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

                                    FORM 10-K

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

                   For the fiscal year ended DECEMBER 31, 2003

                                       OR

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

             For the transition period from __________ to __________

                         COMMISSION FILE NUMBER: 0-4366

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

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

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

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

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

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

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

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

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

                                   $22,404,000

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.
<PAGE>

As of March 15,  2004,  the  number of shares  outstanding  of the  registrant's
Series A Common Stock was 23,374,000 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

Portions of the  Definitive  Proxy  Statement for Regan Holding  Corp.'s  Annual
Meeting  of  Stockholders  to be held on June  10th,  2004 are  incorporated  by
reference into Part III of this Form 10-K.

                                       2
<PAGE>

                                TABLE OF CONTENTS

<TABLE>
<CAPTION>
                                                                                                           Page
                                                                                                           ----

<S>       <C>                                                                                              <C>
Item 1.   Description Of Business...........................................................................4
Item 2.   Properties........................................................................................7
Item 3.   Legal Proceedings.................................................................................7
Item 4.   Submission Of Matters To A Vote Of Security Holders...............................................7
Item 5.   Market For Registrant's Common Equity And Related Shareholder Matters.............................8
Item 6.   Selected Consolidated Financial Data..............................................................8
Item 7.   Management's Discussion And Analysis Of Financial Condition And Results Of Operations.............8
Item 7a.  Quantitative And Qualitative Disclosure About Market Risk........................................20
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 10.  Directors And Executive Officers Of The Company..................................................44
Item 11.  Executive Compensation...........................................................................45
Item 12.  Security Ownership Of Certain Beneficial Owners And Management...................................45
Item 13.  Certain Relationships And Related Transactions...................................................45
Item 14.  Principal Accountant Fees and Services...........................................................45
Item 15.  Exhibits, Financial Statement Schedules, And Reports On Form 8-K.................................45
</TABLE>

                                       3
<PAGE>

                                     PART I

Item 1. Description of Business

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

General Development of Business

         Regan Holding Corp. is a holding company,  incorporated in the State of
California,  whose primary  operating  subsidiaries  are Legacy  Marketing Group
("Legacy Marketing") and Legacy Financial Services,  Inc. ("Legacy  Financial").
During 2003,  Legacy Marketing  generated  approximately 96% 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"), and Investors Insurance Corporation.  The marketing agreements
grant us 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, we are responsible for appointing
independent  insurance  producers  (who we  refer  to as  "Producers")  who have
contracted  with us to sell fixed  annuity  products.  For these  services,  the
insurance  carriers pay us marketing  allowances  and  commissions  based on the
premium volume of insurance  policies  placed  inforce.  We are  responsible for
paying sales commissions to the Producers.

         Legacy  Marketing  sells fixed  annuity  products  through a network of
approximately  27,000 Producers,  of whom approximately 7,000 generated business
for us during 2003.  Each  Producer has entered into a  non-exclusive  agreement
with Legacy  Marketing Group which defines the parties'  business  relationship.
Such agreements typically may be terminated with up to ninety days prior written
notice by either the Producer or Legacy Marketing, with or without cause.

         Our  sales  network  is  built  on a  multi-level  structure  in  which
Producers may 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 and the size of the Producer's  downline network. As a Producer advances
to higher levels within the system, he receives higher commissions on sales made
through his downline network.  This creates a financial  incentive for Producers
to build a hierarchy of downline Producers, which contributes to their financial
growth and to the growth of Legacy Marketing.  If a Producer leaves the network,
his downline  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."  We had  approximately  500  Wholesalers  who
generated business for Legacy Marketing during 2003.

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

         Legacy  Marketing works closely with the insurance  carriers in product
design and  development.  Our marketing and actuarial  departments work with the
insurance  carriers to design  proprietary fixed annuity products to be marketed
by Legacy Marketing. All of these products include guarantees for the benefit of
policyholders  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 Cash Value Strategies(TM).

                                       4
<PAGE>

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

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

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

         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, 2003, 2002, and 2001.  Legacy Marketing will continue to administer
American  National  life  insurance  products,  including  acceptance of renewal
premium.  Certain  Legacy  Marketing  employees  who  were  supporting  the life
insurance  product  operations  were either  terminated  or  reassigned to other
positions in Legacy Marketing.

         During  the second  quarter  of 2003,  American  National  reduced  the
crediting rates of several annuity  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 annuity products on
behalf of American National decreased during the second half of 2003 and overall
Legacy Marketing revenues also declined due to this event.  Legacy Marketing has
developed  new  annuity  products  with  American  National  that may  result in
increased sales for Legacy Marketing in the long term.

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

         During the third quarter of 2003, Legacy Marketing began  discontinuing
the  marketing  of the  AssureMark  (SM) fixed  annuity  product  issued by John
Hancock.  As a result,  sales of  annuity  products  on  behalf of John  Hancock
decreased  during the second half of 2003 and will  continue to decrease  during
2004.  Legacy  Marketing plans to develop new annuity products with John Hancock
that may result in increased sales in the long term.

         In  June  2002,   Legacy   Marketing   entered   into   marketing   and
administrative  services  agreements with Investors  Insurance  Corporation,  an
unaffiliated  insurance carrier.  Under these agreements,  Legacy Marketing will
sell  and  administer   annuity  products  on  behalf  of  Investors   Insurance
Corporation.   Legacy  Marketing  has  an  option  to  buy  Investors  Insurance
Corporation.  The option expires on June 30, 2005. If Legacy Marketing exercises
the  option,  it must  complete  the  purchase  transaction  within two years of
exercising the option. Sales on behalf of Investors Insurance  Corporation began
in June 2002.

         During the first quarter of 2003,  Legacy  Marketing  discontinued  the
marketing of several annuity products issued by  Transamerica.  Legacy Marketing
will continue to  administer  these  annuity  products and to accept  additional
premium  payments,  subject to  applicable  additional  deposit  rules for these
products. The discontinued products accounted for approximately 3%, 31%, and 59%
of our total  consolidated  revenue for the years ended December 31, 2003, 2002,
and 2001.  Sales of recently  introduced  Transamerica  products have  partially
offset the effect of the discontinued Transamerica products.  However, effective
in May 2004 Legacy Marketing will discontinue marketing  Transamerica  products.
We intend to continue providing administrative services.

                                       5
<PAGE>

         Through our wholly-owned broker-dealer subsidiary, Legacy Financial, we
sell variable  annuity and life insurance  products,  mutual funds, and debt and
equity  securities.  Legacy  Financial  has entered into sales  agreements  with
investment  companies that give it the  non-exclusive  right to sell  investment
products  on  behalf  of those  companies.  Sales  of  investment  products  are
conducted  through  Legacy   Financial's   network  of  independent   registered
representatives  (who  we  refer  to  as  "Representatives").  Under  the  sales
agreements, we are compensated based upon predetermined percentages of the sales
generated by the  Representatives.  The  agreements  may be terminated by either
party upon thirty days prior  written  notice.  During  2003,  Legacy  Financial
accounted for approximately 4% 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
sales in the United  States  were  approximately  $88  billion in 2003.  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  resources  than we do.  However,  our
business  model  allows us  greater  flexibility,  as we can  adjust  the mix of
business  sold if one,  or more,  of our  carriers  were to  experience  capital
constraints or other events that effect their business  models.  Our competitors
may respond  more  quickly  than us to new or emerging  products  and changes in
customer  requirements.  We are  not  aware  of any  significant  new  means  of
competition,  products or  services  that our  competitors  provide or will soon
provide.  However,  in the highly  competitive  fixed annuity  marketplace,  new
distribution models, product innovations and technological advances may occur at
any time and  could  present  us with  competitive  challenges.  There can be no
assurance  that  we  will be able to  compete  successfully.  In  addition,  our
business  model relies on our  Wholesaler  distribution  network to  effectively
market  our  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, we have been reasonably successful in expanding and maintaining our
current  distribution  network.  We are  not  aware  of any  Wholesaler  who may
discontinue marketing our products. Due to competition among insurance companies
and insurance marketing organizations for successful  Wholesalers,  there can be
no  assurance  that we will be  able  to  retain  some or all of our  Wholesaler
distribution networks.

Regulatory Environment

         State  legislators,   state  insurance   regulators  and  the  National
Association of Insurance  Commissioners  continually reexamine existing laws and
regulations,  and may impose  changes in the future  that  materially  adversely
affect  our  business,   results  of  operations  and  financial  condition.  In
particular, rate rollback legislation and legislation to

                                       6
<PAGE>

control  premiums,  policy  terminations  and other  policy terms may affect the
marketability of policies or the amount of premiums that can be charged for such
policies, and thus the commissions we can earn. Recently a committee of the U.S.
House of  Representatives  has been  considering  the  advisability  of enacting
federal statutes that would impose certain national uniform insurance regulatory
standards to be applied by state insurance  regulators.  No such legislation has
yet been introduced.  A bill entitled "The Federal Insurance Consumer Protection
Act of 2003"  (S.  1373),  has been  introduced  in the U.S.  Senate  which,  if
enacted, would establish comprehensive and exclusive federal regulation over all
"interstate  insurers,"  including all property and casualty insurers selling in
more than one state, with no option for such insurers to remain regulated by the
states. This legislation would repeal the McCarran-Ferguson  antitrust exemption
for the  business of  insurance.  It would also  establish  a Federal  Insurance
Regulatory  Commission  within  the  Department  of  Commerce  that  would  have
exclusive  regulatory  jurisdiction over property and casualty and life insurers
that do  business  in more than one U.S.  jurisdiction.  The  legislation  would
establish   comprehensive  federal  regulatory  oversight  over  such  insurers,
including licensing,  solvency  supervision,  accounting and auditing practices,
form and rate approval,  and market conduct  examination.  The legislation  also
would establish a National  Insurance  Guaranty Fund,  which may be empowered to
collect pre-funded  assessments that are different from, and potentially greater
than,  current state guaranty fund assessment  levels. We cannot predict whether
these or other proposals will be adopted, or what impact, if any, such proposals
may have on our business, financial condition or results of operation.

         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 us or our  subsidiaries  could  harm  our  business,
financial condition, results of operations, and business prospects. In addition,
changes  in  federal  legislation,   state  legislation,   court  decisions  and
administrative  policies could significantly and adversely affect the securities
industry generally and our business in particular.

