (42,000)    (1,034,000)     (1,076,000)
                                   ----------     -----------      ----------     ----------     -----------
Fair value                         $4,592,000     $        --      $  298,000     $4,261,000     $ 9,151,000
                                   ==========     ===========      ==========     ==========     ===========
December 31, 2001
Corporate bonds                    $7,339,000     $        --      $1,025,000     $       --     $ 8,364,000
Mutual funds                               --              --              --      4,376,000       4,376,000
                                   ----------     -----------      ----------     ----------     -----------
Amortized cost                      7,339,000              --       1,025,000      4,376,000      12,740,000
Gross unrealized gains                  8,000              --              --             --           8,000
Gross unrealized losses                    --              --        (129,000)       (48,000)       (177,000)
                                   ----------     -----------      ----------     ----------     -----------
Fair value                         $7,347,000     $        --      $  896,000     $4,328,000     $12,571,000
                                   ==========     ===========      ==========     ==========     ===========

                                                     2002             2001           2000
                                                  -----------      ----------     ----------
                         Gross realized gains     $   281,000      $   92,000     $  144,000
                         Gross realized losses    $   (62,000)     $ (230,000)    $ (162,000)
</TABLE>

         During 2001, the Company determined that certain investment  securities
had  other-than-temporary  declines in fair value below cost.  As a result,  the
Company recorded  impairment losses of $642,000,  and the individual  securities
were written down to a new cost basis.


                                       30
<PAGE>

3.       Fixed Assets

                                                             December 31,
                                                      -------------------------
                                                           2002        2001
                                                      ------------  -----------
         Computer hardware and purchased
         software                                     $  7,796,000  $ 7,340,000
         Internal use software development costs        16,345,000   10,996,000
         Leasehold improvements                          1,324,000    1,260,000
         Furniture and equipment                         3,169,000    3,174,000
         Building                                        7,798,000    7,780,000
         Land                                            2,703,000    2,689,000
                                                      ------------  -----------
                                                        39,135,000   33,239,000
         Accumulated depreciation and amortization     (13,294,000)  (9,192,000)
                                                      ------------  -----------
         Total                                        $ 25,841,000  $24,047,000
                                                      ============  ===========

4.       Goodwill and Other Intangible Assets

         On January 1, 2002, the Company adopted SFAS 142, which  eliminates the
requirement  to  amortize  goodwill  and  indefinite-lived   intangible  assets,
addresses  the  amortization  of  intangible  assets  with a  defined  life  and
addresses the  impairment  testing and  recognition  for goodwill and intangible
assets.  As of December 31, 2002, the balance of intangible assets included $1.2
million  of  goodwill  related to the  Company's  purchase  of Values  Financial
Network,  Inc. in December 2000 that was being amortized over ten years prior to
January 1, 2002.  As required by SFAS 142,  the Company is no longer  amortizing
goodwill.  The Company  completed a transitional and annual goodwill  impairment
test during the six months ended June 30, 2002 and year ended  December 31, 2002
and determined that goodwill was not impaired.

         The following  table provides  comparative  net loss and loss per share
had the  non-amortization  provision  of SFAS 142 been  adopted  for all periods
presented:

<TABLE>
<CAPTION>
                                                         For the Year Ended December 31,
                                                         -------------------------------
                                                            2002                  2001
                                                            ----                  ----
<S>                                                      <C>                  <C>
   Net loss                                              $(60,000)            $(348,000)
   Adjustments:
     Goodwill amortization, net of tax benefit
     of $- and $52,000 for years
     ended December 31, 2002 and 2001                           -                78,000
                                                         -------------------------------
   Adjusted net loss                                     $(60,000)            $(270,000)
                                                         ===============================

   Reported basic and diluted loss per share             $      -             $   (0.03)
   Adjusted basic and diluted loss per share             $      -             $   (0.03)
</TABLE>

         There was no  amortization  of goodwill for the year ended December 31,
2000,  and the  carrying  amount of goodwill of $1.2 million did not change from
December 31, 2001 to December 31, 2002.

         Acquired intangible assets, all subject to amortization:

<TABLE>
<CAPTION>
                               December 31,
                               ------------
                                    2002                            2001
                      --------------------------------------------------------------
                      Gross Carrying    Accumulated    Gross Carrying    Accumulated
                          Amount        Amortization      Amount        Amortization
                      --------------------------------------------------------------
<S>                      <C>             <C>             <C>            <C>
Copyrights               $250,000        $(100,000)      $250,000       $(50,000)
Software license          223,000          (41,000)             -             -
                      --------------------------------------------------------------
   Total                 $473,000        $(141,000)      $250,000       $(50,000)
                      ==============================================================
</TABLE>

         The aggregate amortization expense for the year ended December 31, 2002
was $91,000. The estimated amortization expense for each of the next three years
ended December 31, 2005 is $95,000,  and the estimated  amortization expense for
the years ended December 31, 2006 and 2007 are $45,000 and $2,000.


                                       31
<PAGE>

5.       Acquisition of prospectdigital, LLC

         In  2000,  the  Company  purchased  a  33.3%  ownership  interest  in a
development stage company named  prospectdigital,  LLC  ("prospectdigital")  for
$403,000.  Prospectdigital  provides  an  on-line  marketing  service to brokers
selling annuities and life insurance.  To date,  prospectdigital has had nominal
revenue and has used its capital to develop software to support its business. In
addition,  the Company loaned $1.1 million to  prospectdigital in 2000. The loan
bears interest equal to the Prime Rate. In 2001, the Company extended a $400,000
line of credit to prospectdigital,  which bears interest at 8.0%. As of December
31, 2001, prospectdigital had drawn $358,000 from the line of credit.

         The Company did not have control over prospectdigital,  therefore,  the
investment in  prospectdigital  was accounted  for under the equity  method.  In
applying the equity method, the Company recorded its proportionate  share of the
operations (losses) of prospectdigital using a hypothetical  liquidation at book
value  at  each  balance  sheet  date,  net of  the  Company's  estimate  of any
other-than-temporary  impairment. The Company's recorded loss on its investment,
loans payable and advances to  prospectdigital  was $896,000 and $721,000 during
2001 and 2000,  and is included in other  expenses.  The  amounts  invested  and
advanced, net of the Company's share of cumulative losses, have been included in
other assets at December 31, 2001.

         In January 2002, the Company purchased all of the remaining outstanding
stock of  prospectdigital  for $225,000 in cash, a non-recourse  note payable in
the amount of $75,000 and payable out of the future profits of  prospectdigital,
and $100,000 of contingent consideration based on future income. Under the terms
of the purchase  agreement,  prospectdigital  remained liable for payment of the
$1.5 million indebtedness, plus accrued interest, due to the Company.

6.       Purchase of Values Financial Network, Inc.

         In 2000,  the  Company  paid $3.7  million  for the  purchase of Values
Financial  Network  assets.  Among the assets  acquired  were a  website,  which
incorporates  sales lead management,  investment  screening and asset allocation
functionalities, and copyrights related to two books. These assets were recorded
at fair value, as determined by an independent appraisal.  Payments in excess of
the identifiable  assets were recorded as goodwill.  Results of Values Financial
Network's operations have been included in the Consolidated Financial Statements
since the date of acquisition.

7.       Accounts Payable and Accrued Liabilities

                                                         December 31,
                                                 -----------------------------
                                                      2002            2001
                                                 ------------      -----------
        Accrued compensation                     $  2,346,000      $ 2,871,000
        Accrued sales convention costs              1,664,000        1,039,000
        Commissions payable                         1,110,000        1,366,000
        Payable to insurance carrier                1,097,000          581,000
        Accounts payable                              728,000          845,000
        Accrued production premium deficiency         637,000          485,000
        Miscellaneous accrued expenses              1,230,000        1,115,000
                                                 ------------      -----------
        Total                                    $  8,812,000      $ 8,302,000
                                                 ============      ===========

8.       Loan Payable and Note Payable

         During 2001, the Company purchased the office building which houses its
headquarters for $10.6 million. In conjunction with the acquisition, the Company
entered into a bridge loan agreement for $4.8 million. In July 2002, the Company
replaced the bridge loan with permanent financing in the amount of $7.4 million.
This note is payable over ten years in monthly  installments  of  principal  and
interest based on a 25-year term. At the end of ten years,  the Company must pay
the balance of principal due on the note. For the first five years, the interest
rate is 6.95%.  Thereafter,  the  interest  rate is equal to LIBOR  plus  2.55%,
adjusted semi-annually, subject to a maximum


                                       32
<PAGE>

semi-annual 1.00%  increase/decrease  in the interest rate. The maximum interest
rate is 10.50%.  As of December 31, 2002,  the Company made  payments of $42,000
toward the principal balance of the note. The required  principal  payments over
the next five years are as follows: $109,000,  $116,000, $125,000, $135,000, and
$144,000.

