<PAGE>   1

                       SECURITIES AND EXCHANGE COMMISSION
                              WASHINGTON, DC 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, 1999, or
                              -----------------

[ ] Transition report pursuant to Section 13 or 15(d) of the Securities Exchange
    Act of 1934

            For the transition period from _____________ to ____________

                          Commission file number 0-4366
                                                 ------

                               REGAN HOLDING CORP.
                               -------------------
             (Exact Name of Registrant as Specified in Its Charter)

                CALIFORNIA                                   68-0211359
                ----------                                   ----------
      (State or Other Jurisdiction of                     (I.R.S. Employer
      Incorporation or Organization)                     Identification No.)

  2090 MARINA AVENUE PETALUMA, CALIFORNIA                       94954
  ---------------------------------------                       -----
 (Address of Principal Executive Offices)                    (Zip Code)

                                 (707) 778-8638
                                 --------------
              (Registrant's Telephone Number, Including Area Code)

                           Securities registered under
                       Section 12(g) of the Exchange Act:

                           COMMON STOCK, NO PAR VALUE
                           --------------------------
                                (Title of Class)

     Indicate by check mark whether the registrant: (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.


                                     Yes     X         No
                                         ---------        ---------

     Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K.

     State the aggregate market value of the voting stock held by non-affiliates
of the registrant. The aggregate market value shall be computed by reference to
the price at which the common equity was sold, or the average bid and asked
prices of such common equity, as of a date specified within the 60 days prior to
the date of filing.

                                  $24,780,201

     There is currently no trading market for the registrant's stock.
Accordingly, the foregoing is as of March 15, 2000 and is based on the price
at which the registrant has repurchased its stock during the 60 days prior
to the date of filing.

                          Index to Exhibits on Page 40






                                     Page 1
<PAGE>   2

              APPLICABLE ONLY TO REGISTRANTS INVOLVED IN BANKRUPTCY
                   PROCEEDINGS DURING THE PRECEDING FIVE YEARS

     Indicate by check mark whether the issuer has filed all documents and
reports required to be filed by Section 12, 13 or 15(d) of the Securities
Exchange Act of 1934 after the distribution of securities under a plan confirmed
by a court.


                             Yes           No
                                 --------     -------

                    APPLICABLE ONLY TO CORPORATE REGISTRANTS

     Indicate the number of shares outstanding of each of the registrant's
classes of common stock as of February 29, 2000, including redeemable common
stock:

       COMMON STOCK-SERIES A                           25,745,709
       COMMON STOCK-SERIES B                              589,757

                       DOCUMENTS INCORPORATED BY REFERENCE

     The issuer's definitive Proxy Statement for the Annual Meeting of
Shareholders to be held May 23, 2000, is incorporated by reference into Part III
of this document.






                                     Page 2
<PAGE>   3

                                     PART I

ITEM 1. DESCRIPTION OF BUSINESS

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

     Regan Holding Corp. (the "Company"), is a California Corporation that is
primarily engaged, through its wholly-owned subsidiary Legacy Marketing Group
("LMG"), in the design, marketing and administration of life insurance and
annuity products. Through LMG, the Company has entered into marketing agreements
(the "Marketing Agreements") with American National Insurance Company ("American
National"), IL Annuity and Insurance Company ("IL Annuity"), and Transamerica
Life Insurance and Annuity Company ("Transamerica"), each of which is an
unaffiliated company (collectively referred to herein as the "Carriers").
American National has over $1.7 billion in capital and surplus and is rated "A+"
by A. M. Best. IL Annuity has $60.0 million in capital and surplus and is rated
"A" by A.M. Best. Transamerica has over $830.0 million in capital and surplus
and is rated "A+" by A.M. Best. The Company currently markets policies written
in the District of Columbia and in each state of the United States except
Alabama and New York.

     The Marketing Agreements grant LMG the exclusive right to market certain
annuity and life insurance products issued by the Carriers (the "Policies").
Under the terms of the Marketing Agreements, LMG is responsible for the
recruiting, appointing and training of producers who contract with LMG to sell
the Policies. For these services, the Carriers pay LMG marketing allowances and
commissions based on the volume of premiums from Policies sold. The Carriers are
also responsible for the funding of commissions paid to producers for sales of
Policies. LMG may, in its discretion, elect to pay commissions to producers in
addition to those paid by the Carriers.

     The Company currently markets the Policies through a network consisting of
approximately 19,400 producers, of whom approximately 5,200 generated business
during 1999. Each of these producers has entered into a producer agreement with
LMG pursuant to which the services of the producer are provided on a
non-exclusive basis. These agreements may be terminated immediately by either
the producer or LMG, with or without cause.

     LMG's sales network is built on a multi-level structure, pursuant to which
producers may recruit other producers. Recruited producers are referred to as
"downline" producers within the recruiting producer's "downline network."
Recruited producers may also recruit other producers, creating a hierarchy under
the original recruiting producer. The producer contract contains a nine-level
"open book" design in which a producer may advance from one level to the next
based on his or her commission level and the size of his or her downline
network. As a producer advances within the system, the producer receives higher
commissions on sales made by the producer and the producer's downline network.
LMG's multi-level structure creates a financial incentive for producers to build
a hierarchy, or downline network, of producers, thereby contributing to their
own financial growth and to the growth of LMG. Advancements to higher levels can
occur as often as every three months. Producers at the highest levels are
considered "wholesalers."

     LMG provides tools and services that assist wholesalers with recruiting,
training and support responsibilities associated with the producers in their
downline network. In addition, LMG assists producers with programs designed to
increase their sales and better serve their clients. Recruiting and training
programs include visual presentations, product videos and seminars, advertising
material guidelines and sales flip charts. LMG also generates product
information, sales brochures, and recruiting material. In addition, LMG designs
advanced estate planning concepts, pursuant to which clients of producers
benefit from tax and legal advantages through purchase of the Policies.

     In addition to Policy marketing and administration, LMG assists the
Carriers in Policy design and development. LMG's marketing and actuarial
departments work with the Carriers to design proprietary annuity and life
insurance products to be marketed by LMG. Most products marketed by LMG include
certain guarantees for the benefit of policyholders, known as LMG's Cornerstone
Guarantees, which are designed to be unique in the insurance marketplace. LMG's
Cornerstone Guarantees generally include: (i) a contractually guaranteed maximum
administrative fee; (ii) multiple crediting rate options; and (iii) life
insurance products providing a





                                     Page 3
<PAGE>   4


guarantee that changes in the cost of insurance will result solely from changes
in the Policies' future experience factors.

     LMG has also entered into Administrative Agreements (the "Administrative
Agreements") with each of the Carriers pursuant to which LMG provides clerical,
administrative and accounting services with respect to the Policies. Such
services include billing, collecting and remitting cash on the Policies.
However, all cash receipts are deposited into accounts maintained by the
Carriers and all cash remitted by the Carriers to either policyholders or LMG is
paid from accounts maintained by the Carriers. For providing such services, LMG
is paid on a per transaction basis with the amount of the fee depending on the
type of policy and type of service. Historically, all administrative services
with respect to Policies were performed at the Company's headquarters in
Petaluma, California. However, during 1998, LMG began performing administrative
services with respect to certain annuity Policies at facilities located in Rome,
Georgia.

     Until the third quarter of 1998, American National and IL Annuity were the
only insurance companies for which LMG marketed and administered insurance
products. During the third quarter of 1998, LMG began marketing and
administering insurance products for Transamerica. Approximately 36.2% and 57.0%
of the Company's total consolidated revenue during 1997 resulted from agreements
with American National and IL Annuity, respectively. Approximately 12.7%, 79.9%,
and 1.7% of the Company's total consolidated revenue resulted from agreements
with American National, IL Annuity, and Transamerica during 1998, respectively,
and 10.5%, 73.5%, and 11.3% during 1999, respectively.

     Neither the Marketing Agreements nor the Administrative Agreements prevent
LMG from entering into similar arrangements with other insurance companies.
However, the Marketing Agreements prevent LMG from marketing products with other
carriers which are similar, in the case of American National and IL Annuity, or
the same, in the case of Transamerica, to those being offered under the
respective Marketing Agreements. In addition, under the terms of the Marketing
Agreements with American National and IL Annuity, LMG is obligated to give
American National and IL Annuity the opportunity to participate in the marketing
of any new products developed by LMG.

     The Marketing and Administrative Agreements with American National and IL
Annuity expire on April 30, 2000, and December 31, 2005, respectively, but may
be renewed by mutual agreement for successive one year terms. These Agreements
may be terminated by either party upon 180 days notice without cause, and may be
terminated by either party immediately for cause. In addition, the Marketing
Agreements with American National and with IL Annuity will terminate
automatically at the end of any calendar quarter upon failure of LMG to meet
certain quarterly minimum production requirements for two successive calendar
quarters. The Company is currently negotiating with American National to renew
the Marketing and Administrative Agreements. Management expects that new
agreements will be signed during the second quarter of 2000. The Marketing and
Administrative Agreements with Transamerica do not have fixed terms but may be
terminated by either party upon twelve months notice without cause, and may be
terminated by either party immediately for cause.

     In February of 2000, LMG entered into an Agency Agreement with Bankers
United Life Assurance Company ("Bankers") pursuant to which LMG is authorized to
solicit, through its network of independent insurance producers, sales of
long-term care products offered by Bankers. For this solicitation, LMG will
receive commissions based on the volume of premiums sold. The Agency Agreement
may be terminated by either party with 15 days notice without cause, and may be
terminated by either party immediately for cause. LMG is currently working to
become licensed in several states to sell long-term care products. Accordingly,
no sales of long-term care products have occurred to date.

     Through its wholly-owned broker-dealer subsidiary, Legacy Financial
Services, Inc. ("LFS"), the Company engages in the offering and sale of variable
annuity and life insurance products, mutual funds and debt and equity securities
on a fully disclosed basis. LFS has entered into agreements (the "Agreements")
with various entities pursuant to which LFS has non-exclusive rights to solicit
sales of investment products offered by such entities through its network of
independent representatives and to provide certain marketing and administrative
services in order to facilitate sales of such products. Under the Agreements,
the Company is compensated based upon pre-determined percentages of production.
The Agreements may be terminated by any party upon 30 days written notice.
During 1999, approximately 3.4% of the Company's consolidated revenues were
generated by LFS.

     Through its wholly-owned subsidiary, LifeSurance Corporation, the Company
conducts estate planning seminars which provide continuing education credits for
producers at various locations throughout the United





                                     Page 4
<PAGE>   5


States. Producers pay fees to attend the seminars and may also purchase
educational materials which can be used as tools in promoting life insurance and
annuity policies and estate planning concepts. The seminars and educational
materials are marketed under the business name Wealth Transfer Educational
Systems.

     Legacy Advisory Services, Inc. ("LAS") is a wholly-owned subsidiary of
the Company, incorporated in the State of California for the purpose of
operating as an "investment advisor," as defined by and regulated pursuant to
the Investment Advisors Act of 1940. LAS is registered with the Securities and
Exchange Commission (the "SEC") and began limited operations during 1999.

     Legacy Reinsurance Company ("LegacyRe")is a wholly-owned subsidiary of
the Company, incorporated in the State of Arizona. The Company is in the
process of obtaining approval from the Arizona Department of Insurance for
LegacyRe to engage in the reinsurance business. Accordingly, LegacyRe has
conducted no business to date. Upon receipt of approval from the Arizona
Department of Insurance, LegacyRe may enter into one or more reinsurance
agreements with insurance carriers to reinsure life insurance and annuity
products.

Competitive Business Conditions

     The life insurance and annuity business is highly competitive. The Company
faces competition from various companies and organizations, including banks,
securities brokerage firms, investment advisors and other financial
intermediaries marketing insurance products, annuities, mutual funds, and other
retirement oriented products. Some of these competitors have substantially
greater assets, financial resources and market acceptance than LMG. In
addition, the recent enactment of the Gramm-Leach-Bliley Act which reduced
previously existing Federal restrictions on combinations of banks, insurance
companies, and insurance agents, may increase the number and strength of
potential competitors.  The Company's distribution system relies on independent
insurance producers to effectively market its products competitively.
Maintaining relationships with producers requires introducing new products to
the market in an efficient and timely manner, offering competitive commission
schedules, and providing superior marketing training and support.

Regulatory Environment

     LMG, or a licensed individual acting on behalf of LMG (in the states that
do not permit the licensing of corporations), is licensed or is currently
seeking licensure as an insurance agent and/or third party administrator in all
states that require such licensure. As a result of being licensed as an
insurance agency, LMG's operations are subject to regulation, including its
sales practices, fiduciary responsibilities and familiarity with pertinent
statutes and regulations. As a result of being licensed as a third party
administrator, LMG is subject to regulation regarding maintenance of records,
settlement and payment of claims, underwriting services or standards, disclosure
of the administrator's capacity, payment of fees or charges and other fiduciary
duties.

     Increased national attention has resulted in examination by the National
Association of Insurance Commissioners and state insurance departments of
existing laws and regulations affecting insurance companies, especially those
laws and regulations involving insurance company solvency, fair and ethical
marketing practices, and investment policies. The Company has responded to this
increased scrutiny by instituting strict advertising guidelines, generating
consistent marketing materials and testimonies addressing appropriate marketing
practices, and including this topic in its bi-annual wholesaler meetings.
Although the Company, itself, is not an insurance company, changes in the
regulatory environment which affect the insurance companies with which it
contracts can impact its operations.

     LFS is registered as a broker-dealer with, and is subject to regulation by,
the SEC and the National Association of Securities Dealers, Inc. (the "NASD").
As a result of federal and state broker-dealer registration and self regulatory
organization ("SRO") memberships, LFS is subject to regulation which covers many
aspects of its securities business. Such regulation covers matters including
capital requirements, record-keeping and reporting requirements, supervisory and
organizational procedures intended to ensure compliance with securities laws and
to prevent the improper trading on material non-public information,
employee-related matters, including qualification and licensing of supervisory
and sales personnel, and rules of the SROs 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. LFS is currently in compliance
with all applicable capital and other regulatory requirements.






                                     Page 5
<PAGE>   6



     Compliance with many of the regulations applicable to the Company or its
subsidiaries involves a number of risks, particularly because regulations in a
number of areas may be subject to varying interpretation. Regulators make
periodic examinations and review annual, monthly and other periodic reports on
the Company's operations and financial condition. In the event of a violation
of, or non-compliance with, any applicable law or regulation, governmental
regulators, SROs , and other regulators may institute administrative or judicial
proceedings that may result in censure, fine, civil penalties (including treble
damages in the case of insider trading violations), criminal penalties, the
issuance of cease-and-desist orders, the deregistration or suspension of a
non-compliant broker-dealer, the suspension of disqualification of a
broker-dealer's officers or employees, and other adverse consequences. Such
violations or non-compliance could also subject the Company and/or its employees
to civil actions by private persons. Any governmental, SRO or private proceeding
alleging violation of, or non-compliance with, laws and regulations applicable
to the Company or its subsidiaries could have a material adverse effect upon the
Company's business, financial condition, results of operations and business
prospects.

     As of March 15, 2000, the Company had approximately 507 full-time
equivalent employees. None of the employees of the Company are covered by a
collective bargaining agreement, and the Company believes that its employee
relations are satisfactory.

     Information about the Company, including copies of the Company's Forms 10-K
and 10-Q may be reviewed at offices maintained by the SEC at 450 Fifth Street,
N.W., Room 1024, Washington, D.C. 20549 and at the regional offices of the SEC
located at Seven World Trade Center, New York, New York 10048 and Citicorp
Center, 500 West Madison Street, Suite 1400, Chicago, Illinois 60661. Copies of
such materials may be obtained from the Public Reference Section of the SEC at
450 Fifth Street, N.W., Room 1024, Washington, D.C. 20549, at prescribed rates.
In addition, the SEC maintains a Web site on the Internet at http://www.sec.gov
that contains reports, proxy and information statements and other information
regarding registrants that file electronically with the SEC.

ITEM 2. PROPERTY

     The Company currently leases approximately 72,000 square feet of office
space in Petaluma, California, at which the Company's headquarters are located.
This lease expires in April 2009, subject to extension at the option of the
Company for two additional terms of five years each.

     In March 1999, the Company purchased a building in Petaluma, California,
which previously housed the Company's headquarters for $4.3 million. The
building consists of approximately 53,700 total square feet of useable office
and warehouse space. Approximately 13,700 square feet of the newly purchased
building is currently used for LFS operations and training facilities for the
Company's employees. The remaining approximate 40,000 square feet is leased to
unrelated parties. The Company also leases approximately 5,700 square feet of
warehouse space in Petaluma, California.

