================================================================================
                       SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549

                                    FORM 10-K


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

                   For the fiscal year ended December 31, 2004
                                       OR


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

      For the transition period from _________________ to ________________

                          Commission file number 000-19704

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

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

                 2090 Marina Avenue, Petaluma, California 94954
              (Address of principal executive offices and Zip Code)


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


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

                           Common Stock, No Par Value
                                (Title of Class)

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

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

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

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

                                   $20,698,000

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

As of March 15,  2005,  the  number of shares  outstanding  of the  registrant's
Series A Common Stock was 23,740,000 and the number of shares outstanding of the
registrant's  Series B Common Stock was  553,000.  The  registrant  has no other
shares outstanding.

                       DOCUMENTS INCORPORATED BY REFERENCE

Certain portions of the Definitive Proxy Statement pursuant to Regulation 14A of
the  Securities  Exchange Act of 1934 in connection  with Regan Holding  Corp.'s
Annual Meeting of Stockholders  to be held on June 13, 2005 are  incorporated by
reference into Part III of this Form 10-K.

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<PAGE>
<TABLE>

                                                           TABLE OF CONTENTS
<CAPTION>
                                                                                                                       Page
                                                                                                                       ----
<S>        <C>                                                                                                           <C>
Part I
Item 1.    Business....................................................................................................   1
Item 2.    Properties..................................................................................................   4
Item 3.    Legal Proceedings...........................................................................................   5
Item 4.    Submission of Matters to a Vote of Security Holders.........................................................   5
Part II
Item 5.    Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of
           Equity Securities...........................................................................................   6
Item 6.    Selected Consolidated Financial Data........................................................................   6
Item 7.    Management's Discussion and Analysis of Financial Condition and Results of Operations.......................   7
Item 7a.   Quantitative and Qualitative Disclosure about Market Risk...................................................  19
Item 8.    Financial Statements and Supplementary Data.................................................................  21
Item 9.    Changes in and Disagreements with Accountants on Accounting and Financial Disclosure........................  44
Item 9A.   Controls and Procedures.....................................................................................  44
Item 9B.   Other Information...........................................................................................  44
Part III
Item 10.   Directors and Executive Officers of the Company.............................................................  45
Item 11.   Executive Compensation......................................................................................  45
Item 12.   Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters..............  45
Item 13.   Certain Relationships and Related Transactions..............................................................  45
Item 14.   Principal Accounting Fees and Services......................................................................  45
Part IV
Item 15.   Exhibits and Financial Statement Schedules..................................................................  46
</TABLE>


<PAGE>
                                     PART I

Item 1. Business

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


General Development of Business

      Regan Holding Corp.  ("Regan Holding") is a holding company,  incorporated
in the State of California in 1990,  whose primary  operating  subsidiaries  are
Legacy Marketing Group ("Legacy Marketing") and Legacy Financial Services,  Inc.
("Legacy Financial").  During 2004, Legacy Marketing generated approximately 91%
of our consolidated revenues.  Legacy Marketing designs, markets and administers
fixed annuity products on behalf of certain  unaffiliated  insurance carriers in
each of the United States, except Alabama and New York.

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

      Legacy  Marketing  sells  fixed  annuity  products  through a  network  of
approximately  24,400 Producers,  of whom approximately 3,600 generated business
for us during 2004.  Each  Producer has entered into a  non-exclusive  agreement
with Legacy Marketing,  which defines the parties' business  relationship.  Such
agreements  typically may be  terminated  with up to ninety days prior notice by
either the Producer or Legacy Marketing, with or without cause.

      Legacy  Marketing's  sales network is built on a multi-level  structure in
which Producers may recruit other Producers. Recruited Producers are referred to
as  "downline"  Producers  within the  original  Producer's  network.  Recruited
Producers  may also  recruit  other  Producers,  creating a hierarchy  under the
original  Producer.  The standard Producer contract contains a nine-level design
in  which a  Producer  may  advance  from one  level to the next  based on sales
commission amounts or the size of the Producer's downline network. As a Producer
advances to higher levels within the system,  he/she receives higher commissions
on sales  made  through  his/her  downline  network.  This  creates a  financial
incentive  for  Producers  to build a  hierarchy  of downline  Producers,  which
contributes to their financial growth and to the growth of Legacy Marketing.  If
a Producer  leaves the network,  his/her  downline  Producers  can still receive
sales  commissions.  Advancements  to higher  levels can occur as often as every
three months.  Producers at the highest levels are called  "Wholesalers."  There
were  approximately 500 Wholesalers who generated  business for Legacy Marketing
during 2004.

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

      Legacy  Marketing  works  closely with the  insurance  carriers in product
design and development.  Legacy Marketing's  actuarial and marketing departments
work with the insurance carriers to design proprietary fixed annuity products to
be marketed by Legacy  Marketing.  All of these products include  guarantees for
the  benefit  of  policyholders  and are  guaranteed  by the  issuing  insurance
carriers. These guarantees generally include:

      o    a contractually guaranteed minimum interest rate,

      o    a contractually guaranteed maximum administrative fee, and

      o    the ability to allocate among various crediting rate strategies.


                                       1
<PAGE>

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

      Neither the marketing agreements nor the administrative agreements prevent
Legacy  Marketing from entering into similar  arrangements  with other insurance
carriers.   However,  the  marketing  agreements,  in  general,  prevent  Legacy
Marketing from  developing  and marketing  products with other carriers that are
considered unique or proprietary under the terms of the marketing agreements.

      The marketing  agreement  with American  National  expires on November 15,
2007,  and the  administrative  agreement  with  American  National  expires  on
February  15,  2008.  Both  agreements  may be renewed by mutual  agreement  for
successive one-year terms. The agreements may be terminated by either party upon
twelve  months prior  written  notice  without  cause,  and may be terminated by
either party  immediately  for cause.  The marketing  agreement  with  Investors
Insurance  expires on March 31,  2007,  and the  administrative  agreement  with
Investors  Insurance  expires on March 31, 2008. Both agreements will be renewed
automatically for successive  one-year terms unless terminated earlier by either
party upon twelve months prior written notice  without  cause.  Either party may
terminate the agreement  immediately for cause. The marketing and administrative
agreements with Transamerica and John Hancock do not have fixed terms but may be
terminated  by either party upon twelve  months  prior  written  notice  without
cause,  and may be  terminated  by  either  party  immediately  for  cause.  The
administrative  agreement  with IL Annuity  expires on December  31,  2005.  The
agreement may be renewed by mutual  agreement  for  successive  one-year  terms.
Either party may  terminate  the  agreement at the end of the initial or renewal
term with six months notice without cause, and may be terminated by either party
immediately for cause. The marketing agreement with Americom was entered into on
June 10, 2004 and Legacy Marketing began marketing Americom products in November
2004. The marketing  agreement  expires on June 10, 2006 and will  automatically
renew for successive one-year periods, unless terminated earlier by either party
with twelve months written notice.  Americom may terminate the agreement without
cause by giving Legacy  Marketing at least six months  written notice and either
party may terminate the agreement immediately for cause.

      On July 1, 2002,  Regan Holding entered into a Purchase  Option  Agreement
with  SCOR  Life  U.S.  Re  Insurance  Company  ("SCOR"),  a 100%  owner  of the
outstanding capital stock of Investors  Insurance.  Pursuant to the terms of the
agreement,  SCOR has granted Regan Holding the right to purchase the outstanding
capital stock of Investors  Insurance in exchange for annual option fees.  Regan
Holding has paid annual  option fees totaling  approximately  $3.0 million as of
December  31,  2004.  Regan  Holding has the right to exercise the option at any
time prior to the expiration  date on June 30, 2005. If we elect to exercise the
option, we must complete the purchase transaction within two years of exercising
the option. Upon completion of a purchase  transaction,  the option fees will be
included in the purchase price. If the option expires unused, the fees paid will
be  expensed.  Before  expiration,  we can  request a refund of fees paid in the
event that the financial  rating of Investors  Insurance  declines as defined in
the  agreement.  As of December 31, 2004,  the  Investors  Insurance  rating has
declined to a level where we can request such a refund. We are exploring various
methods to  finance  the  acquisition  of  Investors  Insurance,  including  the
issuance  of  debt  or  equity  securities  by  Regan  Holding  or  one  of  its
subsidiaries.  As a result,  it is  possible  that we will  issue a  significant
amount  of debt or  equity  securities  to one or more new  investors.  Any such
issuance of equity  securities  would likely reduce the percentage  ownership of
Regan Holding held by current shareholders.

      During the second quarter of 2003, American National reduced the crediting
rates of several products  marketed by Legacy Marketing.  In addition,  American
National  lowered the  commission  rates that they pay to Legacy  Marketing  for
sales of these  products.  As a result,  sales of products on behalf of American
National  decreased  during the second half of 2003 and fiscal 2004, and overall
Legacy Marketing  revenues also declined during those periods due to this event.
Legacy  Marketing has  developed  new products  with American  National that may
result in increased sales for Legacy Marketing in the long term.

      During  the third  quarter  of 2003,  Legacy  Marketing  discontinued  the
marketing of the  AssureMark  (SM) product  series issued by John Hancock.  As a
result,  sales of products on behalf of John Hancock decreased during the second
half of 2003 and fiscal 2004. During the first quarter of 2003, Legacy Marketing
discontinued   marketing  several  Transamerica   products  that  were  marketed
exclusively  by Legacy  Marketing,  and  effective  May 2004,  Legacy  Marketing
discontinued  marketing the remaining  Transamerica  products that were marketed
exclusively  by Legacy  Marketing.  As a result,  sales of products on behalf of
Transamerica  decreased  during fiscal years 2003 and 2004,  and overall  Legacy
Marketing revenues also declined during those periods due to this event.  Legacy
Marketing  continues  to  administer  these  products  and to accept  additional
premium  payments,  subject to  applicable  additional  deposit  rules for these
products.


                                       2
<PAGE>
      Through our wholly owned broker-dealer  subsidiary,  Legacy Financial,  we
sell variable  annuity and life insurance  products,  mutual funds, and debt and
equity  securities.  Legacy  Financial  has entered into sales  agreements  with
investment  companies that give it the  non-exclusive  right to sell  investment
products  on  behalf  of those  companies.  Sales  of  investment  products  are
conducted  through  Legacy   Financial's   network  of  independent   registered
representatives  (who  we  refer  to  as  "Representatives").  Under  the  sales
agreements, we are compensated based upon predetermined percentages of the sales
generated by the  Representatives.  The  agreements  may be terminated by either
party upon thirty days prior  written  notice.  During  2004,  Legacy  Financial
accounted for approximately 9% of our consolidated revenues.

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

      During  2000,  through our wholly  owned  subsidiary  Imagent  Online,  we
invested  in  Prospectdigital,  LLC,  which  was  developing  an  Internet-based
customer  relationship  management product. In January 2002, we purchased all of
the remaining  outstanding equity interests in Prospectdigital.  Prospectdigital
has generated nominal revenues to date.

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


Competitive Business Conditions

      The fixed annuity business is rapidly evolving and intensely  competitive.
Legacy  Marketing's  primary market is fixed annuities sold through  independent
Producers.  In addition,  Legacy  Marketing  administers  the  products  sold by
Producers on behalf of the issuing  insurance  carriers.  Fixed annuity  product
sales in the United  States  were  approximately  $91  billion in 2004.  Some of
Legacy  Marketing's  top  competitors  selling  fixed annuity  products  through
independent  sales channels are Allianz Life of North America,  American  Equity
Investment Life,  Jefferson Pilot Financial Insurance Company, and AmerUs Group.
These  competitors may have greater  financial  resources than Legacy Marketing.
However,  we believe  that Legacy  Marketing's  business  model  allows  greater
flexibility,  as it can adjust the mix of business  sold if one, or more, of its
carriers  were to  experience  capital  constraints  or other events that affect
their business models.  Legacy Marketing's  competitors may respond more quickly
to new or emerging  products  and changes in customer  requirements.  We are not
aware of any significant new means of competition, products or services that its
competitors  provide or will soon provide.  However,  in the highly  competitive
fixed annuity  marketplace,  new distribution  models,  product  innovations and
technological  advances may occur at any time and could present Legacy Marketing
with  competitive  challenges.  There can be no assurance that Legacy  Marketing
will be able to compete successfully.  In addition,  Legacy Marketing's business
model relies on its Wholesaler  distribution  network to effectively  market its
products   competitively.   Maintaining   relationships  with  these  Wholesaler
distribution  networks  requires  introducing  new  products and services to the
market in an  efficient  and  timely  manner,  offering  competitive  commission
schedules,  and providing  superior  marketing,  training,  and support.  In the
recent past,  Legacy  Marketing has been reasonably  successful in expanding and
maintaining its current distribution network. Due to competition among insurance
companies and insurance  marketing  organizations  for  successful  Wholesalers,
there can be no assurance  that Legacy  Marketing will be able to retain some or
all of its Wholesaler distribution networks.


Regulatory Environment

      On October 29, 2004, the California  Attorney  General's  Office announced
the launch of a formal  investigation  into possible  anti-trust  violations and
fraud by  insurance  companies  and  brokers,  including  bid  rigging and other
anti-competitive conduct in the insurance industry. Other state authorities have
announced similar investigations. In addition, California Insurance Commissioner
John  Garamendi has released for public review a proposed new set of regulations
addressing broker conduct. As currently drafted, the proposed regulations would,
among  other  things,  impose  penalties  on brokers  who fail to  disclose  all
material facts  surrounding  their receipt or potential receipt of income from a
third party flowing from a transaction on behalf of a client.

                                       3
<PAGE>

      In December 2004, the National Association of Insurance Commissioners (the
"NAIC")  approved  amendments to the NAIC's model Producer  Licensing Act. Under
the model Act,  producers,  like  Legacy  Marketing's  Producers,  who have been
appointed  by an insurer  as its agent and do not  receive  compensation  from a
customer  will not be required to disclose the amount of  compensation  received
from the insurer.  However, they must disclose to the customer prior to the sale
of insurance to the customer that they will be receiving  compensation  from the
insurer, or that the producer represents the insurer and may provide services to
the customer for the  insurer.  One state has adopted a regulation  based on the
model Act and others are  considering  similar  regulations or  legislation.  In
addition,  the NAIC has held a hearing to consider additional regulation and may
in the future propose additional measures affecting producers.

      Our core business consists of selling fixed annuity products, on behalf of
insurance carriers,  through a network of approximately 24,400 Producers. If the
amendments  to the model Act, or similar or additional  regulations,  were to be
adopted in states that we conduct business, the Producers would have to disclose
to potential purchasers of fixed annuity products, compensation they may receive
from Legacy Marketing or the insurance carriers.  They may also have to disclose
that the Producer  represents the insurance carriers and may provide services to
the customer on behalf of the  carriers.  We are unable to predict  which states
will adopt the amendments to the model Act and whether other new initiatives may
affect our business and the demand for the fixed  annuity  products  marketed by
Legacy Marketing.  It is possible,  however, that enactment of the amendments to
the model  Act,  or  similar or  additional  regulations,  could have a material
adverse  effect  on the  insurance  industry  in  general  or on  our  financial
condition and results of operations.


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

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


Employees

      As of March 14, 2005,  we employed 358 persons.  None of our  employees is
represented by a collective bargaining agreement. We consider our relations with
our  employees to be good,  and we will continue to strive to provide a positive
work environment for our employees.


Financial Information about Segments

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


Financial Information about Geographic Areas

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


Item 2. Properties

      In June 2001, we purchased the building that houses our  headquarters  and
most of Legacy Marketing's  operations in Petaluma,  California.  During 2003 we
began  construction  of a building in Rome,  Georgia.  In May 2004, we completed
construction of the building in Rome and moved our employees  located in Rome to
the new building.

                                       4
<PAGE>

Item 3. Legal Proceedings


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



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

      No items were  submitted to a vote of security  holders  during the fourth
quarter of 2004.




                                       5
<PAGE>
                                     PART II

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

      As of March 15, 2005, Regan Holding Corp.'s Series A Common Stock was held
by approximately  1,300 shareholders of record and our Series B Common Stock was
held by  approximately  9,700  shareholders  of record.  There is no established
public trading market for our stock.