9.       Deferred Compensation Payable

         The Company  sponsors a qualified  defined  contribution  401(k)  plan,
which is available to all employees.  The 401(k) plan allows employees to defer,
on a pre-tax basis, up to 15% of their annual  compensation as  contributions to
the 401(k)  plan,  subject to a maximum of $11,000.  The Company  matches 50% of
each employee's contributions, up to 6% of their annual compensation, subject to
a maximum  of  $5,500.  The  Company's  matching  contributions  were  $434,000,
$439,000, and $409,000 for the years ended December 31, 2002, 2001, and 2000.

         The Company also  sponsors a  non-qualified  tax deferred  compensation
plan,  which is available to certain  employees who, because of Internal Revenue
Code  limitations,  are prohibited from  contributing the maximum  percentage of
salary to the  401(k)  Plan.  Under this  deferred  compensation  plan,  certain
employees may defer,  on a pre-tax basis,  a percentage of annual  compensation,
including bonuses. The Company matches 50% of each employee's contributions,  up
to a maximum of 6% of annual  compensation,  less amounts  already matched under
the 401(k) plan. The Company made matching  contributions  of $59,000,  $55,000,
and $48,000  during the years ended  December 31, 2002,  2001,  and 2000.  As of
December  31,  2002  and  2001,  employee  contributions  and  Company  matching
contributions,  net of  accumulated  investment  losses,  totaled  $650,000  and
$575,000.

         The Company also  sponsors a  non-qualified  tax deferred  compensation
plan under  which  producers  who earn a minimum  of  $100,000  may defer,  on a
pre-tax basis, up to 50% of annual  commissions.  In addition,  the Company will
match  producer  contributions  for those  producers  who earn over  $250,000 in
annual commissions at rates ranging from 1% to 5% of amounts deferred, depending
on the level of annual commissions  earned.  During the years ended December 31,
2002, 2001, and 2000, matching  contributions related to the producer commission
deferral plan were $19,000,  $36,000,  and $32,000.  As of December 31, 2002 and
2001,  producer  contributions  and  Company  matching  contributions,   net  of
accumulated investment losses, totaled $3.6 million and $3.8 million.

10.      Commitments and Contingencies

         The Company  leases  office and warehouse  premises and certain  office
equipment  under  non-cancelable  operating  leases.  Related  rent  expense  of
$585,000,  $1.6 million, and $1.5 million is included in occupancy costs for the
years ended  December  31, 2002,  2001,  and 2000.  Total  rentals for leases of
equipment  included  in  equipment  expense  were $1.1  million,  $922,000,  and
$802,000 for the years ended December 31, 2002, 2001, and 2000.

         The  Company's  future  minimum  annual  lease  commitments  under  all
operating leases as of December 31, 2002 are as follows:

         Year Ended December 31,
                  2003                             $1,047,000
                  2004                                505,000
                  2005                                474,000
                  2006                                307,000
                  2007                                198,000
                                                   ----------
             Total minimum lease payments          $2,531,000
                                                   ==========

         In 1998, the Company entered into a Shareholder's  Agreement with Lynda
L. Regan,  Chief Executive  Officer of the Company and Chairman of the Company's
Board of Directors. Under the terms of this agreement, in the event of the death
of Ms. Regan, the Company shall repurchase from Ms. Regan's estate all shares of
common  stock  that were owned by Ms.  Regan at the time of her  death,  or were
transferred by her to one or more trusts prior to her death.  The purchase price
to be paid by the Company shall be equal to 125% of the fair market value of the
shares.  The purchase  price was equal to $28 million at December 31, 2002.  The
Company has purchased two life insurance policies with a combined face amount of
$29  million  for the  purpose of funding  this  obligation  in the event of Ms.
Regan's death.

         The Company is involved in various claims and legal proceedings arising
in the  ordinary  course of  business.  Although it is  difficult to predict the
ultimate outcome of these cases, management believes,  based on


                                       33
<PAGE>

discussions  with legal counsel,  that the ultimate  disposition of these claims
will not have a material adverse effect on our financial  condition,  cash flows
or results of operations.

         As part of the  Company's  agreements  with  certain  of its  insurance
producers,  the Company may, under certain circumstances,  be obligated to offer
to purchase the business of the producers.  At December 31, 2002,  there were no
outstanding commitments by the Company relating to such obligations.

11.      Redeemable Common Stock

         Between  1990 and  1992,  the  Company  issued  Series  A and  Series B
redeemable  common  stock to certain  shareholders.  The Company is obligated to
repurchase the redeemable common stock at the current fair market value. Because
there is no active trading market for the Company's  stock that would  establish
market value,  the Company's Board of Directors  approved a redemption value for
Series A redeemable  common stock of $2.20 per share and $2.19 per share,  and a
redemption  value for Series B  redeemable  common  stock of $1.82 and $2.19 per
share,  as of December 31, 2002 and 2001,  based on an independent  appraisal of
the stock value obtained by management.
<TABLE>
<CAPTION>
                                              Series A                 Series B                    Total
                                          Redeemable Common        Redeemable Common         Redeemable Common
                                                Stock                    Stock                     Stock
                                      ------------------------   ----------------------   ------------------------
                                                     Carrying                 Carrying                  Carrying
                                        Shares        Amount      Shares       Amount       Shares       Amount
                                      ----------   -----------   --------   -----------   ----------   -----------
<S>             <C>                    <C>           <C>          <C>         <C>          <C>          <C>
Balance January 1, 2000                4,921,000   $ 9,794,000    590,000   $ 1,769,000    5,511,000   $11,563,000
Redemptions and retirement of common
stock                                   (410,000)     (810,000)    (6,000)      (11,000)    (416,000)     (821,000)
Accretion to redemption value                 --       495,000         --            --           --       495,000
                                      ----------   -----------   --------   -----------   ----------   -----------
Balance December 31, 2000              4,511,000     9,479,000    584,000     1,758,000    5,095,000    11,237,000
Redemptions and retirement of common
stock                                   (232,000)     (500,000)    (3,000)      (10,000)    (235,000)     (510,000)
Accretion to redemption value                 --       397,000         --            --           --       397,000
                                      ----------   -----------   --------   -----------   ----------   -----------
Balance December 31, 2001              4,279,000     9,376,000    581,000     1,748,000    4,860,000    11,124,000
Redemptions and retirement of common
stock                                   (457,000)     (996,000)   (21,000)      (39,000)    (478,000)   (1,035,000)
Accretion to redemption value                 --        26,000         --            --           --        26,000
                                      ----------   -----------   --------   -----------   ----------   -----------
Balance December 31, 2002              3,822,000   $ 8,406,000    560,000   $ 1,709,000    4,382,000   $10,115,000
                                      ==========   ===========   ========   ===========   ==========   ===========
</TABLE>
         The Company recorded  redeemable  common stock accretion of $26,000 and
$397,000  and related to Series A  redeemable  common  stock for the years ended
December  31, 2002 and 2001.  The carrying  value of Series B redeemable  common
stock is greater than the redemption value, and has not been accreted.

         Holders of Series A redeemable  common stock may redeem their  holdings
without limitation.  Holders of Series B redeemable common stock may only redeem
up to 10% of their  holdings  once per year,  limited to a specified  twenty-day
period during November.

12.      Stock Options and Stock Awards

         The Company  currently  sponsors two  stock-based  compensation  plans.
Under both plans,  the exercise  price of each option equals the estimated  fair
value of the  underlying  common  stock on the date of grant,  as  estimated  by
management,  except for incentive stock options granted to shareholders  who own
10% or more of the Company's  outstanding stock, where the exercise price equals
110% of the estimated  fair value.  Both plans are  administered  by committees,
which are appointed by the Company's Board of Directors.

