##### Table of Contents





---




UNITED STATESSECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549




---

FORM 10-K / A(Amendment No.
2)



|    |                                                                                               
|--- | ----------------------------------------------------------------------------------------------
|[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
        incorporation or organization) |  | (I.R.S. Employer
        Identification No.)

2090 MARINA AVENUE PETALUMA, CALIFORNIA 94954

(Address of principal executive offices and Zip
 Code)


(707) 778-8638

(Registrants telephone number, including
area code)




---

Securities registered under

Section 12(g) of the Exchange Act:


COMMON STOCK, NO PAR VALUE


(Title of Class)




---

Indicate by check mark whether the registrant:
(1) has filed all reports required to be filed by
Section 13 or 15(d) of the Securities Exchange Act of 1934
during the preceding 12 months (or for such shorter period
that the registrant was required to file such reports), and
(2) has been subject to such filing requirements for the
past
90 days.  YES [X]  NO [   ]

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

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 39

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



---






---

TABLE OF CONTENTS



|        |                                                                                              |                                                 |  |  |  |  |  | 
|------- | -------------------------------------------------------------------------------------------- | ----------------------------------------------- |  |  |  |  |  | 
|PART I 
|        | Item 1.Description of Business                                                              
|        | Item 2.Property                                                                             
|        | Item 3.Legal Proceedings                                                                    
|        | Item 4.Submission of Matters to a Vote of Security Holders                                  
|PART II
|        | Item 5.Market for Registrants Common Equity and Related Shareholder Matters                
|        | Item 6.Selected Consolidated Financial Data                                                 
|        | Item 7.Managements Discussion and Analysis of Results of Operations and Financial Condition
|        | Item 7-A.Quantitative and Qualitative Disclosure About Market Risk                          
|        | Item 8.Financial Statements and Supplementary Data                                          
|        |                                                                                              | Report of Independent Accountants              
|        |                                                                                              | Consolidated Balance Sheets                    
|        |                                                                                              | Consolidated Statements of Income              
|        |                                                                                              | Consolidated Statements of Shareholders Equity
|        |                                                                                              | Consolidated Statements of Cash Flows          
|        |                                                                                              | Notes to Consolidated Financial Statements     
|        |                                                                                              | Consolidating Balance Sheet                    
|        |                                                                                              | Consolidating Income Statement                 
|        | Item 9.Changes In and Disagreements With Accountants on Accounting and Financial Disclosure 



---



##### Table of Contents






PART I

Restatement of Financial Results

In connection with a review of
Regan Holding Corp.s (the Companys) stock option program, the Company
 re-evaluated its accounting for stock options granted to
non-employees. As a result, the Company has restated its 1999 and 2000 results
(see Note 1 to the Consolidated Financial Statements).

Financial statement information and related disclosures included in this
amended filing (Amendment No. 2) reflect, where appropriate, changes as a result of the
restatements.

No other significant
modifications have been made to this amended filing, nor has other
information presented in this document been updated since the
original filing, except for disclosures related to our purchase in
June 2001 of the building which houses our headquarters.






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. 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

3



---



##### Table of Contents





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

4



---



##### Table of Contents





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 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,

5



---



##### Table of Contents





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.

Update for Amendment No. 2

In June 2001, the Company purchased the building which houses its headquarters
in Petaluma, California, which is described above.

6



---



##### Table of Contents






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.




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

|                                |                                |                         |   |            |  |      |   |            |  |      |   |            |  |  |   |            |  |  |   |            |  
|------------------------------- | ------------------------------ | ----------------------- | - | ---------- |  | ---- | - | ---------- |  | ---- | - | ---------- |  |  | - | ---------- |  |  | - | ---------- | -
|                                |                                |                        
|                                |                                | Year Ended December 31,
|                                |                                |                        
|                                |                                | 1999                    |   | 1998       |  | 1997 |   | 1996       |  | 1995
|                                |                                |                         |   |            |  |      |   |            |  |     
|                                |                                | (Restated) (2)          |   |            |  |      |   |            |  |     
|Selected Income Statement Data: |                                |                         |   |            |  |      |   |            |  |      |   |            |  |  |   |            |  |  |   |           
|                               
|                               
|                               
|                               
|                                | Total Revenue                  |                         | $ | 50,030,617 |  |      | $ | 45,935,164 |  |      | $ | 21,883,482 |  |  | $ | 17,508,601 |  |  | $ | 16,800,554 |  
|                               
|                               
|                               
|                               
|                                | Net Income                     |                         |   | 3,635,142  |  |      |   | 9,770,208  |  |      |   | 3,150,454  |  |  |   | 2,714,495  |  |  |   | 4,858,620  |  
|                               
|                               
|                               
|                               
|                                | Earnings Per Share-Basic       |                         |   | .11        |  |      |   | .37        |  |      |   | .12        |  |  |   | .10        |  |  |   | .18        |  
|                               
|                               
|                               
|                               
|                                | Earnings Per Share-Diluted     |                         |   | .10        |  |      |   | .36        |  |      |   | .12        |  |  |   | .10        |  |  |   | .18        |  
|                               
|                               
|                               
|                               
|Selected Balance Sheet Data:    |                                |                         |   |            |  |      |   |            |  |      |   |            |  |  |   |            |  |  |   |           
|                               
|                               
|                               
|                               
|                                | Total Assets                   |                         | $ | 47,143,704 |  |      | $ | 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 Long-term Debt           |                         |   | 2,256,418  |  |      |   | 132,285    |  |      |   | 132,285    |  |  |   | 132,285    |  |  |   | 132,285    |  
|                               
|                               
|                               
|                               
|                                | 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) |                         |   | 20,676,076 |  |      |   | 13,695,839 |  |      |   | 3,816,910  |  |  |   | 562,035    |  |  |   | (2,140,873 | )
|                               
|                               
|                               
|                               
|                                | Cash Dividends Declared        |                         |   |           |  |      |   |           |  |      |   |           |  |  |   |           |  |  |   |           |  

7



---



##### Table of Contents



|                         |                       |                         |  |      |              |      |  |      |              |      |  |   |               |  |  |   |               |  |  |   |               | 
|------------------------ | --------------------- | ----------------------- |  | ---- | ------------ | ---- |  | ---- | ------------ | ---- |  | - | ------------- |  |  | - | ------------- |  |  | - | ------------- | 
|                         |                       |                        
|                         |                       | Year Ended December 31,
|                         |                       |                        
|                         |                       | 1999                    |  | 1998 |              | 1997 |  | 1996 |              | 1995
|                         |                       |                         |  |      |              |      |  |      |              |     
|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        | 




|    |                                                                                                                                                        
|--- | -------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | Inforce premium and policies are actually statistics of the
        Carriers but represent factors which directly affect the
        Companys revenue.
|(2) | Refer to Note 1c in the Consolidated Financial
        Statements.                                                                                     




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.

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

|                               |  |           |            |                |  |             |           |               |  |       |            |            |  |   |            |   |  |            |         |   |  |   |            | 
|------------------------------ |  | --------- | ---------- | -------------- |  | ----------- | --------- | ------------- |  | ----- | ---------- | ---------- |  | - | ---------- | - |  | ---------- | ------- | - |  | - | ---------- | 
|                               |  | Legacy    |            | Legacy        
|                               |  | Marketing |            | Financial      |  | LifeSurance |           | Regan Holding
|                               |  | Group     |            | Services, Inc. |  | Corp.       |           | (stand-alone) |  | Other |            | Total     
|                               |  |           |            |                |  |             |           |               |  |       |            |           
|                               |  |           |            |                |  | (Restated)  |           |               |  |       |            | (Restated) |  |   |            |   |  | (Restated)
|Year Ended December 31, 1999  
|                              
|                              
|                              
|                              
|Total revenue                  |  | $         | 48,117,700 |                |  | $           | 1,694,680 |               |  | $     | 202,694    |            |  | $ | 12,921     |   |  | $          | 2,622   |   |  | $ | 50,030,617 | 
|                              
|                              
|                              
|                              
|Total expenses                 |  |           | 34,291,486 |                |  |             | 1,554,463 |               |  |       | 1,599,671  |            |  |   | 7,612,976  |   |  |            | 28,602  |   |  |   | 45,087,198 | 
|                               |  |           |            |                |  |             |           |               |  |       |            |            |  |   |            |   |  |            |         |   |  |   |            | 
|Operating income (loss)        |  |           | 13,826,214 |                |  |             | 140,217   |               |  |       | (1,396,977 | )          |  |   | (7,600,055 | ) |  |            | (25,980 | ) |  |   | 4,943,419  | 
|                              
|                              
|                              
|                              
|Other income                   |  |           | 1,202,854  |                |  |             | 3,155     |               |  |       | 839        |            |  |   | 17,201     |   |  |            | 4,630   |   |  |   | 1,228,679  | 
|                               |  |           |            |                |  |             |           |               |  |       |            |            |  |   |            |   |  |            |         |   |  |   |            | 
|Income (loss) before tax       |  |           | 15,029,068 |                |  |             | 143,372   |               |  |       | (1,396,138 | )          |  |   | (7,582,854 | ) |  |            | (21,350 | ) |  |   | 6,172,098  | 
|                              
|                              
|                              
|                              
|Tax provision (benefit)        |  |           | 5,413,341  |                |  |             | (83,000   | )             |  |       | (533,636   | )          |  |   | (2,255,802 | ) |  |            | (3,947  | ) |  |   | 2,536,956  | 
|                               |  |           |            |                |  |             |           |               |  |       |            |            |  |   |            |   |  |            |         |   |  |   |            | 
|Net income (loss)              |  | $         | 9,615,727  |                |  | $           | 226,372   |               |  | $     | (862,502   | )          |  | $ | (5,327,052 | ) |  | $          | (17,403 | ) |  | $ | 3,635,142  | 
|                               |  |           |            |                |  |             |           |               |  |       |            |            |  |   |            |   |  |            |         |   |  |   |            | 
|Year Ended December 31, 1998  
|                              
|                              
|                              
|                              
|Total revenue                  |  | $         | 45,113,652 |                |  | $           | 821,512   |               |  | $     |           |            |  | $ |           |   |  | $          |        |   |  | $ | 45,935,164 | 
|                              
|                              
|                              
|                              
|Total expenses                 |  |           | 27,649,023 |                |  |             | 861,486   |               |  |       |           |            |  |   | 2,447,635  |   |  |            | 1,922   |   |  |   | 30,960,066 | 
|                               |  |           |            |                |  |             |           |               |  |       |            |            |  |   |            |   |  |            |         |   |  |   |            | 
|Operating income (loss)        |  |           | 17,464,629 |                |  |             | (39,974   | )             |  |       |           |            |  |   | (2,447,635 | ) |  |            | (1,922  | ) |  |   | 14,975,098 | 
|                              
|                              
|                              
|                              
|Other income (loss)            |  |           | 1,220,313  |                |  |             | 1,439     |               |  |       |           |            |  |   | (720       | ) |  |            |        |   |  |   | 1,221,032  | 
|                               |  |           |            |                |  |             |           |               |  |       |            |            |  |   |            |   |  |            |         |   |  |   |            | 
|Income (loss) before tax       |  |           | 18,684,942 |                |  |             | (38,535   | )             |  |       |           |            |  |   | (2,448,355 | ) |  |            | (1,922  | ) |  |   | 16,196,130 | 
|                              
|                              
|                              
|                              
|Tax provision (benefit)        |  |           | 6,880,139  |                |  |             | (128,953  | )             |  |       |           |            |  |   | (326,181   | ) |  |            | 917     |   |  |   | 6,425,922  | 
|                               |  |           |            |                |  |             |           |               |  |       |            |            |  |   |            |   |  |            |         |   |  |   |            | 
|Net income (loss)              |  | $         | 11,804,803 |                |  | $           | 90,418    |               |  | $     |           |            |  | $ | (2,122,174 | ) |  | $          | (2,839  | ) |  | $ | 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   |               |  |       |           |            |  |   | 1,569,086  |   |  |            | 613     |   |  |   | 17,235,597 | 
|                               |  |           |            |                |  |             |           |               |  |       |            |            |  |   |            |   |  |            |         |   |  |   |            | 
|Operating income (loss)        |  |           | 6,559,616  |                |  |             | (342,032  | )             |  |       |           |            |  |   | (1,569,086 | ) |  |            | (613    | ) |  |   | 4,647,885  | 
|                              
|                              
|                              
|                              
|Other income (loss)            |  |           | 715,168    |                |  |             |          |               |  |       |           |            |  |   | (17,575    | ) |  |            |        |   |  |   | 697,593    | 
|                               |  |           |            |                |  |             |           |               |  |       |            |            |  |   |            |   |  |            |         |   |  |   |            | 
|Income (loss) before tax       |  |           | 7,274,784  |                |  |             | (342,032  | )             |  |       |           |            |  |   | (1,586,661 | ) |  |            | (613    | ) |  |   | 5,345,478  | 
|                              
|                              
|                              
|                              
|Tax provision (benefit)        |  |           | 2,420,753  |                |  |             | (230,335  | )             |  |       |           |            |  |   | 4,322      |   |  |            | 284     |   |  |   | 2,195,024  | 
|                               |  |           |            |                |  |             |           |               |  |       |            |            |  |   |            |   |  |            |         |   |  |   |            | 
|Net income (loss)              |  | $         | 4,854,031  |                |  | $           | (111,697  | )             |  | $     |           |            |  | $ | (1,590,983 | ) |  | $          | (897    | ) |  | $ | 3,150,454  | 
|                               |  |           |            |                |  |             |           |               |  |       |            |            |  |   |            |   |  |            |         |   |  |   |            | 
|Total assets
December 31, 1999 |  | $         | 27,527,585 |                |  | $           | 1,327,639 |               |  | $     | 1,136,184  |            |  | $ | 16,918,845 |   |  | $          | 233,451 |   |  | $ | 47,143,704 | 
|                               |  |           |            |                |  |             |           |               |  |       |            |            |  |   |            |   |  |            |         |   |  |   |            | 
|December 31, 1998              |  | $         | 21,777,580 |                |  | $           | 823,714   |               |  | $     |           |            |  | $ | 7,985,393  |   |  | $          | 699,326 |   |  | $ | 31,286,013 | 
|                               |  |           |            |                |  |             |           |               |  |       |            |            |  |   |            |   |  |            |         |   |  |   |            | 

Other
segments above include Legacy Advisory Services, Inc. and Legacy
Reinsurance Company. These entities operations do not currently represent
amounts that are material to our results and, accordingly, were not
separated for purposes of this disclosure.