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


Item 6. Selected Consolidated Financial Data
<TABLE>
<CAPTION>
                                                                                    Year Ended December 31,
                                                    --------------------------------------------------------------------------------
                                                        2004             2003            2002             2001             2000
                                                    ------------     ------------    ------------     ------------     ------------
<S>                                                 <C>              <C>             <C>              <C>              <C>
Selected Income Statement Data:
Total revenue                                       $ 37,385,000     $ 70,917,000    $ 50,049,000     $ 55,209,000     $ 42,432,000
Net income (loss)                                   $ (7,467,000)    $  5,029,000    $    (60,000)    $   (348,000)    $ (3,564,000)
Earnings (loss) per share - basic:
Before cumulative effect of accounting
   change                                           $      (0.29)    $       0.20    $       --       $      (0.03)    $      (0.15)
Cumulative effect of accounting change                      --               --              --               --              (0.01)
                                                    ------------     ------------    ------------     ------------     ------------
                                                    $      (0.29)    $       0.20    $       --       $      (0.03)    $      (0.16)
Earnings (loss) per share - diluted:
Before cumulative effect of accounting
   change                                           $      (0.29)    $       0.18    $       --       $      (0.03)    $      (0.15)
Cumulative effect of accounting change                      --               --              --               --              (0.01)
                                                    ------------     ------------    ------------     ------------     ------------
                                                    $      (0.29)    $       0.18    $       --       $      (0.03)    $      (0.16)
Selected Balance Sheet Data:
Total assets                                        $ 47,618,000     $ 57,115,000    $ 50,047,000     $ 46,260,000     $ 43,114,000
Total non current liabilities                       $ 19,552,000     $ 13,536,000    $ 11,630,000     $  4,578,000     $  3,578,000
Redeemable common stock                             $  7,486,000     $  8,964,000    $ 10,115,000     $ 11,124,000     $ 11,237,000
Cash dividends declared                                     --               --              --               --               --
Selected Operating Data:
Total fixed premium placed inforce (1)              $800 million     $2.15 billion   $1.3 billion     $1.6 billion     $1.1 billion
Total fixed policies placed inforce (1)                   13,000           36,000          24,000           30,000           20,000
Policies maintained at year end                          123,000          127,000         107,000          101,000           89,000
<FN>
(1)  When a policyholder remits a premium payment with an accurate and completed
     application for an insurance policy, the policy is placed inforce.  Inforce
     premium and  policies are  statistics  of our carriers but are factors that
     directly affect our revenue.
</FN>
</TABLE>

                                       6
<PAGE>
Item 7. Management's Discussion and Analysis of Financial Condition and Results
        of Operations

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


Forward-Looking Statements

      Certain  statements  contained in this  document,  including  Management's
Discussion and Analysis of Financial  Condition and Results of Operations,  that
are not historical facts,  constitute  "forward-looking  statements"  within the
meaning  of  the  Private  Securities   Litigation  Reform  Act  of  1995.  Such
forward-looking  statements  involve known and unknown risks,  uncertainties and
other factors that may cause the actual  results or performance of Regan Holding
Corp.  and its  businesses to be  materially  different  from that  expressed or
implied by such  forward-looking  statements.  These  risks,  uncertainties  and
factors include,  among other things,  the following:  general market conditions
and  the  changing  interest  rate  environment;  population  growth  rates  and
demographic  patterns;  the interruption,  deterioration,  or termination of our
relationships with the insurance carriers who provide our products or the agents
who market and sell them; the ability to develop and market new products to keep
up with  the  evolving  industry  in which we  operate;  increased  governmental
regulation, especially regulations affecting insurance, reinsurance, and holding
companies;  the ability to attract and retain talented and productive personnel;
the ability to effectively  fund our working capital  requirements;  the risk of
substantial  litigation or insurance  claims;  and other factors  referred to in
Management's  Discussion  and  Analysis of  Financial  Condition  and Results of
Operations.

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


General Overview of Our Business

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

      On July 1, 2002,  Regan Holding entered into a Purchase  Option  Agreement
with  SCOR  Life  U.S.  Re  Insurance  Company  ("SCOR"),  a 100%  owner  of the
outstanding capital stock of Investors  Insurance.  Pursuant to the terms of the
agreement,  SCOR has granted Regan Holding the right to purchase the outstanding
capital stock of Investors  Insurance in exchange for annual option fees.  Regan
Holding has paid annual  option fees totaling  approximately  $3.0 million as of
December  31,  2004.  Regan  Holding has the right to exercise the option at any
time prior to the expiration  date on June 30, 2005. If we elect to exercise the
option, we must complete the purchase transaction within two years of exercising
the option. Upon completion of a purchase  transaction,  the option fees will be
included in the purchase price. If the option expires unused, the fees paid will
be  expensed.  Before  expiration,  we can  request a refund of fees paid in the
event that the financial  rating of Investors  Insurance  declines as defined in
the  agreement.  As of December 31, 2004,  the  Investors  Insurance  rating has
declined to a level where we can request such a refund. We are exploring various
methods to  finance  the  acquisition  of  Investors  Insurance,  including  the
issuance  of  debt  or  equity  securities  by  Regan  Holding  or  one  of  its
subsidiaries.  As a result,  it is  possible  that we will  issue a  significant
amount  of debt or  equity  securities  to one or more new  investors.  Any such
issuance of equity  securities  would likely reduce the percentage  ownership of
Regan Holding held by current shareholders.

      Legacy Marketing  designs,  markets and administers fixed annuity products
on behalf of  certain  unaffiliated  insurance  carriers  in each of the  United
States,  except Alabama and New York. As of December 31, 2004,  Legacy Marketing
had marketing  agreements  with Investors  Insurance,  American  National,  John
Hancock,  Transamerica  and  Americom.  The  marketing  agreements  grant Legacy
Marketing the exclusive right to market certain fixed annuity products issued by
these  insurance  carriers.  Legacy  Marketing  is  responsible  for  appointing
Producers,  who have  contracted  with Legacy  Marketing to sell these products,
with the  applicable  insurance  carrier.  For  these  services,  the  insurance
carriers pay Legacy Marketing commissions and marketing allowances.

      Legacy  Marketing  also has  administrative  agreements  with  each of the
insurance  carriers  listed above,  and with IL Annuity.  Under the terms of the
administrative  agreements,  Legacy Marketing provides clerical,  administrative
and accounting  services with respect to the insurance  policies.  For providing
these services, the insurance carriers pay Legacy Marketing administrative fees.

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

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


                                       7
<PAGE>

Recent Industry Developments

      On October 29, 2004, the California  Attorney  General's  Office announced
the launch of a formal  investigation  into possible  anti-trust  violations and
fraud by  insurance  companies  and  brokers,  including  bid  rigging and other
anti-competitive conduct in the insurance industry. Other state authorities have
announced similar investigations. In addition, California Insurance Commissioner
John  Garamendi has released for public review a proposed new set of regulations
addressing broker conduct. As currently drafted, the proposed regulations would,
among  other  things,  impose  penalties  on brokers  who fail to  disclose  all
material facts  surrounding  their receipt or potential receipt of income from a
third party flowing from a transaction on behalf of a client.

      In  December  2004,  the NAIC  approved  amendments  to the  NAIC's  model
Producer Licensing Act. Under the model Act, producers,  like Legacy Marketing's
Producers, who have been appointed by an insurer as its agent and do not receive
compensation  from a customer  will not be required  to  disclose  the amount of
compensation  received  from the  insurer.  However,  they must  disclose to the
customer  prior to the sale of  insurance  to the  customer  that  they  will be
receiving  compensation  from the insurer,  or that the producer  represents the
insurer and may provide services to the customer for the insurer.  One state has
adopted a regulation  based on the model Act and others are considering  similar
regulations or legislation. In addition, the NAIC has held a hearing to consider
additional  regulation  and  may  in  the  future  propose  additional  measures
affecting producers.

      Our core business consists of selling fixed annuity products, on behalf of
amendments to the insurance carriers,  through a network of approximately 24,400
Producers.  If the  amendments  to the  model  Act,  or  similar  or  additional
regulations,  were to be  adopted  in  states  that  we  conduct  business,  the
Producers  would have to  disclose  to  potential  purchasers  of fixed  annuity
products,  compensation  they may receive from Legacy Marketing or the insurance
carriers.  They may also  have to  disclose  that the  Producer  represents  the
insurance  carriers  and may provide  services to the  customer on behalf of the
carriers. We are unable to predict which states will adopt the amendments to the
model Act and whether  other new  initiatives  may affect our  business  and the
demand  for the fixed  annuity  products  marketed  by Legacy  Marketing.  It is
possible, however, that enactment of the amendments to the model Act, or similar
or additional regulations, could have a material adverse effect on the insurance
industry in general or on our financial condition and results of operations.


Critical Accounting Policies

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

      Legacy Marketing has marketing and administrative  agreements with certain
insurance carriers,  listed above. Under the terms of the marketing  agreements,
Legacy  Marketing is responsible for appointing  Producers,  who have contracted
with Legacy  Marketing to sell fixed  annuity  products,  with  various  states'
departments of insurance and the applicable insurance carriers.

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

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

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

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

                                       8
<PAGE>

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

      Modifications  or enhancements  made to an existing  software product that
result in additional  functionality are also capitalized.  When the new software
is placed in production, we begin amortizing the asset over its estimated useful
life.  Training  and  maintenance  costs are  accounted  for as expenses as they
occur. We periodically review capitalized  internal use software to determine if
the carrying value is fully recoverable. If there are future cash flows directly
related to the software we record an  impairment  loss when the present value of
the  future  cash  flows is less  than  the  carrying  value.  If  software,  or
components of software, in development are abandoned, the Company takes a charge
to write  off the  capitalized  amount in the  period  the  decision  is made to
abandon it.

      We review  our  goodwill  for  impairment  whenever  events or  changes in
circumstances  indicate  that  the  carrying  amount  of  goodwill  may  not  be
recoverable,  or at least once a year.  We are required to test our goodwill for
impairment  at the  reporting  unit  level by  measuring  the fair  value of the
reporting  unit. The Company  establishes  fair value by preparing a forecast of
the  discounted  value of  future  cash  flows  expected  to be  derived  by the
reporting unit.

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

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

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


Regan Holding Corp. Consolidated Results of Operations

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

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

Year ended December 31, 2003 compared with year ended December 31, 2002

      We had  consolidated  net  income of $5.0  million  in 2003,  compared  to
consolidated  net losses of $60,000 in 2002. The improved results were primarily
due to increased net income by Legacy  Marketing,  partially offset by increased
losses by Values  Financial  Network,  Inc.  primarily  due to asset  impairment
losses.


Legacy Marketing Results of Operations

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

      Legacy  Marketing had a net loss of $5.9 million in 2004,  compared to net
income of $7.2  million in 2003.  The  decline in results was  primarily  due to
decreased revenue, partially offset by decreased expenses.

      Legacy Marketing's  revenue decreased $34.0 million (50%) in 2004 compared
to  2003  primarily  due to  decreased  marketing  allowances  and  commissions.
Marketing allowances and commissions decreased $28.8 million (56%) primarily due
to  decreased  sales of fixed  annuity  products  issued by  Legacy  Marketing's
carriers.  The low interest  rate  environment  continues to cause many carriers
that issue declared rate fixed annuity products,  such as American National,  to
reduce crediting rates and compensation paid to Legacy Marketing and its network
of Producers on certain  products.  As a result,  sales of the affected products
were  lower  in  2004  than  in  2003.  The  affected  products   accounted  for


                                       9
<PAGE>

approximately 8% and 34% of our total  consolidated  revenue for the years ended
December 31, 2004 and 2003.  Revenue  derived from sales and  administration  of
American  National  products  decreased  $17.1 million in 2004 compared to 2003.
Legacy  Marketing has  developed  new products  with American  National that may
result in increased sales for Legacy Marketing in the long term.

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

      Legacy  Marketing  also  experienced  a decrease in sales of fixed annuity
products  issued by  Investors  Insurance  in 2004.  We believe the decrease was
primarily  attributable  to a  downgrade  in the  A.M.  Best  credit  rating  of
Investors Insurance from an A- rating to a B++ rating in September 2003. Revenue
derived from sales and administration of Investors  Insurance products decreased
$5.3 million in 2004 compared to 2003.

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

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

      During  the year  ended  December  31,  2004,  Legacy  Marketing  sold and
administered  products  primarily  on  behalf  of three  unaffiliated  insurance
carriers: American National,  Transamerica and Investors Insurance. As indicated
below, the agreements with these carriers generated a significant portion of our
total consolidated revenue:

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

      Legacy Marketing also performs administrative services for products issued
by John Hancock and IL Annuity.

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

                                                                   2004    2003
                                                                   ----    ----
BenchMark (SM) series (sold on behalf of American National)         24%     37%
SelectMark (SM) series (sold on behalf of Transamerica)             24%     25%
MarkOne (SM) series (sold on behalf of Investors Insurance)         23%     23%

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

      Legacy Marketing recognized investment income of $524,000 in 2004 compared
to $409,000 in 2003. This increase was primarily due to higher realized gains on
sales of investment securities during 2004.

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


                                       10
<PAGE>
Year ended December 31, 2003 compared with year ended December 31, 2002

      During 2003, Legacy Marketing's net income totaled $7.2 million,  compared
to net income of $1.6  million  during  2002.  This  increase of $5.6 million is
primarily due to increased revenues,  partially offset by increased expenses and
decreased investment income in 2003 compared to 2002.

      During 2003,  Legacy  Marketing's  revenue  increased  $20.2 million (42%)
primarily  due to increased  commissions  and  marketing  allowances.  Marketing
allowances and  commissions  increased $16.3 million (46%).  Legacy  Marketing's
sales increase was driven by sales of declared rate and equity index  annuities,
reflecting a shift in the marketplace toward more traditional fixed income-based
annuities.  The overall increase in commissions and marketing  allowances during
2003 was offset in part by the effect of discontinuing  several annuity products
issued by  Transamerica.  Legacy  Marketing  will continue to  administer  these
annuity  products  and  to  accept  additional  premium  payments,   subject  to
applicable  additional deposit limitations for these products.  The discontinued
products  accounted  for  approximately  3% and  31% of our  total  consolidated
revenue  during 2003 and 2002. In addition,  during the second  quarter of 2003,
American  National  reduced  the  crediting  rates of several  annuity  products
marketed by Legacy  Marketing and lowered the commission  rates that they pay to
Legacy  Marketing  for sales of these  products.  As a result,  sales of annuity
products on behalf of  American  National  began to  decrease  during the second
quarter  of  2003.  This  trend  continued  throughout  the  remainder  of 2003.
Furthermore, during the third quarter of 2003, Legacy Marketing discontinued the
marketing of the  AssureMark  (SM) fixed annuity  product  series issued by John
Hancock.  As a result,  sales of  annuity  products  on  behalf of John  Hancock
decreased during 2003.

      Administrative  fees  increased $1.9 million (16%) during 2003 compared to
2002  primarily  due to increased  issuing and  maintenance  fees.  Other income
increased $2.0 million during 2003 compared to 2002. This increase was primarily
due to a  performance  bonus earned on sales of fixed  annuity and life products
under the terms of one of our insurance carrier partner contracts.

      Legacy Marketing's expenses increased $10.6 million (23%) primarily due to
increased selling,  general and administrative  expenses and other expenses. The
increase in selling,  general and administrative  expenses of $9.7 million (24%)
was  primarily  due to increases in  compensation,  sales  promotion and support
expenses,  insurance,  occupancy,  and courier expenses.  Compensation increased
primarily due to salary  increases,  incentive based  compensation  based on our
consolidated  year-to-date  results,  temporary  help due to increased  business
volume, and benefits.  Sales promotion and support expenses increased  primarily
due to  bonuses  for our top  independent  insurance  producers  based  on their
achievement, for the year 2003, of predetermined annual sales targets which were
paid in the first quarter of 2004. Increased insurance expenses reflected rising
prices for errors and omissions and workers'  compensation  insurance  coverage.
The increase in courier expenses was related to increased business volume. Other
expenses  increased  $1.2  million  (47%)  primarily  due  to the  $1.1  million
write-off of internal use software.

      During  2003,  we  completed  our  evaluation  of an internal use software
project  that we  initially  licensed  in 1998 with the  intent  to  modify  and
customize  the  licensed  software  prior to  deployment.  We began this project
intending to replace our administration  system after the vendor of our existing
administration  system  required us to migrate  from the  existing  system to an
alternative  platform. In late 2002, we learned from our vendor that we might be
able to retain  our  existing  system.  Modification  and  customization  of the
licensed  software  was  suspended  in  December of 2002.  A financial  analysis
completed in the first quarter of 2003  indicated that remaining on the existing
system may provide greater benefit than converting to a new system. In the third
quarter of 2003, our vendor concluded that we could continue to use our existing
system for an extended  period.  We have completed a rigorous  evaluation of our
Company-wide  technological needs, which included an assessment of the viability
of the existing  system.  As a result of this  assessment  we concluded  that we
would use both systems and in the fourth quarter of 2003 we recorded a write-off
of $1.1 million associated with abandoned components of the software cost.

      Legacy Marketing recognized investment income of $409,000 in 2003 compared
to $638,000 in 2002.  This decrease was primarily due to lower realized gains on
sales of investment securities during 2003.


Legacy Financial Results of Operations

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

      Legacy Financial incurred net losses of $441,000 during 2004,  compared to
net losses of $683,000  during 2003. The reduction in net loss was primarily due
to increased revenue.

      Legacy Financial revenue increased $288,000 (10%) in 2004 compared to 2003
primarily  due to increased  commission  income as a result of  increased  sales
volume.

                                       11
<PAGE>
      Legacy  Financial  expenses  decreased  $217,000  (5%) in 2004 compared to
2003.  The  decrease  was  primarily  due to a decrease in selling,  general and
administrative  expenses of $206,000 (6%). The decrease was mainly  attributable
to a decrease in compensation  resulting from decreased headcount,  reduction in
temporary help and decreased employee incentive-based compensation.