Employees

         As of  February  29,  2004,  we  employed  482  employees.  None of our
employees is represented by a collective bargaining  agreement.  We consider our
relations  with our  employees  to be good,  and we will  continue  to strive to
provide a positive work environment for our employees.

Financial Information about Segments

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

Financial Information about Geographic Areas

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

Item 2. Properties

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

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 2003.

                                       7
<PAGE>

                                     PART II

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

         As of March 15, 2004,  Regan Holding  Corp.'s Series A Common Stock was
held by approximately 1,000 shareholders of record and our Series B Common Stock
was held by approximately 10,000 shareholders of record. There is no established
public trading market for our stock.

         Our Board of  Directors  may, at its sole  discretion,  declare and pay
dividends on common stock,  subject to capital and solvency  restrictions  under
California law. To date, we have not paid any dividends on our common stock. Our
ability  to pay  dividends  is  dependent  on the  ability  of our  wholly-owned
subsidiaries to pay dividends or make other  distributions to us. As of December
31, 2003, 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,
                                          -------------------------------------------------------------------------------------
                                              2003             2002               2001              2000               1999
                                          ------------     ------------      ------------      --------------      ------------
<S>                                       <C>              <C>               <C>               <C>                 <C>
Selected Income Statement Data:
Total revenue                             $ 70,917,000     $ 50,049,000      $ 55,209,000      $   42,432,000      $ 50,938,000
Net income (loss)                         $  5,029,000     $    (60,000)     $   (348,000)     $   (3,564,000)     $  3,635,000
Earnings (loss) per share - basic:
Before cumulative effect of accounting
  change                                  $       0.20     $         --      $      (0.03)     $        (0.15)     $       0.11
Cumulative effect of accounting change              --               --                --               (0.01)            --
                                          ------------     ------------      ------------      --------------      ------------
                                          $       0.20     $         --      $      (0.03)     $        (0.16)     $       0.11
Earnings (loss) per share - diluted:
Before cumulative effect of accounting
  change                                  $       0.18     $         --      $      (0.03)     $        (0.15)     $       0.10
Cumulative effect of accounting change              --               --                --               (0.01)            --
                                          ------------     ------------      ------------      --------------      ------------
                                          $       0.18     $         --      $      (0.03)     $        (0.16)     $       0.10
Selected Balance Sheet Data:
Total assets                              $ 57,115,000     $ 50,047,000      $ 46,260,000      $   43,114,000      $ 47,158,000
Total non current liabilities             $ 13,536,000     $ 11,630,000      $  4,578,000      $    3,578,000      $  4,258,000
Redeemable common stock                   $  8,964,000     $ 10,115,000      $ 11,124,000      $   11,237,000      $ 11,563,000
Cash dividends declared                             --               --                --                  --                --
Selected Operating Data:
Total fixed premium placed inforce(1)     $  2.15 billion  $  1.3 billion    $  1.6 billion    $  1.1 billion      $  1.6 billion
Total fixed policies placed inforce(1)          36,000           24,000            30,000              20,000            28,000
Policies maintained at year end                127,000          107,000           101,000              89,000            85,000
</TABLE>

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

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

Forward-Looking Statements

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

                                       8
<PAGE>

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

General Overview of Our Business

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

         Legacy  Marketing  designs,   markets  and  administers  fixed  annuity
products  on behalf of certain  unaffiliated  insurance  carriers in each of the
United  States,  except  Alabama and New York.  As of December 31, 2003,  Legacy
Marketing had marketing  agreements with Transamerica,  American National,  John
Hancock,  and Investors Insurance  Corporation.  The marketing  agreements grant
Legacy  Marketing the exclusive  right to market certain fixed annuity  products
issued  by  these  insurance  carriers.  Legacy  Marketing  is  responsible  for
appointing  independent  insurance  producers  who have  contracted  with Legacy
Marketing to sell these products. For these services, the insurance carriers pay
Legacy Marketing commissions and marketing allowances.

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

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

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

Critical Accounting Policies

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

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

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

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

                                       9
<PAGE>

         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 therefore the
                  project is in the application development stage; and

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

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

         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.
Our assessment supports the remaining $3.3 million balance.

         When the Company  purchased Values Financial  Network,  Inc. ("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.  In early 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,  due to the failure of VFN to
produce  revenues as projected,  the Company  updated its 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 the Company recorded
a goodwill  impairment loss of $491,000 during 2003. Current projections support
the remaining balance of goodwill.

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

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

                                       10
<PAGE>

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

Regan Holding Corp. Consolidated

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 are primarily
due to increased net income at Legacy  Marketing,  partially offset by increased
losses at Values  Financial  Network,  Inc.  primarily  due to asset  impairment
losses.

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

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

Legacy Marketing

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. Sales of recently introduced Transamerica products
have  partially  offset the effect of the  discontinued  Transamerica  products.
However,  effective  in May 2004 Legacy  Marketing  will  discontinue  marketing
Transamerica products. We intend to continue providing  administrative services.
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.  It is  possible  that  overall
consolidated  revenues may also decline due to this event.  Legacy Marketing has
developed  new  annuity  products  with  American  National  that may  result in
increased sales for Legacy Marketing in the long term.  Furthermore,  during the
third quarter of 2003, Legacy Marketing began discontinuing the marketing of the
AssureMark (SM) fixed annuity product issued by John Hancock. As a result, sales
of annuity  products on behalf of John Hancock  decreased  during  2003.  Legacy
Marketing  plans to develop  new annuity  products  with John  Hancock  that may
result in increased sales in the long term.

         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 the Company's insurance carrier partner contracts. The
Company  and the  insurance  carrier  agreed  to  terminate  the  bonus  program
effective July 1, 2003.

         As of December 31, 2003,  Legacy  Marketing  sold products on behalf of
four unaffiliated  insurance  carriers:  Transamerica,  American National,  John
Hancock and Investors  Insurance  Corporation.  Legacy  Marketing  also performs
administrative  services for  products of IL Annuity.  The  agreements  with the
following  carriers  generated  a  significant  portion of the  Company's  total
consolidated  revenue (sales on behalf of Investors Insurance  Corporation began
in the second quarter of 2002):

                                       11
<PAGE>

                                                            2003        2002
                                                            ----        ----
         American National                                   37%          17%
         Transamerica                                        25%          52%
         Investors Insurance Corporation                     23%           6%
         IL Annuity                                           6%          12%
         John Hancock                                         3%           8%

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

                                                            2003        2002
                                                            ----        ----
         BenchMark(SM) series (sold on behalf of
           American  National)                                37%        16%
         SelectMark(SM) series (sold on behalf of
           Transamerica)                                      25%        51%
         MarkOne(SM) series (sold on behalf of
           Investors Insurance Corporation)                   23%         6%
         VisionMark(SM) series (sold on behalf
           of IL Annuity)                                      4%        11%
         AssureMark(SM) series (sold on behalf of
           John Hancock)                                       3%         8%

         As indicated  above,  American  National reduced the crediting rates on
several  annuity  products  and we will cease  marketing  Transamerica  products
effective in May 2004. As a result of these events our sales of Transamerica and
American National products will likely decrease.

         Legacy Marketing's expenses increased $10.6 million (23%) primarily due
to  increased  selling,  general  and  administrative  expenses  and other.  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.

         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.

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

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

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

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

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

                                       12
<PAGE>

Legacy Financial

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  reimburseable  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.

         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 2005.

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

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

         Legacy  Financial  revenue  increased  $387,000 (18%)  primarily due to
increases in the volume of sales  resulting from a more  attractive  product mix
for Legacy Financial's distribution network of registered representatives.

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

Values Financial Network, Inc.

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.  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.

     When the Company  purchased the assets of Values  Financial  Network,  Inc.
("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 performed a transitional and annual goodwill impairment
test  during  2002.  The  impairment  test of SFAS 142  required  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.

      Additionally,  when the Company  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

                                       13
<PAGE>

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

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

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

Imagent Online

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

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

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 $39,000 was primarily
due to increased revenues at prospectdigital in 2003.

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

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

Other Segments

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

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

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

         During 2002, combined net income from Legacy Advisory Services,  Legacy
Re and Concept Strategies,  Inc. was $61,000, compared to combined net losses of
$371,000 in 2001. This favorable  change of $432,000 is primarily due to closing
the operations of our LifeSurance Corporation subsidiary in late 2001.

Liquidity and Capital Resources

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

                                       14
<PAGE>

       Net cash  provided by  operating  activities  was $12.0  million for 2003
compared to $410,000 in 2002,  primarily  due to  increased  operating  results,
lower net  purchases of trading  securities,  and the  application  of a prepaid
deposit toward a Producer  incentive trip, offset in part by unrealized gains on
trading securites in 2003 compared to unrealized losses in 2002.

      Net cash used in investing  activities  was $5.2  million  compared to net
cash provided by investing activities of $1.9 million for 2002, primarily due to
increased purchases and lower sales of available-for-sale securities,  partially
offset by lower cash outlays for the development of internal use software.

         Net  cash  used in  financing  activities  was  $1.6  million  for 2003
compared to net cash provided by financing  activities of $1.1 million for 2002,
primarily  due to lower net proceeds  from loans and higher  repurchases  of our
common stock during 2003.  During 2001, we purchased the office  building  which
houses our headquarters for $10.6 million.  In conjunction with the acquisition,
we entered  into a bridge loan  agreement  for $4.8  million.  In July 2002,  we
replaced the bridge loan with permanent financing in the amount of $7.4 million.
The note is payable  over ten years in monthly  installments  of  principal  and
interest  based on a  25-year  term.  At the end of ten  years,  we must pay the
balance of  principal  due on the note.  For the first five years,  the interest
rate is 6.95%.  Thereafter,  the  interest  rate is equal to LIBOR  plus  2.55%,
adjusted semi-annually, subject to a maximum semi-annual 1.00% increase/decrease
in the interest rate. The maximum interest rate is 10.50%.

      During 2003, we began  construction of a new building in Rome, Georgia and
established  a $2.7  million  loan  facility  to be  drawn  against  to  finance
construction costs. The interest rate is equal to LIBOR plus 2.10%. The interest
rate as of December 31, 2003 was 3.24%. The loan matures on October 27, 2004. As
of December 31, 2003, $2.5 million was available under the construction loan.