     In addition, the Company leases 18,200 square feet of office space in Des
Moines, Iowa, expiring in October 2004, and leases 30,500 square feet of office
space in Rome, Georgia, expiring in December 2001.

     Management believes that existing and planned office and warehouse space is
and will continue to be adequate for the Company's operations for the
foreseeable future.

ITEM 3. LEGAL PROCEEDINGS

     As a professional services firm engaged in marketing and servicing life
insurance and annuity products, the Company encounters litigation in the normal
course of business. Management is not aware of any material exposure to the
Company currently existing as a result of such litigation.

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

     No items were submitted to a vote of security holders during the fourth
calendar quarter of 1999.





                                     Page 6
<PAGE>   7

                                     PART II

ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED SHAREHOLDER MATTERS

     As of March 15, 2000, the Company's Series A common stock was held by
approximately 1,500 shareholders of record and the Company's Series B common
stock was held by approximately 9,800 shareholders of record. There is no
established trading market for the Company's stock.

     The Board of Directors of the Company may, at its sole discretion, declare
and pay dividends on common stock, subject to capital and solvency restrictions
under California law. To date, the Company has not paid any dividends on its
common stock. The Company's ability to pay dividends is dependent on the ability
of the Company's wholly-owned subsidiaries to pay dividends or make other
distributions to its parent company. In addition, the Company's ability to pay
dividends is restricted under the terms of a loan agreement (see Management's
Discussion and Analysis of results of operations and Financial Condition --
Analysis of Regan Holding Corp. Consolidated.) As of December 31, 1999, the
Company does not anticipate paying dividends on any of its outstanding common
stock in the foreseeable future.

ITEM 6.     SELECTED CONSOLIDATED FINANCIAL DATA

<TABLE>
<CAPTION>

                                                                      Year Ended December 31,
                                             1999              1998             1997            1996                1995
                                         --------------   -------------     -------------    --------------    --------------
<S>                                      <C>             <C>              <C>               <C>               <C>
Selected Income Statement Data:

   Total Revenue                         $  50,030,617   $  45,935,164    $   21,883,482    $   17,508,601    $   16,800,554
   Net Income                                4,467,834       9,770,208         3,150,454         2,714,495         4,858,620
   Earnings Per Share-Basic                        .17             .37               .12               .10               .18
   Earnings Per Share-Diluted                      .16             .36               .12               .10               .18

Selected Balance Sheet Data:

   Total Assets                          $  46,592,396   $  31,286,013    $   19,280,941    $   15,424,902    $   12,304,801
   Total Non-current Liabilities             4,258,492         662,808           281,894           316,741           304,557
   Total Liabilities                        14,904,343       6,364,743         3,621,380         2,519,866         1,762,924
   Redeemable Common Stock                  11,563,285      11,225,431        11,842,651        12,343,001        12,682,750
   Shareholders' Equity (Deficit)           20,124,768      13,695,839         3,816,910           562,035        (2,140,873)
   Cash Dividends Declared                          --              --                --                --                --

Selected Operating Data:

   Total Premium
      Placed Inforce (1)                 $1.62 billion   $1.65 billion    $777.3 million    $626.8 million    $620.0 million
   Total No. of Policies
      Placed Inforce (1)                        28,000          31,900            15,060            11,144            12,167
</TABLE>

(1) Inforce premium and policies are actually statistics of the Carriers but
    represent factors which directly affect the Company's revenue.


ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND
        FINANCIAL CONDITION

     Except for historical information contained herein, certain of the matters
discussed in this Form 10-K are "forward-looking statements" as defined in the
Private Securities Litigation Reform Act of 1995. These "forward-looking
statements" involve certain risks and uncertainties. All forecasts and
projections in this report are "forward-looking statements" and are based on
management's current expectations of the Company's near term results, based on
current information available. Actual results could differ materially.





                                     Page 7
<PAGE>   8

     The table below presents information about the Company's operating segments
for the years ended December 31, 1999, 1998 and 1997:

<TABLE>
<CAPTION>

                                                    Legacy              Legacy
                                                  Marketing            Financial
                                                    Group            Services, Inc.            Other                Total
                                                    -----            --------------            -----                -----

   <S>                                          <C>                  <C>                   <C>                  <C>
   Year Ended December 31, 1999
      Total revenue                             $ 48,117,700         $   1,694,680         $       218,237      $   50,030,617
      Total expenses                              34,291,486             1,485,463               7,926,249          43,703,198
                                                ------------         -------------         ---------------      --------------
      Operating income (loss)                     13,826,214               209,217              (7,708,012)          6,327,419
      Other income                                 1,202,854                 3,155                  22,670           1,228,679
                                                ------------         -------------         ---------------      --------------
      Income (loss) before tax                    15,029,068               212,372              (7,685,342)          7,556,098
      Tax provision (benefit)                      5,413,341               (55,514)             (2,269,563)          3,088,264
                                                ------------         -------------         ---------------      --------------
      Net income (loss)                         $  9,615,727         $     267,886         $    (5,415,779)     $    4,467,834
                                                ============         =============         ===============      ==============

   Year Ended December 31, 1998
      Total revenue                             $ 45,113,652         $     821,512         $            --      $   45,935,164
      Total expenses                              27,649,023               861,486               2,449,557          30,960,066
                                                ------------         -------------         ---------------      --------------
      Operating income (loss)                     17,464,629               (39,974)             (2,449,557)         14,975,098
      Other income (loss)                          1,220,313                 1,439                    (720)          1,221,032
                                                ------------         -------------         ---------------      --------------
      Income (loss) before tax                    18,684,942               (38,535)             (2,450,277)         16,196,130
      Tax provision (benefit)                      6,880,139              (128,953)               (325,264)          6,425,922
                                                ------------         -------------         ---------------      --------------
      Net income (loss)                         $ 11,804,803         $      90,418         $    (2,125,013)     $    9,770,208
                                                ============         =============         ===============      ==============

   Year Ended December 31, 1997
      Total revenue                             $ 21,571,588         $     311,894         $            --      $   21,883,482
      Total expenses                              15,011,972               653,926               1,569,699          17,235,597
                                                ------------         -------------         ---------------      --------------
      Operating income (loss)                      6,559,616              (342,032)             (1,569,699)          4,647,885
      Other income (loss)                            715,168                    --                 (17,575)            697,593
                                                ------------         -------------         ---------------      --------------
      Income (loss) before tax                     7,274,784              (342,032)             (1,587,274)          5,345,478
      Tax provision (benefit)                      2,420,753              (230,335)                  4,606           2,195,024
                                                ------------         --------------        ---------------      --------------
      Net income (loss)                         $  4,854,031         $    (111,697)        $    (1,591,880)     $    3,150,454
                                                ============         =============         ================     ==============

   Total assets
      December 31, 1999                         $ 27,652,585         $   1,300,153         $    17,639,658      $   46,592,396
                                                ============         =============         ===============      ==============
      December 31, 1998                         $ 21,777,580         $     823,714         $     8,684,719      $   31,286,013
                                                ============         =============         ===============      ==============
</TABLE>

The "Other" segment above includes Regan Holding Corp. (stand-alone) and its
remaining subsidiaries, LifeSurance Corporation, Legacy Advisory Services,
nc., and Legacy Reinsurance Company. Such entities' operations do not
currently factor significantly into management decision making and,
accordingly, were not separated for purposes of this disclosure.

ANALYSIS OF REGAN HOLDING CORP. CONSOLIDATED

     Results of Operations--The Company's consolidated net income decreased
approximately $5.3 million in 1999, compared to 1998, due primarily to increases
in LMG expenses, as discussed below. Consolidated net income increased
approximately $6.6 million in 1998, compared to 1997, and is primarily
attributable to increases in LMG revenue, as discussed below.

     Liquidity and Capital Resources--The Company's ability to mobilize its
assets remained strong at December 31, 1999 and 1998, with cash and short-term
investment grade securities representing 47.1% and 73.2% of the Company's total
consolidated assets, respectively. At December 31, 1999, the Company's
investment portfolio included a $12 million investment in Indianapolis Life
Group of Companies ("Indianapolis Group"), an affiliate of IL Annuity, which
represents 25.8% of the Company's total assets. In the first quarter of 2000,
the Indianapolis Group repurchased the equity securities from the Company for
approximately $12.5 million, pursuant to the terms of the investment agreement
under which the securities were purchased.




                                     Page 8
<PAGE>   9


     The Company's principal needs for cash are for: (i) funding operating
expenses; (ii) purchases of computer hardware and software, leasehold
improvements, and acquisitions of furniture and fixtures to accommodate new
employees and support growth in operations; (iii) funding continued product
development and potential strategic acquisitions; and (iv) utilization as a
reserve to cover possible redemptions of certain shares of the Company's common
stock, which is redeemable at the option of the shareholders under various
agreements with the Company. In 1999, 1998, and 1997, redemption requests
received by the Company were not material in amount, neither individually nor in
the aggregate, and the Company believes that its liquid assets are sufficient to
meet anticipated requests for redemption. At December 31, 1999 and 1998, the
total redemption value of all redeemable common stock outstanding was
approximately $11.5 million and $9.6 million, respectively.

     Generally, the Company's cash needs are met through cash provided from
operating activities, which totaled approximately $6.7 million during the year
ended December 31, 1999 and $12.1 million in the preceding year. During the last
quarter of 1999 and the first quarter of 2000, however, operating activities
generated negative cash flows due primarily to decreases in LMG revenue (see
discussion below). Such negative cash flows may continue through early 2000.
Cash and investments on hand are expected to be sufficient to cover any
shortfalls during this period. The Company's future cash flows available to
fund operations will depend primarily on the level of sales of annuity and life
insurance products by LMG and upon the Company's ability to control expenses.

     During the second half of 1999, the Company obtained $3.5 million in margin
loan advances from its investment broker. The margin loan was repaid in full
during the first quarter of 2000, using proceeds from the repurchase of equity
securities by the Indianapolis Group, as discussed above.

     In May 1999, the Company purchased for $4.3 million the building in
Petaluma, California, which previously housed the Company's headquarters. In
conjunction with the building acquisition, the Company paid $2.2 million of the
purchase price in cash and entered into a loan payable for the remaining $2.1
million. The loan has a ten-year term and is payable in monthly installments
plus one balloon payment of approximately $1.8 million, due on May 10, 2009. In
addition, the loan agreement contains certain covenants with which the Company
must comply, including restrictions on indebtedness or investments outside the
ordinary course of business and restrictions on dividends or other changes in
the Company's capital structure. One of the covenants requires management to
obtain lender approval prior to repurchasing non-redeemable common stock. The
Lender has waived this covenant through June 30, 2000, provided that such
voluntary repurchases do not exceed $125,000 per quarter. Management expects to
obtain an extension of this waiver throughout the term of the loan. Pursuant to
the loan agreement, the Company was also required to place approximately
$560,000 in reserve to cover loan payments in the event of default and to
provide for certain repair costs.

     Pursuant to a Shareholder's Agreement with Lynda Regan, Chief Executive
Officer of the Company and Chairman of the Company's Board of Directors, and
certain other individuals, in the event of the death of Ms. Regan, the Company
shall repurchase from Ms. Regan's estate all of the shares of the Company's
common stock that were owned by Ms. Regan at the time of her death, or that were
transferred by her to one or more trusts prior to her death. The purchase price
to be paid by the Company shall be equal to 125% of the fair market value of the
shares. The Company has purchased a life insurance policy with a face amount of
$14.0 million for the purpose of funding this obligation in the event of Ms.
Regan's death. Any excess of the obligation over the insurance proceeds are
expected to be funded with cash and investments and, if necessary, through
external financing.

     In order to fund LFS during the start-up phase, the Company has committed
to make sufficient contributions to support LFS' operations to ensure LFS'
compliance with financial requirements through December, 2000. Such
contributions totaled $247,000 in 1999 and $475,000 in 1998. LFS operating
results reached break-even on a monthly basis during the second half of 1999. As
a result, future contributions are expected to decrease from prior levels.

     Management intends to continue to retain any earnings for use in its
business and does not anticipate paying any cash dividends in the foreseeable
future. As a result, management anticipates that cash and investments will
continue to represent a high percentage of total assets. Management believes
that existing cash and investment balances, together with cash flows from
operations, will provide sufficient funding for the foreseeable future. However,
in the event that a shortfall were to occur, management believes that adequate
financing could be obtained to meet the Company's cash flow needs.




                                     Page 9
<PAGE>   10

     Year 2000--For the past several years, the Company has taken corrective
measures to ensure that, on January 1, 2000, its computer systems and equipment
that uses embedded computer chips would be able to distinguish between the years
"1900" and "2000." The Company also undertook corrective measures to avoid any
business disruptions as a result of the millennium's first leap year on February
29, 2000. Due to these efforts, since December 31, 1999, the Company has not
experienced any material system errors or failures as a result of Year 2000
issues. The Company will continue to monitor its computer systems and
infrastructure, as well as the Year 2000 efforts of third parties with which the
Company does business. Although the Company does not anticipate that any future
Year 2000 issues will result in a material impact on the Company, there can be
no assurance that this will be the case.

ANALYSIS OF LEGACY MARKETING GROUP

     Results of Operations--LMG's net income decreased approximately $2.1
million in 1999 from 1998 due primarily to increases in expenses, as discussed
below. In 1998, however, LMG's net income increased approximately $6.9 million
from 1997 to 1998 due primarily to increases in revenue, which is also
discussed below.

     Revenue--LMG's major sources of income are marketing allowances, commission
income and administrative fees from sales and administration of annuity and life
insurance products on behalf of the Carriers. Levels of marketing allowances and
commission income are directly related to the sales volume of such products.
Administrative fees are a function not only of product sales, but also of
administration of policies inforce and producer appointments. Total LMG income
increased approximately $3.0 million, or 6.7%, in 1999 compared to 1998, and
increased approximately $23.5 million, or 109.1% in 1998, compared to 1997. The
increases are attributable primarily to changes in product mix and fluctuations
in premium placed inforce for the Carriers, as discussed below.

     LMG marketing allowances and commission revenue, combined, increased
approximately $1.1 million, or 3.0%, during 1999 compared to 1998 due to the
continued shift in product mix to products which yielded higher marketing
allowances and commission income, such as life insurance products. The
increase in life insurance premium placed inforce, reached $10.9 million in
1999, up 60.6% from $6.8 million in 1998.  This increase was offset by the
effect of a decrease in overall premium placed inforce for the Carriers of
approximately $37.0 million, or 2.3%, due primarily to reduced sales of fixed
annuities during the second half of the year. This decrease is attributable
primarily to the poor performance of bond investments underlying the
annuities' crediting rates and to lower than anticipated market acceptance of
the VisionMark II(TM) annuity, which was introduced in 1999 to replace the
original VisionMark(TM). LMG marketing allowances and commission revenue,
combined, increased approximately $20.4 million, or 115.1%, in 1998 compared
to 1997 due primarily to increases in the volume of sales by LMG's distribution
network for the Carriers. Premium placed inforce for the Carriers totaled
$1.6 billion in 1998, an increase of 112.6% from 1997. Also contributing to
the increase from 1997 to 1998 was the shift in product mix to products
which yielded higher marketing allowances and commission income.

     Administrative fees increased approximately $2.0 million, or 29.6%, from
1998 to 1999, and increased approximately $3.1 million, or 84.9%, in 1998
compared to 1997, due primarily to increases in the number of policies sold and
administered during the respective periods and to a continued shift in policies
administered to those which generate higher administrative fees.

     In 1999, the Company marketed and administered insurance products for three
Carriers, American National, IL Annuity, and Transamerica. However, the Company
did not market or administer products for Transamerica until the third quarter
of 1998. In 1999, approximately 10.5%, 73.5%, and 11.3% of the Company's total
consolidated revenue resulted from LMG's agreements with American National, IL
Annuity, and Transamerica, respectively, compared to approximately 12.7%, 79.9%,
and 1.7% in 1998, respectively, and approximately 36.2% and 57.0% with American
National and IL Annuity, respectively, in 1997. In addition, during the fourth
quarter of 1999, 20.6% of the Company's total consolidated revenue resulted from
LMG's Transamerica agreements. These shifts in sales mix from American National
to IL Annuity in 1998 from 1997 and the shift from IL Annuity to Transamerica
from 1998 to 1999 are attributable to favorable acceptance of the respective
Carrier's products in the marketplace.

     LMG is currently in discussions with two other insurance carriers to
provide marketing and administrative services, similar to those performed for
the Carriers. If those discussions result in LMG entering Agreements to provide
services, LMG's revenue could increase beginning as early as third quarter
2000.  However, there can be no assurances that such agreements will be entered
into or regarding the terms of such agreements, if entered into.