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


      Legacy  Financial  has incurred  cumulative  losses since its inception in
1995.  We have  committed to make  sufficient  contributions  to support  Legacy
Financial's operations through February 2006.

Year ended December 31, 2003 compared with year ended December 31, 2002

      Legacy Financial incurred net losses of $683,000 during 2003,  compared to
net losses of $595,000 during 2002.  Results declined primarily due to increased
expenses partially offset by increased revenues.

      Legacy Financial revenue increased  $460,000 (18%) during 2003 compared to
2002, primarily due to increased  reimbursable  insurance premiums and increased
sponsorship  revenues,  partially offset by decreased  marketing  allowances and
commissions related to lower overall sales volume and changes in product mix.

      Legacy  Financial  expenses  increased  $582,000 (17%) in 2003 compared to
2002.  The increase  was  primarily  due to an increase in selling,  general and
administrative expenses and other expenses.  Selling, general and administrative
expenses  increased  $359,000 (11%)  primarily  attributable  to increased sales
promotion  expenses,  increased  errors and omissions  insurance  premiums,  and
increased  incentive  compensation.  Other  expenses  increased  $223,000  (71%)
primarily  due  to  increased  equipment   maintenance  expenses  and  increased
insurance costs.


Values Financial Network, Inc. Results of Operations

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

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

      When we purchased VFN in 2000, part of the purchase price was allocated to
goodwill.  Before January 1, 2002, we amortized the goodwill on a  straight-line
basis over 10 years, which was its estimated useful life.  Pursuant to Statement
of Financial  Accounting  Standards  No. 142 ("SFAS  142"),  "Goodwill and Other
Intangible  Assets,"  which is  required  to be  applied  for all  fiscal  years
starting  after December 15, 2001, we ceased  amortizing  goodwill on January 1,
2002. As required by SFAS 142, we perform an annual  goodwill  impairment  test.
The  impairment  test of SFAS  142  requires  us to  measure  fair  value of the
reporting  unit.  We  established  fair value by  preparing  a  forecast  of the
discounted value of future cash flows expected to be derived from VFN.

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

      When we purchased VFN in 2000,  among the assets  acquired were long-lived
assets  comprising  a  website,   which   incorporates  sales  lead  management,
investment  screening  and  asset  allocation  functionalities,  and  copyrights
related to two books. These assets were recorded at fair value, as determined by
an independent appraisal. In connection with the updated measurement of the fair
value of the VFN asset group as discussed  above, we recorded a long-lived asset
impairment loss of $394,000 during 2003, included in Other expenses.

      During the second  quarter of 2004,  due to the  failure of VFN to produce
revenues as projected,  particularly in the corporate arena, we decided to cease
actively marketing to the corporate market. As a result,  management lowered its
expectations  for future  sales.  This event met the  criteria of a  "triggering
event" for  testing  the  recoverability  of  long-lived  assets as  required by
Statement of Financial Accounting Standards No. 144 ("SFAS 144") "Accounting for


                                       12
<PAGE>

the Impairment or Disposal of Long-Lived Assets".  Accordingly,  we compared the
carrying  amount  of  VFN's  long-lived  assets  to  the  projected  sum  of the
undiscounted cash flows expected to result from the use and eventual disposition
of the  asset  group.  Based on the fact that the sum of the  undiscounted  cash
flows  exceeded  VFN's assets,  we concluded no  impairment  had occurred to the
long-lived assets. As a result of performing the impairment tests required under
SFAS 144, we were then  required  under the  provisions of SFAS 142 to perform a
goodwill  impairment test using the revised cash flows forecast discounted at an
appropriate  cost of  capital.  The  results  of this  test  indicated  that our
goodwill was not  recoverable.  Accordingly,  we recorded a goodwill  impairment
loss on the remaining balance of $679,000 during the second quarter of 2004.


Year ended December 31, 2003 compared with year ended December 31, 2002

      Values Financial Network,  Inc. incurred net losses of $1.0 million during
2003,  compared to net losses of $520,000 during 2002. The increased losses were
due to goodwill,  intangibles,  and long-lived  asset  impairment  losses during
2003, discussed above. Revenues increased $23,000 (329%) during 2003 compared to
2002  primarily due to rental income from a tenant who began  subleasing  office
space from VFN in the second quarter of 2003. Expenses, excluding the impairment
losses, were relatively unchanged during 2003 compared to 2002.


Imagent Online Results of Operations

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

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


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

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


Year ended December 31, 2003 compared with year ended December 31, 2002

      Imagent  Online had net losses of $606,000  during  2003,  compared to net
losses of $648,000 during 2002.  This favorable  change of $42,000 was primarily
due to increased revenues in 2003.


Other Segments Results of Operations

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

      During 2004,  combined net income from Legacy Advisory Services and Legacy
Re, which is inactive,  was $148,000 compared to combined net income of $122,000
in 2003.  The  favorable  change was  primarily  due to  increased  advisory fee
revenues, partially offset by an increase in professional fees.


Year ended December 31, 2003 compared with year ended December 31, 2002

      During 2003,  combined net income from Legacy Advisory Services and Legacy
Re was  $122,000,  compared  to  combined  net income of  $61,000 in 2002.  This
favorable  change  of  $61,000  was  primarily  due to  increased  advisory  fee
revenues.


Liquidity and Capital Resources

      Net cash used by operating activities was $4.4 million in 2004 compared to
net cash provided by operating  activities of $12.7 million in 2003.  The change
was primarily due to (1) decreased  operating  results,  (2) decreased  accounts
payable  and  accrued  liabilities,  primarily  due to the payment of bonuses to
Wholesalers  based on their  achievement  of  predetermined  2003 sales targets,
payments of employee  2003  incentive  bonuses and  payments  associated  with a


                                       13
<PAGE>

Producer  incentive  trip,  (3)  increase in income  taxes  receivable  due to a
pre-tax loss in 2004, (4) a smaller decrease in prepaid expenses and deposits in
2004 compared to 2003 and a (5) decrease in the write-off of fixed assets. These
amounts were partially offset by decreased accounts receivable  primarily due to
a decline in sales volume and decreased deferred tax assets,  primarily due to a
write-off of deferred tax assets  associated with unexercised  stock options and
an increase in the valuation  allowance related to unexercised stock options and
Legacy Marketing's state net operating loss carryforward.

      Net cash used in investing activities was $3.4 million in 2004 compared to
$6.0 million in 2003.  The decrease was primarily  due to reduced  purchases and
increased  liquidation of  available-for-sale  securities to meet operating cash
needs. The decrease was partially offset by increased  purchases of fixed assets
primarily  due to  construction  costs  related  to our new  servicing  facility
building in Rome, Georgia and an increase in computer software purchases.

      Net  cash  provided  by  financing  activities  was $2.2  million  in 2004
compared to net cash used in financing  activities of $1.6 million in 2003.  The
change was  primarily due to proceeds  from our  construction  loan and mortgage
loan to finance the new building in Rome, Georgia, and proceeds from exercise of
stock options.

      During 2003, we began  construction of a new building in Rome, Georgia and
established a $2.7 million loan facility to finance  construction  costs. During
April 2004, we refinanced our construction loan replacing it with a $2.9 million
variable interest rate note indexed to LIBOR plus 1.9%. The note is payable over
ten years in monthly  installments  of  principal,  amortized  on the basis of a
20-year term, and interest. At the end of the ten years, we must pay the balance
of the  principal  due on the note.  The  outstanding  balance of the note as of
December 31, 2004 was $2.8 million.  To manage interest expense, we entered into
an interest rate swap  agreement for the notional  amount of the note, to modify
its  interest  characteristics  from a variable  rate to a fixed rate.  The swap
agreement involves the exchange of interest  obligations from April 2004 through
April 2014 whereby we pay a fixed rate of 6.8% in exchange for LIBOR plus 1.9%.


      We are obligated to repurchase  certain  shares of our common stock.  Cash
paid to  repurchase  some of  these  shares  totaled  $966,000  in 2004 and $1.2
million in 2003. Based upon the estimated fair market values of the Series A and
B  Redeemable  Common  Stock as of December  31,  2004,  the  redemption  of all
eligible  shares  during 2005 would  require $5.9  million.  As the value of our
common  stock  rises,  our monetary  obligation  with respect to the  redeemable
common stock also increases.


      We lease office and warehouse  premises and certain office equipment under
non-cancelable  operating leases. As of December 31, 2004, our total contractual
cash  obligations,  including the building  financing  discussed above,  were as
follows:
<TABLE>
<CAPTION>
                                                                                       Payments Due by Period
                                                  ----------------------------------------------------------------------------------
Contractual Obligations                             Total         Less than 1 year   1 - 3 years     4 - 5 years     After 5 years
                                                  -----------      -----------      -----------      -----------      -----------
<S>                                               <C>              <C>              <C>              <C>              <C>
Debt                                              $ 9,907,000      $   199,000      $   441,000      $   506,000      $ 8,761,000
Operating Leases                                    1,975,000          749,000        1,073,000          153,000             --
                                                  -----------      -----------      -----------      -----------      -----------
Total Contractual Cash Obligations                $11,882,000      $   948,000      $ 1,514,000      $   659,000      $ 8,761,000
                                                  ===========      ===========      ===========      ===========      ===========
</TABLE>


      During 2003,  we amended our  Shareholder  Agreement  with Lynda L. Regan,
Chief  Executive  Officer of the Company and Chairman of our Board of Directors.
Under the terms of the amended agreement,  upon the death of Ms. Regan, we would
have the option (but not the obligation) to purchase from Ms. Regan's estate all
shares of common stock that were owned by Ms. Regan at the time of her death, or
were  transferred by her to one or more trusts prior to her death.  In addition,
upon the  death of Ms.  Regan,  her heirs  would  have the  option  (but not the
obligation) to sell their inherited  shares to us. The purchase price to be paid
by us  shall be equal to 125% of the  fair  market  value of the  shares.  As of
December 31,  2004,  we believe that 125% of the fair market value of the shares
owned by Ms.  Regan  was equal to $26.0  million.  We have  purchased  four life
insurance policies with a combined face amount of $33 million for the purpose of
funding this potential obligation upon Ms. Regan's death.


      We used $4.4 million of cash in our operations  and incurred  consolidated
net losses of $7.5  million  during the year ended  December  31,  2004.  If our
consolidated net losses continue, or if requests to repurchase redeemable common
stock  increase  significantly,  a cash shortfall  could  ultimately  occur.  We
believe that existing cash balances,  together with  anticipated  cash flow from
operations,  will provide  sufficient  funding for the  foreseeable  future.  In
addition,  we do not anticipate  having  significant  capital purchases in 2005.
However,  in the event that a cash  shortfall  occurs,  we believe that adequate
financing  could be  obtained  to meet  our cash  flow  needs.  There  can be no
assurances that such financing would be available on favorable terms.


Recent Accounting Pronouncements

      In December 2004, the FASB issued SFAS No. 123(R),  "Share-Based Payment",
which  establishes  standards for  transactions in which an entity exchanges its
equity instruments for goods or services. This standard requires a public entity


                                       14
<PAGE>

to measure the cost of employee  services  received in exchange  for an award of
equity  instruments  based  on the  grant-date  fair  value of the  award.  This
eliminates  the exception to account for such awards using the intrinsic  method
previously allowable under APB Opinion No. 25. SFAS No. 123(R) will be effective
for interim or annual reporting  periods beginning on or after June 15, 2005. We
continue to assess the  potential  impact that the  adoption of SFAS No.  123(R)
could have on our financial position, results of operations or statement of cash
flows.


                                  RISK FACTORS

                          RISKS RELATED TO OUR COMPANY

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

      We had a net loss of $7.5  million for the year ended  December  31, 2004.
The  loss  was  primarily  due to a loss  at  Legacy  Marketing  resulting  from
decreased  revenue.  The  decrease  in  revenue  was due to  decreased  sales of
declared  rate   annuities   resulting  from  a  continuing  low  interest  rate
environment  during 2004. The low interest rate environment caused many carriers
that  issue  declared  rate   annuities  to  reduce  the  crediting   rates  and
compensation paid on some of their products,  which negatively impacted sales of
declared rate annuities.  Legacy Marketing's  annuity sales were also negatively
affected by the Company discontinuing  marketing Transamerica products effective
May 3, 2004.


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

      Legacy Marketing has marketing agreements with Transamerica Life Insurance
and Annuity Company,  American National Insurance Company, John Hancock Variable
Life Insurance Company,  Investors  Insurance  Corporation,  and Americom Life &
Annuity Insurance Company. Legacy Marketing has also entered into administrative
agreements with each of the five insurance carriers and IL Annuity and Insurance
Company,  whose marketing agreement terminated during the first quarter of 2002.
During 2004, 25%, 24%, and 27%, of our total consolidated  revenue resulted from
agreements with American National, Transamerica, and Investors Insurance. During
2003,  37%, 25%, and 23% of our total  consolidated  revenue was generated  from
agreements with American National, Transamerica, and Investors Insurance.

      Effective   May  3,  2004,   Legacy   Marketing   discontinued   marketing
Transamerica  products  that  were  marketed  exclusively  by  Legacy  Marketing
primarily  because  those  products no longer met  Transamerica's  profitability
targets. Legacy Marketing will continue to administer these annuity products and
to accept additional premium payments,  subject to applicable additional deposit
limitations  for  these  products.   The  discontinued  products  accounted  for
approximately 24% and 25% of our total consolidated  revenue for the years ended
December  31,  2004  and  2003.   Revenue  from  sales  and   administration  of
Transamerica  products  decreased  $8.5  million  in 2004  compared  to 2003 and
accounted for approximately 24% of our total  consolidated  revenue for the year
ended December 31, 2004.

      In  addition,  Legacy  Marketing  discontinued  marketing  life  insurance
products issued by American National effective during the first quarter of 2003.
These  products  accounted  for a nominal  amount of revenue  during each of the
years ending December 31, 2004,  2003, and 2002.  Legacy Marketing will continue
to administer American National life insurance products, including acceptance of
renewal premium.

      During  the  second  quarter of 2003,  American  National,  which sets the
crediting rates for the American National products marketed by Legacy Marketing,
reduced the crediting rates of several such annuity products  marketed by Legacy
Marketing.  In addition,  American National lowered the commission rates that it
pays to Legacy  Marketing  for sales of these  products.  As a result,  sales of
annuity  products on behalf of American  National began to decrease  through the
remainder of 2003.  Sales and  administration  of these  products  declined from
$11.6  million  during the first six months of 2003 to $6.2  million  during the
second half of 2003, a 47% decline.  In addition,  sales and  administration  of
these  products  declined  from $26.3  million in 2003 to $9.2  million in 2004.
Legacy  Marketing  developed the BenchMark  Reliance (SM) annuity product during
2003 and expects to develop new annuity products with American National that may
result in increased sales for Legacy Marketing in the long term.

      During  the third  quarter  of 2003,  Legacy  Marketing  discontinued  the
marketing of the  AssureMark  (SM) fixed annuity  product  series issued by John
Hancock.  As a result,  sales of  annuity  products  on  behalf of John  Hancock
decreased  during the  remainder  of 2003.  Revenues  from sales of John Hancock
products  decreased  $1.5 million in 2004 compared to 2003,  and $1.9 million in
2003 compared to 2002.



                                       15
<PAGE>

      In June 2002, Legacy Marketing  entered into marketing and  administrative
services  agreements  with  Investors  Insurance  Corporation,  an  unaffiliated
insurance   carrier.   Under  these  agreements,   Legacy  Marketing  sells  and
administers annuity products on behalf of Investors Insurance.

      On July 1, 2002,  Regan Holding entered into a Purchase  Option  Agreement
with  SCOR  Life  U.S.  Re  Insurance  Company  ("SCOR"),  a 100%  owner  of the
outstanding capital stock of Investors  Insurance.  Pursuant to the terms of the
agreement,  SCOR has granted us the right to purchase  the  outstanding  capital
stock of Investors  Insurance in exchange for annual  option fees.  We have paid
annual option fees totaling  approximately $3.0 million as of December 31, 2004.
We have the right to  exercise  the option at any time  prior to the  expiration
date on June 30, 2005. If we elect to exercise the option,  we must complete the
purchase  transaction within two years of exercising the option. Upon completion
of a purchase  transaction,  the option fees will be  included  in the  purchase
price.  If the option  expires  unused,  the fees paid will be expensed.  Before
expiration, we can request a refund of fees paid in the event that the financial
rating of  Investors  Insurance  declines  as  defined in the  agreement.  As of
December 31, 2004, the Investors  Insurance rating has declined to a level where
we can request such a refund.  We are exploring  various  methods to finance the
acquisition  of Investors  Insurance,  including  the issuance of debt or equity
securities  by Regan  Holding  or one of our  subsidiaries.  As a result,  it is
possible that we will issue a significant amount of debt or equity securities to
one or more new investors.  Any such issuance of equity  securities would likely
reduce the percentage ownership of Regan Holding held by current shareholders.