         Producer  Option Plan -- Under the Regan Holding Corp.  Producer  Stock
Option and Award plan (the  "Producer  Option  Plan"),  the Company may grant to
Legacy  Marketing  producers  and Legacy  Financial  registered  representatives
shares of the  Company's  common  stock and  non-qualified  stock  options  (the
"Producer  Options") to purchase the  Company's  common  stock.  A total of 12.5
million  shares have been  reserved  for grant under the  Producer  Option Plan.
Total stock options  granted to Producers for 2002,  2001, and 2000 were 10,000,
265,000,  and 1.7 million.  Total  expenses  recorded for Producer  stock option
grants were $4,000,  $96,000,  and $1.1 million


                                       34
<PAGE>

during 2002,  2001 and 2000. The Producer stock options  granted for each of the
three years ended December 31, 2002 vested  immediately upon the grant date. The
fair  value of the  Producer  options  were  estimated  using the  Black-Scholes
option-pricing model with the following assumptions:

                                   2002         2001           2000
                                 ---------   -----------    -----------
        Risk-free interest rates     4.78%   5.13%-6.80%    5.04%-6.52%
        Volatility                     27%       27%-31%        28%-34%
        Dividend yield               None          None           None
        Expected life             6 years    6-10 years     6-10 years


         The following table  summarizes  information  with respect to shares of
Series A common stock awarded to non-employees:

                                        2001         2000
                                    -----------    --------
           Share grants                  48,000      66,000
           Fair value per share     $1.53-$1.65    $   1.53
           Expense recorded         $    75,000    $100,000

         There were no shares of Series A common stock awarded to  non-employees
during 2002.  The share grant for 2001 listed above  includes  15,000  shares of
Series A common  stock  that the  Company  was  obligated  to award to a service
provider, but had not been issued as of December 31, 2002.

         Employee Option Plan -- Under the Regan Holding Corp. 1998 Stock Option
Plan (the  "Employee  Option  Plan"),  the  Company may grant to  employees  and
directors  incentive  stock  options and  non-qualified  options to purchase the
Company's common stock (collectively  referred to herein as "Employee Options").
A total of 8.5 million  shares have been  reserved  for grant under the Employee
Option Plan.  The Employee  Options  generally  vest over four or five years and
expire in ten years,  except for incentive stock options granted to shareholders
who own 10% or more of the  outstanding  shares of the  Company's  stock,  which
expire in five years.  The Company uses the intrinsic value method of accounting
for stock-based awards granted to employees and, accordingly, does not recognize
compensation expense for its stock-based awards to employees.


         Stock option activity under both plans was as follows:

                                                           Total
                                                       Weighted average
                                               Shares   Exercise Price
                                               ------   --------------
         Outstanding at December 31, 1999    8,810,000      $1.13
         Granted                             5,118,000      $1.52
         Exercised                             (27,000)     $0.95
         Forfeited                            (525,000)     $1.08

         Outstanding at December 31, 2000   13,376,000      $1.28
         Granted                             2,976,000      $1.62
         Exercised                                  --      $  --
         Forfeited                            (788,000)     $1.25

         Outstanding at December 31, 2001   15,564,000      $1.35
         Granted                             1,153,000      $1.68
         Exercised                                  --      $  --
         Forfeited                            (768,000)     $1.22

         Outstanding at December 31, 2002   15,949,000      $1.38

         Exercisable at December 31, 2000    8,984,000      $1.25
         Exercisable at December 31, 2001   11,512,000      $1.31
         Exercisable at December 31, 2002   12,407,000      $1.32


                                       35
<PAGE>

         The  following  table  summarizes   information   about  stock  options
outstanding at December 31, 2002 under both plans:
<TABLE>
<CAPTION>

                                                Options Outstanding                  Options Exercisable
                                          -------------------------------        --------------------------
                                              Weighted           Weighted                         Weighted
                                               Average           Average                          Average
                                              Remaining          Exercise                         Exercise
Range of exercise prices      Shares      Contractual Life        Price           Shares           Price
------------------------      ------      ----------------        -----           ------           -----
<S>  <C>    <C>               <C>               <C>                <C>           <C>                <C>
     $ 0.73-$0.84             1,654,000         2.6                $ 0.73        1,614,000          $ 0.73
     $      1.03                120,000         1.3                $ 1.03          120,000          $ 1.03
     $ 1.27-$1.40             5,832,000         2.5                $ 1.27        5,568,000          $ 1.27
     $      1.53              4,317,000         4.9                $ 1.53        3,132,000          $ 1.53
     $      1.61              2,081,000         4.8                $ 1.61        1,718,000          $ 1.61
     $      1.65                737,000         8.4                $ 1.65          203,000          $ 1.65
     $      1.68              1,208,000         8.5                $ 1.68           52,000          $ 1.68
</TABLE>
13.      Income Taxes

         Deferred  tax  assets  and  liabilities  are  recognized  as  temporary
differences between amounts reported in the financial  statements and the future
tax  consequences  attributable  to those  differences  that are  expected to be
recovered or settled.

         The benefit from  federal and state  income  taxes  consists of amounts
currently  (receivable)  payable and  amounts  deferred  which,  for the periods
indicated, are shown below:


                                      For the Year Ended December 31,
                                ------------------------------------------------
                                  2002               2001               2000
                                ---------         ----------        ------------
Current income taxes:
Federal                         $  76,000         $ (92,000)        $(3,418,000)
State                              24,000             5,000              (3,000)
                                ---------         ---------         -----------
Total current                     100,000           (87,000)         (3,421,000)
                                ---------         ---------         -----------
Deferred income taxes:
Federal                          (170,000)         (117,000)          1,712,000
State                              36,000           (16,000)            (46,000)
                                ---------         ---------         -----------
Total deferred                   (134,000)         (133,000)          1,666,000
                                ---------         ---------         -----------
Benefit from income taxes       $ (34,000)        $(220,000)        $(1,755,000)
                                =========         =========         ===========

         The  Company's  deferred  tax  assets  (liabilities)   consist  of  the
following:

                                                              December 31,
                                                       ------------------------
                                                          2002         2001
                                                       -----------  -----------
Producer stock option and stock awards                 $ 2,182,000  $ 2,180,000
Producer deferred compensation                           1,696,000    1,735,000
Accrued sales convention costs                             663,000      414,000
State net operating loss carryforward, less valuation
allowance of $362,000 and $264,000, net of federal
taxes                                                      248,000      321,000
Alternative minimum tax credit carryforward                304,000      304,000
Investment impairment charge                                    --      256,000
Capital loss                                               353,000       70,000
Unrealized losses                                          427,000           --
Other                                                      817,000      335,000
                                                       -----------  -----------
Subtotal deferred tax assets                             6,690,000    5,615,000


                                       36
<PAGE>

Fixed asset depreciation                                (3,611,000)  (2,658,000)
Deferred gain on building sale                          (1,364,000)  (1,364,000)
Unrealized gains                                                --      (37,000)
Other                                                           --      (27,000)
                                                       -----------  -----------
Subtotal deferred tax liabilities                       (4,975,000)  (4,086,000)
                                                       -----------  -----------
Deferred tax assets, net                               $ 1,715,000  $ 1,529,000
                                                       ===========  ===========

         In  assessing  the  realizability  of deferred  tax assets,  management
considers  whether  it is more  likely  than not  that  some  portion  or all of
deferred tax assets will, or will not, be realized.  The ultimate realization of
deferred tax assets is dependent  upon the  generation of future  taxable income
during the periods in which temporary differences become deductible.  Management
believes  it is more  likely  than not  that the  deferred  tax  assets  will be
realized.

         The benefit  from income  taxes  differs  from the benefit  computed by
applying the statutory  federal income tax rate (34%) to income before taxes, as
follows:
<TABLE>
<CAPTION>
                                                                 For the Year Ended December 31,
                                                      --------------------------------------------------
                                                        2002               2001                 2000
                                                      --------           ---------           -----------
<S>                                                   <C>                <C>                 <C>
Federal income taxes benefit earned at
statutory rate (34%)                                  $(32,000)          $(193,000)          $(1,710,000)
Increases (reductions) in income taxes resulting
from:
State franchise taxes, net of federal income
tax benefit                                             40,000              (7,000)              (27,000)
Other                                                  (42,000)            (20,000)              (18,000)
                                                      --------           ---------           -----------
Benefit from income taxes                             $(34,000)          $(220,000)          $(1,755,000)
                                                      ========           =========           ===========
</TABLE>

         As of December  31,  2002,  the Company  has state net  operating  loss
carryforwards  of $8.6  million  that are expected to be utilized in the future.
$4.9 million of these state net operating losses begin to expire on December 31,
2012.  The  Company  also has,  for  state  income  tax  purposes,  $304,000  in
alternative  minimum tax  credits  which can be used to reduce  income  taxes in
subsequent  years to the extent regular tax exceeds  tentative  minimum tax. The
credits have no expiration date.

