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, 2001

                                       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]

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

                                   $22,325,000

     There  is  currently  no  trading  market  for  the   registrant's   stock.
Accordingly, the foregoing aggregate market value is as of March 18, 2002 and is
based upon the price at which the  registrant has  repurchased  its stock during
the 60 days prior to the date of this filing.
<PAGE>

     As of March 18, 2002, the number of shares  outstanding of the registrant's
Series A Common Stock was 24,747,000 and the number of shares outstanding of the
registrant's  Series B Common Stock was  569,000.  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 May 24, 2002 are incorporated by reference
into Part III of this Form 10-K.

                                       2
<PAGE>

                                TABLE OF CONTENTS

PART I

      Item 1.  Description of Business

      Item 2.  Properties

      Item 3.  Legal Proceedings

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

PART II

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

      Item 6.  Selected Consolidated Financial Data

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

      Item 7a. Quantitative and Qualitative Disclosure About Market Risk

      Item 8.  Financial Statements and Supplementary Data

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

PART III

      Item 10. Directors and Executive Officers of the Company

      Item 11. Executive Compensation

      Item 12. Security Ownership of Certain Beneficial Owners and Management

      Item 13. Certain Relationships and Related Transactions

PART IV

      Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K

                                       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 2001, Legacy Marketing  generated 96% of our consolidated  revenues.
Legacy  Marketing  designs,  markets  and  administers  fixed  annuity  and life
insurance products on behalf of four unaffiliated  insurance carriers in each of
the United States, except Alabama and New York, and in the District of Columbia.
Legacy  Marketing has entered into marketing  agreements with American  National
Insurance Company, IL Annuity and Insurance Company, Transamerica Life Insurance
and Annuity  Company,  and John Hancock  Variable Life  Insurance  Company.  The
marketing  agreements  grant  Legacy  Marketing  the  exclusive  right to market
certain  fixed annuity and life  insurance  products  issued by these  insurance
carriers.  Under the terms of these agreements,  Legacy Marketing is responsible
for appointing  independent insurance producers (who we refer to as "producers")
who  contract  with Legacy  Marketing to sell fixed  annuity and life  insurance
products.  For these  services,  the  insurance  carriers  pay Legacy  Marketing
commissions  and marketing  allowances  based on the volume of premium  payments
applied to policyholders'  insurance  policies.  Legacy Marketing is responsible
for paying sales commissions to the producers.

     Legacy Marketing  currently markets insurance policies through a network of
approximately  23,000 producers,  of whom approximately 6,000 generated business
during  2001.  Each  producer has entered into a  non-exclusive  agreement  with
Legacy Marketing which defines the parties' business relationship. The agreement
may be terminated  immediately by either the producer or Legacy Marketing,  with
or without cause.

     Legacy  Marketing's  sales  network  is a  multi-level  structure  in which
producers may recruit other  producers.  Recruited  producers are referred to as
"downline"  producers  within  the  recruiting  producer's  network.   Recruited
producers  may also  recruit  other  producers,  creating a hierarchy  under the
original recruiting producer. The producer contract contains a nine-level design
in which a producer may advance  from one level to the next based on  commission
level and the size of the producer's downline network. As a producer advances to
higher levels within the system,  he receives a higher  commission 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.  Advancements to higher levels can
occur as often as every three months.  We call  producers at the highest  levels
"wholesalers."

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

     Legacy  Marketing  assists  the  insurance  carriers  in policy  design and
development.  Legacy Marketing's  marketing and actuarial  departments work with
the insurance  carriers to design  proprietary  fixed annuity and life insurance
products to be marketed by Legacy Marketing.  These products include  guarantees
for the benefit of policyholders that are designed to be unique in the insurance
marketplace.   Although  the  guarantees  are  known  as  Legacy's   Cornerstone
Guarantees, they are guaranteed by the issuing insurance carriers.

                                       4
<PAGE>

     In addition to the marketing agreements,  Legacy Marketing has entered into
administrative  agreements with each of the four insurance  carriers.  Under the
terms of the  administrative  agreements,  Legacy Marketing  provides  clerical,
administrative and accounting  services with respect to the insurance  policies.
These  services  include  billing,  collecting  and  remitting  premium  for the
policies.  For  providing  these  services,  the  insurance  carriers pay Legacy
Marketing per  transaction,  with the amount of the fee depending on the type of
policy and type of service.

     Neither the marketing agreements nor the administrative  agreements prevent
Legacy  Marketing from entering into similar  arrangements  with other insurance
companies.  However, the marketing agreements with Transamerica and John Hancock
prevent Legacy Marketing from marketing  products with other carriers which have
unique  characteristics  similar to those  being  offered  under the  respective
marketing agreements.

     The marketing and  administrative  agreements with American National expire
May 31, 2002,  but may be renewed by mutual  agreement for  successive  one-year
terms.  The  agreements  may be  terminated by either party upon 180 days notice
without  cause,  and may be  terminated by either party  immediately  for cause.
Legacy  Marketing  is  in  the  process  of  re-negotiating  the  marketing  and
administrative   agreements   with   American   National.   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 notice  without
cause, and may be terminated by either party immediately for cause.

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

     In December  2001,  Legacy  Marketing  began  phasing out  marketing  of IL
Annuity products. The phaseout will be completed by March 31, 2002, depending on
the product line.  Legacy Marketing  currently  intends to administer IL Annuity
products after the phaseout period.