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

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


Our consolidated revenues may decrease  significantly due to the discontinuation
of the marketing of Transamerica products.

      Effective   May  3,  2004,   Legacy   Marketing   discontinued   marketing
Transamerica  products that were marketed exclusively by Legacy Marketing.  As a
result,  sales  of  Transamerica   products  decreased  during  2004.  Sales  of
Transamerica products represented 24% and 25% of our consolidated revenue during
the years ended  December 31, 2004 and 2003. The failure to develop new products
or the  failure  to  increase  the sales of other  new  annuity  products  could
adversely affect our results of operations and financial condition.


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

      Our success depends  largely on the skills,  experience and performance of
certain  key  members  of our  management.  In the  recent  past,  we have  been
successful at attracting and retaining key personnel. We have no agreements with
these  individuals  requiring them to maintain their  employment  with us. If we
lose one or more of these key employees,  particularly Lynda L. Regan,  Chairman
of the Board and Chief Executive Officer, or R. Preston Pitts, President,  Chief
Operating Officer and Secretary, our business,  operating results, and financial
condition  could be  diminished  because  we rely on their  contacts,  insurance
carrier  and  Producer  relationships,  and  strategic  direction  to drive  our
revenues.  However,  we are not aware of any key  personnel  who are planning to
retire or leave our company in the near future. Although we maintain and are the
beneficiary of key person life insurance policies on the lives of Lynda L. Regan
and R.  Preston  Pitts,  we do not  believe  the  proceeds  would be adequate to
compensate us for their loss.

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


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

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

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

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

                                       16
<PAGE>

      o    The relationship between Legacy Marketing and our insurance carriers.

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

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

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


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

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

      Our cash and available-for-sale  marketable security positions at December
31, 2004, 2003 and 2002 were $4.3 million, $15.8 million and $9.7 million.


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


      As of December 31, 2004, we were obligated to redeem  2,853,000  shares of
Series A Common  Stock at the  option of the  holders  of these  shares.  Of the
553,000  shares of Series B Common Stock  outstanding  at December 31, 2004,  we
were  obligated to redeem up to 10% of these shares at the option of the holders
of these shares,  limited to a specified  twenty-day period each year. The price
per  share is based  on the  estimated  fair  market  value of the  stock on the
redemption date. Based upon the estimated fair market values of the Series A and
B  Redeemable  Common  Stock as of December  31,  2004,  the  redemption  of all
eligible shares during 2005 would require $5.9 million,  which would  materially
decrease our cash position.

      Pursuant to the terms of our Amended and Restated Shareholder's  Agreement
with Lynda L. Regan, our Chief Executive  Officer,  upon the death of Ms. Regan,
the heirs of Ms. Regan will have the option (but not the  obligation) to sell to
us all or a portion of the shares of the Company  owned by Ms. Regan at the time
of her death and we will have the  obligation to buy those shares.  The purchase
price to be paid by us, if any,  shall be equal to 125% of the fair market value
of the shares. As of December 31, 2004, we believe 125% of the fair market value
of the shares owned by Ms. Regan was equal to $26.0  million.  We have purchased
four life insurance  policies with a combined face amount of $33 million for the
purpose  of  funding  this  potential  obligation.  There can be no  assurances,
however,  that the proceeds from these  insurance  policies will be available or
sufficient  to cover the purchase  price of the shares owned by Ms. Regan at the
time of her  death.  If the  proceeds  from  the  insurance  policies  were  not
available or sufficient to cover the purchase price of Ms. Regan's shares at the
time of her death,  our  operating  results  and  financial  condition  could be
adversely affected.


                                       17
<PAGE>
                          RISKS RELATED TO OUR INDUSTRY

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

      The fixed annuity business is rapidly evolving and intensely  competitive.
Legacy  Marketing's  primary market is fixed annuities sold through  independent
producers.  In addition,  Legacy  Marketing  administers  the  products  sold by
Producers on behalf of the issuing  insurance  carriers.  Fixed annuity sales in
the United States were approximately $91 billion in 2004. Legacy Marketing had a
1% market share of the 2004 fixed  annuity  sales in the United  States based on
Legacy  Marketing's  $800  million  of  inforce  premiums  placed  in  2004 as a
percentage  of the $91 billion of  annuities  sold in the United  States  during
2004. Some of Legacy Marketing's top competitors selling fixed annuities through
independent  sales channels are Allianz Life of North America,  American  Equity
Investment Life,  Jefferson Pilot Financial Insurance Company, and AmerUs Group.
These  competitors  may have greater  financial and other  resources  than we do
which allow them to respond more quickly  than us under  certain  circumstances.
Some of Legacy  Marketing's  competitors are insurance  companies that only sell
their own annuity products.  Legacy Marketing,  however,  sells annuity products
issued by several different insurance carriers. Legacy Marketing, therefore, has
the flexibility to develop and sell a wide variety of annuity  products by using
its established  relationships with its current insurance carrier partners or by
approaching  new  insurance  carriers  to  form  relationships   whereby  Legacy
Marketing  develops new annuity products to sell. This flexibility allows Legacy
Marketing to simultaneously leverage the resources of several insurance carriers
and  eliminates  Legacy  Marketing's  dependence  on any one source for  annuity
products.  Legacy  Marketing  is not  aware  of any  significant  new  means  of
competition,  products or  services  that its  competitors  provide or will soon
provide.  However,  in the highly  competitive  fixed annuity  marketplace,  new
distribution models, product innovations and technological advances may occur at
any time and could present Legacy Marketing with competitive  challenges.  There
can be no assurance that Legacy Marketing will be able to compete  successfully.
In addition, Legacy Marketing's business model relies on Wholesaler distribution
networks  to  effectively   market  its  products   competitively.   Maintaining
relationships with these Wholesaler  distribution  networks requires introducing
new  products  and  services to the market in an  efficient  and timely  manner,
offering  competitive  commission  schedules,  and providing superior marketing,
training,  and support. In the recent past, Legacy Marketing has been reasonably
successful  in expanding and  maintaining  its current  Wholesaler  distribution
network.  Due to competition among insurance  companies and insurance  marketing
organizations for successful Wholesalers,  there can be no assurance that Legacy
Marketing  will be able to  retain  some or all of its  Wholesaler  distribution
networks.


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

      On October 29, 2004, the California  Attorney  General's  Office announced
the launch of a formal  investigation  into possible  anti-trust  violations and
fraud by  insurance  companies  and  brokers,  including  bid  rigging and other
anti-competitive conduct in the insurance industry. Other state authorities have
announced similar investigations. In addition, California Insurance Commissioner
John  Garamendi has released for public review a proposed new set of regulations
addressing broker conduct. As currently drafted, the proposed regulations would,
among  other  things,  impose  penalties  on brokers  who fail to  disclose  all
material facts  surrounding  their receipt or potential receipt of income from a
third party flowing from a transaction on behalf of a client.

      In  December  2004,  the NAIC  approved  amendments  to the  NAIC's  model
Producer Licensing Act. Under the model Act, producers,  like Legacy Marketing's
Producers, who have been appointed by an insurer as its agent and do not receive
compensation  from a customer  will not be required  to  disclose  the amount of
compensation  received  from the  insurer.  However,  they must  disclose to the
customer  prior to the sale of  insurance  to the  customer  that  they  will be
receiving  compensation  from the insurer,  or that the producer  represents the
insurer and may provide services to the customer for the insurer.  One state has
adopted a regulation  based on the model Act and others are considering  similar
regulations or legislation. In addition, the NAIC has held a hearing to consider
additional  regulation  and  may  in  the  future  propose  additional  measures
affecting producers.

      Our core business consists of selling fixed annuity products, on behalf of
insurance carriers,  through a network of approximately 24,400 Producers. If the
amendments  to the model Act, or similar or additional  regulations,  were to be
adopted in states that we conduct business, the Producers would have to disclose
to potential purchasers of fixed annuity products, compensation they may receive
from Legacy Marketing or the insurance carriers.  They may also have to disclose
that the Producer  represents the insurance carriers and may provide services to
the customer on behalf of the  carriers.  We are unable to predict  which states
will adopt the amendments to the model Act and whether other new initiatives may
affect our business and the demand for the fixed  annuity  products  marketed by
Legacy Marketing.  It is possible,  however, that enactment of the amendments to
the model  Act,  or  similar or  additional  regulations,  could have a material
adverse  effect  on the  insurance  industry  in  general  or on  our  financial
condition and results of operations.

                                       18
<PAGE>

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

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


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

      Under the Internal Revenue Code of 1986, as amended, income tax payable by
policyholders on investment  earnings is deferred during the accumulation period
of most of the annuity  products that Legacy Marketing  markets.  This favorable
income tax treatment results in our policyholders  paying no income tax on their
earnings in the annuity products until they take a cash distribution. We believe
that the tax deferral features contained within the annuity products that Legacy
Marketing  markets  give  our  products  a  competitive   advantage  over  other
non-insurance  investment  products  where  income  taxes may be due on  current
earnings.  If the tax code is  revised  to  reduce  the  tax-deferred  status of
annuity products or to increase the tax-deferred  status of competing  products,
our business could be adversely impacted because our competitive advantage could
be weakened.  In addition,  some products that we sell receive  favorable estate
tax treatment  under the tax code. If the tax code is revised to change existing
estate tax laws,  our business  could be adversely  affected.  We cannot predict
other future tax  initiatives  that the federal  government may propose that may
affect us.


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

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


Item 7a. Quantitative and Qualitative Disclosure About Market Risk

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

      We did not have any investments in fixed income instruments as of December
31, 2004.

      Equity price risk is the potential  loss arising from changes in the value
of equity securities. In general, equity securities have more year-to-year price
variability  than  intermediate  term high-grade  bonds.  However,  returns over
longer time frames have been consistently  higher. Our equity securities consist
primarily of investments  in broadly  diversified  mutual funds.  As a result of
favorable market  conditions  related to our mutual fund  investments,  the fair
value of our equity  securities is above  original cost at December 31, 2004 and
2003. The original cost and fair values of our marketable  equity securities are
shown below:

                                       19
<PAGE>
                                          Original Cost      Fair Value
                                          -------------      ----------
      December 31, 2004                     $6,353,000       $7,900,000
      December 31, 2003                     $5,633,000       $6,308,000


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


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


                                       20
<PAGE>

Item 8. Financial Statements and Supplementary Data


             REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

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

In our opinion,  the  accompanying  consolidated  balance  sheet and the related
consolidated  statements  of  operations,  shareholders'  equity  and cash flows
present  fairly,  in all  material  respects,  the  financial  position of Regan
Holding  Corp.  and its  subsidiaries  (the  "Company") at December 31, 2004 and
2003,  and the results of their  operations and their cash flows for each of the
three years in the period ended December 31, 2004 in conformity  with accounting
principles  generally accepted in the United States of America.  These financial
statements   are  the   responsibility   of  the   Company's   management.   Our
responsibility  is to express an opinion on these financial  statements based on
our audits.  We conducted our audits of these  statements in accordance with the
standards of the Public  Company  Accounting  Oversight  Board (United  States).
Those standards  require that we plan and perform the audit to obtain reasonable
assurance   about  whether  the  financial   statements  are  free  of  material
misstatement.  An audit includes examining, on a test basis, evidence supporting
the  amounts  and  disclosures  in  the  financial  statements,   assessing  the
accounting  principles  used and significant  estimates made by management,  and
evaluating the overall  financial  statement  presentation.  We believe that our
audits provide a reasonable basis for our opinion.



/s/ PricewaterhouseCoopers LLP
San Francisco, California

March 29, 2005



                                       21
<PAGE>
<TABLE>
                                                REGAN HOLDING CORP. AND SUBSIDIARES
                                                     Consolidated Balance Sheet
<CAPTION>

                                                                                                               December 31,
                                                                                                     -------------------------------
                                                                                                         2004                2003
                                                                                                     -----------         -----------
<S>                                                                                                  <C>                 <C>
Assets
Cash and cash equivalents                                                                            $ 4,348,000         $ 9,908,000
Trading investments                                                                                    7,900,000           6,308,000
Available-for-sale investments                                                                              --             5,939,000
Option to purchase Investors Insurance Company                                                         2,975,000           1,200,000
Accounts receivable, net of allowance of $569,000 and $866,000 at
     December 31, 2004 and 2003                                                                        1,496,000           4,225,000
Income taxes receivable                                                                                  755,000                --
Prepaid expenses and deposits                                                                            705,000             803,000
Deferred tax assets                                                                                      772,000           1,356,000
                                                                                                     -----------         -----------
     Total current assets                                                                             18,951,000          29,739,000
                                                                                                     -----------         -----------
Net fixed assets                                                                                      27,675,000          24,278,000
Deferred tax assets                                                                                         --             1,170,000
Goodwill                                                                                                    --               679,000
Intangible assets, net                                                                                   122,000             196,000
Notes receivable                                                                                         672,000             827,000
Other assets                                                                                             198,000             226,000
                                                                                                     -----------         -----------
     Total non current assets                                                                         28,667,000          27,376,000
                                                                                                     -----------         -----------
     Total assets                                                                                    $47,618,000         $57,115,000
                                                                                                     ===========         ===========

Liabilities, redeemable common stock, and shareholders' equity
Liabilities
Accounts payable and accrued liabilities                                                             $ 5,243,000         $10,790,000
Income taxes payable                                                                                        --             1,990,000
Current portion of notes payable and other borrowings                                                    199,000             307,000
                                                                                                     -----------         -----------
     Total current liabilities                                                                         5,442,000          13,087,000
                                                                                                     -----------         -----------
Deferred compensation payable                                                                          7,748,000           6,257,000
Deferred tax liabilities                                                                               1,242,000                --
Other liabilities                                                                                        854,000             196,000
Notes payable, less current portion                                                                    9,708,000           7,083,000
                                                                                                     -----------         -----------
     Total non current liabilities                                                                    19,552,000          13,536,000
                                                                                                     -----------         -----------
     Total liabilities                                                                                24,994,000          26,623,000
                                                                                                     -----------         -----------

Redeemable common stock, Series A and B                                                                7,486,000           8,964,000
                                                                                                     -----------         -----------

Shareholders' equity
Preferred stock, no par value:
Authorized:  100,000,000 shares; no shares issued or outstanding                                            --                  --
Series A common stock, no par value:
Authorized:  45,000,000 shares; issued or outstanding: 20,912,000 and
20,252,000 at December 31, 2004 and 2003                                                               3,847,000           3,158,000
Common stock committed                                                                                      --                25,000
Paid-in capital                                                                                        6,522,000           6,510,000
Retained earnings                                                                                      4,769,000          11,779,000
Accumulated other comprehensive income                                                                      --                56,000
                                                                                                     -----------         -----------
     Total shareholders' equity                                                                       15,138,000          21,528,000
                                                                                                     -----------         -----------
     Total liabilities, redeemable common stock, and shareholders' equity                            $47,618,000         $57,115,000
                                                                                                     ===========         ===========

<FN>
                                                 See notes to financial statements.
</FN>
</TABLE>

                                       22
<PAGE>
<TABLE>
                                                 REGAN HOLDING CORP. AND SUBSIDIARIES
                                                 Consolidated Statement of Operations

<CAPTION>
                                                                                          For the Year Ended December 31,
                                                                           ---------------------------------------------------------
                                                                               2004                  2003                  2002
                                                                           ------------          ------------          ------------
<S>                                                                        <C>                   <C>                   <C>
Revenue
     Marketing allowances and commission overrides                         $ 20,203,000          $ 48,396,000          $ 32,323,000
     Trailing commissions                                                     4,792,000             5,130,000             4,899,000
     Administrative fees                                                     10,288,000            13,875,000            12,007,000
     Other revenue                                                            2,102,000             3,516,000               820,000
                                                                           ------------          ------------          ------------
       Total revenue                                                         37,385,000            70,917,000            50,049,000
                                                                           ------------          ------------          ------------

Expenses
     Selling, general and administrative                                     38,414,000            53,583,000            43,521,000
     Depreciation and amortization                                            4,282,000             4,077,000             4,339,000
     Goodwill impairment losses                                                 679,000               491,000                  --
     Other                                                                    2,342,000             4,729,000             2,859,000
                                                                           ------------          ------------          ------------
       Total expenses                                                        45,717,000            62,880,000            50,719,000
                                                                           ------------          ------------          ------------

Operating income (loss)                                                      (8,332,000)            8,037,000              (670,000)

Other income
Investment income, net                                                          531,000               416,000               652,000
Interest expense                                                                 (9,000)              (33,000)              (76,000)
                                                                           ------------          ------------          ------------
     Total other income, net                                                    522,000               383,000               576,000
                                                                           ------------          ------------          ------------

Income (loss) before income taxes                                            (7,810,000)            8,420,000               (94,000)
Provision for (benefit from) income taxes                                      (343,000)            3,391,000               (34,000)
                                                                           ------------          ------------          ------------

Net income (loss) before accretion of redeemable
     common stock                                                            (7,467,000)            5,029,000               (60,000)
Reduction (accretion) of redeemable common stock                                512,000               (34,000)              (26,000)
                                                                           ------------          ------------          ------------
Net income (loss) available for common shareholders                        $ (6,955,000)         $  4,995,000          $    (86,000)
                                                                           ============          ============          ============

