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                                  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, 2005

                                       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 000-19704

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

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

                 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 or to be registered pursuant
                     to Section 12(g) of the Exchange Act.

                           Common Stock, No Par Value
                                (Title of Class)

Indicate by check mark whether the registrant is a well-known  seasoned  issuer,
as defined in Rule 405 of the Securities Act. YES |_| NO |X|

Indicate  by  check  mark if the  registrant  is not  required  to file  reports
pursuant to Section 13 or 15(d) of the Act. YES |_| NO |X|

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. |_|

Indicate by check mark  whether the  registrant  is a large  accelerated  filer,
accelerated  filer,  or  non-accelerated  filer.  See definition of "accelerated
filer and large  accelerated  filer" in Rule 12b-2 of the  Exchange  Act.
  Large accelerated filer |_| Accelerated filer |_| Non-accelerated filer |X|

Indicate by check mark whether the  registrant is a shell company (as defined in
Rule 12b-2 of the Act). YES |_| NO |X|

State the aggregate market value of the voting and non-voting common equity held
by non-affiliates  computed by reference to the price at which the common equity
was last sold, or the average bid and asked prices of such common equity,  as of
the last business day of the registrant's most recently  completed second fiscal
quarter.

                                   $10,609,000

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

As of March 15,  2006,  the  number of shares  outstanding  of the  registrant's
Series A Common Stock was 23,580,000 and the number of shares outstanding of the
registrant's  Series B Common Stock was  550,000.  The  registrant  has no other
shares outstanding.

                       DOCUMENTS INCORPORATED BY REFERENCE

Certain portions of the Definitive Proxy Statement pursuant to Regulation 14A of
the  Securities  Exchange Act of 1934 in connection  with Regan Holding  Corp.'s
Annual Meeting of Stockholders  to be held on June 5, 2006, are  incorporated by
reference into Part III of this Form 10-K.

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                                                 TABLE OF CONTENTS
<TABLE>
<CAPTION>
                                                                                                                       Page
                                                                                                                       ----
<S>        <C>                                                                                                          <C>
Part I
Item 1.    Business....................................................................................................  1
Item 1A.   Risk Factors................................................................................................  5
Item 1B.   Unresolved Staff Comments................................................................................... 10
Item 2.    Properties.................................................................................................. 10
Item 3.    Legal Proceedings........................................................................................... 10
Item 4.    Submission of Matters to a Vote of Security Holders......................................................... 10

Part II
Item 5.    Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of
           Equity Securities........................................................................................... 11
Item 6.    Selected Consolidated Financial Data........................................................................ 12
Item 7.    Management's Discussion and Analysis of Financial Condition and Results of Operations......................  13
Item 7A.   Quantitative and Qualitative Disclosure about Market Risk................................................... 22
Item 8.    Financial Statements and Supplementary Data................................................................  23
Item 9.    Changes in and Disagreements with Accountants on Accounting and Financial Disclosure........................ 43
Item 9A.   Controls and Procedures..................................................................................... 43
Item 9B.   Other Information........................................................................................... 43

Part III
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 and Related Stockholder Matters.............  44
Item 13.   Certain Relationships and Related Transactions.............................................................  44
Item 14.   Principal Accounting Fees and Services.....................................................................  44

Part IV
Item 15.   Exhibits and Financial Statement Schedules.................................................................. 45
</TABLE>

<PAGE>

                                     PART I


Item 1. 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,  which  involve  risks and
uncertainties that could cause actual results to differ materially.

General Development of Business

     Regan Holding Corp. ("Regan Holding") is a holding company, incorporated in
the State of California in 1990, whose primary operating subsidiaries are Legacy
Marketing  Group  ("Legacy  Marketing")  and  Legacy  Financial  Services,  Inc.
("Legacy Financial").  During 2005 Legacy Marketing generated  approximately 87%
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.

     Legacy Marketing has marketing  agreements with American National Insurance
Company  ("American  National"),  Investors  Insurance  Corporation  ("Investors
Insurance"),  Transamerica Life Insurance and Annuity Company  ("Transamerica"),
Americom Life & Annuity Insurance Company ("Americom") and John Hancock Variable
Life Insurance Company ("John Hancock").  The marketing  agreements grant Legacy
Marketing  the  exclusive  right to market  certain  proprietary  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,  Legacy Marketing is responsible
for appointing independent insurance producers (who we refer to as "Producers"),
who have contracted with Legacy Marketing to sell fixed annuity  products,  with
the applicable  insurance  carrier.  For these sales, the insurance carriers pay
marketing  allowances and  commissions to Legacy  Marketing based on the premium
amount of insurance policies placed inforce. Legacy Marketing is responsible for
paying sales commissions to the Producers.

     Legacy  Marketing  sells  fixed  annuity  products  through  a  network  of
approximately  24,400 Producers,  of whom approximately 2,400 generated business
for us during 2005.  Each  Producer has entered into a  non-exclusive  agreement
with Legacy Marketing,  which defines the parties' business  relationship.  Such
agreements  typically may be  terminated  with up to ninety days prior notice by
either the Producer or Legacy Marketing, with or without cause.

     Legacy  Marketing's  sales network is built on a  multi-level  structure in
which Producers may recruit other Producers. Recruited Producers are referred to
as  "downline"  Producers  within the  original  Producer's  network.  Recruited
Producers  may also  recruit  other  Producers,  creating a hierarchy  under the
original  Producer.  The standard Producer contract contains a nine-level design
in  which a  Producer  may  advance  from one  level to the next  based on sales
commission amounts or the size of the Producer's downline network. As a Producer
advances to higher levels within the system,  he/she receives higher commissions
on sales  made  through  his/her  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/her  downline  Producers  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."  There
were  approximately 450 Wholesalers who generated  business for Legacy Marketing
during 2005.

     Legacy Marketing  provides tools and services that assist  Wholesalers with
recruiting,  training and support responsibilities associated with the Producers
in their  hierarchy.  In  addition,  Legacy  Marketing  assists  Producers  with
programs  designed to  increase  their  sales and better  serve  their  clients.
Recruiting and training  programs  include visual  presentations,  informational
videos and seminars, and advertising material guidelines.  Legacy Marketing also
produces product information,  sales brochures,  pre-approved advertisements and
recruiting material.

     Legacy  Marketing  works  closely  with the  insurance  carriers in product
design and development.  Legacy Marketing's  actuarial and marketing 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  and are  guaranteed  by the  issuing  insurance
carriers. These 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 crediting rate strategies.

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     In  addition   to  the   marketing   agreements,   Legacy   Marketing   has
administrative agreements with each of the five insurance carriers listed above.
Legacy  Marketing  also  had  marketing  and   administrative   agreements  with
Indianapolis Life, formerly IL Annuity and Insurance Company ("IL Annuity"), but
the  marketing  agreement  terminated  during the first  quarter of 2002 and the
administrative  agreement is  scheduled  to expire on April 30, 2006.  Under the
terms of the  administrative  agreements,  Legacy Marketing  provides  clerical,
administrative and accounting  services with respect to the insurance  policies.
These services include  collecting and remitting  premium for the policies.  For
providing these services,  the insurance carriers pay Legacy Marketing 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.

     The marketing  agreements and the  administrative  agreements  allow Legacy
Marketing  to enter into similar  arrangements  with other  insurance  carriers.
However,  the marketing  agreements,  in general,  prevent Legacy Marketing from
developing and marketing products with other carriers that are considered unique
or proprietary under the terms of the marketing agreements.

     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  agreement  with  Investors
Insurance  expires on March 31,  2007,  and the  administrative  agreement  with
Investors  Insurance  expires on March 31, 2008. Both agreements will be renewed
automatically for successive  one-year terms unless terminated earlier by either
party upon twelve months prior written notice  without  cause.  Either party may
terminate the agreement  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   agreement  with  Americom   expires  on  June  10,  2007,  and  will
automatically  renew for  successive  one-year  periods.  Legacy  Marketing  may
terminate the agreement  prior to the renewal  period with twelve months written
notice and Americom may  terminate  the  agreement at any time with at least six
months written notice.  Either party may terminate the agreement immediately for
cause. The administrative  agreement with Americom expires on June 10, 2009, and
may be renewed by Americom  for  successive  one-year  periods by giving  Legacy
Marketing at least six months  notice and subject to certain  provisions  in the
agreement.  At the end of the  second  renewal  period,  the  agreement  will be
automatically renewed for successive one-year periods, unless terminated earlier
by either party upon nine months notice  without  cause.  Americom may terminate
the  agreement  without cause at any time after the second year of the agreement
by giving  Legacy  Marketing at least six months notice and paying a termination
fee in accordance  with the agreement.  Either party may terminate the agreement
immediately for cause.

     On  June  14,  2005,  and  in  connection  with  the  originally  scheduled
expiration of the administrative agreement with IL Annuity on December 31, 2005,
Legacy  Marketing  agreed with AmerUs Annuity Group Co.  ("AmerUs"),  the parent
company of IL Annuity, on the process to be followed to transition to AmerUs the
administration of certain IL Annuity insurance contracts, which Legacy Marketing
has been  administering  under the terms of the  administrative  agreement since
January 1, 1996.  On December 19, 2005,  AmerUs and Legacy  Marketing  agreed to
extend the term of the  administrative  agreement through April 30, 2006. In the
twelve months ended December 31, 2005, Legacy Marketing  received  approximately
$1.7 million in gross revenue under the administrative agreement. The expiration
of the administrative agreement will not affect the commissions earned by Legacy
Marketing on additional premium received or assets under management with respect
to the underlying IL Annuity insurance contracts.

     On November 18, 2005,  Regan Holding sold its office buildings in Petaluma,
California  for $12.8  million.  Regan  Holding  and the third  party buyer (the
"Buyer") further agreed to enter into a ten year lease  agreement,  concurrently
with the sale of the  buildings,  whereby we are leasing back (i) 71,612  square
feet for a period  not to exceed  eighteen  months and (ii)  between  35,612 and
51,612 square feet for the remainder of the lease term. The monthly base rent is
$1.25 per square foot and will  increase  annually by three  percent  during the
term of the lease, in addition to monthly taxes and operating expenses. Pursuant
to the terms of the lease, we paid the Buyer a security  deposit of $1.0 million
and  advance  rent of  $980,000.  The  advance  rent will be utilized to pay the
monthly base rent,  monthly taxes and operating  expenses  during the first nine
months of the lease  term.  The  security  deposit  will be  reduced  if we meet
certain profitability criteria as specified in the Agreement.

     On July 1, 2002,  Regan Holding  entered into a Purchase  Option  Agreement
with  SCOR  Life  U.S.  Re  Insurance  Company  ("SCOR"),  a 100%  owner  of the
outstanding capital stock of Investors  Insurance.  Pursuant to the terms of the
agreement,  SCOR granted  Regan  Holding the right to purchase  the  outstanding
capital stock of Investors  Insurance in exchange for annual option fees.  Regan
Holding had the right to exercise the option at any time on or prior to June 30,

                                       2
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2005, or terminate the Option Agreement in accordance with its terms before such
date if the A.M. Best rating of Investors  Insurance  declined below a specified
level.  The A.M.  Best rating of Investors  Insurance  fell below the  specified
level. On June 22, 2005, Regan Holding terminated the Option Agreement. SCOR has
repaid the option fees paid by Regan Holding  pursuant to the Option  Agreement,
including interest, totaling approximately $3.3 million.

     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  2005,  Legacy  Financial
accounted for approximately 13% of our consolidated revenues.

     Legacy  Financial is registered as a broker-dealer  with, and is subject to
regulation by, the U.S. Securities and Exchange Commission, National Association
of Securities Dealers,  Municipal Securities Rulemaking Board, and various state
agencies.  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,  through  our wholly  owned  subsidiary  Imagent  Online,  we
invested  in  prospectdigital,  LLC  ("prospectdigital"),   which  developed  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.  ("VFN"),  which was  engaged  in the  business  of  values-based
investment  screening.  In January 2006,  management of Regan Holding decided to
discontinue  the  operations  of VFN. VFN  incurred  losses from  operations  of
$578,000,  $1.2 million and $1.7 million for the years ended  December 31, 2005,
2004 and 2003. We will incur  insignificant costs in connection with exiting the
operations.

Competitive Business Conditions

     The fixed annuity business is rapidly  evolving and intensely  competitive.
Legacy  Marketing's  primary  market  is fixed  annuity  products  sold  through
independent  Producers.  In addition,  Legacy Marketing administers the products
sold by Producers on behalf of the issuing  insurance  carriers.  Fixed  annuity
product sales in the United States were  approximately $79 billion in 2005. Some
of Legacy  Marketing's top competitors  selling fixed annuity  products  through
independent  sales channels are Allianz Life of North America,  American  Equity
Investment Life,  Jefferson Pilot Financial Insurance Company, and AmerUs Group.
These  competitors may have greater  financial  resources than Legacy Marketing.
However,  we believe  that Legacy  Marketing's  business  model  allows  greater
flexibility,  as it can  adjust the mix of  business  sold if one or more of its
carriers  were to  experience  capital  constraints  or other events that affect
their business models.  Legacy Marketing's  competitors may respond more quickly
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 Legacy Marketing
with  competitive  challenges.  There can be no assurance that Legacy  Marketing
will be able to compete successfully.  In addition,  Legacy Marketing's business
model relies on its Wholesaler  distribution  network to effectively  market its
products   competitively.   Maintaining   relationships  with  these  Wholesaler
distribution  networks  requires  introducing  new  products and services to the
market in an  efficient  and  timely  manner,  offering  competitive  commission
schedules, and providing superior marketing,  product training, and support. Due
to competition among insurance companies and insurance  marketing  organizations
for successful Wholesalers, there can be no assurance that Legacy Marketing will
be able to retain some or all of its Wholesaler distribution networks.

                                       3
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Recent Industry Developments

     During  the  past  few  years,   several   federal,   state  and  insurance
self-regulatory  organization  proposals  have been made that  could  affect our
business.  As discussed  below, a few of these proposals have become  effective,
and others may be made or adopted.

     In December 2004, the National Association of Insurance  Commissioners (the
"NAIC")  approved  amendments to the NAIC's  Producer  Licensing  Model Act (the
"Model Act"). Under the Model Act, producers, like Legacy Marketing's Producers,
who  have  been  appointed  by an  insurer  as its  agent  and  do  not  receive
compensation  from a  customer,  are not  required  to  disclose  the  amount of
compensation received from the insurer.  However, under the Model Act, producers
are  required to disclose to the  customer,  prior to selling  insurance to that
customer,  that the producer will be receiving compensation from the insurer, or
that the  producer  represents  the  insurer  and may  provide  services  to the
customer for the insurer.  A few states have  adopted  regulations  based on the
Model Act and other states are considering similar regulation or legislation.

     In  early  2005,  the  California  Department  of  Insurance  had  proposed
regulations  that would have  statutorily  imposed  fiduciary duties and certain
mandatory  disclosure  obligations on insurance agents and brokers.  In November
2005,  the  Department  announced  that it would  suspend  efforts to adopt such
regulation, due to self-regulatory  initiatives taken by certain industry groups
establishing voluntary compensation disclosure guidelines for agents and brokers
similar to those required by the Model Act.

     Also in 2005,  the  Securities  and Exchange  Commission  informed  certain
issuers of equity-indexed  annuities that it is examining whether such annuities
need to be registered  under the  Securities Act of 1933. On August 8, 2005, the
NASD issued guidance to its members indicating that broker-dealers  regulated by
the NASD have  certain  responsibilities  with  respect to the offer and sale of
equity-indexed  annuities,  including an obligation to determine the suitability
of such  products  for their  customers,  regardless  of whether  equity-indexed
annuities are deemed to be securities.  Finally, some state insurance regulators
are considering whether additional suitability regulations should be implemented
with  respect  to all sales of fixed  annuities,  particularly  with  respect to
senior  citizens.  In  California,  Commissioner  Garamendi  issued a letter  on
October 7, 2005 to California  life insurance  companies  urging them to develop
suitability  standards  for the sale of annuity  products  to  seniors,  and the
California  Department of Insurance  has  sponsored a  legislative  measure that
would require the industry to establish such insurer suitability standards.  The
bill may be considered by the California legislature in 2006.

     Our core business consists of selling fixed annuity products,  on behalf of
insurance carriers,  through a network of approximately 24,400 Producers. If the
amendments to the Model Act or regulations  with similar  provisions are adopted
by states in which we conduct business, the manner in which we and the Producers
conduct  business could be negatively  impacted.  Similarly,  if the initiatives
undertaken  by  California  and  other  states,   the  Securities  and  Exchange
Commission or the NASD with respect to equity-indexed and other annuities result
in new  regulation or  legislation,  our  operations  and those of our Producers
could be adversely  affected.  We are unable to predict  whether,  or which,  of
these  initiatives  will  result in new laws or  regulations,  or whether  other
initiatives  may affect our business and the demand for fixed  annuity  products
marketed by Legacy  Marketing.  If such proposals or  initiatives  result in new
regulation or laws,  they could have a material  adverse effect on the insurance
industry in general or on our financial condition and results of operations.

     In recent years,  the U.S.  insurance  regulatory  framework has come under
increased scrutiny.  Some state legislatures have considered laws that may alter
or increase state regulation of insurance,  reinsurance,  and holding companies.
Moreover,  the NAIC and state insurance regulators regularly re-examine existing
laws and  regulations,  often  focusing  on  modifications  to  holding  company
regulations,  interpretations of existing laws, and the development of new laws.
Changes  in these  laws and  regulations  or their  interpretation  could have a
material adverse effect on our financial condition or results of operations.  In
addition,  the U.S.  Congress has considered  statutes that would impose certain
national uniform standards and repeal the McCarran-Ferguson  antitrust exemption
for the business of insurance.  While no legislation is currently  pending,  the
U.S. Congress could adopt laws or regulations that could have a material adverse
effect on our financial condition or results of operations.