8



---



##### Table of Contents

Analysis of Regan Holding Corp. Consolidated

Results of Operations Our consolidated net income decreased
approximately $6.1 million in 1999, compared to 1998, primarily due 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.

Analysis of Legacy Marketing Group

Results of Operations LMGs net income decreased approximately $2.1
million in 1999 compared to 1998 primarily due to increases in expenses, as
discussed below. In 1998, however, LMGs net income increased approximately
$6.9 million compared to 1997 primarily due to increases in revenue, which are
discussed below.

Revenue LMGs major sources of income are marketing allowances,
commission income and administrative fees from sales and administration of
fixed 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 the Policies. Administrative fees are a function not only of product
sales, but also of administration of policies inforce and other fee-based
services provided by LMG. 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 primarily
attributable 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 that 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%, primarily due to reduced sales of fixed annuities
during the second half of the year. This decrease is primarily attributable to
the poor performance of bond investments associated with the annuities
crediting rates and to lower than anticipated market acceptance of the
VisionMark IITM annuity, which was introduced in 1999 to replace the original
VisionMarkTM annuity. LMG marketing allowances and commission revenue,
combined, increased approximately $20.4 million, or 115.1%, in 1998 compared to
1997 primarily due 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 that
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, primarily due to increases in the number of Policies sold and
administered during the respective periods and to a continued shift in Policies
administered to those that generate higher administrative fees.

In 1999, LMG marketed and administered insurance products for three
Carriers, American National, IL Annuity, and Transamerica. In 1999,
approximately 10.5%, 73.5%, and 11.3% of LMGs total consolidated revenue
resulted from agreements with American National, IL Annuity, and Transamerica,
respectively (LMG did not market or administer products for Transamerica until
the third quarter of 1998), 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 our total consolidated revenue resulted from agreements with
Transamerica. These shifts in sales mix from American National to IL Annuity in
1998 from 1997 and the shift from IL Annuity to Transamerica in 1999 from 1998
are attributable to favorable acceptance of the respective Carriers products
in the marketplace.

Although LMG markets and administers several fixed annuity and life
insurance products on behalf of the Carriers, its revenues are derived
primarily from sales and administration of certain fixed annuity products. During 1999,
1998, and 1997, 56.2%, 70.6%, and 52.4% respectively, of our total consolidated
revenues resulted from LMG sales of one fixed annuity. However, during the
fourth quarter of 1999, 17.8% of our total consolidated revenues resulted from
sales of another fixed annuity product primarily due to strong market
acceptance of this product. This sales trend is expected to continue for the
foreseeable future.

9



---



##### Table of Contents



Expenses Total LMG expenses increased approximately $6.6 million, or
24.0%, during 1999 compared to 1998, and increased approximately $12.6 million,
or 84.2%, during 1998 compared to 1997. These increases are primarily due 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
compared to 1997. These increases primarily resulted from increases in the
number of employees, which are largely attributable to preparation for, and
accommodation of, increases in sales. 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.

Sales promotion and support expense consists primarily of costs related to
LMGs annual national sales conventions, various sales and training events, and
incentives paid to Producers to stimulate sales. 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 LMG
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
primarily attributable 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 expense consists primarily of office building and equipment
leasing costs. These expenses increased approximately $1.1 million, or 164.9%,
in 1999 compared to 1998, and increased approximately $217,000, or 51.5%, in
1998 compared to 1997 primarily due to the leasing of new office space during
1999 and 1998 and to overall increases in telephone, utilities, and other
related expenses that 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.
These changes from 1998 amounts are primarily due 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 primarily due to
increased consulting fees related to various information systems enhancement
projects.

Depreciation and amortization expenses increased approximately $237,000,
or 235.4%, in 1999 compared to 1998 and increased approximately $97,000, or
2,434.5%, in 1998 compared to 1997 primarily due 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 compared to 1998 and in 1998 compared to 1997
primarily due 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 $136,000,
or 150.4%, in 1999 compared to 1998. 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 primarily attributable to increases in
revenue, offset by increases in expenses, as discussed below.

Revenue LFS major source of revenue is commission income, which is
generated through sales of variable life and annuity products, mutual funds,
and debt and equity securities. Levels of commission income are directly
related to the volume of sales of such products. 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 retains a higher net commission.

10



---



##### Table of Contents



Expenses Total LFS
expenses increased approximately $693,000, or 80.4%,
in 1999 from 1998 and increased approximately $208,000, or 31.7%, in 1998 from
1997 primarily due to increases in salaries and related benefits and
sales promotion and support. 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, primarily due to increases in the number of employees to accommodate
increases in sales volume, the addition of personnel at higher pay levels, and
regular annual pay increases. Sales promotion and support expenses
increased approximately $269,000 or 474.3% in 1999 from 1998 and
approximately $26,000 or 31.5% from 1998 to 1997, primarily due to
increased costs related to sales meetings and training activities
necessary to support increased sales volume.

Analysis of LifeSurance Corporation

Results of Operations In 1998 and 1997, Producer seminar revenue and
expenses were reported in LMGs results and it is impractical to present them
separately for comparative purposes in this analysis. In 1999, these
operations were reported in LifeSurance Corporations results and generated net
losses of approximately $900,000.

Analysis of Regan Holding Corp. (stand-alone)

Results of Operations Regan Holding Corp. recorded net losses of
approximately $5.3 million in 1999 compared to a net loss of approximately $2.1
million during 1998, and approximately $1.6 million during 1997. These
increased losses are primarily attributable to increased expenses, partially
offset by increased revenues, as discussed below.

Revenue Regan Holding Corps revenue consists primarily of rental
revenue from an office building that was purchased in mid-1999. The building
was leased to unaffiliated tenants during the fourth quarter of 1999, which
resulted in revenue of approximately $13,000 in 1999 compared to no revenue in
1998 or 1997.

Expenses Regan
Holding Corps expenses increased approximately $5.2
million or 211.0%, in 1999 from 1998 and increased approximately $879,000, or
56.0%, in 1998 from 1997. The increase in 1999 expenses is primarily due to:
(i) $4.2 million in stock option expense related to stock options 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 expenses; and (iii) increases in legal and consulting fees related to
various parent company strategic planning projects. The increase in 1998
expenses compared to 1997 is primarily due to increased depreciation and occupancy costs.
Increased depreciation resulted from acquisition of leasehold improvements and computer hardware that were
necessary to improve newly leased office space and to accommodate increases in
employment. The increase in occupancy expense is primarily attributable to the
addition of leased office space related to the increase in employees.

11



---



##### Table of Contents



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 46.6% 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 25.5% 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.

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.

12



---



##### Table of Contents



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.

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.

Update for Amendment No. 2

In June 2001, the Company purchased the building at its headquarters in
Petaluma, California, for approximately $10.6 million. In conjunction with the
acquisition, the Company paid cash of approximately $5.9 million by applying proceeds from a note
receivable, and entered into a loan payable for approximately $4.7 million. The
loan bears interest at an adjusted LIBOR rate plus 3.5%. Interest payments are
due monthly until the principal balance is repaid in December 2001.
The principal balance may be repaid without penalty or the Company may extend the
maturity date of the loan to June 2002. The Company intends to obtain
financing with more favorable terms during the third quarter of 2001.
However, there can be no assurances that the refinancing will occur,
or that the terms will be more favorable.

13



---



##### Table of Contents






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

14



---



##### Table of Contents





|                  |                            |      |   |            |   |      |   |         |   |            |   |           |   |           |   |         |   |  |   |           |  |  |   |            |  |  |   |            | 
|----------------- | -------------------------- | ---- | - | ---------- | - | ---- | - | ------- | - | ---------- | - | --------- | - | --------- | - | ------- | - |  | - | --------- |  |  | - | ---------- |  |  | - | ---------- | 
|                  |                            |      |   |            |   |      |   |         |   |            |   |          
|                  |                            |      |   |            |   |      |   |         |   |            |   | Total    
|                  |                            |      |   |            |   |      |   |         |   |            |   |          
|                  |                            |      |   |            |   |      |   |         |   |            |   |           |   | Estimated
|                  |                            |      |   |            |   |      |   |         |   |            |   | Amortized |   | Market   
|                  |                            | 2000 |   | 2001       |   | 2002 |   | 2003    |   | Thereafter |   | Cost      |   | Value    
|                  |                            |      |   |            |   |      |   |         |   |            |   |           |   |          
|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%     |  |  |   |            |  |  |   |            | 

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:

|                  |  |               |           |            |  |   |           | 
|----------------- |  | ------------- | --------- | ---------- |  | - | --------- | 
|                  |  | Original Cost |           | Fair Value
|                  |  |               |           |           
|December 31, 1999 |  | $             | 4,382,927 |            |  | $ | 3,768,569 | 
|                 
|                 
|                 
|                 
|December 31, 1998 |  | $             | 5,139,732 |            |  | $ | 5,014,411 | 

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.

15



---



##### Table of Contents






Item 8. Financial Statements and Supplementary Data




REPORT OF INDEPENDENT ACCOUNTANTS

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

In our opinion, the accompanying consolidated balance sheets and the related
consolidated statements of 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 the
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.

As discussed in Note 1(c) to the financial statements, the 1999 financial
statements have been restated to reflect revised stock option expense related to the
Company's non-employee incentive stock option plan.

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 to 36 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.
However, the consolidating information on pages 34 to 36 has been subjected to
the auditing procedures applied to 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



March 23, 2000, except for Note 1(c) and the third paragraph of Note 18, as to which the
date is June 20, 2001.

16



---



##### Table of Contents



REGAN HOLDING CORP. AND SUBSIDIARIES




Consolidated Balance Sheets


|                                                                       |                                                 |                                                                                                                                                     |                                                                             |            |           |            |            |            |           |            | 
|---------------------------------------------------------------------- | ----------------------------------------------- | --------------------------------------------------------------------------------------------------------------------------------------------------- | --------------------------------------------------------------------------- | ---------- | --------- | ---------- | ---------- | ---------- | --------- | ---------- | 
|                                                                       |                                                 |                                                                                                                                                    
|                                                                       |                                                 | December 31,                                                                                                                                       
|                                                                       |                                                 |                                                                                                                                                    
|                                                                       |                                                 | 1999                                                                                                                                                |                                                                             | 1998      
|                                                                       |                                                 |                                                                                                                                                     |                                                                             |           
|                                                                       |                                                 |                                                                                                                                                     | (Restated)                                                                 
|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               |                                                                                                                                                     |                                                                             | 2,582,301  |           |            |            | 904,974    |          
|                                                                      
|                                                                      
|                                                                      
|                                                                      
|                                                                       | Software licensing fees                         |                                                                                                                                                     |                                                                             | 779,375    |           |            |            |           |          
|                                                                      
|                                                                      
|                                                                      
|                                                                      
|                                                                       | Other assets                                    |                                                                                                                                                     |                                                                             | 2,018,575  |           |            |            | 392,109    |          
|                                                                       |                                                 |                                                                                                                                                     |                                                                             |            |           |            |            |           
|                                                                       |                                                 |                                                                                                                                                     | Total non-current assets                                                    |            |           | 17,548,386 |            |            |           | 4,279,350  | 
|                                                                       |                                                 |                                                                                                                                                     |                                                                             |            |           |            |            |           
|                                                                       |                                                 |                                                                                                                                                     | Total assets                                                                |            | $         | 47,143,704 |            |            | $         | 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     |                                                                                                                                                     |                                                                             | 4,276,000  |           |            |            | 25,000     |          
|                                                                      
|                                                                      
|                                                                      
|                                                                      
|                                                                       | Retained earnings                               |                                                                                                                                                     |                                                                             | 12,385,173 |           |            |            | 9,587,775  |          
|                                                                      
|                                                                      
|                                                                      
|                                                                      
|                                                                       | Accumulated other comprehensive income-net      |                                                                                                                                                     |                                                                             | (572,104   | )         |            |            | (53,919    | )        
|                                                                       |                                                 |                                                                                                                                                     |                                                                             |            |           |            |            |           
|                                                                       |                                                 |                                                                                                                                                     | Total shareholders equity                                                  |            |           | 20,676,076 |            |            |           | 13,695,839 | 
|                                                                       |                                                 |                                                                                                                                                     |                                                                             |            |           |            |            |           
|                                                                       |                                                 |                                                                                                                                                     | Total liabilities, redeemable common
        stock and shareholders equity |            | $         | 47,143,704 |            |            | $         | 31,286,013 | 
|                                                                       |                                                 |                                                                                                                                                     |                                                                             |            |           |            |            |           