Basic earnings (loss) per share:
Earnings (loss) available for common shareholders                          $      (0.29)         $       0.20          $       --
Weighted average shares outstanding                                          23,880,000            24,431,000            25,093,000
Diluted earnings (loss) per share:
Earnings (loss) available for common shareholders                          $      (0.29)         $       0.18          $       --
Weighted average shares outstanding                                          23,880,000            27,330,000            25,093,000

<FN>
                                                 See notes to financial statements.
</FN>
</TABLE>

                                       23
<PAGE>
<TABLE>
                                                 REGAN HOLDING CORP. AND SUBSIDIARIES
                                            Consolidated Statement of Shareholders' Equity
                                         For the years ended December 31, 2004, 2003 and 2002

<CAPTION>

                                                             Series A Common Stock      Common
                                                         ----------------------------    Stock        Paid-in       Retained
                                                             Shares         Amount     Committed      Capital       Earnings
                                                         -------------- ------------- ----------- -------------- -------------
<S>                                                         <C>          <C>            <C>         <C>           <C>
Balance December 31, 2001                                   20,769,000   $ 3,596,000    $ 25,000    $ 6,424,000   $ 7,405,000
    Comprehensive loss, net of tax:
    Net loss                                                                                                          (60,000)
    Net unrealized gains on investments
    Less:
    Reclassification of net realized gains

       Total comprehensive loss
    Retirement of common stock upon
       voluntary repurchases                                  (274,000)     (272,000)                                (184,000)
    Retirement of redeemable common stock                                                                71,000
    Accretion to redemption value of
       redeemable common stock                                                                                        (26,000)
    Producer stock option expense                                                                         4,000             -
                                                         -------------- ------------- ----------- -------------- -------------
Balance December 31, 2002                                   20,495,000     3,324,000      25,000      6,499,000     7,135,000
    Comprehensive income, net of tax:
    Net income                                                                                                      5,029,000
    Net unrealized gains on investments
    Less:
    Reclassification of net realized losses

       Total comprehensive income
    Retirement of common stock upon
       voluntary repurchases                                  (398,000)     (363,000)                                (351,000)
    Retirement of redeemable common stock                                                                 1,000
    Accretion to redemption value of
       redeemable common stock                                                                                        (34,000)
    Producer stock option expense                                                                        10,000
    Producer stock option expense                              155,000       197,000
                                                         -------------- ------------- ----------- -------------- -------------
Balance December 31, 2003                                   20,252,000     3,158,000      25,000      6,510,000    11,779,000
    Comprehensive loss, net of tax:
    Net loss                                                                                                       (7,467,000)
    Net unrealized gains on investments
    Less:
    Reclassification of net realized gains

       Total comprehensive loss
    Retirement of common stock upon
       voluntary repurchases                                  (181,000)     (278,000)                                 (55,000)
    Issuance of common stock committed                                        25,000     (25,000)
    Exercise of stock options                                  841,000       942,000
    Reduction to redemption value of
       redeemable common stock                                                                                        512,000
    Producer stock option expense                                                                        12,000             -
                                                         -------------- ------------- ----------- -------------- -------------
Balance December 31, 2004                                   20,912,000   $ 3,847,000    $     --    $ 6,522,000   $ 4,769,000
                                                         ============== ============= =========== ============== =============
</TABLE>
<TABLE>
<CAPTION>
                                                           Accumulated
                                                             Other
                                                          Comprehensive
                                                          Income (loss)     Total
                                                          ------------  --------------
<S>                                                          <C>         <C>
Balance December 31, 2001                                    $ 56,000    $ 17,506,000
    Comprehensive loss, net of tax:
    Net loss                                                                  (60,000)
    Net unrealized gains on investments                        53,000          53,000
    Less:
    Reclassification of net realized gains                   (132,000)       (132,000)
                                                                        --------------
       Total comprehensive loss                                              (139,000)
    Retirement of common stock upon
       voluntary repurchases                                                 (456,000)
    Retirement of redeemable common stock                                      71,000
    Accretion to redemption value of
       redeemable common stock                                                (26,000)
    Producer stock option expense                                               4,000
                                                          ------------  --------------
Balance December 31, 2002                                     (23,000)     16,960,000
    Comprehensive income, net of tax:
    Net income                                                              5,029,000
    Net unrealized gains on investments                        72,000          72,000
    Less:
    Reclassification of net realized losses                     7,000           7,000
                                                                        --------------
       Total comprehensive income                                           5,108,000
    Retirement of common stock upon
       voluntary repurchases                                                 (714,000)
    Retirement of redeemable common stock                                       1,000
    Accretion to redemption value of
       redeemable common stock                                                (34,000)
    Producer stock option expense                                              10,000
    Producer stock option expense                                             197,000
                                                          ------------  --------------
Balance December 31, 2003                                      56,000      21,528,000
    Comprehensive loss, net of tax:
    Net loss                                                               (7,467,000)
    Net unrealized gains on investments                        24,000          24,000
    Less:
    Reclassification of net realized gains                    (80,000)        (80,000)
                                                                        --------------
       Total comprehensive loss                                            (7,523,000)
    Retirement of common stock upon
       voluntary repurchases                                                 (333,000)
    Issuance of common stock committed                                              -
    Exercise of stock options                                                 942,000
    Reduction to redemption value of
       redeemable common stock                                                512,000
    Producer stock option expense                                              12,000
                                                          ------------  --------------
Balance December 31, 2004                                    $    --     $ 15,138,000
                                                          ============  ==============

<FN>
                                                 See notes to financial statements.
</FN>
</TABLE>

                                       24
<PAGE>
<TABLE>
                                                 REGAN HOLDING CORP. AND SUBSIDIARIES
                                                 Consolidated Statement of Cash Flows
<CAPTION>

                                                                                           For the Year Ended December 31,
                                                                               -----------------------------------------------------
                                                                                   2004                2003                2002
                                                                               ------------        ------------        ------------
<S>                                                                            <C>                 <C>                 <C>
Cash flows from operating activities:
Net income (loss)                                                              $ (7,467,000)       $  5,029,000        $    (60,000)
Adjustments to reconcile net income (loss) to cash
  provided by (used in) operating activities:
     Depreciation and amortization                                                4,282,000           4,077,000           4,339,000
     Losses on write-off of fixed assets                                             67,000           1,772,000             255,000
     Impairment of goodwill and intangible assets                                   679,000             538,000                --
     Provision for (reduction of) doubtful accounts                                 (62,000)            399,000             393,000
     Deferred taxes                                                               3,034,000            (863,000)           (134,000)
     Amortization of premium or discount on investments                              40,000              84,000              76,000
     Unrealized (gains) losses on trading securities, net                          (869,000)         (1,709,000)          1,034,000
     Realized (gains) losses on sales of investments, net                          (133,000)             12,000            (219,000)
     Producer stock option expense                                                   12,000              10,000               4,000
Changes in operating assets and liabilities:
     Purchases of trading securities, net                                          (720,000)           (333,000)         (5,276,000)
     Accounts receivable                                                          2,791,000          (1,350,000)           (934,000)
     Prepaid expenses and deposits                                                   98,000           1,319,000          (1,065,000)
     Income taxes receivable and payable                                         (2,745,000)           (337,000)          2,403,000
     Accounts payable and accrued liabilities                                    (5,547,000)          1,884,000             604,000
     Deferred compensation payable                                                1,491,000           2,016,000            (115,000)
     Other operating assets and liabilities                                         686,000             177,000            (319,000)
                                                                               ------------        ------------        ------------
     Net cash provided by (used in) operating activities                         (4,363,000)         12,725,000             986,000
                                                                               ------------        ------------        ------------
Cash flows from investing activities:
Purchases of available-for-sale securities                                       (2,101,000)         (5,902,000)           (959,000)
Proceeds from sales of available-for-sale securities                              5,536,000           2,914,000           8,633,000
Proceeds from maturities of available-for-sale securities                         2,500,000           1,970,000                --
Option to purchase Investors Insurance Corporation                               (1,775,000)           (600,000)           (600,000)
Proceeds (payments) from notes receivable                                           155,000            (175,000)             24,000
Acquisition of prospectdigital assets                                                  --                  --              (225,000)
Purchases of fixed assets                                                        (7,672,000)         (4,197,000)         (5,580,000)
                                                                               ------------        ------------        ------------
     Net cash provided by (used in) investing activities                         (3,357,000)         (5,990,000)          1,293,000
                                                                               ------------        ------------        ------------
Cash flows from financing activities:
Proceeds from loans payable                                                       2,155,000             191,000           5,321,000
Payments toward loans payable                                                    (2,346,000)               --           (10,071,000)
Proceeds from note payable                                                        2,870,000                --             7,350,000
Payments toward notes payable                                                      (162,000)           (109,000)            (42,000)
Repurchases of redeemable common stock                                             (966,000)         (1,185,000)           (964,000)
Proceeds from exercise of common stock options                                      942,000                --                  --
Voluntary repurchases of common stock                                              (333,000)           (517,000)           (456,000)
                                                                               ------------        ------------        ------------
     Net cash provided by (used in) financing activities:                         2,160,000          (1,620,000)          1,138,000
                                                                               ------------        ------------        ------------
Net increase (decrease) in cash and cash equivalents                             (5,560,000)          5,115,000           3,417,000
Cash and cash equivalents, beginning of period                                    9,908,000           4,793,000           1,376,000
                                                                               ------------        ------------        ------------
Cash and cash equivalents, end of period                                       $  4,348,000        $  9,908,000        $  4,793,000
                                                                               ============        ============        ============

Supplemental cash flow information:
Taxes paid / (refunds received)                                                $   (650,000)       $  5,110,000        $      7,000
Interest paid                                                                  $    634,000        $    517,000        $    411,000

<FN>
                                                 See notes to financial statements.
</FN>
</TABLE>

                                       25
<PAGE>
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                      REGAN HOLDING CORP. AND SUBSIDIARIES


1. Organization and Summary of Significant Accounting Policies


      a. Organization

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

      As of December 31, 2004,  Legacy  Marketing had marketing  agreements with
Transamerica  Life  Insurance  and Annuity  Company  ("Transamerica"),  American
National  Insurance Company  ("American  National"),  John Hancock Variable Life
Insurance Company ("John Hancock"),  Investors Insurance Corporation ("Investors
Insurance"),   and  Americom  Life  &  Annuity  Insurance  Company  ("Americom")
(collectively,  the "carriers").  During 2002,  Legacy Marketing  terminated its
marketing  agreement with IL Annuity and Insurance  Company ("IL Annuity").  The
marketing  agreements  grant  Legacy  Marketing  the  exclusive  right to market
certain fixed annuity and life  insurance  products  issued by the carriers (the
"policies").  In  addition,  Legacy  Marketing  is  responsible  for  appointing
independent  insurance  producers,  who contract  with Legacy  Marketing to sell
policies,  with the  applicable  carrier.  For  providing  these  services,  the
carriers pay Legacy Marketing commissions and marketing allowances.

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

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


      b. Basis of Presentation

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

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


      c. Revenue Recognition

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

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


      d. Fair value of financial instruments

      The carrying values of the Company's financial instruments, including cash
equivalents, trading investments, accounts receivable, accounts payable, accrued
liabilities  and notes  payable  approximate  their market values based on their
relatively  short-term nature or comparable market information  available at the
respective balance sheet dates.

                                       26
<PAGE>
      e. Cash and Cash Equivalents

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


      f. Investments

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

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

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


      g. Fixed Assets

      Fixed assets are stated at cost,  including  capitalized  interest  during
construction  of  $24,000  during  2003,  less   accumulated   depreciation  and
amortization. The Company capitalizes consulting fees, and salaries and benefits
for employees who are directly  associated  with the development of software for
internal use when both of the following occur:

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

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

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

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

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

      h. Goodwill and Other Intangible Assets

      Goodwill  and Other  Intangible  assets  were  acquired  in the  Company's
purchase of Values Financial Network,  Inc. in 2000 and Prospectdigital,  LLC in
2002. Prior to January 1, 2002,  goodwill was amortized on a straight-line basis
over 10 years,  which is its  estimated  useful  life.  Pursuant to Statement of
Financial  Accounting  Standards  No.  142  ("SFAS  142"),  "Goodwill  and Other
Intangible  Assets," the Company ceased amortizing goodwill beginning January 1,
2002 (see Note 4). As  required  by SFAS 142,  the  Company  performs  an annual
goodwill  impairment  test. The impairment test of SFAS 142 requires the Company
to measure fair value of the reporting unit. The Company  established fair value
by preparing a forecast of the discounted value of future cash flows expected to
be derived from VFN.  Intangible  assets are amortized on a straight-line  basis
over their estimated useful lives of 5 years.


      i. Impairment of Long-Lived Assets

      In accordance  with  Statement of Accounting  Standards  ("SFAS") No. 144,
"Accounting  for the  Impairment or Disposal of Long-Lived  Assets," the Company
reviews  long-lived assets and intangible assets for impairment  whenever events
or changes in circumstances indicate that the carrying value of an asset may not
be recoverable. Measurement of the impairment of long-lived assets is based upon
management's   estimate  of   undiscounted   future  cash  flows.   The  Company
periodically  reviews  capitalized  internal  use  software to  determine if the
carrying  value is fully  recoverable.  If there are future cash flows  directly
related  to the  software  or the  business  unit  of  which  it is a  part,  as
applicable,  we record an  impairment  loss when the present value of the future


                                       27
<PAGE>

cash flows is less than the  carrying  value.  If  software,  or  components  of
software, in development are abandoned,  the Company takes a charge to write off
the capitalized amount in the period the decision is made to abandon it.


      j. Redeemable Common Stock

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


      k. Derivative Financial Instruments

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


      l. Income Taxes

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


      m. Stock Options

      The Company has a stock-based employee compensation plan (see Note 13) and
accounts  for this plan under the  recognition  and  measurement  principles  of
Accounting  Principles  Board  Opinion No. 25,  "Accounting  for Stock Issued to
Employees," and related  Interpretations.  No stock-based employee  compensation
cost is  reflected  in net loss,  as all options  granted  under the plan had an
exercise price equal to the fair market value of the underlying  common stock on
the date of grant.

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

<TABLE>
<CAPTION>
                                                                                       2004                2003            2002
                                                                                  -------------       -------------       ---------
<S>                                                                               <C>                 <C>                 <C>
Net income (loss) available for common
        shareholders, as reported                                                 $  (6,955,000)      $   4,995,000       $ (86,000)
Deduct:  Total stock-based employee
        compensation expense determined under the fair
        value method for all awards, net of related tax effects                        (258,000)           (424,000)       (478,000)
                                                                                  -------------       -------------       ---------

Pro forma net income (loss) available for common
        shareholders                                                              $  (7,213,000)      $   4,571,000       $(564,000)
                                                                                  =============       =============       =========

Earnings (loss) per share:

Basic - as reported                                                               $       (0.29)      $       0.20        $    --
Basic - pro forma                                                                 $       (0.30)      $       0.19        $   (0.02)

Diluted - as reported                                                             $       (0.29)      $       0.18        $    --
Diluted - pro forma                                                               $       (0.30)      $       0.17        $   (0.02)
</TABLE>

                                       28
<PAGE>


      The fair value of the  employee  option  grants  for pro forma  disclosure
purposes  was  estimated  using the minimum  value  method,  with the  following
assumptions:
<TABLE>
<CAPTION>
                                        2004                        2003                      2002
                                    ------------                ------------              ------------
<S>                                 <C>                         <C>                       <C>
Risk-free interest rates            2.84%-4.03%                 1.45%-3.20%               4.08%-4.52%
Expected life                       3-5 years                   3-5 years                 3-5 years
Dividend yield                      None                        None                      None
</TABLE>

      n. Recent Accounting Pronouncements

      In December 2004, the FASB issued SFAS No. 123(R),  "Share-Based Payment",
which  establishes  standards for  transactions in which an entity exchanges its
equity instruments for goods or services. This standard requires a public entity
to measure the cost of employee  services  received in exchange  for an award of
equity  instruments  based  on the  grant-date  fair  value of the  award.  This
eliminates  the exception to account for such awards using the intrinsic  method
previously allowable under APB Opinion No. 25. SFAS No. 123(R) will be effective
for interim or annual reporting periods beginning on or after June 15, 2005. The
Company  continues to assess the potential  impact that the adoption of SFAS No.
123(R) could have on its financial position,  results of operations or statement
of cash flows.