     During 2000, Legacy Marketing entered into an agency agreement with Bankers
United Life  Assurance  Company which  authorizes  Legacy  Marketing to solicit,
through  Legacy  Marketing's  network  of  producers,  sales of  long-term  care
insurance products  underwritten by Bankers United Life Assurance  Company.  For
this solicitation,  Legacy Marketing receives commissions based on the volume of
premiums  received on policies sold.  The agency  agreement may be terminated by
either party upon fifteen days notice  without  cause,  and may be terminated by
either party immediately for cause.  Legacy Marketing is licensed in each of the
United  States,  except  Alabama,  New York and Hawaii,  and in the  District of
Columbia, to sell long-term care insurance products and began actively marketing
these products in September 2000.

     Through  our  wholly-owned   broker-dealer  subsidiary,   Legacy  Financial
Services,  Inc., we sell variable  annuity and life insurance  products,  mutual
funds,  and debt and  equity  securities.  Legacy  Financial  has  entered  into
marketing  agreements  primarily with insurance  companies and mutual funds that
give it the non-exclusive  right to sell investment  products on behalf of those
insurance companies and mutual funds. Sales of investment products are conducted
through Legacy  Financial's  network of independent  registered  representatives
(who we refer to as "representatives").  Under the marketing agreements,  Legacy
Financial is compensated based upon  predetermined  percentages of broker sales.
The  agreements  may be  terminated  by either  party upon thirty  days  written
notice.  During 2001,  Legacy  Financial  accounted  for 4% of our  consolidated
revenues.

     During 2000, we invested in  prospectdigital,  LLC,  which is developing an
Internet-based  customer  relationship  management  product. In January 2002, we
purchased all the remaining outstanding stock of prospectdigital.

     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 accounted for a nominal  amount of
consolidated revenue.

                                       5
<PAGE>

Competitive Business Conditions

     The annuity and life  insurance  business  is highly  competitive.  We face
competition  from  various   companies  and   organizations,   including  banks,
securities   brokerage   firms,   investment   advisors,   and  other  financial
intermediaries marketing insurance products,  annuities, mutual funds, and other
retirement-oriented  investments.  Some of these competitors have  substantially
greater  assets,   financial   resources  and  market  recognition  than  Legacy
Marketing.  Our distribution system relies on independent insurance producers to
effectively  market our products.  Maintaining  relationships with our producers
requires  introducing  new  products  to the market in an  efficient  and timely
manner,  offering  competitive  commission  schedules,  and  providing  superior
marketing training and support.

Regulatory Environment

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

     Legacy  Financial is registered as a broker-dealer  with, and is subject to
regulation  by,  the SEC  and  the  NASD.  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,  record
keeping 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.  Legacy  Financial  audits their brokers on an annual basis to ensure
compliance with applicable regulations.

Employees

     As of February 28, 2002, we employed 522  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.

                                       6
<PAGE>

Item 3. Legal Proceedings

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

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

     No items were  submitted  to a vote of security  holders  during the fourth
quarter of 2001.

                                       7
<PAGE>

                                     PART II

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

     As of March 18, 2002,  Regan Holding Corp.'s Series A Common Stock was held
by approximately  1,400 shareholders of record and our Series B Common Stock was
held by  approximately  9,700  shareholders  of record.  There is no established
public trading market for our stock.

     Our  Board of  Directors  may,  at its  sole  discretion,  declare  and pay
dividends on common stock,  subject to capital and solvency  restrictions  under
California  law. To date,  Regan Holding Corp. has not paid any dividends on our
common  stock.  The ability of Regan Holding Corp. 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, 2001,  Regan  Holding  Corp.  does 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,
                                                 2001                  2000              1999               1998                1997
<S>                                         <C>                 <C>              <C>                <C>               <C>
Selected Income Statement Data:
Total revenue                               $ 54,194,000       $41,713,000       $ 50,031,000       $ 45,935,000      $   21,883,000
Net income (loss)                           $  (348,000)       $(3,564,000)      $ 3,635,0000       $  9,770,000      $    3,150,000
Earnings (loss) per share - basic:
Before cumulative effect of accounting
change                                      $     (0.03)       $     (0.15)      $       0.11       $       0.37      $         0.12
Cumulative effect of accounting change                --             (0.01)                --                 --                  --
                                            ------------       ------------      ------------       ------------      --------------
                                            $     (0.03)       $     (0.16)      $       0.11       $       0.37      $         0.12
Earnings (loss) per share - diluted:
Before cumulative effect of accounting
change                                      $     (0.03)       $     (0.15)      $       0.10       $       0.36      $         0.12
Cumulative effect of accounting change                --             (0.01)                --                 --                  --
                                            ------------       ------------      ------------       ------------      --------------
                                            $     (0.03)       $     (0.16)      $       0.10       $       0.36      $         0.12
Selected Balance Sheet Data:
Total assets                                $ 46,027,000       $ 42,960,000      $ 47,143,000       $ 31,286,000      $   19,281,000
Total non current liabilities               $  4,578,000       $  3,578,000      $  4,258,000       $    663,000      $      282,000
Redeemable common stock                     $ 11,124,000       $ 11,237,000      $ 11,563,000       $ 11,225,000      $   11,843,000
Cash dividends declared                               --                 --                --                 --                  --
Selected Operating Data:
Total fixed premium placed inforce(1)       $1.6 billion       $1.1 billion      $1.6 billion       $1.7 billion      $777.3 million
Total fixed policies placed inforce(1)            31,000             20,000            28,000             32,000              15,000

<FN>
(1)  When policy premium is applied to a policyholder's  insurance  certificate,
     the insurance  policy is considered  inforce.  Inforce premium and policies
     are  statistics  of our carriers but are factors that  directly  affect our
     revenue.
</FN>
</TABLE>

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  Group  ("Legacy   Marketing")  and  Legacy
Financial Services, Inc. ("Legacy Financial").