See accompanying notes to consolidated financial statements

17



---



##### Table of Contents



REGAN HOLDING CORP. AND SUBSIDIARIES




Consolidated Statements of Income


|                                              |                               |                                 |            |            |            |      |            |            |            |   |            |            |            | 
|--------------------------------------------- | ----------------------------- | ------------------------------- | ---------- | ---------- | ---------- | ---- | ---------- | ---------- | ---------- | - | ---------- | ---------- | ---------- | 
|                                              |                               |                                
|                                              |                               | For the Year Ended December 31,
|                                              |                               |                                
|                                              |                               | 1999                            |            | 1998       |            | 1997
|                                              |                               |                                 |            |            |            |     
|                                              |                               | (Restated)                     
|Revenue                                       |                               |                                 |            |            |            |      |            |            |            |   |            |           
|                                             
|                                             
|                                             
|                                             
|                                              | 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        |                                 |            | 4,251,000  |            |      |            |           |            |   |            |           |           
|                                             
|                                             
|                                             
|                                             
|                                              | 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                  |            |            | 45,087,198 |      |            |            | 30,960,066 |   |            |            | 17,235,597 | 
|                                              |                               |                                 |            |            |            |      |            |            |            |   |            |           
|Operating income                              |                               |                                 | 4,943,419  |            |            |      | 14,975,098 |            |            |   | 4,647,885  |           
|                                             
|                                             
|                                             
|                                             
|Other income                                  |                               |                                 |            |            |            |      |            |            |            |   |            |           
|                                             
|                                             
|                                             
|                                             
|                                              | Investment income  net       |                                 |            | 1,228,679  |            |      |            | 1,221,032  |            |   |            | 697,593    |           
|                                              |                               |                                 |            |            |            |      |            |            |            |   |            |           
|Income before income taxes                    |                               |                                 | 6,172,098  |            |            |      | 16,196,130 |            |            |   | 5,345,478  |           
|                                             
|                                             
|                                             
|                                             
|Provision for income taxes                    |                               |                                 | 2,536,956  |            |            |      | 6,425,922  |            |            |   | 2,195,024  |           
|                                              |                               |                                 |            |            |            |      |            |            |            |   |            |           
|Net income                                    |                               | $                               | 3,635,142  |            |            | $    | 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                      |                               | $                               | .11        |            |            | $    | .37        |            |            | $ | .12        |           
|                                              |                               |                                 |            |            |            |      |            |            |            |   |            |           
|Weighted average shares outstanding  diluted |                               |                                 | 27,760,140 |            |            |      | 27,187,436 |            |            |   | 26,895,594 |           
|                                              |                               |                                 |            |            |            |      |            |            |            |   |            |           
|Diluted earnings per share                    |                               | $                               | .10        |            |            | $    | .36        |            |            | $ | .12        |           
|                                              |                               |                                 |            |            |            |      |            |            |            |   |            |           

See accompanying notes to consolidated financial statements

18



---



##### Table of Contents



REGAN HOLDING CORP. AND SUBSIDIARIES




Consolidated Statements of Shareholders Equity


|                                                         |                                         |                               |                            |            |          |  |              |           |        |  |          |         |               |  |               |           |          |  |             |            |   |  |   |          |         |   |            |            |         |           | 
|-------------------------------------------------------- | --------------------------------------- | ----------------------------- | -------------------------- | ---------- | -------- |  | ------------ | --------- | ------ |  | -------- | ------- | ------------- |  | ------------- | --------- | -------- |  | ----------- | ---------- | - |  | - | -------- | ------- | - | ---------- | ---------- | ------- | --------- | 
|                                                         |                                         |                               |                            |            |          |  |              |           |        |  |          |         | Paid-in       |  | Paid-in      
|                                                         |                                         |                               |                            |            |          |  |              |           |        |  |          |         | Capital from  |  | Capital       |           | Retained |  | Accumulated
|                                                         |                                         |                               |                            |            |          |  |              |           |        |  |          |         | Retirement of |  | from          |           | Earnings |  | Other      
|                                                         |                                         |                               |                            |            | Series A |  | Common Stock |           | Common |  | Producer |         | (Accumulated  |  | Comprehensive
|                                                         |                                         |                               |                            |            | Shares   |  | Amount       |           | Stock  |  | Options  |         | Deficit)      |  | Income        |           | Total   
|                                                         |                                         |                               |                            |            |          |  |              |           |        |  |          |         |               | 
|Balance                                                  |                                         |                               |                            |            |          |  |              |           |        |  |          |         |               |  | (Restated)    |           |          |  | (Restated)  |            |   |  |   |          |         |   | (Restated) |           
|                                                        
|                                                        
|                                                        
|                                                        
|                                                         | 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                              |                               |                            |            |          |  |              |           |        |  |          |         |               |  |               |           |          |  |             | 3,635,142  |   |  |   |          |         |   |            | 3,635,142  |        
|                                                        
|                                                        
|                                                        
|                                                        
|                                                         | 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 |            |          |  |              |           |        |  |          |         |               |  |               |           |          |  |             |            |   |  |   |          |         |   |            |            |         | 3,116,957 | 
|                                                        
|                                                        
|                                                        
|                                                        
|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                            |                                         |                               |                            |            |          |  |              |           |        |  |          |         |               |  | 4,251,000     |           |          |  |             |            |   |  |   |          |         |   | 4,251,000  |           
|                                                         |                                         |                               |                            |            |          |  |              |           |        |  |          |         |               |  |               |           |          |  |             |            |   |  |   |          |         |   |            |           
|                                                        
|                                                        
|                                                        
|                                                        
|Balance                                                  |                                         |                               |                            |            |          |  |              |           |        |  |          |         |               |  |               |           |          |  |             |            |   |  |   |          |         |   |            |           
|                                                         | December 31, 1999                       |                               |                            | 20,863,520 |          |  | $            | 3,659,367 |        |  | $        | 927,640 |               |  | $             | 4,276,000 |          |  | $           | 12,385,173 |   |  | $ | (572,104 | )       |   | $          | 20,676,076 |        
|                                                         |                                         |                               |                            |            |          |  |              |           |        |  |          |         |               |  |               |           |          |  |             |            |   |  |   |          |         |   |            |           

See accompanying notes to consolidated financial statements.

19



---



##### Table of Contents



REGAN HOLDING CORP. AND SUBSIDIARIES




Consolidated Statements of Cash Flows


|                                                     |                                                                                           |                                                 |                                        |                                                   |           |            |             |             |           |            |             |             |         |          |            |  
|---------------------------------------------------- | ----------------------------------------------------------------------------------------- | ----------------------------------------------- | -------------------------------------- | ------------------------------------------------- | --------- | ---------- | ----------- | ----------- | --------- | ---------- | ----------- | ----------- | ------- | -------- | ---------- | -
|                                                     |                                                                                           |                                                
|                                                     |                                                                                           | For the Year Ended December 31,                
|                                                     |                                                                                           |                                                
|                                                     |                                                                                           | 1999                                            |                                        | 1998                                              |           | 1997      
|                                                     |                                                                                           |                                                 |                                        |                                                   |           |           
|                                                     |                                                                                           |                                                 |                                        |                                                   |           |            | (Restated) 
|Cash flows from operating activities:                |                                                                                           |                                                 |                                        |                                                   |           |            |             |             |           |            |             |            
|                                                    
|                                                    
|                                                    
|                                                    
|                                                     | Net Income                                                                                |                                                 | $                                      | 3,635,142                                         |           |            | $           | 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                   |                                        |                                                   | 4,251,000 |            |             |             | 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                    |                                                   |           | (1,871,629 | )           |             |           | 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      |        

See accompanying notes to consolidated financial statements

20



---



##### Table of Contents






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-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

21



---



##### Table of Contents





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.  Restatement of
Financial Results

During the year ended December 31, 2000, the Company recorded stock option
expense of $1,384,000 related to 2,132,507 stock options granted to
non-employees in January 2000 pursuant to Regan Holding
Corp.s Producer Stock Option and Award plan (See Note 12). The number of options granted was based on the
non-employees sales performance during 1999. In connection with
a review of the Companys stock option program, the Company
determined that this expense should have been recorded during the calendar year
preceding the grant date, based on the non-employees performance and the
current fair value of options earned at each interim reporting date. As a
result, the Consolidated Statement of Income for the year ended December 31,
1999 has been restated to reflect $1,384,000 in sales promotion and support
expense related to the January 2000 stock option grants.

The effects of the restatement of the stock option expense on the Companys
Consolidated Financial Statements for the period ending December 31, 1999 are
as follows:

Statement of Income Data:

|                           |  |                    |            |             |  |   |            | 
|-------------------------- |  | ------------------ | ---------- | ----------- |  | - | ---------- | 
|                           |  | For the Year Ended
|                           |  | December 31, 1999 
|                           |  |                   
|                           |  | As                
|                           |  | originally        
|                           |  | reported           |            | As restated
|                          
|Total revenue              |  | $                  | 50,030,617 |             |  | $ | 50,030,617 | 
|                          
|                          
|                          
|                          
|Total expenses             |  |                    | 43,703,198 |             |  |   | 45,087,198 | 
|                           |  |                    |            |             |  |   |            | 
|Operating income           |  |                    | 6,327,419  |             |  |   | 4,943,419  | 
|                          
|                          
|                          
|                          
|Other income               |  |                    | 1,228,679  |             |  |   | 1,228,679  | 
|                           |  |                    |            |             |  |   |            | 
|Income before income taxes |  |                    | 7,556,098  |             |  |   | 6,172,098  | 
|                          
|                          
|                          
|                          
|Provision for income taxes |  |                    | 3,088,264  |             |  |   | 2,536,956  | 
|                           |  |                    |            |             |  |   |            | 
|Net income                 |  | $                  | 4,467,834  |             |  | $ | 3,635,142  | 
|                           |  |                    |            |             |  |   |            | 
|Basic earnings per share   |  | $                  | .17        |             |  | $ | .11        | 
|                           |  |                    |            |             |  |   |            | 
|Diluted earnings per share |  | $                  | .16        |             |  | $ | .10        | 
|                           |  |                    |            |             |  |   |            | 
|                          



Balance Sheet Data:

|                        |  |                   |            |             |  |   |            | 
|----------------------- |  | ----------------- | ---------- | ----------- |  | - | ---------- | 
|                        |  | December 31, 1999
|                        |  |                  
|                        |  | As               
|                        |  | originally       
|                        |  | reported          |            | As restated
|                       
|Total assets            |  | $                 | 46,592,396 |             |  | $ | 47,143,704 | 
|                       
|                       
|                       
|                       
|Total liabilities       |  | $                 | 14,904,343 |             |  | $ | 14,904,343 | 
|                       
|                       
|                       
|                       
|Redeemable common stock |  | $                 | 11,563,285 |             |  | $ | 11,563,285 | 
|                       
|                       
|                       
|                       
|Shareholders equity    |  | $                 | 20,124,768 |             |  | $ | 20,676,076 | 



d.  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.

e.  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.

f.  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.

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.

g.  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

22



---



##### Table of Contents





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

|                                         |  |  |      |      
|---------------------------------------- |  |  | ---- | -----
|                                        
|                                        
|                                        
|                                        
|Computer hardware and purchased software |  |  | 5    | years
|                                        
|                                        
|                                        
|                                        
|Internal use software development costs  |  |  | 5    | years
|                                        
|                                        
|                                        
|                                        
|Leasehold improvements                   |  |  | 2-10 | years
|                                        
|                                        
|                                        
|                                        
|Furniture and equipment                  |  |  | 5    | years
|                                        
|                                        
|                                        
|                                        
|Building                                 |  |  | 20   | years

h.  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.

i.  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.

j.  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 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.

k.  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.

l.  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.