      We are obligated to  repurchase  certain  shares of our common  stock.  At
December  31, 2003 and  December 31,  2002,  the total  redemption  value of all
redeemable  common stock  outstanding  was $9.0 million and $10.1 million.  Cash
paid to repurchase  some of these shares  totaled $1.2 million  during 2003, and
$964,000  during  2002.  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,  2003,  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                  $7,390,000         $307,000            $  260,000         $  298,000          $6,525,000
--------------------- ------------------ ------------------- ------------------ ------------------- ------------------
Operating Leases       1,638,000          610,000               788,000            237,000               3,000
--------------------- ------------------ ------------------- ------------------ ------------------- ------------------
Total Contractual
Cash Obligations      $9,028,000         $917,000            $1,048,000         $  535,000          $6,528,000
--------------------- ------------------ ------------------- ------------------ ------------------- ------------------
</TABLE>

         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,  2003,  the Company
believes that 125% of the fair market value of the shares owned by Ms. Regan was
equal to $28.3 million.  The Company has purchased two life  insurance  policies
with a combined  face  amount of $29  million  for the  purpose of funding  this
potential obligation upon Ms. Regan's death.

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

                                       15
<PAGE>

         We generated $12.0 million and $410,000 of cash flow from operations in
2003 and 2002.  However,  if  requests to  repurchase  redeemable  common  stock
increase  significantly,  a cash shortfall could  ultimately  occur.  Management
believes that existing cash and investment  balances,  together with anticipated
cash flow from operations,  will provide  sufficient funding for the foreseeable
future.  However,  in the event that a cash shortfall were to occur,  management
believes that adequate  financing could be obtained to meet our cash flow needs.
There can be no assurances  that such financing  would be available on favorable
terms.

Recent Accounting Pronouncements

         In May 2003, the Financial  Accounting  Standards Board issued SFAS No.
150  ("SFAS  150"),   "Accounting  for  Certain   Financial   Instruments   with
Characteristics of both Liabilities and Equity." SFAS 150 establishes  standards
for classifying and measuring certain financial instruments with characteristics
of both  liabilities  and  equity.  Many of these  instruments  were  previously
classified  as equity.  The  provisions  of SFAS 150 require  that some of these
instruments  now  be  classified  as  liabilities.  SFAS  150 is  effective  for
financial instruments entered into or modified after May 31, 2003, and otherwise
is effective for existing financial  instruments  beginning on July 1, 2003. The
implementation of SFAS 150 had no material effect on the Company's  consolidated
results of operations or financial position.

         In November 2002, the Emerging Issues Task Force reached a consensus on
Issue 00-21 ("EITF 00-21).  "Accounting for Revenue  Arrangements  with Multiple
Deliverables".  EITF 00-21  provides  guidance  on when and how to  account  for
arrangements  that involve the  delivery or  performance  of multiple  products,
services and/or rights to use assets.  The Company adopted EITF 00-21 on July 1,
2003. The adoption of EITF 00-21 did not have a material effect on the Company's
consolidated financial position and results of operations.

RISK FACTORS
                          RISKS RELATED TO OUR COMPANY

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

         We had net losses of $60,000 and $348,000 for the years ended  December
31, 2002 and 2001.  We had net income of $5.0 million  during 2003. We intend to
continue  to  invest  in   marketing,   operations,   technology,   and  product
development. We will need to generate adequate revenues and reduce our operating
costs to  maintain  profitability.  If we fail to  maintain  profitability,  our
financial condition and prospects could be weakened.

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

         Legacy  Marketing  has  marketing  agreements  with  Transamerica  Life
Insurance and Annuity Company, American National Insurance Company, John Hancock
Variable Life Insurance Company,  and Investors  Insurance  Corporation.  Legacy
Marketing has also entered into administrative  agreements with each of the four
insurance  carriers,  and IL Annuity  and  Insurance  Company,  whose  marketing
agreement  terminated  during the first quarter of 2002.  During 2003, 37%, 25%,
23%, 6%, and 3% of our total consolidated  revenue resulted from agreements with
American National,  Transamerica,  Investors Insurance Corporation,  IL Annuity,
and John Hancock.

         Legacy Marketing discontinued the marketing of several annuity products
issued by Transamerica  during the first quarter of 2003 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 3%, 31%, and 59%
of our total  consolidated  revenue for the years ended December 31, 2003, 2002,
and 2001.  However,  effective  in May 2004 Legacy  Marketing  will  discontinue
marketing  Transamerica products, as a result our sales of Transamerica products
will likely decrease. We intend to continue providing administrative services.

         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, 2003,  2002, and 2001.  Legacy Marketing will continue
to administer American National life insurance products, including acceptance of
renewal  premium.  Two Legacy  Marketing  employees who were supporting the life
insurance  product  operations were terminated and nine were reassigned to other
positions in Legacy Marketing.

                                       16
<PAGE>

         During  the second  quarter  of 2003,  American  National  reduced  the
crediting rates of several annuity  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 annuity products on
behalf of American  National began to decrease through the remainder of 2003. We
believe  this  trend  may  continue  for  2004.  It  is  possible  that  overall
consolidated  revenues may also decline due to this event.  Legacy  Marketing is
developing  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 began  discontinuing
the  marketing  of the  AssureMark  (SM) fixed  annuity  product  issued by John
Hancock.  As a result,  sales of  annuity  products  on  behalf of John  Hancock
decreased  during  the third  quarter  and will  continue  to  decrease  for the
remainder of 2003. Legacy Marketing is developing new annuity products with John
Hancock that may result in increased sales in the long term.

         In  June  2002,   Legacy   Marketing   entered   into   marketing   and
administrative  services  agreements with Investors  Insurance  Corporation,  an
unaffiliated  insurance carrier.  Under these agreements,  Legacy Marketing will
sell  and  administer   annuity  products  on  behalf  of  Investors   Insurance
Corporation.   Legacy  Marketing  has  an  option  to  buy  Investors  Insurance
Corporation.  The option expires on June 30, 2005. If Legacy Marketing exercises
the  option,  it must  complete  the  purchase  transaction  within two years of
exercising the option. Sales on behalf of Investors Insurance  Corporation began
in June 2002.

         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 our insurance  carriers could be disruptive to our business and harm
our results of operations and financial condition.

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

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

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

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

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

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

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

     o   The relationship between Legacy Marketing and our insurance carriers.

                                       17
<PAGE>

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

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

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

         Our cash positions at December 31, 2003 and December 31, 2002 were $9.9
million and $4.8 million.

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

         As of December 31, 2003, we are obligated to redeem 3,289,000 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,  we are obligated to redeem
up to 10% of these shares at the option of the holders of these shares,  limited
to a specified  twenty-day period each year. The price per share is based on the
estimated fair market value of the stock on the redemption  date. The redemption
of all  eligible  shares  during 2004 would  require $7.3  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 buy us, if any, shall be equal to 125% of the fair
market value of the shares. As of December 31, 2003, we believe 125% of the fair
market  value of the shares owned by Ms.  Regan was equal to $28.3  million.  We
have  purchased two life  insurance  policies with a combined face amount of $29
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.

                          RISKS RELATED TO OUR INDUSTRY

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

                                       18
<PAGE>

         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  $88  billion in 2003.  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  resources  than we do.  However,  our
business  model  allows us  greater  flexibility,  as we can  adjust  the mix of
business  sold  if one or  more  of our  carriers  were  to  experience  capital
constraints or other events that affect their business  models.  Our competitors
may respond  more  quickly  than us to new or emerging  products  and changes in
customer  requirements.  We are  not  aware  of any  significant  new  means  of
competition,  products or  services  that our  competitors  provide or will soon
provide.  However,  in the highly  competitive  fixed annuity  marketplace,  new
distribution models, product innovations and technological advances may occur at
any time and  could  present  us with  competitive  challenges.  There can be no
assurance  that  we  will be able to  compete  successfully.  In  addition,  our
business model relies on Wholesaler  distribution networks to effectively market
our 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, we have been reasonably successful in expanding and maintaining our
current Wholesaler  distribution network. We are not aware of any Wholesaler who
may  discontinue  marketing our products.  Due to  competition  among  insurance
companies and insurance  marketing  organizations  for  successful  Wholesalers,
there  can be no  assurance  that we will be able to  retain  some or all of our
Wholesaler distribution networks.

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

         State  legislators,   state  insurance   regulators  and  the  National
Association of Insurance  Commissioners  continually reexamine existing laws and
regulations,  and may impose  changes in the future  that  materially  adversely
affect  our  business,   results  of  operations  and  financial  condition.  In
particular,  rate rollback  legislation  and  legislation  to control  premiums,
policy  terminations  and other  policy  terms may affect the  marketability  of
policies or the amount of premiums  that can be charged for such  policies,  and
thus the  commissions  we can earn.  Recently a committee  of the U.S.  House of
Representatives  has been  considering  the  advisability  of  enacting  federal
statutes  that  would  impose  certain  national  uniform  insurance  regulatory
standards to be applied by state insurance  regulators.  No such legislation has
yet been introduced.  A bill entitled "The Federal Insurance Consumer Protection
Act of 2003"  (S.  1373),  has been  introduced  in the U.S.  Senate  which,  if
enacted, would establish comprehensive and exclusive federal regulation over all
"interstate  insurers,"  including all property and casualty insurers selling in
more than one state, with no option for such insurers to remain regulated by the
states. This legislation would repeal the McCarran-Ferguson  antitrust exemption
for the  business of  insurance.  It would also  establish  a Federal  Insurance
Regulatory  Commission  within  the  Department  of  Commerce  that  would  have
exclusive  regulatory  jurisdiction over property and casualty and life insurers
that do  business  in more than one U.S.  jurisdiction.  The  legislation  would
establish   comprehensive  federal  regulatory  oversight  over  such  insurers,
including licensing,  solvency  supervision,  accounting and auditing practices,
form and rate approval,  and market conduct  examination.  The legislation  also
would establish a National  Insurance  Guaranty Fund,  which may be empowered to
collect pre-funded  assessments that are different from, and potentially greater
than,  current state guaranty fund assessment  levels. We cannot predict whether
these or other proposals will be adopted, or what impact, if any, such proposals
may have on our business, financial condition or results of operation.

         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 us or our  subsidiaries  could  harm  our  business,
financial condition, results of operations, and business prospects. In addition,
changes  in  federal  legislation,   state  legislation,   court  decisions  and
administrative  policies could significantly and adversely affect the 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 we market. This favorable income tax
treatment results in our policyholders paying no income tax on their earnings in
the annuity  products until they take a cash  distribution.  We believe that the
tax deferral features  contained within the annuity products that we market give
our  products  a  competitive  advantage  over  other  non-insurance  investment
products where income taxes may be due on current  earnings.  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.