     Legacy  Financial is registered as a broker-dealer  with, and is subject to
regulation by, the SEC, NASD, Municipal Securities Rulemaking Board, and various
state  agencies.  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 Legacy  Financial  could harm its 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 securities industry in general and
Legacy Financial's business in particular.

                                       4
<PAGE>

Employees

     As of March 14, 2006,  we employed 304  persons.  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.

Item 1A. 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 net loss of $13.7  million for the year ended  December  31, 2005.
The  loss  was  primarily  due to a loss  at  Legacy  Marketing  resulting  from
decreased  revenue.  We do not know when or if we will become  profitable in the
foreseeable future. If our revenue continues to decline and we continue to incur
net losses in future periods, our business and operating results could suffer.

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 American National, Investors
Insurance,  Transamerica,  Americom and John Hancock.  Legacy Marketing also has
administrative  agreements  with each of these five  insurance  carriers  and IL
Annuity,  whose marketing agreement  terminated during the first quarter of 2002
and whose  administrative  agreement  is  scheduled to expire on April 30, 2006.
During 2005, 23%, 20%, 18% and 11% of our total  consolidated  revenue  resulted
from fixed annuity  products Legacy Marketing sold and administered on behalf of
American National, Investors Insurance,  Transamerica and Americom. During 2004,
25%,  27% and 24% of our total  consolidated  revenue was  generated  from fixed
annuity  products Legacy  Marketing sold and  administered on behalf of American
National, Investors Insurance and Transamerica.

     During the first quarter of 2003, Legacy Marketing  discontinued  marketing
several Transamerica products that were marketed exclusively by Legacy Marketing
and,  effective  May  3,  2004,  Legacy  Marketing  discontinued  marketing  the
remaining  Transamerica  products  that  were  marketed  exclusively  by  Legacy
Marketing   primarily  because  these  products  no  longer  met  Transamerica's
profitability  targets.  Legacy  Marketing  continues to administer  these fixed
annuity  products  and  to  accept  additional  premium  payments,   subject  to
applicable additional deposit limitations for these products. Revenue from sales
and  administration  of  Transamerica  products  decreased  $4.0 million in 2005
compared  to 2004  and  accounted  for  approximately  18% and 24% of our  total
consolidated revenue for the years ended December 31, 2005 and 2004.

     During  the  second  quarter  of 2003,  American  National,  which sets the
crediting rates for the American National products marketed by Legacy Marketing,
reduced the crediting rates of several such fixed annuity  products  marketed by
Legacy  Marketing.  In addition,  American National lowered the commission rates
that it pays to Legacy Marketing for sales of these products. As a result, sales
and  administration  of American National products declined $2.8 million in 2005
compared to 2004 and $17.1 million in 2004 compared to 2003.

     During  the third  quarter  of 2003,  the A.M.  Best  rating  of  Investors
Insurance was downgraded from an A- rating to a B++ rating.  As a result,  sales
of fixed  annuity  products  issued  by  Investors  Insurance  began to  decline
significantly  in the second  quarter of 2004 and continued to steadily  decline
through the end of 2004.  Revenue from the sales and administration of Investors
Insurance products decreased $4.5 million in 2005 compared to 2004.

     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  agreement  with  Investors
Insurance  expires on March 31,  2007,  and the  administrative  agreement  with
Investors  Insurance  expires on March 31, 2008. Both agreements will be renewed
automatically for successive  one-year terms unless terminated earlier by either
party upon twelve months prior written notice  without  cause.  Either party may
terminate the agreements immediately for cause. The marketing and administrative
agreements with Transamerica and John Hancock do not have fixed terms but may be

                                       5
<PAGE>

terminated  by either party upon twelve  months  prior  written  notice  without
cause,  and may be  terminated  by  either  party  immediately  for  cause.  The
marketing   agreement   with  Americom   expires  on  June  10,  2007  and  will
automatically  renew for  successive  one-year  periods.  Legacy  Marketing  may
terminate the agreement  prior to the renewal  period with twelve months written
notice and Americom may  terminate  the  agreement at any time with at least six
months written notice.  Either party may terminate the agreement immediately for
cause. The administrative  agreement with Americom expires on June 10, 2009, and
may be renewed by Americom  for  successive  one-year  periods by giving  Legacy
Marketing at least six months  notice and subject to certain  provisions  in the
agreement.  At the end of the  second  renewal  period,  the  agreement  will be
automatically renewed for successive one-year periods, unless terminated earlier
by either party upon nine months notice  without  cause.  Americom may terminate
the  agreement  without cause at any time after the second year of the agreement
by giving  Legacy  Marketing at least six months notice and paying a termination
fee in accordance  with the agreement.  Either party may terminate the agreement
immediately for cause.

     On  June  14,  2005,  and  in  connection  with  the  originally  scheduled
expiration of the administrative agreement with IL Annuity on December 31, 2005,
Legacy  Marketing  agreed with AmerUs Annuity Group Co.  ("AmerUs"),  the parent
company of IL Annuity, on the process to be followed to transition to AmerUs the
administration of certain IL Annuity insurance contracts, which Legacy Marketing
has been  administering  under the terms of the  administrative  agreement since
January 1, 1996.  On December 19, 2005,  AmerUs and Legacy  Marketing  agreed to
extend the term of the  administrative  agreement through April 30, 2006. In the
twelve months ended December 31, 2005, Legacy Marketing  received  approximately
$1.7 million in gross revenue under the administrative agreement. The expiration
of the administrative agreement will not affect the commissions earned by Legacy
Marketing on additional premium received or assets under management with respect
to the underlying IL Annuity insurance contracts.

     Any  interruption,  deterioration,  or termination of the relationship with
any of Legacy Marketing's 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 in 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 R. Preston Pitts,  President and
Chief  Financial  Officer,  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
in 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  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 and motivate  Producers and
          provide them with superior product training.

     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.

                                       6
<PAGE>

     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 and  administration
of fixed  annuity  products.  The  historical  crediting  rates of fixed annuity
products are directly affected by financial market conditions. Changes in market
conditions  can affect  demand for these  fixed  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 and result in weakened financial condition and prospects.

We may be unable to effectively  fund our working  capital  requirements,  which
could have a material adverse effect on our operating results and earnings.

     If our cash inflows and  existing  cash  balances  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 fixed 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.

     Our cash and  investments  at  December  31,  2005 and 2004  totaled  $11.9
million and $12.2 million.


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

     As of December 31, 2005, we were  obligated to redeem  2,657,000  shares of
Series A common  stock at the  option of the  holders  of these  shares.  Of the
550,000  shares of Series B common stock  outstanding  at December 31, 2005,  we
were  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 in November of each
year.  The price per share is based on the  estimated  fair market  value of the
stock on the redemption  date.  Based upon the estimated fair market value as of
December 31, 2005, the redemption of all eligible  shares of Series A redeemable
common stock  during 2006 would  require $1.8  million,  which would  materially
decrease our cash position.

     Pursuant to the terms of our Amended and Restated  Shareholder's  Agreement
with Lynda L. Regan, our Chief Executive  Officer,  upon the death of Ms. Regan,
the heirs of Ms. Regan will have the option (but not the  obligation) to sell to
us all or a portion of the shares of the Company  owned by Ms. Regan at the time
of her  death.  In  addition,  we  would  also  have  the  option  (but  not the
obligation)  to purchase 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 us, if
any,  shall  be  equal to 125% of the fair  market  value of the  shares.  As of
December 31, 2005,  we believe 125% of the fair market value of the shares owned
by Ms.  Regan  was  equal to $8.8  million.  We have  purchased  life  insurance
coverage for the purpose of funding this potential  obligation.  There can be no
assurances,  however,  that the proceeds  from this  insurance  coverage will be
available or sufficient  to cover the purchase  price of the shares owned by Ms.
Regan at the time of her death. If the insurance  proceeds were not available or
sufficient to cover the purchase  price of Ms. Regan's shares at the time of her
death,  our  operating  results  and  financial  condition  could  be  adversely
affected.

                                       7
<PAGE>

RISKS RELATED TO OUR INDUSTRY

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

     The fixed 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  product
sales in the United  States  were  approximately  $79  billion  in 2005.  Legacy
Marketing had a 0.6% market share of the 2005 fixed annuity product sales in the
United  States  based on Legacy  Marketing's  $480  million of inforce  premiums
placed in 2005 as a percentage of the $79 billion of fixed annuities sold in the
United States during 2005. Some of Legacy  Marketing's  top competitors  selling
fixed  annuities  through  independent  sales channels are Allianz Life of North
America,  American Equity Investment Life,  Jefferson Pilot Financial  Insurance
Company,  and AmerUs Group.  These  competitors  may have greater  financial and
other  resources  than we do,  which allow them to respond  more quickly than us
under certain circumstances.

     Legacy  Marketing is not aware of any significant new means of competition,
products or services that its 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 Legacy Marketing with competitive challenges.  There can be no assurance
that Legacy Marketing will be able to compete successfully.  In addition, Legacy
Marketing's  business  model  relies  on  Wholesaler  distribution  networks  to
effectively market its products  competitively.  Maintaining  relationships with
these Wholesaler  distribution  networks  requires  introducing new products and
services to the market in an efficient and timely manner,  offering  competitive
commission schedules,  and providing superior marketing,  product training,  and
support. In the recent past, Legacy Marketing has been reasonably  successful in
expanding and maintaining its current Wholesaler distribution network.  However,
due  to  competition   among   insurance   companies  and  insurance   marketing
organizations for successful Wholesalers,  there can be no assurance that Legacy
Marketing  will be able to  retain  some or all of its  Wholesaler  distribution
networks.

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

     During  the  past  few  years,   several   federal,   state  and  insurance
self-regulatory  organization  proposals  have been made that  could  affect our
business.  As discussed  below, a few of these proposals have become  effective,
and others may be made or adopted.

     In December 2004, the National Association of Insurance  Commissioners (the
"NAIC")  approved  amendments to the NAIC's  Producer  Licensing  Model Act (the
"Model Act"). Under the Model Act, producers, like Legacy Marketing's Producers,
who  have  been  appointed  by an  insurer  as its  agent  and  do  not  receive
compensation  from a  customer,  are not  required  to  disclose  the  amount of
compensation received from the insurer.  However, under the Model Act, producers
are  required to disclose to the  customer,  prior to selling  insurance to that
customer,  that the producer will be receiving compensation from the insurer, or
that the  producer  represents  the  insurer  and may  provide  services  to the
customer for the insurer.  A few states have  adopted  regulations  based on the
Model Act and other states are considering similar regulation or legislation.

     In  early  2005,  the  California  Department  of  Insurance  had  proposed
regulations  that would have  statutorily  imposed  fiduciary duties and certain
mandatory  disclosure  obligations on insurance agents and brokers.  In November
2005,  the  Department  announced  that it would  suspend  efforts to adopt such
regulation, due to self-regulatory  initiatives taken by certain industry groups
establishing voluntary compensation disclosure guidelines for agents and brokers
similar to those required by the Model Act.

     Also in 2005,  the  Securities  and Exchange  Commission  informed  certain
issuers of equity-indexed  annuities that it is examining whether such annuities
need to be registered  under the  Securities Act of 1933. On August 8, 2005, the
NASD issued guidance to its members indicating that broker-dealers  regulated by
the NASD have  certain  responsibilities  with  respect to the offer and sale of
equity-indexed  annuities,  including an obligation to determine the suitability
of such  products  for their  customers,  regardless  of whether  equity-indexed
annuities are deemed to be securities.  Finally, some state insurance regulators
are considering whether additional suitability regulations should be implemented
with  respect  to all sales of fixed  annuities,  particularly  with  respect to
senior  citizens.  In  California,  Commissioner  Garamendi  issued a letter  on
October 7, 2005 to California  life insurance  companies  urging them to develop
suitability  standards  for the sale of annuity  products  to  seniors,  and the
California  Department of Insurance  has  sponsored a  legislative  measure that
would require the industry to establish such insurer suitability standards.  The
bill may be considered by the California legislature in 2006.

                                       8
<PAGE>

     Our core business consists of selling fixed annuity products,  on behalf of
insurance carriers,  through a network of approximately 24,400 Producers. If the
amendments to the Model Act or regulations  with similar  provisions are adopted
by states in which we conduct business, the manner in which we and the Producers
conduct  business could be negatively  impacted.  Similarly,  if the initiatives
undertaken  by  California  and  other  states,   the  Securities  and  Exchange
Commission or the NASD with respect to equity-indexed and other annuities result
in new  regulation or  legislation,  our  operations  and those of our Producers
could be adversely  affected.  We are unable to predict  whether,  or which,  of
these  initiatives  will  result in new laws or  regulations,  or whether  other
initiatives  may affect our business and the demand for fixed  annuity  products
marketed by Legacy  Marketing.  If such proposals or  initiatives  result in new
regulation or laws,  they could have a material  adverse effect on the insurance
industry in general or on our financial condition and results of operations.

     In recent years,  the U.S.  insurance  regulatory  framework has come under
increased scrutiny.  Some state legislatures have considered laws that may alter
or increase state regulation of insurance,  reinsurance,  and holding companies.
Moreover,  the NAIC and state insurance regulators regularly re-examine existing
laws and  regulations,  often  focusing  on  modifications  to  holding  company
regulations,  interpretations of existing laws, and the development of new laws.
Changes  in these  laws and  regulations  or their  interpretation  could have a
material adverse effect on our financial condition or results of operations.  In
addition,  the U.S.  Congress has considered  statutes that would impose certain
national uniform standards and repeal the McCarran-Ferguson  antitrust exemption
for the business of insurance.  While no legislation is currently  pending,  the
U.S. Congress could adopt laws or regulations that could have a material adverse
effect on our financial condition or results of operations.

     Legacy  Financial is registered as a broker-dealer  with, and is subject to
regulation by, the SEC, NASD, Municipal Securities Rulemaking Board, and various
state  agencies.  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 Legacy  Financial  could harm its 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 securities industry in general and
Legacy Financial's 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 fixed  annuity  products  that  Legacy  Marketing  markets.  This
favorable income tax treatment results in our policyholders paying no income tax
on  their  earnings  in  the  fixed  annuity  products  until  they  take a cash
distribution.  We believe that the tax deferral  features  contained  within the
fixed  annuity  products  that  Legacy  Marketing  markets  give our  products a
competitive advantage over other non-insurance  investment products where income
taxes may be due on current  earnings.  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  federal
government 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 operation.

     As a  professional  services  firm  primarily  engaged in the marketing and
administration of fixed 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 the  sale 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.

                                       9
<PAGE>

Item 1B. Unresolved Staff Comments

     None.


Item 2. Properties

     We own an office  building in Rome,  Georgia,  which is used to accommodate
some of Legacy Marketing Group's operating activities.  We financed the property
with a mortgage  loan,  which  totaled $2.8  million at December  31,  2005.  We
currently lease two office buildings in Petaluma, California, which serve as the
principal executive offices of Legacy Marketing and Legacy Financial.

Item 3. Legal Proceedings

     We are  involved  in various  claims and legal  proceedings  arising in the
ordinary  course of business.  In addition,  from time to time we have  received
requests  for  information  from  agencies  or other  bodies that  regulate  our
business.  In December 2005, Legacy Financial,  a registered  investment advisor
and a wholly  owned  subsidiary  of the  Company,  received  subpoenas  from the
Securities  and  Exchange  Commission  relating  to its  investigation  into the
activities of certain registered representatives.  We have been cooperating with
this investigation.  Although it is difficult to predict the ultimate outcome of
these  matters,  we believe that the ultimate  disposition of these matters 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 2005.

                                       10
<PAGE>

                                     PART II


Item 5.  Market for Registrant's Common Equity,  Related Stockholder Matters and
         Issuer Purchases of Equity Securities

     As of March 15, 2006,  Regan Holding Corp.'s Series A Common Stock was held
by approximately  1,300 shareholders of record and our Series B Common Stock was
held by  approximately  9,600  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. We do not
anticipate  paying  dividends  on any of our  outstanding  common  stock  in the
foreseeable future.


                      ISSUER PURCHASES OF EQUITY SECURITIES

<TABLE>
<CAPTION>
                                                           (c) Total
                                                            Number of           (d)  Maximum
                                                             Shares               Number (or
                                                          Purchased as         Approximate Dollar
                           (a) Total                     Part of Publicly    Value) of Shares that
                            Number of    (b) Average       Announced          May yet be Purchased
                            Shares        Price Paid        Plans or           under the Plans or
        Period              Purchased     per Share        Programs (2)          Programs (2)
-----------------------   ------------    ----------      -------------         ----------------
   October 1, 2005
       through
<S>                        <C>              <C>              <C>                     <C>
   October 31, 2005        18,000 (1)       $ 1.09           N/A                     N/A

   November 1, 2005
       through
  November 30, 2005        15,000 (1)       $ 1.09           N/A                     N/A

   December 1, 2005
       through
  December 31, 2005         9,000 (1)       $ 1.01           N/A                     N/A
-----------------------   ------------    ----------      -------------         -----------------
Total                      42,000           $ 1.06
</TABLE>

----------------------
(1)  Purchased in satisfaction of our obligation to redeem  redeemable shares of
     Common Stock.

(2)  Not  applicable.  We do not currently have in place any publicly  announced
     plans or programs to purchase our outstanding equity securities.