                                    Page 10

<PAGE>   11

     Although the Company markets and administers several annuity and life
insurance products on behalf of the Carriers, LMG's revenues are derived
primarily from sales and administration of annuity products. During 1999, 1998,
and 1997, 56.2%, 70.6%, and 52.4% of the Company's total consolidated revenues
resulted from LMG sales of the VisionMark(TM) annuity, respectively. However,
during the fourth quarter of 1999, 17.8% of the Company's total revenues
resulted from sales of the SelectMark(TM) annuity, offered through Transamerica.
This shift from the VisionMark(TM) annuity and the VisionMark II(TM) annuity, to
the SelectMark(TM) annuity is attributable primarily to market acceptance of the
SelectMark(TM) product and is expected to continue for the foreseeable future.

     Expenses--Total LMG expenses increased approximately $6.6 million, or
24.0%, during 1999 compared to 1998, and increased approximately $12.6 million,
or 83.9%, during 1998 compared to 1997. These increases are due primarily to
increases in compensation, sales promotion and support, and professional fees,
as discussed below.

     As a service organization, LMG's primary expenses are salaries and related
employee benefits. These expenses increased approximately $3.9 million, or
23.6%, in 1999 from 1998, and increased $6.6 million, or 65.6%, in 1998 from
1997. These increases resulted primarily from increases in the average number
of full-time equivalent employees, which are largely attributable to preparation
for, and accommodation of, increases in sales of insurance products,
particularly in the latter half of 1998 and the first half of 1999. Salaries and
benefits also increased due to increases in bonuses in 1998, which are tied to
net income, to the addition of personnel at higher pay levels in both 1999 and
1998, and to normal pay increases for existing employees. During 2000, LMG
management plans to hire several employees at higher pay levels, some of whom
are expected to be elected as officers of LMG. Accordingly, salaries and
benefits expense is expected to increase during 2000.

     Sales promotion and support expense consists primarily of costs related to
LMG's annual national sales conventions and to various sales and training
events. Also included in sales and promotion support expense is the cost of
designing and printing sales brochures for use by producers. It is expected that
these expenses will continue to be a major element of LMG's cost structure, as
attendance at the national sales conventions increases, as the number of
producers marketing products for the Company increases and as new products are
introduced. This expense increased approximately $1.2 million, or 22.2%, in 1999
from 1998 and increased approximately $2.9 million, or 120.3%, in 1998 from
1997. These increases are due primarily to increased incentives paid to
producers to stimulate sales and increased printing costs related to the
introduction of new products and enhancements to existing products.

     Occupancy expenses consist primarily of office building and equipment
leasing costs. These expenses increased approximately $1.1 million, or 164.9%,
in 1999 from 1998, and increased approximately $217,000, or 51.5%, in 1998 from
1997 due primarily to the leasing of new office space during 1999 and 1998 and
to overall increases in telephone, utilities, and other related expenses which
correspond with increases in sales and employment, as discussed above.

     Professional fees decreased approximately $749,000, or 33.3%, in 1999 from
1998 and increased approximately $1.8 million, or 400.8%, in 1998 from 1997, due
primarily to expenses associated with a $1.1 million settlement of litigation in
1998. Excluding the cost of this settlement, professional fees increased by
approximately $355,000 in 1999 from 1998 and increased approximately $695,000 in
1998 from 1997 due primarily to increased consulting fees related to various
information systems projects.

     Depreciation and amortization expense increased approximately $237,000, or
235.4%, in 1999 from 1998 and increased approximately $97,000, or 2,434.5%, in
1998 from 1997 due primarily to acquisitions of fixed assets. Such acquisitions
were necessary primarily to improve newly leased office space and to accommodate
increases in employment, as discussed above.

     Courier and postage, stationery and supplies, equipment, and
miscellaneous expenses increased in 1999 from 1998 and in 1998 from 1997 due
primarily to overall increases in the volume of business, increases in
employment, and newly leased office space, all of which are discussed above.

ANALYSIS OF LEGACY FINANCIAL SERVICES, INC.

     Results of Operations--LFS net income increased approximately $177,470, or
196.3%, in 1999 from 1998, and net income of approximately $90,000 in 1998
represented an approximate $202,000 shift from net losses of approximately
$112,000 in 1997. These fluctuations are due primarily to increases in revenue,
offset by increases

                                    Page 11

<PAGE>   12

in expenses, as discussed below. During the second half of 1999, LFS results
of operations shifted from net losses to net income on a monthly basis.

            Revenue--LFS' major source of revenue is commission overrides, which
are generated through sales of life and annuity products, mutual funds, and
certain equity securities. Levels of commission income are directly related to
the volume of sales of such products. Total LFS revenue increased approximately
$873,000, or 106.3%, in 1999 from 1998, and increased approximately $510,000, or
163.4%, in 1998 from 1997. These increases are attributable to increases in the
volume of sales by LFS' distribution network of registered representatives in
1999 and 1998, respectively. Also contributing to increases in commission income
were shifts to sales by representative networks from which LFS receives a higher
net commission.

            Expenses - Total LFS expenses increased approximately $624,000, or
72.4%, in 1999 from 1998 and increased approximately $208,000, or 31.7%, in 1998
from 1997 due primarily to increases in salaries and related benefits. As a
service organization, LFS operating expenses consist primarily of salaries and
related employee benefits. These expenses increased approximately $315,000, or
47.5%, in 1999 from 1998, and increased approximately $228,000, or 52.4%, in
1998 from 1997, due primarily to increases in the average number of employees to
accommodate increases in sales volume, to the addition of personnel at higher
pay levels, and to regular annual pay increases.

ANALYSIS OF OTHER SEGMENTS

            Results of Operations - Other segments consist of Regan Holding Corp
(stand-alone), LifeSurance Corporation, Legacy Advisory Services, Inc. and
Legacy Reinsurance Company. Combined net losses from these entities increased
approximately $3.3 million, or 154.8%, in 1999 from 1998 and increased
approximately $533,000, or 33.5%, in 1998 from 1997 due primarily to increases
in expenses.

            Combined expenses for these entities increased approximately $5.5
million, or 223.6%, in 1999 from 1998 and increased approximately $880,000, or
56.1%, in 1998 from 1997.

            The increase in 1999 expenses is attributable primarily to: (i) $2.9
million in stock option expense recorded during 1999 by Regan Holding Corp.
related to approximately 4.9 million stock options that were granted to LMG
producers during 1999 and 1998; (ii) awards of the Company's common stock to
producers, which resulted in recognition of approximately $420,000 in related
expense; (iii) $1.6 million in expenses relating to the producer estate planning
seminars conducted under the name of WTES, which were reported in LMG expenses
in 1998 and 1997 and which are now reported as expenses of LifeSurance
Corporation; and (iv) increases in legal and consulting fees related to various
parent company strategic planning projects. During the first quarter of 2000,
approximately 2.1 million additional producer stock options were granted. As a
result, related stock option expense is expected to be recorded in the first
quarter of 2000. This latter grant is expected to be the final "broad-scale"
grant to producers. However, future grants to the highest performing producers
are still expected to occur which will result in additional expense in future
years.

            The increase in 1998 expenses is due primarily to increases in
depreciation and equipment expense attributable to overall increases in
subsidiary sales volume and employment, as discussed above.

ITEM 7-A.        QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK.

            In accordance with Statement of Financial Accounting Standards No.
115, "Accounting for Certain Investments in Debt and Equity Securities" ("SFAS
115"), all of the Company's short-term investments are treated as
available-for-sale.

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

            Interest rate risk is the price sensitivity of a fixed income
security to changes in interest rates. The following table provides information
about the Company's fixed income investments, which are sensitive to changes in
interest rates. Listed below are cash flows from principal amounts and related
weighted average

                                    Page 12

<PAGE>   13

interest rates by expected maturity dates for fixed income investments held at
December 31, 1999 and 1998. Actual cash flows could differ from expected
amounts.


                                    Page 13

<PAGE>   14



<TABLE>
<CAPTION>
                                                                                                           Total
                                                                                               --------------------------
                                                                                                               Estimated
                                                                                                 Amortized      Market
                                  2000           2001        2002       2003      Thereafter       Cost         Value
                                  ----           ----        ----       ----      ----------       ----         -----
<S>                            <C>           <C>         <C>          <C>         <C>           <C>          <C>
December 31, 1999
   Fixed maturities            $12,000,000   $       --  $        --  $  499,251  $ 4,852,143   $17,351,394  $17,093,404
   Average interest rate             5.18%           --           --       5.23%        6.53%
December 31, 1998
   Fixed maturities            $        --   $  501,654  $ 1,004,337  $  996,676  $ 7,911,303   $10,413,970  $10,449,800
   Average interest rate                --        6.67%        6.81%       3.30%        4.04%
   Mortgage-backed securities           --           --           --          --  $ 1,524,500   $ 1,524,500  $ 1,523,415
   Average interest rate                --           --           --          --        5.67%
</TABLE>

     The Company invests in marketable securities which are predominately
investment grade. As a result, management believes that the Company has minimal
exposure to credit risk.

     Equity price risk is the potential loss arising from changes in the value
of equity securities. In general, equity securities have more year-to-year price
variability than intermediate term high grade bonds. However, returns over
longer time frames have been consistently higher. The Company's equity
securities consist primarily of preferred stocks, which provide consistent
income.  As a result of unfavorable market conditions related to preferred
securities, the fair value of the Company's equity securities is below original
cost at December 31, 1999 and 1998. The original cost and fair values of the
Company's marketable equity securities are shown below:

<TABLE>
<CAPTION>

                                                               Original Cost                        Fair Value
                                                               -------------                        ----------
           <S>                                                <C>                                 <C>
            December 31, 1999                                  $3,125,708                          $2,403,857
            December 31, 1998                                  $5,139,732                          $5,014,411
</TABLE>

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

ITEM 8.          FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

                                    Page 14




<PAGE>   15

                        REPORT OF INDEPENDENT ACCOUNTANTS

To the Shareholders of
      Regan Holding Corp.

In our opinion, the accompanying consolidated balance sheets and the related
consolidated statements of income, shareholders' equity and cash flows present
fairly, in all material respects, the financial position of Regan Holding Corp.
and its subsidiaries (the "Company") at December 31, 1999 and 1998, and results
of their operations and their cash flows for each of the three years in the
period ended December 31, 1999, in conformity with accounting principles
generally accepted in the United States. These financial statements are the
responsibility of the Company's management; our responsibility is to express an
opinion on these financial statements based on our audits. We conducted our
audits of these statements in accordance with auditing standards generally
accepted in the United States which require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements,
assessing the accounting principles used and significant estimates made by
management, and evaluating the overall financial statement presentation. We
believe that our audits provide a reasonable basis for the opinion expressed
above.

As discussed Note 1, the Company changed its method of accounting for the cost
of computer software developed or obtained for internal use in 1999.

Our audits were conducted for the purpose of forming an opinion on the
consolidated financial statements taken as a whole. The consolidating
information on pages 34 and 35 is presented for purposes of additional analysis
of the consolidated financial statements, rather than to present the financial
position, and results of operations of the individual companies. Accordingly,
we do not express an opinion on the financial position, and results of
operations of the individual companies. However, the consolidating information
on pages 34 and 35 has been subjected to the auditing procedures applied in the
audits of the consolidated financial statements and, in our opinion, is fairly
stated in all material respects in relation to the consolidated financial
statements taken as a whole.

PricewaterhouseCoopers LLP
San Francisco, California
March 23, 2000

                                    Page 15

<PAGE>   16


REGAN HOLDING CORP. AND SUBSIDIARIES
Consolidated Balance Sheets

<TABLE>
<CAPTION>

                                                                                     December 31,
                                                                             1999                    1998
                                                                             ----                    ----
<S>                                                                  <C>                     <C>
ASSETS
      Cash and cash equivalents                                      $     1,094,759         $     5,916,731
      Investments                                                         20,861,973              16,987,628
      Accounts receivable                                                  2,625,867               1,704,265
      Prepaid expenses                                                       516,759                 768,913
      Income taxes receivable                                              2,893,701                 884,089
      Deferred income taxes-current                                          895,841                 359,421
      Marketing supplies inventory                                           706,418                 385,616
                                                                     ---------------         ---------------
            Total current assets                                          29,595,318              27,006,663
                                                                     ---------------         ---------------
      Net fixed assets                                                    12,168,135               2,982,267
      Deferred income taxes-non current                                    2,030,993                 904,974
      Software licensing fees                                                779,375                      --
      Other assets                                                         2,018,575                 392,109
                                                                     ---------------         ---------------
            Total non-current assets                                      16,997,078               4,279,350
                                                                     ---------------         ---------------
            TOTAL ASSETS                                             $    46,592,396         $    31,286,013
                                                                     ===============         ===============


LIABILITIES, REDEEMABLE COMMON STOCK,
AND SHAREHOLDERS' EQUITY

LIABILITIES

      Accounts payable                                               $       435,999         $        418,821
      Accrued sales convention costs                                       2,248,913                  894,713
      Accrued liabilities                                                  4,227,137                4,388,401
      Margin loan payable                                                  3,088,918                       --
      Software licensing fees payable                                        537,500                       --
      Other current liabilities                                              107,384                       --
                                                                     ---------------          ---------------
            Total current liabilities                                     10,645,851                5,701,935
                                                                     ---------------          ---------------

      Loan payable                                                         2,256,418                  132,285
      Incentive compensation payable                                         469,720                  530,523
      Deferred compensation payable                                        1,364,713                       --
      Other liabilities                                                      167,641                       --
                                                                     ---------------         ----------------
            Total non-current liabilities                                  4,258,492                  662,808
                                                                     ---------------         ----------------
            TOTAL LIABILITIES                                             14,904,343                6,364,743
                                                                     ---------------         ----------------

COMMITMENTS AND CONTINGENCIES (Note 10)                                           --                       --

REDEEMABLE COMMON STOCK, Series A and B                                   11,563,285               11,225,431
                                                                     ---------------         ----------------
SHAREHOLDERS' EQUITY
      Preferred stock, no par value:
            Authorized: 100,000,000 shares; no shares issued
            or outstanding                                                        --                       --
      Series A common stock, no par value:
            Authorized: 45,000,000 shares; issued and
            outstanding: 20,863,520 and 20,530,224  shares
            at December 31, 1999 and 1998, respectively                    3,659,367                3,248,874
      Paid-in capital from retirement of common stock                        927,640                  888,109
      Paid-in capital from producer stock options                          2,892,000                   25,000
      Retained earnings                                                   13,217,865                9,587,775
      Accumulated other comprehensive income-net                            (572,104)                (53,919)
                                                                     ---------------        -----------------
            TOTAL SHAREHOLDERS' EQUITY                                    20,124,768               13,695,839
                                                                     ---------------        -----------------
            TOTAL LIABILITIES, REDEEMABLE COMMON
             STOCK AND SHAREHOLDERS' EQUITY                          $    46,592,396        $      31,286,013
                                                                     ===============        =================
</TABLE>


          See accompanying notes to consolidated financial statements

                                    Page 16

<PAGE>   17




REGAN HOLDING CORP. AND SUBSIDIARIES
Consolidated Statements of Income
<TABLE>
<CAPTION>

                                                                        For the Year Ended December 31,

                                                           1999                         1998                        1997
                                                           ----                         ----                        ----
REVENUE
<S>                                             <C>                         <C>                         <C>
      Marketing allowances                      $           25,477,344      $           26,229,937      $           12,386,755
      Commissions                                           15,395,259                  12,651,358                   5,609,078
      Administrative fees                                    8,637,245                   6,664,224                   3,603,708
      Seminar fees                                             381,319                     263,785                     220,406
      Other                                                    139,450                     125,860                      63,535
                                                ----------------------      ----------------------      ----------------------
            Total revenue                                   50,030,617                  45,935,164                  21,883,482
                                                ----------------------      ----------------------      ----------------------
EXPENSES
      Salaries and related benefits                         22,216,897                  17,371,780                  10,512,259
      Sales promotion and support                            7,734,997                   5,520,798                   2,565,200
      Producer stock options                                 2,867,000                          --                          --
      Professional fees                                      2,373,084                   2,617,377                     712,129
      Occupancy                                              2,193,632                   1,149,787                     887,608
      Depreciation and amortization                          1,754,865                   1,323,052                     698,556
      Equipment                                              1,019,075                     586,164                     369,706
      Courier and postage                                    1,008,502                     702,612                     480,175
      Stationery and supplies                                  954,358                     753,397                     399,140
      Travel and entertainment                                 707,776                     594,224                     329,611
      Insurance                                                399,929                     169,524                     165,028
      Miscellaneous                                            473,083                     171,351                     116,185
                                                ----------------------      ----------------------      ----------------------
            Total expenses                                  43,703,198                  30,960,066                  17,235,597
                                                ----------------------      ----------------------      ----------------------