2. Investments

      The Company had no available  for sale  investments  at December 31, 2004.
The cost and fair value of  investment  securities  at December 31, 2003 were as
follows:
<TABLE>
<CAPTION>
                                                                                   Unrealied          Unrealized
                                                                 Cost Basis          Gains               Gains            Fair Value
                                                                -----------        -----------        -----------        -----------
<S>                                                             <C>                <C>                <C>                <C>
December 31, 2003
Available for sale investments
Corporate bonds maturing in 1 to 5 years                        $ 3,812,000        $    52,000        $      --          $ 3,864,000
Bond funds                                                        2,033,000             42,000               --            2,075,000
                                                                -----------        -----------        -----------        -----------
Total available for sale investments                            $ 5,845,000        $    94,000        $      --          $ 5,939,000
                                                                ===========        ===========        ===========        ===========

                                                                    2004               2003               2002
                                                                -----------        -----------        -----------
Gross realized gains                                            $   162,000        $     6,000        $   281,000
Gross realized losses                                           $   (33,000)       $   (18,000)       $   (62,000)
</TABLE>

    3. Fixed Assets

                                                           December 31,
                                                  ------------------------------
                                                       2004             2003
                                                  ------------     ------------
Computer hardware and purchased software          $ 10,465,000     $  8,075,000
Internal use software development costs             18,560,000       15,742,000
Leasehold improvements                               1,361,000        1,361,000
Furniture and equipment                              3,213,000        3,108,000
Building                                            10,884,000        9,446,000
Land                                                 3,092,000        2,718,000
                                                  ------------     ------------
                                                    47,575,000       40,450,000
Accumulated depreciation and amortization          (19,900,000)     (16,172,000)
                                                  ------------     ------------
Total                                             $ 27,675,000     $ 24,278,000
                                                  ============     ============


      When the Company purchased Value Financial Network,  Inc. ("VFN") in 2000,
among the assets acquired were long lived assets  comprised of a website,  which
incorporates  sales lead management,  investment  screening and asset allocation
functionalities, and copyrights related to two books. These assets were recorded
at fair value, as determined by an independent appraisal. In connection with the
updated  measurement  of the fair value of the VFN asset group as  discussed  in
Note 4 below,  the  Company  recorded  a  long-lived  asset  impairment  loss of
$394,000 during 2003, included in Other expenses.

      During  2003,  the Company  completed  its  evaluation  of an internal use
software  project that it  initially  licensed in 1998 with the intent to modify
and customize the licensed software prior to deployment.  The Company began this
project intending to replace its  administration  system after the vendor of its
existing administration system required the Company to migrate from the existing


                                       29
<PAGE>

system to an alternative  platform.  In late 2002, the Company  learned from its
vendor that it might be able to retain its  existing  system.  Modification  and
customization  of the  licensed  software  was  suspended in December of 2002. A
financial  analysis  completed  in the  first  quarter  of 2003  indicated  that
remaining on the existing  system may provide greater benefit than converting to
a new system.  In the third quarter of 2003, the Company's vendor concluded that
the Company could  continue to use its existing  system for an extended  period.
The  Company  has   completed  a  rigorous   evaluation   of  its   Company-wide
technological  needs,  which  included an  assessment  of the  viability  of the
existing  system.  As a result of this assessment the Company  concluded that it
would use both systems and in the fourth quarter of 2003 the Company  recorded a
write-off  of $1.1  million  associated  with the  abandoned  components  of the
software costs.


4. Goodwill and Other Intangible Assets

      When the Company purchased the assets of VFN in 2000, part of the purchase
price was for  goodwill.  Before  January 1, 2002,  the  Company  amortized  the
goodwill on a straight-line  basis over 10 years, which was its estimated useful
life.  Pursuant to Statement of Financial  Accounting  Standards  No. 142 ("SFAS
142"),  "Goodwill and Other  Intangible  Assets," the Company ceased  amortizing
goodwill on January 1, 2002.  As required by SFAS 142,  the Company  performs an
annual  goodwill  impairment  test. The impairment test of SFAS 142 requires the
Company to measure fair value of the  reporting  unit.  The Company  established
fair value by preparing a forecast of the discounted  value of future cash flows
expected to be derived from VFN.

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

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

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

      Acquired intangible assets, all subject to amortization:

                                              December 31,
                           -----------------------------------------------------
                                     2004                      2003
                           ------------------------  ---------------------------
                              Gross                      Gross
                            Carrying   Accumulated     Carrying   Accumulated
                             Amount    Amortization     Amount    Amortization
                           ---------   ------------   ---------   ------------
Copyrights                 $ 203,000    $(174,000)    $ 203,000    $(145,000)
Software license             223,000     (130,000)      223,000      (85,000)
                           ---------    ---------     ---------    ---------
      Total                $ 426,000    $(304,000)    $ 426,000    $(230,000)
                           =========    =========     =========    =========

      The aggregate  amortization expense for the years ended December 31, 2004,
2003 and 2002 was  $74,000,  $89,000 and  $91,000.  The  estimated  amortization
expense for the years ended December 31, 2005, 2006 and 2007 is $74,000, $45,000
and $4,000.


                                       30
<PAGE>

5. Option to Purchase Investors Insurance Corporation

      On July 1, 2002, the Company entered into a Purchase Option Agreement with
SCOR Life U.S. Re Insurance  Company  ("SCOR"),  a 100% owner of the outstanding
capital stock of Investors  Insurance.  Pursuant to the terms of the  agreement,
SCOR has granted the Company the right to purchase the outstanding capital stock
of Investors  Insurance in exchange for annual option fees. The Company has paid
annual option fees totaling  $2,975,000 as of December 31, 2004. The Company has
the right to  exercise  the option at any time prior to the  expiration  date on
June 30, 2005.  If the Company  elects to exercise the option,  it must complete
the  purchase  transaction  within  two years of  exercising  the  option.  Upon
completion  of a purchase  transaction,  the option fees will be included in the
purchase price.  If the option expires  unused,  the fees paid will be expensed.
Before  expiration,  the  Company can request a refund of fees paid in the event
that the  financial  rating of  Investors  Insurance  declines  as defined in an
agreement.  As of December 31, 2004, the Investors Insurance rating has declined
to a level where the Company can request such a refund.


6. Accounts Payable and Accrued Liabilities

                                                             December 31,
                                                    ----------------------------
                                                        2004             2003
                                                    -----------      -----------
Accrued compensation                                $ 1,952,000      $ 3,351,000
Accrued sales bonus                                      95,000        2,022,000
Accrued sales convention costs                          112,000        1,381,000
Commissions payable                                     381,000          832,000
Payable to insurance carrier                            237,000          345,000
Accounts payable                                        391,000          548,000
Accrued production premium deficiency                     2,000          206,000
Miscellaneous accrued expenses                        2,073,000        2,105,000
                                                    -----------      -----------
Total                                               $ 5,243,000      $10,790,000
                                                    ===========      ===========

7. Loan Payable and Note Payable

      The Company has a mortgage of $7.1 million on the office  building,  which
houses its headquarters.  Payment in full of this note is due on August 1, 2012.
Payments are due on the note based on a 25-year amortization schedule. On August
1, 2012,  the Company must pay the remaining  principal  due on the note,  which
will be approximately $5.9 million. Prior to August 1, 2006 the interest rate on
the note is 6.95%.  Thereafter,  the  interest  rate will be equal to LIBOR plus
2.55%,   adjusted   semi-annually,   subject  to  a  maximum  semi-annual  1.00%
increase/decrease  in the interest rate. The maximum interest rate is 10.50%. As
of December 31, 2004, the Company made payments of $267,000 toward the principal
balance of the note.  The required  principal  payments over the next five years
are: $125,000, $135,000, $144,000, $154,000, and $166,000.


      During 2003,  the Company  began  construction  of a new building in Rome,
Georgia and  established  a $2.7 million loan  facility to finance  construction
costs.  The  balance  due under this loan  facility  on  December  31,  2003 was
$191,000.  During  April 2004,  the Company  refinanced  its  construction  loan
replacing it with a $2.9 million  variable  interest  rate note indexed to LIBOR
plus  1.9%.  The note is  payable  over ten  years in  monthly  installments  of
principal, amortized on the basis of a 20-year term, and interest. At the end of
the ten years,  the  Company  must pay the balance of the  principal  due on the
note.  The  outstanding  balance of the note as of  December  31,  2004 was $2.8
million.  To manage interest expense,  the Company entered into an interest rate
swap  agreement  with a notional  amount equal to the  principal  balance of the
note,  which modifies its interest expense from a variable rate to a fixed rate.
The April 2004 swap agreement involves the exchange of interest obligations from
April 2004  through  April 2014 whereby the Company pays a fixed rate of 6.8% in
exchange for LIBOR plus 1.9%. As of December 31, 2004, the Company made payments
of $46,000  toward the  principal  balance of the note.  The required  principal
payments over the next five years are: $73,000,  $78,000,  $84,000, $90,000, and
$96,000.


8. Deferred Compensation Payable

      The Company sponsors a qualified defined  contribution  401(k) plan, which
is available to all employees.  The 401(k) plan allows  employees to defer, on a
pre-tax basis, up to 15% of their annual  compensation as  contributions  to the
401(k) plan,  subject to a maximum of $13,000.  The Company  matches 50% of each
employee's  contributions,  up to 6% of their annual compensation,  subject to a
maximum of $6,000. The Company's matching contributions were $311,000, $405,000,
and $434,000 for the years ended December 31, 2004, 2003, and 2002.

                                       31
<PAGE>

      The Company also sponsors a non-qualified tax deferred  compensation plan,
which is available to certain  employees who,  because of Internal  Revenue Code
limitations,  are prohibited from contributing the maximum  percentage of salary
to the 401(k) Plan. Under this deferred compensation plan, certain employees may
defer,  on a pre-tax  basis,  a  percentage  of annual  compensation,  including
bonuses.  The Company  matches  50% of each  employee's  contributions,  up to a
maximum of 6% of annual  compensation,  less amounts  already  matched under the
401(k) plan. The Company made matching  contributions of $23,000,  $32,000,  and
$59,000 during the years ended December 31, 2004, 2003, and 2002. As of December
31, 2004 and 2003,  employee  contributions and Company matching  contributions,
including cumulative investment gains, totaled $788,000 and $610,000.

      The Company also sponsors a non-qualified  tax deferred  compensation plan
under which  producers  who earn a minimum of $100,000  may defer,  on a pre-tax
basis,  up to 50% of annual  commissions.  In  addition,  the Company will match
producer  contributions  for those  producers  who earn over  $250,000 in annual
commissions at rates ranging from 1% to 5% of amounts deferred, depending on the
level of annual  commissions  earned.  During the years ended December 31, 2004,
2003,  and 2002,  matching  contributions  related  to the  producer  commission
deferral plan were $18,000,  $16,000,  and $19,000.  As of December 31, 2004 and
2003,  producer  contributions  and Company  matching  contributions,  including
cumulative  investment  gains,  totaled  $7.0  million  and  $5.7  million.  The
liability  to the  employee or  producer  is  credited  or charged  based on the
performance of the investment option selected by the participant.


9. Performance Bonus

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


10. Sales Incentive Program

      In September  2004,  Legacy  Marketing  Group  initiated a sales incentive
program for its independent  insurance  producers,  which granted bonuses to the
producers based upon their  achievement of predetermined  monthly sales targets.
The Company recorded expense of $392,000 during the year ended December 31, 2004
related to this program, of which $297,000 was paid as of December 31, 2004. The
amounts expensed are included in selling, general and administrative expenses.

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


11. Commitments and Contingencies

      The Company  leases  office and  warehouse  premises  and  certain  office
equipment  under  non-cancelable  operating  leases.  Related  rent  expense  of
$329,000,  $531,000,  and $585,000 is included in occupancy  costs for the years
ended December 31, 2004,  2003, and 2002.  Total rentals for leases of equipment
included in equipment expense were $674,000,  $1.0 million, and $1.1 million for
the years ended December 31, 2004, 2003, and 2002.

      The Company's future minimum annual lease  commitments under all operating
leases as of December 31, 2004 are as follows:

          Year Ended December 31,
                     2005                                        $ 749,000
                     2006                                          582,000
                     2007                                          491,000
                     2008                                          108,000
                     2009                                           45,000
               Thereafter                                                -
                                                               -----------
                          Total minimum lease payments         $ 1,975,000
                                                               ===========

                                       32
<PAGE>

      During 2003, the Company amended its  Shareholder  Agreement with Lynda L.
Regan,  Chief  Executive  Officer of the Company and  Chairman of the  Company's
Board of Directors.  Under the terms of the amended agreement, upon the death of
Ms.  Regan,  the  Company  would have the  option  (but not the  obligation)  to
purchase from Ms.  Regan's  estate all shares of common stock that were owned by
Ms. Regan at the time of her death,  or were  transferred  by her to one or more
trusts prior to her death. In addition,  upon the death of Ms. Regan,  her heirs
would have the option (but not the obligation) to sell their inherited shares to
the Company. The purchase price to be paid by the Company shall be equal to 125%
of the fair market value of the shares.  As of December  31,  2004,  the Company
believes that 125% of the fair market value of the shares owned by Ms. Regan was
equal to $26.0 million.  The Company has purchased four life insurance  policies
with a combined  face  amount of $33  million  for the  purpose of funding  this
potential obligation upon Ms. Regan's death.


      The Company is involved in various claims and legal proceedings arising in
the  ordinary  course of  business.  Although  it is  difficult  to predict  the
ultimate outcome of these cases, management believes,  based on discussions with
legal  counsel,  that the ultimate  disposition  of these claims will not have a
material  adverse  effect on our financial  condition,  cash flows or results of
operations.

      As  part  of the  Company's  agreements  with  certain  of  its  insurance
producers,  the Company may, under certain circumstances,  be obligated to offer
to purchase the business of the producers.  At December 31, 2004,  there were no
outstanding commitments by the Company relating to such obligations.


12. Redeemable Common Stock


      Between 1990 and 1992, the Company issued Series A and Series B redeemable
common stock to certain shareholders. The Company is obligated to repurchase the
redeemable  common stock at the current fair market  value.  Because there is no
active trading market for the Company's stock that would establish market value,
the  Company's  Board of  Directors  approved  a  redemption  value for Series A
redeemable common stock of $2.03 per share and $2.21 per share, and a redemption
value for Series B redeemable  common stock of $1.67 and $1.82 per share,  as of
December 31, 2004 and 2003, based on an independent appraisal of the stock value
obtained by management.

<TABLE>
<CAPTION>
                                                     Series A                      Series B                      Total
                                                  Redeemable Common            Redeemable Common            Redeemable Common
                                                      Stock                         Stock                        Stock
                                             --------------------------    -------------------------    --------------------------
                                                             Carrying                      Carrying                     Carrying
                                               Shares         Amount         Shares         Amount        Shares         Amount
                                             ----------    ------------    ---------    ------------    ----------    ------------
<S>                                           <C>          <C>               <C>        <C>              <C>          <C>
Balance January 1, 2002                       4,279,000    $  9,376,000      581,000    $  1,748,000     4,860,000    $ 11,124,000
Redemptions and retirement of common stock     (457,000)       (996,000)     (21,000)        (39,000)     (478,000)     (1,035,000)
Accretion to redemption value                      --            26,000         --              --            --            26,000
                                             ----------    ------------    ---------    ------------    ----------    ------------
Balance December 31, 2002                     3,822,000       8,406,000      560,000       1,709,000     4,382,000      10,115,000
Redemptions and retirement of common stock     (533,000)     (1,173,000)      (7,000)        (12,000)     (540,000)     (1,185,000)
Accretion to redemption value                      --            34,000         --              --            --            34,000
                                             ----------    ------------    ---------    ------------    ----------    ------------
Balance December 31, 2003                     3,289,000       7,267,000      553,000       1,697,000     3,842,000       8,964,000
Redemptions and retirement of common stock     (436,000)       (966,000)        --              --        (436,000)       (966,000)
Reduction to redemption value                      --          (512,000)        --              --            --          (512,000)
                                             ----------    ------------    ---------    ------------    ----------    ------------
Balance December 31, 2004                     2,853,000    $  5,789,000      553,000    $  1,697,000     3,406,000    $  7,486,000
                                             ==========    ============    =========    ============    ==========    ============
</TABLE>


      The Company  recorded  redeemable  common stock  accretion of  ($512,000),
$34,000 and $26,000  related to Series A  redeemable  common stock for the years
ended  December  31,  2004,  2003 and  2002.  The  carrying  value  of  Series B
redeemable  common stock is greater than the  redemption  value and has not been
accreted.


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


13. Stock Options and Stock Awards

      The Company currently sponsors two stock-based  compensation  plans. Under
both plans, the exercise price of each option equals the estimated fair value of
the  underlying  common stock on the date of grant,  as estimated by management,


                                       33
<PAGE>

except for incentive stock options  granted to shareholders  who own 10% or more
of the Company's  outstanding stock, where the exercise price equals 110% of the
estimated  fair value.  Both plans are  administered  by  committees,  which are
appointed by the Company's Board of Directors.