                                       11
<PAGE>

Item 6. Selected Consolidated Financial Data
<TABLE>
<CAPTION>
                                                                     Year Ended December 31,
                                         -----------------------------------------------------------------------------
                                             2005             2004             2003          2002            2001
                                         -------------    -------------   -------------  ------------    -------------
<S>                                       <C>             <C>             <C>            <C>             <C>
Selected Income Statement Data:
Total revenue                             $ 28,126,000    $ 37,385,000    $  70,917,000  $ 50,049,000    $  55,209,000
Net income (loss)                         $(13,711,000)   $ (7,467,000)   $   5,029,000  $    (60,000)   $    (348,000)

Earnings (loss) per share - basic:        $      (0.53)   $      (0.29)   $        0.20  $         --    $       (0.03)

Earnings (loss) per share - diluted:      $      (0.53)   $      (0.29)   $        0.18  $         --    $       (0.03)

Selected Balance Sheet Data:
Total assets                              $ 30,400,000    $ 47,618,000    $  57,115,000  $ 50,047,000    $  46,260,000
Total non current liabilities             $ 13,558,000    $ 19,552,000    $  13,536,000  $ 11,630,000    $   4,578,000
Redeemable common stock                   $  6,219,000    $  7,486,000    $   8,964,000  $ 10,115,000    $  11,124,000
Cash dividends declared                             --              --               --            --               --
Selected Operating Data:
Total fixed premium placed inforce (1)    $480 million    $800 million    $2.15 billion  $1.3 billion    $ 1.6 billion
Total fixed policies placed inforce (1)          7,000          13,000           36,000        24,000           30,000
Policies maintained at year end                111,000         123,000          127,000       107,000          101,000
</TABLE>

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


                                       12
<PAGE>

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


The following  discussion and analysis  should be read in  conjunction  with our
audited financial statements and related notes included herein.

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 market conditions
and the changing interest rate environment; the interruption,  deterioration, or
termination  of our  relationships  with the insurance  carriers who provide our
products  or the agents who market  and sell them;  the  ability to develop  and
market new products to keep up with the  evolving  industry in which we operate;
increased governmental  regulation,  especially regulations affecting insurance,
reinsurance,  and holding companies;  the ability to attract and retain talented
and productive  personnel;  the ability to effectively  fund our working capital
requirements;  the risk of substantial litigation or insurance claims; and other
factors referred to under Item 1A. Risk Factors.

     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

     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.  As of December 31,  2005,  Legacy  Marketing  had
marketing agreements with American National, Investors Insurance,  Transamerica,
Americom and John Hancock.  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  Producers,
who have  contracted  with Legacy  Marketing  to sell these  products,  with the
applicable  insurance  carrier.  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.  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.

     On  June  14,  2005,  and  in  connection  with  the  originally  scheduled
expiration of the administrative agreement with IL Annuity on December 31, 2005,
Legacy  Marketing  agreed with AmerUs Annuity Group Co.  ("AmerUs"),  the parent
company of IL Annuity, on the process to be followed to transition to AmerUs the
administration of certain IL Annuity insurance contracts, which Legacy Marketing
has been  administering  under the terms of the  administrative  agreement since
January 1, 1996.  On December 19, 2005,  AmerUs and Legacy  Marketing  agreed to
extend the term of the  administrative  agreement through April 30, 2006. In the
twelve months ended December 31, 2005, Legacy Marketing  received  approximately
$1.7 million in gross revenue under the administrative agreement. The expiration
of the administrative agreement will not affect the commissions earned by Legacy
Marketing on additional premium received or assets under management with respect
to the underlying IL Annuity insurance contracts.

     On November 18, 2005,  Regan Holding sold its office buildings in Petaluma,
California  for $12.8  million.  Regan  Holding  and the third  party buyer (the
"Buyer") further agreed to enter into a ten year lease  agreement,  concurrently
with the sale of the  buildings,  whereby we are leasing back (i) 71,612  square
feet for a period  not to exceed  eighteen  months and (ii)  between  35,612 and
51,612 square feet for the remainder of the lease term. The monthly base rent is
$1.25 per square foot and will  increase  annually by three  percent  during the
term of the lease, in addition to monthly taxes and operating expenses. Pursuant
to the terms of the lease, we paid the Buyer a security  deposit of $1.0 million

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<PAGE>

and  advance  rent of  $980,000.  The  advance  rent will be utilized to pay the
monthly base rent,  monthly taxes and operating  expenses  during the first nine
months of the lease  term.  The  security  deposit  will be  reduced  if we meet
certain profitability criteria as specified in the Agreement.

     On July 1, 2002,  Regan Holding  entered into a Purchase  Option  Agreement
with SCOR, a 100% owner of the outstanding  capital stock of Investors Insurance
Corporation.  Pursuant to the terms of the agreement, SCOR granted Regan Holding
the right to purchase the  outstanding  capital stock of Investors  Insurance in
exchange  for annual  option fees.  Regan  Holding had the right to exercise the
option  at any time on or  prior  to June 30,  2005,  or  terminate  the  Option
Agreement in accordance  with its terms before such date if the A.M. Best rating
of Investors Insurance declined below a specified level. The A.M. Best rating of
Investors  Insurance  fell below the specified  level.  On June 22, 2005,  Regan
Holding terminated the Option Agreement. SCOR has repaid the option fees paid by
Regan Holding pursuant to the Option  Agreement,  including  interest,  totaling
approximately $3.3 million.

     In 1998,  we began a project  intending  to  replace  our  existing  policy
administration  system  with new  licensed  software  after  the  vendor  of the
existing policy  administration  system required us to migrate from the existing
system to an alternative platform. In late 2002, we learned from the vendor that
we might be able to retain the existing system.  Modification and  customization
of the licensed  software was  suspended in December of 2002.  As a result of an
evaluation of the Company-wide technological needs, which included an assessment
of the viability of the existing system, it was concluded that we would use both
systems.  In the fourth  quarter of 2003 we recorded a write-off of $1.1 million
associated with the abandoned components of the software costs.

     In 2004,  we began the process of creating a new  technology  architecture,
the intent of which was to implement a  multi-tiered  structure that would allow
us to continue  to use the  existing  administration  system to  administer  our
current business while using the new administration  system for new products and
carriers.

     In 2005, we conducted further independent research,  including consultation
with  industry  experts  about  software  solutions  currently  available in the
marketplace and the benefits that companies,  which are employing these systems,
are receiving.  In the second quarter of 2005, we concluded that the advances in
technology and functionality  that these new designs have delivered,  along with
the  associated  financial  benefits,  are  greater  than we  would  realize  by
completing our plans to implement the new  administration  system.  In addition,
the vendor of the new administration  system announced that it will no longer be
providing the  appropriate  updates for the system to the licensed users for all
future  regulatory  changes,  and  that it will  be the  responsibility  of each
company that uses the system to modify the system for such changes. As a result,
management determined that the internal use software project associated with the
new administration system has been impaired,  and in the second quarter of 2005,
we recorded a write-off of $2.9 million associated with abandoned  components of
the internal use software project.

     The results of our operations are generally affected by the conditions that
affect other  companies that market fixed 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.

Recent Industry Developments

     During  the  past  few  years,   several   federal,   state  and  insurance
self-regulatory  organization  proposals  have been made that  could  affect our
business.  As discussed  below, a few of these proposals have become  effective,
and others may be made or adopted.

     In December 2004, the National Association of Insurance  Commissioners (the
"NAIC")  approved  amendments to the NAIC's  Producer  Licensing  Model Act (the
"Model Act"). Under the Model Act, producers, like Legacy Marketing's Producers,
who  have  been  appointed  by an  insurer  as its  agent  and  do  not  receive
compensation  from a  customer,  are not  required  to  disclose  the  amount of
compensation received from the insurer.  However, under the Model Act, producers
are  required to disclose to the  customer,  prior to selling  insurance to that
customer,  that the producer will be receiving compensation from the insurer, or
that the  producer  represents  the  insurer  and may  provide  services  to the
customer for the insurer.  A few states have  adopted  regulations  based on the
Model Act and other states are considering similar regulation or legislation.

     In  early  2005,  the  California  Department  of  Insurance  had  proposed
regulations  that would have  statutorily  imposed  fiduciary duties and certain
mandatory  disclosure  obligations on insurance agents and brokers.  In November
2005,  the  Department  announced  that it would  suspend  efforts to adopt such
regulation, due to self-regulatory  initiatives taken by certain industry groups
establishing voluntary compensation disclosure guidelines for agents and brokers
similar to those required by the Model Act.

                                       14
<PAGE>

     Also in 2005,  the  Securities  and Exchange  Commission  informed  certain
issuers of equity-indexed  annuities that it is examining whether such annuities
need to be registered  under the  Securities Act of 1933. On August 8, 2005, the
NASD issued guidance to its members indicating that broker-dealers  regulated by
the NASD have  certain  responsibilities  with  respect to the offer and sale of
equity-indexed  annuities,  including an obligation to determine the suitability
of such  products  for their  customers,  regardless  of whether  equity-indexed
annuities are deemed to be securities.  Finally, some state insurance regulators
are considering whether additional suitability regulations should be implemented
with  respect  to all sales of fixed  annuities,  particularly  with  respect to
senior  citizens.  In  California,  Commissioner  Garamendi  issued a letter  on
October 7, 2005 to California  life insurance  companies  urging them to develop
suitability  standards  for the sale of annuity  products  to  seniors,  and the
California  Department of Insurance  has  sponsored a  legislative  measure that
would require the industry to establish such insurer suitability standards.  The
bill may be considered by the California legislature in 2006.

     Our core business consists of selling fixed annuity products,  on behalf of
insurance carriers,  through a network of approximately 24,400 Producers. If the
amendments to the Model Act or regulations  with similar  provisions are adopted
by states in which we conduct business, the manner in which we and the Producers
conduct  business could be negatively  impacted.  Similarly,  if the initiatives
undertaken  by  California  and  other  states,   the  Securities  and  Exchange
Commission or the NASD with respect to equity-indexed and other annuities result
in new  regulation or  legislation,  our  operations  and those of our Producers
could be adversely  affected.  We are unable to predict  whether,  or which,  of
these  initiatives  will  result in new laws or  regulations,  or whether  other
initiatives  may affect our business and the demand for fixed  annuity  products
marketed by Legacy  Marketing.  If such proposals or  initiatives  result in new
regulation or laws,  they could have a material  adverse effect on the insurance
industry in general or on our financial condition and results of operations.

     In recent years,  the U.S.  insurance  regulatory  framework has come under
increased scrutiny.  Some state legislatures have considered laws that may alter
or increase state regulation of insurance,  reinsurance,  and holding companies.
Moreover,  the NAIC and state insurance regulators regularly re-examine existing
laws and  regulations,  often  focusing  on  modifications  to  holding  company
regulations,  interpretations of existing laws, and the development of new laws.
Changes  in these  laws and  regulations  or their  interpretation  could have a
material adverse effect on our financial condition or results of operations.  In
addition,  the U.S.  Congress has considered  statutes that would impose certain
national uniform standards and repeal the McCarran-Ferguson  antitrust exemption
for the business of insurance.  While no legislation is currently  pending,  the
U.S. Congress could adopt laws or regulations that could have a material adverse
effect on our financial condition or results of operations.

     Legacy  Financial is registered as a broker-dealer  with, and is subject to
regulation by, the SEC, NASD, Municipal Securities Rulemaking Board, and various
state  agencies.  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 Legacy  Financial  could harm its 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 securities industry in general and
Legacy Financial's business in particular.

Critical Accounting Policies

     Management's  Discussion and Analysis of Financial Condition and Results of
Operations is based on our consolidated  financial statements and related notes,
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,  with  various  states'
departments of insurance and the applicable insurance carriers.

     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  judgments  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

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<PAGE>

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:

     o    The  preliminary  project  stage  is  completed  and  the  project  is
          therefore 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 fully recoverable. If there are future cash flows directly
related to the software we record an  impairment  loss when the present value of
the  future  cash  flows is less  than  the  carrying  value.  If  software,  or
components of software, in development are abandoned, the Company takes a charge
to write  off the  capitalized  amount in the  period  the  decision  is made to
abandon it.

     We review our other long-lived assets, including property and equipment and
other  intangibles,  for impairment  whenever events or changes in circumstances
indicate  that the carrying  amount of these assets may not be  recoverable.  We
periodically  review  capitalized  internal  use  software to  determine  if the
carrying value is fully recoverable.  Recoverability is measured by a comparison
of the assets' carrying amount to their expected future undiscounted cash flows.
If such assets are considered to be impaired, the impairment to be recognized is
measured  based on the amount by which the carrying  amount of the asset exceeds
the present value of future discounted cash flows.

     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 any deferred tax assets after  valuation  allowance
will be realized.

Regan Holding Corp. Consolidated Results of Operations

Year ended December 31, 2005 compared with year ended December 31, 2004

     We had a  consolidated  net loss of $13.7  million in 2005,  compared  to a
consolidated  net loss of $7.5  million in 2004.  The $6.2  million  increase in
losses was  primarily  due to higher net losses  incurred  by Legacy  Marketing,
Values  Financial  Network  and  Imagent  Online.  Excluding  the  $2.9  million
impairment charge for internal use software, our consolidated net loss was $10.8
million in 2005.

Year ended December 31, 2004 compared with year ended December 31, 2003

     We had a  consolidated  net  loss of $7.5  million  in  2004,  compared  to
consolidated net income of $5.0 million in 2003. The unfavorable change of $12.5
million was primarily  due to a net loss  incurred by Legacy  Marketing in 2004,
compared  to net income in 2003,  partially  offset by  decreased  net losses by
Values Financial Network and Legacy Financial.

Legacy Marketing Results of Operations

Year ended December 31, 2005 compared with year ended December 31, 2004

     Legacy Marketing's revenue decreased $9.2 million (27%) in 2005 compared to
2004  primarily  due to  decreased  marketing  allowances  and  commissions  and
administrative fees. Marketing allowances and commissions decreased $7.2 million
(32%)  primarily  due to decreased  sales of fixed  annuity  products  issued by
Legacy Marketing's carriers.

     Legacy Marketing  experienced a decrease in sales of fixed annuity products
issued by Investors  Insurance in 2005 compared to 2004. We believe the decrease
was  primarily  attributable  to a downgrade in the A.M.  Best credit  rating of
Investors  Insurance  from an A- rating to a B++ rating in September  2003. As a

                                       16
<PAGE>

result,  sales of fixed annuity products issued by Investors  Insurance began to
decline  significantly  in the second  quarter of 2004 and continued to steadily
decline  through the end of 2004.  In addition,  we  discontinued  selling fixed
annuity products issued by Investors Insurance in certain states during 2005 due
to changes in regulatory requirements related to minimum guaranteed rates, which
contributed  to the  decrease in sales of fixed  annuity  products in the second
half of 2005.  Revenues from the sales and administration of Investors Insurance
products  decreased  $4.5 million in 2005 compared to 2004 and accounted for 20%
and 27% of our total consolidated  revenue for the years ended December 31, 2005
and 2004.

     Over the last two years,  the low interest rate environment has caused many
carriers  that issue  declared rate  annuities,  such as American  National,  to
reduce  crediting  rates and  compensation on certain  products.  Sales of these
products accounted for approximately 3% and 9% of our total consolidated revenue
for the years ended  December 31, 2005 and 2004. In addition,  the fixed annuity
industry is  experiencing a relative shift in sales from declared rate annuities
to  equity-indexed  annuities.  As a  result,  sales  of the  American  National
products in 2005 were lower  compared to 2004.  Revenue  derived  from sales and
administration  of American  National  products  decreased  $2.8 million in 2005
compared  to 2004  and  accounted  for  approximately  23% and 25% of our  total
consolidated revenue for the years ended December 31, 2005 and 2004.

     Legacy  Marketing's  fixed  annuity  product  sales  were  also  negatively
affected  by  Transamerica  and Legacy  Marketing  deciding to  discontinue  the
marketing of  Transamerica  products  that were marketed  exclusively  by Legacy
Marketing, effective May 3, 2004. Revenues derived from sales and administration
of  Transamerica  products  decreased  $4.0 million in 2005 compared to 2004 and
accounted for 18% and 24% of our total consolidated  revenue for the years ended
December  31,  2005 and 2004.  Legacy  Marketing  continues  to  administer  the
discontinued  products and to accept  additional  premium  payments,  subject to
applicable additional deposit rules for these products.

     Legacy Marketing's fixed annuity product sales were positively  impacted in
2005, as compared to 2004, by revenue derived from sales and  administration  of
products  issued by  Americom.  In June  2004,  Legacy  Marketing  entered  into
marketing  and  administrative  services  agreements  with  Americom  and  began
marketing and administering  Americom products in November 2004. Revenue derived
from sales and  administration of Americom products was $3.2 million in 2005 and
accounted for approximately 11% of our total  consolidated  revenue for the year
ended December 31, 2005.

     Administrative  fees  decreased $1.7 million (16%) in 2005 compared to 2004
primarily due to decreased issuing and maintenance fees resulting from decreased
fixed annuity product sales.

     During  the  year  ended  December  31,  2005,  Legacy  Marketing  sold and
administered  products  primarily  on  behalf  of three  unaffiliated  insurance
carriers: American National, Investors Insurance and Transamerica.  As indicated
below, the agreements with these carriers generated a significant portion of our
total consolidated revenue:


                                       2005             2004
                                       ----             ----
American National                       23%              25%
Investors Insurance                     20%              27%
Transamerica                            18%              24%


     Our   consolidated   revenues  were  derived   primarily   from  sales  and
administration of the following fixed annuity products:

                                                               2005      2004
                                                               ----      ----
BenchMark (SM) series (sold on behalf of American National)     22%      24%
SelectMark (SM) series (sold on behalf of Transamerica)         18%      24%
MarkOne (SM) series (sold on behalf of Investors Insurance)     13%      23%


     Legacy  Marketing's  operating expenses decreased $2.9 million (7%) in 2005
compared to 2004 primarily due to decreased selling,  general and administrative
expenses.  Excluding  the  $2.9  million  impairment  charge  for  internal  use
software,  Legacy  Marketing's  expenses  decreased  $5.8 million  (15%) in 2005
compared to 2004.  Selling,  general and administrative  expenses decreased $5.6
million  (16%)  primarily  due  to  decreased   compensation  and  benefits  and
professional  fees.   Compensation  and  benefits  decreased  primarily  due  to
decreased  employee  headcount and a reduction in temporary  help.  Professional
fees decreased primarily due to decreased consulting fees.