OPERATING INCOME                                             6,327,419                  14,975,098                   4,647,885
OTHER INCOME
      Investment income--net                                 1,228,679                   1,221,032                     697,593
                                                ----------------------      ----------------------      ----------------------
INCOME BEFORE INCOME TAXES                                   7,556,098                  16,196,130                   5,345,478
PROVISION FOR INCOME TAXES                                   3,088,264                   6,425,922                   2,195,024
                                                ----------------------      ----------------------      ----------------------
NET INCOME                                      $            4,467,834      $            9,770,208      $            3,150,454
                                                ======================      ======================      ======================



EARNINGS PER SHARE

Weighted average shares outstanding--basic                  26,393,679                  26,543,535                  26,895,594
                                                ======================      ======================      ======================
Basic earnings per share                        $                  .17      $                  .37      $                  .12
                                                ======================      ======================      ======================

Weighted average shares outstanding--diluted                27,760,140                  27,187,436                  26,895,594
                                                ======================      ======================      ======================
Diluted earnings per share                      $                  .16      $                  .36      $                  .12
                                                ======================      ======================      ======================
</TABLE>

           See accompanying notes to consolidated financial statements

                                    Page 17
<PAGE>   18




REGAN HOLDING CORP. AND SUBSIDIARIES
Consolidated Statements of Shareholders' Equity

<TABLE>
<CAPTION>

                                                                        Paid-in
                                                         Paid-in        Capital     Retained     Accumulated
                                                       Capital from       from       Earnings       Other
                             Series A    Common Stock  Retirement of    Producer   (Accumulated  Comprehensive
                              Shares       Amount      Common Stock      Options     Deficit)       Income        Total
                              ------       ------      ------------      -------     --------       ------        -----
<S>                         <C>          <C>           <C>             <C>         <C>           <C>        <C>
Balance
   January 1, 1997            20,800,791   $3,532,071       $310,110  $       --  $(3,332,887)  $  52,741   $   562,035
Comprehensive income:
   Net income                                                                       3,150,454                 3,150,454
   Net unrealized losses
      on investments                                                                              (93,509)      (93,509)
   Less:
      Losses included in net
        income                                                                                     13,499        13,499
   Deferred taxes on net
      unrealized losses                                                                            32,139        32,139
                                                                                                            -----------
      Total comprehensive
      income                                                                                                  3,102,583
Retirement upon
   redemption                   (186,777)    (149,157)       301,449                                            152,292
                             -----------   ----------       --------  ----------   -----------  ---------   -----------
Balance

   December 31, 1997          20,614,014    3,382,914        611,559          --      (182,433)     4,870     3,816,910
Comprehensive income:
   Net income                                                                        9,770,208                9,770,208
   Net unrealized losses
      on investments                                                                             (153,304)     (153,304)
   Less:
      Losses included in
        net income                                                                                 54,633        54,633
   Deferred taxes on net
      unrealized losses                                                                            39,882        39,882
                                                                                                            -----------
      Total comprehensive
      income                                                                                                  9,711,419
Retirement upon
   redemption                    (83,790)    (134,040)       276,550                                            142,510
Producer stock option
   expense                                                                25,000                                 25,000
                             -----------   ----------       --------  ----------   -----------  ---------   -----------
Balance

   December 31, 1998          20,530,224    3,248,874        888,109      25,000     9,587,775    (53,919)   13,695,839
Comprehensive income:
   Net income                                                                        4,467,834                4,467,834
   Net unrealized losses
      on investments                                                                             (800,296)     (800,296)
   Less:
      Gains included in
        net income                                                                                (60,007)      (60,007)
   Deferred taxes on net
      unrealized losses                                                                           342,118       342,118
                                                                                                            -----------
      Total comprehensive
      income                                                                                                  3,949,649
Retirement upon
   redemption                    (69,788)     (81,456)        39,531                   (50,488)                 (92,413)
Accretion of redeemable
    common stock to
    redemption value                                                                  (787,256)                (787,256)
Issuance of
   common stock                  403,084      491,949                                                           491,949
Producer stock option
   expense                                                             2,867,000                              2,867,000
                             -----------   ----------       --------  ----------   -----------  ---------   -----------
Balance

   December 31, 1999          20,863,520   $3,659,367       $927,640  $2,892,000   $13,217,865  $(572,104)  $20,124,768
                             ===========   ==========       ========  ==========   ===========  =========   ===========
</TABLE>


          See accompanying notes to consolidated financial statements.
                                     Page 18

<PAGE>   19


REGAN HOLDING CORP. AND SUBSIDIARIES
Consolidated Statements of Cash Flows

<TABLE>
<CAPTION>
                                                                                         For the Year Ended December 31,

                                                                                 1999                  1998               1997
                                                                                 ----                  ----               ----
<S>                                                                       <C>                    <C>                 <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
      Net Income                                                          $     4,467,834        $   9,770,208       $   3,150,454
      Adjustments to reconcile net income to net cash
         provided by operating activities:
            Depreciation and amortization of fixed assets                       1,665,482            1,252,116             632,781
            Amortization of intangible assets                                      89,383               70,936              65,775
            Common stock awarded to producers                                     419,905                   --                  --
            Producer stock option expense                                       2,867,000               25,000                  --
            Amortization/accretion of investments                                  (9,802)             (73,118)            (68,761)
            Realized gains (losses) on sales of investments                        60,007              (54,633)            (13,499)
            Realized loss on sale of fixed assets                                      --                   --              19,603
            Changes in operating assets and liabilities:
                  Accounts receivable                                            (921,602)            (464,959)           (727,596)
                  Prepaid expenses                                                252,154             (195,981)           (210,982)
                  Income taxes receivable
                     and payable                                               (2,009,612)          (1,273,650)            569,307
                  Deferred tax assets                                          (1,320,321)              47,401             360,375
                  Marketing supplies inventory                                   (320,802)            (156,763)             23,126
                  Software licensing fees                                        (241,875)                  --                  --
                  Accounts payable                                                 17,178               74,750             173,333
                  Accrued sales convention costs                                1,354,200             (331,456)            400,613
                  Accrued liabilities                                            (161,264)           3,008,716             172,854
                  Other operating assets and liabilities                          469,959              406,676              50,959
                                                                          ---------------        -------------       -------------
                     Net cash provided by operating activities                  6,677,824           12,105,243           4,598,342
                                                                          ---------------        -------------       -------------
CASH FLOWS FROM INVESTING ACTIVITIES:
      Purchases of investments                                                (13,461,328)         (15,396,140)        (20,404,456)
      Proceeds from sales and maturities of investments                         8,676,474            6,129,871          20,667,228
      Purchases of fixed assets                                               (10,851,351)          (1,624,059)         (1,521,320)
      Payments for organization costs                                                  --              (17,806)                 --
                                                                          ---------------        -------------       -------------
                     Net cash used in investing activities                    (15,636,205)         (10,908,134)         (1,258,548)
                                                                          ---------------        -------------       -------------
CASH FLOWS FROM FINANCING ACTIVITIES:
      Proceeds from loan payable                                                2,132,500                   --                  --
      Payments toward loan payable                                                 (8,368)                  --                  --
      Proceeds from margin loan                                                 3,500,000                   --                  --
      Payments toward margin loan payable                                        (455,221)                  --                  --
      Payment for building loan reserve                                          (562,730)
      Payments for redemption of common stock                                    (541,816)            (474,710)           (348,058)
      Proceeds from stock option exercises                                         72,044                   --                  --
                                                                          ---------------        -------------       -------------
                     Net provided by (used in) in financing activities          4,136,409             (474,710)           (348,058)
                                                                          ---------------        --------------      --------------

NET (DECREASE) INCREASE IN CASH AND CASH
      EQUIVALENTS                                                              (4,821,972)             722,399           2,991,736
CASH AND CASH EQUIVALENTS, BEGINNING OF
      PERIOD                                                                    5,916,731            5,194,332           2,202,596
                                                                          ---------------        -------------       -------------
CASH AND CASH EQUIVALENTS, END OF PERIOD                                  $     1,094,759        $   5,916,731       $   5,194,332
                                                                          ===============        =============       =============

SUPPLEMENTAL CASH FLOW INFORMATION:
      Taxes Paid                                                          $     5,835,000        $   7,201,000       $   1,265,025
      Interest Paid                                                       $       172,836        $      19,873       $      18,695
</TABLE>


           See accompanying notes to consolidated financial statements
                                     Page 19

<PAGE>   20

                   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") was incorporated in
                        the State of California on February 21, 1990.

                        The Company, through its wholly-owned subsidiary Legacy
                        Marketing Group ("LMG"), has entered into marketing
                        agreements (the "Marketing Agreements") with American
                        National Insurance Company ("American National"), IL
                        Annuity and Insurance Company ("IL Annuity") and
                        Transamerica Life Insurance and Annuity Company
                        ("Transamerica"), collectively referred to herein as the
                        "Carriers." American National is an unaffiliated company
                        with over $1.7 billion in capital and surplus and is
                        rated "A+" by A.M. Best. IL Annuity is an unaffiliated
                        company, with $60.0 million in capital and surplus and
                        is rated "A" by A.M. Best. Transamerica is also an
                        unaffiliated company, with over $830.0 million in
                        capital and surplus and is rated "A+" by A.M. Best. The
                        Marketing Agreements grant the Company the exclusive
                        right to market certain annuity and life insurance
                        products issued by the Carriers (the "Policies"). Under
                        the terms of the Marketing Agreements, the Company is
                        responsible for the recruiting, appointing, and training
                        of producers in the sale of the Policies. For these
                        services, the Carriers pay the Company marketing
                        allowances and commissions based on the volume of
                        Policies sold.

                        The Company has also entered into insurance
                        administrative agreements (the "Administrative
                        Agreements") with the Carriers pursuant to which the
                        Company provides clerical, administrative and accounting
                        services with respect to the Policies. Such services
                        include billing, collecting and remitting cash on the
                        Policies. However, all cash receipts are deposited into
                        accounts maintained by the Carriers upon receipt by the
                        Company and all cash remitted is paid from accounts
                        maintained by the Carriers. For providing such services,
                        the Company is paid on a per transaction basis with the
                        amount of the fee depending on the type of policy and
                        type of service.

                        The Marketing and Administrative Agreements with
                        American National and IL Annuity expire April 30, 2000,
                        and December 31, 2005, respectively, but may be renewed
                        by mutual agreement for successive one year terms. The
                        Agreements may be terminated by either party upon 180
                        days notice without cause, and may be terminated by
                        either party immediately for cause. In addition, the
                        Marketing Agreements will terminate automatically at the
                        end of any calendar quarter upon failure of the Company
                        to meet certain quarterly minimum production
                        requirements for two successive calendar quarters. The
                        Company is currently negotiating with American National
                        to renew the Marketing and Administrative Agreements.
                        The Marketing and Administrative Agreements with
                        Transamerica do not have a fixed term but may be
                        terminated by either party upon twelve months notice
                        without cause, and may be terminated by either party
                        immediately for cause. The Marketing and
                        Administrative Agreements with American National were
                        amended during 1999 to extend the terms. In addition,
                        the Administrative Agreements with American National
                        and Transamerica were amended during 1999 with respect
                        to various policy administration matters.

                        Through its wholly-owned broker-dealer subsidiary,
                        Legacy Financial Services, Inc. ("LFS"), the Company
                        engages in the offering and sale of variable annuity and
                        life insurance products, mutual funds and debt and
                        equity securities on a fully disclosed basis. LFS has
                        entered into agreements (the "Agreements") with various
                        entities pursuant to which LFS has a non-exclusive right
                        to solicit sales of investment products offered by such
                        entities through its network of independent
                        representatives and to provide certain marketing and
                        administrative services in order to facilitate sales of
                        such products. Under the Agreements, the Company is
                        compensated based upon pre-

                                     Page20



<PAGE>   21


                        determined percentages of production. The Agreements may
                        be terminated by any party upon 30 days written notice.

                        Through LifeSurance Corporation, a wholly-owned
                        subsidiary, the Company conducts estate planning
                        seminars which provide continuing education credits for
                        producers at various locations throughout the United
                        States. Producers pay attendance fees to attend the
                        seminars and may also purchase educational materials
                        which can be used as tools in promoting life insurance
                        and annuity policies and estate planning concepts. The
                        seminars and educational materials are marketed under
                        the business name Wealth Transfer Educational Systems.

                        Legacy Advisory Services, Inc. ("LAS") is a wholly-owned
                        subsidiary of the Company, incorporated in the state of
                        California for the purpose of operating as an
                        "investment advisor," as defined by and regulated
                        pursuant to the Investment Advisors Act of 1940. LAS is
                        registered with the Securities and Exchange Commission
                        (the "SEC") and has conducted limited operations to
                        date.

                        Legacy Reinsurance Company ("LegacyRe") is a
                        wholly-owned subsidiary of the Company, incorporated
                        in the State of Arizona. The Company is in the process
                        of obtaining approval from the Arizona Department of
                        Insurance for LegacyRe to engage in the reinsurance
                        business. Accordingly, LegacyRe has conducted no
                        business to date. Upon receipt of approval from the
                        Arizona Department of Insurance, LegacyRe may enter into
                        one or more reinsurance agreements to reinsure annuity
                        and life products.

            b.          Basis of Presentation

                        The accompanying consolidated financial statements are
                        prepared in conformity with accounting principles
                        generally accepted in the United States and include the
                        accounts of Regan Holding Corp. and its wholly-owned
                        subsidiaries, Legacy Marketing Group, Legacy Financial
                        Services, Inc., LifeSurance Corporation, Legacy Advisory
                        Services, Inc., and Legacy Reinsurance Company. All
                        significant intercompany accounts and transactions have
                        been eliminated.

                        The preparation of financial statements in conformity
                        with accounting principles generally accepted in the
                        United States requires management to make estimates and
                        assumptions that affect the reported amounts of assets
                        and liabilities and disclosure of contingent assets and
                        liabilities at the date of the financial statements and
                        the reported amounts of revenues and expenses during the
                        reporting period. Actual results could differ from those
                        estimates.

            c.          Revenue Recognition

                        Marketing allowances and commissions are recognized when
                        policies become inforce. Administrative fees are
                        recognized on a per transaction basis as services are
                        performed.

            d.          Cash and Cash Equivalents

                        Cash and cash equivalents include cash on hand and in
                        banks and short-term investments with an original
                        maturity of 90 days or less. The short-term investments
                        included in cash and cash equivalents are carried at
                        market value.

            e.          Investments

                        Investments include mortgage-backed securities,
                        corporate bonds and equity securities, and obligations
                        backed by U.S. government agencies. The Company's
                        investments are classified as available-for-sale and are
                        carried at market value. Market values are determined
                        using published quotes as of the close of business.
                        Unrealized gains and losses, net of the related tax
                        effect, are excluded from earnings and are reported as a
                        separate component of shareholders' equity, within
                        "accumulated other comprehensive income," until
                        realized.

                                    Page 21


<PAGE>   22



                        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 included in earnings
                        in the period sold and are derived using the specific
                        identification method for determining the cost of
                        investments sold.

            f.          Fixed Assets

                        Fixed assets are stated at cost, less accumulated
                        depreciation and amortization. In addition, the Company
                        capitalizes at cost certain consulting fees, salaries
                        and benefits related to the development of software for
                        internal use. Upon retirement or disposition of fixed
                        assets, any gain or loss is included in net income.

                        Effective January 1, 1999, the Company adopted the AICPA
                        Statement of Position 98-1 (SOP 98-1), Accounting for
                        the Cost of Computer Software Developed or Obtained for
                        Internal Use. SOP 98-1 provides guidance on accounting
                        for the costs of the computer software developed or
                        obtained for internal use. In accordance with SOP 98-1,
                        the Company capitalized $1,288,886 of internal and
                        external costs, incurred subsequent to December 31,
                        1998, which were directly associated with the
                        development of internal-use software. Upon project
                        completion, these costs are amortized over the
                        estimated useful life of the software on a straight-line
                        basis.  Previously, these costs were expensed as
                        incurred. Prior costs have not been restated.