14.      Loss per Share

         The basic and  diluted  loss per  share  calculations  are based on the
weighted  average  number  of  common  shares  outstanding  including  shares of
redeemable common stock.
<TABLE>
<CAPTION>
                                                          Loss          Shares        Per-share
                                                      (Numerator)     (Denominator)     Amount
                                                     -----------      -------------     ------
<S>                                                  <C>                 <C>            <C>
For the year ended December 31, 2002
Basic loss per share
Loss                                                 $   (60,000)
Accretion of redeemable common stock                     (26,000)
                                                     -----------
Basic and diluted loss available to
common shareholders                                  $   (86,000)        25,093,000     $   --
                                                     ===========      =============     ======
For the year ended December 31, 2001
Basic loss per share
Loss                                                 $  (348,000)
Accretion of redeemable common stock                    (397,000)
Basic and diluted loss available to
common shareholders                                  $  (745,000)        25,861,000     $(0.03)
                                                     ===========      =============     ======

For the year ended December 31, 2000
Basic loss per share
Loss before cumulative effect of accounting change   $(3,338,000)
Accretion of redeemable common stock                    (495,000)
                                                     ------------
</TABLE>

                                       37
<PAGE>

<TABLE>
<CAPTION>
<S>                                                  <C>                 <C>            <C>
Loss available to common shareholders before
   Cumulative effect of accounting change             (3,833,000)        26,238,000     $(0.15)
Cumulative effect of accounting change                  (226,000)                --       0.01)
                                                     -----------      -------------     ------
Basic and diluted loss available to
common shareholders                                  $(4,059,000)        26,238,000     $(0.16)
                                                     ===========      =============     ======
</TABLE>

         The diluted loss per share calculation for the years ended December 31,
2002,  2001 and 2000 excludes  antidilutive  stock  options of 4.1 million,  3.3
million and 6.8 million.

15.       Segment Information

         The Company has identified its reportable  segments based on its method
of internal  reporting and segregates  its business into six primary  reportable
segments: Legacy Marketing,  Legacy Financial,  Imagent Online, Values Financial
Network,  and Other.  Intersegment  transactions are generally  accounted for at
amounts  comparable  to  transactions  with  unaffiliated  customers,   and  are
eliminated in consolidation.  The Legacy Marketing business segment includes the
results  of  selling  and  administering  fixed  annuity  products  and  general
corporate  expenses not allocated to the Company's other  segments.  Previously,
general corporate  expenses were reported as a separate  business  segment.  The
segment  disclosures  for the years ended  December  31, 2001 and 2000 have been
restated to reflect the change in the composition of reportable segments.
<TABLE>
<CAPTION>
                                                                                                                   Values
                                                       Legacy               Legacy              Imagent           Financial
                                                      Marketing            Financial             Online            Network
                                                     ------------         -----------         -----------         -----------
<S>                                                  <C>                  <C>                 <C>                 <C>
Year Ended December 31, 2002
Total revenue                                        $ 47,859,000         $ 2,519,000         $    86,000         $     7,000
Total expenses                                         45,786,000           3,475,000           1,141,000             841,000
                                                     ------------         -----------         -----------         -----------
Operating income (loss)                                 2,073,000            (956,000)         (1,055,000)           (834,000)
Other income (loss)                                       571,000               7,000              (2,000)                 --
                                                     ------------         -----------         -----------         -----------
Income (loss) before tax                                2,644,000            (949,000)         (1,057,000)           (834,000)
Tax provision (benefit)                                 1,002,000            (354,000)           (409,000)           (314,000)
                                                     ------------         -----------         -----------         -----------
Net income (loss)                                    $  1,642,000         $  (595,000)        $  (648,000)        $  (520,000)
                                                     ============         ===========         ===========         ===========

Year Ended December 31, 2001
Total revenue                                        $ 53,446,000         $ 2,132,000         $      --           $    45,000
Total expenses                                         48,615,000           3,475,000           1,142,000           2,004,000
                                                     ------------         -----------         -----------         -----------
Operating income (loss)                                 4,831,000          (1,343,000)         (1,142,000)         (1,959,000)
Other income (loss)                                      (273,000)             14,000              92,000               2,000
                                                     ------------         -----------         -----------         -----------
Income (loss) before tax                                4,558,000          (1,329,000)         (1,050,000)         (1,957,000)
Tax provision (benefit)                                 1,807,000            (492,000)           (390,000)           (726,000)
                                                     ------------         -----------         -----------         -----------
Net income (loss)                                    $  2,751,000         $  (837,000)        $  (660,000)        $(1,231,000)
                                                     ============         ===========         ===========         ===========

Year Ended December 31, 2000
Total revenue                                        $ 39,423,000         $ 2,961,000         $     4,000         $        --
Total expenses                                         45,832,000           3,209,000             970,000             136,000
                                                     ------------         -----------         -----------         -----------
Operating loss                                         (6,409,000)           (248,000)           (966,000)           (136,000)
Other income (loss)                                     4,235,000              27,000              42,000                  --
                                                     ------------         -----------         -----------         -----------
Loss before tax                                        (2,174,000)           (221,000)           (924,000)           (136,000)
Tax benefit                                              (766,000)            (78,000)           (343,000)            (50,000)
                                                     ------------         -----------         -----------         -----------
Net loss before cumulative
effect of accounting change                            (1,408,000)           (143,000)           (581,000)            (86,000)
Cumulative effect of accounting
change                                                   (226,000)                 --                  --                  --
                                                     ------------         -----------         -----------         -----------
Net loss                                             $ (1,634,000)        $  (143,000)        $  (581,000)        $   (86,000)
                                                     ============         ===========         ===========         ===========
</TABLE>


                                       38
<PAGE>

<TABLE>
<CAPTION>
<S>                                                  <C>                  <C>                 <C>                 <C>
Total assets
December 31, 2002                                    $ 65,952,000         $ 1,188,000         $   852,000         $ 2,969,000
                                                     ============         ===========         ===========         ===========
December 31, 2001                                    $ 61,564,000         $ 1,631,000         $ 1,114,000         $ 4,012,000
                                                     ============         ===========         ===========         ===========
</TABLE>

<TABLE>
<CAPTION>
                                                                                                  Intercompany
                                                             Other              Subtotal          Eliminations            Total
                                                         -----------         ------------         ------------         ------------
<S>                                                      <C>                 <C>                  <C>                  <C>
Year Ended December 31, 2002
Total revenue                                            $   134,000         $ 50,605,000         $   (556,000)        $ 50,049,000
Total expenses                                                32,000           51,275,000             (556,000)          50,719,000
                                                         -----------         ------------         ------------         ------------
Operating income (loss)                                      102,000             (670,000)                  --             (670,000)
Other income (loss)                                               --              576,000                   --              576,000
                                                         -----------         ------------         ------------         ------------
Income (loss) before tax                                     102,000              (94,000)                  --              (94,000)
Tax provision (benefit)                                       41,000              (34,000)                  --              (34,000)
                                                         -----------         ------------         ------------         ------------
Net income (loss)                                        $    61,000         $    (60,000)        $         --         $    (60,000)
                                                         ===========         ============         ============         ============
Year Ended December 31, 2001
Total revenue                                            $   120,000         $ 55,743,000         $   (534,000)        $ 55,209,000
Total expenses                                               910,000           56,146,000             (534,000)          55,612,000
                                                         -----------         ------------         ------------         ------------
Operating income (loss)                                     (790,000)            (403,000)                  --             (403,000)
Other income (loss)                                               --             (165,000)                  --             (165,000)
                                                         -----------         ------------         ------------         ------------
Income (loss) before tax                                    (790,000)            (568,000)                  --             (568,000)
Tax provision (benefit)                                     (419,000)            (220,000)                  --             (220,000)
                                                         -----------         ------------         ------------         ------------
Net income (loss)                                        $  (371,000)        $   (348,000)        $         --         $   (348,000)
                                                         ===========         ============         ============         ============