     Legacy Marketing has established a valuation allowance related primarily to
its federal and state deferred tax assets, which increased $3.0 million in 2005.

                                       17
<PAGE>

Year ended December 31, 2004 compared with year ended December 31, 2003

     Legacy  Marketing's  revenue decreased $34.0 million (50%) in 2004 compared
to  2003  primarily  due to  decreased  marketing  allowances  and  commissions.
Marketing allowances and commissions decreased $28.8 million (56%) primarily due
to  decreased  sales of fixed  annuity  products  issued by  Legacy  Marketing's
carriers.  The low interest  rate  environment  causes many  carriers that issue
declared  rate fixed  annuity  products,  such as American  National,  to reduce
crediting  rates and  compensation  paid to Legacy  Marketing and its network of
Producers on certain products.  As a result, sales of the affected products were
lower in 2004 than in 2003. The affected products accounted for approximately 8%
and 34% of our total consolidated  revenue for the years ended December 31, 2004
and 2003.  Revenue derived from sales and  administration  of American  National
products  decreased $17.1 million in 2004 compared to 2003 and accounted for 25%
and 37% of our total consolidated  revenue for the years ended December 31, 2004
and 2003.

     Legacy  Marketing's   product  sales  were  also  negatively   affected  by
Transamerica  and Legacy  Marketing  deciding to  discontinue  the  marketing of
Transamerica  products  that were  marketed  exclusively  by  Legacy  Marketing,
effective  May 3,  2004.  Revenue  derived  from  sales  and  administration  of
Transamerica  products  decreased  $8.5  million  in 2004  compared  to 2003 and
accounted for  approximately 24% and 25% of our total  consolidated  revenue for
the years  ended  December  31, 2004 and 2003.  Legacy  Marketing  continues  to
administer the discontinued  products and to accept additional premium payments,
subject to applicable additional deposit rules for these products.

     Legacy  Marketing  also  experienced  a decrease in sales of fixed  annuity
products  issued by  Investors  Insurance  in 2004.  We believe the decrease was
primarily  attributable  to a  downgrade  in the  A.M.  Best  credit  rating  of
Investors Insurance from an A- rating to a B++ rating in September 2003. Revenue
derived from sales and administration of Investors  Insurance products decreased
$5.3 million in 2004 compared to 2003 and accounted for 27% and 22% of our total
consolidated revenue for the years ended December 31, 2004 and 2003.

     Administrative fees decreased $3.6 million (26%) compared to 2003 primarily
due  to  decreased   issuing  fees,   appointment  fees  and  operating  expense
reimbursements   from  insurance  carriers   contracted  with  Legacy  Marketing
resulting from decreased fixed annuity product sales.

     Other revenue  decreased  $1.6 million (61%) compared to 2003 primarily due
to a  performance  bonus earned  during the first half of 2003 on sales of fixed
annuity and life products under the terms of one of Legacy Marketing's insurance
carrier  partner  contracts.  The contract  was amended to  terminate  the bonus
program effective July 1, 2003.

     Legacy Marketing's  expenses decreased $16.5 million (29%) in 2004 compared
to 2003 primarily due to decreased selling,  general and administrative expenses
and decreased  other  expenses.  Selling,  general and  administrative  expenses
decreased  $14.9 million (30%)  primarily due to decreased  sales  promotion and
support expenses, compensation,  professional fees, and stationery and supplies.
Sales  promotion  and support  expenses  decreased  primarily  due to  decreased
Producer-related  bonuses and  incentive  trip  expenses,  and  decreased  sales
support  expenses  resulting  from  decreased  sales.   Compensation   decreased
primarily  due to decreased  headcount,  reduction in  temporary  help,  reduced
employee  overtime and decreased  incentive-based  compensation as a result of a
decline in sales and operating  results.  Professional fees decreased  primarily
due to decreased  consulting  fees and reduced legal  expenses.  Stationery  and
supplies decreased primarily due to a decline in sales. Other expenses decreased
$2.0  million  (53%) due to  decreased  losses on  write-offs  of fixed  assets,
primarily  as a result of the  write-off  of $1.1  million in software  costs in
2003, and decreased leased equipment costs.

     Due to the expiration of some  unexercised  Producer stock options in 2004,
Legacy  Marketing  wrote off $984,000 of deferred tax assets and  established  a
valuation  allowance of $802,000 for  remaining  deferred tax assets  associated
with  unexercised   Producer  stock  options.  In  addition,   Legacy  Marketing
established an additional  valuation  allowance of $776,000  during 2004 related
primarily to its state net operating loss carryforward.

Legacy Financial Results of Operations

Year ended December 31, 2005 compared with year ended December 31, 2004

     Legacy Financial revenue  decreased  $115,000 (3%) in 2005 compared to 2004
primarily  due to decreased  commission  income and advisory fees as a result of
decreased sales volume and a decrease in other income.

     Legacy  Financial  operating  expenses  decreased  $329,000  (8%)  in  2005
compared to 2004, which was primarily due to a decrease in selling,  general and
administrative expenses of $346,000 (10%). This decrease was mainly attributable
to a decrease in compensation and benefits and professional  fees.  Compensation
and  benefits  decreased as the result of  decreased  headcount,  a reduction in
temporary  help and  decreased  management  fees  paid to Legacy  Marketing.  In
addition,  professional  fees  decreased  mainly  due to lower  legal  costs and
advisory expenses.

                                       18
<PAGE>

Year ended December 31, 2004 compared with year ended December 31, 2003

     Legacy Financial revenue increased  $436,000 (13%) in 2004 compared to 2003
primarily  due to  increased  commission  income and  advisory  fee revenue as a
result of increased sales volume.

     Legacy Financial expenses decreased $115,000 (3%) in 2004 compared to 2003.
The  decrease  was  primarily  due  to  a  decrease  in  selling,   general  and
administrative  expenses of $136,000 (4%),  which was mainly  attributable  to a
decrease in  compensation  and  benefits  resulting  from  decreased  headcount,
reduction in temporary help and decreased employee incentive-based compensation,
partially  offset by an increase in  professional  fees due to higher  legal and
consulting costs.

     As a result of some stock  options  expiring  unexercised  in 2004,  Legacy
Financial  established  a valuation  allowance  of $83,000 for the  deferred tax
assets  associated  with  unexercised  stock options issued to Legacy  Financial
representatives.

Values Financial Network, Inc. Results of Operations

     In January 2006, we decided to  discontinue  the operations of VFN. We will
incur insignificant costs in connection with exiting the operations.

Year ended December 31, 2005 compared with year ended December 31, 2004

     VFN incurred a net loss of $1.4  million in 2005  compared to a net loss of
$751,000 in 2004.  The increase in net loss was  primarily due to an increase in
the valuation  allowance against VFN's deferred tax assets of $1.0 million and a
valuation  allowance of $201,000 recorded for a long-lived asset. These expenses
were  partially  offset by  decreased  goodwill  impairment  losses of  $679,000
resulting  from  a  goodwill  impairment  charge  in  2004  and  a  decrease  in
compensation and benefits and professional fees in 2005.

Year ended December 31, 2004 compared with year ended December 31, 2003

     VFN incurred a net loss of $751,000 in 2004  compared to a net loss of $1.0
million in 2003.  The  reduction in net loss was primarily due to a reduction in
goodwill,  intangibles and long-lived asset impairment  losses, in addition to a
reduction in depreciation and amortization  resulting from the related reduction
in intangible and asset balances.

     During 2002,  we revised the  business  model for VFN to focus on corporate
and  individual  producer  sales and our  projections  supported  the balance of
goodwill. In early 2003 we further refined our business model for VFN, including
identifying  a new market and  committing  additional  resources  to develop the
business.  During  2003,  due to the  failure  of VFN  to  produce  revenues  as
projected,  we updated  our annual  measurement  of fair value of VFN.  The fair
value  measurement  based on a revised cash flow forecast was  predicated on VFN
realizing  a lower level of sales.  This  forecast of cash flows did not support
the balance of goodwill,  and we recorded a goodwill impairment loss of $491,000
during 2003. Projections of future cash flows supported the remaining balance of
goodwill at that time.

     In  connection  with the  updated  measurement  of the fair value of VFN as
discussed above, we also recorded a long-lived asset impairment loss of $394,000
during 2003, included in Other expenses.

     During the second  quarter  of 2004,  due to the  failure of VFN to produce
revenues as projected,  particularly in the corporate arena, we decided to cease
actively marketing to the corporate market. As a result,  management lowered its
expectations  for future  sales.  This event met the  criteria of a  "triggering
event" for  testing  the  recoverability  of  long-lived  assets as  required by
Statement of Financial Accounting Standards No. 144 ("SFAS 144") "Accounting for
the Impairment or Disposal of Long-Lived Assets."  Accordingly,  we compared the
carrying  amount  of  VFN's  long-lived  assets  to  the  projected  sum  of the
undiscounted cash flows expected to result from the use and eventual disposition
of the  asset  group.  Based on the fact that the sum of the  undiscounted  cash
flows  exceeded  VFN's assets,  we concluded no  impairment  had occurred to the
long-lived assets. As a result of performing the impairment tests required under
SFAS 144, we were then  required  under the  provisions of SFAS 142 to perform a
goodwill  impairment test using the revised cash flows forecast discounted at an
appropriate  cost of  capital.  The  results  of this  test  indicated  that our
goodwill was not  recoverable.  Accordingly,  we recorded a goodwill  impairment
loss on the remaining balance of $679,000 during the second quarter of 2004.

                                       19
<PAGE>

Imagent Online Results of Operations

Year ended December 31, 2005 compared with year ended December 31, 2004

     Imagent Online had a net loss of $962,000 in 2005 compared to a net loss of
$515,000 in 2004.  The increased  losses were  primarily due to higher  selling,
general and administrative expenses and depreciation expense.  Selling,  general
and   administrative   expenses  increased  in  2005  mainly  due  to  increased
compensation   and  benefits   expense   resulting  from  increased   headcount.
Depreciation   expense   increased  in  2005   primarily  due  to   accelerating
depreciation  on  certain  capitalized  software,  which was  replaced  by a new
version.

Year ended December 31, 2004 compared with year ended December 31, 2003

     Imagent Online had a net loss of $515,000 in 2004 compared to a net loss of
$606,000 in 2003.  The  reduction  in net loss was  primarily  due to  decreased
compensation expense resulting from reduced headcount.

Liquidity and Capital Resources

     Our cash provided by operating  activities  generally  follows the trend in
our revenue and operating  results.  Our cash used in operating  activities  was
$5.6 million and $4.4 million in 2005 and 2004.  Our cash  provided by operating
activities  was $12.7  million in 2003.  Our cash used in  operating  activities
during 2005 was primarily the result of our net loss and an increase in deposits
and other assets  resulting  from the  prepayment of rent and a lease deposit in
connection  with the  sale/leaseback  of our Petaluma  office  buildings.  These
amounts were partially offset by non-cash  charges,  including  depreciation and
amortization  and losses on write-off of fixed assets.  In addition,  our income
tax receivable declined due to an income tax refund received in 2005.

     Our net loss in 2004 was significantly  offset by non-cash charges, as well
as a decrease in accounts  receivable,  which was primarily due to a decrease in
sales volume, and an increase in deferred compensation payable. Significant uses
of cash  included an increase in income taxes  receivable  due to a pre-tax loss
and a decrease in accounts  payable and  accrued  liabilities.  The  decrease in
accounts payable and accrued liabilities was primarily due to payment of bonuses
during 2004 to Wholesalers  based upon their  achievement of predetermined  2003
sales  targets,  payments  of  2003  employee  incentive  bonuses  and  payments
associated with a Producer incentive trip.

     Our cash  provided by  operating  activities  of $12.7  million in 2003 was
primarily the result of our net income, significant non-cash charges, a decrease
in prepaid expenses and deposits and an increase in accounts payable and accrued
liabilities  and deferred  compensation  payable.  These amounts were  partially
offset by  unrealized  gains on trading  securities  and a decrease  in accounts
receivable.

     Net  cash  provided  by  investing  activities  of  $12.6  million  in 2005
primarily  consisted  of the proceeds  from the sale of our office  buildings in
Petaluma,  California,  and a refund of option fees pursuant to the terms of the
Purchase Option Agreement with SCOR totaling $3.0 million,  excluding  interest,
partially offset by purchases of fixed assets totaling $2.7 million.

     Net cash used in investing  activities  of $3.4  million in 2004  consisted
primarily of  purchases of fixed assets of $7.7 million  mainly due to increased
computer software costs and construction costs related to our office building in
Rome, Georgia, and option fees of $1.8 million paid by Regan Holding pursuant to
the terms of the SCOR  Purchase  Option  Agreement.  These costs were  partially
offset by proceeds  from sales of  available-for-sale  securities  totaling $5.9
million.

     Net cash used in investing  activities  of $6.0  million in 2003  consisted
primarily  of  purchases  of fixed  assets  of $4.2  million  and  purchases  of
available-for-sale securities of $1.0 million.

     Net cash used in financing activities in 2005 of $7.4 million was primarily
due to the  payoff  of the  mortgage  loan in  conjunction  with the sale of our
office buildings in Petaluma, California.

     Net cash provided by financing activities in 2004 of $2.2 million primarily
reflected  net proceeds of $2.7  million  from our mortgage  loan to finance our
office  building  in Rome,  Georgia,  and  proceeds  from the  exercise of stock
options, partially offset by repurchases of our common stock.

     Net cash used in financing activities in 2003 of $1.6 million was primarily
the result of repurchases of our common stock.

                                       20
<PAGE>

     In April 2004, we completed  construction  of our office  building in Rome,
Georgia, financing it with a $2.9 million variable interest rate note indexed to
30-day  LIBOR  plus  1.9%.  The  note is  payable  over  ten  years  in  monthly
installments  of  principal,  amortized  on the  basis of a  20-year  term,  and
interest.  At the end of the ten years, we must pay the balance of the principal
due on the note.  The  outstanding  balance of the note as of December 31, 2005,
was $2.8 million.  To manage interest expense,  we entered into an interest rate
swap  agreement  with a notional  amount equal to the  principal  balance of the
note,  which modifies its interest expense from a variable rate to a fixed rate.
The April 2004 swap agreement involves the exchange of interest obligations from
April 2004  through  April 2014  whereby we pay a fixed rate of 6.8% in exchange
for a variable rate indexed to 30-day LIBOR plus 1.9%.

     We are obligated to  repurchase  certain  shares of our common stock.  Cash
paid to repurchase some of these shares totaled $365,000 in 2005 and $966,000 in
2004.  Based upon the  estimated  fair market  values of the Series A Redeemable
Common Stock as of December  31, 2005,  the  redemption  of all eligible  shares
during 2006 would require $1.8 million.

     We lease office and warehouse  premises and certain office  equipment under
non-cancelable  operating leases. As of December 31, 2005, our total contractual
cash  obligations,  including the building  financing  discussed above,  were as
follows:
<TABLE>
<CAPTION>

                                                              Payments Due by Period
                                    ---------------------------------------------------------------------------
<S>                                 <C>                <C>          <C>              <C>            <C>
Contractual Obligations                 Total     Less than 1 year  1 - 3 years    3 - 5 years    After 5 years
Debt                                $  2,751,000    $    78,000     $   174,000    $   199,000      $ 2,300,000
Operating Leases                      10,081,000        999,000       2,520,000      1,904,000        4,658,000
                                    ------------    -----------     -----------    -----------      -----------
Total Contractual Cash Obligations  $ 12,832,000    $ 1,077,000     $ 2,694,000    $ 2,103,000      $ 6,958,000
                                    ============    ===========     ===========    ===========      ===========
</TABLE>

     During  2003,  we amended our  Shareholder  Agreement  with Lynda L. Regan,
Chief  Executive  Officer of the Company and Chairman of our Board of Directors.
Under the terms of the amended agreement,  upon the death of Ms. Regan, we would
have the option (but not the obligation) to purchase 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.  In addition,
upon the  death of Ms.  Regan,  her heirs  would  have the  option  (but not the
obligation) to sell their inherited  shares to us. The purchase price to be paid
by us  shall be equal to 125% of the  fair  market  value of the  shares.  As of
December 31,  2005,  we believe that 125% of the fair market value of the shares
owned by Ms. Regan was equal to $8.8 million.  We have  purchased life insurance
coverage for the purpose of funding this potential  obligation  upon Ms. Regan's
death.

     We used $3.0 million of cash in our  operations  and incurred  consolidated
net losses of $13.7 million in 2005. If our consolidated net losses continue, or
if requests to repurchase redeemable common stock increase significantly, a cash
shortfall could  ultimately  occur. We believe that existing cash and investment
balances,  together with  anticipated  cash flow from  operations,  will provide
sufficient funding for the foreseeable future.  Furthermore, we have lowered our
cost  structure by reducing our employee  headcount and  eliminating  consulting
costs on  several  corporate  initiatives.  However,  in the  event  that a cash
shortfall does occur,  we believe 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 May 2005,  the Financial  Accounting  Standards  Board  ("FASB")  issued
Statement No. 154,  "Accounting Changes and Error Corrections,  a replacement of
Accounting  Principles  Board  ("APB")  Opinion No. 20 and FASB  Statement No. 3
("FAS 154"). FAS 154 provides  guidance on the accounting for, and reporting of,
a  change  in  accounting  principle,  in the  absence  of  explicit  transition
requirements specific to a newly adopted accounting principle.  Previously, most
voluntary changes in accounting principles were required to be recognized by way
of a cumulative  effect  adjustment  within net income  during the period of the
change. FAS 154 requires  retrospective  application to prior periods' financial
statements,  unless it is impracticable to determine either the  period-specific
effects  or the  cumulative  effect  of the  change.  FAS 154 is  effective  for
accounting changes made in fiscal years beginning after December 15, 2005. We do
not  believe  that the  adoption  of FAS 154 will have a material  effect on its
consolidated financial position, results of operations or cash flows.