23



---



##### Table of Contents



2.  Investments

Investment portfolios at the dates indicated consisted of the
following:

|                             |                |                    |            |            |  |             |           |           |  |       |           |           |  |   |           |           |  |   |            |            | 
|---------------------------- | -------------- | ------------------ | ---------- | ---------- |  | ----------- | --------- | --------- |  | ----- | --------- | --------- |  | - | --------- | --------- |  | - | ---------- | ---------- | 
|                             |                |                   
|                             |                | Maturity in years:
|                             |                |                   
|                             |                | 1 Year             |            | 1 to 5     |  | Longer Than |           |          
|                             |                | or Less            |            | Years      |  | 10 Years    |           | Other     |  | Total
|                             |                |                    |            |            |  |             |           |           |  |      
|December 31, 1999            |                |                    |            |            |  |             |           |           |  |       |           |           |  |   |           |           |  |   |            |           
|                            
|                            
|                            
|                            
|Government agency securities |                | $                  |           |            |  | $           | 4,056,128 |           |  | $     | 769,532   |           |  | $ |          |           |  | $ | 4,825,660  |           
|                            
|                            
|                            
|                            
|Investment in IL Annuity     |                |                    | 12,000,000 |            |  |             |          |           |  |       |          |           |  |   |          |           |  |   | 12,000,000 |           
|                            
|                            
|                            
|                            
|Corporate bonds              |                |                    |           |            |  |             |          |           |  |       | 525,733   |           |  |   |          |           |  |   | 525,733    |           
|                            
|                            
|                            
|                            
|Mutual Funds                 |                |                    |           |            |  |             |          |           |  |       |          |           |  |   | 1,335,756 |           |  |   | 1,335,756  |           
|                            
|                            
|                            
|                            
|Equity securities            |                |                    |           |            |  |             |          |           |  |       |          |           |  |   | 3,125,708 |           |  |   | 3,125,708  |           
|                             |                |                    |            |            |  |             |           |           |  |       |           |           |  |   |           |           |  |   |            |           
|                             | Amortized cost |                    |            | 12,000,000 |  |             |           | 4,056,128 |  |       |           | 1,295,265 |  |   |           | 4,461,464 |  |   |            | 21,812,857 | 
|                            
|                            
|                            
|                            
|Gross unrealized gains       |                |                    |           |            |  |             |          |           |  |       |          |           |  |   | 241,957   |           |  |   | 241,957    |           
|                            
|                            
|                            
|                            
|Gross unrealized losses      |                |                    |           |            |  |             | (170,545  | )         |  |       | (87,443   | )         |  |   | (934,853  | )         |  |   | (1,192,841 | )         
|                             |                |                    |            |            |  |             |           |           |  |       |           |           |  |   |           |           |  |   |            |           
|                             | Market value   |                    | $          | 12,000,000 |  |             | $         | 3,885,583 |  |       | $         | 1,207,822 |  |   | $         | 3,768,568 |  |   | $          | 20,861,973 | 
|                             |                |                    |            |            |  |             |           |           |  |       |           |           |  |   |           |           |  |   |            |           
|December 31, 1998            |                |                    |            |            |  |             |           |           |  |       |           |           |  |   |           |           |  |   |            |           
|                            
|                            
|                            
|                            
|Government agency securities |                | $                  | 2,256,704  |            |  | $           | 4,841,327 |           |  | $     | 1,788,614 |           |  | $ |          |           |  | $ | 8,886,645  |           
|                            
|                            
|                            
|                            
|Corporate bonds              |                |                    | 1,001,018  |            |  |             |          |           |  |       | 526,307   |           |  |   |          |           |  |   | 1,527,325  |           
|                            
|                            
|                            
|                            
|Mortgage-backed securities   |                |                    |           |            |  |             |          |           |  |       |          |           |  |   | 1,524,500 |           |  |   | 1,524,500  |           
|                            
|                            
|                            
|                            
|Equity securities            |                |                    |           |            |  |             |          |           |  |       |          |           |  |   | 5,139,732 |           |  |   | 5,139,732  |           
|                             |                |                    |            |            |  |             |           |           |  |       |           |           |  |   |           |           |  |   |            |           
|                             | Amortized cost |                    |            | 3,257,722  |  |             |           | 4,841,327 |  |       |           | 2,314,921 |  |   |           | 6,664,232 |  |   |            | 17,078,202 | 
|                            
|                            
|                            
|                            
|Gross unrealized gains       |                |                    | 14,132     |            |  |             | 20,059    |           |  |       | 27,369    |           |  |   | 139,217   |           |  |   | 200,777    |           
|                            
|                            
|                            
|                            
|Gross unrealized losses      |                |                    | (22,556    | )          |  |             |          |           |  |       | (3,164    | )         |  |   | (265,631  | )         |  |   | (291,351   | )         
|                             |                |                    |            |            |  |             |           |           |  |       |           |           |  |   |           |           |  |   |            |           
|                             | Market value   |                    | $          | 3,249,298  |  |             | $         | 4,861,386 |  |       | $         | 2,339,126 |  |   | $         | 6,537,818 |  |   | $          | 16,987,628 | 
|                             |                |                    |            |            |  |             |           |           |  |       |           |           |  |   |           |           |  |   |            |           

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.

3.  Fixed Assets

A summary of fixed assets at the dates indicated follows:

|                                         |        |      |           |               |  |            |           |           |  |   |           |            | 
|---------------------------------------- | ------ | ---- | --------- | ------------- |  | ---------- | --------- | --------- |  | - | --------- | ---------- | 
|                                         |        |      |           | Accumulated   |  |           
|                                         |        |      |           | Depreciation/ |  | Net       
|                                         |        | Cost |           | Amortization  |  | Book Value
|                                         |        |      |           |               |  |           
|December 31, 1999                        |        |      |           |               |  |            |           |           |  |   |           |           
|                                        
|                                        
|                                        
|                                        
|Computer hardware and purchased software |        | $    | 5,582,936 |               |  | $          | 1,700,896 |           |  | $ | 3,882,040 |           
|                                        
|                                        
|                                        
|                                        
|Internal use software development costs  |        |      | 1,288,886 |               |  |            | 152,662   |           |  |   | 1,136,224 |           
|                                        
|                                        
|                                        
|                                        
|Leasehold improvements                   |        |      | 1,292,870 |               |  |            | 74,454    |           |  |   | 1,218,416 |           
|                                        
|                                        
|                                        
|                                        
|Furniture and equipment                  |        |      | 2,446,104 |               |  |            | 871,886   |           |  |   | 1,574,218 |           
|                                        
|                                        
|                                        
|                                        
|Building                                 |        |      | 3,438,332 |               |  |            | 114,188   |           |  |   | 3,324,144 |           
|                                        
|                                        
|                                        
|                                        
|Land                                     |        |      | 1,033,093 |               |  |            |          |           |  |   | 1,033,093 |           
|                                         |        |      |           |               |  |            |           |           |  |   |           |           
|                                         | Totals |      | $         | 15,082,221    |  |            | $         | 2,914,086 |  |   | $         | 12,168,135 | 
|                                         |        |      |           |               |  |            |           |           |  |   |           |           
|December 31, 1998                        |        |      |           |               |  |            |           |           |  |   |           |           
|                                        
|                                        
|                                        
|                                        
|Computer hardware and software           |        | $    | 3,406,540 |               |  | $          | 1,499,340 |           |  | $ | 1,907,200 |           
|                                        
|                                        
|                                        
|                                        
|Leasehold improvements                   |        |      | 1,290,647 |               |  |            | 970,030   |           |  |   | 320,617   |           
|                                        
|                                        
|                                        
|                                        
|Furniture and equipment                  |        |      | 1,205,587 |               |  |            | 578,659   |           |  |   | 626,928   |           
|                                        
|                                        
|                                        
|                                        
|Land                                     |        |      | 127,522   |               |  |            |          |           |  |   | 127,522   |           
|                                         |        |      |           |               |  |            |           |           |  |   |           |           
|                                         | Totals |      | $         | 6,030,296     |  |            | $         | 3,048,029 |  |   | $         | 2,982,267  | 
|                                         |        |      |           |               |  |            |           |           |  |   |           |           

24



---



##### Table of Contents



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:

|                            |        |              |           |           |  |   |           |           | 
|--------------------------- | ------ | ------------ | --------- | --------- |  | - | --------- | --------- | 
|                            |        |             
|                            |        | December 31,
|                            |        |             
|                            |        | 1999         |           | 1998     
|                            |        |              |           |          
|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 | 
|                            |        |              |           |           |  |   |           |          

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.

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.

25



---



##### Table of Contents



The Companys future principal payments are as follows:

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

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 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 $1,170,001. Such amounts are
reflected as a liability in the accompanying consolidated balance
 sheet.

26



---



##### Table of Contents



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:

|                             |  |            
|---------------------------- |  | -----------
|Year Ended December 31,      |  |            
|                             |  |            
|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
|                             |  |            

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.

27



---



##### Table of Contents





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:

|                                           |                   |                   |          |                   |  |                   |          |            |  |        |        |          |  |  |         |           |  |  |          |           |  |  |          |            | 
|------------------------------------------ | ----------------- | ----------------- | -------- | ----------------- |  | ----------------- | -------- | ---------- |  | ------ | ------ | -------- |  |  | ------- | --------- |  |  | -------- | --------- |  |  | -------- | ---------- | 
|                                           |                   |                   |          |                   |  |                  
|                                           |                   | Series A          |          | Series B          |  | Total            
|                                           |                   | Redeemable Common |          | Redeemable Common |  | Redeemable Common
|                                           |                   | Stock             |          | Stock             |  | Stock            
|                                           |                   |                   |          |                   |  |                  
|                                           |                   |                   |          | Carrying          |  |                   |          | Carrying   |  |        |        | Carrying
|                                           |                   | Shares            |          | Amount            |  | Shares            |          | Amount     |  | Shares |        | Amount  
|                                           |                   |                   |          |                   |  |                   |          |            |  |        |        |         
|Balance                                    |                   |                   |          |                   |  |                   |          |            |  |        |        |          |  |  |         |           |  |  |          |           |  |  |          |           
|                                          
|                                          
|                                          
|                                          
|                                           | January 1, 1997   |                   |          | 5,769,086         |  |                   | $        | 10,512,023 |  |        |        | 610,326  |  |  | $       | 1,830,978 |  |  |          | 6,379,412 |  |  | $        | 12,343,001 | 
|                                          
|                                          
|                                          
|                                          
|Redemptions and retirement of common stock |                   |                   | (261,760 | )                 |  |                   | (471,955 | )          |  |        | (9,465 | )        |  |  | (28,395 | )         |  |  | (271,225 | )         |  |  | (500,350 | )         
|                                           |                   |                   |          |                   |  |                   |          |            |  |        |        |          |  |  |         |           |  |  |          |           |  |  |          |           
|Balance                                    |                   |                   |          |                   |  |                   |          |            |  |        |        |          |  |  |         |           |  |  |          |           |  |  |          |           
|                                          
|                                          
|                                          
|                                          
|                                           | December 31, 1997 |                   |          | 5,507,326         |  |                   |          | 10,040,068 |  |        |        | 600,861  |  |  |         | 1,802,583 |  |  |          | 6,108,187 |  |  |          | 11,842,651 | 
|                                          
|                                          
|                                          
|                                          
|Redemptions and retirement of common stock |                   |                   | (335,879 | )                 |  |                   | (612,021 | )          |  |        | (1,733 | )        |  |  | (5,199  | )         |  |  | (337,612 | )         |  |  | (617,220 | )         
|                                           |                   |                   |          |                   |  |                   |          |            |  |        |        |          |  |  |         |           |  |  |          |           |  |  |          |           
|Balance                                    |                   |                   |          |                   |  |                   |          |            |  |        |        |          |  |  |         |           |  |  |          |           |  |  |          |           
|                                          
|                                          
|                                          
|                                          
|                                           | December 31, 1998 |                   |          | 5,171,447         |  |                   |          | 9,428,047  |  |        |        | 599,128  |  |  |         | 1,797,384 |  |  |          | 5,770,575 |  |  |          | 11,225,431 | 
|                                          
|                                          
|                                          
|                                          
|Redemptions and retirement of common stock |                   |                   | (249,832 | )                 |  |                   | (421,289 | )          |  |        | (9,371 | )        |  |  | (28,113 | )         |  |  | (259,203 | )         |  |  | (449,402 | )         
|                                          
|                                          
|                                          
|                                          
|Accretion to redemption value              |                   |                   |         |                   |  |                   | 787,256  |            |  |        |       |          |  |  |        |           |  |  |         |           |  |  | 787,256  |           
|                                           |                   |                   |          |                   |  |                   |          |            |  |        |        |          |  |  |         |           |  |  |          |           |  |  |          |           
|Balance                                    |                   |                   |          |                   |  |                   |          |            |  |        |        |          |  |  |         |           |  |  |          |           |  |  |          |           
|                                          
|                                          
|                                          
|                                          
|                                           | December 31, 1999 |                   |          | 4,921,615         |  |                   | $        | 9,794,014  |  |        |        | 589,757  |  |  | $       | 1,769,271 |  |  |          | 5,511,372 |  |  | $        | 11,563,285 | 
|                                           |                   |                   |          |                   |  |                   |          |            |  |        |        |          |  |  |         |           |  |  |          |           |  |  |          |           

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

12.  Stock Options and Stock Awards
(Restated)

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 (both groups are non-employees) 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 all
Producer Options at the date that the vesting provisions were
waived. In addition, in January 2000 the Company granted 2,132,507 stock options
to Producers based on the Producers sales performance during 1999.
As a result, the Company recorded $1,384,000 of sales promotion and
support expense during 1999 related to the January 2000 stock option
grants. The fair value of all the options was estimated using the
Black-Scholes option-pricing model with the following
assumptions: risk-free interest rates ranging from

28



---



##### Table of Contents





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:

|                  |             |            |   |            |  |            |   |      |  |  |   |      | 
|----------------- | ----------- | ---------- | - | ---------- |  | ---------- | - | ---- |  |  | - | ---- | 
|                  |             |            |   | Earnings   |  | Earnings  
|                  |             | Net        |   | per Share- |  | per Share-
|                  |             | Income     |   | Basic      |  | Diluted   
|                  |             |            |   |            |  |           
|                  |             | (Restated) |   | (Restated) |  | (Restated)
|December 31, 1999 |             |            |   |            |  |            |   |      |  |  |   |     
|                 
|                 
|                 
|                 
|                  | As reported |            | $ | 3,635,142  |  |            | $ | 0.11 |  |  | $ | 0.10 | 
|                 
|                 
|                 
|                 
|                  | Pro-Forma   |            | $ | 3,423,018  |  |            | $ | 0.10 |  |  | $ | 0.09 | 
|December 31, 1998 |             |            |   |            |  |            |   |      |  |  |   |     
|                 
|                 
|                 
|                 
|                  | As reported |            | $ | 9,770,208  |  |            | $ | 0.37 |  |  | $ | 0.36 | 
|                 
|                 
|                 
|                 
|                  | Pro-Forma   |            | $ | 9,727,809  |  |            | $ | 0.37 |  |  | $ | 0.36 | 