     Legacy Marketing  designs,  markets and administers  fixed annuity and life
insurance products on behalf of four unaffiliated  insurance carriers in each of
the United States, except Alabama and New York, and in the District of Columbia.
Legacy  Marketing has entered into marketing  agreements with American  National
Insurance Company, IL Annuity and Insurance Company, Transamerica Life Insurance
and Annuity  Company,  and John Hancock  Variable Life  Insurance  Company.  The
marketing  agreements  grant  Legacy  Marketing  the  exclusive  right to market
certain  fixed annuity and life  insurance  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 has also entered into administrative  agreements with each
of  the  four  insurance  carriers.   Under  the  terms  of  the  administrative
agreements,  Legacy Marketing provides  clerical,  administrative and accounting
services with respect to the insurance  policies.  For providing these services,
the insurance carriers pay Legacy Marketing 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 entered into marketing and  administrative  agreements
with four insurance carriers,  discussed above. Under the terms of the marketing
agreements,  Legacy  Marketing is responsible for appointing  producers who have
contracted  with  Legacy  Marketing  to sell fixed  annuity  and life  insurance
products to the general public.  In exchange for these  services,  the insurance
carriers pay Legacy Marketing  commissions and marketing  allowances when policy
premium is applied to  policyholders'  insurance  policies.  Legacy  Marketing's
application of premium payments to policyholders'  insurance  policies allows us
to recognize revenue.

     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.
These fees are generally  paid by carriers  monthly in arrears and are booked as
revenue during the month in which the services are performed.

                                       9
<PAGE>

     There are no significant  management  judgements  associated with reporting
these  revenues.  We have  recorded  adjustments  for  returns  based on  actual
experience known before the issuance of the financial statements.  Historically,
there have been no material  adjustments  for bad debts related to these revenue
streams.

     We  capitalize  external  consulting  fees,  and  salaries and benefits for
employees  who are  directly  associated  with the  development  of software for
internal use. 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.  Modifications or enhancements  made to
an  existing  software  product  that  result in  additional  functionality  are
capitalized and amortized over the modified product's estimated useful life.

     We have issued  Series A and Series B  redeemable  common  stock to certain
shareholders.  We are obligated to repurchase the redeemable common stock at the
current fair market  value.  Because there is no active  trading  market for our
stock that would  establish  market  value,  our Board of  Directors  approved a
redemption  value of  $2.19  per  share as of  December  31,  2001,  based on an
independent appraisal of the stock value obtained by our management.

     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.

     All investments 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
investment  securities  had  other-than-temporary  declines  in fair value below
cost. As a result, 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, 2001 compared with year ended December 31, 2000

     We  experienced  consolidated  net losses of $348,000 in 2001,  compared to
consolidated  net  losses  of $3.6  million  in 2000.  The  reduced  losses  are
primarily  due to net income at Legacy  Marketing  during  2001  compared to net
losses during 2000,  partially  offset by recognition of losses at Regan Holding
Corp.  (stand-alone)  in 2001  compared to income in 2000,  and losses by Values
Financial Network, Inc., Legacy Financial, and Imagent Online, LLC.

Year ended December 31, 2000 compared with year ended December 31, 1999

     In 2000, we experienced  consolidated net losses of $3.6 million,  compared
to consolidated net income of $3.6 million in 1999. The decrease of $7.2 million
(percentage  not  meaningful)  is  primarily  due to losses  incurred  by Legacy
Marketing and  recognition  of $721,000 of losses  related to our  investment in
prospectdigital, partially offset by income by Regan Holding Corp. (stand-alone)
during  2000  compared  to losses  during  1999,  and  consolidated  income  tax
benefits.

                                       10
<PAGE>

Legacy Marketing Group

Year ended December 31, 2001 compared with year ended December 31, 2000

     During 2001, Legacy  Marketing's net income totaled $3.6 million,  compared
to losses of $2.2 million  during 2000, an increase of $5.8 million  (percentage
not  meaningful),  primarily  due to  increased  revenues  partially  offset  by
increased expenses.

     Legacy  Marketing's  revenue increased $14.4 million (38%) primarily due to
increased  marketing  allowances,  commission income,  and administrative  fees.
Marketing allowances and commission revenue,  combined,  increased $12.3 million
(43%)  due to a 49%  increase  in  sales  of fixed  annuity  and life  policies.
Commission revenue and marketing allowances did not increase at rates comparable
to the  increase  in premium  placed  inforce  primarily  due to shifts  between
products that yield differing  commissions.  Administrative  fees increased $1.9
million (21%) primarily due to increases in the number of policies administered.

     Legacy Marketing  markets and administers  fixed annuity and life insurance
products on behalf of four insurance carriers.  The agreements with two of these
carriers generated a significant portion of our total consolidated revenue:

Year ended December 31,                        2001           2000
-----------------------                        ----           ----
Transamerica                                   69%            51%
IL Annuity                                     21%            29%

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

Year ended December 31,                                         2001        2000
-----------------------                                         ----        ----
SelectMark(SM) series (sold on behalf of Transamerica)           69%         50%
VisionMark(SM) series (sold on behalf of IL Annuity)             20%         28%

In December  2001,  Legacy  Marketing  began phasing out marketing of IL Annuity
products.  The phaseout  will be  completed by March 31, 2002,  depending on the
product line.  Legacy Marketing  currently  intends to continue to administer IL
Annuity products after the phaseout period.