     In  December  2004,  the FASB  issued  Statement  of  Financial  Accounting
Standards No. 123R,  "Share-Based  Payment"  ("SFAS  123R"),  which  establishes
standards for transactions in which an entity  exchanges its equity  instruments
for goods or services.  This  standard  requires a public  entity to measure the
cost  of  employee  services  received  in  exchange  for  an  award  of  equity
instruments  based on the fair  value of the  award on the date of  grant.  This

                                       21
<PAGE>

eliminates  the exception to account for such awards using the intrinsic  method
previously allowable under APB Opinion No. 25. In April 2005, the Securities and
Exchange  Commission  adopted  a rule  that  delayed  the  compliance  dates for
adoption of SFAS 123R,  which we had previously  been required to adopt no later
than July 1, 2005. The SEC's rule allows companies to implement SFAS 123R at the
beginning of their next fiscal year. As a result, we adopted SFAS 123R effective
January  1,  2006.  We do not  believe  that  adoption  of SFAS 123R will have a
material impact on our financial position, results of operations or statement of
cash flows.

Item 7A. Quantitative and Qualitative Disclosure About Market Risk

     Our investments are categorized as trading securities.

     We had an investment in a short-term  fixed income  security of $996,000 as
of December  31,  2005,  which  matured in January  2006 and yielded a return of
4.8%.  This investment was classified as a cash equivalent at December 31, 2005.
We did not have any  investments in fixed income  instruments as of December 31,
2004.

     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 broadly  diversified  mutual funds.  As a result of
favorable market  conditions  related to our mutual fund  investments,  the fair
value of our equity  securities was above original cost at December 31, 2005 and
2004.  The  original  cost and fair  values  of our  marketable  equity  trading
securities are shown below:


                           Original Cost       Fair Value
                           -------------     -------------
    December 31, 2005       $ 7,394,000       $ 8,010,000
    December 31, 2004       $ 6,353,000       $ 7,900,000


     During April 2004 the Company  entered into a variable rate mortgage on its
facility in Rome,  Georgia.  To manage interest  expense on the note, we entered
into an interest  rate swap  agreement  for the notional  amount of the note, to
modify its interest  characteristics  from a variable rate to a fixed rate.  The
swap  agreement  involves the exchange of interest  obligations  from April 2004
through  April 2014  whereby we pay a fixed rate of 6.8% in  exchange  for LIBOR
plus 1.9%.


     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.

                                       22
<PAGE>

Item 8. Financial Statements and Supplementary Data


             Report of Independent Registered Public Accounting Firm

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


We have audited the  accompanying  consolidated  balance  sheet of Regan Holding
Corp.  and its  subsidiaries  (the  "Company") as of December 31, 2005,  and the
consolidated statements of operations,  shareholders' equity, and cash flows for
the  year  then  ended.   These  consolidated   financial   statements  are  the
responsibility  of  the  Company's  management.  Our  audit  also  included  the
financial  statement schedule for the year ended December 31, 2005 listed in the
Index at Item  15(a)(2).  Our  responsibility  is to express an opinion on these
consolidated financial statements and schedule based on our audit.

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

In our opinion, the consolidated  financial statements referred to above present
fairly, in all material respects,  the financial position of Regan Holding Corp.
and its subsidiaries as of December 31, 2005 and the results of their operations
and their  cash  flows for the year then  ended in  conformity  with  accounting
principles  generally  accepted in the United  States of America.  Also,  in our
opinion,  the related financial statement schedule,  when considered in relation
to the  basic  financial  statements  taken as a whole,  presents  fairly in all
material  respects the information set forth therein for the year ended December
31, 2005.


/s/ Burr, Pilger & Mayer, LLP
San Francisco, California
March 3, 2006


             Report of Independent Registered Public Accounting Firm

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

In our opinion,  the consolidated  balance sheet as of December 31, 2004 and the
related  consolidated  statements of operations,  shareholders'  equity and cash
flows for each of the two years in the period  ended  December  31, 2004 present
fairly, in all material respects,  the financial position of Regan Holding Corp.
and its  subsidiaries at December 31, 2004, and the results of their  operations
and their cash flows for each of the two years in the period ended  December 31,
2004, in conformity with accounting  principles generally accepted in the United
States  of  America.  In  addition,  in our  opinion,  the  financial  statement
schedules listed in the index appearing under Item 15(a)(2),  as of December 31,
2004 and for the two years then ended, present fairly, in all material respects,
the  information  set forth  therein when read in  conjunction  with the related
consolidated  financial  statements.  These  financial  statements and financial
statements  schedules are the  responsibility of the Company's  management.  Our
responsibility  is to  express  an opinion  on these  financial  statements  and
financial  statement  schedules based on our audits.  We conducted our audits of
these  statements  in  accordance  with  the  standards  of the  Public  Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement.  An audit includes examining, on a
test basis,  evidence  supporting  the amounts and  disclosures in the financial
statements,  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.


/s/ PricewaterhouseCoopers LLP
San Francisco, California
March 29, 2005


                                       23
<PAGE>

                      REGAN HOLDING CORP. AND SUBSIDIARIES
                           Consolidated Balance Sheet
<TABLE>
<CAPTION>
                                                                                    December 31,
                                                                            ----------------------------
                                                                                2005               2004
                                                                            ------------    ------------
<S>                                                                         <C>             <C>
Assets
Cash and cash equivalents                                                   $  3,862,000    $  4,348,000
Trading investments                                                            8,010,000       7,900,000
Option to purchase Investors Insurance Company                                        --       2,975,000
Accounts receivable, net of allowance of $227,000 and $569,000 at
     December 31, 2005 and 2004                                                1,716,000       1,496,000
Income taxes receivable                                                               --         755,000
Prepaid expenses and deposits                                                  1,572,000         705,000
Deferred tax assets                                                                   --         772,000
                                                                            ------------    ------------
     Total current assets                                                     15,160,000      18,951,000
                                                                            ------------    ------------
Net fixed assets                                                              13,424,000      27,675,000
Intangible assets, net                                                            48,000         122,000
Notes receivable, net of allowance of $202,000 at December 31, 2005              680,000         672,000
Other assets                                                                   1,088,000         198,000
                                                                            ------------    ------------
     Total non current assets                                                 15,240,000      28,667,000
                                                                            ------------    ------------
     Total assets                                                           $ 30,400,000    $ 47,618,000
                                                                            ============    ============

Liabilities, redeemable common stock, and shareholders' equity
Liabilities
Accounts payable and accrued liabilities                                    $  5,484,000    $  5,243,000
Income taxes payable                                                           2,650,000              --
Current portion of notes payable and other borrowings                             78,000         199,000
                                                                            ------------    ------------
     Total current liabilities                                                 8,212,000       5,442,000
                                                                            ------------    ------------
Deferred compensation payable                                                  8,044,000       7,748,000
Deferred tax liabilities                                                              --       1,242,000
Deferred gain on sale of building                                              2,724,000              --
Other liabilities                                                                117,000         854,000
Notes payable, less current portion                                            2,673,000       9,708,000
                                                                            ------------    ------------
     Total non current liabilities                                            13,558,000      19,552,000
                                                                            ------------    ------------
     Total liabilities                                                        21,770,000      24,994,000
                                                                            ------------    ------------

Redeemable common stock, Series A and B                                        6,219,000       7,486,000
                                                                            ------------    ------------

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 or outstanding: 20,959,000 and
20,912,000 at December 31, 2005 and 2004                                       3,921,000       3,847,000
Paid-in capital                                                                6,561,000       6,522,000
Retained earnings (deficit)                                                   (8,071,000)      4,769,000
                                                                            ------------    ------------
     Total shareholders' equity                                                2,411,000      15,138,000
                                                                            ------------    ------------
     Total liabilities, redeemable common stock, and shareholders' equity   $ 30,400,000    $ 47,618,000
                                                                            ============    ============
</TABLE>

                       See notes to financial statements.

                                       24
<PAGE>

                      REGAN HOLDING CORP. AND SUBSIDIARIES
                      Consolidated Statement of Operations

<TABLE>
<CAPTION>
                                                            For the Years Ended December 31,
                                                      --------------------------------------------
                                                          2005            2004            2003
                                                      ------------    ------------    ------------
<S>                                                   <C>             <C>             <C>
Revenue
     Marketing allowances and commission overrides    $ 13,639,000    $ 20,203,000    $ 48,396,000
     Trailing commissions                                4,095,000       4,792,000       5,130,000
     Administrative fees                                 8,873,000      10,584,000      14,083,000
     Other revenue                                       1,519,000       1,806,000       3,308,000
                                                      ------------    ------------    ------------
       Total revenue                                    28,126,000      37,385,000      70,917,000
                                                      ------------    ------------    ------------

Expenses
     Selling, general and administrative                33,015,000      38,414,000      53,583,000
     Depreciation and amortization                       4,109,000       4,282,000       4,077,000
     Goodwill impairment losses                                 --         679,000         491,000
     Internal use software impairment loss               2,939,000              --              --
     Other                                               2,559,000       2,342,000       4,729,000
                                                      ------------    ------------    ------------
       Total expenses                                   42,622,000      45,717,000      62,880,000
                                                      ------------    ------------    ------------

Operating income (loss)                                (14,496,000)     (8,332,000)      8,037,000

Other income
Investment income, net                                     595,000         531,000         416,000
Interest expense                                           (79,000)         (9,000)        (33,000)
                                                      ------------    ------------    ------------
     Total other income, net                               516,000         522,000         383,000
                                                      ------------    ------------    ------------

Income (loss) before income taxes                      (13,980,000)     (7,810,000)      8,420,000
Provision for (benefit from) income taxes                 (269,000)       (343,000)      3,391,000
                                                      ------------    ------------    ------------

Net income (loss) before accretion of redeemable
     common stock                                      (13,711,000)     (7,467,000)      5,029,000
Reduction (accretion) of redeemable common stock           871,000         512,000         (34,000)
                                                      ------------    ------------    ------------
Net income (loss) available for common shareholders   $(12,840,000)   $ (6,955,000)   $  4,995,000
                                                      ============    ============    ============

Basic earnings (loss) per share:
Earnings (loss) available for common shareholders     $      (0.53)   $      (0.29)   $       0.20
Weighted average shares outstanding                     24,259,000      23,880,000      24,431,000
Diluted earnings (loss) per share:
Earnings (loss) available for common shareholders     $      (0.53)   $      (0.29)   $       0.18
Weighted average shares outstanding                     24,259,000      23,880,000      27,330,000
</TABLE>


                       See notes to financial statement.

                                       25
<PAGE>


                      REGAN HOLDING CORP. AND SUBSIDIARIES
                 Consolidated Statement of Shareholders' Equity
              For the years ended December 31, 2005, 2004, and 2003


<TABLE>
<CAPTION>
                                                                                                          Accumulated
                                         Series A Common Stock      Common                    Retained       Other
                                       ------------------------     Stock       Paid-in       Earnings   Comprehensive
                                         Shares        Amount     Committed     Capital       (Deficit)   Income (loss)     Total
                                       ----------    ----------   ----------   -----------   ------------   ---------   -----------
<S>                                    <C>           <C>           <C>        <C>             <C>           <C>         <C>
Balance December 31, 2002              20,495,000    $3,324,000    $ 25,000   $ 6,499,000     $ 7,135,000   $ (23,000)  $16,960,000
Comprehensive income, net of tax:
Net income                                                                                      5,029,000                 5,029,000
Net unrealized gains on investments                                                                            72,000        72,000
Less:
Reclassification of net realized losses                                                                         7,000         7,000
                                                                                                                        -----------
     Total comprehensive income                                                                                           5,108,000
Retirement of common stock upon
     voluntary repurchases               (398,000)     (363,000)                                 (351,000)                 (714,000)
Retirement of redeemable common stock                                               1,000                                     1,000
Accretion to redemption value of
     redeemable common stock                                                                      (34,000)                  (34,000)
Producer stock option expense                                                      10,000                                    10,000
Exercise of stock options                 155,000       197,000                                                             197,000
                                       ----------    ----------   ----------   -----------   ------------   ---------   -----------
Balance December 31, 2003              20,252,000     3,158,000      25,000     6,510,000      11,779,000      56,000    21,528,000
Comprehensive loss, net of tax:
Net loss                                                                                       (7,467,000)               (7,467,000)
Net unrealized gains on investments                                                                            24,000        24,000
Less:
Reclassification of net realized gains                                                                        (80,000)      (80,000)
                                                                                                                        -----------
     Total comprehensive loss                                                                                            (7,523,000)
Retirement of common stock upon
     voluntary repurchases               (181,000)     (278,000)                                  (55,000)                 (333,000)
Issuance of common stock committed                       25,000     (25,000)                                                     --
Exercise of stock options                 841,000       942,000                                                             942,000
Reduction to redemption value of
     redeemable common stock                                                                      512,000                   512,000
Producer stock option expense                                                      12,000                                    12,000
                                       ----------    ----------   ----------   -----------   ------------   ---------   -----------
Balance December 31, 2004              20,912,000     3,847,000           --    6,522,000       4,769,000          --    15,138,000
Comprehensive loss, net of tax:
Net loss                                                                                      (13,711,000)              (13,711,000)
Retirement of common stock upon
     mandatory repurchases                                                         31,000                                    31,000
Exercise of stock options                  47,000        74,000                                                              74,000
Reduction to redemption value of
     redeemable common stock                                                                      871,000                   871,000
Producer stock option expense                                                       8,000                                     8,000
                                       ----------    ----------   ----------   -----------   ------------   ---------   -----------
Balance December 31, 2005              20,959,000    $3,921,000   $       --   $ 6,561,000   $ (8,071,000)  $      --   $ 2,411,000
                                       ==========    ==========   ==========   ===========   ============   =========   ===========
</TABLE>

                       See notes to financial statements.

                                       26
<PAGE>


                      REGAN HOLDING CORP. AND SUBSIDIARIES
                      Consolidated Statement of Cash Flows
<TABLE>
<CAPTION>
                                                                   For the Years Ended December 31,
                                                                 2005             2004            2003
                                                             ------------     ------------     ------------
<S>                                                          <C>              <C>              <C>
Cash flows from operating activities:
Net income (loss)                                            $(13,711,000)    $ (7,467,000)    $  5,029,000
Adjustments to reconcile net income (loss) to cash
provided by (used in) operating activities:
     Depreciation and amortization                              4,109,000        4,282,000        4,077,000
     Losses on write-off of fixed assets                        3,213,000           67,000        1,772,000
     Amortization of deferred gain on sale of building            (33,000)              --               --
     Impairment of goodwill and intangible assets                      --          679,000          538,000
     Provision for (reduction of) doubtful accounts              (140,000)         (62,000)         399,000
     Deferred taxes                                              (470,000)       3,034,000         (863,000)
     Amortization of premium or discount on investments                --           40,000           84,000
     Gains on trading securities, net                            (344,000)        (869,000)      (1,709,000)
     Realized (gains) losses on sales of investments, net              --         (133,000)          12,000
     Producer stock option expense                                  8,000           12,000           10,000
Changes in operating assets and liabilities:
     Sales (purchases) of trading securities, net                 234,000         (720,000)        (333,000)
     Accounts receivable                                          122,000        2,791,000       (1,350,000)
     Prepaid expenses and deposits                               (867,000)          98,000        1,319,000
     Income taxes receivable and payable                        3,405,000       (2,745,000)        (337,000)
     Accounts payable and accrued liabilities                     241,000       (5,547,000)       1,884,000
     Deferred compensation payable                                296,000        1,491,000        2,016,000
     Other operating assets and liabilities                    (1,692,000)         686,000          177,000
                                                             ------------     ------------     ------------
     Net cash provided by (used in) operating activities       (5,629,000)      (4,363,000)      12,725,000
                                                             ------------     ------------     ------------
Cash flows from investing activities:
Purchases of available-for-sale securities                             --       (2,101,000)      (5,902,000)
Proceeds from sales of available-for-sale securities                   --        5,536,000        2,914,000
Proceeds from maturities of available-for-sale securities              --        2,500,000        1,970,000
Option to purchase Investors Insurance Corporation              2,975,000       (1,775,000)        (600,000)
Proceeds (payments) from notes receivable                        (210,000)         155,000         (175,000)
Proceeds from disposal of fixed assets                         12,570,000               --               --
Purchases of fixed assets                                      (2,745,000)      (7,672,000)      (4,197,000)
                                                             ------------     ------------     ------------
     Net cash provided by (used in) investing activities       12,590,000       (3,357,000)      (5,990,000)
                                                             ------------     ------------     ------------
Cash flows from financing activities:
Proceeds from loans payable                                            --        2,155,000          191,000
Payments toward loans payable                                          --       (2,346,000)              --
Proceeds from note payable                                             --        2,870,000               --
Payments toward notes payable                                  (7,156,000)        (162,000)        (109,000)
Repurchases of redeemable common stock                           (365,000)        (966,000)      (1,185,000)
Proceeds from exercise of common stock options                     74,000          942,000               --
Voluntary repurchases of common stock                                  --         (333,000)        (517,000)
                                                             ------------     ------------     ------------
     Net cash provided by (used in) financing activities:      (7,447,000)       2,160,000       (1,620,000)
                                                             ------------     ------------     ------------
Net increase (decrease) in cash and cash equivalents             (486,000)      (5,560,000)       5,115,000
Cash and cash equivalents, beginning of period                  4,348,000        9,908,000        4,793,000
                                                             ------------     ------------     ------------
Cash and cash equivalents, end of period                     $  3,862,000     $  4,348,000     $  9,908,000
                                                             ============     ============     ============

Supplemental cash flow information:
Taxes paid / (refunds received)                              $ (3,209,000)    $   (650,000)    $  5,110,000
Interest paid                                                $    678,000     $    634,000     $    517,000
</TABLE>

                       See notes to financial statements.