      Producer  Option  Plan -- Under the Regan  Holding  Corp.  Producer  Stock
Option and Award plan (the  "Producer  Option  Plan"),  the Company may grant to
Legacy  Marketing  producers  and Legacy  Financial  registered  representatives
shares of the  Company's  common  stock and  non-qualified  stock  options  (the
"Producer  Options") to purchase the  Company's  common  stock.  A total of 12.5
million  shares have been  reserved  for grant under the  Producer  Option Plan.
Total stock options  granted to Producers for 2004,  2003, and 2002 were 15,000,
15,000,  and 10,000.  Total  expenses  recorded for Producer stock option grants
were $12,000, $10,000, and $4,000 during 2004, 2003 and 2002. The Producer stock
options  granted  for each of the three  years  ended  December  31, 2004 vested
immediately upon the grant date and expire six years from the date of grant. The
fair  value of the  Producer  options  were  estimated  using the  Black-Scholes
option-pricing model with the following assumptions:
<TABLE>
<CAPTION>

                                                2004              2003             2002
                                             --------           --------         --------
<S>                                           <C>               <C>              <C>
Risk-free interest rates                        3.71%             3.19%            4.78%
Volatility                                        27%               27%              27%
Dividend yield                                   None              None             None
Expected life                                 6 years           6 years          6 years
</TABLE>

      There were no shares of Series A common  stock  awarded  to  non-employees
during 2004, 2003 and 2002.

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

      Stock option activity under both plans was as follows:

                                                                    Total
                                                                Weighted Average
                                               Shares            Exercise Price
                                            --------------       -------------
Outstanding at December 31, 2001              15,564,000           $   1.35
Granted                                        1,153,000           $   1.68
Exercised                                           --             $   --
Forfeited                                       (768,000)          $   1.22

Outstanding at December 31, 2002              15,949,000           $   1.38
Granted                                          788,000           $   1.69
Exercised                                       (155,000)          $   1.27
Forfeited                                       (797,000)          $   1.38

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

Outstanding at December 31, 2004               8,789,000           $   1.50

Exercisable at December 31, 2002              12,407,000           $   1.32
Exercisable at December 31, 2003              13,106,000           $   1.35
Exercisable at December 31, 2004               7,365,000           $   1.48


                                       34
<PAGE>
      The following table summarizes information about stock options outstanding
at December 31, 2004 under both plans:

<TABLE>
<CAPTION>
                                             Options Outstanding                                  Options Exercisable
                                     -----------------------------------------------------    ----------------------------
                                                           Weighted            Weighted                        Weighted
                                                           Average              Average                         Average
                                                          Remaining            Exercise                        Exercise
    Range of exercise prices            Shares         Contractual Life          Price          Shares           Price
<S>                                     <C>                  <C>                 <C>            <C>              <C>
           $0.73-$1.03                    524,000            2.7                 $0.74            524,000        $0.74
           $1.27-$1.27                    671,000            0.5                 $1.27            671,000        $1.27
           $1.39-$1.53                  3,754,000            2.6                 $1.53          3,541,000        $1.53
           $1.61-$1.61                  1,913,000            2.7                 $1.61          1,838,000        $1.61
           $1.65-$1.68                  1,232,000            5.9                 $1.67            658,000        $1.66
           $1.69-$1.70                    695,000            8.6                 $1.69            133,000        $1.69
</TABLE>

14. Income Taxes

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

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

                                            For the Year Ended December 31,
                                      ------------------------------------------
                                          2004           2003           2002
                                      -----------    -----------    -----------
Current income taxes:
Federal                               $(3,341,000)   $ 3,311,000    $    76,000
State                                     (36,000)       944,000         24,000
                                      -----------    -----------    -----------
Total current                          (3,377,000)     4,255,000        100,000

Deferred income taxes:
Federal                                 2,172,000       (696,000)      (170,000)
State                                     862,000       (168,000)        36,000
                                      -----------    -----------    -----------
Total deferred                          3,034,000       (864,000)      (134,000)
                                      -----------    -----------    -----------

Income tax (benefit) expense          $  (343,000)   $ 3,391,000    $   (34,000)
                                      ===========    ===========    ===========

                                       35
<PAGE>

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

<TABLE>
<CAPTION>
                                                                        December 31,
                                                                --------------------------
                                                                    2004           2003
                                                                -----------    -----------
<S>                                                             <C>            <C>
Producer stock option and stock, awards less valuation
   allowance of $885,000 and $0 at December 31, 2004 and 2003   $   148,000    $ 2,186,000
Producer deferred compensation                                    3,072,000      2,492,000
Accrued sales convention costs                                       44,000        543,000
Federal net operating loss carryforward                              59,000           --
State net operating loss carryforward, less
valuation allowance of $921,000 and $385,000,
net of federal taxes                                                244,000        250,000
State alternative minimum tax credit carryforward,
less valuation allowance of $181,000 and $0, net
of federal taxes                                                       --          263,000
Capital loss carryforward                                           300,000        357,000
Other deferred tax assets, less valuation
allowance of $76,000 and $0, net of federal taxes                 1,253,000      1,090,000
                                                                -----------    -----------
Subtotal deferred tax assets                                      5,120,000      7,181,000
                                                                -----------    -----------

Fixed assets depreciation                                        (3,620,000)    (2,985,000)
Deferred gain on building sale                                   (1,357,000)    (1,364,000)
Unrealized gains                                                   (613,000)      (306,000)
                                                                -----------    -----------
Subtotal deferred tax liabilities                                (5,590,000)    (4,655,000)
                                                                -----------    -----------

Deferred tax assets (liabilities), net                          $  (470,000)   $ 2,526,000
                                                                ===========    ===========
</TABLE>

      In  assessing  the  realizability  of  deferred  tax  assets,   management
considers  whether  it is more  likely  than not  that  some  portion  or all of
deferred tax assets will, or will not, be realized.  The ultimate realization of
deferred tax assets is dependent  upon the  generation of future  taxable income
during the  periods in which  temporary  differences  become  deductible.  As of
December  31, 2004,  the Company had $148,000 of deferred tax assets  related to
Producer  stock  options  after  a 2004  valuation  allowance  of  $885,000  was
recorded.  During 2004, $984,000 of deferred tax assets were expensed due to the
expiration  of some  unexercised  Producer  stock  options.  Based upon the past
experience of Producers exercising stock options, management believes it is more
likely  than  not that the  remaining  deferred  tax  benefits  attributable  to
producer  stock  options will be realized and no  additional  related  valuation
allowance is currently deemed necessary.

      The provisions for (benefits from) income taxes differ from the provisions
for (benefits  from) computed by applying the statutory  federal income tax rate
(34%) to income before taxes, as follows:
<TABLE>
<CAPTION>
                                                                                           For the Year Ended December 31,
                                                                                 ---------------------------------------------------
                                                                                    2004                2003               2002
                                                                                 -----------         -----------        -----------
<S>                                                    <C>                       <C>                 <C>                <C>
Federal income tax expense (benefit) at statutory rate (34%)                     $(2,656,000)        $ 2,863,000        $   (32,000)
Increase (reductions) in income taxes resulting from:
State franchise taxes, net of federal income tax benefit                             634,000             526,000             40,000
Expired producer stock options unexercised                                           844,000                --                 --
Valuation allowance for remaining producer stock options                             759,000                --                 --
Other                                                                                 76,000               2,000            (42,000)
                                                                                 -----------         -----------        -----------
Income tax provision (benefit)                                                   $  (343,000)        $ 3,391,000        $   (34,000)
                                                                                 ===========         ===========        ===========
</TABLE>

      As of December 31, 2004,  the Company has federal and state net  operating
loss  carryforwards  of  $173,000  and  $17.4  million,  respectively,  that are
expected to be utilized  in the  future.  $173,000 of the federal net  operating
losses  will  expire on  December  31,  2024 and $4.9  million  of the state net
operating  losses  begin to expire on December  31,  2012.  State tax  valuation
allowances of $921,000,  net of federal taxes,  have been provided for a portion
of the state net operating loss carryforward.

                                       36
<PAGE>

15. Earnings (loss) per Share

      The basic and diluted earnings (loss) per share  calculations are based on
the weighted  average number of common shares  outstanding  including  shares of
redeemable common stock.
<TABLE>
<CAPTION>
                                                                 For the Year Ended
                                                                    December 31,
                                                     ----------------------------------------
                                                         2004          2003           2002
                                                     -----------    ----------   ------------
<S>                                                  <C>            <C>          <C>
Net income (loss) available for common
   shareholders, as reported                         $(6,955,000)   $4,995,000   $    (86,000)
                                                     ===========    ==========   ============
Reconciliation of shares used in basic and diluted
   earnings per share calculations:
Basic:
Weighted average common shares outstanding            23,880,000    24,431,000     25,093,000
                                                     ===========    ==========   ============
Basic net income (loss) per share                    $     (0.29)   $     0.20   $       --
                                                     ===========    ==========   ============
Diluted:
Weighted average common shares outstanding            23,880,000    24,431,000     25,093,000
Dilutive effect of stock options                            --       2,899,000           --
                                                     -----------    ----------   ------------
Shares used in diluted net income (loss) per share
   calculation                                        23,880,000    27,330,000     25,093,000
                                                     ===========    ==========   ============
Diluted net income (loss) per share                  $     (0.29)   $     0.18   $       --
                                                     ===========    ==========   ============
</TABLE>

      As the Company  incurred  net losses in the years ended  December 31, 2004
and 2002,  options  to  purchase  8.8  million  and 15.8  million  shares of the
Company's  common stock were excluded from the  computation  of diluted net loss
per share for those periods, as the effect would have been antidilutive. Options
to purchase  699,000 shares of the Company's common stock were excluded from the
computation  of diluted  net income  per share for the year ended  December  31,
2003, as the option's exercise prices were greater than the average market price
of the common stock, and, therefore, the effect would have been antidilutive.


                                       37
<PAGE>

16. Segment Information

      The Company has identified its reportable  segments based on its method of
internal  reporting and  segregates  its business  into five primary  reportable
segments: Legacy Marketing,  Legacy Financial,  Imagent Online, Values Financial
Network, and Other.  Intersegment  transactions are eliminated in consolidation.
The Legacy  Marketing  business  segment  includes  the  results of selling  and
administering  fixed annuity and life insurance  products and general  corporate
expenses not allocated to the Company's other segments.
<TABLE>
<CAPTION>
                                                                                                                          Values
                                                         Legacy              Legacy                 Imagent              Financial
                                                       Marketing            Financial               Online                Network
                                                     ------------          ------------          ------------          ------------
<S>                                                  <C>                   <C>                   <C>                   <C>
Year Ended December 31, 2004
Total revenue                                        $ 34,009,000          $  3,267,000          $    275,000          $     39,000
Total expenses                                         39,909,000             3,840,000             1,133,000             1,287,000
                                                     ------------          ------------          ------------          ------------
Operating income (loss)                                (5,900,000)             (573,000)             (858,000)           (1,248,000)
Other income                                              522,000                  --                    --                    --
                                                     ------------          ------------          ------------          ------------
Income (loss) before tax                               (5,378,000)             (573,000)             (858,000)           (1,248,000)
Tax provision (benefit)                                   530,000              (132,000)             (343,000)             (497,000)
                                                     ------------          ------------          ------------          ------------
Net income (loss)                                    $ (5,908,000)         $   (441,000)         $   (515,000)         $   (751,000)
                                                     ============          ============          ============          ============

Year Ended December 31, 2003
Total revenue                                        $ 68,029,000          $  2,979,000          $    247,000          $     30,000
Total expenses                                         56,373,000             4,057,000             1,260,000             1,760,000
                                                     ------------          ------------          ------------          ------------
Operating income (loss)                                11,656,000            (1,078,000)           (1,013,000)           (1,730,000)
Other income (loss)                                       391,000                (8,000)                 --                    --
                                                     ------------          ------------          ------------          ------------
Income (loss) before tax                               12,047,000            (1,086,000)           (1,013,000)           (1,730,000)
Tax provision (benefit)                                 4,807,000              (403,000)             (407,000)             (686,000)
                                                     ------------          ------------          ------------          ------------
Net income (loss)                                    $  7,240,000          $   (683,000)         $   (606,000)         $ (1,044,000)
                                                     ============          ============          ============          ============

Year Ended December 31, 2002
Total revenue                                        $ 47,859,000          $  2,519,000          $     86,000          $      7,000
Total expenses                                         45,786,000             3,475,000             1,141,000               841,000
                                                     ------------          ------------          ------------          ------------
Operating income (loss)                                 2,073,000              (956,000)           (1,055,000)             (834,000)
Other income (loss)                                       571,000                 7,000                (2,000)                 --
                                                     ------------          ------------          ------------          ------------
Income (loss) before tax                                2,644,000              (949,000)           (1,057,000)             (834,000)
Tax provision (benefit)                                 1,002,000              (354,000)             (409,000)             (314,000)
                                                     ------------          ------------          ------------          ------------
Net income (loss)                                    $  1,642,000          $   (595,000)         $   (648,000)         $   (520,000)
                                                     ============          ============          ============          ============

Total assets
December 31, 2004                                    $ 50,487,000          $  1,115,000          $  2,514,000          $  2,069,000
                                                     ============          ============          ============          ============
December 31, 2003                                    $ 58,780,000          $  2,036,000          $  2,347,000          $  3,410,000
                                                     ============          ============          ============          ============

</TABLE>

                                       38
<PAGE>
<TABLE>
<CAPTION>
                                                                                                 Intercompany
                                                          Other              Subtotal            Eliminations              Total
                                                      ------------         ------------          ------------          ------------
<S>                                                   <C>                  <C>                   <C>                   <C>
Year Ended December 31, 2004
Total revenue                                         $    406,000         $ 37,996,000          $   (611,000)         $ 37,385,000
Total expenses                                             159,000           46,328,000              (611,000)           45,717,000
                                                      ------------         ------------          ------------          ------------
Operating income (loss)                                    247,000           (8,332,000)                 --              (8,332,000)
Other income                                                  --                522,000                  --                 522,000
                                                      ------------         ------------          ------------          ------------
Income (loss) before tax                                   247,000           (7,810,000)                 --              (7,810,000)
Tax provision (benefit)                                     99,000             (343,000)                 --                (343,000)
                                                      ------------         ------------          ------------          ------------
Net income (loss)                                     $    148,000         $ (7,467,000)         $       --            $ (7,467,000)
                                                      ============         ============          ============          ============

Year Ended December 31, 2003
Total revenue                                         $    258,000         $ 71,543,000          $   (626,000)         $ 70,917,000
Total expenses                                              56,000           63,506,000              (626,000)           62,880,000
                                                      ------------         ------------          ------------          ------------
Operating income (loss)                                    202,000            8,037,000                  --               8,037,000
Other income (loss)                                           --                383,000                  --                 383,000
                                                      ------------         ------------          ------------          ------------
Income (loss) before tax                                   202,000            8,420,000                  --               8,420,000
Tax provision (benefit)                                     80,000            3,391,000                  --               3,391,000
                                                      ------------         ------------          ------------          ------------
Net income (loss)                                     $    122,000         $  5,029,000          $       --            $  5,029,000
                                                      ============         ============          ============          ============

Year Ended December 31, 2002
Total revenue                                         $    134,000         $ 50,605,000          $   (556,000)         $ 50,049,000
Total expenses                                              32,000           51,275,000              (556,000)           50,719,000
                                                      ------------         ------------          ------------          ------------
Operating income (loss)                                    102,000             (670,000)                 --                (670,000)
Other income (loss)                                           --                576,000                  --                 576,000
                                                      ------------         ------------          ------------          ------------
Income (loss) before tax                                   102,000              (94,000)                 --                 (94,000)
Tax provision (benefit)                                     41,000              (34,000)                 --                 (34,000)
                                                      ------------         ------------          ------------          ------------
Net income (loss)                                     $     61,000         $    (60,000)         $       --            $    (60,000)
                                                      ============         ============          ============          ============

Total assets
December 31, 2004                                     $    460,000         $ 56,645,000          $ (9,027,000)         $ 47,618,000
                                                      ============         ============          ============          ============
December 31, 2003                                     $    405,000         $ 66,978,000          $ (9,863,000)         $ 57,115,000
                                                      ============         ============          ============          ============
</TABLE>


 17. Concentration of Risk

      As of December  31,  2004,  Legacy  Marketing  sold and  administered  its
products primarily on behalf of five unaffiliated  insurance carriers:  American
National,  Transamerica,  John  Hancock,  Investors  Insurance  and IL  Annuity.
Effective  during the first  quarter of 2002,  Legacy  Marketing  and IL Annuity
terminated their marketing agreement. The agreements with the following carriers
generated a significant  portion of the  Company's  total  consolidated  revenue
(sales on behalf of Investors Insurance began in the second quarter of 2002):

                                                 2004         2003         2002
                                                 ----         ----         ----
American National                                 25%          37%          17%
Transamerica                                      24%          25%          52%
Investors Insurance                               27%          23%           6%
IL Annuity                                         9%           6%          12%
John Hancock                                       2%           3%           8%


                                       39
<PAGE>

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

<TABLE>
<CAPTION>
                                                                  2004     2003     2002
                                                                  ----     ----     ----
<S>                                                                <C>      <C>      <C>
BenchMark(SM) series (sold on behalf of American National)         24%      37%      16%
SelectMark(R) series (sold on behalf of Transamerica)              24%      25%      51%
MarkOne(SM) series (sold on behalf of Investors Insurance)         23%      23%       6%
VisionMark(SM) series (sold on behalf of IL Annuity)                7%       4%      11%
SummitMark(SM) series (sold on behalf of Investors Insurance)       4%       0%       0%
AssureMark(SM) series (sold on behalf of John Hancock)              2%       3%       8%
</TABLE>

                                       40
<PAGE>

Supplementary Data

<TABLE>
<CAPTION>
Quarterly Financial Information (Unaudited)

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

2003
Total revenue                                      $ 17,333,000     $ 22,191,000     $ 16,793,000     $ 14,600,000     $ 70,917,000
Operating income (loss)                            $  3,066,000     $  4,780,000     $    483,000     $   (292,000)    $  8,037,000
Net income (loss)                                  $  1,875,000     $  2,888,000     $    366,000     $   (100,000)    $  5,029,000
Basic earnings per share:
Earnings (loss) available to
common shareholders                                $       0.08     $       0.11     $       0.02     $      (0.01)    $       0.20
Diluted earnings per share:
Earnings (loss) available to
common shareholders                                $       0.07     $       0.10     $       0.01     $       --       $       0.18
</TABLE>

                                       41
<PAGE>

             REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
                        ON FINANCIAL STATEMENT SCHEDULES

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

Our audits of the consolidated  financial  statements  referred to in our report
dated March 29, 2005 also included an audit of the financial schedules listed in
Item  15(a)(2) of this Form 10-K.  In our  opinion,  these  financial  statement
schedules  present fairly, in all material  respects,  the information set forth
therein  when  read in  conjunction  with  the  related  consolidated  financial
statements.