     Legacy   Marketing   expenses   increased   $3.8  million  (9%)   primarily
attributable  to  increases  in selling,  general and  administrative  expenses,
depreciation   and   amortization.   The   increase  in  selling,   general  and
administrative  expenses of $2.2 million  (6%) is primarily  due to increases in
compensation,  partially offset by decreases in professional fees.  Depreciation
and amortization  expense  increased $1.2 million  primarily related to a higher
internal use software  balance.  During 2001,  Legacy Marketing  determined that
certain investment  securities had  other-than-temporary  declines in fair value
below  cost.  As a  result,  Legacy  Marketing  recorded  impairment  losses  of
$642,000, and the individual securities were written down to a new cost basis.

Year ended December 31, 2000 compared with year ended December 31, 1999

     In 2000, Legacy Marketing incurred a net loss of $2.2 million,  compared to
net income of $8.3 million in 1999, a decrease of $10.5 million  (percentage not
meaningful).  The decrease was primarily due to lower  marketing  allowances and
commission income, and increased operating expenses.

     Legacy   Marketing's   revenue  decreased  $10.2  million  (21%)  primarily
attributable to decreases in sales of annuities and life insurance  policies and
changes in product mix. Legacy Marketing's  marketing  allowances and commission
revenue, combined,  decreased $10.5 million (27%) due to a 36% decrease in fixed
annuity and life sales,  partially  offset by a shift to fixed  annuity and life
insurance products that yield higher commissions.  Administrative fees increased
$402,000 (5%) primarily due to increases in the number of policies  administered
and to a  shift  in  policies  administered  to  those  which  generated  higher
administrative fees.

     Effective  January 1, 2000,  we changed our revenue  recognition  policy in
order to comply with SEC Staff  Accounting  Bulletin  No. 101 with  respect to a
production  premium  deficiency  requirement  under  one of  Legacy  Marketing's
marketing agreements. This change is reflected in the statement of operations as
a cumulative effect of accounting change of $226,000,  net of taxes of $149,000,
during the year ended  December 31,  2000.

                                       11
<PAGE>
The  change in  accounting  principle  would not have a  material  effect on the
statement of operations if adopted in 1999.

     Legacy  Marketing  expenses  increased $6.5 million (18%)  primarily due to
increases in selling,  general and administrative expenses, and depreciation and
amortization.  Selling,  general  and  administrative  expenses  increased  $5.2
million (15%) primarily due to increases in professional fees, compensation, and
occupancy,  partially offset by decreases in certain promotion  programs tied to
premium  levels.  Depreciation  and  amortization  expense  increased $1 million
(297%)  primarily  related to the  amortization  of internal use software and to
acquisitions  of fixed  assets,  which were  necessary  to improve  newly leased
office space.

Legacy Financial Services, Inc.

Year ended December 31, 2001 compared with year ended December 31, 2000

     Legacy Financial  incurred net losses of $837,000 during 2001,  compared to
net losses of $143,000  during 2000,  primarily  due to  decreased  revenues and
increased expenses.

     Legacy Financial's major source of revenue is commission  income,  which is
generated through sales of variable life and annuity products, mutual funds, and
debt and equity securities.  Levels of commission income are directly related to
the  volume  of sales  of such  products.  Legacy  Financial  revenue  decreased
$854,000  (31%)  primarily  attributable  to decreases in the volume of sales by
Legacy Financial's distribution network of registered representatives.

     Legacy  Financial's  expenses  increased  $241,000  (8%)  primarily  due to
increases in selling, general and administrative expenses.  Selling, general and
administrative  expenses  increased  $202,000  (7%)  primarily  attributable  to
increases  in  rent,  compensation  due to a higher  number  of  employees,  and
professional fees, partially offset by decreases in sales promotion and support.

Year ended December 31, 2000 compared with year ended December 31, 1999

     During 2000, Legacy Financial incurred net losses of $143,000,  compared to
net losses of $131,000  during 1999.  The increased  losses are primarily due to
increases in expenses, partially offset by increases in revenues.

     Legacy  Financial  revenue  increased  $1.1 million (62%)  primarily due to
increases in sales.

     Legacy  Financial  expenses  increased $1.1 million (57%)  primarily due to
increases  in selling,  general and  administrative  expenses.  The  increase in
selling,  general and  administrative  expenses  is  primarily  attributable  to
increases in compensation, sales promotion and support, and occupancy expenses.

Regan Holding Corp. (stand-alone)

Year ended December 31, 2001 compared with year ended December 31, 2000

     Regan  Holding Corp.  recorded net losses of $825,000 in 2001,  compared to
net  income  of  $613,000   during  2000,   primarily  due  to   recognition  of
non-operating  losses  and  decreased  operating  revenue,  partially  offset by
decreased expenses.

     During  2000,  we sold an office  building  and two  parcels  of land,  and
recognized a  non-operating  gain of $3.6 million.  There were no asset sales in
2001, and Regan Holding Corp. recorded non-operating losses of $42,000.

     Revenue decreased $105,000 (5%) primarily due to $551,000 of rental revenue
received for 2000 from unaffiliated  tenants of an office building.  We sold the
building in 2000. As a result, no rental income was recorded in 2001.  Partially
offsetting the absence of  third-party  rental income in 2001 was an increase in
intercompany rental income of $446,000 (26%).

     Expenses  decreased  $879,000  (19%)  primarily  due to decreased  selling,
general and  administrative  expenses.  The  decreases  in selling,  general and
administrative  expenses are primarily  attributable  to lower costs  associated
with a  broad-based  stock  option sales  incentive  program for  producers  and
representatives which was discontinued in 2001.