Year Ended December 31, 2000
Total revenue                                            $   535,000         $ 42,923,000         $   (491,000)        $ 42,432,000
Total expenses                                             2,182,000           52,329,000             (491,000)          51,838,000
                                                         -----------         ------------         ------------         ------------
Operating loss                                            (1,647,000)          (9,406,000)                  --           (9,406,000)

Other income (loss)                                            9,000            4,313,000                   --            4,313,000
                                                         -----------         ------------         ------------         ------------
Loss before tax                                           (1,638,000)          (5,093,000)                  --           (5,093,000)
Tax benefit                                                 (518,000)          (1,755,000)                  --           (1,755,000)
                                                         -----------         ------------         ------------         ------------
Net loss before cumulative
effect of accounting change                               (1,120,000)          (3,338,000)                  --           (3,338,000)
Cumulative effect of accounting
Change                                                            --             (226,000)                  --             (226,000)
                                                         -----------         ------------         ------------         ------------
Net loss                                                 $(1,120,000)        $ (3,564,000)        $         --        $  (3,564,000)
                                                         ===========         ============         ============         ============
Total assets
December 31, 2002                                        $   194,000         $ 71,155,000         $(21,202,000)        $ 49,953,000
                                                         ===========         ============         ============         ============
December 31, 2001                                        $   244,000         $ 68,565,000         $(22,305,000)        $ 46,260,000
                                                         ===========         ============         ============         ============
</TABLE>

16.      Concentration of Risk

         As of December 31, 2002,  Legacy  Marketing sold its products on behalf
of four unaffiliated insurance carriers: American National,  Transamerica,  John
Hancock and Investors Insurance Corporation.  Effective during the first quarter
of 2002, Legacy Marketing and IL Annuity  terminated their marketing  agreement.
The agreements with the following  carriers  generated a significant  portion of
the Company's total consolidated revenue (sales on behalf of Investors Insurance
Corporation began in the second quarter of 2002):

                                      2002        2001         2000
                                      ----        ----         ----
Transamerica                          52%          68%         50%
American National                     17%           5%         10%
IL Annuity                            12%          20%         29%
John Hancock                           8%           -           -


                                       39
<PAGE>

         Although Legacy  Marketing  sells and  administers  several annuity and
life insurance  products on behalf of the insurance  carriers,  its revenues are
derived  primarily  from sales and  administration  of certain  annuity  product
series:

                                                              2002  2001  2000
                                                              ----  ----  ----
SelectMark(SM) series (sold on behalf of Transamerica)        51%    67%   49%
BenchMark(SM) series (sold on behalf of American National)    16%     4%    6%
VisionMark(SM) series (sold on behalf of IL Annuity)          11%    19%   28%
AssureMark(SM) series (sold on behalf of John Hancock)         8%     -     -

         During  the  first  quarter  of  2003,  Legacy  Marketing  discontinued
marketing life insurance  products issued by American  National.  Certain Legacy
Marketing  employees who were supporting the life insurance  product  operations
were either terminated or reassigned to other positions in Legacy Marketing.  In
addition, Legacy Marketing discontinued marketing certain fixed annuity products
issued by Transamerica.


                                       40
<PAGE>

    Supplementary Data

    Quarterly Financial Information (Unaudited)
<TABLE>
<CAPTION>
                            First Quarter      Second Quarter       Third Quarter      Fourth Quarter          Year
---------------------       ------------        ------------        ------------        ------------        ------------

2002
<S>                         <C>                 <C>                 <C>                 <C>                 <C>
Total revenue               $ 11,754,000        $ 12,576,000        $ 11,505,000        $ 14,214,000        $ 50,049,000

Operating income
(loss)                      $ (1,221,000)       $   (205,000)       $   (694,000)       $  1,450,000        $   (670,000)

Net income (loss)           $   (798,000)       $     (2,000)       $   (395,000)       $  1,135,000        $    (60,000)

Basic earnings
(loss) per share:
Earnings (loss)
available to common
shareholders                $      (0.03)       $         --        $      (0.02)       $       0.05        $         --

Diluted earnings
(loss) per share:
Earnings (loss)
available to common
shareholders                $      (0.03)       $         --        $      (0.02)       $       0.04        $         --


2001

Total revenue               $ 11,757,000        $ 15,068,000        $ 15,108,000        $ 13,276,000        $ 55,209,000

Operating income
(loss)                      $ (2,110,000)       $  1,023,000        $  1,537,000        $   (853,000)       $   (403,000)

Net income (loss)           $ (1,257,000)       $    744,000        $    979,000        $   (814,000)       $   (348,000)

Basic earnings
(loss) per share:
Earnings (loss)
available to common
shareholders                $      (0.05)       $       0.02        $       0.04        $      (0.04)       $      (0.03)

Diluted earnings
(loss) per share:
Earnings (loss)
available to common
shareholders                $      (0.05)       $       0.02        $       0.03        $      (0.04)       $      (0.03)
</TABLE>


                                       41
<PAGE>

       REPORT OF INDEPENDENT ACCOUNTANTS ON FINANCIAL STATEMENT SCHEDULES

To the Board of Directors and Shareholders of Regan Holding Corp.

Our audits of the consolidated  financial  statements  referred to in our report
dated March 27, 2003 also included an audit of the financial statement schedules
listed in Item  15(a)(2)  of this Form 10-K.  In our  opinion,  these  financial
statement  schedules present fairly, in all material  respects,  the information
set  forth  therein  when  read in  conjunction  with the  related  consolidated
financial statements.


/s/ PricewaterhouseCoopers LLP
San Francisco, California
March 27, 2003


                                       42
<PAGE>

<TABLE>
<CAPTION>
                                                                    Schedule II - Valuation and Qualifying Accounts

                                                                               Additions
                                                                 Balance at    Charged to                       Balance at
                                                                 beginning      costs and                         end of
                                                                 of period      expenses        Deductions        period
                                                                 ---------      ---------       ----------        ------
<S>                                                              <C>            <C>             <C>              <C>
2002
Allowance for uncollectible accounts                             $ 348,000      $ 393,000       $ (39,000)       $ 702,000
State net operating loss carryforward valuation allowance        $ 264,000      $  98,000       $    --          $ 362,000

2001
Allowance for uncollectible accounts                             $  94,000      $ 342,000       $ (88,000)       $ 348,000
State net operating loss carryforward valuation allowance        $    --        $ 264,000       $    --          $ 264,000

2000
Allowance for uncollectible accounts                             $  30,000      $ 369,000       $(305,000)       $  94,000
State net operating loss carryforward valuation allowance        $    --        $    --         $    --          $    --

</TABLE>

                                       43
<PAGE>

Item  9.  Changes  In and  Disagreements  With  Accountants  on  Accounting  and
Financial Disclosure

         None.

                                    PART III

Item 10. Directors and Executive Officers of the Company

         Information   required  by  Item  10  is  contained  in  the  Company's
Definitive  Proxy Statement in the section titled  "Election of Directors." Such
information is incorporated herein by reference.

Item 11. Executive Compensation

         Information   required  by  Item  11  is  contained  in  the  Company's
Definitive  Proxy Statement in the section titled  "Election of Directors." Such
information is incorporated herein by reference.

Item 12. Security Ownership of Certain Beneficial Owners and Management

         Certain  information  required by Item 12 is contained in the Company's
Definitive  Proxy Statement in the section titled  "Election of Directors." Such
information is incorporated herein by reference.

Securities Authorized For Issuance Under Equity Compensation Plans
<TABLE>
<CAPTION>
                            (a)                       (b)                    (c)
--------------------------- ------------------------- ---------------------- -----------------------------------------
<S>                         <C>                       <C>                    <C>
                                                                             Number of shares remaining available
                            Number of shares to be    Weighted-average       for future issuance under equity
                            issued upon exercise of   exercise price of      compensation plans (excluding
Plan category               outstanding options       outstanding options    securities reflected in column (a))
--------------------------- ------------------------- ---------------------- -----------------------------------------

Equity compensation plans
approved by stockholders
(1)                         15,949,000                $1.38                  5,051,000
--------------------------- ------------------------- ---------------------- -----------------------------------------
</TABLE>

(1) Includes the Regan  Holding Corp.  Producer  Stock Option and Award Plan and
the Regan Holding Corp. 1998 Stock Option Plan

Regan Holding Corp. stockholders have approved all equity compensation plans.