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

<TABLE>

<S>                                                                                         <C>
                                    Computer hardware and purchased software                    3 years
                                    Internal use software development costs                     5 years
                                    Leasehold improvements                                   2-10 years
                                    Furniture and equipment                                     5 years
                                    Building                                                   20 years
</TABLE>

            g.          Redeemable Common Stock

                        Shares of Series A and B Redeemable Common Stock are
                        redeemable at a rate per share based upon current fair
                        market value. The contractual agreements under which the
                        Redeemable Common Stock was issued specify factors to be
                        considered in determining fair market value, including
                        the net present value of inforce insurance policy cash
                        flows. However, since the Company no longer operates an
                        insurance company, this factor is not applicable.
                        Further, there is no active trading market for the
                        Company's stock which would establish market value.
                        Accordingly, the Company's Board of Directors has
                        approved a redemption value of $1.99 per share as of
                        December 31, 1999, based on management's estimate of
                        fair market value. Management's estimate is derived from
                        a valuation performed at the end of each period
                        presented. Redeemable Common Stock is recorded at the
                        greater of the issuance value or the redemption value,
                        with the periodic differences recorded as redeemable
                        common stock accretion. The Company recorded redeemable
                        common stock accretion of $787,256 for the year ended
                        December 31, 1999. The issuance value exceeded the
                        redemption value at December 31, 1998. Accordingly, no
                        accretion was recorded during the year ended December
                        31, 1998.

            h.          Sales Promotion and Support Costs

                        Sales promotion and support costs are expensed as
                        incurred, except for sales brochures and other marketing
                        materials, which are inventoried at cost.

            i.          Income Taxes

                        The Company and its subsidiaries file consolidated
                        income tax returns for federal purposes. For financial
                        reporting purposes, the income tax effects of
                        transactions are recognized in the year in which they
                        enter into the determination of recorded income,
                        regardless of when they are

                                    Page 22

<PAGE>   23
                        recognized for income tax purposes. Accordingly, the
                        provisions for income taxes in the consolidated
                        statements of income include charges or credits for
                        deferred income taxes relating to temporary differences
                        between the tax basis of assets and liabilities and
                        their reported amounts in the consolidated financial
                        statements.

            j.          Earnings Per Share

                        Basic and diluted earnings per share are presented in
                        accordance with Statement of Financial Accounting
                        Standards ("SFAS") No. 128, Earnings Per Share. Earnings
                        per share is based on the weighted average number of
                        common shares outstanding, including shares of
                        redeemable common stock.

            k.          Reclassifications

                        Certain 1998 and 1997 balances have been reclassified to
                        conform with the 1999 presentation. Such
                        reclassifications had no effect on net income or
                        shareholders' equity.

2.          INVESTMENTS

            Investment portfolios at the dates indicated consisted of the
following:

<TABLE>
<CAPTION>

                                              Maturity in years:

                                                    1 Year                1 to 5             Longer Than
                                                    or Less                Years              10 Years               Other
                                                    -------                -----              --------               -----
           <S>                             <C>                 <C>                   <C>                  <C>
            December 31, 1999
            Government agency
               securities                   $               --   $        4,056,128   $          769,532   $               --
            Investment in IL Annuity                12,000,000                   --                   --                   --
            Corporate bonds                                 --                   --              525,733                   --
            Mutual Funds                                    --                   --                   --            1,335,756
            Equity securities                               --                   --                   --            3,125,708
                                            ------------------   ------------------   ------------------   ------------------
               Amortized cost                       12,000,000            4,056,128            1,295,265            4,461,464
            Gross unrealized gains                          --                   --                   --              241,957
            Gross unrealized losses                         --             (170,545)             (87,443)            (934,853)
                                            -------------------  -------------------  -------------------  -------------------
               Market value                 $       12,000,000   $        3,885,583   $        1,207,822   $        3,768,568
                                            ==================   ==================   ==================   ==================

                                                     Total
                                                     -----

            December 31, 1999
            Government agency
               securities                  $        4,825,660
            Investment in IL Annuity               12,000,000
            Corporate bonds                           525,733
            Mutual Funds                            1,335,756
            Equity securities                       3,125,708
                                           ------------------
               Amortized cost                      21,812,857
            Gross unrealized gains                    241,957
            Gross unrealized losses                (1,192,841)
                                           -------------------
               Market value                $       20,861,973
                                            ==================



            December 31, 1998
            Government agency
               securities                   $        2,256,704   $        4,841,327   $        1,788,614   $               --
            Corporate bonds                          1,001,018                   --              526,307                   --
            Mortgage-backed securities                      --                   --                   --            1,524,500
            Equity securities                               --                   --                   --            5,139,732
                                            ------------------   ------------------   ------------------   ------------------
               Amortized cost                        3,257,722            4,841,327            2,314,921            6,664,232
            Gross unrealized gains                      14,132               20,059               27,369              139,217
            Gross unrealized losses                    (22,556)                  --               (3,164)            (265,631)
                                            -------------------  ------------------   ------------------   ------------------
               Market value                 $        3,249,298   $        4,861,386   $        2,339,126   $        6,537,818
                                            ==================   ==================   ==================   ==================


            December 31, 1998
            Government agency
               securities                   $        8,886,645
            Corporate bonds                          1,527,325
            Mortgage-backed securities               1,524,500
            Equity securities                        5,139,732
                                            ------------------
               Amortized cost                       17,078,202
            Gross unrealized gains                     200,777
            Gross unrealized losses                   (291,351)
                                            ------------------
               Market value                 $       16,987,628
                                            ==================
</TABLE>

            Included in operating results for the years ended December 31, 1999,
            1998, and 1997, are $917,505, $824,164, and $494,033 of interest
            income earned on investments, respectively.

                                    Page 23
<PAGE>   24

3.          FIXED ASSETS

            A summary of fixed assets at the dates indicated follows:

<TABLE>
<CAPTION>

                                                                                                  Accumulated
                                                                                                  Depreciation/
                                                                          Cost                    Amortization
                                                                          ----                    -------------
           <S>                                             <C>                             <C>

            December 31, 1999
            -----------------
            Computer hardware and purchased
               software                                     $          5,582,936             $        1,700,896
            Internal use software development costs                    1,288,886                        152,662
            Leasehold improvements                                     1,292,870                         74,454
            Furniture and equipment                                    2,446,104                        871,886
            Building                                                   3,438,332                        114,188
            Land                                                       1,033,093                             --
                                                            --------------------             ------------------
               Totals                                       $         15,082,221             $        2,914,086
                                                            ====================             ==================

            December 31, 1998
            -----------------
            Computer hardware and software                  $          3,406,540             $        1,499,340
            Leasehold improvements                                     1,290,647                        970,030
            Furniture and equipment                                    1,205,587                        578,659
            Land                                                         127,522                             --
                                                            --------------------             ------------------
               Totals                                       $          6,030,296             $        3,048,029
                                                            ====================             ==================




                                                                    Net
                                                                 Book Value
                                                                 ----------
            December 31, 1999
            -----------------
            Computer hardware and purchased
               software                                     $         3,882,040
            Internal use software development costs                   1,136,224
            Leasehold improvements                                    1,218,416
            Furniture and equipment                                   1,574,218
            Building                                                  3,324,144
            Land                                                      1,033,093
                                                            -------------------
               Totals                                       $        12,168,135
                                                            ===================

            December 31, 1998
            -----------------
            Computer hardware and software                  $         1,907,200
            Leasehold improvements                                      320,617
            Furniture and equipment                                     626,928
            Land                                                        127,522
                                                            -------------------
               Totals                                       $         2,982,267
                                                            ===================



</TABLE>




4.          SOFTWARE LICENSING FEES

            In March 1999, LMG entered into a license agreement with a software
            vendor (the "Software Agreement"), pursuant to which LMG has the
            non-exclusive right to use certain computer software programs in
            administering policies on behalf of the carriers with whom the
            Company contracts. For this right, LMG incurred an initial licensing
            fee of $800,000 exclusive of taxes, of which the unpaid portion of
            $537,500 has been recorded as Software Licensing Fees Payable. This
            balance is due in March 2000. In addition, LMG agreed to pay
            licensing charges of $8,333 per month, increasing each year to
            $22,667 per month during the eighth year, plus cost of living
            adjustments each year. The monthly fees are being expensed as
            incurred. The term of the Software Agreement extends through March
            2007, but may be terminated by LMG with six months written notice
            after March 2004. The $800,000 initial licensing fee has been
            recorded as Software Licensing Fees, net of amortization, in the
            accompanying consolidated balance sheets.

5.          ACCRUED LIABILITIES

            Accrued liabilities consist of the following:

<TABLE>
<CAPTION>

                                                                               December 31,
                                                                    1999                           1998
                                                                    ----                           ----
                   <S>                                  <C>                          <C>
                    Accrued compensation                 $        2,119,485           $        2,595,760
                    Commissions payable                             929,802                      714,926
                    Investment purchase pending                          --                      500,000
                    Miscellaneous expenses                        1,177,850                      577,715
                                                         ------------------           ------------------
                        Totals                           $        4,277,137           $        4,388,401
                                                         ==================           ==================
</TABLE>

6.          MARGIN LOAN PAYABLE

            During 1999, the Company obtained margin loan advances in the amount
            of $3.5 million from its investment broker. The loan bears interest
            at 1/2% above the Call Rate, as published in the Wall Street Journal
            and is collateralized by the Company's investment portfolio. As of
            December 31, 1999, $3,088,918 remained payable under this
            arrangement. The margin loan was repaid in full during the first
            quarter of 2000.

                                    Page 24

<PAGE>   25

7.          LOAN PAYABLE

            On May 7, 1999, the Company purchased for $4.3 million the building
            in Petaluma, California, which previously housed the Company's
            headquarters. In conjunction with the building acquisition, the
            Company paid $2.2 million of the purchase price in cash and entered
            into a loan payable for the remaining $2.1 million. The loan has a
            ten-year term and is payable in monthly installments plus one
            balloon payment of approximately $1.8 million, due on May 10, 2009.
            The loan bears interest at 0.5% per annum above the Prime Rate, as
            published in the West Coast Edition of the Wall Street Journal. The
            loan is fully guaranteed by each of the Company's subsidiaries. In
            addition, the loan agreement contains certain covenants with which
            the Company must comply, including restrictions on indebtedness or
            investments outside the ordinary course of business and restrictions
            on dividends or other changes in the Company's capital structure.
            One of the covenants requires management to obtain lender approval
            prior to repurchasing non-redeemable common stock. The Lender has
            waived this covenant through June 30, 2000, provided that such
            voluntary repurchases do not exceed $125,000 per quarter. Pursuant
            to the loan agreement, the Company was also required to place
            approximately $560,000 in reserve to cover loan payments in the
            event of default and to provide for certain repair costs. Such
            reserved amounts are classified as Other Assets in the accompanying
            consolidated balance sheet at December 31, 1999.

            The Company's future principal payments are as follows:

<TABLE>
<CAPTION>

                        Year Ended December 31,                                 Principal
                        -----------------------                                 ---------
                       <S>                                                  <C>
                              2000                                           $       27,166
                              2001                                                   29,509
                              2002                                                   32,053
                              2003                                                   34,817
                              2004                                                   37,820
                              Thereafter                                          1,962,768

</TABLE>

8.          INCENTIVE COMPENSATION PAYABLE

            Under the Company's Officer Incentive Bonus Plan (the "Plan"), each
            officer of the Company is allocated from 0.75% to 1.25% of annual
            net income in a given year (the "Bonus Year"), before officer
            incentive bonuses, as an incentive bonus (the "Bonus"). The payment
            of the Bonus occurs in equal amounts over the three years following
            the Bonus Year. The first payment is automatically paid immediately
            following the end of the Bonus Year. The remaining two payments are
            paid in the second and third years following the Bonus Year and are
            contingent upon the Company achieving targeted growth in net income
            during the first and second years following the Bonus Year,
            respectively. The Bonus payment is forfeited for any year during
            which the specified growth is not achieved. At December 31, 1999 and
            1998, $596,506 and $798,062 respectively, are reflected as incentive
            compensation payable in the accompanying consolidated balance sheets
            of which $469,720 and $488,671, respectively, are classified as
            non-current liabilities. Such amounts primarily represent the
            deferred portion of the 1999 and 1998 Bonuses.

9.          DEFERRED COMPENSATION PAYABLE

            The Company sponsors a qualified defined contribution 401(k) plan
            (the "401(k) Plan"), which is available to all employees. The 401(k)
            Plan allows employees to defer, on a pretax basis, a portion of
            their compensation as contributions to the 401(k) Plan. Employees
            may elect to contribute up to 15% of their annual compensation (not
            to exceed $10,000 annually for 1999 and 1998) to the 401(k) Plan.
            The Company matches 50% of each employee's contributions, up to a
            maximum of 6% of annual compensation. The Company's matching
            contributions charged to operating expenses were $348,132, $272,658,
            and $181,443 for the years ended December 31, 1999, 1998, and 1997,
            respectively.

            The Company also sponsors a non-qualified deferred compensation plan
            (the "Key Employee 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

                                    Page 25

<PAGE>   26
            the Key Employee Deferred Compensation Plan certain employees may
            defer, on a pre-tax basis, a percentage of annual compensation,
            including bonuses. The Company matches 50% of each employee's
            contributions, up to a maximum of 6% of annual compensation, less
            amounts already matched under the 401(k) Plan. Deferrals under the
            Key Employee Deferred Compensation Plan began in the first quarter
            of 1999. Pursuant to the Key Employee Deferred Compensation Plan,
            the Company recorded $53,073 in matching expense during the year
            ended December 31, 1999. As of December 31, 1999, employee
            contributions and Company matching contributions, net of accumulated
            losses, totaled $213,045. Such amounts are reflected as a liability
            in the accompanying consolidated balance sheet.

            The Company also sponsors a non-qualified deferred compensation plan
            under which producers may defer, on a pre-tax basis, up to 50% of
            annual commissions (the "Producer Commission Deferral Plan").
            Producers who earn a minimum of $100,000 in annual commission are
            eligible to participate in the Producer Commission Deferral Plan. In
            addition, the Company will match producer contributions for those
            producers who earn over $250,000 in annual commissions at rates
            ranging from 1% to 5% of amounts deferred, depending on the level of
            annual commissions earned. Deferrals under the Producer Commission
            Deferral Plan began in the second quarter of 1999. During the year
            ended December 31, 1999, $55,710 in matching contributions were
            charged to operating expenses related to the Producer Commission
            Deferral Plan. As of December 31, 1999, producer contributions and
            Company matching contributions, net of accumulated losses, totaled
            $1,151,668. Such amounts are reflected as a liability in the
            accompanying consolidated balance sheet.

            Assets held by the Company in the Key Employee Deferred Compensation
            Plan and the Producer Commission Deferral Plan are subject to the
            general creditors of the Company.

10.         COMMITMENTS AND CONTINGENCIES

            The Company leases office and warehouse premises and certain office
            equipment under non-cancelable operating leases. Related rent
            expense of $875,971, $369,231, and $335,973 are included in
            occupancy costs for the years ended December 31, 1999, 1998, and
            1997, respectively. Total rentals for and leases of equipment
            included in equipment expense were $416,770, $255,078, and
            $146,874 for the years ended December 31, 1999, 1998, and 1997,
            respectively.

            In October 1998, the Company entered into a new lease for
            approximately 72,000 square feet of office space in Petaluma,
            California, into which the Company moved its headquarters in July
            1999. This lease expires in July 2009, and includes an option to
            extend the term for two five-year periods. Pursuant to the lease,
            the Company pays monthly base rent of $71,612, plus a pro-rata share
            of property taxes and operating expenses based on leased square
            footage. The base rent increases to $75,193 per month in July 2000
            and then increases by 6% every twenty four months thereafter.
            Effective March 2000, the Company also entered into a lease for
            approximately 5,700 square feet of warehouse space in Petaluma,
            California, at a rate of $4,500 per month. expiring in February
            2006.

            The Company also leases 18,200 square feet of office space in Des
            Moines, Iowa, at a monthly rate of $14,292, increasing to $26,179
            per month in April 2000, and expiring in October 2004. In addition,
            the Company leases 30,500 square feet of office space in Rome,
            Georgia, at a rate of $11,438 per month, expiring December 2001.

            The Company's future minimum annual lease commitments under all
            operating leases are as follows:

<TABLE>
<CAPTION>

                        Year Ended December 31,

                        -----------------------
                       <S>                                                         <C>

                             2000                                                   $              1,905,151
                             2001                                                                  2,030,169
                             2002                                                                  1,864,285
                             2003                                                                  1,529,923
                             2004                                                                  1,373,880
                             Thereafter                                                            5,108,888
                                                                                    ------------------------
                             Total minimum lease payments                           $             13,812,296
                                                                                    ========================
</TABLE>

                                    Page 26

<PAGE>   27

            In May 1998, the Company entered into a Shareholder's Agreement with
            Lynda Regan, Chief Executive Officer of the Company and Chairman of
            the Company's Board of Directors, and certain other individuals.
            Under the terms of this agreement, in the event of the death of Ms.
            Regan, the Company shall repurchase from Ms. Regan's estate all
            shares of common stock that were owned by Ms. Regan at the time of
            her death, or were transferred by her to one or more trusts prior to
            her death. The purchase price to be paid by the Company shall be
            equal to 125% of the fair market value of the shares. The Company
            has purchased a life insurance policy with a face amount of $14.0
            million for the purpose of funding this obligation in the event of
            Ms. Regan's death.