                                       12
<PAGE>

Year ended December 31, 2000 compared with year ended December 31, 1999

     Regan  Holding Corp.  recorded net income of $613,000 in 2000,  compared to
net losses of $3.7 million during 1999, due to increases in non-operating income
and decreased expenses, and increased revenues.

     During 2000,  Regan Holding  Corp.  recorded  non-operating  income of $3.4
million  primarily due to a gain of $3.6 million  recognized upon the sale of an
office building and two parcels of land, as discussed above.  During 1999, Regan
Holding Corp. incurred non-operating losses of $95,000.

     Expenses  decreased  $2.9  million  (39%)  primarily  due to a decrease  in
non-employee stock option expenses.

     Revenue  increased  $629,000 (38%)  primarily due to rental revenue from an
office building that we purchased in mid-1999. We sold the building in 2000.

Values Financial Network, Inc.

Year ended December 31, 2001 compared with year ended December 31, 2000

     We purchased Values Financial Network,  Inc. in December 2000. During 2001,
Values Financial  Network  incurred net losses of $1.2 million,  compared to net
losses of $86,000  during 2000,  primarily due to expenses  incurred  during the
entity's  start-up  phase.  Minimal  losses are  expected  in 2002 and we expect
Values Financial Network to be profitable thereafter.

Imagent Online, LLC

Year ended December 31, 2001 compared with year ended December 31, 2000

     Imagent recorded net losses of $660,000 during 2001, compared to net losses
of $581,000 during 2000,  primarily due to increased  equity  investment  losses
from Imagent's investment in prospectdigital, LLC. In January 2002, we purchased
all the  remaining  outstanding  stock of  prospectdigital.  Minimal  losses are
expected in 2002 and we expect Imagent to be profitable thereafter.

Year ended December 31, 2000 compared with year ended December 31, 1999

     Imagent was formed in 2000 and recorded  net losses of $581,000,  primarily
due to equity investment losses related to its investment in prospectdigital.

Other Segments

Year ended December 31, 2001 compared with year ended December 31, 2000

     During  2001,  combined  net losses  from  other  entities  were  $371,000,
compared to combined net losses of $1.1 million in 2000.  The reduced net losses
are primarily due to the dissolution of our subsidiary LifeSurance  Corporation,
resulting from a plan announced  during the first quarter of 2001. All employees
were  either  terminated  or  transferred  to  Legacy   Marketing.   LifeSurance
Corporation was dissolved in December 2001.

Year ended December 31, 2000 compared with year ended December 31, 1999

     Combined net losses from other entities  increased to $1.1 million in 2000,
compared to $880,000 in 1999,  primarily  due to increased  expenses,  partially
offset by increased revenues. Expenses increased $553,000 (34%) primarily due to
increased  selling,  general and  administrative  expenses.  Revenues  increased
$329,000  (160%)  primarily due to increased  seminar  attendance at LifeSurance
Corporation.

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 fixed assets, primarily internal use software and computer hardware, in
order  to  increase  operational  efficiency;  (iii) to fund  continued  product
development and strategic acquisitions;  and (iv) as a reserve to cover possible
redemptions of certain  shares of our common

                                       13
<PAGE>
stock,  which are  redeemable  at the option of the  shareholders.  Our  primary
source of cash is cash flows from operating activities.

     Net cash provided from operating  activities was $10.9 million for the year
ended  December 31, 2001,  primarily due to improved  operating  results,  and a
federal income tax refund of $3.6 million  resulting  from applied  overpayments
and net operating loss carrybacks from 2000.

     Net cash used in investing activities was $13.2 million,  primarily related
to  acquisitions  of fixed  assets,  as discussed  above,  and net  purchases of
short-term  investment-grade  securities.  In connection with a real estate sale
during  2000,  in order to defer the taxes for the gain on sale we assigned  the
rights  to  cash   consideration  of  $5.8  million  to  a  qualified   exchange
intermediary  in exchange  for a note.  During  2001,  we  purchased  the office
building which houses our  headquarters  for $10.6 million.  In conjunction with
the  acquisition,  we paid a  portion  of the  purchase  price by  applying  the
proceeds from the note receivable from the qualified  exchange  intermediary and
entered into a loan  agreement  for $4.8 million.  The loan bears  interest at a
rate equal to LIBOR plus 3.50%,  adjusted  monthly.  During  2001,  the weighted
average  interest  rate on the  loan  was  7.35%.  Interest  is due and  payable
monthly.  The unpaid  principal  balance was due and  payable in December  2001,
however  we  extended  the  maturity  date of the loan to June 19,  2002.  As of
December 31, 2001, no payments  have been made toward the  principal  balance of
the loan.  Management  is in the process of  obtaining  long-term  financing  to
replace  the  current  loan.  However,  there  can  be no  assurances  that  the
refinancing  will  occur,  or that the terms will be more  favorable  than those
currently existing.

     Net cash  provided  by  financing  activities  was $1.7  million.  This was
primarily  due to proceeds  from a loan  obtained to finance the purchase of the
office building  discussed  above,  partially  offset by payments towards a loan
outstanding  at the end of 2000,  and  repurchases  of our common  stock.  Regan
Holding Corp. is obligated to repurchase  certain shares of its common stock. At
December  31, 2001 and  December 31,  2000,  the total  redemption  value of all
redeemable  common stock  outstanding was $11.1 million and $11.2 million.  Cash
paid to  repurchase  some of these shares  totaled  $500,000  during  2001,  and
$821,000  during  2000.  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.  Our future minimum annual lease  commitments
under all operating  leases are $2.2 million,  with $1.1 million due during 2002
and the remaining $1.1 million due ratably between 2003 and 2006.