Item 13. Certain Relationships and Related Transactions

         Information   required  by  Item  13  is  contained  in  the  Company's
Definitive  Proxy Statement in the section titled  "Election of Directors." Such
information is incorporated herein by reference.

Item 14.  Controls and Procedures

         The Company maintains  disclosure  controls and procedures  designed to
ensure that  information  required to be  disclosed  in reports  filed under the
Securities Exchange Act of 1934, as amended, is recorded, processed,  summarized
and reported within the specified time periods.  In designing and evaluating the
disclosure controls and procedures,  management recognizes that any controls and
procedures,  no  matter  how  well  designed  and  executed,  can  provide  only
reasonable assurance of achieving the desired control objectives.  Within the 90
days prior to the date of this report, the Company's Chief Executive Officer and
Chief  Financial  Officer   evaluated,   with  the  participation  of  Company's
management,   the  effectiveness  of  the  Company's   disclosure  controls  and
procedures.   Based  on  that   evaluation,   which   disclosed  no  significant
deficiencies or material  weakness,  the Company's  Chief Executive  Officer and
Chief Financial  Officer  concluded that the Company's  disclosure  controls and
procedures  are effective.  There were no  significant  changes in the Company's
internal controls or in other factors that could  significantly  affect internal
controls subsequent to the evaluation.


                                       44
<PAGE>

                                     PART IV

Item 15.  Exhibits, Financial Statement Schedules, and Reports on Form 8-K

         (a)      Index to Exhibits and Financial Statement Schedules:

              1. The following financial statements are included in Item 8:

                  (i)   Independent Accountants Report.

                  (ii)  Consolidated  Balance  Sheet as of December 31, 2002 and
                        2001.

                  (iii) Consolidated Statement of Operations for the years ended
                        December 31, 2002, 2001, and 2000.

                  (iv)  Consolidated  Statement of Shareholders'  Equity for the
                        years ended December 31, 2002, 2001, and 2000.

                  (v)   Consolidated Statement of Cash Flows for the years ended
                        December 31, 2002, 2001, and 2000.

                  (vi)  Notes to Consolidated Financial Statements.

              2.  (i)   Quarterly Financial Information.

                  (ii)  Schedule II - Valuation and Qualifying Accounts.

              3. See(c) below.

         (b)      Regan Holding Corp. filed a Form 8-K, dated November 26, 2002,
                  announcing a strategic plan to consolidate  the life insurance
                  and annuity  product  portfolio  marketing  business of Legacy
                  Marketing Group.

         (c)      Exhibit Index:

3(a)     Restated  Articles of  Incorporation.  (1)

3(b)(2)  Amended and Restated  Bylaws of the Company. (5)

4(a)     Shareholders' Agreement,  dated  as of  May 29, 1998, by and among  the
         Company,  Lynda  Regan,  Alysia  Anne Regan,  Melissa  Louise Regan and
         RAM Investments.(6)

10(a)    Administrative   Services  Agreement  effective  January  1,  1991,  as
         amended,  between  Allianz  Life Insurance Company of North America and
         the Company.(2)

10(b)(1) Marketing   Agreement   effective  June 1, 1993,  as  amended,  between
         American National Insurance Company and the Company.(2)

10(b)(2) Amendment  Three  to   Marketing   Agreement  with  American   National
         Insurance Company.(3)  10(b)(3) Amendment  Four to Marketing  Agreement
         with American National  Insurance  Company.(3)  10(b)(4) Amendment Five
         to Marketing Agreement with American National Insurance Company.(4)

----------------------
(1)      Incorporated herein by reference to the Company's annual report on Form
         10-K for the year ended December 31, 1994.

(2)      Incorporated  herein by reference to the Company's  quarterly Form 10-Q
         for the three months and nine months ended September 30, 1996.


                                       45
<PAGE>

(3)      Incorporated  herein by reference to the Company's  quarterly Form 10-Q
         for the three months and six months ended June 30, 1998.

(4)      Incorporated herein by reference to the Company's annual report on Form
         10-K for the year ended December 31, 1998.

(5)      Incorporated  herein by reference to the Company's  quarterly Form 10-Q
         for the three months and nine months ended September 30, 2000.

(6)      Incorporated  herein by reference to the Company's  quarterly Form 10-Q
         for the three months and nine months ended September 30, 1998.



                                       46
<PAGE>

10(b)(5)  Amendment Six to Marketing  Agreement with American National Insurance
          Company (5)

10(b)(6) Amendment Seven to Marketing Agreement with American National Insurance
         Company.(2)

10(b)(7) Amendment Eight to Marketing Agreement with American National Insurance
         Company.(3)

10(b)(8)  Amendment Nine to Marketing Agreement with American National Insurance
          Company.(3)

10(b)(9)  Amendment Ten to Marketing Agreement with American National  Insurance
          Company.(4)

10(b)(10) Amendment Eleven  to  Marketing   Agreement  with  American   National
          Insurance Company.(9)

10(b)(11) Amendment Twelve  to  Marketing   Agreement  with  American   National
          Insurance Company.(9)

10(b)(12) Amendment Thirteen  to  Marketing  Agreement  with  American  National
          Insurance Company. (10)

10(b)(13) Amendment Fourteen  to  Marketing  Agreement  with  American  National
          Insurance Company. (11)

10(b)(14) Amendment Sixteen  to  Marketing   Agreement  with  American  National
          Insurance Company. (12)

10(b)(15) Amendment Seventeen  to Marketing  Agreement  with  American  National
          Insurance Company. (13)

10(b)(16) Amendment Eighteen  to  Marketing  Agreement  with  American  National
          Insurance Company. (13)

10(b)(17) Amendment Nineteen  to  Marketing  Agreement  with  American  National
          Insurance Company. (14)

10(b)(18) Amendment Twenty  to  Marketing   Agreement  with  American   National
          Insurance Company. (15)

10(b)(19) Amendment Twenty One to Marketing  Agreement  with  American  National
          Insurance Company. (16)

10(b)(20) Amendment Twenty Two to Marketing  Agreement  with  American  National
          Insurance Company. (17)

10(b)(21) Amendment Twenty Three to Marketing  Agreement with American  National
          Insurance Company. (17)

10(b)(22) Amendment Twenty Four to Marketing  Agreement  with American  National
          Insurance Company. (18)

10(b)(23) Amendment Twenty Five to Marketing  Agreement  with American  National
          Insurance Company. (19)

10(b)(24) Amendment Twenty Six to Marketing  Agreement  with  American  National
          Insurance Company. (20)

10(b)(25) Amendment Twenty Seven to Marketing  Agreement with American  National
          Insurance Company. (21)

10(b)(26) Marketing Agreement,  effective  November 15, 2002,  between  American
          National Insurance Company and Legacy Marketing Group. (22)

10(c)(1)  Insurance Processing  Agreement,  effective  June 1, 1993, as amended,
          between American  National  Insurance  Company  and  Legacy  Marketing
          Group.(1)

10(c)(2)  Amendment to Insurance Processing  Agreement  with  American  National
          Insurance Company.(2)

10(c)(3)  Amendment Two to Insurance Processing Agreement with American National
          Insurance Company.(3)

10(c)(4)  Amendment Three  to  Insurance   Processing  Agreement  with  American
          National Insurance Company.(4)

10(c)(5) Amendment Four to Insurance Processing Agreement with American National
         Insurance Company.(5)

10(c)(6) Amendment Five to Insurance Processing Agreement with American National
         Insurance Company.(5)

10(c)(7) Amendment Six to Insurance  Processing Agreement with American National
         Insurance Company.(6)

10(c)(8) Amendment  Seven  to  Insurance   Processing  Agreement  with  American
         National Insurance Company.(7)

10(c)(9) Amendment  Eight  to  Insurance   Processing  Agreement  with  American
         National Insurance Company.(7)

10(c)(10) Amendment Nine  to  Insurance   Processing   Agreement  with  American
         National Insurance Company.(8)


                                       47
<PAGE>

(1)      Incorporated herein by reference to the Company's annual report on Form
         10-K for the year ended December 31, 1994.

(2)      Incorporated  herein by reference to the Company's  quarterly Form 10-Q
         for the three months ended March 31, 1998.

(3)      Incorporated  herein by reference to the Company's  quarterly Form 10-Q
         for the three months and six months ended June 30, 1998.