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 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:

|                                  |  |                      |           |                      |  |        |      |                  |  |        |           |                  |  |   |      |  |  |  |           |   |  |   |      | 
|--------------------------------- |  | -------------------- | --------- | -------------------- |  | ------ | ---- | ---------------- |  | ------ | --------- | ---------------- |  | - | ---- |  |  |  | --------- | - |  | - | ---- | 
|                                  |  |                      |           |                      |  |       
|                                  |  | Employee Option Plan |           | Producer Option Plan |  | Total 
|                                  |  |                      |           |                      |  |       
|                                  |  |                      |           | Weighted-average     |  |        |      | Weighted-average |  |        |           | Weighted-average
|                                  |  | Shares               |           | Exercise Price       |  | Shares |      | Exercise Price   |  | Shares |           | Exercise Price  
|                                  |  |                      |           |                      |  |        |      |                  |  |        |           |                 
|Outstanding at January 1, 1998    |  |                      |          |                      |  | $      |     |                  |  |        |          |                  |  | $ |     |  |  |  |          |   |  | $ |     | 
|                                 
|                                 
|                                 
|                                 
|Granted                           |  |                      | 1,513,000 |                      |  | $      | 0.74 |                  |  |        | 992,000   |                  |  | $ | 0.76 |  |  |  | 2,505,000 |   |  | $ | 0.75 | 
|                                 
|                                 
|                                 
|                                 
|Forfeited                         |  |                      | (23,000   | )                    |  | $      | 0.73 |                  |  |        | (6,500    | )                |  | $ | 0.73 |  |  |  | (29,500   | ) |  | $ | 0.73 | 
|                                  |  |                      |           |                      |  |        |      |                  |  |        |           |                  |  |   |      |  |  |  |           |   |  |   |      | 
|Outstanding at December  31, 1998 |  |                      | 1,490,000 |                      |  | $      | 0.74 |                  |  |        | 985,500   |                  |  | $ | 0.76 |  |  |  | 2,475,500 |   |  | $ | 0.75 | 
|                                 
|                                 
|                                 
|                                 
|Granted                           |  |                      | 1,552,200 |                      |  | $      | 1.29 |                  |  |        | 4,921,250 |                  |  | $ | 1.27 |  |  |  | 6,473,450 |   |  | $ | 1.27 | 
|                                 
|                                 
|                                 
|                                 
|Exercised                         |  |                      | (8,350    | )                    |  | $      | 0.79 |                  |  |        | (64,100   | )                |  | $ | 1.02 |  |  |  | (72,450   | ) |  | $ | 0.99 | 
|                                 
|                                 
|                                 
|                                 
|Forfeited                         |  |                      | (46,100   | )                    |  | $      | 1.06 |                  |  |        | (20,750   | )                |  | $ | 1.17 |  |  |  | (66,850   | ) |  | $ | 1.09 | 
|                                  |  |                      |           |                      |  |        |      |                  |  |        |           |                  |  |   |      |  |  |  |           |   |  |   |      | 
|Outstanding at December  31, 1999 |  |                      | 2,987,750 |                      |  | $      | 1.02 |                  |  |        | 5,821,900 |                  |  | $ | 1.19 |  |  |  | 8,809,650 |   |  | $ | 1.13 | 
|                                  |  |                      |           |                      |  |        |      |                  |  |        |           |                  |  |   |      |  |  |  |           |   |  |   |      | 
|Exercisable at December  31, 1999 |  |                      | 343,650   |                      |  | $      | 0.77 |                  |  |        | 5,821,900 |                  |  | $ | 1.19 |  |  |  | 6,165,550 |   |  | $ | 1.16 | 
|                                  |  |                      |           |                      |  |        |      |                  |  |        |           |                  |  |   |      |  |  |  |           |   |  |   |      | 

29



---



##### Table of Contents



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

|                         |  |                     |           |                     |  |          |     |        |  |          |      |  |  |  |           |  |  |   |      | 
|------------------------ |  | ------------------- | --------- | ------------------- |  | -------- | --- | ------ |  | -------- | ---- |  |  |  | --------- |  |  | - | ---- | 
|                         |  |                     |           |                    
|                         |  | Options Outstanding |           | Options Exercisable
|                         |  |                     |           |                    
|                         |  |                     |           | Weighted            |  | Weighted |     |        |  | Weighted
|                         |  |                     |           | Average             |  | Average  |     |        |  | Average 
|                         |  |                     |           | Remaining           |  | Exercise |     |        |  | Exercise
|Range of exercise prices |  | Shares              |           | Contractual Life    |  | Price    |     | Shares |  | Price   
|                         |  |                     |           |                     |  |          |     |        |  |         
|$0.73  $0.84            |  |                     | 2,284,300 |                     |  |          | 6.4 |        |  | $        | 0.73 |  |  |  | 1,170,300 |  |  | $ | 0.73 | 
|                        
|                        
|                        
|                        
|$1.03                    |  |                     | 129,750   |                     |  |          | 4.4 |        |  | $        | 1.03 |  |  |  | 107,250   |  |  | $ | 1.03 | 
|                        
|                        
|                        
|                        
|$1.27  $1.40            |  |                     | 6,395,600 |                     |  |          | 5.9 |        |  | $        | 1.27 |  |  |  | 4,888,000 |  |  | $ | 1.27 | 
|                         |  |                     |           |                     |  |          |     |        |  |          |      |  |  |  |           |  |  |   |      | 
|                         |  |                     | 8,809,650 |                     |  |          | 6.0 |        |  | $        | 1.13 |  |  |  | 6,165,550 |  |  | $ | 1.16 | 
|                         |  |                     |           |                     |  |          |     |        |  |          |      |  |  |  |           |  |  |   |      | 

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

13.  Income Taxes (Restated)

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

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

|                           |         |                                 |           |            |            |      |           |           |           |   |           |           |           | 
|-------------------------- | ------- | ------------------------------- | --------- | ---------- | ---------- | ---- | --------- | --------- | --------- | - | --------- | --------- | --------- | 
|                           |         |                                
|                           |         | For the Year Ended December 31,
|                           |         |                                
|                           |         | 1999                            |           | 1998       |            | 1997
|                           |         |                                 |           |            |            |     
|                           |         | (Restated)                      |           |            |            |     
|Current income taxes:      |         |                                 |           |            |            |      |           |           |           |   |           |          
|                          
|                          
|                          
|                          
|                           | Federal |                                 | $         | 3,481,693  |            |      | $         | 5,002,541 |           |   | $         | 1,262,317 |          
|                          
|                          
|                          
|                          
|                           | State   |                                 |           | 926,890    |            |      |           | 1,375,980 |           |   |           | 572,332   |          
|                           |         |                                 |           |            |            |      |           |           |           |   |           |          
|                           |         | Total current                   |           |            | 4,408,583  |      |           |           | 6,378,521 |   |           |           | 1,834,649 | 
|                           |         |                                 |           |            |            |      |           |           |           |   |           |          
|Deferred income taxes:     |         |                                 |           |            |            |      |           |           |           |   |           |          
|                          
|                          
|                          
|                          
|                           | Federal |                                 |           | (1,523,675 | )          |      |           | 55,818    |           |   |           | 405,951   |          
|                          
|                          
|                          
|                          
|                           | State   |                                 |           | (347,952   | )          |      |           | (8,417    | )         |   |           | (45,576   | )        
|                           |         |                                 |           |            |            |      |           |           |           |   |           |          
|                           |         | Total deferred                  |           |            | (1,871,627 | )    |           |           | 47,401    |   |           |           | 360,375   | 
|                           |         |                                 |           |            |            |      |           |           |           |   |           |          
|Provision for income taxes |         | $                               | 2,536,956 |            |            | $    | 6,425,922 |           |           | $ | 2,195,024 |          
|                           |         |                                 |           |            |            |      |           |           |           |   |           |          

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

|                                                                                 |                           |              |           |           |  |   |         |           | 
|-------------------------------------------------------------------------------- | ------------------------- | ------------ | --------- | --------- |  | - | ------- | --------- | 
|                                                                                 |                           |             
|                                                                                 |                           | December 31,
|                                                                                 |                           |             
|                                                                                 |                           | 1999         |           | 1998     
|                                                                                 |                           |              |           |          
|                                                                                 |                           | (Restated)   |           |          
|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 and deferred compensation                          |                           |              | 2,412,791 |           |  |   | 223,165 |          
|                                                                                
|                                                                                
|                                                                                
|                                                                                
|Capital loss, net of valuation allowance of $23,864 and $0,
        respectively |                           |              |          |           |  |   |        |          
|                                                                                
|                                                                                
|                                                                                
|                                                                                
|Other                                                                            |                           |              | 553,987   |           |  |   | 178,071 |          
|                                                                                 |                           |              |           |           |  |   |         |          
|                                                                                 | Total deferred tax assets |              | $         | 3,478,142 |  |   | $       | 1,264,395 | 
|                                                                                 |                           |              |           |           |  |   |         |          

30



---



##### Table of Contents



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:

|                                                       |                                                          |                                 |           |         |  |      |           |         |   |   |           |         | 
|------------------------------------------------------ | -------------------------------------------------------- | ------------------------------- | --------- | ------- |  | ---- | --------- | ------- | - | - | --------- | ------- | 
|                                                       |                                                          |                                
|                                                       |                                                          | For the Year Ended December 31,
|                                                       |                                                          |                                
|                                                       |                                                          | 1999                            |           | 1998    |  | 1997
|                                                       |                                                          |                                 |           |         |  |     
|                                                       |                                                          | (Restated)                      |           |         |  |     
|Federal income taxes due at statutory rate (34%)       |                                                          | $                               | 2,098,516 |         |  | $    | 5,566,612 |         |   | $ | 1,817,462 |        
|                                                      
|                                                      
|                                                      
|                                                      
|Increases (reductions) in income taxes resulting from: |                                                          |                                 |           |         |  |      |           |         |   |   |           |        
|                                                      
|                                                      
|                                                      
|                                                      
|                                                       | State franchise taxes, net of federal income tax benefit |                                 |           | 412,218 |  |      |           | 907,981 |   |   |           | 375,892 | 
|                                                      
|                                                      
|                                                      
|                                                      
|                                                       | Other                                                    |                                 |           | 26,222  |  |      |           | (48,671 | ) |   |           | 1,670   | 
|                                                       |                                                          |                                 |           |         |  |      |           |         |   |   |           |        
|Provision for income taxes                             |                                                          | $                               | 2,536,956 |         |  | $    | 6,425,922 |         |   | $ | 2,195,024 |        
|                                                       |                                                          |                                 |           |         |  |      |           |         |   |   |           |        

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
generally have no expiration date.

14.  Earnings per Share (Restated)

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.

|                                     |                                         |                                     |   |               |   |            |  |            |           |  |   |      |  | 
|------------------------------------ | --------------------------------------- | ----------------------------------- | - | ------------- | - | ---------- |  | ---------- | --------- |  | - | ---- |  | 
|                                     |                                         | Income                              |   | Shares        |   | Per-share 
|                                     |                                         | (Numerator)                         |   | (Denominator) |   | Amount    
|                                     |                                         |                                     |   |               |   |           
|                                     |                                         | (Restated)                          |   |               |   | (Restated)
|For the year ended December 31, 1999 |                                         |                                     |   |               |   |            |  |            |           |  |   |     
|Basic earnings per share             |                                         |                                     |   |               |   |            |  |            |           |  |   |     
|                                    
|                                    
|                                    
|                                    
|                                     | Income available to common shareholders |                                     | $ | 3,635,142     |   |            |  |            |           |  |   |      | 
|                                     | Accretion of redeemable common stock    |                                     |   | (787,256      | ) |            |  |            |           |  |   |      | 
|                                     | Income available to common shareholders |                                     |   | 2,847,886     |   |            |  | 26,393,679 |           |  | $ | 0.11 | 
|                                     | Effective of dilutive securities        |                                     |   |               |   |            |  |            |           |  |   |      | 
|                                    
|                                    
|                                    
|                                    
|                                     |                                         | Employee and producer stock options |   |               |  |            |  |            | 1,366,461 |  |   |      |  | 
|                                     |                                         |                                     |   |               |   |            |  |            |           |  |   |     
|                                     | Diluted earnings per share              |                                     | $ | 2,847,886     |   |            |  | 27,760,140 |           |  | $ | 0.10 | 
|                                     |                                         |                                     |   |               |   |            |  |            |           |  |   |     
|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 | 
|                                     |                                         |                                     |   |               |   |            |  |            |           |  |   |     

Options to purchase 76,900 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 (Restated)

The Company has identified its reportable
segments based on its method of internal reporting and segregates its business
into four primary reportable segments: Legacy Marketing Group, Legacy Financial
Services, Inc., LifeSurance Corporation, and Regan Holding (stand-alone). The presentation of the
segments has changed compared to previously reported information. In 1998 and
1997, producer seminar revenue and expenses were reported in Legacy Marketing
Groups results and it is impractical to present them separately for comparative
purposes in this footnote. In 1999, these operations were reported in
LifeSurance Corporations results.

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. Intersegment sales are generally accounted for at amounts comparable to
sales to unaffiliated customers, and are eliminated in consolidation. The accounting
policies of the segments are substantially the same as those described in the summary
of significant accounting policies, as discussed in Note 1. Certain items are maintained on the records
of Regan Holding Corp. (stand-alone) and are not  allocated to the segments.
They primarily include most of the Companys fixed asset depreciation and amortization,
as well as certain stock option and stock award expenses.