            As a professional services firm engaged in marketing and servicing
            life insurance and annuity products, the Company encounters
            litigation in the normal course of business, including the
            activities relating to its former business of operating an insurance
            company. In December 1996, LMG and American National were named in a
            lawsuit filed in the Circuit Court of Jefferson County, Alabama,
            alleging misrepresentation and price discrimination in connection
            with the sale of certain annuity products issued by American
            National and marketed by LMG. American National and LMG have denied
            the allegations contained in the complaint as well as any wrongdoing
            with respect to the sale and issuance of annuities. However, on June
            7, 1998, in order to avoid protracted litigation, American National
            and LMG entered into a settlement agreement with the plaintiffs and
            other class members. LMG's portion of the settlement, net of
            recovery under its Errors and Omissions insurance policy, was
            approximately $1.1 million, which was recorded as an expense in
            1998. Management is not aware of any material asserted or unasserted
            litigation which existed at December 31, 1999.

            As part of the Company's agreements with certain of its insurance
            producers (the "Producers"), the Company may, under certain
            circumstances, be obligated to purchase the business of the
            Producers. At December 31, 1999, there were no outstanding
            commitments by the Company relating to such obligations.

11.         REDEEMABLE COMMON STOCK

            The following table summarizes transactions affecting redeemable
            common stock during the years ended December 31, 1999, 1998, and
            1997:
<TABLE>
<CAPTION>

                                                             Series A                                  Series B
                                                       Redeemable Common Stock                  Redeemable Common Stock
                                                       -----------------------                  -----------------------
                                                                      Carrying                                  Carrying
                                                    Shares              Amount                Shares              Amount
                                                    ------              ------                ------              ------
           <S>                                  <C>            <C>                          <C>              <C>
            Balance
               January 1, 1997                      5,769,086   $      10,512,023            610,326          $1,830,978
            Redemptions and
               retirement of
               common stock                          (261,760)           (471,955)            (9,465)            (28,395)
                                              ----------------   -----------------   ----------------   -----------------
            Balance
               December 31, 1997                    5,507,326          10,040,068            600,861           1,802,583
            Redemptions and
               retirement of
               common stock                          (335,879)           (612,021)            (1,733)             (5,199)
                                              ----------------   -----------------   ----------------   -----------------
            Balance
               December 31, 1998                    5,171,447           9,428,047            599,128           1,797,384
            Redemptions and
               retirement of
               common stock                          (249,832)           (421,289)            (9,371)            (28,113)
            Accretion to
               redemption value                           --              787,256                 --                  --
                                             ----------------   -----------------   ----------------   -----------------
            Balance
               December 31, 1999                    4,921,615   $       9,794,014            589,757   $       1,769,271
                                             ================   =================   ================   =================


                                                                Total
                                                        Redeemable Common Stock
                                                        ------------------------
                                                                         Carrying
                                                       Shares              Amount
                                                       ------              ------
                                                     <C>                 <C>
            Balance
               January 1, 1997                        6,379,412        $12,343,001
            Redemptions and
               retirement of
               common stock                            (271,225)          (500,350)
                                               ----------------    ----------------
            Balance
               December 31, 1997                      6,108,187         11,842,651
            Redemptions and
               retirement of
               common stock                            (337,612)          (617,220)
                                               ----------------    ----------------
            Balance
               December 31, 1998                      5,770,575         11,225,431
            Redemptions and
               retirement of
               common stock                            (259,203)          (449,402)
            Accretion to
               redemption value                             --             787,256
                                               ----------------    ----------------
            Balance
               December 31, 1999                      5,511,372    $    11,563,285
                                              =================    ================

</TABLE>

                Shares of Redeemable Common Stock are excluded from total shares
issued and outstanding in the accompanying consolidated balance sheets.

                                    Page 27

<PAGE>   28

12.         STOCK OPTIONS AND STOCK AWARDS

            The Company currently sponsors two stock-based compensation plans,
            which are described below. Options were first granted under both
            plans during 1998. Under both plans, the exercise price of each
            option equals the estimated fair market value of the underlying
            common stock on the date of grant, as estimated by management (see
            Note 1) and as discounted for lack of marketability, except for
            incentive stock options granted to 10% shareholders where the
            exercise price equals 110% of the estimated fair market 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 LMG producers and LFS registered representatives
            non-qualified stock options (the "Producer Options") to purchase the
            Company's common stock. 9,500,000 shares have been reserved for
            grant under the Producer Option Plan. The Producer Options granted
            through June 1999 vested ratably over the five years following
            grant. During the second quarter of 1999, however, the Company
            waived the Producer Options' vesting provisions, thereby converting
            the Producer Options from "variable" to "fixed" options pursuant to
            guidance proscribed in Statement of Financial Accounting Standards
            No. 123, Accounting for Stock-Based Compensation, as interpreted by
            Emerging Issues Task Force Issue 96-18 Accounting for Equity
            Instruments That Are Issued to Other Than Employees For Acquiring
            or in Conjunction With Selling Goods and Services. As a result,
            the Company recorded $2,867,000 of expense during 1999
            representing management's estimate of the fair value of the
            Producer Options at the date that the vesting provisions were
            waived. The fair value of the options was estimated using the
            Black-Scholes option-pricing model with the following assumptions:
            risk-free interest rates ranging from 5.3% to 6.0%, expected
            volatility ranging from 27.7% to 39.5%, and expected lives ranging
            from one to five years. A dividend yield assumption was not
            applicable, as the Company's stock is not publicly traded nor does
            the Company pay dividends. All Producer Options granted after June
            1999 were immediately vested upon grant.  Producer Options
            generally expire in six years.

            Under the Producer Option Plan, the Company may also award shares of
            its common stock to Producers. During 1998, no awards were made.
            During 1999, 330,634 shares of Series A common stock were awarded to
            producers, when the estimated fair market value of the shares was
            $1.27 per share. As a result, the Company recorded marketing and
            sales promotion expense of $419,905 during the year ended December
            31, 1999.

            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"). 5,500,000 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 10%
            shareholders, which expire in five years. The Company applies
            Accounting Principles Board Opinion No. 25, Accounting for Stock
            Issued to Employees, and related Interpretations in accounting
            for the Employee Option Plan.  Accordingly, no compensation
            expense has been recognized for options granted under the Employee
            Option Plan. Had the Company elected to recognize compensation
            expense in accordance with SFAS No. 123, the Company's net income
            and earnings per share for the year ended December 31, 1999 would
            have been reduced for options granted under the Employee Option
            Plan to the pro-forma amounts indicated below:

                <TABLE>
                <CAPTION>

                                                                                               Earnings

                                                                    Net                       per Share-
                                                                  Income                        Basic
                                                                  ------                      ----------
               <S>                                  <C>                            <C>
                December 31, 1999
                      As reported                    $           4,467,834          $            0.17
                      Pro-Forma                      $           3,991,616          $            0.15

                December 31, 1998
                        As reported                  $           9,770,208          $            0.37
                        Pro-Forma                    $           9,727,809          $            0.37

                                                             Earnings
                                                            per Share-
                                                             Diluted
                                                            ----------

                December 31, 1999
                      As reported                    $           0.16
                      Pro-Forma                      $           0.14

                December 31, 1998
                        As reported                  $           0.36
                        Pro-Forma                    $           0.36

</TABLE>

            For purposes of estimating the fair value of the Employee Options
            for the pro-forma amounts listed above, the Company applied the
            minimum value method, as proscribed in SFAS No. 123, with risk-free
            rate interest rate assumptions ranging from 4.7% to 6.3% and
            expected life assumptions ranging from five to

                                    Page 28

<PAGE>   29

            seven years. Volatility and dividend yield assumptions were not
            applicable, as the Company's stock is not publicly traded nor does
            the Company pay dividends.

            The following table summarizes transactions under both plans:

<TABLE>
<CAPTION>

                                                  Employee Option Plan                 Producer Option Plan
                                                 ---------------------                --------------------
                                                             Weighted-average                   Weighted-average
                                                Shares        Exercise Price          Shares      Exercise Price
                                                ------       ----------------         ------    ----------------
           <S>                                 <C>           <C>                     <C>       <C>
            Outstanding at
              January 1, 1998                            --       $   --                     --       $   --
            Granted                               1,513,000       $ 0.74                992,000       $ 0.76
            Forfeited                               (23,000)      $ 0.73                 (6,500)      $ 0.73
                                             --------------                        ------------
            Outstanding at
               December 31, 1998                  1,490,000       $ 0.74                985,500       $ 0.76
            Granted                               1,552,200       $ 1.29              4,921,250       $ 1.27
            Exercised                                (8,350)      $ 0.79                (64,100)      $ 1.02
            Forfeited                               (46,100)      $ 1.06                (20,750)      $ 1.17
                                              --------------                        ------------
            Outstanding at
               December 31, 1999                  2,987,750       $ 1.02              5,821,900       $ 1.19
                                             ==============                        ============
            Exercisable at
                December 31, 1999                   343,650      $  0.77              5,821,900       $ 1.19
                                             ==============                        ============


                                                                  Total

                                                       -----------------------------
                                                                     Weighted-average
                                                       Shares        Exercise Price
                                                       ------      ------------------
                                                     <C>              <C>
            Outstanding at
               January 1, 1998                                --        $        --
            Granted                                    2,505,000        $      0.75
            Forfeited                                    (29,500)       $      0.73
                                                      ----------
            Outstanding at
               December 31, 1998                       2,475,500        $      0.75
            Granted                                    6,473,450        $      1.27
            Exercised                                    (72,450)       $      0.99
            Forfeited                                    (66,850)       $      1.09
                                                     -----------
            Outstanding at
               December 31, 1999                       8,809,650        $      1.13
                                                      ==========

            Exercisable at
                December 31, 1999                      6,165,550        $      1.16
                                                      ==========

</TABLE>

            The following table summarizes information about stock options
            outstanding at December 31, 1999 under both plans:

<TABLE>
<CAPTION>

                                                                  Options Outstanding
                                                   -----------------------------------------------------
                                                                      Weighted                 Weighted
                                                                      Average                  Average
                                                                     Remaining                 Exercise
              Range of exercise prices                  Shares     Contractual Life              Price
              ------------------------                  ------     ----------------             ------
             <S>                                      <C>         <C>                         <C>
              $0.73 - $0.84                            2,284,300            6.4                 $0.73
              $1.03                                      129,750            4.4                 $1.03
              $1.27 - $1.40                            6,395,600            5.9                 $1.27
                                                       ---------
                                                       8,809,650            6.0                 $1.13
                                                       =========


                      Options Exercisable
              -----------------------------------------
                                            Weighted
                                            Average
                                            Exercise
                               Shares        Price
                               ------        -----
                              <C>           <C>
                              1,170,300      $0.73

                                107,250      $1.03
                              4,888,000      $1.27

                              ---------
                              6,165,550      $1.16

                              =========
</TABLE>

            During the first quarter of 2000, the Company granted 2,120,247
            options to producers under the Producer Option Plan and 2,146,800
            options to employees under the Employee Option Plan.

13.         INCOME TAXES

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

                                    Page 29

<PAGE>   30

            The provisions for federal and state income taxes consist of amounts
            currently payable and amounts deferred which, for the periods
            indicated, are shown below:

<TABLE>
<CAPTION>

                                                                                         For the Year Ended December 31,

                                                                                 1999                        1998

                 <S>                                                   <C>                           <C>
                  Current income taxes:
                        Federal                                         $        3,481,693            $        5,002,541
                        State                                                      926,890                     1,375,980
                                                                        ------------------            ------------------
                              Total current                                      4,408,583                     6,378,521
                                                                        ------------------            ------------------
                  Deferred income taxes:
                        Federal                                                 (1,094,714)                       55,818
                        State                                                     (225,605)                     (8,417)
                                                                        ------------------             -----------------
                              Total deferred                                    (1,320,319)                     47,401
                                                                        ------------------            ------------------
                  Provision for income taxes                            $        3,088,264           $        6,425,922
                                                                        ==================            ==================
</TABLE>


<TABLE>
<CAPTION>
                                                                        For the Year Ended December 31,

                                                                                          1997
                                                                                          ----
             <S>                                                            <C>
                  Current income taxes:
                        Federal                                                   $         1,262,317
                        State                                                                 572,332
                                                                                     ----------------
                              Total current                                                 1,834,649
                                                                                     ----------------
                  Deferred income taxes:

                        Federal                                                               405,951
                        State                                                                 (45,576)
                                                                                     ----------------
                              Total deferred                                                  360,375
                                                                                     ----------------
                  Provision for income taxes                                      $         2,195,024
                                                                                     ================
</TABLE>

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


<TABLE>
<CAPTION>
                                                                                                          December 31,

                                                                                       1999                                1998
                                                                                       ----                                ----
                 <S>                                                        <C>                                <C>

                  Alternative minimum tax credit carryforward                $          319,236                  $          373,620
                  Sales incentive trip accrual                                          895,841                             359,424
                  Fixed asset depreciation                                             (703,713)                            130,115
                  Producer stock option expense                                       1,861,483                             223,165
                  Capital loss, net of valuation allowance of
                        $23,864 and $0, respectively                                         --                                  --
                  Other                                                                 553,987                             178,071
                                                                             ------------------                  ------------------
                        Total deferred tax assets                            $        2,926,834                  $        1,264,395
                                                                             ==================                  ==================
</TABLE>


            The provisions for income taxes differ from the provisions computed
            by applying the statutory federal income tax rate (34%) to income
            before taxes, as follows:

<TABLE>
<CAPTION>

                                                                                      For the Year Ended December 31,

                                                                                     1999                        1998
                                                                                     ----                        ----
              <S>                                                          <C>                         <C>
                  Federal income taxes due at
                     statutory rate (34%)                                   $        2,569,076            $        5,566,612
                  Increases (reductions) in income taxes resulting from:
                        State franchise taxes, net of
                           federal income tax benefit                                  492,966                      907,981
                        Other                                                           26,222                     (48,671)
                                                                            ------------------            ------------------
                  Provision for income taxes                                $        3,088,264          $        6,425,922
                                                                            ==================            ==================
</TABLE>


<TABLE>
<CAPTION>

                                                                                                    1997
                                                                                                    ----
             <S>                                                                     <C>
                  Federal income taxes due at
                     statutory rate (34%)                                              $             1,817,462
                  Increases (reductions) in income taxes resulting from:
                        State franchise taxes, net of
                           federal income tax benefit                                                  375,892
                        Other                                                                            1,670
                                                                                       -----------------------
                  Provision for income taxes                                           $             2,195,024
                                                                                       =======================


</TABLE>

            As of December 31, 1999, the Company also has, for income tax
            purposes, $319,236, in alternative minimum tax credits which can be
            used to reduce income taxes in subsequent years to the extent
            regular tax exceeds tentative minimum tax. The credits have no
            expiration date.

                                    Page 30

<PAGE>   31

14.         EARNINGS PER SHARE

            Following is a reconciliation of the numerator and denominator of
            the basic and diluted earnings per share calculations. No
            potentially dilutive securities existed prior to January 1, 1998.



<TABLE>
<CAPTION>
                                                                       Income               Shares          Per-share
                                                                     (Numerator)        (Denominator)         Amount
                                                                     -----------        -------------       ---------
           <S>                                                  <C>                     <C>            <C>
            For the year ended December 31, 1999
            Basic earnings per share
                  Income available to common shareholders        $     4,467,834           26,393,679      $    0.17
                  Effective of dilutive securities
                        Employee and producer stock options                   --            1,366,461
                                                                 ---------------     ----------------
                  Diluted earnings per share                    $      4,467,834           27,760,140      $    0.16
                                                                 ===============     ================

            For the year ended December 31, 1998
            Basic earnings per share
                  Income available to common shareholders       $     9,770,208           26,543,535       $    0.37
                  Effective of dilutive securities
                        Employee and producer stock options                  --              643,901
                                                                ---------------     ----------------

                  Diluted earnings per share                    $     9,770,208           27,187,436       $    0.36
                                                                ===============     ================
</TABLE>





             Options to purchase 25,500 shares of common stock at $1.39 per
             share were outstanding during the second half of 1999 and remained
             outstanding at December 31, 1999, but were not included in the
             computation of diluted earnings per share because the options'
             exercise price was greater than the average market price of the
             common shares during the year.