(4)      Incorporated  herein by reference to the Company's  quarterly Form 10-Q
         for the three months and nine months ended September 30, 1998.

(5)      Incorporated herein by reference to the Company's annual report on Form
         10-K for the year ended December 31, 1998.

(6)      Incorporated  herein by reference to the Company's  quarterly Form 10-Q
         for the three months ended March 31, 1999.

(7)      Incorporated  herein by reference to the Company's  quarterly Form 10-Q
         for the three months and six months ended June 30, 1999.

(8)      Incorporated  herein by reference to the Company's  quarterly Form 10-Q
         for the three months and nine months ended September 30, 1999.

(9)      Incorporated herein by reference to the Company's annual report on Form
         10-K for the year ended December 31, 1999.

(10)     Incorporated  herein by reference to the Company's  quarterly Form 10-Q
         for the three months ended March 31, 2000.

(11)     Incorporated  herein by reference to the Company's  quarterly report on
         Form 10-Q for the three months and six months ended June 30, 2000.

(12)     Incorporated  herein by reference to the Company's  quarterly Form 10-Q
         for the three months and nine months ended September 30, 2000.

(13)     Incorporated  herein by  reference  to the  Company's  Form  S-1/A Post
         Effective Amendment No. 1, dated February 2, 2001.

(14)     Incorporated herein by reference to the Company's annual report on Form
         10-K for the year ended December 31, 2000.

(15)     Incorporated  herein by reference to the Company's  quarterly report on
         Form 10-Q for the three months ended March 31, 2001.

(16)     Incorporated  herein by reference to the Company's  quarterly report on
         Form 10-Q for the six months ended June 30, 2001.

(17)     Incorporated  herein by reference to the Company's  quarterly report on
         Form 10-Q for the nine months ended September 30, 2001.

(18)     Incorporated herein by reference to the Company's Form S-2/A, Amendment
         No. 2, dated February 11, 2002.

(19)     Incorporated  herein by reference
         to the Company's annual report on Form 10-K for the year ended December
         31, 2001.

(20)     Incorporated  herein by reference to the Company's  quarterly report on
         Form 10-Q for the six months ended June 30, 2002.

(21)     Incorporated herein by reference to the Company's amended annual report
         on Form 10-K/A for the year ended December 31, 2001.

(22)     Certain  confidential  commercial  and financial  information  has been
         omitted from the indicated  exhibits,  but filed under  separate  cover
         with the U.S. Securities and Exchange Commission.


                                       48
<PAGE>

10(c)(11)    Amendment  Ten to  Insurance  Processing  Agreement  with  American
             National Insurance Company.(4)

10(c)(12)    Amendment Eleven to Insurance  Processing  Agreement  with American
             National Insurance Company.(4)

10(c)(13)    Amendment Twelve to Insurance  Processing  Agreement  with American
             National Insurance Company. (5)

10(c)(14)    Amendment Thirteen to Insurance Processing  Agreement with American
             National Insurance Company. (6)

10(c)(15)    Amendment Fifteen to Insurance  Processing  Agreement with American
             National Insurance Company.(7)

10(c)(16)    Amendment Sixteen to Insurance  Processing  Agreement with American
             National Insurance Company. (9)

10(c)(17)    Amendment Seventeen to Insurance Processing Agreement with American
             National Insurance Company. (9)

10(c)(18)    Amendment Eighteen to Insurance Processing  Agreement with American
             National Insurance Company. (10)

10(c)(19)    Amendment Nineteen to Insurance Processing  Agreement with American
             National Insurance Company. (11)

10(c)(20)    Amendment Twenty to Insurance  Processing  Agreement  with American
             National Insurance Company. (12)

10(c)(21)   Amendment Twenty One to Insurance Processing Agreement with American
            National Insurance Company.(14)

10(c)(22)   Amendment Twenty Two to Insurance Processing Agreement with American
            National Insurance Company.(14)

10(c)(23)    Amendment Twenty  Three  to  Insurance  Processing  Agreement  with
             American National Insurance Company. (15)

10(c)(24)    Amendment  Twenty  Four  to  Insurance  Processing  Agreement  with
             American National Insurance Company. (16)

10(c)(25)    Amendment  Twenty  Five  to  Insurance  Processing  Agreement  with
             American National Insurance Company. (17)

10(c)(26)   Amendment Twenty Six to Insurance Processing Agreement with American
            National Insurance Company. (18)

10(c)(27)    Amendment  Twenty  Seven to  Insurance  Processing  Agreement  with
             American National Insurance Company.

10(c)(28)    Administrative  Services  Agreement,  effective  February 15, 2003,
             between  American  National  Insurance Company and Legacy Marketing
             Group. (21)

10(d)        Form of Producer Agreement.(1)

10(e)    Settlement Agreement dated June 18, 1993, among the State of Georgia as
         receiver for and on behalf of Old Colony Life Insurance Company,  other
         related parties and the Company.(1)

10(f)    401(K) Profit Sharing Plan & Trust dated July 1, 1994.(1)

10(g)    Marketing  Agreement  effective  January 1, 1996 between IL Annuity and
         Insurance Company and Legacy Marketing Group.(2)

10(h)    Insurance  Processing  Agreement  effective  January 1, 1996 between IL
         Annuity and Insurance Company and Legacy Marketing Group.(2)

10(i)    Marketing  Agreement  effective May 29, 1998 between  Transamerica Life
         Insurance and Annuity Company and Legacy Marketing Group.(3)

10(i)(1) Amendment Two to Marketing  Agreement with  Transamerica Life Insurance
         and Annuity Company.(12)

10(i)(2) Amendment Three to Marketing Agreement with Transamerica Life Insurance
         and Annuity Company.(14)

10(i)(3) Amendment Four to Marketing  Agreement with Transamerica Life Insurance
         and Annuity Company.(21)

10(j)(1) Administrative  Services  Agreement  effective  May  29,  1998  between
         Transamerica  Life Insurance and Annuity  Company and Legacy  Marketing
         Group, as amended.(3)


                                       49
<PAGE>

10(j)(2) Amendment to the  Administrative  Services  Agreement with Transamerica
         Life Insurance and Annuity Company.(4)

10(j)(3) Amendment   Two  to  the   Administrative   Services   Agreement   with
         Transamerica Life Insurance and Annuity Company.(4)

10(j)(4) Amendment Three to Administrative  Services Agreement with Transamerica
         Life Insurance and Annuity Company. (12)

10(j)(5) Amendment Four to Administrative  Services  Agreement with Transamerica
         Life Insurance and Annuity Company.(14)

10(j)(6) Amendment Five to Administrative  Services  Agreement with Transamerica
         Life Insurance and Annuity Company.(21)

10(k)    Marketing  Agreement  effective  January 18, 2001  between John Hancock
         Life Insurance Company and Legacy Marketing Group.

10 (k)(1)Amendment  to the  Marketing  Agreement  with John Hancock Life
         Insurance Company.

10(l)    Administrative  Services  Agreement  effective January 18, 2001 between
         John Hancock Life Insurance Company and Legacy Marketing Group.

10(l)(1) Amendment to the  Administrative  Services  Agreement with John Hancock
         Life Insurance Company.

10(m)    Agreement  of Purchase  and Sale,  dated March 8, 2001,  by and between
         Regan Holding Corp. and G & W/Lakeville Corporate Center, LLC. (13)

10(n)    Promissory  Note by and between  Regan  Holding  Corp.  and  Washington
         Mutual Bank FA, dated July 10, 2002. (17)

10(o)    Producer Stock Award and Stock Option Plan, as amended.(8)

10(o)(1) 1998 Stock Option Plan, as amended.(8)

13.1     Annual Report filed on Form 10-K for the ended December 31, 2002. (19)

24       Power of Attorney. (20)

99.1     Certification  of  Lynda  L.  Regan  pursuant  to  Section  906  of the
         Sarbanes-Oxley Act of 2002.

99.2     Certification  of G.  Steven  Taylor  pursuant  to  Section  906 of the
         Sarbanes-Oxley Act of 2002.


(1)      Incorporated herein by reference to the Company's annual report on Form
         10-K for the year ended December 31, 1994.

(2)      Incorporated herein by reference to the Company's annual report on Form
         10-K for the year ended December 31, 1995.

(3)      Incorporated  herein by reference to the Company's Form 8-K, dated June
         1, 1998.