31



---



##### Table of Contents



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

|                               |  |           |            |                |  |             |           |               |  |       |            |            |  |   |            |   |  |            |         |   |  |   |            | 
|------------------------------ |  | --------- | ---------- | -------------- |  | ----------- | --------- | ------------- |  | ----- | ---------- | ---------- |  | - | ---------- | - |  | ---------- | ------- | - |  | - | ---------- | 
|                               |  | Legacy    |            | Legacy        
|                               |  | Marketing |            | Financial      |  | LifeSurance |           | Regan Holding
|                               |  | Group     |            | Services, Inc. |  | Corp.       |           | (stand-alone) |  | Other |            | Total     
|                               |  |           |            |                |  |             |           |               |  |       |            |           
|                               |  |           |            |                |  | (Restated)  |           |               |  |       |            | (Restated) |  |   |            |   |  | (Restated)
|Year Ended December 31, 1999  
|                              
|                              
|                              
|                              
|Total revenue                  |  | $         | 48,117,700 |                |  | $           | 1,694,680 |               |  | $     | 202,694    |            |  | $ | 12,921     |   |  | $          | 2,622   |   |  | $ | 50,030,617 | 
|                              
|                              
|                              
|                              
|Total expenses                 |  |           | 34,291,486 |                |  |             | 1,554,463 |               |  |       | 1,599,671  |            |  |   | 7,612,976  |   |  |            | 28,602  |   |  |   | 45,087,198 | 
|                               |  |           |            |                |  |             |           |               |  |       |            |            |  |   |            |   |  |            |         |   |  |   |            | 
|Operating income (loss)        |  |           | 13,826,214 |                |  |             | 140,217   |               |  |       | (1,396,977 | )          |  |   | (7,600,055 | ) |  |            | (25,980 | ) |  |   | 4,943,419  | 
|                              
|                              
|                              
|                              
|Other income                   |  |           | 1,202,854  |                |  |             | 3,155     |               |  |       | 839        |            |  |   | 17,201     |   |  |            | 4,630   |   |  |   | 1,228,679  | 
|                               |  |           |            |                |  |             |           |               |  |       |            |            |  |   |            |   |  |            |         |   |  |   |            | 
|Income (loss) before tax       |  |           | 15,029,068 |                |  |             | 143,372   |               |  |       | (1,396,138 | )          |  |   | (7,582,854 | ) |  |            | (21,350 | ) |  |   | 6,172,098  | 
|                              
|                              
|                              
|                              
|Tax provision (benefit)        |  |           | 5,413,341  |                |  |             | (83,000   | )             |  |       | (533,636   | )          |  |   | (2,255,802 | ) |  |            | (3,947  | ) |  |   | 2,536,956  | 
|                               |  |           |            |                |  |             |           |               |  |       |            |            |  |   |            |   |  |            |         |   |  |   |            | 
|Net income (loss)              |  | $         | 9,615,727  |                |  | $           | 226,372   |               |  | $     | (862,502   | )          |  | $ | (5,327,052 | ) |  | $          | (17,403 | ) |  | $ | 3,635,142  | 
|                               |  |           |            |                |  |             |           |               |  |       |            |            |  |   |            |   |  |            |         |   |  |   |            | 
|Year Ended December 31, 1998  
|                              
|                              
|                              
|                              
|Total revenue                  |  | $         | 45,113,652 |                |  | $           | 821,512   |               |  | $     |           |            |  | $ |           |   |  | $          |        |   |  | $ | 45,935,164 | 
|                              
|                              
|                              
|                              
|Total expenses                 |  |           | 27,649,023 |                |  |             | 861,486   |               |  |       |           |            |  |   | 2,447,635  |   |  |            | 1,922   |   |  |   | 30,960,066 | 
|                               |  |           |            |                |  |             |           |               |  |       |            |            |  |   |            |   |  |            |         |   |  |   |            | 
|Operating income (loss)        |  |           | 17,464,629 |                |  |             | (39,974   | )             |  |       |           |            |  |   | (2,447,635 | ) |  |            | (1,922  | ) |  |   | 14,975,098 | 
|                              
|                              
|                              
|                              
|Other income (loss)            |  |           | 1,220,313  |                |  |             | 1,439     |               |  |       |           |            |  |   | (720       | ) |  |            |        |   |  |   | 1,221,032  | 
|                               |  |           |            |                |  |             |           |               |  |       |            |            |  |   |            |   |  |            |         |   |  |   |            | 
|Income (loss) before tax       |  |           | 18,684,942 |                |  |             | (38,535   | )             |  |       |           |            |  |   | (2,448,355 | ) |  |            | (1,922  | ) |  |   | 16,196,130 | 
|                              
|                              
|                              
|                              
|Tax provision (benefit)        |  |           | 6,880,139  |                |  |             | (128,953  | )             |  |       |           |            |  |   | (326,181   | ) |  |            | 917     |   |  |   | 6,425,922  | 
|                               |  |           |            |                |  |             |           |               |  |       |            |            |  |   |            |   |  |            |         |   |  |   |            | 
|Net income (loss)              |  | $         | 11,804,803 |                |  | $           | 90,418    |               |  | $     |           |            |  | $ | (2,122,174 | ) |  | $          | (2,839  | ) |  | $ | 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   |               |  |       |           |            |  |   | 1,569,086  |   |  |            | 613     |   |  |   | 17,235,597 | 
|                               |  |           |            |                |  |             |           |               |  |       |            |            |  |   |            |   |  |            |         |   |  |   |            | 
|Operating income (loss)        |  |           | 6,559,616  |                |  |             | (342,032  | )             |  |       |           |            |  |   | (1,569,086 | ) |  |            | (613    | ) |  |   | 4,647,885  | 
|                              
|                              
|                              
|                              
|Other income (loss)            |  |           | 715,168    |                |  |             |          |               |  |       |           |            |  |   | (17,575    | ) |  |            |        |   |  |   | 697,593    | 
|                               |  |           |            |                |  |             |           |               |  |       |            |            |  |   |            |   |  |            |         |   |  |   |            | 
|Income (loss) before tax       |  |           | 7,274,784  |                |  |             | (342,032  | )             |  |       |           |            |  |   | (1,586,661 | ) |  |            | (613    | ) |  |   | 5,345,478  | 
|                              
|                              
|                              
|                              
|Tax provision (benefit)        |  |           | 2,420,753  |                |  |             | (230,335  | )             |  |       |           |            |  |   | 4,322      |   |  |            | 284     |   |  |   | 2,195,024  | 
|                               |  |           |            |                |  |             |           |               |  |       |            |            |  |   |            |   |  |            |         |   |  |   |            | 
|Net income (loss)              |  | $         | 4,854,031  |                |  | $           | (111,697  | )             |  | $     |           |            |  | $ | (1,590,983 | ) |  | $          | (897    | ) |  | $ | 3,150,454  | 
|                               |  |           |            |                |  |             |           |               |  |       |            |            |  |   |            |   |  |            |         |   |  |   |            | 
|Total assets
December 31, 1999 |  | $         | 27,527,585 |                |  | $           | 1,327,639 |               |  | $     | 1,136,184  |            |  | $ | 16,918,845 |   |  | $          | 233,451 |   |  | $ | 47,143,704 | 
|                               |  |           |            |                |  |             |           |               |  |       |            |            |  |   |            |   |  |            |         |   |  |   |            | 
|December 31, 1998              |  | $         | 21,777,580 |                |  | $           | 823,714   |               |  | $     |           |            |  | $ | 7,985,393  |   |  | $          | 699,326 |   |  | $ | 31,286,013 | 
|                               |  |           |            |                |  |             |           |               |  |       |            |            |  |   |            |   |  |            |         |   |  |   |            | 

The Other segment above includes 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.

32



---



##### Table of Contents



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 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 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.

In June 2001, the Company purchased the building at its headquarters in
Petaluma, California, for approximately $10.6 million. In conjunction with the
acquisition, the Company paid cash of approximately $5.9 million by
applying proceeds from a note
receivable, and entered into a loan payable for approximately $4.7 million. The
loan bears interest at an adjusted LIBOR rate plus 3.5%. Interest payments are
due monthly until the principal balance is repaid in December 2001.
The principal balance may be repaid without penalty or the Company
may extend the maturity date of the loan to June 2002.