     In 1998, Regan Holding Corp. entered into an agreement with Lynda L. Regan,
Chief Executive Officer and Chairman of the Board of Directors.  Under the terms
of this  agreement,  in the event of the death of Ms. Regan, we are obligated to
repurchase  from Ms.  Regan's  estate all of the shares of our common stock that
were owned by Ms. Regan at the time of her death or that were transferred by her
to one or more trusts prior to her death.  The  purchase  price to be paid by us
shall be equal to 125% of the fair  market  value of the  shares.  The  purchase
price was equal to $27.9  million at December 31, 2001.  We have  purchased  two
life  insurance  policies  with a combined  face  amount of $29  million for the
purpose of funding this obligation in the event of 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.

     Regan Holding Corp.  generated $10.9 million and $248,000 of cash flow from
operations in 2001 and 2000.  However,  we incurred  consolidated  net losses of
$348,000 and $3.6 million during 2001 and 2000. If our  consolidated  net losses
continue,  or  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.

                                       14
<PAGE>

Recent Accounting Pronouncements

     In June 2001, the Financial  Accounting Standards Board issued Statement of
Financial  Accounting  Standards  No. 142 (SFAS 142),  Goodwill  and  Intangible
Assets,  which  supercedes  Accounting  Principles Board ("APB") Opinion No. 17,
Intangible  Assets.  SFAS 142  eliminates  the current  requirement  to amortize
goodwill and indefinite-lived  intangible assets,  addresses the amortization of
intangible  assets with a defined life and addresses the impairment  testing and
recognition for goodwill and intangible  assets.  The provisions of SFAS 142 are
applicable on January 1, 2002. However,  goodwill and intangible assets acquired
after June 30, 2001 are subject immediately to SFAS 142. Management  anticipates
that the  implementation  of SFAS 142 will  not have a  material  effect  on our
consolidated results of operations or financial position.

     In August 2001, the Financial  Accounting  Standards  Board issued SFAS No.
144,  Accounting  for the  Impairment  or Disposal of Long-Lived  Assets,  which
supercedes SFAS 121,  Accounting for the Impairment of Long-Lived Assets and for
Long-Lived  Assets to Be Disposed  Of, and amends APB Opinion No. 30,  Reporting
Results of  Operations  -  Reporting  the  Effects of Disposal of a Segment of a
Business.  SFAS 144 revises the  accounting  for the  measurement  of long-lived
assets  to be  disposed  of by sale  and  clarifies  implementation  issues  for
discontinued  operations.  SFAS 144 will be effective for fiscal years beginning
after December 15, 2001. Management  anticipates that the implementation of SFAS
144 will not have a material effect on our consolidated results of operations or
financial position.

Item 7a. Quantitative and Qualitative Disclosure About Market Risk

     In accordance  with  Statement of Financial  Accounting  Standards No. 115,
Accounting for Certain  Investments in Debt and Equity  Securities ("SFAS 115"),
all of our investments are categorized as available-for-sale.

     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 and, to a lesser extent, credit quality and equity prices.

     Interest rate risk is the price  sensitivity of a fixed income  security to
changes in interest rates.  The following table provides  information  about 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,  2001 and 2000.  Actual  cash flows  could  differ  from  expected
amounts.
<TABLE>
<CAPTION>

                                                                                                        Amortized         Estimated
December 31, 2001       2002           2003          2004        2005       2006      Thereafter           Cost          Fair Value
-----------------       ----           ----          ----        ----       ----      ----------           ----          ----------
<S>                  <C>           <C>            <C>             <C>        <C>      <C>               <C>             <C>
Fixed maturities     $515,000      $6,407,000     $ 417,000      $ --       $ --       $1,025,000        $8,364,000      $8,243,000
Average interest
rate                     4.00%           4.53%         5.10%       --         --             7.03%
</TABLE>
<TABLE>
<CAPTION>

                                                                                                          Amortized       Estimated
December 31, 2000      2001           2002       2003        2004          2005        Thereafter            Cost        Fair Value
-----------------      ----           ----       ----        ----          ----        ----------            ----        ----------
<S>                   <C>             <C>        <C>       <C>          <C>             <C>              <C>             <C>
Fixed maturities     $500,000         $--        $--       $250,000     $305,000       $3,932,000        $4,987,000      $4,881,000
Average interest
rate                     5.38%         --         --           5.25%        6.01%            7.34%
</TABLE>

                                       15
<PAGE>

     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 mutual funds.  As a result of  unfavorable  market
conditions related to our mutual fund investments,  the fair value of our equity
securities is below  original  cost at December 31, 2001 and 2000.  The original
cost and fair values of our marketable equity securities are shown below:

                                 Book Cost                 Fair Value
                                 ---------                 ----------
December 31, 2001                $4,376,000                $4,328,000
December 31, 2000                $6,199,000                $5,474,000

     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.

                                       16
<PAGE>

Item 8. Financial Statements and Supplementary Data

                        REPORT OF INDEPENDENT ACCOUNTANTS

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

In our opinion,  the  accompanying  consolidated  balance sheets and the related
consolidated  statements  of  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, 2001 and
2000,  and the results of their  operations and their cash flows for each of the
three years in the period ended December 31, 2001 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, during the year ended  December  31, 2000,  the Company
changed its method of recognizing  revenue for contracts  with sales  obligation
provisions.