(4)      Incorporated herein by reference to the Company's annual report on Form
         10-K for the year ended December 31, 1999.

(5)      Incorporated  herein by reference to the Company's  quarterly Form 10-Q
         for the three months ended March 31, 2000.

(6)      Incorporated  herein by reference to the Company's  quarterly Form 10-Q
         for the three months and six months ended June 30, 2000.

(7)      Incorporated  herein by reference to the Company's  quarterly Form 10-Q
         for the three months and nine months ended September 30, 2000.

(8)      Incorporated  herein by reference  to the  Company's  Definitive  Proxy
         Statement dated July 31, 2001. (9) Incorporated  herein by reference to
         the Company's Form S-1/A Post Effective Amendment No. 1, dated
         February 2, 2001.

(10)     Incorporated herein by reference to the Company's annual report on Form
         10-K for the year ended December 31, 2000.

(11)     Incorporated  herein by reference to the Company's  quarterly report on
         Form 10-Q for the three months ended March 31, 2001.

(12)     Incorporated  herein by reference to the Company's  quarterly report on
         Form 10-Q for the six months ended June 30, 2001.

(13)     Incorporated  herein by reference to the Company's Form 8-K, dated June
         21, 2001.


                                       50
<PAGE>

(14)     Incorporated  herein by reference to the Company's  quarterly report on
         Form 10-Q for the nine months ended September 30, 2001.

(15)     Incorporated herein by reference to the Company's Form S-2/A, Amendment
         No. 2, dated February 11, 2002. (16)  Incorporated  herein by reference
         to the Company's annual report on Form 10-K for the year ended December
         31, 2001.

(17)     Incorporated  herein by reference to the Company's  quarterly report on
         Form 10-Q for the six months ended June 30, 2002.

(18)     Incorporated herein by reference to the Company's amended annual report
         on Form 10-K/A for the year ended December 31, 2001.

(19)     Incorporated herein by reference to the Company's annual report on Form
         10-K for the year ended December 31, 2002.

(20)     Previously filed.

(21)     Certain  confidential  commercial  and financial  information  has been
         omitted from the indicated  exhibits,  but filed under  separate  cover
         with the U.S. Securities and Exchange Commission.

                                       51
<PAGE>

                                   SIGNATURES

Pursuant to the  requirements  of Section 13 or 15(d) of the  Securities  Act of
1934,  the  registrant has duly caused this report to be signed on its behalf by
the undersigned, thereunto duly authorized.

REGAN HOLDING CORP.

By: /s/ Lynda L. Regan                                     Date:  March 31, 2003
----------------------
Lynda L. Regan
Chairman and Chief Executive Officer


By: /s/ G. Steven Taylor                                   Date:  March 31, 2003
------------------------
G. Steven Taylor
Principal Accounting and  Financial Officer

Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following  persons on behalf of the  registrant and
in the capacities and on the dates indicated.

By: /s/ Lynda L. Regan                                     Date:  March 31, 2003
----------------------
Lynda L. Regan
Chairman and Chief Executive Officer

By: /s/ R. Preston Pitts                                   Date:  March 31, 2003
------------------------
R. Preston Pitts
President and Chief Operating Officer

By: /s/ Donald Ratajczak                                   Date:  March 31, 2003
------------------------
Donald Ratajczak
Director

By: /s/ Ute Scott-Smith                                    Date:  March 31, 2003
------------------------
Ute Scott-Smith
Director

By: /s/ J. Daniel Speight, Jr.                             Date:  March 31, 2003
------------------------------
J. Daniel Speight, Jr.
Director


                                       52
<PAGE>

                                 CERTIFICATIONS


I, Lynda L. Regan, certify that:
      1. I have reviewed this annual report on Form 10-K of Regan Holding Corp.;

      2. Based on my  knowledge,  this annual report does not contain any untrue
statement of a material fact or omit to state a material fact  necessary to make
the statements made, in light of the  circumstances  under which such statements
were made,  not  misleading  with  respect to the period  covered by this annual
report;

      3. Based on my knowledge,  the financial  statements,  and other financial
information  included  in this annual  report,  fairly  present in all  material
respects the financial  condition,  results of operations  and cash flows of the
registrant as of, and for, the periods presented in this annual report;

      4. The  registrant's  other  certifying  officer and I are responsible for
establishing and maintaining  disclosure  controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the registrant and have:

          a. designed  such  disclosure  controls and  procedures to ensure that
    material information relating to the registrant,  including its consolidated
    subsidiaries,  is  made  known  to  us  by  others  within  those  entities,
    particularly  during  the  period  in  which  this  annual  report  is being
    prepared;

          b. evaluated the effectiveness of the registrant's disclosure controls
    and  procedures as of a date within 90 days prior to the filing date of this
    annual report (the "Evaluation Date"); and

          c.  presented  in  this  annual  report  our  conclusions   about  the
    effectiveness  of  the  disclosure  controls  and  procedures  based  on our
    evaluation as of the Evaluation Date;

      5. The registrant's other certifying  officer and I have disclosed,  based
on our most  recent  evaluation,  to the  registrant's  auditors  and the  audit
committee  of  registrant's  board  of  directors  (or  persons  performing  the
equivalent functions):

          a. all significant deficiencies in the design or operation of internal
    controls which could adversely  affect the  registrant's  ability to record,
    process,  summarize and report  financial  data and have  identified for the
    registrant's auditors any material weaknesses in internal controls; and

          b. any fraud,  whether or not material,  that  involves  management or
    other  employees who have a significant  role in the  registrant's  internal
    controls; and

      6. The registrant's  other certifying officer and I have indicated in this
annual report whether there were significant  changes in internal controls or in
other factors that could  significantly  affect internal controls  subsequent to
the date of our most recent  evaluation,  including any corrective  actions with
regard to significant deficiencies and material weaknesses.

    /s/ Lynda L. Regan
    ----------------------------------------------------------------------------
    Lynda L. Regan
    Chairman and Chief Executive Officer

Date: March 31, 2003


                                       53
<PAGE>

I, G. Steven Taylor, certify that:

      1. I have reviewed this annual report on Form 10-K of Regan Holding Corp.;

      2. Based on my  knowledge,  this annual report does not contain any untrue
statement of a material fact or omit to state a material fact  necessary to make
the statements made, in light of the  circumstances  under which such statements
were made,  not  misleading  with  respect to the period  covered by this annual
report;

      3. Based on my knowledge,  the financial  statements,  and other financial
information  included  in this annual  report,  fairly  present in all  material
respects the financial  condition,  results of operations  and cash flows of the
registrant as of, and for, the periods presented in this annual report;

      4. The  registrant's  other  certifying  officer and I are responsible for
establishing and maintaining  disclosure  controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the registrant and have:

          a. designed  such  disclosure  controls and  procedures to ensure that
    material information relating to the registrant,  including its consolidated
    subsidiaries,  is  made  known  to  us  by  others  within  those  entities,
    particularly  during  the  period  in  which  this  annual  report  is being
    prepared;

          b. evaluated the effectiveness of the registrant's disclosure controls
    and  procedures as of a date within 90 days prior to the filing date of this
    annual report (the "Evaluation Date"); and

          c.  presented  in  this  annual  report  our  conclusions   about  the
    effectiveness  of  the  disclosure  controls  and  procedures  based  on our
    evaluation as of the Evaluation Date;

      5. The registrant's other certifying  officer and I have disclosed,  based
on our most  recent  evaluation,  to the  registrant's  auditors  and the  audit
committee  of  registrant's  board  of  directors  (or  persons  performing  the
equivalent functions):

          a. all significant deficiencies in the design or operation of internal
    controls which could adversely  affect the  registrant's  ability to record,
    process,  summarize and report  financial  data and have  identified for the
    registrant's auditors any material weaknesses in internal controls; and

          b. any fraud,  whether or not material,  that  involves  management or
    other  employees who have a significant  role in the  registrant's  internal
    controls; and

      6. The registrant's  other certifying officer and I have indicated in this
annual report whether there were significant  changes in internal controls or in
other factors that could  significantly  affect internal controls  subsequent to
the date of our most recent  evaluation,  including any corrective  actions with
regard to significant deficiencies and material weaknesses.

      /s/ G. Steven Taylor
      --------------------------------------------------------------------------
      G. Steven Taylor
      Chief Financial Officer

Date: March 31, 2003


                                       54