                                       27
<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").

     As of December 31, 2005,  Legacy  Marketing had marketing  agreements  with
American National Insurance Company ("American  National"),  Investors Insurance
Corporation  ("Investors  Insurance"),  Transamerica  Life Insurance and Annuity
Company ("Transamerica"), Americom Life & Annuity Insurance Company ("Americom")
and John Hancock Variable Life Insurance Company ("John Hancock") (collectively,
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 and life insurance 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,  with the
applicable  carrier.  For  providing  these  services,  the  carriers pay Legacy
Marketing commissions and marketing allowances.

     Legacy Marketing also has  administrative  agreements with the carriers and
with IL Annuity, whose administrative  agreement is scheduled to expire on April
30, 2006. Pursuant to the administrative  agreements,  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 placed  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.

     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.

     d. Fair value of financial instruments

     The carrying values of the Company's financial instruments,  including cash
equivalents, trading investments, accounts receivable, accounts payable, accrued
liabilities  and notes  payable  approximate  their market values based on their

                                       28
<PAGE>

relatively  short-term nature or comparable market information  available at the
respective balance sheet dates.

     e. Cash and Cash Equivalents

     Cash and cash equivalents  include  marketable  securities with an original
maturity or remaining maturity of ninety days or less at the time of purchase.

     f. 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.

     g. 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

     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.   The  Company
periodically  reviews  capitalized  internal  use  software to  determine if the
carrying  value is fully  recoverable.  If there are future cash flows  directly
related  to the  software  or the  business  unit  of  which  it is a  part,  as
applicable,  we record an  impairment  loss when the present value of the future
cash flows is less than the  carrying  value.  If  software,  or  components  of
software, in development are 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.

                                       29
<PAGE>

     j. Derivative Financial Instruments

     The Company  accounts for  derivative  financial  instruments in accordance
with the  provisions  of Statement of Financial  Accounting  Standards  No. 133,
"Accounting  for Derivative  Instruments and Hedging  Activities"  ("SFAS 133").
SFAS 133  requires the Company to measure all  derivatives  at fair value and to
recognize  them in the balance sheet as an asset or liability.  For  derivatives
designated  as cash flow  hedges,  changes in fair value of the  derivative  are
reported as other  comprehensive  income and are subsequently  reclassified into
earnings when the hedged transaction affects earnings.  Changes in fair value of
derivative  instruments  not  considered  hedging  instruments  and  ineffective
portions of hedges are recognized in earnings in the current period.

     k. 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.

     l. Stock Options

     The Company has a stock-based employee  compensation plan (see Note 13) 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 income (loss) and income
(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>

                                                                       2005                2004              2003
                                                                   --------------     -------------     -------------
<S>                                                                <C>                <C>               <C>
Net income (loss) available for common
        shareholders, as reported                                  $  (12,840,000)    $  (6,955,000)    $   4,995,000
Deduct:  Total stock-based employee
        compensation expense determined under the fair
        value method for all awards, net of related tax effects          (133,000)         (258,000)         (424,000)
                                                                   --------------     -------------     -------------

Pro forma net income (loss) available for common
        shareholders                                               $  (12,973,000)    $  (7,213,000)    $   4,571,000
                                                                   ==============     =============     =============

Earnings (loss) per share:

Basic - as reported                                                $        (0.53)    $       (0.29)    $        0.20
Basic - pro forma                                                  $        (0.53)    $       (0.30)    $        0.19

Diluted - as reported                                              $        (0.53)    $       (0.29)    $        0.18
Diluted - pro forma                                                $        (0.53)    $       (0.30)    $        0.17
</TABLE>


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

                                 2005                2004              2003
                              -----------         -----------       -----------
Risk-free interest rates      3.73%-4.43%         2.84%-4.03%       1.45%-3.20%
Expected life                 3-5 years           3-5 years         3-5 years
Dividend yield                None                None              None

     m. Recent Accounting Pronouncements

     In May 2005,  the Financial  Accounting  Standards  Board  ("FASB")  issued
Statement No. 154,  "Accounting Changes and Error Corrections,  a replacement of
Accounting  Principles  Board ("APB")  Opinion No. 20 and FASB  Statement No. 3"
("FAS 154"). FAS 154 provides  guidance on the accounting for, and reporting of,
a  change  in  accounting  principle,  in the  absence  of  explicit  transition
requirements specific to a newly adopted accounting principle.  Previously, most

                                       30
<PAGE>

voluntary changes in accounting principles were required to be recognized by way
of a cumulative  effect  adjustment  within net income  during the period of the
change. FAS 154 requires  retrospective  application to prior periods' financial
statements,  unless it is impracticable to determine either the  period-specific
effects  or the  cumulative  effect  of the  change.  FAS 154 is  effective  for
accounting  changes made in fiscal years  beginning after December 15, 2005. The
Company  does not  believe  that the  adoption  of FAS 154 will have a  material
effect on its  consolidated  financial  position,  results of operations or cash
flows.

     In  December  2004,  the FASB  issued  Statement  of  Financial  Accounting
Standards No. 123R,  "Share-Based  Payment"  ("SFAS  123R"),  which  establishes
standards for transactions in which an entity  exchanges its equity  instruments
for goods or services.  This  standard  requires a public  entity to measure the
cost  of  employee  services  received  in  exchange  for  an  award  of  equity
instruments  based on the fair  value of the  award on the date of  grant.  This
eliminates  the exception to account for such awards using the intrinsic  method
previously allowable under APB Opinion No. 25. In April 2005, the Securities and
Exchange  Commission  adopted  a rule  that  delayed  the  compliance  dates for
adoption of SFAS 123R,  which the Company had previously  been required to adopt
no later than July 1, 2005.  The SEC's rule allows  companies to implement  SFAS
123R at the  beginning  of their next  fiscal  year.  As a result,  the  Company
adopted SFAS 123R  effective  January 1, 2006. The Company does not believe that
the adoption of SFAS 123R will have a material effect on its financial position,
results of operations or statement of cash flows.

2. Investments

     The Company had no available for sale  investments at December 31, 2005 and
2004. The Company's  recorded  realized  gains (losses) from  available-for-sale
investments as follows:

                                  2005          2004             2003
                                  ----          ----             ----
Gross realized gains            $   --       $ 162,000        $   6,000
Gross realized losses           $   --       $ (33,000)       $ (18,000)

3. Fixed Assets


                                                      December 31,
                                             -----------------------------
                                                 2005             2004
                                             ------------     ------------
Computer hardware and purchased software     $  6,510,000     $ 10,465,000
Internal use software development costs        15,956,000       18,560,000
Leasehold improvements                          1,161,000        1,361,000
Furniture and equipment                         2,621,000        3,213,000
Building                                        3,108,000       10,884,000
Land and land improvements                        338,000        3,092,000
                                             ------------     ------------
                                               29,694,000       47,575,000
Accumulated depreciation and amortization     (16,270,000)     (19,900,000)
                                             ------------     ------------
Total                                        $ 13,424,000     $ 27,675,000
                                             ============     ============


     When the Company purchased Value Financial  Network,  Inc. ("VFN") in 2000,
among the assets acquired were long lived assets  comprised of 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. In connection with the
updated  measurement  of the fair value of the VFN asset group as  discussed  in
Note 4 below,  the  Company  recorded  a  long-lived  asset  impairment  loss of
$394,000 during 2003, included in Other expenses.

     In 1998,  the Company  began a project  intending  to replace our  existing
policy  administration system with new licensed software after the vendor of the
existing policy  administration  system required us to migrate from the existing
system to an alternative  platform.  In late 2002, the Company  learned from the
vendor that we might be able to retain the  existing  system.  Modification  and
customization  of the licensed  software was suspended in December of 2002. As a
result of an evaluation of the Company-wide  technological needs, which included
an assessment of the viability of the existing system, it was concluded that the
Company  would use both  systems.  In the  fourth  quarter  of 2003 the  Company
recorded a write-off of $1.1 million associated with the abandoned components of
the software costs.

                                       31
<PAGE>

     In 2004,  the  Company  began the  process  of  creating  a new  technology
architecture, the intent of which was to implement a multi-tiered structure that
would allow the Company to continue to use the existing administration system to
administer the Company's  current  business  while using the new  administration
system for new products and carriers.

     In 2005, the Company  conducted  further  independent  research,  including
consultation with industry experts about software solutions  currently available
in the marketplace  and the benefits that  companies,  which are employing these
systems,  are receiving.  In the second  quarter of 2005, the Company  concluded
that the advances in technology  and  functionality  that these new designs have
delivered,  along with the associated  financial benefits,  are greater than the
Company   would   realize  by   completing   its  plans  to  implement  the  new
administration  system. In addition, the vendor of the new administration system
announced  that it will no longer be providing the  appropriate  updates for the
system to the licensed users for all future regulatory changes, and that it will
be the  responsibility of each company that uses the system to modify the system
for such  changes.  As a result,  management  determined  that the  internal use
software  project  associated  with  the  new  administration  system  has  been
impaired, and in the second quarter of 2005, the Company recorded a write-off of
$2.9 million  associated with abandoned  components of the internal use software
project.

     On November  18, 2005,  the Company sold its office  buildings in Petaluma,
California  for a purchase  price of $12.8  million (see Note 18). In connection
with the sale, the Company disposed of the following fixed assets:

                                               Accumulated
                                      Cost     Depreciation
                                 -----------    --------
Buildings                        $ 7,776,000   $(843,000)
Land and land improvements         2,754,000          --
Leasehold improvements                86,000     (31,000)
                                 -----------    --------
                                 $10,616,000   $(874,000)
                                 ===========    ========


4. Goodwill and Other Intangible Assets

     During 2002,  the Company  revised the  business  model for VFN to focus on
corporate  and  individual  producer  sales and its  projections  supported  the
balance of goodwill.  During 2003 the Company further refined its business model
for VFN, including  identifying a new market and committing additional resources
to develop the business.  During 2003 the Company updated its annual measurement
of fair value of VFN due to the failure of VFN to produce revenues as projected.
The fair value  measurement based on a revised cash flow forecast was predicated
on VFN  realizing  a lower level of sales.  This  forecast of cash flows did not
support the balance of goodwill,  and the Company recorded a goodwill impairment
loss of $491,000 during 2003.

     During the second  quarter  of 2004,  due to the  failure of VFN to produce
revenues as projected,  particularly in the corporate arena,  management decided
to cease actively  marketing to the corporate  market.  As a result,  management
lowered its  expectations  for future  sales.  This event met the  criteria of a
"triggering  event" for  testing  the  recoverability  of  long-lived  assets as
required by  Statement of Financial  Accounting  Standards  No. 144 ("SFAS 144")
"Accounting for the Impairment or Disposal of Long-Lived  Assets."  Accordingly,
the Company  compared  the  carrying  amount of VFN's  long-lived  assets to the
projected sum of the undiscounted cash flows expected to result from the use and
eventual  disposition of the asset group.  Based on the fact that the sum of the
undiscounted  cash  flows  exceeded  VFN's  assets,  the  Company  concluded  no
impairment had occurred to the long-lived assets.

     As a result of performing the impairment tests required under SFAS 144, the
Company was then required under the provisions of SFAS 142 to perform a goodwill
impairment  test  using  the  revised  cash  flows  forecast  discounted  at  an
appropriate  cost of  capital.  The  results  of this  test  indicated  that the
Company's  goodwill was not  recoverable.  Accordingly,  the Company  recorded a
goodwill  impairment loss on the remaining  goodwill  balance of $679,000 during
the second quarter of 2004.

                                       32
<PAGE>

      Acquired intangible assets, all subject to amortization:

                                         December 31,
                    --------------------------------------------------
                             2005                        2004
                    ----------------------     -----------------------
                      Gross                      Gross
                     Carrying  Accumulated     Carrying   Accumulated
                      Amount   Amortization     Amount    Amortization
                    ---------    ---------     ---------    ---------
Copyrights          $ 203,000    $(203,000)    $ 203,000    $(174,000)
Software license      223,000     (175,000)      223,000     (130,000)
                    ---------    ---------     ---------    ---------
      Total         $ 426,000    $(378,000)    $ 426,000    $(304,000)
                    =========    =========     =========    =========


     Intangible  assets  are  amortized  on a  straight-line  basis  over  their
estimated  useful life of 5 years.  The aggregate  amortization  expense for the
years ended December 31, 2005,  2004 and 2003 was $74,000,  $74,000 and $89,000.
The  estimated  amortization  expense for the years ended  December 31, 2006 and
2007 is $45,000 and $3,000.

5. Option to Purchase Investors Insurance Corporation

     On July 1, 2002, the Company entered into a Purchase Option  Agreement with
SCOR Life U.S. Re Insurance  Company  ("SCOR"),  a 100% owner of the outstanding
capital stock of Investors Insurance  Corporation.  Pursuant to the terms of the
agreement,  SCOR  granted  the Company  the right to  purchase  the  outstanding
capital  stock of Investors  Insurance in exchange for annual  option fees.  The
Company had the right to exercise the option at any time on or prior to June 30,
2005, or terminate the Option Agreement in accordance with its terms before such
date if the A.M. Best rating of Investors  Insurance  declined below a specified
level.  The A.M.  Best rating of Investors  Insurance  fell below the  specified
level. On June 22, 2005, the Company  terminated the Option Agreement.  SCOR has
repaid the option  fees paid by the Company  pursuant  to the Option  Agreement,
including interest, totaling approximately $3.3 million.

6. Accounts Payable and Accrued Liabilities

                                                       December 31,
                                             --------------------------------
                                                 2005                2004
                                             -----------         -----------
Accrued compensation                         $ 1,825,000         $ 1,952,000
Commissions payable                              749,000             381,000
Payable to insurance carrier                     620,000             387,000
Accrued software costs                           675,000             730,000
Accrued sales bonus                              485,000              95,000
Accounts payable                                 206,000             391,000
Miscellaneous accrued expenses                   924,000           1,307,000
                                             -----------         -----------
Total                                        $ 5,484,000         $ 5,243,000
                                             ===========         ===========


7. Loan Payable and Note Payable

     The  Company has a mortgage on its office  building in Rome,  Georgia.  The
note has a  variable  interest  rate  indexed  to 30-day  LIBOR plus 1.9% and is
payable over ten years in monthly  installments  of principal,  amortized on the
basis of a 20-year term, and interest.  At the end of the ten years, the Company
must pay the balance of the principal due on the note. The  outstanding  balance
of the note as of  December  31,  2005 and 2004  was  $2.8  million.  To  manage
interest expense,  the Company entered into an interest rate swap agreement with
a notional amount equal to the principal balance of the note, which modifies its
interest  expense  from a  variable  rate to a fixed  rate.  The April 2004 swap
agreement involves the exchange of interest  obligations from April 2004 through
April 2014  whereby the Company  pays a fixed rate of 6.8% in exchange for LIBOR
plus 1.9%. As of December 31, 2005, the Company made payments of $119,000 toward
the principal balance of the note. The required principal payments over the next
five years are: $78,000, $84,000, $90,000, $96,000 and $103,000.

     As of December 31,  2004,  the Company had an  outstanding  mortgage due of
$7.1  million on its office  buildings in  Petaluma,  California.  The note bore
interest at 6.95% and was  originally  due by August 1, 2012.  On  November  18,
2005,  in  connection  with  the  sale  of its  office  buildings  in  Petaluma,
California (see Note 18), the Company repaid the outstanding mortgage due on the
buildings.

                                       33
<PAGE>

8. 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 $14,000.  The Company typically matches 50%
of each employee's contributions up to 6% of their annual compensation,  subject
to a maximum of $7,000.  The Company's  matching  contributions  were  $115,000,
$311,000, and $405,000 for the years ended December 31, 2005, 2004, and 2003.

     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 typically 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 $0,  $23,000,  and
$32,000 during the years ended December 31, 2005, 2004, and 2003. As of December
31, 2005 and 2004,  employee  contributions and Company matching  contributions,
including cumulative investment gains, totaled $548,000 and $788,000.

     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 2% to 5% of amounts deferred, depending on the
level of annual  commissions  earned.  During the years ended December 31, 2005,
2004,  and 2003,  matching  contributions  related  to the  producer  commission
deferral  plan were $8,000,  $18,000,  and $16,000.  As of December 31, 2005 and
2004,  producer  contributions  and Company  matching  contributions,  including
cumulative  investment  gains,  totaled  $7.5  million  and  $7.0  million.  The
liability  to the  employee or  producer  is  credited  or charged  based on the
performance of the investment option selected by the participant.

9. Performance Bonus

     During 2003,  Legacy  Marketing  earned a  performance  bonus from sales of
fixed annuity and life products under the terms of one of its insurance  carrier
partner  contracts.  Amounts  were  earned when fixed and  determinable  and all
revenue recognition  criteria had been met. The Company recorded revenue of $2.0
million during 2003.  These amounts are included in Other  revenue.  The carrier
paid  Legacy  Marketing  Group in full during  2003 and both  parties  agreed to
terminate the bonus program effective July 1, 2003.

10. Sales Incentive Program

     During 2005 and 2004, Legacy Marketing  initiated sales incentive  programs
for its independent  insurance producers and its top producers  ("Wholesalers"),
which  granted  bonuses  to the  producers  and  Wholesalers  based  upon  their
achievement of predetermined monthly sales targets. The Company recorded expense
of $910,000 during the year ended December 31, 2005 related to this program,  of
which $425,000 was paid as of December 31, 2005. The amount expensed in 2004 was
$392,000.   The  amounts   expensed  are   included  in  selling,   general  and
administrative expenses.