PricewaterhouseCoopers LLP
San Francisco, California
March 15, 2002

                                       17
<PAGE>

                     REGAN HOLDING CORP. AND SUBSIDIARIES
                           Consolidated Balance Sheet
<TABLE>
<CAPTION>
                                                                                                            December 31,
                                                                                                ------------------------------------
                                                                                                     2001                 2000
                                                                                                     ----                 ----

<S>                                                                                                 <C>                <C>
Assets
Cash and cash equivalents                                                                           $  1,376,000       $  1,882,000
Investments                                                                                           12,571,000         10,355,000
Accounts receivable                                                                                    1,948,000          1,918,000
Note receivable                                                                                               --          5,750,000
Prepaid expenses                                                                                       1,057,000          1,293,000
Income taxes receivable                                                                                   76,000          3,661,000
                                                                                                    ------------       ------------
   Total current assets                                                                               17,028,000         24,859,000
                                                                                                    ------------       ------------
Net fixed assets                                                                                      24,047,000         12,368,000
Deferred tax assets                                                                                    1,529,000          1,771,000
Intangible assets                                                                                      1,370,000          1,604,000
Other assets                                                                                           2,053,000          2,358,000
                                                                                                    ------------       ------------
   Total non current assets                                                                           28,999,000         18,101,000
                                                                                                    ------------       ------------
   Total assets                                                                                     $ 46,027,000       $ 42,960,000
                                                                                                    ============       ============
Liabilities, redeemable common stock, and shareholders' equity
Liabilities
Accounts payable and accrued liabilities                                                            $  8,069,000       $  8,133,000
Loans payable                                                                                          4,750,000          2,265,000
                                                                                                    ------------       ------------
   Total current liabilities                                                                          12,819,000         10,398,000
                                                                                                    ------------       ------------
Deferred compensation payable                                                                          4,356,000          2,997,000
Other liabilities                                                                                        222,000            581,000
                                                                                                    ------------       ------------
   Total non current liabilities                                                                       4,578,000          3,578,000
                                                                                                    ------------       ------------
   Total liabilities                                                                                  17,397,000         13,976,000
                                                                                                    ------------       ------------
Redeemable common stock, Series A and B                                                               11,124,000         11,237,000
                                                                                                    ------------       ------------
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: 20,769,000 and 20,870,000 at
December 31, 2001 and 2000                                                                             3,596,000          3,596,000
Common stock committed                                                                                    25,000            100,000
Paid-in capital                                                                                        6,424,000          6,318,000
Retained earnings                                                                                      7,405,000          8,244,000
Accumulated other comprehensive income (loss)                                                             56,000           (511,000)
                                                                                                    ------------       ------------
   Total shareholders' equity                                                                         17,506,000         17,747,000
                                                                                                    ------------       ------------
   Total liabilities, redeemable common stock and shareholders' equity                              $ 46,027,000       $ 42,960,000
                                                                                                    ============       ============
</TABLE>
                       See notes to financial statements.

                                       18
<PAGE>

                      REGAN HOLDING CORP. AND SUBSIDIARIES
                      Consolidated Statement of Operations
<TABLE>
<CAPTION>
                                                                                          For the Year Ended December 31,
                                                                             -------------------------------------------------------
                                                                                 2001                 2000                 1999
                                                                                 ----                 ----                 ----
<S>                                                                          <C>                  <C>                  <C>
Revenue
Marketing allowances                                                         $ 25,527,000         $ 17,525,000         $ 25,477,000
Commissions                                                                    17,365,000           13,845,000           15,395,000
Administrative fees                                                            10,918,000            9,039,000            8,637,000
Other income                                                                      384,000            1,304,000              522,000
                                                                             ------------         ------------         ------------
   Total revenue                                                               54,194,000           41,713,000           50,031,000
                                                                             ------------         ------------         ------------
Expenses
Selling, general and administrative                                            46,380,000           44,871,000           41,841,000
Depreciation and amortization                                                   4,578,000            3,518,000            1,755,000
Other                                                                           3,459,000            2,730,000            1,319,000
                                                                             ------------         ------------         ------------
   Total expenses                                                              54,417,000           51,119,000           44,915,000
                                                                             ------------         ------------         ------------
Operating income (loss)                                                          (223,000)          (9,406,000)           5,116,000
Other income (loss)
Investment income (loss), net                                                    (125,000)             999,000            1,229,000
Interest expense                                                                 (220,000)            (260,000)            (173,000)
Gain on sale of building                                                               --            3,574,000                   --
                                                                             ------------         ------------         ------------
   Total other income (loss)                                                     (345,000)           4,313,000            1,056,000
Income (loss) before income taxes and cumulative
effect of accounting change                                                      (568,000)          (5,093,000)           6,172,000
Income tax provision (benefit)                                                   (220,000)          (1,755,000)           2,537,000
                                                                             ------------         ------------         ------------
Net income (loss) before cumulative effect of accounting
change                                                                           (348,000)          (3,338,000)           3,635,000
Cumulative effect of accounting change, net of tax                                     --             (226,000)                  --
                                                                             ------------          -----------         ------------

Net income (loss)                                                            $   (348,000)        $ (3,564,000)        $  3,635,000
                                                                             ============         ============         ============
Basic earnings (loss) per share:
Earnings (loss) available for common shareholders before
cumulative effect of accounting change                                       $      (0.03)        $      (0.15)        $       0.11
Cumulative effect of accounting change                                                 --                (0.01)                  --
                                                                             ------------         ------------         ------------

Net earnings (loss) available for common shareholders                        $      (0.03)        $      (0.16)        $       0.11
                                                                             ============         ============         ============
Weighted average shares outstanding                                            25,861,000           26,238,000           26,394,000
Diluted earnings (loss) per share:
Earnings (loss) available for common shareholders before
cumulative effect of accounting change                                       $      (0.03)        $      (0.15)        $       0.10
Cumulative effect of accounting change                                                 --                (0.01)                  --
                                                                             ------------         ------------         ------------

Net earnings (loss) available for common shareholders                        $      (0.03)        $      (0.16)        $       0.10
                                                                             ============         ============         ============
Weighted average shares outstanding                                            25,861,000           26,238,000           27,760,000
</TABLE>
                       See notes to financial statements.