15.         SEGMENT INFORMATION

            The Company's reportable segments are those that are based on the
            Company's method of internal reporting, which desegregates its
            business into two primary reportable segments: Legacy Marketing
            Group, and Legacy Financial Services, Inc. The financial results of
            the Company's operating segments are presented on an accrual basis.
            There are no significant differences between the accounting policies
            of the segments as compared to the Company's consolidated financial
            statements. In addition to revenues and expenses recorded directly
            by each segment, the Company evaluates the performance of its
            segments and allocates resources to them based on estimates of
            salaries and other expenses attributed to each of the segments'
            operations. There are no material intersegment revenues.

                                    Page 31

<PAGE>   32


The table below presents information about the Company's operating segments for
the years ended December 31, 1999, 1998 and 1997:

<TABLE>
<CAPTION>
                                            Legacy                  Legacy
                                           Marketing               Financial
                                             Group              Services, Inc.              Other                   Total
                                             -----              --------------              -----                   -----
<S>                                <C>                     <C>                       <C>                     <C>
  Year Ended December 31,
  1999
     Total revenue                 $       48,117,700      $           1,694,680    $              218,237   $          50,030,617
     Total expenses                        34,291,486                  1,485,463                 7,926,249              43,703,198
                                   ------------------      ---------------------     ---------------------   ---------------------
     Operating income (loss)               13,826,214                    209,217                (7,708,012)              6,327,419
     Other income                           1,202,854                      3,155                    22,670               1,228,679
                                   ------------------      ---------------------     ---------------------   ---------------------
     Income (loss) before tax              15,029,068                    212,372                (7,685,342)              7,556,098
     Tax provision (benefit)                5,413,341                    (55,514)               (2,269,563)              3,088,264
                                   ------------------      ---------------------     ---------------------   ---------------------
     Net income (loss)             $        9,615,727      $             267,886    $           (5,415,779)  $           4,467,834
                                   ==================      =====================     =====================   =====================

  Year Ended December 31,
  1998
     Total revenue                 $       45,113,652      $             821,512    $                  --   $          45,935,164
     Total expenses                        27,649,023                    861,486                 2,449,557              30,960,066
                                   ------------------      ---------------------     ---------------------   ---------------------
     Operating income (loss)               17,464,629                    (39,974)               (2,449,557)             14,975,098
     Other income (loss)                    1,220,313                      1,439                      (720)              1,221,032
                                   ------------------      ---------------------     ---------------------   ---------------------
     Income (loss) before tax              18,684,942                    (38,535)               (2,450,277)             16,196,130
     Tax provision (benefit)                6,880,139                   (128,953)                 (325,264)              6,425,922
                                   ------------------      ---------------------     ---------------------   ---------------------
     Net income (loss)             $       11,804,803      $              90,418     $          (2,125,013)  $           9,770,208
                                   ==================      =====================     =====================   =====================

  Year Ended December 31,
  1997
     Total revenue                 $       21,571,588      $             311,894     $                  --   $          21,883,482
     Total expenses                        15,011,972                    653,926                 1,569,699              17,235,597
                                   ------------------      ---------------------     ---------------------   ---------------------
     Operating income (loss)                6,559,616                   (342,032)               (1,569,699)              4,647,885
     Other income (loss)                      715,168                         --                   (17,575)                697,593
                                   ------------------      ---------------------     ---------------------   ---------------------
     Income (loss) before tax               7,274,784                   (342,032)               (1,587,274)              5,345,478
     Tax provision (benefit)                2,420,753                   (230,335)                    4,606               2,195,024
                                   ------------------      ----------------------    ---------------------   ---------------------
     Net income (loss)             $        4,854,031      $            (111,697)    $          (1,591,880)  $           3,150,454
                                   ==================      =====================     ======================  =====================

  Total assets
     December 31, 1999             $       27,652,585      $           1,300,153     $          17,639,658   $          46,592,396
                                   ==================      =====================     =====================   =====================
     December 31, 1998             $       21,777,580      $             823,714     $           8,684,719   $          31,286,013
                                   ==================      =====================     =====================   =====================
</TABLE>

            The "Other" segment above includes Regan Holding Corp.
            (stand-alone) and its remaining subsidiaries, LifeSurance
            Corporation, Legacy Advisory Services, Inc., and Legacy Reinsurance
            Company. Such entities' operations do not currently factor
            significantly into management decision making and, accordingly, were
            not separated for purposes of this disclosure.

16.         RELATED PARTY TRANSACTIONS

            The Company paid Ashley A. Penney, a director until August 1997,
            $133,113 for services provided as a human resources consultant
            during the year ended December 31, 1997.

17.         CONCENTRATION OF RISK

            At December 31, 1999, the Company was contracted with over 19,000
            independent insurance Producers to sell insurance products
            throughout the country in a majority of the fifty states. Production
            in no one state accounted for over 20% of insurance premiums to the
            Carriers nor of the corresponding revenue of the Company during
            1999.

                                    Page 32
<PAGE>   33

            Prior to December, 1995, American National was the only insurance
            company with which the Company was contracted to market insurance
            products. This arrangement generated approximately 10.5%, 12.7%, and
            36.2% of total revenues to the Company during 1999, 1998 and 1997,
            respectively. In December 1995, the Company contracted to provide
            marketing and administrative services for IL Annuity. This
            arrangement generated approximately 73.5% 79.9% and 57.0% of the
            Company's revenues during 1999, 1998 and 1997, respectively. In May
            1998, the Company contracted to provide marketing and administrative
            services for Transamerica. These agreements generated approximately
            11.3% and 1.7% of the Company's revenue during 1999 and 1998,
            respectively. However, neither the Marketing Agreements nor the
            Administrative Agreements prevent the Company from entering into
            similar arrangements with other insurance companies.

            Although the Company markets and administers several annuity and
            life insurance products on behalf of the Carriers, the Company's
            revenues are derived primarily from sales and administration of
            certain annuity products, especially the VisionMark(TM) annuity
            offered by IL Annuity. During 1999, 1998, and 1997, 56.2%, 70.6% and
            52.4%, respectively, of the Company's consolidated revenue resulted
            from sales of the VisionMark(TM) annuity.

            At December 31, 1999, the Company's investment portfolio included a
            $12 million investment in Indianapolis Life Group of Companies
            ("Indianapolis Group"), an affiliate of IL Annuity, which represents
            25.8% of the Company's total assets. In the first quarter of 2000,
            the Indianapolis Group repurchased the equity securities from the
            Company for $12,546,099, pursuant to the terms of the Investment
            Agreement.

18.         SUBSEQUENT EVENTS

            In February 2000, LMG entered into an Agency Agreement with Bankers
            United Life Assurance Company ("Bankers") pursuant to which LMG is
            authorized to solicit, through its network of independent insurance
            producers, sales of long-term care products offered by Bankers. For
            this solicitation, LMG will receive commissions based on the volume
            of premiums sold and the age of the policyholder. The Agency
            Agreement may be terminated by either party with 15 days notice
            without cause, and may be terminated by either party immediately for
            cause. LMG is currently working to become licensed in several states
            to sell long-term care products. Accordingly, no sales of long-term
            care products have occurred to date.

            During the first quarter of 2000, the Marketing and Administrative
            Agreements with American National were amended to extend the terms
            of the agreements to April 30, 2000. LMG and American National are
            in the process of negotiating a five year extension for both
            agreements.


                                    Page 33
<PAGE>   34



REGAN HOLDING CORP. AND SUBSIDIARIES
Consolidating Balance Sheet
December 31, 1999

<TABLE>
<CAPTION>
                                                                                                     Legacy
                                                             Regan              Legacy              Financial
                                                            Holding            Marketing            Services,         LifeSurance
                                                             Corp.               Group                Inc.            Corporation
                                                             -----               -----                ----            -----------
<S>                                                   <C>                 <C>                <C>                 <C>
ASSETS
   Cash and cash equivalents                          $       450,749     $       (138,068)  $         416,243   $        348,090
   Investments                                                     --           20,861,973                  --                 --
   Accounts receivable                                        448,657            1,551,644             625,708               (146)
   Prepaid expenses                                           122,033              397,346              78,667             43,713
   Income taxes receivable (payable)                        5,430,529           (3,034,756)            (41,409)           533,624
   Intercompany receivable (payable)                      (15,962,012)          15,996,961              18,136                 --
   Deferred income taxes--current                                  --              895,841                  --                 --
   Marketing supplies inventory                                    --              691,559              14,859                 --
                                                      ---------------     ----------------   -----------------   ----------------
      Total current assets                                 (9,510,044)          37,222,500           1,112,204            925,281
                                                      ----------------    ----------------   -----------------   ----------------
   Net fixed assets                                         8,097,314            3,980,657                  --             90,164
   Investment in subsidiaries                              35,701,393                   --                  --                 --
   Deferred income taxes--non-current                       1,283,011              739,218               8,764                 --
   Prepaid software licensing fees                                 --              779,375                  --                 --
   Other assets                                               562,730              927,796             197,321            120,739
                                                      ---------------     ----------------   -----------------   ----------------
      Total non-current assets                             45,644,448            6,427,046             206,085            210,903
                                                      ---------------     ----------------   -----------------   ----------------
      TOTAL ASSETS                                    $    36,134,404     $     43,649,546   $       1,318,289   $      1,136,184
                                                      ===============     ================   =================   ================
LIABILITIES
   Accounts payable                                   $        42,865     $        338,859   $          23,059   $         31,216
   Accrued sales convention costs                                  --            2,248,913                  --                 --
   Accrued liabilities                                        354,628            3,111,976             611,744            273,789
   Software licensing fees payable                                 --              537,500                  --                 --
   Other current liabilities                                       --              107,384                  --                 --
   Margin loan payable                                             --            3,088,918                  --                 --
                                                      ---------------     ----------------   -----------------   ----------------
      Total current liabilities                               397,493            9,433,550             634,803            305,005
                                                      ---------------     ----------------   -----------------   ----------------
   Loan payable                                             2,124,133              132,285                  --                 --
   Incentive compensation payable                                  --              469,720                  --                 --
   Deferred compensation payable                                   --            1,364,713                  --                 --
   Other liabilities                                               --              167,641                  --                 --
                                                      ---------------     ----------------   ------------------------------------
      Total non-current liabilities                         2,124,133            2,134,359                  --                 --
                                                      ---------------     ----------------   -----------------   ----------------
      TOTAL LIABILITIES                                     2,521,626           11,567,909             634,803            305,005
                                                      ---------------     ----------------   -----------------   ----------------
COMMITMENTS AND CONTINGENCIES                                      --                   --                  --                 --
REDEEMABLE COMMON STOCK                                    11,563,285                   --                  --                 --
                                                      ---------------     ----------------   -----------------   ----------------
SHAREHOLDERS' EQUITY (DEFICIT)
   Common stock                                             3,659,367              100,000              50,000                 --
   Paid-in capital from retirement
      of common stock                                         927,640              510,753           1,650,000          9,277,919
   Paid-in capital from producer stock
      options                                               2,870,000                   --              22,000                 --
   Retained earnings (accumulated deficit)                 14,592,486           32,042,988          (1,038,514)        (8,446,740)
   Accumulated other comprehensive
      income-net                                                   --             (572,104)                 --                 --
                                                      ---------------     -----------------  -----------------   ----------------
      TOTAL SHAREHOLDERS' EQUITY                           22,049,493           32,081,637             683,486            831,179
                                                      ---------------     ----------------   -----------------   ----------------
TOTAL LIABILITIES, REDEEMABLE
COMMON STOCK & SHAREHOLDERS'
EQUITY(DEFICIT)                                       $    36,134,404     $     43,649,546   $       1,318,289   $      1,136,184
                                                      ===============     ================   =================   ================
<CAPTION>
                                                         Legacy
                                                        Advisory             Legacy            Combined
                                                        Services,          Reinsurance       December 31,
                                                          Inc.               Company             1999
                                                          ----               -------             ----
<S>                                                <C>                 <C>                <C>
ASSETS
   Cash and cash equivalents                       $        13,115     $         4,630    $       1,094,759
   Investments                                                  --                  --           20,861,973
   Accounts receivable                                           4                  --            2,625,867
   Prepaid expenses                                             --                  --              641,759
   Income taxes receivable (payable)                         5,713                  --            2,893,701
   Intercompany receivable (payable)                       (28,429)            (24,656)                  --
   Deferred income taxes--current                               --                  --              895,841
   Marketing supplies inventory                                 --                  --              706,418
                                                   ---------------     ---------------    -----------------
      Total current assets                                  (9,597)            (20,026)          29,720,318
                                                   ----------------    ---------------    -----------------
   Net fixed assets                                             --                  --           12,168,135
   Investment in subsidiaries                                   --                  --           35,701,393
   Deferred income taxes--non-current                           --                  --            2,030,993
   Prepaid software licensing fees                              --                  --              779,375
   Other assets                                                 --             209,989            2,018,575
                                                   ---------------     ---------------    -----------------
      Total non-current assets                                                 209,989           52,698,471
                                                   ---------------     ---------------    -----------------
      TOTAL ASSETS                                 $        (9,597)    $       189,963    $      82,418,789
                                                   ===============     ===============    =================
LIABILITIES
   Accounts payable                                $            --     $            --    $         435,999
   Accrued sales convention costs                               --                  --            2,248,913
   Accrued liabilities                                          --                  --            4,352,137
   Software licensing fees payable                              --                  --              537,500
   Other current liabilities                                    --                  --              107,384
   Margin loan payable                                          --                  --            3,088,918
                                                   ---------------     ---------------    -----------------
      Total current liabilities                                                     --           10,770,851
                                                   ---------------     ---------------    -----------------
   Loan payable                                                 --                  --            2,256,418
   Incentive compensation payable                               --                  --              469,720
                                                   ---------------     ---------------    -----------------
   Deferred compensation payable                                --                  --            1,364,713
   Other liabilities                                            --                  --              167,641
                                                   ---------------     ---------------    -----------------
      Total non-current liabilities                             --                  --            4,258,492
                                                   ---------------     ---------------    -----------------
      TOTAL LIABILITIES                                         --                  --           15,029,343
                                                   ---------------     ---------------    -----------------
COMMITMENTS AND CONTINGENCIES                                   --                  --                   --
REDEEMABLE COMMON STOCK                                         --                  --           11,563,285
                                                   ---------------     ---------------    -----------------
SHAREHOLDERS' EQUITY (DEFICIT)
   Common stock                                                 --             100,000            3,909,367
   Paid-in capital from retirement
      of common stock                                           --             100,000           12,466,312
   Paid-in capital from producer stock
      options                                                   --                  --            2,892,000
   Retained earnings (accumulated deficit)                  (9,597)            (10,037)          37,130,586
   Accumulated other comprehensive
      income-net                                                --                  --             (572,104)
                                                   ---------------     ---------------    -----------------
      TOTAL SHAREHOLDERS' EQUITY                            (9,597)            189,963           55,826,161
                                                   ---------------     ---------------    -----------------
TOTAL LIABILITIES, REDEEMABLE
COMMON STOCK & SHAREHOLDERS'
EQUITY(DEFICIT)                                    $        (9,597)    $       189,963    $      84,418,789
                                                   ===============     ===============    =================
<CAPTION>

                                                                             Consolidated
                                                                             December 31,
                                                        Eliminations             1999
                                                        ------------             ----
<S>                                                 <C>                  <C>
ASSETS
   Cash and cash equivalents                        $               --   $      1,094,759
   Investments                                                      --         20,861,973
   Accounts receivable                                              --          2,625,867
   Prepaid expenses                                           (125,000)           516,759
   Income taxes receivable (payable)                                --          2,893,701
   Intercompany receivable (payable)                                --                 --
   Deferred income taxes--current                                   --            895,841
   Marketing supplies inventory                                     --            706,418
                                                    ------------------   ----------------
      Total current assets                                    (125,000)        29,595,318
                                                    ------------------   ----------------
   Net fixed assets                                                 --         12,168,135
   Investment in subsidiaries                              (35,701,393)                --
   Deferred income taxes--non-current                               --          2,030,993
   Prepaid software licensing fees                                  --            779,375
   Other assets                                                                 2,018,575
                                                    ------------------   ----------------
      Total non-current assets                             (35,701,393)        16,997,078
                                                    -------------------  ----------------
      TOTAL ASSETS                                  $      (35,826,393)  $     46,592,396
                                                    ===================  ================
LIABILITIES
   Accounts payable                                 $               --   $        435,999
   Accrued sales convention costs                                   --          2,248,913
   Accrued liabilities                                        (125,000)         4,227,137
   Software licensing fees payable                                  --            537,500
   Other current liabilities                                        --            107,384
   Margin loan payable                                                          3,088,918
                                                    ------------------   ----------------
      Total current liabilities                               (125,000)        10,645,851
                                                    ------------------   ----------------
   Loan payable                                                     --          2,256,418
   Incentive compensation payable                                   --            469,720
   Deferred compensation payable                                    --          1,364,713
   Other liabilities                                                --            167,641
                                                    ------------------   ----------------
      Total non-current liabilities                                 --          4,258,492
                                                    ------------------   ----------------
      TOTAL LIABILITIES                                       (125,000)        14,904,343
                                                    ------------------   ----------------
COMMITMENTS AND CONTINGENCIES                                       --                 --
REDEEMABLE COMMON STOCK                                             --         11,563,285
                                                    ------------------   ----------------
SHAREHOLDERS' EQUITY (DEFICIT)
   Common stock                                               (250,000)         3,659,367
   Paid-in capital from retirement
      of common stock                                      (11,538,672)           927,640
   Paid-in capital from producer stock
      options                                                       --          2,892,000
   Retained earnings (accumulated deficit)                 (23,912,721)        13,217,865
   Accumulated other comprehensive
      income-net                                                    --           (572,104)
                                                    ------------------   ----------------
      TOTAL SHAREHOLDERS' EQUITY                           (35,701,393)        20,124,768
                                                    ------------------   ----------------
TOTAL LIABILITIES, REDEEMABLE
COMMON STOCK & SHAREHOLDERS'
EQUITY(DEFICIT)                                     $      (35,826,393)  $     46,592,396
                                                    ==================   ================
</TABLE>