/s/ PricewaterhouseCoopers LLP
San Francisco, California

March 29, 2005




                                       42
<PAGE>

<TABLE>
Schedule II - Valuation and Qualifying Accounts
<CAPTION>
                                                                                   Additions          Deductions
                                                                 Balance at        charged to         charged to            Balance
                                                                 beginning         costs and          costs and            at end of
                                                                 of period          expenses           expenses             period
                                                                 ---------          ---------          ---------           ---------
<S>                                                              <C>                <C>                <C>                <C>
2004
Allowance for uncollectible accounts                             $ 866,000          $  94,000          $(391,000)         $  569,000
State net operating loss carryforward
    valuation allowance                                          $ 385,000          $ 536,000          $    --            $  921,000
State alternative minimum tax credit
    carryforward valuation allowance                             $    --            $ 181,000          $    --            $  181,000
Producer stock option deferred tax
    valuation allowance                                          $    --            $ 885,000          $    --            $  885,000
2003
Allowance for uncollectible accounts                             $ 760,000          $ 306,000          $(200,000)         $  866,000
State net operating loss carryforward
    valuation allowance                                          $ 362,000          $  23,000          $    --            $  385,000
2002
Allowance for uncollectible accounts                             $ 437,000          $ 440,000          $(117,000)         $  760,000
State net operating loss carryforward
    valuation allowance                                          $ 264,000          $  98,000          $    --            $  362,000
</TABLE>


                                       43
<PAGE>
Item 9. Changes In and Disagreements With Accountants on Accounting and
        Financial Disclosure

      None.


Item 9A. Controls and Procedures


Evaluation of Disclosure Controls and Procedures

      The Company  maintains  disclosure  controls and procedures (as defined in
Rule 13a-15(e) of the Securities  Exchange Act of 1934, as amended)  designed to
ensure that  information  required to be  disclosed  in reports  filed under the
Securities Exchange Act of 1934, as amended, is recorded, processed,  summarized
and reported within the specified time periods.  In designing and evaluating the
disclosure controls and procedures,  management recognizes that any controls and
procedures,  no matter  how well  designed  and  executed,  can  provide  only a
reasonable assurance of achieving the desired control objectives.  The Company's
Chief  Executive  Officer  and  Chief  Financial  Officer  evaluated,  with  the
participation of the Company's  management,  the  effectiveness of the Company's
disclosure  controls  and  procedures  as of December  31,  2004.  Based on that
evaluation,  the Chief Executive  Officer and Chief Financial  Officer concluded
that the  Company's  disclosure  controls and  procedures  were  effective.  The
Company's  management,  including  the  Chief  Executive  Officer  and the Chief
Financial Officer,  also evaluated the Company's internal control over financial
reporting to determine  whether any changes  occurred  during the quarter  ended
December 31, 2004 that have  materially  affected,  or are reasonably  likely to
materially  affect,  the Company's  internal  control over financial  reporting.
Based on that  evaluation,  there have been no such  changes  during the quarter
ended December 31, 2004.

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


Item 9B. Other Information

      None.



                                       44
<PAGE>
                                    PART III


Item 10. Directors and Executive Officers of the Company

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


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


      Section 16(a) of the Exchange Act ("Section 16(a)") requires the Company's
officers  and  directors,  and  persons  who own  more  than  ten  percent  of a
registered  class  of the  Company's  equity  securities,  to  file  reports  of
ownership  on Form 3 and  changes  in  ownership  on  Form 4 or Form 5 with  the
Securities and Exchange  Commission (the "SEC") and the National  Association of
Securities Dealers, Inc. Such officers,  directors and ten-percent  stockholders
are also  required by SEC rules to furnish  the Company  with copies of all such
forms that they file.  The Company  believes  that during 2004 all Section 16(a)
filing  requirements  applicable  to its  officers,  directors  and  ten-percent
stockholders  were complied with,  except that Lynda Regan filed one Form 4 late
on January 14, 2005 that covered seven  transactions and Preston Pitts filed one
Form 4 late on January 14, 2005 that covered three transactions.

Item 11. Executive Compensation

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


Item 12. Security Ownership of Certain Beneficial Owners and Management

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

<TABLE>
Securities Authorized For Issuance Under Equity Compensation Plans:
<CAPTION>
                                 (a)                            (b)                       (c)
                                                                                          Number of shares remaining available
                                 Number of shares to be         Weighted-average          for future issuance under equity
                                 issued upon exercise of        exercise price of         compensation plans (excluding
Plan category                    outstanding options            outstanding options       securities reflected in column (a))
--------------------             --------------------           -----------------         ----------------------------------
<S>                              <C>                            <C>                         <C>
Equity compensation
plans approved by
stockholders(1)                  8,789,000                      $1.50                       12,211,000

<FN>
(1) Includes the Regan  Holding Corp.  Producer  Stock Option and Award Plan and
    the Regan Holding Corp. 1998 Stock Option Plan
</FN>
</TABLE>

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


Item 13. Certain Relationships and Related Transactions

      Information  required  by  Item  13 will  be  contained  in the  Company's
Definitive  Proxy  Statement in the section titled  "Certain  Relationships  and
Related Transactions." Such information is incorporated herein by reference.


Item 14. Principal Accounting Fees and Services

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


                                       45
<PAGE>


                                     PART IV


Item 15. Exhibits and Financial Statement Schedules

      (a) Index to Exhibits and Financial Statement Schedules:

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

                  (i)    Report  of  Independent  Registered  Public  Accounting
                         Firm.

                  (ii)   Consolidated  Balance Sheet as of December 31, 2004 and
                         2003.

                  (iii)  Consolidated  Statement  of  Operations  for the  years
                         ended December 31, 2004, 2003, and 2002.

                  (iv)   Consolidated  Statement of Shareholders' Equity for the
                         years ended December 31, 2004, 2003, and 2002.

                  (v)    Consolidated  Statement  of Cash  Flows  for the  years
                         ended December 31, 2004, 2003, and 2002.

                  (vi)   Notes to Consolidated Financial Statements.

           2. Financial statement schedules - schedule II - valuation and
              qualifying accounts

           3. See(b) below.

       (b) Exhibit Index

3(a)       Restated Articles of Incorporation. (3)
3(b)(2)    Amended and Restated Bylaws of the Company. (5)
4(a)       Amended and Restated  Shareholders'  Agreement,  dated as of June 30,
           2003,  by and among the  Company,  Lynda  Regan,  Alysia  Anne Regan,
           Melissa Louise Regan and RAM Investments.(6)
10(a)      Administrative  Services  Agreement  effective  January 1,  1991,  as
           amended,  between Allianz Life Insurance Company of North America and
           the Company.(1)
10(b)      Marketing  Agreement,  effective  November 15, 2002, between American
           National Insurance Company and Legacy Marketing Group. (7)
10(b)(1)   Amendment  One to the  Marketing  Agreement  with  American  National
           Insurance Company. (8)
10(c)      Administrative  Services  Agreement,  effective  February  15,  2003,
           between  American  National  Insurance  Company and Legacy  Marketing
           Group. (7)
10(d)      Form of Producer Agreement.(1)
10(e)      Settlement  Agreement dated June 18, 1993, among the State of Georgia
           as receiver for and on behalf of Old Colony Life  Insurance  Company,
           other related parties and the Company.(1)
10(f)      401(K) Profit Sharing Plan & Trust dated July 1, 1994.(1)
10(g)      Marketing  Agreement effective January 1, 1996 between IL Annuity and
           Insurance  Company and Legacy  Marketing  Group.(2)
10(h)      Insurance Processing  Agreement effective January 1, 1996  between IL
           Annuity and Insurance Company and Legacy Marketing Group.(2)
10(i)      Marketing Agreement effective May 29, 1998 between  Transamerica Life
           Insurance and Annuity Company and Legacy Marketing Group.(4)

--------------------
(1)   Incorporated  herein by reference to the  Company's  annual report on Form
      10-K for the year ended December 31, 1994.
(2)   Incorporated  herein by reference to the  Company's  annual report on Form
      10-K for the year ended December 31, 1995.
(3)   Incorporated  herein by reference to the Company's quarterly Form 10-Q for
      the three months and nine months ended September 30, 1996.
(4)   Incorporated  herein by reference to the Company's Form 8-K, dated June 1,
      1998.
(5)   Incorporated  herein by reference to the Company's quarterly Form 10-Q for
      the three months and nine months ended September 30, 2000.
(6)   Incorporated  herein by reference to the Company's quarterly Form 10-Q for
      the three months and six months ended June 30, 2003.
(7)   Incorporated  herein by reference to the Company's Form 8-K, dated January
      29, 2004.
(8)   Incorporated  herein by reference to the Company's quarterly Form 10-Q for
      the nine months ended September 30, 2003.


                                       46
<PAGE>

10(i)(1)   Amendment One to Marketing Agreement with Transamerica Life Insurance
           and Annuity Company.(10)
10(i)(2)   Amendment Two to Marketing Agreement with Transamerica Life Insurance
           and Annuity Company.(4)
10(i)(3)   Amendment  Three  to  Marketing   Agreement  with  Transamerica  Life
           Insurance and Annuity Company.(8)
10(i)(4)   Amendment  Four  to  Marketing   Agreement  with   Transamerica  Life
           Insurance and Annuity Company.(11)
10(i)(5)   Amendment  Five  to  Marketing   Agreement  with   Transamerica  Life
           Insurance and Annuity Company.(9)
10(i)(6)   Amendment Six to Marketing Agreement with Transamerica Life Insurance
           and Annuity Company.(10)
10(i)(7)   Amendment  Seven  to  Marketing   Agreement  with  Transamerica  Life
           Insurance and Annuity Company. (5)
10(i)(8)   Amendment  Ninth  to  Marketing   Agreement  with  Transamerica  Life
           Insurance and Annuity Company. (5)
10(j)(1)   Administrative  Services  Agreement  effective  May 29, 1998  between
           Transamerica  Life Insurance and Annuity Company and Legacy Marketing
           Group, as amended.(1)
10(j)(2)   Amendment to the Administrative  Services Agreement with Transamerica
           Life Insurance and Annuity Company.(2)
10(j)(3)   Amendment  Two  to  the   Administrative   Services   Agreement  with
           Transamerica Life Insurance and Annuity Company.(2)
10(j)(4)   Amendment   Three   to   Administrative   Services   Agreement   with
           Transamerica Life Insurance and Annuity Company. (4)
10(j)(5)   Amendment Four to Administrative Services Agreement with Transamerica
           Life Insurance and Annuity Company.(6)
10(j)(6)   Amendment Five to Administrative Services Agreement with Transamerica
           Life Insurance and Annuity Company.(11)
10(j)(7)   Amendment Six to Administrative  Services Agreement with Transamerica
           Life Insurance and Annuity Company.(9)
10(j)(8)   Amendment   Seven   to   Administrative   Services   Agreement   with
           Transamerica   Life  Insurance  and  Annuity   Company.(9)
10(j)(9)   Amendment   Eight   to   Administrative   Services   Agreement   with
           Transamerica Life Insurance and Annuity Company.(10)
10(j)(10)  Amendment Nine to Administrative Services Agreement with Transamerica
           Life Insurance and Annuity  Company.  (5)
10(k)      Marketing  Agreement  effective January 18, 2001 between John Hancock
           Life Insurance Company and Legacy Marketing Group. (11)
10(k)(1)   Amendment to the Marketing Agreement with John Hancock Life Insurance
           Company. (8)
10(l)      Administrative  Services Agreement effective January 18, 2001 between
           John Hancock Life Insurance Company and Legacy Marketing Group. (11)
10(l)(1)   Amendment to the Administrative  Services Agreement with John Hancock
           Life  Insurance  Company.  (8)
10(m)      Promissory  Note by and between Regan Holding  Corp.  and  Washington
           Mutual Bank FA, dated July 10, 2002. (7)
10(n)      Producer Stock Award and Stock Option Plan, as  amended.(3)
10(n)(1)   1998 Stock Option Plan, as amended.(3)
10(o)      Purchase Option Agreement between SCOR Life U.S. Re Insurance Company
           and the Company  executed on November 23, 2003. (11)
10(p)      Commercial Note between  SunTrust Bank and the Company executed April
           23, 2004. (12)
10(q)      Administrative  Services  Agreement,  effective June 5, 2002, between
           Investors Insurance Corporation and Legacy Marketing Group. (5)
10(r)      Marketing  Agreement,  effective  June  5,  2002,  between  Investors
           Insurance  Corporation and Legacy Marketing Group. (5)
21         Subsidiaries of Regan Holding Corp.
31.1       Certification   of  Chief   Executive   Officer   required   by  Rule
           13a-14(a)/15d-14(a) under the Exchange Act.
31.2       Certification   of  Chief   Financial   Officer   required   by  Rule
           13a-14(a)/15d-14(a) under the Exchange Act.
32.1       Certification of Chief Executive Officer pursuant to Section 1350.
32.2       Certification of Chief Financial Officer pursuant to Section 1350.

--------------------
(1)   Incorporated  herein by reference to the Company's Form 8-K, dated June 1,
      1998.
(2)   Incorporated  herein by reference to the  Company's  annual report on Form
      10-K for the year ended December 31, 1999.
(3)   Incorporated  herein  by  reference  to  the  Company's  Definitive  Proxy
      Statement dated July 31, 2001.
(4)   Incorporated herein by reference to the Company's quarterly report on Form
      10-Q for the six months ended June 30, 2001.
(5)   Incorporated herein by reference to the Company's  registration  statement
      on Form S-2 (post-effective amendment no. 5) dated July 23, 2004.
(6)   Incorporated herein by reference to the Company's quarterly report on Form
      10-Q for the nine months ended September 30, 2001.
(7)   Incorporated herein by reference to the Company's quarterly report on Form
      10-Q for the six months ended June 30, 2002.
(8)   Incorporated  herein by reference to the  Company's  annual report on Form
      10-K for the year ended December 31, 2002.
(9)   Incorporated herein by reference to the Company's quarterly report on Form
      10-Q for the six months ended June 30, 2003.
(10)  Incorporated herein by reference to the Company's quarterly report on Form
      10-Q for the nine months ended September 30, 2003.
(11)  Incorporated  herein by reference to the Company's Form 8-K, dated January
      29, 2004.
(12)  Incorporated herein by reference to the Company's quarterly report on From
      10-Q for the six months ended June 30, 2004.

                                       47
<PAGE>

                                   SIGNATURES

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

REGAN HOLDING CORP.


By: /s/ Lynda L. Regan                                    Date: March 31, 2005
----------------------------------
Lynda L. Regan
Chairman of the Board of Directors
and Chief Executive Officer

By: /s/ R. Preston Pitts                                  Date: March 31, 2005
----------------------------------
R. Preston Pitts
Principal Accounting and Financial Officer


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


By: /s/ Lynda L. Regan                                    Date: March 31, 2005
----------------------------------
Lynda L. Regan
Chairman of the Board of Directors
and Chief Executive Officer
(Principal Executive Officer)

By: /s/ R. Preston Pitts                                  Date: March 31, 2005
----------------------------------
R. Preston Pitts
Director, President
(Principal Financial and Accounting Officer)

By: /s/ Donald Ratajczak                                  Date: March 31, 2005
----------------------------------
Donald Ratajczak
Director

By: /s/ Ute Scott-Smith                                   Date: March 31, 2005
----------------------------------
Ute Scott-Smith
Director

By: /s/ J. Daniel Speight, Jr                             Date: March 31, 2005
----------------------------------
J. Daniel Speight, Jr. Director


                                       48