                                       19
<PAGE>

         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 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.

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

         Interest rate risk is the price  sensitivity of a fixed income security
to changes in interest rates. The following table provides information about our
fixed income  investments,  which are  sensitive  to changes in interest  rates.
Listed below are cash flows from principal  amounts and related weighted average
interest rates by expected  maturity dates for fixed income  investments held at
December  31,  2003 and 2002.  Actual  cash flows  could  differ  from  expected
amounts.

<TABLE>
<CAPTION>
                                                                                                            Amortized    Estimated
December 31, 2003           2004         2005          2006          2007        2008       Thereafter        Cost       Fair Value
-----------------           ----         ----          ----          ----        ----       ----------        ----       ----------
<S>                     <C>           <C>           <C>               <C>         <C>           <C>         <C>           <C>
Fixed maturities        $   515,000   $1,561,000    $1,736,000        $--         $--           $--         $3,812,000    $3,865,000
Average interest
Rate                           2.94%        3.50%         5.20%        --          --            --
</TABLE>

<TABLE>
<CAPTION>
                                                                                                            Amortized    Estimated
December 31, 2002           2004         2005          2006          2007        2008       Thereafter        Cost       Fair Value
-----------------           ----         ----          ----          ----        ----       ----------        ----       ----------
<S>                      <C>             <C>           <C>           <C>         <C>          <C>          <C>           <C>
Fixed maturities         $4,588,000      $--           $--           $--         $--          $340,000     $4,928,000    $4,890,000
Average interest
Rate                           4.58%      --            --            --          --              7.03%
</TABLE>

         During 2003 we invested in bond  mutual  funds which are  sensitive  to
interest  rates.  The  original  cost and fair value at  December  31, 2003 were
$2,033,000 and $2,074,000.

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

         Equity  price risk is the  potential  loss  arising from changes in the
value of equity securities. In general, equity securities have more year-to-year
price variability than intermediate term high-grade bonds. However, returns over
longer time frames have been consistently  higher. Our equity securities consist
primarily of investments  in 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, 2003. The
original  cost and fair values of our  marketable  equity  securities  are shown
below:

                                               Original Cost          Fair Value
                                               -------------          ----------
December 31, 2003                               $5,633,000            $6,308,000
December 31, 2002                               $5,295,000            $4,261,000

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

                                       20
<PAGE>

Item 8. Financial Statements and Supplementary Data

                         REPORT OF INDEPENDENT AUDITORS

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, 2003 and
2002,  and the results of their  operations and their cash flows for each of the
three years in the period ended December 31, 2003 in conformity  with accounting
principles  generally accepted in the United States of America.  These financial
statements   are  the   responsibility   of  the   Company's   management;   our
responsibility  is to express an opinion on these financial  statements based on
our audits.  We conducted  our audits of these  statements  in  accordance  with
auditing  standards  generally  accepted in the United States of America,  which
require that we plan and perform the audit to obtain reasonable  assurance about
whether the financial  statements  are free of material  misstatement.  An audit
includes  examining,  on a test  basis,  evidence  supporting  the  amounts  and
disclosures in the financial  statements,  assessing the  accounting  principles
used and  significant  estimates made by management,  and evaluating the overall
financial  statement  presentation.   We  believe  that  our  audits  provide  a
reasonable basis for our opinion.

As  discussed  in Note 1, the  Company  changed  its  method of  accounting  for
goodwill and other  intangible  assets in accordance with Statement of Financial
Accounting  Standards  No. 142 Goodwill and Other  Intangible  Assets during the
year ended December 31, 2002.


PricewaterhouseCoopers LLP
San Francisco, California
March 30, 2004

                                       21
<PAGE>

                      REGAN HOLDING CORP. AND SUBSIDIARIES
                           Consolidated Balance Sheet

<TABLE>
<CAPTION>
                                                                                   December 31,
                                                                           -----------------------------
                                                                               2003             2002
                                                                           ------------     ------------
<S>                                                                        <C>              <C>
Assets
Cash and cash equivalents                                                  $  9,908,000     $  4,793,000
Trading investments                                                           6,308,000        4,261,000
Available-for-sale investments                                                5,939,000        4,890,000
Accounts receivable, net of allowance of $866,000 and $760,000 at
December 31, 2003 and 2002                                                    4,225,000        3,274,000
Prepaid expenses and deposits                                                   803,000        2,122,000
Deferred taxes                                                                1,356,000        1,030,000
                                                                           ------------     ------------
   Total current assets                                                      28,539,000       20,370,000
                                                                           ------------     ------------
Net fixed assets                                                             24,278,000       25,841,000
Deferred taxes                                                                1,170,000          685,000
Goodwill                                                                        679,000        1,170,000
Intangible assets, net                                                          196,000          332,000
Other assets                                                                  2,253,000        1,649,000
                                                                           ------------     ------------
   Total non current assets                                                  28,576,000       29,677,000
                                                                           ------------     ------------
   Total assets                                                            $ 57,115,000     $ 50,047,000
                                                                           ============     ============

Liabilities, redeemable common stock, and shareholders' equity
Liabilities
Accounts payable and accrued liabilities                                   $ 10,790,000     $  8,906,000
Income taxes payable                                                          1,990,000        2,327,000
Current portion of notes payable and other borrowings                           307,000          109,000
                                                                           ------------     ------------
   Total current liabilities                                                 13,087,000       11,342,000
                                                                           ------------     ------------
Deferred compensation payable                                                 6,257,000        4,241,000
Other liabilities                                                               196,000          190,000
Note Payable, less current portion                                            7,083,000        7,199,000
                                                                           ------------     ------------
   Total non current liabilities                                             13,536,000       11,630,000
                                                                           ------------     ------------
   Total liabilities                                                         26,623,000       22,972,000
                                                                           ------------     ------------

Redeemable common stock, Series A and B                                       8,964,000       10,115,000
                                                                           ------------     ------------

Shareholders' equity Preferred stock, no par value:
Authorized: 100,000,000 shares; no shares issued or outstanding                      --               --
Series A common stock, no par value:
Authorized: 45,000,000 shares; issued and outstanding: 20,252,000 and
20,495,000 at December 31, 2003 and 2002                                      3,158,000        3,324,000
Common stock committed                                                           25,000           25,000
Paid-in capital                                                               6,510,000        6,499,000
Retained earnings                                                            11,779,000        7,135,000
Accumulated other comprehensive income (loss)                                    56,000          (23,000)
                                                                           ------------     ------------
   Total shareholders' equity                                                21,528,000       16,960,000
                                                                           ------------     ------------
   Total liabilities, redeemable common stock and shareholders' equity     $ 57,115,000     $ 50,047,000
                                                                           ============     ============
</TABLE>

                       See notes to financial statements.

                                       22
<PAGE>

                      REGAN HOLDING CORP. AND SUBSIDIARIES
                      Consolidated Statement of Operations

<TABLE>
<CAPTION>
                                                                 For the Year Ended December 31,
                                                        ------------------------------------------------
                                                            2003              2002             2001
                                                        ------------      ------------      ------------
<S>                                                     <C>               <C>               <C>
Revenue
Marketing allowances and commission overrides           $ 48,396,000      $ 32,323,000      $ 38,123,000
Trailing commissions                                       5,130,000         4,899,000         4,708,000
Administrative fees                                       13,875,000        12,007,000        11,700,000
Other revenue                                              3,516,000           820,000           678,000
                                                        ------------      ------------      ------------
   Total revenue                                          70,917,000        50,049,000        55,209,000
                                                        ------------      ------------      ------------

Expenses
Selling, general and administrative                       53,583,000        43,521,000        47,575,000
Depreciation and amortization                              4,077,000         4,339,000         4,578,000
Goodwill impairment losses                                   491,000                --                --
Other                                                      4,729,000         2,859,000         3,459,000
                                                        ------------      ------------      ------------
   Total expenses                                         62,880,000        50,719,000        55,612,000
                                                        ------------      ------------      ------------

Operating income (loss)                                    8,037,000          (670,000)         (403,000)

Other income (loss)
Investment income (loss), net                                416,000           652,000          (125,000)
Interest expense                                             (33,000)          (76,000)          (40,000)
                                                        ------------      ------------      ------------
   Total other income (loss)                                 383,000           576,000          (165,000)
                                                        ------------      ------------      ------------

Income (loss)  before income taxes                         8,420,000           (94,000)         (568,000)
Income tax provision (benefit)                             3,391,000           (34,000)         (220,000)
                                                        ------------      ------------      ------------

Net income (loss) before accretion of redeemable
common stock                                               5,029,000           (60,000)         (348,000)
Accretion of redeemable common stock                         (34,000)          (26,000)         (397,000)
                                                        ------------      ------------      ------------
Net income (loss) available for common shareholders     $  4,995,000      $    (86,000)     $   (745,000)
                                                        ============      ============      ============

Basic earnings (loss) per share:
Earnings (loss) available for common shareholders       $       0.20      $         --      $      (0.03)

Weighted average shares outstanding                       24,431,000        25,093,000        25,861,000

Diluted earnings (loss) per share:
Earnings (loss) available for common shareholders       $       0.18      $         --      $      (0.03)

Weighted average shares outstanding                       27,330,000        25,093,000        25,861,000
</TABLE>

                       See notes to financial statements.