     During 2003,  Legacy Marketing  initiated a sales incentive program for its
Wholesalers.  This program  offered  bonuses to Wholesalers  based  primarily on
their  achievement of predetermined  annual sales targets.  Bonuses were paid to
qualifying  Wholesalers  during the first quarter of 2004. The Company  recorded
expense of $2.0 million  during the year ended  December 31, 2003 related to the
sales  incentive  program.  These  amounts are included in selling,  general and
administrative expenses.

11. Commitments and Contingencies

     The  Company  leases  office and  warehouse  premises  and  certain  office
equipment  under  non-cancelable  operating  leases.  Related  rent  expense  of
$298,000,  $329,000,  and $531,000 is included in occupancy  costs for the years
ended December 31, 2005,  2004, and 2003.  Total rentals for leases of equipment
included in equipment expense were $727,000,  $674,000, and $1.0 million for the
years ended December 31, 2005, 2004, and 2003.

                                       34
<PAGE>

     The  Company's   future   minimum  annual  lease   commitments   under  all
non-cancelable operating leases as of December 31, 2005 are as follows:

             Year Ended December 31,
                        2006               $   999,000
                        2007                 1,503,000
                        2008                 1,017,000
                        2009                   986,000
                        2010                   918,000
                  Thereafter                 4,658,000
                                           -----------
          Total minimum lease payments     $l0,081,000
                                           ===========


     During 2003, the Company  amended its  Shareholder  Agreement with Lynda L.
Regan,  Chief  Executive  Officer of the Company and  Chairman of the  Company's
Board of Directors.  Under the terms of the amended agreement, upon the death of
Ms.  Regan,  the  Company  would have the  option  (but not the  obligation)  to
purchase 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. In addition,  upon the death of Ms. Regan,  her heirs
would have the option (but not the obligation) to sell their inherited shares to
the Company. The purchase price to be paid by the Company shall be equal to 125%
of the fair market value of the shares.  As of December  31,  2005,  the Company
believes that 125% of the fair market value of the shares owned by Ms. Regan was
equal to $8.8 million. The Company has purchased life insurance coverage for the
purpose of funding this potential obligation upon 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 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, 2005,  there were no
outstanding commitments by the Company relating to such obligations.

12. 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 $0.69 per share and $2.03 per share, and a redemption
value for Series B redeemable  common stock of $0.57 and $1.67 per share,  as of
December 31, 2005 and 2004, 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>
Balance January 1, 2003                       3,822,000    $  8,406,000       560,000    $  1,709,000     4,382,000    $ 10,115,000
Redemptions and retirement of common stock     (533,000)     (1,173,000)       (7,000)        (12,000)     (540,000)     (1,185,000)
Accretion to redemption value                        --          34,000            --              --            --          34,000
                                             ----------    ------------    ----------    ------------    ----------    ------------
Balance December 31, 2003                     3,289,000       7,267,000       553,000       1,697,000     3,842,000       8,964,000
Redemptions and retirement of common stock     (436,000)       (966,000)           --              --      (436,000)       (966,000)
Reduction to redemption value                        --        (512,000)           --              --            --        (512,000)
                                             ----------    ------------    ----------    ------------    ----------    ------------
Balance December 31, 2004                     2,853,000       5,789,000       553,000       1,697,000     3,406,000       7,486,000
Redemptions and retirement of common stock     (196,000)       (387,000)       (3,000)         (9,000)     (199,000)       (396,000)
Reduction to redemption value                        --        (871,000)           --              --            --        (871,000)
                                             ----------    ------------    ----------    ------------    ----------    ------------
Balance December 31, 2005                     2,657,000    $  4,531,000       550,000    $  1,688,000     3,207,000    $  6,219,000
                                             ==========    ============    ==========    ============    ==========    ============
</TABLE>


     The Company  recorded  redeemable  common  stock  accretion/(reduction)  of
($871,000),  ($512,000) and $34,000 related to Series A redeemable  common stock
for the years ended December 31, 2005, 2004 and 2003.

                                       35
<PAGE>

     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.

13. 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. We granted a total
of 15,000 stock  options to  Producers  in each of the years ended  December 31,
2005,  2004 and 2003.  Total expenses  recorded for Producer stock option grants
were $8,000,  $12,000 and $10,000 during 2005, 2004 and 2003. The Producer stock
options  granted  for each of the three  years  ended  December  31, 2005 vested
immediately upon the grant date and expire six years from the date of grant. The
fair  value of the  Producer  options  were  estimated  using the  Black-Scholes
option-pricing model with the following assumptions:

                                   2005              2004             2003
                                  ------            ------           ------
Risk-free interest rates           3.99%             3.71%            3.19%
Volatility                           27%               27%              27%
Dividend yield                      None              None             None
Expected life                    6 years           6 years          6 years

     There  were no shares of Series A common  stock  awarded  to  non-employees
during 2005, 2004 and 2003.

     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.

                                       36
<PAGE>

      Stock option activity under both plans was as follows:

<TABLE>
<CAPTION>
                                                                     Total
                                                               Weighted Average
                                                  Shares        Exercise Price
                                                ----------        -----------
<S>                                             <C>                 <C>
Outstanding at December 31, 2002                15,949,000          $ 1.38
Granted                                            788,000          $ 1.69
Exercised                                         (155,000)         $ 1.27
Forfeited                                         (797,000)         $ 1.38

Outstanding at December 31, 2003                15,785,000          $ 1.39
Granted                                            327,000          $ 1.69
Exercised                                         (841,000)         $ 1.12
Forfeited                                       (6,482,000)         $ 1.29

Outstanding at December 31, 2004                 8,789,000          $ 1.50
Granted                                            790,000          $ 0.99
Exercised                                          (47,000)         $ 1.53
Forfeited                                       (3,496,000)         $ 1.51

Outstanding at December 31, 2005                 6,036,000          $ 1.43

Exercisable at December 31, 2003                13,106,000          $ 1.35
Exercisable at December 31, 2004                 7,365,000          $ 1.48
Exercisable at December 31, 2005                 5,524,000          $ 1.42
</TABLE>

     The following table summarizes  information about stock options outstanding
at December 31, 2005 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>
           $0.73-$1.03                  1,037,000            6.8                 $0.80          987,000          $0.80
           $1.27-$1.27                    547,000            3.0                 $1.27          547,000          $1.27
           $1.53-$1.55                  1,444,000            4.0                 $1.53        1,399,000          $1.53
           $1.61-$1.61                  1,861,000            1.6                 $1.61        1,861,000          $1.61
           $1.65-$1.69                  1,147,000            6.5                 $1.68          730,000          $1.67
</TABLE>

14. 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.

                                       37
<PAGE>

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

                                     For the Year Ended December 31,
                               -----------------------------------------
                                  2005            2004          2003
                               -----------    -----------    -----------
Current income taxes:
Federal                        $   190,000    $(3,341,000)   $ 3,311,000
State                               11,000        (36,000)       944,000
                               -----------    -----------    -----------
Total current                      201,000     (3,377,000)     4,255,000

Deferred income taxes:
Federal                           (738,000)     2,172,000       (696,000)
State                              268,000        862,000       (168,000)
                               -----------    -----------    -----------
Total deferred                    (470,000)     3,034,000       (864,000)
                               -----------    -----------    -----------
Income tax (benefit) expense   $  (269,000)   $  (343,000)   $ 3,391,000
                               ===========    ===========    ===========


     The Company's deferred tax assets (liabilities) consist of the following:
<TABLE>
<CAPTION>
                                                                     December 31,
                                                              --------------------------
                                                                  2005           2004
                                                              -----------    -----------
<S>                                                           <C>            <C>
Producer stock option and stock awards                        $   494,000    $ 1,033,000
Producer deferred compensation                                  3,204,000      3,072,000
Accrued sales convention costs                                      8,000         44,000
Deferred gain on sale/leaseback of building                     1,085,000             --
Federal net operating loss carryforward                         1,795,000         59,000
Federal alternative minimum tax credit carryforward               191,000             --
State net operating loss carryforward, net of federal taxes     1,441,000      1,166,000
State alternative minimum tax credit carryforward,
   net of federal taxes                                           181,000        181,000
Capital loss carryforward                                              --        300,000
Other deferred tax assets, net of federal taxes                 1,088,000      1,328,000
                                                              -----------    -----------
   Subtotal deferred tax assets                                 9,487,000      7,183,000
Valuation allowance                                            (6,718,000)    (2,063,000)
                                                              -----------    -----------
   Subtotal deferred tax assets after valuation allowance       2,769,000      5,120,000

Fixed assets depreciation                                      (2,523,000)    (3,620,000)
Deferred gain on building sale                                         --     (1,357,000)
Unrealized gains                                                 (246,000)      (613,000)
                                                              -----------    -----------
   Subtotal deferred tax liabilities                           (2,769,000)    (5,590,000)
                                                              -----------    -----------
Deferred tax assets (liabilities), net                        $        --    $  (470,000)
                                                              ===========    ===========
</TABLE>


     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.  Due to cumulative
losses in recent  year,  management  established  a valuation  allowance of $6.7
million as of December 31, 2005.  This represents a net increase in 2005 of $4.7
million in the  valuation  allowance  on deferred  tax assets from  December 31,
2004.

                                       38
<PAGE>

     The income tax provision (benefit) in 2005, 2004 and 2003 differed from the
amounts  computed by applying the  statutory  federal  income tax rate of 34% to
pretax income (loss) as a result of the following:
<TABLE>
<CAPTION>
                                                                       For the Year Ended December 31,
                                                                  -----------------------------------------
                                                                     2005           2004           2003
                                                                  -----------    -----------    -----------
<S>                                                               <C>            <C>            <C>
Federal income tax expense (benefit) at statutory rate (34%)      $(4,753,000)   $(2,656,000)   $ 2,863,000
Increase (reductions) in income taxes resulting from:
State franchise taxes, net of federal income tax benefit              184,000        634,000        526,000
Expired producer stock options unexercised                            457,000        844,000             --
Valuation allowance for remaining producer stock options             (383,000)       759,000             --
Valuation allowance for federal net operating loss carryforward
   and other temporary differences                                  3,954,000             --             --
Valuation allowance for federal alternative minimum tax credit
   carryforward                                                       191,000             --             --
Other                                                                  81,000         76,000          2,000
                                                                  -----------    -----------    -----------
Income tax provision (benefit)                                    $  (269,000)   $  (343,000)   $ 3,391,000
                                                                  ===========    ===========    ===========
</TABLE>

     As of December  31,  2005,  the  Company has federal and primary  state net
operating loss carryforwards of $5.3 million and $23.0 million.  On December 31,
2024 and 2025,  $251,000  and $5.0 million of the federal net  operating  losses
will  expire.  On December 31,  2012,  $4.9  million of the state net  operating
losses will begin to expire.  The Company also has federal and state alternative
minimum tax credit carryforwards of $191,000 and $275,000.  These credits do not
have an expiration  date.  Federal and state tax valuation  allowances have been
established  for all of the federal and state net operating  loss  carryforwards
and the federal and state tax credit carryforwards.

15. Earnings (loss) per Share

     The basic and diluted  earnings (loss) per share  calculations are based on
the weighted  average number of common shares  outstanding  including  shares of
redeemable common stock.

<TABLE>
<CAPTION>
                                                           For the Year Ended December 31,
                                                     --------------------------------------------
                                                         2005             2004            2003
                                                     -------------    ------------    -----------
<S>                                                  <C>              <C>             <C>
Net income (loss) available for common
    shareholders, as reported                        $ (12,840,000)   $ (6,955,000)   $ 4,995,000
                                                     =============    ============    ===========
Reconciliation of shares used in basic and diluted
    earnings per share calculations:
Basic:
Weighted average common shares outstanding              24,259,000      23,880,000     24,431,000
                                                     =============    ============    ===========
Basic net income (loss) per share                    $       (0.53)   $      (0.29)   $      0.20
                                                     =============    ============    ===========
Diluted:
Weighted average common shares outstanding              24,259,000      23,880,000     24,431,000
Dilutive effect of stock options                                --              --      2,899,000
                                                     -------------    ------------    -----------
Shares used in diluted net income (loss) per share
    calculation                                         24,259,000      23,880,000     27,330,000
                                                     =============    ============    ===========
Diluted net income (loss) per share                  $       (0.53)   $      (0.29)   $      0.18
                                                     =============    ============    ===========
</TABLE>

     As the Company incurred net losses in the years ended December 31, 2005 and
2004,  options to purchase 6.0 million and 8.8 million  shares of the  Company's
common stock were  excluded from the  computation  of diluted net loss per share
for those  periods,  as the  effect  would  have been  antidilutive.  Options to
purchase  699,000  shares of the  Company's  common stock were excluded from the
computation  of diluted  net income  per share for the year ended  December  31,
2003, as the option's exercise prices were greater than the average market price
of the common stock, and, therefore, the effect would have been antidilutive.

                                       39
<PAGE>

16. Segment Information

     The Company has identified  its reportable  segments based on its method of
internal  reporting and  segregates  its business  into four primary  reportable
segments:  Legacy  Marketing,  Legacy  Financial,  Imagent  Online,  and  Values
Financial  Network.  Intersegment  transactions are eliminated in consolidation.
The Legacy  Marketing  business  segment  includes  the  results of selling  and
administering  fixed annuity and life insurance  products and general  corporate
expenses not allocated to the Company's other segments.

     In January  2006,  management  of the Company  decided to  discontinue  the
operations of VFN. We will incur insignificant costs associated with exiting the
operations.

     In June 2005,  management of the Company  authorized the dissolution of its
Other segement, Legacy Reinsurance Company ("Legacy Re"). The dissolution became
effective in July 2005.  Legacy Re did not have any results of operations in the
years ended December 31, 2005, 2004 and 2003.
<TABLE>
<CAPTION>
                                                                             Values
                                Legacy         Legacy         Imagent       Financial                    Intercompany
                               Marketing      Financial       Online         Network        Subtotal     Eliminations     Total
                              ------------   ------------   ------------   ------------   ------------   ------------  ------------
<S>                      <C>             <C>              <C>              <C>        <C>               <C>            <C>
Year Ended December 31, 2005

Total revenue                 $ 24,824,000   $  3,558,000   $    197,000   $      5,000   $ 28,584,000   $   (458,000) $ 28,126,000
Total expenses                  37,056,000      3,667,000      1,774,000        583,000     43,080,000       (458,000)   42,622,000
                              ------------   ------------   ------------   ------------   ------------   ------------  ------------
Operating loss                 (12,232,000)      (109,000)    (1,577,000)      (578,000)   (14,496,000)            --   (14,496,000)
Other income                       508,000          8,000             --             --        516,000             --       516,000
                              ------------   ------------   ------------   ------------   ------------   ------------  ------------
Loss before tax                (11,724,000)      (101,000)    (1,577,000)      (578,000)   (13,980,000)            --   (13,980,000)
Tax provision (benefit)           (475,000)        18,000       (615,000)       803,000       (269,000)            --      (269,000)
                              ------------   ------------   ------------   ------------   ------------   ------------  ------------
Net loss                      $(11,249,000)  $   (119,000)  $   (962,000)  $ (1,381,000)  $(13,711,000)  $         --  $(13,711,000)
                              ============   ============   ============   ============   ============   ============  ============

Year Ended December 31, 2004

Total revenue                 $ 34,009,000   $  3,673,000   $    275,000   $     39,000   $ 37,996,000   $   (611,000) $ 37,385,000
Total expenses                  39,909,000      3,999,000      1,133,000      1,287,000     46,328,000       (611,000)   45,717,000
                              ------------   ------------   ------------   ------------   ------------   ------------  ------------
Operating loss                  (5,900,000)      (326,000)      (858,000)    (1,248,000)    (8,332,000)            --    (8,332,000)
Other income                       522,000             --             --             --        522,000             --       522,000
                              ------------   ------------   ------------   ------------   ------------   ------------  ------------
Loss before tax                 (5,378,000)      (326,000)      (858,000)    (1,248,000)    (7,810,000)            --    (7,810,000)
Tax provision (benefit)            530,000        (33,000)      (343,000)      (497,000)      (343,000)            --      (343,000)
                              ------------   ------------   ------------   ------------   ------------   ------------  ------------
Net loss                      $ (5,908,000)  $   (293,000)  $   (515,000)  $   (751,000)  $ (7,467,000)  $         --  $ (7,467,000)
                              ============   ============   ============   ============   ============   ============  ============

Year Ended December 31, 2003

Total revenue                 $ 68,029,000   $  3,237,000   $    247,000   $     30,000   $ 71,543,000   $   (626,000) $ 70,917,000
Total expenses                  56,373,000      4,113,000      1,260,000      1,760,000     63,506,000       (626,000)   62,880,000
                              ------------   ------------   ------------   ------------   ------------   ------------  ------------
Operating income (loss)         11,656,000       (876,000)    (1,013,000)    (1,730,000)     8,037,000             --     8,037,000
Other income (loss)                391,000         (8,000)            --             --        383,000             --       383,000
                              ------------   ------------   ------------   ------------   ------------   ------------  ------------
Income (loss) before tax        12,047,000       (884,000)    (1,013,000)    (1,730,000)     8,420,000             --     8,420,000
Tax provision (benefit)          4,807,000       (323,000)      (407,000)      (686,000)     3,391,000             --     3,391,000
                              ------------   ------------   ------------   ------------   ------------   ------------  ------------
Net income (loss)             $  7,240,000   $   (561,000)  $   (606,000)  $ (1,044,000)  $  5,029,000   $         --  $  5,029,000
                              ============   ============   ============   ============   ============   ============  ============

Total assets
December 31, 2005             $ 33,532,000   $  1,751,000   $  2,995,000   $  1,653,000   $ 39,931,000   $ (9,531,000) $ 30,400,000
                              ============   ============   ============   ============   ============   ============  ============

December 31, 2004             $ 50,487,000   $  1,575,000   $  2,514,000   $  2,069,000   $ 56,645,000   $ (9,027,000) $ 47,618,000
                              ============   ============   ============   ============   ============   ============  ============
</TABLE>

                                       40
<PAGE>

 17. Concentration of Risk

     As of  December  31,  2005,  Legacy  Marketing  sold and  administered  its
products primarily on behalf of three unaffiliated insurance carriers:  American
National,  Investors  Insurance  and  Transamerica.  The  agreements  with those
carriers  generated a significant  portion of the Company's  total  consolidated
revenue:

                              2005      2004       2003
                              ----      ----       ----
American National              23%       25%        37%
Investors Insurance            20%       27%        23%
Transamerica                   18%       24%        25%


     Legacy   Marketing's   revenues  are  derived   primarily  from  sales  and
administration of the following fixed annuity product series:

                                               2005    2004    2003
                                               ----    ----    ----
BenchMark(SM) series (American National)        22%     24%     37%
SelectMark(R) series (Transamerica)             18%     24%     25%
MarkOne(SM) series (Investors Insurance)        13%     23%     23%


18. Sale/Leaseback of Office Building

     On November  18, 2005,  the Company sold its office  buildings in Petaluma,
California  for $12.8  million.  The  Company  and the third  party  buyer  (the
"Buyer") further agreed to enter into a ten year lease  agreement,  concurrently
with the sale of the  buildings,  whereby the Company is leasing back (i) 71,612
square feet for a period not to exceed  eighteen  months and (ii) between 35,612
and 51,612  square feet for the  remainder  of the lease term.  The monthly base
rent is $1.25 per square foot and will increase annually by three percent during
the term of the lease,  in addition  to monthly  taxes and  operating  expenses.
Pursuant  to the terms of the  lease,  the  Company  paid the  Buyer a  security
deposit of $1.0 million and advance  rent of $980,000.  The advance rent will be
utilized to pay the monthly  base rent,  monthly  taxes and  operating  expenses
during the first nine months of the lease term.  The  security  deposit  will be
reduced if the Company meets certain profitability  criteria as specified in the
Agreement.