                                    Page 34

<PAGE>   35



REGAN HOLDING CORP. AND SUBSIDIARIES
Consolidating Income Statement
For the Year Ended December 31, 1999


<TABLE>
<CAPTION>
                                                                                                     Legacy
                                                            Regan               Legacy              Financial
                                                           Holding            Marketing             Services,         LifeSurance
                                                             Corp.               Group                Inc.            Corporation
                                                             -----               -----                ----            -----------
<S>                                                   <C>                 <C>                <C>                 <C>
INCOME
   Marketing allowances                               $            --     $     25,363,487   $         113,857   $             --
   Commission income                                               --           13,900,907           1,491,835                 --
   Administrative fees                                             --            8,637,245                  --                 --
   Intercompany management fee income                       1,643,532              213,800                  --                 --
   Seminar income                                                  --              179,330                  --            201,989
   Other income                                                12,921               36,731              88,988                705
                                                      ---------------     ----------------   -----------------   ----------------
      Total Income                                          1,656,453           48,331,500           1,694,680            202,694
                                                      ---------------     ----------------   -----------------   ----------------

EXPENSES
   Salaries and related benefits                                   --           20,620,054             979,325            617,518
   Sales promotion and support                                449,118            6,602,008             234,422            449,089
   Producer stock options                                   2,845,000                   --              22,000                 --
   Professional fees                                          640,170            1,498,873              63,791            142,151
   Occupancy                                                  363,750            1,692,601              36,318            100,963
   Depreciation and amortization                            1,341,603              337,642               7,723             67,897
   Equipment                                                  354,498              637,097              25,415              2,065
   Courier and postage                                         20,534              882,157              61,078             44,733
   Stationery and supplies                                      1,335              882,978               3,489             66,436
   Travel and entertainment                                       774              590,044              35,550             81,408
   Insurance                                                   68,481              336,425              (8,984)             4,007
   Miscellaneous                                              212,713              211,607              25,336             23,404
   Intercompany management fees                                    --            1,500,000             357,332                 --
                                                      ---------------     ----------------   -----------------   ----------------
      Total expenses                                        6,297,976           35,791,486           1,842,795          1,599,671
                                                      ---------------     ----------------   -----------------   ----------------

INCOME BEFORE INCOME FROM
   SUBSIDIARIES                                            (4,641,523)          12,540,014            (148,115)        (1,396,977)
INCOME FROM SUBSIDIARIES                                    7,360,176                   --                  --                 --
                                                      ---------------     ----------------   -----------------   ----------------

OPERATING INCOME                                            2,718,653           12,540,014            (148,115)        (1,396,977)
OTHER INCOME
   Investment income-net                                       17,201            1,202,854               3,155                839
                                                      ---------------     ----------------   -----------------   ----------------
INCOME BEFORE INCOME TAXES                                  2,735,854           13,742,868            (144,960)        (1,396,138)
PROVISION FOR INCOME TAXES                                 (1,731,980)           5,413,341             (55,514)          (533,636)
                                                      ---------------     ----------------   -----------------   ----------------

NET INCOME (LOSS)                                     $     4,467,834     $      8,329,527   $         (89,446)  $       (862,502)
                                                      ===============     ================   =================   ================

<CAPTION>
                                                     Legacy                                Combined
                                                    Advisory             Legacy           Year Ended
                                                    Services,          Reinsurance       December 31,
                                                      Inc.               Company             1999
                                                      ----               -------             ----
<S>                                            <C>                 <C>                <C>
INCOME
   Marketing allowances                        $            --     $            --    $      25,477,344
   Commission income                                     2,517                  --           15,395,259
   Administrative fees                                      --                  --            8,637,245
   Intercompany management fee income                       --                  --            1,857,332
   Seminar income                                           --                  --              381,319
   Other income                                            105                  --              139,450
                                               ---------------     ---------------    -----------------
      Total Income                                       2,622                  --           51,887,949
                                               ---------------     ---------------    -----------------

EXPENSES
   Salaries and related benefits                            --                  --           22,216,897
   Sales promotion and support                             360                  --            7,734,997
   Producer stock option expense                            --                  --            2,867,000
   Professional fees                                    13,504              14,595            2,373,084
   Occupancy                                                --                  --            2,193,632
   Depreciation and amortization                            --                  --            1,754,865
   Equipment                                                --                  --            1,019,075
   Courier and postage                                      --                  --            1,008,502
   Stationery and supplies                                 120                  --              954,358
   Travel and entertainment                                 --                  --              707,776
   Insurance                                                --                  --              399,929
   Miscellaneous                                            --                  23              473,083
   Intercompany management fees                             --                  --            1,857,332
                                               ---------------     ---------------    -----------------
      Total Expenses                                    13,984              14,618           45,560,530
                                               ---------------     ---------------    -----------------

INCOME BEFORE INCOME FROM
   SUBSIDIARIES                                        (11,362)            (14,618)           6,327,419
INCOME FROM SUBSIDIARIES                                    --                  --            7,360,176
                                               ---------------     ---------------    -----------------

OPERATING INCOME                                       (11,362)            (14,618)          13,687,595
OTHER INCOME
   Investment income-net                                    --               4,630            1,228,679
                                               ---------------     ---------------    -----------------
INCOME BEFORE INCOME TAXES                             (11,362)             (9,988)          14,916,274
PROVISION FOR INCOME TAXES                              (3,997)                 50            3,088,264
                                               ---------------     ---------------    -----------------

NET INCOME                                     $        (7,365)    $       (10,038)   $      11,828,010
                                               ===============     ===============    =================
<CAPTION>
                                                                       Consolidated
                                                                        Year Ended
                                                                       December 31,
                                                  Eliminations             1999
                                                  ------------             ----
<S>                                           <C>                  <C>
INCOME
   Marketing allowances                       $               --   $     25,477,344
   Commission income                                          --         15,395,260
   Administrative fees                                        --          8,637,245
   Intercompany management fee income                 (1,857,332)                --
   Seminar income                                             --            381,319
   Other income                                               --            139,450
                                              ------------------   ----------------
      Total Income                                    (1,857,332)        50,030,617
                                              ------------------   ----------------

EXPENSES
   Salaries and related benefits                              --         22,216,897
   Sales promotion and support                                --          7,734,997
   Producer stock option expense                              --          2,867,000
   Professional fees                                          --          2,373,084
   Occupancy                                                  --          2,193,632
   Depreciation and amortization                              --          1,754,865
   Equipment                                                  --          1,019,075
   Courier and postage                                        --          1,008,502
   Stationery and supplies                                    --            954,358
   Travel and entertainment                                   --            707,776
   Insurance                                                  --            399,929
   Miscellaneous                                              --            473,083
   Intercompany management fees                       (1,857,332)                --
                                              ------------------   ----------------
      Total Expenses                                  (1,857,332)        43,703,198
                                              ------------------   ----------------

INCOME BEFORE INCOME FROM
   SUBSIDIARIES                                               --          6,327,419
INCOME FROM SUBSIDIARIES                              (7,360,176)                --
                                              ------------------   ----------------

OPERATING INCOME                                              --          6,327,419
OTHER INCOME
   Investment income-net                                      --          1,228,679
INCOME BEFORE INCOME TAXES                            (7,360,176)         7,556,098
PROVISION FOR INCOME TAXES                                    --          3,088,264
                                              ------------------   ----------------

NET INCOME                                    $       (7,360,176)  $      4,467,834
                                              ==================   ================
</TABLE>



                                    Page 35

<PAGE>   36

ITEM 9.   CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
          FINANCIAL DISCLOSURE

       None.

                                    PART III

       The Company's definitive Proxy Statement for the Annual Meeting of
Shareholders to be held May 23, 2000, is hereby incorporated by reference.

                                     PART IV

ITEM 14.  EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K

(a)    Index to Exhibits and Financial Statement Schedules:
       1.     The following financial statements are included in Item 8:
              (i)           Independent Accountants Report.
              (ii)          Consolidated Balance Sheets as of December 31, 1999
                            and 1998.
              (iii)         Consolidated Income Statements for the years ended
                            December 31, 1999, 1998 and 1997.
              (iv)          Consolidated Statements of Shareholders' Equity for
                            the years ended December 31, 1999, 1998 and 1997.
              (v)           Consolidated Statements of Cash Flows for the years
                            ended December 31, 1999, 1998 and 1997.
              (vi)          Notes to Consolidated Financial Statements.
              (vii)         Supplemental Consolidating Data

       2.     Financial statement schedules are omitted because the information
              is not required or has been included in the financial statements
              and related notes.

       3.     The following exhibits are included in response to Item 14(c):
              3(a)          Restated Articles of Incorporation.(1)
              3(b)          Amended and Restated Bylaws of the Company.(1)
              4             Certificate of Determination of Preferences of
                            Series C Common Stock of Regan Holding Corp.(2)
              10(a)         Administrative Services Agreement effective January
                            1, 1991, as amended, between Allianz Life Insurance
                            Company of North America and the Company.(2)
              10(b)(1)      Marketing Agreement effective June 1, 1993, as
                            amended, between American National Insurance Company
                            and the Company.(2)
              10(b)(2)      Amendment Three to Marketing Agreement with American
                            National Insurance Company.(3)
              10(b)(3)      Amendment Four to Marketing Agreement with American
                            National Insurance Company.(3)
              10(b)(4)      Amendment Five to Marketing Agreement with American
                            National Insurance Company.(4)


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

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

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

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


                                    Page 36
<PAGE>   37


              10(b)(5)      Amendment Six to Marketing Agreement with American
                            National Insurance Company.(1)
              10(b)(6)      Amendment Seven to Marketing Agreement with American
                            National Insurance Company.(2)
              10(b)(7)      Amendment Eight to Marketing Agreement with American
                            National Insurance Company.(3)
              10(b)(8)      Amendment Nine to Marketing Agreement with American
                            National Insurance Company.(3)
              10(b)(9)      Amendment Ten to Marketing Agreement with American
                            National Insurance Company.(4)
              10(b)(10)     Amendment Eleven to Marketing Agreement with
                            American National Insurance Company.
              10(b)(11)     Amendment Twelve to Marketing Agreement with
                            American National Insurance Company.
              10(c)(1)      Insurance Processing Agreement effective June 1,
                            1993, as amended, between American National
                            Insurance Company and the Company.(5)
              10(c)(2)      Amendment to Insurance Processing Agreement with
                            American National Insurance Company.(6)
              10(c)(3)      Amendment Two to Insurance Processing Agreement with
                            American National Insurance Company.(7)
              10(c)(4)      Amendment Three to Insurance Processing Agreement
                            with American National Insurance Company.(8)
              10(c)(5)      Amendment Four to Insurance Processing Agreement
                            with American National Insurance Company.(9)
              10(c)(6)      Amendment Five to Insurance Processing Agreement
                            with American National Insurance Company.(9)
              10(c)(7)      Amendment Six to Insurance Processing Agreement with
                            American National Insurance Company.(2)
              10(c)(8)      Amendment Seven to Insurance Processing Agreement
                            with American National Insurance Company.(3)
              10(c)(9)      Amendment Eight to Insurance Processing Agreement
                            with American National Insurance Company.(3)
              10(c)(10)     Amendment Nine to Insurance Processing Agreement
                            with American National Insurance Company.(4)


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

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

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

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

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

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

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

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

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





                                    Page 37

<PAGE>   38


              10(c)(11)     Amendment Ten to Insurance Processing Agreement with
                            American National Insurance Company.
              10(c)(12)     Amendment Eleven to Insurance Processing Agreement
                            with American National Insurance Company.
              10(d)         Form of Producer Agreement.(1)
              10(e)         Lease Agreement dated September 26, 1996, for 1179
                            North McDowell Blvd., Petaluma, California 94954.(1)
              10(f)         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(g)         401(K) Profit Sharing Plan & Trust dated July 1,
                            1994.(1)
              10(h)         Marketing Agreement effective January 1, 1996
                            between IL Annuity and Insurance Company and the
                            Company.(2)
              10(i)         Insurance Processing Agreement effective January 1,
                            1996 between IL Annuity and Insurance Company and
                            the Company.(2)
              10(j)         Marketing Agreement effective January 1, 1996
                            between Indianapolis Life Insurance Company and the
                            Company.(2)
              10(k)         Insurance Processing Agreement effective January 1,
                            1996 between Indianapolis Life Insurance Company and
                            the Company.(2)
              10(l)         Marketing Agreement effective May 29, 1998 between
                            Transamerica Life Insurance and Annuity Company and
                            Legacy Marketing Group.(3)
              10(m)(1)      Administrative Services Agreement effective May 29,
                            1998 between Transamerica Life Insurance and Annuity
                            Company and Legacy Marketing Group.(3)
              10(m)(2)      Amendment to the Administrative Services Agreement
                            with Transamerica Life Insurance and Annuity
                            Company.
              10(m)(3)      Amendment Two to the Administrative Services
                            Agreement with Transamerica Life Insurance and
                            Annuity Company.
              10(n)(1)      Agreement of purchase and sale, dated March 8,
                            1999, by and among Regan Holding Corp., North
                            McDowell Investments and Jane Crocker.(4)
              10(n)(2)      Business Loan Agreement, dated May 6, 1999, by and
                            between Regan Holding Corp. and National Bank of
                            the Redwoods.(4)
              10(n)(3)      Promissory Note, dated May 6, 1999, by and between
                            Regan Holding Corp. and National Bank of the
                            Redwoods.(4)
              21             Subsidiaries of the Company.
              27             Financial Data Schedule

(b)    Reports on Form 8-K filed during the quarter ended December 31, 1999.

       No reports on Form 8-K were filed during the quarter ended December 31,
1999.


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

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

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

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



                                    Page 38
<PAGE>   39


                                   SIGNATURES

       Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange 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/ R. Preston Pitts                   Date: March 30, 2000
          ------------------------------------------      ---------------
              R. Preston Pitts, President and Chief Operating Officer

       By:    /s/ David A. Skup                      Date: March 30, 2000
          ------------------------------------------      ---------------
              David A. Skup, Chief 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 30, 2000
          ------------------------------------------      ---------------
              Lynda L. Regan, Chairman

       By:    /s/ Steven C. Anderson                 Date: March 30, 2000
          ------------------------------------------      ---------------
              Steven C. Anderson, Director

       By:    /s/ R. Preston Pitts                   Date: March 30, 2000
          ------------------------------------------      ---------------
              R. Preston Pitts, Director

       By:    /s/ Ute Scott-Smith                    Date: March 30, 2000
          ------------------------------------------      ---------------
              Ute Scott-Smith, Director


                                    Page 39
<PAGE>   40


                                INDEX TO EXHIBITS

<TABLE>
<CAPTION>
Item No.      Description                                                     Page
--------      -----------                                                     ----
<S>           <C>                                                             <C>
10(b)(10)     Amendment Eleven to Marketing Agreement with American
              National Insurance Company                                        40
10(b)(11)     Amendment Twelve to Marketing Agreement with American
              National Insurance Company                                        41
10(c)(11)     Amendment Ten to Processing Agreement with American
              National Insurance Company.                                       42
10(c)(12)     Amendment Eleven to Processing Agreement with American
              National Insurance Company.                                       43
10(m)(2)      Amendment to the Administrative Services Agreement with
              Transamerica Life Insurance and Annuity Company                   44
10(m)(3)      Amendment to the Administrative Services Agreement with
              Transamerica Life Insurance and Annuity Company                   45
27            Financial Data Schedule                                           47
</TABLE>


                                    Page 40