                                       23
<PAGE>

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


<TABLE>
<CAPTION>
                                     Series A Common Stock
                            ----------------------------------------                                  Accumulated
                                                                                                         Other
                                                          Common Stock     Paid-in        Retained   Comprehensive
                               Shares        Amount        Committed       Capital        Earnings   Income (Loss)      Total
                            -----------    -----------    -----------    -----------    -----------  -------------   -----------
<S>                          <C>           <C>                <C>        <C>            <C>           <C>            <C>
Balance December 31, 2000    20,870,000    $ 3,596,000        100,000    $ 6,318,000    $ 8,244,000   $  (511,000)   $17,747,000
Comprehensive income,
net of tax:
Net loss                                                                                   (348,000)                    (348,000)
Net unrealized gains
on investments                                                                                          1,036,000      1,036,000
Less:
Reclassification
adjustment for
losses included in
net loss                                                                                                 (469,000)      (469,000)
                                                                                                                     -----------
Total comprehensive
income                                                                                                                   219,000
Retirement upon
voluntary
repurchases of
common stock                   (149,000)      (150,000)                                     (94,000)                    (244,000)
Retirement upon
mandatory redemption                                                          10,000                                      10,000
Accretion to
redemption value                                                                           (397,000)                    (397,000)
Issuance of common
stock committed                  33,000        150,000       (150,000)                                                        --
Common stock
committed                        15,000                        75,000                                                     75,000
Producer stock option
expense                                                                       96,000                                      96,000
                            -----------    -----------    -----------    -----------    -----------   -----------    -----------
Balance December 31, 2001    20,769,000      3,596,000         25,000      6,424,000      7,405,000        56,000     17,506,000
Comprehensive
loss, net of tax:
Net loss                                                                                    (60,000)                     (60,000)
Net unrealized losses
on investments                                                                                           (211,000)      (211,000)
Less:
Reclassification
adjustment for
gains included in
net loss                                                                                                  132,000        132,000
                                                                                                                     -----------
Total
comprehensive loss                                                                                                      (139,000)
Retirement upon
voluntary
repurchases of
common stock                   (274,000)      (272,000)                                    (184,000)                    (456,000)
Retirement upon
mandatory redemption                                                          71,000                                      71,000
Accretion to
redemption value                                                                            (26,000)                     (26,000)
Producer stock option
expense                                                                        4,000                                       4,000
                            -----------    -----------    -----------    -----------    -----------   -----------    -----------
Balance December 31, 2002    20,495,000      3,324,000         25,000      6,499,000      7,135,000       (23,000)    16,960,000
Comprehensive
Income, net of tax:
Net income                                                                                5,029,000                    5,029,000
Net unrealized gains
on investments                                                                                             86,000         86,000
</TABLE>

                                       24
<PAGE>

<TABLE>
<S>                            <C>           <C>                <C>        <C>            <C>           <C>            <C>
Less:
Reclassification
adjustment for losses
included in net
income                                                                                                     (7,000)        (7,000)
                                                                                                                     -----------
Total comprehensive
income                                                                                                                 5,108,000
Retirement upon
voluntary
repurchases of
common stock                   (398,000)      (363,000)                                    (351,000)                    (714,000)
Retirement upon
mandatory redemption                                                           1,000                                       1,000
Accretion to
redemption value                                                                            (34,000)                     (34,000)
Producer stock option
expense                                                                       10,000                                      10,000
Exercise of stock options       155,000        197,000                                                                   197,000
                            -----------    -----------    -----------    -----------    -----------   -----------    -----------
Balance December 31, 2003    20,252,000    $ 3,158,000    $    25,000    $ 6,510,000    $11,779,000   $    56,000    $21,528,000
                            ===========    ===========    ===========    ===========    ===========   ===========    ===========
</TABLE>

                       See notes to financial statements.

                                       25
<PAGE>

                      REGAN HOLDING CORP. AND SUBSIDIARIES
                      Consolidated Statement of Cash Flows

<TABLE>
<CAPTION>
                                                                              For the Year Ended December 31,
                                                                     --------------------------------------------------
                                                                        2003                2002               2001
                                                                     ------------       ------------       ------------
<S>                                                                  <C>                <C>                <C>
Cash flows from operating activities:
Net income (loss)                                                    $  5,029,000       $    (60,000)      $   (348,000)
Adjustments to reconcile net income (loss) to net cash provided
by operating activities:
Depreciation and amortization                                           4,077,000          4,339,000          4,578,000
Losses on write-off of fixed assets                                     1,772,000            255,000            381,000
Impairment of goodwill and intangible assets                              538,000                 --                 --
Provision for bad debts                                                   399,000            393,000            342,000
Losses on equity investee                                                      --                 --            896,000
Common stock awarded to non-employees                                          --                 --             75,000
Producer stock option expense                                              10,000              4,000             96,000
Investment impairment loss                                                     --                 --            642,000
Amortization of premium or discount of investments                         84,000             76,000             47,000
Realized (gains) losses on sales of investments, net                       12,000           (219,000)           138,000
Unrealized (gains) losses on trading securities, net                   (1,709,000)         1,034,000                 --
Changes in operating assets and liabilities:
Purchases of trading securities, net                                     (333,000)        (5,276,000)                --
Accounts receivable                                                    (1,350,000)          (934,000)        (1,003,000)
Prepaid expenses and deposits                                           1,319,000         (1,065,000)           236,000
Income taxes receivable and payable                                      (337,000)         2,403,000          3,585,000
Deferred tax assets                                                      (863,000)          (134,000)          (133,000)
Accounts payable and accrued liabilities                                1,884,000            604,000             15,000
Deferred compensation payable                                           2,016,000           (115,000)         1,359,000
Other operating assets and liabilities                                   (598,000)          (895,000)            14,000
                                                                     ------------       ------------       ------------
Net cash provided by operating activities                              11,950,000            410,000         10,920,000
                                                                     ------------       ------------       ------------

Cash flows from investing activities:
Purchases of available-for-sale securities                             (5,902,000)          (959,000)       (10,150,000)
Proceeds from sales and maturities of available-for-sale
securities                                                              4,884,000          8,633,000          8,049,000
Proceeds from note receivable                                                  --                 --          5,750,000
Purchases of fixed assets                                              (4,197,000)        (5,580,000)       (16,458,000)
Acquisition of prospectdigital assets                                          --           (225,000)                --
Equity in and advances to investee                                             --                 --           (358,000)
                                                                     ------------       ------------       ------------
Net cash provided by (used in) investing activities                    (5,215,000)         1,869,000        (13,167,000)
                                                                     ------------       ------------       ------------

Cash flows from financing activities:
Proceeds from loans payable                                               191,000          5,321,000          5,250,000
Payments toward loans payable                                                  --        (10,071,000)        (2,765,000)
Proceeds from note payable                                                     --          7,350,000                 --
Payments toward note payable                                             (109,000)           (42,000)                --
Repurchases of redeemable common stock                                 (1,185,000)          (964,000)          (500,000)
Voluntary repurchases of common stock                                    (517,000)          (456,000)          (244,000)
                                                                     ------------       ------------       ------------
Net cash provided by (used in) in financing activities                 (1,620,000)         1,138,000          1,741,000
                                                                     ------------       ------------       ------------
Net increase (decrease) in cash and cash equivalents                    5,115,000          3,417,000           (506,000)
Cash and cash equivalents, beginning of period                          4,793,000          1,376,000          1,882,000
                                                                     ------------       ------------       ------------
Cash and cash equivalents, end of period                             $  9,908,000       $  4,793,000       $  1,376,000
                                                                     ============       ============       ============

Supplemental cash flow information:
Taxes Paid                                                           $  5,110,000       $      7,000       $     14,000
Interest Paid                                                        $    517,000       $    411,000       $    180,000
</TABLE>

                       See notes to financial statements.

                                       26
<PAGE>

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                      REGAN HOLDING CORP. AND SUBSIDIARIES

1. Organization and Summary of Significant Accounting Policies

      a. Organization

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

         As of December 31, 2003, 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"),   and  Investors  Insurance   Corporation
(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.  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

                                       27
<PAGE>

various  investment  companies,  Legacy  Financial  is  compensated  based  upon
predetermined percentages of actual sales levels.

      d. Cash and Cash Equivalents

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

      e. Investments

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

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

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

      f. Fixed Assets

         Fixed assets are stated at cost, 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

      g. Goodwill and Other Intangible Assets

         Goodwill and Other  Intangible  assets were  acquired in the  Company's
purchase of Values Financial Network,  Inc. in 2000 and prospectdigital,  LLC in
2002. Prior to January 1, 2002,  goodwill was amortized on a straight-line basis
over 10 years,  which is its  estimated  useful  life.  Pursuant to Statement of
Financial  Accounting

                                       28
<PAGE>

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.

      h. Impairment of Long-Lived Assets

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

   i.    Redeemable Common Stock

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

   j.    Income Taxes

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

   k.    Stock Options

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

         The  following  table  illustrates  the effect on net 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>
                                                     2003           2002           2001
                                                -------------    ---------    -------------
<S>                                            <C>               <C>          <C>
Net income (loss) available for common
  shareholders, as reported:                   $    4,995,000    $ (86,000)   $    (745,000)
  Deduct:  Total stock-based employee
   compensation expense
   determined under fair value method for all
  awards, net of related tax effects                 (424,000)    (478,000)        (411,000)
                                                -------------    ---------    -------------
 Pro forma net income (loss) available for
   common shareholders                         $    4,571,000    $(564,000)   $  (1,156,000)
Earnings (loss) per share:
Basic - as reported                            $         0.20    $      --    $       (0.03)
Basic - pro forma                              $         0.19    $   (0.02)   $       (0.04)

Diluted - as reported                          $         0.18    $      --    $       (0.03)
Diluted - pro forma                            $         0.17    $   (0.02)   $       (0.04)
</TABLE>

                                       29
<PAGE>

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

                                       2003             2002            2001
                                   ------------     ------------    ------------
       Risk-free interest rates    1.45%-3.20%      4.08%-4.52%     4.50%-4.88%
       Expected life               3-5 years        3-5 years       3-5 years
       Dividend yield              None             None            None

l. Recent Accounting Pronouncements

         In May 2003, the Financial  Accounting  Standards Board issued SFAS No.
150  ("SFAS  150"),   "Accounting  for  Certain   Financial   Instruments   with
Characteristics of both Liabilities and Equity." SFAS 150 establishes  standards
for classifying and measuring certain financial instruments with characteristics
of both  liabilities  and  equity.  Many of these  instruments  were  previously
classified  as equity.  The  provisions  of SFAS 150 require  that some of these
instruments  now  be  classified  as  liabilities.  SFAS  150 is  effective  for
financial instruments entered into or modified after May 31, 2003, and otherwise
is effective for existing financial  instruments  beginning on July 1, 2003. The
implementation of SFAS 150 had no material effect on the Company's  consolidated
results of operations or financial position.

         In November 2002, the Emerging Issues Task Force reached a consensus on
Issue 00-21 ("EITF -00-21).  "Accounting for Revenue  Arrangements with Multiple
Deliverables".  EITF 00-21  provides  guidance  on when and how to  account  for
arrangements  that involve the  delivery or  performance  of multiple  products,
services and/or rights to use assets.  The Company adopted EITF 00-21 on July 1,
2003. The adoption of EITF 00-21 did not have a material effect on the Company's
consolidated financial position and results of operations.