                                       41
<PAGE>

Supplementary Data

Quarterly Financial Information (Unaudited)
<TABLE>
<CAPTION>
                                         First Quarter    Second Quarter   Third Quarter    Fourth Quarter       Year
                                         -------------    --------------   -------------    --------------   -------------
<S>                                      <C>              <C>              <C>              <C>              <C>
2005
Total revenue                            $  7,336,000     $  7,143,000     $  6,749,000     $  6,898,000     $ 28,126,000
Operating loss                           $ (3,827,000)    $ (6,025,000)    $ (2,406,000)    $ (2,238,000)    $(14,496,000)
Net loss                                 $ (3,334,000)    $ (5,654,000)    $ (2,559,000)    $ (2,164,000)    $(13,711,000)
Basic and diluted earnings per share:
Loss available to common shareholders    $      (0.14)    $      (0.20)    $      (0.11)    $      (0.07)    $      (0.53)

2004
Total revenue                            $ 11,961,000     $ 10,110,000     $  7,881,000     $  7,433,000     $ 37,385,000
Operating loss                           $   (995,000)    $ (1,826,000)    $ (2,409,000)    $ (3,102,000)    $ (8,332,000)
Net loss                                 $   (520,000)    $ (1,049,000)    $ (1,403,000)    $ (4,495,000)    $ (7,467,000)
Basic and diluted earnings per share:
Loss available to common shareholders    $      (0.02)    $      (0.04)    $      (0.06)    $      (0.17)    $      (0.29)
</TABLE>


Schedule II - Valuation and Qualifying Accounts

<TABLE>
<CAPTION>
                                                         Additions     Deductions
                                           Balance at    charged to    charged to      Balance
                                           beginning     costs and      costs and     at end of
                                           of period      expenses      expenses        period
                                           ----------    ----------    -----------    ----------
<S>                                        <C>           <C>           <C>            <C>
2005
Allowance for uncollectible accounts       $  569,000    $  267,000    $ (407,000)    $  429,000
State net operating loss carryforward
    valuation allowance                    $  921,000    $  951,000    $  (30,000)    $1,842,000
State alternative minimum tax credit
    carryforward valuation allowance       $  181,000    $       --    $       --     $  181,000
Producer stock option deferred tax
    valuation allowance                    $  885,000    $   23,000    $ (467,000)    $  441,000
Federal net operating loss carryforward
    valuation allowance                    $       --    $3,954,000    $       --     $3,954,000
Federal alternative minimum tax credit
    carryforward valuation allowance       $       --    $  191,000    $       --     $  191,000
Other                                      $   76,000    $   33,000    $       --     $  109,000

2004
Allowance for uncollectible accounts       $  866,000    $   94,000    $ (391,000)    $  569,000
State net operating loss carryforward
    valuation allowance                    $  385,000    $  536,000    $       --     $  921,000
State alternative minimum tax credit
    carryforward valuation allowance       $       --    $  181,000    $       --     $  181,000
Producer stock option deferred tax
    valuation allowance                    $       --    $  885,000    $       --     $  885,000
Other                                      $       --    $   76,000    $       --     $   76,000

2003
Allowance for uncollectible accounts       $  760,000    $  306,000    $ (200,000)    $  866,000
State net operating loss carryforward
    valuation allowance                    $  362,000    $   23,000    $       --     $  385,000
</TABLE>

                                       42
<PAGE>


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

     None.


Item 9A. Controls and Procedures


Evaluation of Disclosure Controls and Procedures

     The Company  maintains  disclosure  controls and  procedures (as defined in
Rule 13a-15(e) of the Securities  Exchange Act of 1934, as amended)  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. As of December
31, 2005, our Chief  Executive  Officer and Chief Financial  Officer  evaluated,
with the  participation of our management,  the  effectiveness of our disclosure
controls and procedures.  Based on that evaluation,  our Chief Executive Officer
and Chief  Financial  Officer have concluded  that our  disclosure  controls and
procedures  were  effective as of the end of the period  covered by this report.
Our management,  including the Chief  Executive  Officer and the Chief Financial
Officer,  also  evaluated  our  internal  control  over  financial  reporting to
determine whether any changes occurred during the quarter covered by this report
that have materially  affected,  or are reasonably likely to materially  affect,
our internal control over financial reporting.  Based on that evaluation,  there
have been no such changes during the period covered by this report.

     The Company has a Disclosure Committee, consisting of certain executives of
the Company.  The Disclosure  Committee  meets  quarterly as part of the closing
process and reviews each financial  statement line item and footnote  disclosure
to ensure the  impacts  of all  business  activity  and  transactions  have been
appropriately   accounted  for  and  disclosed  in  the  consolidated  financial
statements  and related  notes of the Company.  The  Disclosure  Committee  also
reviews  detailed  analytics of the Company's  performance and assesses the need
for  any  additional  disclosures  based  on  the  relevant  reporting  period's
activity.  The Disclosure  Committee began reviewing the disclosures made by the
Company in its filings with the U.S. Securities and Exchange Commission starting
with the Company's Form 10-K for the year ended December 31, 2003.


Item 9B. Other Information

      None.

                                       43
<PAGE>

                                    PART III


Item 10. Directors and Executive Officers of the Company

     Information  required by Items 401, 405 and 406 of  Regulation  S-K will be
contained in the  Company's  Definitive  Proxy  Statement in the section  titled
"Election of Directors." Such information is incorporated herein by reference.

     We have a Finance  Code of  Professional  Conduct that applies to our Chief
Executive  Officer,  President and Chief Financial  Officer,  Chief  Information
Officer,  Chief Operations Officer,  Chief Marketing Officer,  Vice President of
Product Development,  Vice President, LFS Marketing,  directors and employees of
the  finance  organization.  The  Finance  Code of  Professional  Conduct can be
accessed at our Website at  www.legacynet.com.  Printed  copies may be obtained,
free of charge, by writing to our Chief Financial Officer at 2090 Marina Avenue,
Petaluma, California 94954.

     Section 16(a) of the Exchange Act ("Section  16(a)") requires the Company's
officers  and  directors,  and  persons  who own  more  than  ten  percent  of a
registered  class  of the  Company's  equity  securities,  to  file  reports  of
ownership  on Form 3 and  changes  in  ownership  on  Form 4 or Form 5 with  the
Securities and Exchange  Commission (the "SEC") and the National  Association of
Securities Dealers, Inc. Such officers,  directors and ten-percent  stockholders
are also  required by SEC rules to furnish  the Company  with copies of all such
forms that they file.  The Company  believes  that during 2005 all Section 16(a)
filing  requirements  applicable  to its  officers,  directors  and  ten-percent
stockholders were complied with.

Item 11. Executive Compensation

     Information  required  by  Item  11  will  be  contained  in the  Company's
Definitive Proxy Statement in the section titled "Executive  Compensation." Such
information is incorporated herein by reference.

Item 12. Security Ownership of Certain Beneficial Owners and Management

     Any  information  required by Item 12, except for the information set forth
below,  will be contained in the  Company's  Definitive  Proxy  Statement in the
section titled "Security Ownership of Certain Beneficial Owners and Management."
Such information is incorporated herein by reference.

Securities Authorized For Issuance Under Equity Compensation Plans:
<TABLE>
<CAPTION>
                            (a)                          (b)                      (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))
--------------------        -----------------------      -------------------      ----------------------------------
<S>                         <C>                          <C>                       <C>
Equity compensation
plans approved by
stockholders(1)             6,036,000                    $1.43                     14,964,000
</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  will  be  contained  in the  Company's
Definitive  Proxy  Statement in the section titled  "Certain  Relationships  and
Related Transactions." Such information is incorporated herein by reference.

Item 14. Principal Accounting Fees and Services

     Information  concerning  principal  accountant  fees and  services  will be
contained in the  Company's  Definitive  Proxy  Statement in the section  titled
"Audit Fees". Such information is incorporated by reference herein.

                                       44
<PAGE>

                                     PART IV


Item 15. Exhibits and Financial Statement Schedules

      (a)  Index to Exhibits and Financial Statement Schedules:

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

                (i)    Reports  of  Independent   Registered  Public  Accounting
                       Firms.

                (ii)   Consolidated  Balance  Sheet as of December  31, 2005 and
                       2004.

                (iii)  Consolidated  Statement of Operations for the years ended
                       December 31, 2005, 2004, and 2003.

                (iv)   Consolidated  Statement of  Shareholders'  Equity for the
                       years ended December 31, 2005, 2004, and 2003.

                (v)    Consolidated  Statement of Cash Flows for the years ended
                       December 31, 2005, 2004, and 2003.

                (vi)   Notes to Consolidated Financial Statements.

           2.   Financial  statement  schedules - schedule  II -  valuation  and
                qualifying accounts (included in Item 8)

           3.   See(b) below.

       (b) Exhibit Index

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

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

4(a)       Amended and Restated  Shareholders'  Agreement,  dated as of June 30,
           2003,  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.(1)

10(b)      Marketing  Agreement,  effective  November 15, 2002, between American
           National Insurance Company and Legacy Marketing Group. (7)

10(b)(1)   Amendment  One to the  Marketing  Agreement  with  American  National
           Insurance Company. (8)

10(c)      Administrative  Services  Agreement,  effective  February  15,  2003,
           between  American  National  Insurance  Company and Legacy  Marketing
           Group. (7)

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.(4)

--------------------
*       Management contract, compensatory plan or arrangement.

(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  quarterly  Form 10-Q
        for the three months and nine months ended September 30, 1996.

(4)     Incorporated  herein by reference to the Company's  Form 8-K, dated June
        1, 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 six months ended June 30, 2003.

(7)     Incorporated  herein by  reference  to the  Company's  Form  8-K,  dated
        January 29, 2004.

(8)     Incorporated  herein by reference to the Company's  quarterly  Form 10-Q
        for the nine months ended September 30, 2003.

                                       45
<PAGE>
10(i)(1)   Amendment One to Marketing Agreement with Transamerica Life Insurance
           and Annuity Company.(10)

10(i)(2)   Amendment Two to Marketing Agreement with Transamerica Life Insurance
           and Annuity Company.(4)

10(i)(3)   Amendment  Three  to  Marketing   Agreement  with  Transamerica  Life
           Insurance and Annuity Company.(8)

10(i)(4)   Amendment  Four  to  Marketing   Agreement  with   Transamerica  Life
           Insurance and Annuity Company.(11)

10(i)(5)   Amendment  Five  to  Marketing   Agreement  with   Transamerica  Life
           Insurance and Annuity Company.(9)

10(i)(6)   Amendment Six to Marketing Agreement with Transamerica Life Insurance
           and Annuity Company.(10)

10(i)(7)   Amendment  Seven  to  Marketing   Agreement  with  Transamerica  Life
           Insurance and Annuity Company. (5)

10(i)(8)   Amendment  Ninth  to  Marketing   Agreement  with  Transamerica  Life
           Insurance and Annuity Company. (5)

10(j)(1)   Administrative  Services  Agreement  effective  May 29, 1998  between
           Transamerica  Life Insurance and Annuity Company and Legacy Marketing
           Group, as amended. (1)
10(j)(2)   Amendment to the Administrative  Services Agreement with Transamerica
           Life Insurance and Annuity Company.(2)

10(j)(3)   Amendment  Two  to  the   Administrative   Services   Agreement  with
           Transamerica Life Insurance and Annuity Company.(2)

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

10(j)(5)   Amendment Four to Administrative Services Agreement with Transamerica
           Life Insurance and Annuity Company.(6)

10(j)(6)   Amendment Five to Administrative Services Agreement with Transamerica
           Life Insurance and Annuity Company.(11)

10(j)(7)   Amendment Six to Administrative  Services Agreement with Transamerica
           Life Insurance and Annuity Company.(9)

10(j)(8)   Amendment   Seven   to   Administrative   Services   Agreement   with
           Transamerica Life Insurance and Annuity Company.(9)

10(j)(9)   Amendment   Eight   to   Administrative   Services   Agreement   with
           Transamerica Life Insurance and Annuity Company.(10)

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

10(k)      Marketing  Agreement  effective January 18, 2001 between John Hancock
           Life Insurance Company and Legacy Marketing Group. (11)

10(k)(1)   Amendment to the Marketing Agreement with John Hancock Life Insurance
           Company. (8)

10(l)      Administrative  Services Agreement effective January 18, 2001 between
           John Hancock Life Insurance Company and Legacy Marketing Group. (11)

10(l)(1)   Amendment to the Administrative  Services Agreement with John Hancock
           Life Insurance Company. (8)

10(m)      Promissory  Note by and between Regan Holding  Corp.  and  Washington
           Mutual Bank FA, dated July 10, 2002. (7)

10(n)      Producer Stock Award and Stock Option Plan, as amended.(3)

10(n)(1)   1998 Stock Option Plan, as amended.(3)

10(o)      Commercial Note between  SunTrust Bank and the Company executed April
           23, 2004. (12)

10(p)      Administrative  Services  Agreement,  effective June 5, 2002, between
           Investors Insurance Corporation and Legacy Marketing Group. (5)

10(q)      Marketing  Agreement,  effective  June  5,  2002,  between  Investors
           Insurance Corporation and Legacy Marketing Group. (5)

10(r)      Agreement of Purchase and Sale between Regan Holding Corp.  and Basin
           Street  Properties,  dated July 25, 2005,  and related  Lease,  dated
           November 18, 2005.

10(s)      Amendment to Agreement  of Purchase  and Sale between  Regan  Holding
           Corp. and Basin Street Properties, dated November 14, 2005.

21         Subsidiaries of Regan Holding Corp.

31.1       Certification   of  Chief   Executive   Officer   required   by  Rule
           13a-14(a)/15d-14(a) under the Exchange Act.

31.2       Certification   of  Chief   Financial   Officer   required   by  Rule
           13a-14(a)/15d-14(a) under the Exchange Act.

32.1       Certification of Chief Executive Officer pursuant to Section 1350.

32.2       Certification of Chief Financial Officer pursuant to Section 1350.

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

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

(3)      Incorporated  herein by reference  to the  Company's  Definitive  Proxy
         Statement dated July 31, 2001.

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

(5)      Incorporated   herein  by  reference  to  the  Company's   registration
         statement on Form S-2  (post-effective  amendment no. 5) dated July 23,
         2004.

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

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

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

(9)      Incorporated  herein by reference to the Company's  quarterly report on
         Form 10-Q for the six months ended June 30, 2003.

(10)     Incorporated  herein by reference to the Company's  quarterly report on
         Form 10-Q for the nine months ended September 30, 2003.

(11)     Incorporated  herein by  reference  to the  Company's  Form 8-K,  dated
         January 29, 2004.

(12)     Incorporated  herein by reference to the Company's  quarterly report on
         From 10-Q for the six months ended June 30, 2004.

                                       46
<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, 2006
----------------------------------
Lynda L. Regan
Chairman of the Board of Directors and
Chief Executive Officer

By: /s/ R. Preston Pitts                               Date: March 31, 2006
----------------------------------
R. Preston Pitts
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, 2006
----------------------------------
Lynda L. Regan
Chairman of the Board of Directors and Chief
Executive Officer (Principal Executive Officer)

By: /s/ R. Preston Pitts                               Date: March 31, 2006
----------------------------------
R. Preston Pitts
Director, President
(Principal Financial and Accounting Officer)

By: /s/ Donald Ratajczak                               Date: March 31, 2006
----------------------------------
Donald Ratajczak
Director

By: /s/ Ute Scott-Smith                                Date: March 31, 2006
----------------------------------
Ute Scott-Smith
Director

By: /s/ J. Daniel Speight, Jr                          Date: March 31, 2006
----------------------------------
J. Daniel Speight, Jr.
Director


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