33



---



##### Table of Contents



REGAN HOLDING CORP. AND SUBSIDIARIES




Consolidating Balance Sheet


December 31, 1999


|                                |                                     |                               |            |             |            |            |   |             |            |           |   |             |           |              |   |         |           |  |   |         |        |   |   |         |         |   |            |            |            | 
|------------------------------- | ----------------------------------- | ----------------------------- | ---------- | ----------- | ---------- | ---------- | - | ----------- | ---------- | --------- | - | ----------- | --------- | ------------ | - | ------- | --------- |  | - | ------- | ------ | - | - | ------- | ------- | - | ---------- | ---------- | ---------- | 
|                                |                                     |                               |            |             |            | Legacy     |   |             |            | Legacy    |   |             |           |             
|                                |                                     | Regan                         |            | Legacy      |            | Financial  |   |             |            | Advisory  |   | Legacy      |           | Combined    
|                                |                                     | Holding                       |            | Marketing   |            | Services,  |   | LifeSurance |            | Services, |   | Reinsurance |           | December 31,
|                                |                                     | Corp.                         |            | Group       |            | Inc.       |   | Corporation |            | Inc.      |   | Company     |           | 1999        
|                                |                                     |                               |            |             |            |            |   |             |            |           |   |             |           |             
|Assets                          |                                     | (Restated)                    |            |             |            | (Restated) |   |             |            |           |   |             |           | (Restated)  
|                               
|                               
|                               
|                               
|                                | Cash and cash equivalents           |                               | $          | 450,749     |            |            | $ | (138,068    | )          |           | $ | 416,243     |           |              | $ | 348,090 |           |  | $ | 13,115  |        |   | $ | 4,630   |         |   | $          | 1,094,759  |           
|                               
|                               
|                               
|                               
|                                | Investments                         |                               |            |            |            |            |   | 20,861,973  |            |           |   |            |           |              |   |        |           |  |   |        |        |   |   |        |         |   |            | 20,861,973 |           
|                               
|                               
|                               
|                               
|                                | Accounts receivable                 |                               |            | 448,657     |            |            |   | 1,551,644   |            |           |   | 625,708     |           |              |   | (146    | )         |  |   | 4       |        |   |   |        |         |   |            | 2,625,867  |           
|                               
|                               
|                               
|                               
|                                | Prepaid expenses                    |                               |            | 122,033     |            |            |   | 397,346     |            |           |   | 78,667      |           |              |   | 43,713  |           |  |   |        |        |   |   |        |         |   |            | 641,759    |           
|                               
|                               
|                               
|                               
|                                | Income taxes receivable   (payable) |                               |            | 5,430,529   |            |            |   | (3,034,756  | )          |           |   | (41,409     | )         |              |   | 533,624 |           |  |   | 5,713   |        |   |   |        |         |   |            | 2,893,701  |           
|                               
|                               
|                               
|                               
|                                | Intercompany receivable   (payable) |                               |            | (15,962,012 | )          |            |   | 15,996,961  |            |           |   | 18,136      |           |              |   |        |           |  |   | (28,429 | )      |   |   | (24,656 | )       |   |            |           |           
|                               
|                               
|                               
|                               
|                                | Deferred income taxes  current     |                               |            |            |            |            |   | 895,841     |            |           |   |            |           |              |   |        |           |  |   |        |        |   |   |        |         |   |            | 895,841    |           
|                               
|                               
|                               
|                               
|                                | Marketing supplies inventory        |                               |            |            |            |            |   | 691,559     |            |           |   | 14,859      |           |              |   |        |           |  |   |        |        |   |   |        |         |   |            | 706,418    |           
|                                |                                     |                               |            |             |            |            |   |             |            |           |   |             |           |              |   |         |           |  |   |         |        |   |   |         |         |   |            |           
|                                |                                     | Total current assets          |            |             | (9,510,044 | )          |   |             | 37,222,500 |           |   |             | 1,112,204 |              |   |         | 925,281   |  |   |         | (9,597 | ) |   |         | (20,026 | ) |            |            | 29,720,318 | 
|                                |                                     |                               |            |             |            |            |   |             |            |           |   |             |           |              |   |         |           |  |   |         |        |   |   |         |         |   |            |           
|                                | Net fixed assets                    |                               |            | 8,097,314   |            |            |   | 3,980,657   |            |           |   |            |           |              |   | 90,164  |           |  |   |        |        |   |   |        |         |   |            | 12,168,135 |           
|                               
|                               
|                               
|                               
|                                | Investment in subsidiaries          |                               |            | 35,659,879  |            |            |   |            |            |           |   |            |           |              |   |        |           |  |   |        |        |   |   |        |         |   |            | 35,659,879 |           
|                               
|                               
|                               
|                               
|                                | Deferred income taxes  non-current |                               |            | 1,806,833   |            |            |   | 739,218     |            |           |   | 36,250      |           |              |   |        |           |  |   |        |        |   |   |        |         |   |            | 2,582,301  |           
|                               
|                               
|                               
|                               
|                                | Prepaid software licensing   fees   |                               |            |            |            |            |   | 779,375     |            |           |   |            |           |              |   |        |           |  |   |        |        |   |   |        |         |   |            | 779,375    |           
|                               
|                               
|                               
|                               
|                                | Other assets                        |                               |            | 562,730     |            |            |   | 927,796     |            |           |   | 197,321     |           |              |   | 120,739 |           |  |   |        |        |   |   | 209,989 |         |   |            | 2,018,575  |           
|                                |                                     |                               |            |             |            |            |   |             |            |           |   |             |           |              |   |         |           |  |   |         |        |   |   |         |         |   |            |           
|                                |                                     | Total non-current assets      |            |             | 46,126,756 |            |   |             | 6,427,046  |           |   |             | 233,571   |              |   |         | 210,903   |  |   |         |        |   |   |         | 209,989 |   |            |            | 53,208,265 | 
|                                |                                     |                               |            |             |            |            |   |             |            |           |   |             |           |              |   |         |           |  |   |         |        |   |   |         |         |   |            |           
|                                |                                     | Total assets                  |            | $           | 36,616,712 |            |   | $           | 43,649,546 |           |   | $           | 1,345,775 |              |   | $       | 1,136,184 |  |   | $       | (9,597 | ) |   | $       | 189,963 |   |            | $          | 82,928,583 | 
|                                |                                     |                               |            |             |            |            |   |             |            |           |   |             |           |              |   |         |           |  |   |         |        |   |   |         |         |   |            |           
|Liabilities                     |                                     |                               |            |             |            |            |   |             |            |           |   |             |           |              |   |         |           |  |   |         |        |   |   |         |         |   |            |           
|                               
|                               
|                               
|                               
|                                | Accounts payable                    |                               | $          | 42,865      |            |            | $ | 338,859     |            |           | $ | 23,059      |           |              | $ | 31,216  |           |  | $ |        |        |   | $ |        |         |   | $          | 435,999    |           
|                               
|                               
|                               
|                               
|                                | Accrued sales convention   costs    |                               |            |            |            |            |   | 2,248,913   |            |           |   |            |           |              |   |        |           |  |   |        |        |   |   |        |         |   |            | 2,248,913  |           
|                               
|                               
|                               
|                               
|                                | Accrued liabilities                 |                               |            | 354,628     |            |            |   | 3,111,976   |            |           |   | 611,744     |           |              |   | 273,789 |           |  |   |        |        |   |   |        |         |   |            | 4,352,137  |           
|                               
|                               
|                               
|                               
|                                | Software licensing fees   payable   |                               |            |            |            |            |   | 537,500     |            |           |   |            |           |              |   |        |           |  |   |        |        |   |   |        |         |   |            | 537,500    |           
|                               
|                               
|                               
|                               
|                                | Other current liabilities           |                               |            |            |            |            |   | 107,384     |            |           |   |            |           |              |   |        |           |  |   |        |        |   |   |        |         |   |            | 107,384    |           
|                               
|                               
|                               
|                               
|                                | Margin loan payable                 |                               |            |            |            |            |   | 3,088,918   |            |           |   |            |           |              |   |        |           |  |   |        |        |   |   |        |         |   |            | 3,088,918  |           
|                                |                                     |                               |            |             |            |            |   |             |            |           |   |             |           |              |   |         |           |  |   |         |        |   |   |         |         |   |            |           
|                                |                                     | Total current liabilities     |            |             | 397,493    |            |   |             | 9,433,550  |           |   |             | 634,803   |              |   |         | 305,005   |  |   |         |        |   |   |         |        |   |            |            | 10,770,851 | 
|                                |                                     |                               |            |             |            |            |   |             |            |           |   |             |           |              |   |         |           |  |   |         |        |   |   |         |         |   |            |           
|                                | Loan payable                        |                               |            | 2,124,133   |            |            |   | 132,285     |            |           |   |            |           |              |   |        |           |  |   |        |        |   |   |        |         |   |            | 2,256,418  |           
|                               
|                               
|                               
|                               
|                                | Incentive compensation   payable    |                               |            |            |            |            |   | 469,720     |            |           |   |            |           |              |   |        |           |  |   |        |        |   |   |        |         |   |            | 469,720    |           
|                               
|                               
|                               
|                               
|                                | Deferred compensation   payable     |                               |            |            |            |            |   | 1,364,713   |            |           |   |            |           |              |   |        |           |  |   |        |        |   |   |        |         |   |            | 1,364,713  |           
|                               
|                               
|                               
|                               
|                                | Other liabilities                   |                               |            |            |            |            |   | 167,641     |            |           |   |            |           |              |   |        |           |  |   |        |        |   |   |        |         |   |            | 167,641    |           
|                                |                                     |                               |            |             |            |            |   |             |            |           |   |             |           |              |   |         |           |  |   |         |        |   |   |         |         |   |            |           
|                                |                                     | Total non-current liabilities |            |             | 2,124,133  |            |   |             | 2,134,359  |           |   |             |          |              |   |         |          |  |   |         |       |   |   |         |        |   |            |            | 4,258,492  | 
|                                |                                     |                               |            |             |            |            |   |             |            |           |   |             |           |              |   |         |           |  |   |         |        |   |   |         |         |   |            |           
|                                |                                     | Total liabilities             |            |             | 2,521,626  |            |   |             | 11,567,909 |           |   |             | 634,803   |              |   |         | 305,005   |  |   |         |       |   |   |         |        |   |            |            | 15,029,343 | 
|                                |                                     |                               |            |             |            |            |   |             |            |           |   |             |           |              |   |         |           |  |   |         |        |   |   |         |         |   |            |           
|Commitments and   contingencies |                                     |                               |           |             |            |            |  |             |            |           |  |             |           |              |  |         |           |  |  |         |        |   |  |         |         |   |           |           
|                               
|                               
|                               
|                               
|Redeemable common stock         |                                     |                               | 11,563,285 |             |            |            |  |             |            |           |  |             |           |              |  |         |           |  |  |         |        |   |  |         |         |   | 11,563,285 |           
|                                |                                     |                               |            |             |            |            |   |             |            |           |   |             |           |              |   |         |           |  |   |         |        |   |   |         |         |   |            |           

[Additional columns below]

[Continued from above table, first column(s) repeated]

|                              |                                   |                               |   |              |             |   |            |            |            | 
|----------------------------- | --------------------------------- | ----------------------------- | - | ------------ | ----------- | - | ---------- | ---------- | ---------- | 
|                              |                                   |                               |   | Consolidated
|                              |                                   |                               |   | December 31,
|                              |                                   | Eliminations                  |   | 1999        
|                              |                                   |                               |   |             
|                              |                                   | (Restated)                    |   | (Restated)  
|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        |                               |   | (35,659,879  | )           |   |            |           |           
|                             
|                             
|                             
|                             
|                              | Deferred income taxesnon-current |                               |   |             |             |   |            | 2,582,301  |           
|                             
|                             
|                             
|                             
|                              | Prepaid software licensing fees   |                               |   |             |             |   |            | 779,375    |           
|                             
|                             
|                             
|                             
|                              | Other assets                      |                               |   |              |             |   |            | 2,018,575  |           
|                              |                                   |                               |   |              |             |   |            |           
|                              |                                   | Total non-current assets      |   |              | (35,659,879 | ) |            |            | 17,548,386 | 
|                              |                                   |                               |   |              |             |   |            |           
|                              |                                   | Total assets                  |   | $            | (35,784,879 | ) |            | $          | 47,143,704 | 
|                              |                                   |                               |   |              |             |   |            |           
|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 |           
|                              |                                   |                               |   |              |             |   |            |           

34



---



##### Table of Contents



|                                                                                  |                                                     |                              |            |            |            |            |            |             |            |           |           |             |         |              |           |            |         |   |        |        |        |   |         |         |         |   |            |            |            | 
|--------------------------------------------------------------------------------- | --------------------------------------------------- | ---------------------------- | ---------- | ---------- | ---------- | ---------- | ---------- | ----------- | ---------- | --------- | --------- | ----------- | ------- | ------------ | --------- | ---------- | ------- | - | ------ | ------ | ------ | - | ------- | ------- | ------- | - | ---------- | ---------- | ---------- | 
|                                                                                  |                                                     |                              |            |            |            | Legacy     |            |             |            | Legacy    |           |             |         |             
|                                                                                  |                                                     | Regan                        |            | Legacy     |            | Financial  |            |             |            | Advisory  |           | Legacy      |         | Combined    
|                                                                                  |                                                     | Holding                      |            | Marketing  |            | Services,  |            | LifeSurance |            | Services, |           | Reinsurance |         | December 31,
|                                                                                  |                                                     | Corp.                        |            | Group      |            | Inc.       |            | Corporation |            | Inc.      |           | Company     |         | 1999        
|                                                                                  |                                                     |                              |            |            |            |            |            |             |            |           |           |             |         |             
|                                                                                  |                                                     | (Restated)                   |            |            |            | (Restated) |            |             |            |           |           |             |         | (Restated)  
|Shareholders equity   (deficit)                                                  |                                                     |                              |            |            |            |            |            |             |            |           |           |             |         |              |           |            |         |   |        |        |        |   |         |         |         |   |            |           
|                                                                                 
|                                                                                 
|                                                                                 
|                                                                                 
|                                                                                  | Common stock                                        |                              |            | 3,659,367  |            |            |            | 100,000     |            |           |           | 50,000      |         |              |           |           |         |   |        |       |        |   |         | 100,000 |         |   |            | 3,909,367  |           
|                                                                                 
|                                                                                 
|                                                                                 
|                                                                                 
|                                                                                  | Paid-in capital from   retirement of common   stock |                              |            | 927,640    |            |            |            | 510,753     |            |           |           | 1,650,000   |         |              |           | 9,277,919  |         |   |        |       |        |   |         | 100,000 |         |   |            | 12,466,312 |           
|                                                                                 
|                                                                                 
|                                                                                 
|                                                                                 
|                                                                                  | Paid-in capital from   producer stock   options     |                              |            | 4,185,000  |            |            |            |            |            |           |           | 91,000      |         |              |           |           |         |   |        |       |        |   |         |        |         |   |            | 4,276,000  |           
|                                                                                 
|                                                                                 
|                                                                                 
|                                                                                 
|                                                                                  | Retained earnings   (accumulated deficit)           |                              |            | 13,759,794 |            |            |            | 32,042,988  |            |           |           | (1,080,028  | )       |              |           | (8,446,740 | )       |   |        | (9,597 | )      |   |         | (10,037 | )       |   |            | 36,256,380 |           
|                                                                                 
|                                                                                 
|                                                                                 
|                                                                                 
|                                                                                  | Accumulated other   comprehensive   income-net      |                              |            |           |            |            |            | (572,104    | )          |           |           |            |         |              |           |           |         |   |        |       |        |   |         |        |         |   |            | (572,104   | )         
|                                                                                  |                                                     |                              |            |            |            |            |            |             |            |           |           |             |         |              |           |            |         |   |        |        |        |   |         |         |         |   |            |           
|                                                                                  |                                                     | Total shareholders   equity |            |            | 22,531,801 |            |            |             | 32,081,637 |           |           |             | 710,972 |              |           |            | 831,179 |   |        |        | (9,597 | ) |         |         | 189,963 |   |            |            | 56,335,955 | 
|                                                                                  |                                                     |                              |            |            |            |            |            |             |            |           |           |             |         |              |           |            |         |   |        |        |        |   |         |         |         |   |            |           
|Total liabilities,   redeemable common   stock & shareholders   equity (deficit) |                                                     | $                            | 36,616,712 |            |            | $          | 43,649,546 |             |            | $         | 1,345,775 |             |         | $            | 1,136,184 |            |         | $ | (9,597 | )      |        | $ | 189,963 |         |         | $ | 82,928,583 |           
|                                                                                  |                                                     |                              |            |            |            |            |            |             |            |           |           |             |         |              |           |            |         |   |        |        |        |   |         |         |         |   |            |           

[Additional columns below]

[Continued from above table, first column(s) repeated]

|                                                                                    |                                                 |                            |             |              |             |   |            |            |            | 
|----------------------------------------------------------------------------------- | ----------------------------------------------- | -------------------------- | ----------- | ------------ | ----------- | - | ---------- | ---------- | ---------- | 
|                                                                                    |                                                 |                            |             | Consolidated
|                                                                                    |                                                 |                            |             | December 31,
|                                                                                    |                                                 | Eliminations               |             | 1999        
|                                                                                    |                                                 |                            |             |             
|                                                                                    |                                                 | (Restated)                 |             | (Restated)  
|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     |                            |             |             |             |   |            | 4,276,000  |           
|                                                                                   
|                                                                                   
|                                                                                   
|                                                                                   
|                                                                                    | Retained earnings (accumulated deficit)         |                            |             | (23,871,207  | )           |   |            | 12,385,173 |           
|                                                                                   
|                                                                                   
|                                                                                   
|                                                                                   
|                                                                                    | Accumulated other comprehensive income- net     |                            |             |             |             |   |            | (572,104   | )         
|                                                                                    |                                                 |                            |             |              |             |   |            |           
|                                                                                    |                                                 | Total shareholders equity |             |              | (35,659,879 | ) |            |            | 20,676,076 | 
|                                                                                    |                                                 |                            |             |              |             |   |            |           
|Total liabilities, redeemable common stock &
        shareholders equity (deficit) |                                                 | $                          | (35,784,879 | )            |             | $ | 47,143,704 |           
|                                                                                    |                                                 |                            |             |              |             |   |            |           