2. Investments

<TABLE>
<CAPTION>

The cost and fair  value of  investment securities, at December 31, 2003 and 2002
are as follows:


                                                   Cost          Unrealized      Unrealized        Fair
                                                   Basis           Gains          Losses           Value
                                                   -----           -----          ------           -----

December 31 , 2003
<S>                                              <C>           <C>                   <C>         <C>
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
                                                 ===========================================================


                                                    Cost         Unrealized     Unrealized         Fair
                                                    Basis          Gains          Losses           Value
                                                   -----           -----          ------           -----
December 31, 2002
Available for sale investments
Corporate bonds, maturing in:
 1  to 5 years                                   $  4,588,000  $      4,000     $         --     $ 4,592,000
 5 to 10 years                                             --            --               --              --
 Longer than 10 years                                 340,000            --          (42,000)        298,000
                                                 -----------------------------------------------------------
Total available for sale investments             $  4,928,000  $      4,000     $    (42,000)    $ 4,890,000
                                                 ===========================================================

</TABLE>

                                         2003            2002            2001
                                      ---------       ---------       ---------
Gross realized gains                  $   6,000       $ 281,000       $  92,000
Gross realized losses                 $ (18,000)      $ (62,000)      $(230,000)

                                       30
<PAGE>

3. Fixed Assets

                                                           December 31,
                                                  -----------------------------
                                                      2003             2002
                                                  ------------     ------------
Computer hardware and purchased
   software                                       $  8,075,000     $  7,796,000
Internal use software development costs             15,742,000       16,345,000
Leasehold improvements                               1,361,000        1,324,000
Furniture and equipment                              3,108,000        3,169,000
Building                                             9,446,000        7,798,000
Land                                                 2,718,000        2,703,000
                                                  ------------     ------------
                                                    40,450,000       39,135,000
Accumulated depreciation and amortization          (16,172,000)     (13,294,000)
                                                  ------------     ------------
Total                                             $ 24,278,000     $ 25,841,000
                                                  ============     ============

         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,  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 the abandoned  components of the software costs.
Our assessment supports the remaining $3.3 million balance.

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.

         The following  table provides  comparative  net loss and loss per share
had the  non-amortization  provision  of SFAS 142 been  adopted  for all periods
presented:
<TABLE>
<CAPTION>
                                                          For the Year Ended December 31,
                                                       --------------------------------------
                                                          2003          2002          2001
                                                       ----------     --------      ---------
<S>                                                    <C>            <C>           <C>
Net income (loss)                                      $5,029,000     $(60,000)     $(348,000)
Adjustments:
  Goodwill amortization, net of tax benefit of
$-, $- and $52,000 for  years ended December
31, 2003, 2002 and 2001                                        --           --         78,000
                                                       ----------     --------      ---------
Adjusted net income (loss)                             $5,029,000     $(60,000)     $(270,000)
                                                       ==========     ========      =========

Reported basic income (loss) per share                 $     0.20     $     --      $   (0.03)
Adjusted basic income (loss) per share                 $     0.20     $     --      $   (0.03)
Reported basic and diluted income (loss) per share     $     0.18     $     --      $   (0.03)
Adjusted basic and diluted income (loss) per share     $     0.18     $     --      $   (0.03)
</TABLE>

         The  carrying  amount of goodwill  was  $679,000 and $1.2 million as of
December 31, 2003 and December 31, 2002.

                                       31
<PAGE>

         Acquired intangible assets, all subject to amortization:

                                                  December 31,
                                ------------------------------------------------
                                         2003                     2002
                                ----------------------    ----------------------
                                Gross                      Gross
                               Carrying   Accumulated     Carrying  Accumulated
                                Amount    Amortization    Amount    Amortization
                                ------    ------------    ------    ------------
Copyrights                    $ 203,000    $(145,000)    $ 250,000    $(100,000)
Software license              $ 223,000    $ (85,000)    $ 223,000    $ (41,000)
                              ---------    ---------     ---------    ---------
   Total                      $ 426,000    $(230,000)    $ 473,000    $(141,000)
                              =========    =========     =========    =========


         The  aggregate  amortization  expense for the years ended  December 31,
2003,  2002  and  2001  was  $89,000,   $91,000  and  $102,000.   The  estimated
amortization  expense for each of the next two years ended  December 31, 2005 is
$74,000, and the estimated amortization expense for the years ended December 31,
2006 and 2007 are $45,000 and $3,000.

5. Accounts Payable and Accrued Liabilities

                                                            December 31,
                                                   -----------------------------
                                                       2003              2002
                                                   -----------       -----------
Accrued compensation                               $ 3,351,000       $ 2,346,000
Accrued sales bonus                                  2,022,000                --
Accrued sales convention costs                       1,381,000         1,664,000
Commissions payable                                    832,000         1,204,000
Payable to insurance carrier                           345,000         1,097,000
Accounts payable                                       548,000           728,000
Accrued production premium
deficiency                                             206,000           637,000
Miscellaneous accrued expenses                       2,105,000         1,230,000
                                                   -----------       -----------

Total                                              $10,790,000       $ 8,906,000
                                                   ===========       ===========

6. Loan Payable and Note Payable

         During 2001, the Company purchased the office building which houses its
headquarters for $10.6 million. In conjunction with the acquisition, the Company
entered into a bridge loan agreement for $4.8 million. In July 2002, the Company
replaced the bridge loan with permanent financing in the amount of $7.4 million.
This note is payable over ten years in monthly  installments  of  principal  and
interest based on a 25-year term. At the end of ten years,  the Company must pay
the balance of principal due on the note. For the first five years, the interest
rate is 6.95%.  Thereafter,  the  interest  rate is equal to LIBOR  plus  2.55%,
adjusted semi-annually, subject to a maximum semi-annual 1.00% increase/decrease
in the interest  rate. The maximum  interest rate is 10.50%.  As of December 31,
2003, the Company made payments of $151,000 toward the principal  balance of the
note. The required  principal  payments over the next five years are:  $116,000,
$125,000, $135,000, $144,000, and $154,000.

         During 2003, we began  construction of a new building in Rome,  Georgia
and  established  a $2.7  million loan  facility to be drawn  against to finance
construction costs. The interest rate is equal to LIBOR plus 2.10%. The interest
rate as of December 31, 2003 was 3.24%. The loan matures on October 27, 2004. As
of December 31, 2003, $2.5 million was available under the construction loan.

7. 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 $12,000.  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  $405,000,
$434,000, and $439,000 for the years ended December 31, 2003, 2002, and 2001.

                                       32
<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 $32,000,  $59,000,
and $55,000  during the years ended  December 31, 2003,  2002,  and 2001.  As of
December  31,  2003  and  2002,  employee  contributions  and  Company  matching
contributions,  net of  accumulated  investment  losses,  totaled  $610,000  and
$650,000.

         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,
2003, 2002, and 2001, matching  contributions related to the producer commission
deferral plan were $16,000,  $19,000,  and $36,000.  As of December 31, 2003 and
2002,  producer  contributions  and  Company  matching  contributions,   net  of
accumulated  investment  losses,  totaled  $5.7  million and $3.6  million.  The
liability  to the  employee or  Producer  is  credited  or charged  based on the
performance of the investment option selected by the participant.

8. 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.

9. Sales Incentive Program

         During 2003, Legacy Marketing Group initiated a sales incentive program
for its top independent insurance producers ("Wholesalers"). This program offers
bonuses to Wholesalers  based  primarily on their  achievement of  predetermined
annual sales targets.  Bonuses will be 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.

10. Commitments and Contingencies

         The Company  leases  office and warehouse  premises and certain  office
equipment  under  non-cancelable  operating  leases.  Related  rent  expense  of
$531,000,  $585,000,  and $1.6  million is included in  occupancy  costs for the
years ended  December  31, 2003,  2002,  and 2001.  Total  rentals for leases of
equipment  included in equipment  expense were $1.0 million,  $1.1 million,  and
$922,000 for the years ended December 31, 2003, 2002, and 2001.

         The  Company's  future  minimum  annual  lease  commitments  under  all
operating leases as of December 31, 2003 are as follows:

                   Year Ended December 31,
                             2004                             $    610,000
                             2005                                  465,000
                             2006                                  323,000
                             2007                                  219,000
                             2008                                   18,000
                             Thereafter                              3,000
                                                              ------------
                             Total minimum lease payments     $  1,638,000
                                                              ============

         During 2003, the Company amended its  Shareholder  Agreement with Lynda
L. Regan,  Chief Executive  Officer of the Company and Chairman of the Company's
Board of Directors.  Under the terms of the amended

                                       33
<PAGE>

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, 2003,  the Company  believes  that 125% of the fair market value of
the  shares  owned by Ms.  Regan was equal to $28.3  million.  The  Company  has
purchased two life insurance policies with a combined face amount of $29 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, 2003,  there were no
outstanding commitments by the Company relating to such obligations.

11. Redeemable Common Stock

         Between  1990 and  1992,  the  Company  issued  Series  A and  Series B
redeemable  common  stock to certain  shareholders.  The Company is obligated to
repurchase the redeemable common stock at the current fair market value. Because
there is no active trading market for the Company's  stock that would  establish
market value,  the Company's Board of Directors  approved a redemption value for
Series A redeemable  common stock of $2.21 per share and $2.20 per share,  and a
redemption  value for Series B  redeemable  common  stock of $1.82 and $1.82 per
share,  as of December 31, 2003 and 2002,  based on an independent  appraisal of
the stock value  obtained by  management.  The appraisal  also  determined  that
non-redeemable stock had a value of $1.69 per share at December 31, 2003.

<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, 2001                   4,511,000    $  9,479,000        584,000    $  1,758,000      5,095,000   $ 11,237,000
Redemptions and retirement of common
stock                                      (232,000)       (500,000)        (3,000)        (10,000)      (235,000)      (510,000)
Accretion to redemption value                    --         397,000             --              --             --        397,000
                                       ------------    ------------   ------------    ------------   ------------   ------------
Balance December 31, 2001                 4,279,000       9,376,000        581,000       1,748,000      4,860,000     11,124,000
Redemptions and retirement of common
stock                                      (457,000)       (996,000)       (21,000)        (39,000)      (478,000)    (1,035,000)
Accretion to redemption value                    --          26,000             --              --             --         26,000
                                       ------------    ------------   ------------    ------------   ------------   ------------
Balance December 31, 2002                 3,822,000       8,406,000        560,000       1,709,000      4,382,000     10,115,000
Redemptions and retirement of common
stock                                      (533,000)     (1,173,000)        (7,000)        (12,000)      (540,000)    (1,186,000)
Accretion to redemption value                    --          34,000             --              --             --         35,000
                                       ------------    ------------   ------------    ------------   ------------   ------------
Balance December 31, 2003                 3,289,000    $  7,267,000        553,000    $  1,697,000      3,842,000   $  8,964,000
                                       ============    ============   ============    ============   ============   ============
</TABLE>

         The Company recorded  redeemable  common stock accretion of $70,000 and
$26,000  and  related to Series A  redeemable  common  stock for the years ended
December  31, 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.

                                       34
<PAGE>

12. Stock Options and Stock Awards

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

         Producer  Option Plan -- Under the Regan Holding Corp.  Producer  Stock
Option and Award plan (the  "Producer  Option  Plan"),  the Company may grant to
Legacy  Marketing  producers  and Legacy  Financial  registered  representatives
shares of the  Company's  common  stock and  non-qualified  stock  options  (the
"Producer  Options") to purchase the  Company's  common  stock.  A total of 12.5
million  shares have been  reserved  for grant under the  Producer  Option Plan.
Total stock options  granted to Producers for 2003,  2002, and 2001 were 15,000,
10,000,  and 265,000.  Total expenses  recorded for Producer stock option grants
were $10,000, $4,000, and $96,000 during 2003, 2002 and 2001. The Producer stock
options  granted  for each of the three  years  ended  December  31, 2003 vested
immediately  upon the grant date.  The fair value of the  Producer  options were
estimated  using  the  Black-Scholes  option-pricing  model  with the  following
assumptions:

                                     2003           2002            2001
                                     ----           ----            ----
Risk-free interest rates             3.19%          4.78%      5.13%-6.80%
Volatility                             27%            27%          27%-31%
Dividend yield                        None           None             None
Expected life                      6 years        6 years       6-10 years

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

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

         There were no shares of Series A common stock awarded to  non-employees
during  2003 and 2002.  The share grant for 2001 listed  above  includes  15,000
shares of Series A common  stock that the  Company was  obligated  to award to a
service provider, but had not been issued as of December 31, 2003.

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

         Stock option activity under both plans was as follows:

                                                                      Total
                                                                Weighted average
                                                   Shares        Exercise Price
                                                   ------        --------------
Outstanding at December 31, 2000                 13,376,000         $ 1.28
Granted                                           2,976,000         $ 1.62
Exercised                                                --         $   --
Forfeited                                          (788,000)        $ 1.25

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

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

Exercisable at December 31, 2001                 11,512,000         $ 1.31
Exercisable at December 31, 2002                 12,407,000         $ 1.32
Exercisable at December 31, 2003                 13,106,000         $ 1.35

                                       35
<PAGE>

         The  following  table  summarizes   information   about  stock  options
outstanding at December 31, 2003 under both plans:

<TABLE>
<CAPTION>
                                                                Options Outstanding                  Options Exercisable
                                                          -------------------------------         ------------------------
                                                              Weighted           Weighted                         Weighted
                                                               Average           Average                          Average
                                                              Remaining          Exercise                         Exercise
                Range of exercise prices      Shares      Contractual Life        Price           Shares           Price
                ------------------------      ------      ----------------        -----           ------           -----
<S>                  <C>                      <C>               <C>                <C>           <C>                <C>
                     $ 0.73-$0.84             1,449,000         1.6                $ 0.73        1,449,000          $ 0.73
                     $      1.03                120,000         1.1                $ 1.03          120,000          $ 1.03
                     $ 1.27-$1.40             5,601,000         1.5                $ 1.27        5,556,000          $ 1.27
                     $      1.53              4,119,000         3.7                $ 1.53        3,507,000          $ 1.53
                     $      1.61              1,987,000         3.8                $ 1.61        1,798,000          $ 1.61
                     $ 1.65-$1.68             1,810,000         7.3                $ 1.67          661,000          $ 1.66
                     $ 1.69-$1.70               699,000         9.2                $ 1.69           15,000          $ 1.69
</TABLE>

13. Income Taxes

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

         The  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,
                                      -----------------------------------------
                                         2003            2002           2001
                                      -----------    -----------    -----------
Current income taxes:
Federal                               $ 3,311,000    $    76,000    $   (92,000)
State                                     944,000         24,000          5,000
                                      -----------    -----------    -----------
Total current                           4,255,000        100,000        (87,000)
                                      -----------    -----------    -----------
Deferred income taxes:
Federal                                  (696,000)      (170,000)      (117,000)
State                                    (168,000)        36,000        (16,000)
                                      -----------    -----------    -----------
Total deferred                           (864,000)      (134,000)      (133,000)
                                      -----------    -----------    -----------
Income tax (benefit) expense          $ 3,391,000    $   (34,000)   $  (220,000)
                                      ===========    ===========    ===========

                                       36
<PAGE>

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

                                                             December 31,
                                                     --------------------------
                                                         2003          2002
                                                     -----------    -----------
Producer stock option and stock awards               $ 2,186,000    $ 2,182,000
Producer deferred compensation                         2,492,000      1,696,000
Accrued sales convention costs                           543,000        663,000
State net operating loss carryforward, less
valuation allowance of $385,000 and $362,000,
net of federal taxes                                     250,000        248,000
Alternative minimum tax credit carryforward              263,000        304,000
Capital loss                                             357,000        353,000
Unrealized losses                                             --        427,000
Other                                                  1,090,000        817,000
                                                     -----------    -----------
Subtotal deferred tax assets                           7,181,000      6,690,000
                                                     -----------    -----------
Fixed asset depreciation                              (2,985,000)    (3,611,000)
Deferred gain on building sale                        (1,364,000)    (1,364,000)
Unrealized gains                                        (306,000)            --
                                                     -----------    -----------
Subtotal deferred tax liabilities                     (4,655,000)    (4,975,000)
                                                     -----------    -----------
Deferred tax assets, net                             $ 2,526,000    $ 1,715,000
                                                     ===========    ===========

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

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

<TABLE>
<CAPTION>
                                                      For the Year Ended December 31,
                                                   -------------------------------------
                                                      2003         2002          2001
                                                   ----------   ----------    ----------
<S>                                                <C>          <C>           <C>
Federal income tax expense (benefit) at
statutory rate (34%)                               $2,863,000   $  (32,000)   $ (193,000)
Increases (reductions) in income taxes resulting
from:
State franchise taxes, net of federal income
tax benefit                                           526,000       40,000        (7,000)
Other                                                   2,000      (42,000)      (20,000)
                                                   ----------   ----------    ----------
Income tax provision (benefit)                     $3,391,000   $  (34,000)   $ (220,000)
                                                   ==========   ==========    ==========
</TABLE>

         As of December  31,  2003,  the Company  has state net  operating  loss
carryforwards  of $8.6  million  that are expected to be utilized in the future.
$4.9 million of these state net operating losses begin to expire on December 31,
2012.  The  Company  also has,  for  state  income  tax  purposes,  $263,000  in
alternative  minimum tax  credits  which can be used to reduce  income  taxes in
subsequent  years to the extent regular tax exceeds  tentative  minimum tax. The
credits have no expiration date.

14. Earnings (loss) per Share

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

<TABLE>
<CAPTION>
                                                                                Loss              Shares         Per-share
                                                                            (Numerator)       (Denominator)        Amount
                                                                            -----------       -------------        ------
<S>                                                                        <C>                   <C>              <C>
                  For the year ended December 31, 2003
                  Net income                                               $   5,029,000
                  Accretion of redeemable common stock                           (34,000)
                                                                           -------------
                  Income available to common stockholders                      4,995,000         24,431,000       $   0.20
                                                                                                                  ========
                  Effect of dilutive securities - employee and
                      Producer stock options                                                      2,899,000
                                                                          --------------      -------------
                  Diluted earnings per share                               $   4,995,000         27,330,000       $   0.18
                                                                           =============      =============       ========
                  For the year ended December 31, 2002
                  Net loss                                                 $     (60,000)
                  Accretion of redeemable common stock                           (26,000)
                                                                           -------------
                  Basic and diluted loss available to
                  common shareholders                                      $     (86,000)        25,093,000       $     --
                                                                           =============      =============       ========

                  For the year ended December 31, 2001
                  Net loss                                                 $    (348,000)
                  Accretion of redeemable common stock                          (397,000)
                  Basic and diluted loss available to
                  Common shareholders                                      $    (745,000)        25,861,000       $  (0.03)
                                                                           =============      =============       ========
</TABLE>

                                       37
<PAGE>

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

15. Segment Information

         The Company has identified its reportable  segments based on its method
of internal  reporting and segregates  its business into six primary  reportable
segments: Legacy Marketing,  Legacy Financial,  Imagent Online, Values Financial
Network, and Other.  Intersegment  transactions are 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, 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)
                               ============    ============    ============    ============

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

Total assets
December 31, 2003              $ 54,698,000    $  2,034,000    $    622,000    $  2,019,000
                               ============    ============    ============    ============
December 31, 2002              $ 51,294,000    $  1,188,000    $    852,000    $  2,969,000
                               ============    ============    ============    ============
</TABLE>

                                       38
<PAGE>

<TABLE>
<CAPTION>
                                                               Intercompany
                                  Other          Subtotal      Eliminations        Total
                               ------------    ------------    ------------    ------------
<S>                            <C>             <C>             <C>             <C>
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)
                               ============    ============    ============    ============

Year Ended December 31, 2001
Total revenue                  $    120,000    $ 55,743,000    $   (534,000)   $ 55,209,000
Total expenses                      910,000      56,146,000        (534,000)     55,612,000
                               ------------    ------------    ------------    ------------
Operating income (loss)            (790,000)       (403,000)             --        (403,000)
Other income (loss)                      --        (165,000)             --        (165,000)
                               ------------    ------------    ------------    ------------
Income (loss) before tax           (790,000)       (568,000)             --        (568,000)
Tax provision (benefit)            (419,000)       (220,000)             --        (220,000)
                               ------------    ------------    ------------    ------------
Net income (loss)              $   (371,000)   $   (348,000)   $         --    $   (348,000)
                               ============    ============    ============    ============

Total assets
December 31, 2003              $    403,000    $ 59,776,000    $ (2,661,000)   $ 57,115,000
                               ============    ============    ============    ============
December 31, 2002              $    194,000    $ 56,497,000    $ (6,450,000)   $ 50,047,000
                               ============    ============    ============    ============
</TABLE>