35



---



##### Table of Contents



REGAN HOLDING CORP. AND SUBSIDIARIES




Consolidating Income Statement


For the Year Ended December 31, 1999


|                                       |                                      |                |            |           |           |            |            |             |            |           |          |             |           |              |            |         |           |   |         |        |        |   |         |        |        |   |            |            |            | 
|-------------------------------------- | ------------------------------------ | -------------- | ---------- | --------- | --------- | ---------- | ---------- | ----------- | ---------- | --------- | -------- | ----------- | --------- | ------------ | ---------- | ------- | --------- | - | ------- | ------ | ------ | - | ------- | ------ | ------ | - | ---------- | ---------- | ---------- | 
|                                       |                                      |                |            |           |           | Legacy     |            |             |            | Legacy    |          |             |           | Combined    
|                                       |                                      | Regan          |            | Legacy    |           | Financial  |            |             |            | Advisory  |          | Legacy      |           | Year Ended  
|                                       |                                      | Holding        |            | Marketing |           | Services,  |            | LifeSurance |            | Services, |          | Reinsurance |           | December 31,
|                                       |                                      | Corp.          |            | Group     |           | Inc.       |            | Corporation |            | Inc.      |          | Company     |           | 1999        
|                                       |                                      |                |            |           |           |            |            |             |            |           |          |             |           |             
|                                       |                                      | (Restated)     |            |           |           | (Restated) |            |             |            |           |          |             |           | (Restated)  
|Income                                 |                                      |                |            |           |           |            |            |             |            |           |          |             |           |              |            |         |           |   |         |        |        |   |         |        |        |   |            |           
|                                      
|                                      
|                                      
|                                      
|                                       | Marketing allowances                 |                | $          |          |           |            | $          | 25,363,487  |            |           | $        | 113,857     |           |              | $          |        |           |   | $       |       |        |   | $       |       |        |   | $          | 25,477,344 |           
|                                      
|                                      
|                                      
|                                      
|                                       | Commission income                    |                |            |          |           |            |            | 13,900,907  |            |           |          | 1,491,835   |           |              |            |        |           |   |         | 2,517  |        |   |         |       |        |   |            | 15,395,259 |           
|                                      
|                                      
|                                      
|                                      
|                                       | Administrative fees                  |                |            |          |           |            |            | 8,637,245   |            |           |          |            |           |              |            |        |           |   |         |       |        |   |         |       |        |   |            | 8,637,245  |           
|                                      
|                                      
|                                      
|                                      
|                                       | Intercompany management   fee income |                |            | 1,643,532 |           |            |            | 213,800     |            |           |          |            |           |              |            |        |           |   |         |       |        |   |         |       |        |   |            | 1,857,332  |           
|                                      
|                                      
|                                      
|                                      
|                                       | Seminar income                       |                |            |          |           |            |            | 179,330     |            |           |          |            |           |              |            | 201,989 |           |   |         |       |        |   |         |       |        |   |            | 381,319    |           
|                                      
|                                      
|                                      
|                                      
|                                       | Other income                         |                |            | 12,921    |           |            |            | 36,731      |            |           |          | 88,988      |           |              |            | 705     |           |   |         | 105    |        |   |         |       |        |   |            | 139,450    |           
|                                       |                                      |                |            |           |           |            |            |             |            |           |          |             |           |              |            |         |           |   |         |        |        |   |         |        |        |   |            |           
|                                       |                                      | Total Income   |            |           | 1,656,453 |            |            |             | 48,331,500 |           |          |             | 1,694,680 |              |            |         | 202,694   |   |         |        | 2,622  |   |         |        |       |   |            |            | 51,887,949 | 
|                                       |                                      |                |            |           |           |            |            |             |            |           |          |             |           |              |            |         |           |   |         |        |        |   |         |        |        |   |            |           
|Expenses                               |                                      |                |            |           |           |            |            |             |            |           |          |             |           |              |            |         |           |   |         |        |        |   |         |        |        |   |            |           
|                                      
|                                      
|                                      
|                                      
|                                       | Salaries and related benefits        |                |            |          |           |            |            | 20,620,054  |            |           |          | 979,325     |           |              |            | 617,518 |           |   |         |       |        |   |         |       |        |   |            | 22,216,897 |           
|                                      
|                                      
|                                      
|                                      
|                                       | Sales promotion and support          |                |            | 449,118   |           |            |            | 6,602,008   |            |           |          | 234,422     |           |              |            | 449,089 |           |   |         | 360    |        |   |         |       |        |   |            | 7,734,997  |           
|                                      
|                                      
|                                      
|                                      
|                                       | Producer stock options               |                |            | 4,160,000 |           |            |            |            |            |           |          | 91,000      |           |              |            |        |           |   |         |       |        |   |         |       |        |   |            | 4,251,000  |           
|                                      
|                                      
|                                      
|                                      
|                                       | Professional fees                    |                |            | 640,170   |           |            |            | 1,498,873   |            |           |          | 63,791      |           |              |            | 142,151 |           |   |         | 13,504 |        |   |         | 14,595 |        |   |            | 2,373,084  |           
|                                      
|                                      
|                                      
|                                      
|                                       | Occupancy                            |                |            | 363,750   |           |            |            | 1,692,601   |            |           |          | 36,318      |           |              |            | 100,963 |           |   |         |       |        |   |         |       |        |   |            | 2,193,632  |           
|                                      
|                                      
|                                      
|                                      
|                                       | Depreciation and amortization        |                |            | 1,341,603 |           |            |            | 337,642     |            |           |          | 7,723       |           |              |            | 67,897  |           |   |         |       |        |   |         |       |        |   |            | 1,754,865  |           
|                                      
|                                      
|                                      
|                                      
|                                       | Equipment                            |                |            | 354,498   |           |            |            | 637,097     |            |           |          | 25,415      |           |              |            | 2,065   |           |   |         |       |        |   |         |       |        |   |            | 1,019,075  |           
|                                      
|                                      
|                                      
|                                      
|                                       | Courier and postage                  |                |            | 20,534    |           |            |            | 882,157     |            |           |          | 61,078      |           |              |            | 44,733  |           |   |         |       |        |   |         |       |        |   |            | 1,008,502  |           
|                                      
|                                      
|                                      
|                                      
|                                       | Stationery and supplies              |                |            | 1,335     |           |            |            | 882,978     |            |           |          | 3,489       |           |              |            | 66,436  |           |   |         | 120    |        |   |         |       |        |   |            | 954,358    |           
|                                      
|                                      
|                                      
|                                      
|                                       | Travel and entertainment             |                |            | 774       |           |            |            | 590,044     |            |           |          | 35,550      |           |              |            | 81,408  |           |   |         |       |        |   |         |       |        |   |            | 707,776    |           
|                                      
|                                      
|                                      
|                                      
|                                       | Insurance                            |                |            | 68,481    |           |            |            | 336,425     |            |           |          | (8,984      | )         |              |            | 4,007   |           |   |         |       |        |   |         |       |        |   |            | 399,929    |           
|                                      
|                                      
|                                      
|                                      
|                                       | Miscellaneous                        |                |            | 212,713   |           |            |            | 211,607     |            |           |          | 25,336      |           |              |            | 23,404  |           |   |         |       |        |   |         | 23     |        |   |            | 473,083    |           
|                                      
|                                      
|                                      
|                                      
|                                       | Intercompany management fees         |                |            |          |           |            |            | 1,500,000   |            |           |          | 357,332     |           |              |            |        |           |   |         |       |        |   |         |       |        |   |            | 1,857,332  |           
|                                       |                                      |                |            |           |           |            |            |             |            |           |          |             |           |              |            |         |           |   |         |        |        |   |         |        |        |   |            |           
|                                       |                                      | Total expenses |            |           | 7,612,976 |            |            |             | 35,791,486 |           |          |             | 1,911,795 |              |            |         | 1,599,671 |   |         |        | 13,984 |   |         |        | 14,618 |   |            |            | 46,944,530 | 
|                                       |                                      |                |            |           |           |            |            |             |            |           |          |             |           |              |            |         |           |   |         |        |        |   |         |        |        |   |            |           
|Income before income from subsidiaries |                                      |                | (5,956,523 | )         |           |            | 12,540,014 |             |            |           | (217,115 | )           |           |              | (1,396,977 | )       |           |   | (11,362 | )      |        |   | (14,618 | )      |        |   | 4,943,419  |           
|                                      
|                                      
|                                      
|                                      
|Income from subsidiaries               |                                      |                | 7,318,662  |           |           |            |           |             |            |           |         |             |           |              |           |         |           |   |        |        |        |   |        |        |        |   | 7,318,662  |           
|                                       |                                      |                |            |           |           |            |            |             |            |           |          |             |           |              |            |         |           |   |         |        |        |   |         |        |        |   |            |           
|Operating income                       |                                      |                | 1,362,139  |           |           |            | 12,540,014 |             |            |           | (217,115 | )           |           |              | (1,396,977 | )       |           |   | (11,362 | )      |        |   | (14,618 | )      |        |   | 12,262,081 |           
|                                      
|                                      
|                                      
|                                      
|Other income                           |                                      |                |            |           |           |            |            |             |            |           |          |             |           |              |            |         |           |   |         |        |        |   |         |        |        |   |            |           
|                                      
|                                      
|                                      
|                                      
|                                       | Investment income-net                |                |            | 17,201    |           |            |            | 1,202,854   |            |           |          | 3,155       |           |              |            | 839     |           |   |         |       |        |   |         | 4,630  |        |   |            | 1,228,679  |           
|                                       |                                      |                |            |           |           |            |            |             |            |           |          |             |           |              |            |         |           |   |         |        |        |   |         |        |        |   |            |           
|Income before income taxes             |                                      |                | 1,379,340  |           |           |            | 13,742,868 |             |            |           | (213,960 | )           |           |              | (1,396,138 | )       |           |   | (11,362 | )      |        |   | (9,988  | )      |        |   | 13,490,760 |           
|                                      
|                                      
|                                      
|                                      
|Provision for income taxes             |                                      |                | (2,255,802 | )         |           |            | 5,413,341  |             |            |           | (83,000  | )           |           |              | (533,636   | )       |           |   | (3,997  | )      |        |   | 50      |        |        |   | 2,536,956  |           
|                                       |                                      |                |            |           |           |            |            |             |            |           |          |             |           |              |            |         |           |   |         |        |        |   |         |        |        |   |            |           
|Net income (loss)                      |                                      | $              | 3,635,142  |           |           | $          | 8,329,527  |             |            | $         | (130,960 | )           |           | $            | (862,502   | )       |           | $ | (7,365  | )      |        | $ | (10,038 | )      |        | $ | 10,953,804 |           
|                                       |                                      |                |            |           |           |            |            |             |            |           |          |             |           |              |            |         |           |   |         |        |        |   |         |        |        |   |            |           

[Additional columns below]

[Continued from above table, first column(s) repeated]

|                                       |                                    |                |            |              |            |   |           |            |            | 
|-------------------------------------- | ---------------------------------- | -------------- | ---------- | ------------ | ---------- | - | --------- | ---------- | ---------- | 
|                                       |                                    |                |            | Consolidated
|                                       |                                    |                |            | Year Ended  
|                                       |                                    |                |            | December 31,
|                                       |                                    | Eliminations   |            | 1999        
|                                       |                                    |                |            |             
|                                       |                                    | (Restated)     |            | (Restated)  
|Income                                 |                                    |                |            |              |            |   |           |           
|                                      
|                                      
|                                      
|                                      
|                                       | Marketing allowances               |                | $          |             |            |   | $         | 25,477,344 |           
|                                      
|                                      
|                                      
|                                      
|                                       | Commission income                  |                |            |             |            |   |           | 15,395,259 |           
|                                      
|                                      
|                                      
|                                      
|                                       | 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 options             |                |            |             |            |   |           | 4,251,000  |           
|                                      
|                                      
|                                      
|                                      
|                                       | 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 | ) |           |            | 45,087,198 | 
|                                       |                                    |                |            |              |            |   |           |           
|Income before income from subsidiaries |                                    |                |           |              |            |   | 4,943,419 |           
|                                      
|                                      
|                                      
|                                      
|Income from subsidiaries               |                                    |                | (7,318,662 | )            |            |   |          |           
|                                       |                                    |                |            |              |            |   |           |           
|Operating income                       |                                    |                | (7,318,662 | )            |            |   | 4,943,419 |           
|                                      
|                                      
|                                      
|                                      
|Other income                           |                                    |                |            |              |            |   |           |           
|                                      
|                                      
|                                      
|                                      
|                                       | Investment income-net              |                |            |             |            |   |           | 1,228,679  |           
|                                       |                                    |                |            |              |            |   |           |           
|Income before income taxes             |                                    |                | (7,318,662 | )            |            |   | 6,172,098 |           
|                                      
|                                      
|                                      
|                                      
|Provision for income taxes             |                                    |                |           |              |            |   | 2,536,956 |           
|                                       |                                    |                |            |              |            |   |           |           
|Net income (loss)                      |                                    | $              | (7,318,662 | )            |            | $ | 3,635,142 |           
|                                       |                                    |                |            |              |            |   |           |           

36



---



##### Table of Contents






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

None.

37



---



##### Table of Contents



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: June 29, 2001
|                                                               |  |                    
|R. Preston Pitts
        President and Chief Operating Officer |  |                    

38



---



##### Table of Contents



INDEX TO EXHIBITS

|         |  |                         |  |      |    | 
|-------- |  | ----------------------- |  | ---- | -- | 
|Item No. |  | Description             |  | Page
|         |  |                         |  |     
|27       |  | Financial Data Schedule |  |      | 41 | 

39