16. Concentration of Risk

         As of December 31, 2003,  Legacy  Marketing sold its products on behalf
of four unaffiliated insurance carriers: American National,  Transamerica,  John
Hancock and Investors Insurance Corporation.  Effective during the first quarter
of 2002, Legacy Marketing and IL Annuity  terminated their marketing  agreement.
The agreements with the following  carriers  generated a significant  portion of
the Company's total consolidated revenue (sales on behalf of Investors Insurance
Corporation began in the second quarter of 2002):

                                                   2003       2002       2001
                                                   ----       ----       ----
American National                                  37%        17%         5%
Transamerica                                       25%        52%        68%
Investors Insurance Corporation                    23%         6%        --
IL Annuity                                          6%        12%        20%
John Hancock                                        3%         8%        --

         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:

                                       39
<PAGE>

                                                                2003  2002  2001
                                                                ----  ----  ----
 BenchMark(SM) series (sold on behalf
   of American National)                                         37%   16%    4%
SelectMark(SM) series (sold on behalf of Transamerica)           25%   51%   67%
MarkOne(SM) series (sold on behalf of Investors Insurance
Corporation                                                      23%    6%   --
VisionMark(SM) series (sold on behalf of IL Annuity)              4%   11%   19%
AssureMark(SM) series (sold on behalf of John Hancock)            3%    8%   --

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

                                       40
<PAGE>

    Supplementary Data

    Quarterly Financial Information (Unaudited)

<TABLE>
<CAPTION>
--------------------- ------------------ ------------------- ------------------ ------------------- ------------------
                      First Quarter      Second Quarter      Third Quarter      Fourth Quarter            Year
--------------------- ------------------ ------------------- ------------------ ------------------- ------------------
<S>                       <C>                <C>                 <C>                <C>                 <C>
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
--------------------- ------------------ ------------------- ------------------ ------------------- ------------------

--------------------- ------------------ ------------------- ------------------ ------------------- ------------------
2002
--------------------- ------------------ ------------------- ------------------ ------------------- ------------------
Total revenue             $   11,844,000     $    12,665,000     $   11,592,000     $    13,948,000     $   50,049,000
--------------------- ------------------ ------------------- ------------------ ------------------- ------------------
Operating income
(loss)                    $   (1,221,000)    $      (205,000)    $     (694,000)    $     1,450,000     $     (670,000)
--------------------- ------------------ ------------------- ------------------ ------------------- ------------------
Net income (loss)         $     (798,000)    $        (2,000)    $     (395,000)    $     1,135,000     $      (60,000)
--------------------- ------------------ ------------------- ------------------ ------------------- ------------------
Basic earnings
(loss) per share:
--------------------- ------------------ ------------------- ------------------ ------------------- ------------------
Earnings (loss)
available to common
shareholders              $        (0.03)    $            --     $        (0.02)    $          0.05     $           --
--------------------- ------------------ ------------------- ------------------ ------------------- ------------------
Diluted earnings
(loss) per share:
--------------------- ------------------ ------------------- ------------------ ------------------- ------------------
Earnings (loss)
available to common
shareholders              $        (0.03)    $            --     $        (0.02)    $          0.04     $           --
--------------------- ------------------ ------------------- ------------------ ------------------- ------------------
</TABLE>

                                       41
<PAGE>

REPORT OF INDEPENDENT AUDITORS 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 30, 2004 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 30, 2004

                                       42
<PAGE>

                 Schedule II - Valuation and Qualifying Accounts


<TABLE>
<CAPTION>
------------------------------------------------------ --------------- -------------- ------------------ -------------
                                                                         Additions
                                                         Balance at      charged to                       Balance at
                                                         beginning       costs and                          end of
                                                         of period       expenses        Deductions         period
                                                         ---------       --------        ----------         ------
------------------------------------------------------ --------------- -------------- ------------------ -------------
<S>                                                     <C>             <C>             <C>               <C>
2003
------------------------------------------------------ --------------- -------------- ------------------ -------------
Allowance for uncollectible accounts                    $  760,000      $  399,000      $  (293,000)      $  866,000
------------------------------------------------------ --------------- -------------- ------------------ -------------
State net operating loss carryforward
    valuation allowance                                 $  362,000      $   23,000      $        --       $  385,000
------------------------------------------------------ --------------- -------------- ------------------ -------------
2002
------------------------------------------------------ --------------- -------------- ------------------ -------------
Allowance for uncollectible accounts                    $  437,000      $  393,000      $   (70,000)      $  760,000
------------------------------------------------------ --------------- -------------- ------------------ -------------
State net operating loss carryforward
    valuation allowance                                 $  264,000      $   98,000      $        --       $  362,000
------------------------------------------------------ --------------- -------------- ------------------ -------------
2001
------------------------------------------------------ --------------- -------------- ------------------ -------------
Allowance for uncollectible accounts                    $  215,000      $  342,000      $  (120,000)      $  437,000
------------------------------------------------------ --------------- -------------- ------------------ -------------
State net operating loss carryforward
    valuation allowance                                 $       --      $  264,000      $        --       $  264,000
------------------------------------------------------ --------------- -------------- ------------------ -------------
</TABLE>

                                       43
<PAGE>

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

         None.

Item 9A. 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 the end of the period covered by this
report.  Based on that  evaluation,  the Company  determined that it should have
recorded  additional revenue during the first and third quarters of 2003 that it
earned for sales of fixed annuity products.

     The   Company,    in   consultation   with   its   independent    auditors,
PricewaterhouseCoopers LLP ("PwC"), has identified deficiencies in the Company's
internal control over financial  reporting which resulted in two restatements of
its financial statements. One of these deficiencies resulted in the amendment of
the Company's Form 10-Q for the quarter ended March 31, 2003 in order to restate
the Company's consolidated financial statements.  Another deficiency resulted in
the amendment of the Company's Form 10-Q for the period ended September 30, 2003
in order to restate the Company's consolidated financial statements.  Members of
the Company's  management and PwC have  discussed  these  deficiencies  with the
Audit Committee of the Company's  Board of Directors.  PwC has stated that these
deficiencies result in a "material weakness" under standards  established by the
American  Institute of Certified Public  Accountants.  The material weakness was
identified as a breakdown in communication between the financial and operational
management of the Company and a breakdown in the processes by which transactions
are reviewed.

         To remedy this weakness, the Board of Directors of the Company approved
the formation of a disclosure  committee  (the  "Disclosure  Committee")  and is
appointing executives of the Company to serve on the Disclosure  Committee.  The
Disclosure  Committee  will,  among other things,  meet quarterly as part of the
closing  process  and review 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 will also review  detailed
analytics of the Company's  performance  and assess 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.

         Except as described  above,  the Company's Chief Executive  Officer and
Chief Financial  Officer  concluded that the Company's  disclosure  controls and
procedures  were  effective as of the end of the period  covered by this report.
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 covered
by this  report  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 period
covered by this report, except as described above.

                                    PART III

Item 10. Directors and Executive Officers of the Company

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

                                       44
<PAGE>

Item 11. Executive Compensation

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

Item 12. Security Ownership of Certain Beneficial Owners and Management

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

Securities Authorized For Issuance Under Equity Compensation Plans

<TABLE>
<CAPTION>
--------------------------- ------------------------- ---------------------- -----------------------------------------
                            (a)                       (b)                    (c)
--------------------------- ------------------------- ---------------------- -----------------------------------------
                                                                             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)             15,785,000                $1.39                  5,215,000
--------------------------- ------------------------- ---------------------- -----------------------------------------
</TABLE>

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

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

Item 13. Certain Relationships and Related Transactions

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

Item 14. Principal Accountant 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 and is incorporated by reference herein.


                                     PART IV

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

         (a)      Index to Exhibits and Financial Statement Schedules:

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

                           (i)      Independent Auditors Report.

                           (ii)     Consolidated  Balance  Sheet as of  December
                                    31, 2003 and 2002.

                                       45
<PAGE>

                           (iii)    Consolidated Statement of Operations for the
                                    years ended  December  31, 2003,  2002,  and
                                    2001.

                           (iv)     Consolidated   Statement  of   Shareholders'
                                    Equity  for the  years  ended  December  31,
                                    2003, 2002, and 2001.

                           (v)      Consolidated Statement of Cash Flows for the
                                    years ended  December  31, 2003,  2002,  and
                                    2001.

                           (vi)     Notes to Consolidated Financial Statements.

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

                  3.       See(c) below.

         (b)      Regan Holding Corp. filed a Form 8-K, dated December 23, 2003,
                  filing   certain   marketing   and   administrative   services
                  agreements  and the Purchase  Option  Agreement with SCOR Life
                  U.S. Re Insurance Company.

         (c)      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(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 six 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.

                                       46
<PAGE>

10(i)(1) Amendment One to Marketing  Agreement with  Transamerica Life Insurance
         and Annuity Company.(11)

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(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(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)    Agreement  of Purchase  and Sale,  dated March 8, 2001,  by and between
         Regan Holding Corp. and G & W/Lakeville Corporate Center, LLC. (5)

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

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

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

10(p)    Purchase Option Agreement  between SCOR Life U.S. Re Insurance  Company
         and the Company executed on November 23, 2003. (11)

10(q)    Construction  Loan  Agreement  between  SunTrust  Bank and the  Company
         executed  on October 27,  2003.

21       Subsidiaries of Registrant

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   Executive   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.

                                       47
<PAGE>

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

(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
         December 23, 2003.

                                       48
<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: Lynda L. Regan                                          Date: March 30, 2004
-------------------------------
Lynda L. Regan
Chairman and Chief Executive Officer


By: /s/ G. Steven Taylor                                    Date: March 30, 2004
-------------------------------
G. Steven Taylor
Principal Accounting and  Financial Officer

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

By: /s/ Lynda L. Regan                                      Date: March 30, 2004
-------------------------------
Lynda L. Regan
Chairman and Chief Executive Officer

By: /s/ R. Preston Pitts                                    Date: March 30, 2004
-------------------------------
R. Preston Pitts
President

By: /s/ Donald Ratajczak                                    Date: March 30, 2004
-------------------------------
Donald Ratajczak
Director

By: /s/ Ute Scott-Smith                                     Date: March 30, 2004
-------------------------------
Ute Scott-Smith
Director

By: /s/ J. Daniel Speight, Jr.                              Date: March 30, 2004
-------------------------------
J. Daniel Speight, Jr.
Director

                                       49