                                       19
<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 January 1,
1999                  20,530,000    $3,249,000      $       --      $    913,000      $ 9,588,000      $   (54,000)   $  13,696,000
Comprehensive
income, net of tax:
Net income                                                                              3,635,000                         3,635,000
Net unrealized losses
on investments                                                                                            (482,000)        (482,000)
Less:
Reclassification
adjustment for gains
included in net
income                                                                                                     (36,000)         (36,000)
                                                                                                                       ------------
Total comprehensive
income                                                                                                                    3,117,000
Retirement upon
voluntary
repurchases of
common stock                                                               2,000          (26,000)                          (24,000)
Retirement upon
mandatory redemption     (70,000)      (81,000)                           38,000          (25,000)                          (68,000)
Accretion to
redemption value                                                                         (787,000)                         (787,000)
Issuance of common
stock                    403,000       491,000                                                                              491,000
Producer stock option
expense                                                                4,251,000                                          4,251,000
                      ----------    ----------      ----------       -----------      -----------       ----------     ------------
Balance December 31,
1999                  20,863,000     3,659,000              --         5,204,000       12,385,000         (572,000)      20,676,000

Comprehensive loss,
net of tax:
Net loss                                                                               (3,564,000)                       (3,564,000)
Net unrealized gains
on investments                                                                                              72,000           72,000
Less:
Reclassification
adjustment for
losses included in
net loss                                                                                                   (11,000)         (11,000)
                                                                                                                        ------------
Total comprehensive
loss                                                                                                                     (3,503,000)
Accretion to
redemption value                                                                         (495,000)                         (495,000)
Retirement upon
voluntary
repurchases of
common stock             (86,000)      (89,000)                                           (82,000)                         (171,000)
Issuance of common
stock                     27,000        26,000                                                                               26,000
Common stock
committed                 66,000                       100,000                                                              100,000
Producer stock option
expense                                                                1,114,000                                          1,114,000
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
====                  ==========    ==========      ==========       ===========      ===========       ==========     ============

</TABLE>
                       See notes to financial statements.

                                       20
<PAGE>

                      REGAN HOLDING CORP. AND SUBSIDIARIES
                      Consolidated Statement of Cash Flows
<TABLE>
<CAPTION>
                                                                                          For the Year Ended December 31,
                                                                                 ---------------------------------------------------
                                                                                      2001              2000                1999
                                                                                      ----              ----                ----
<S>                                                                              <C>                <C>                <C>
Cash flows from operating activities:
Net income (loss)                                                                $   (348,000)      $ (3,564,000)      $  3,635,000
Adjustments to reconcile net income (loss) to net cash provided
by operating activities:
Depreciation and amortization                                                       4,578,000          3,518,000          1,755,000
Loss (Gain) on sale or disposal of fixed assets                                       381,000         (3,850,000)                --
Losses on equity investee                                                             896,000            721,000                 --
Common stock awarded to non-employees                                                  75,000            100,000            420,000
Producer stock option expense                                                          96,000          1,114,000          4,251,000
Investment impairment loss                                                            642,000                 --                 --
Amortization (Accretion) of investments                                                47,000           (138,000)           (10,000)
Realized losses on sales of investments, net                                          138,000             18,000             60,000
Changes in operating assets and liabilities:
Accounts receivable                                                                   (30,000)           707,000           (921,000)
Prepaid expenses                                                                      236,000           (201,000)           (68,000)
Income taxes receivable and payable                                                 3,585,000           (767,000)        (2,010,000)
Deferred tax assets                                                                  (133,000)         1,666,000         (1,872,000)
Accounts payable and accrued liabilities                                              (64,000)          (390,000)         1,748,000
Deferred compensation payable                                                       1,359,000          1,632,000          1,365,000
Other operating assets and liabilities                                               (538,000)          (318,000)          (791,000)
                                                                                 ------------       ------------       ------------
Net cash provided by operating activities                                          10,920,000            248,000          7,562,000
                                                                                 ------------       ------------       ------------
Cash flows from investing activities:
Purchases of investments                                                          (10,150,000)        (7,687,000)       (13,460,000)
Proceeds from sales and maturities of investments                                   8,049,000         18,415,000          8,676,000
Proceeds from building sale                                                                --          8,400,000                 --
Proceeds from (Issuance of) note receivable                                         5,750,000         (5,750,000)                --
Purchases of fixed assets                                                         (16,458,000)        (5,635,000)       (11,736,000)
Acquisition of Values Financial Network assets                                             --         (2,350,000)                --
Equity in and advances to investee                                                   (358,000)        (1,503,000)                --
                                                                                 ------------       ------------       ------------
Net cash provided by (used in) investing activities                               (13,167,000)         3,890,000        (16,520,000)
                                                                                 ------------       ------------       ------------
Cash flows from financing activities:
Proceeds from loans payable                                                         5,250,000          4,600,000          5,633,000
Payments toward loans payable                                                      (2,765,000)        (6,985,000)        (1,027,000)
Repurchases of redeemable common stock                                               (500,000)          (821,000)                --
Voluntary repurchases of common stock                                                (244,000)          (171,000)          (542,000)
Proceeds from stock option exercises                                                       --             26,000             72,000
                                                                                 ------------       ------------       ------------
Net cash provided by (used in) in financing activities                              1,741,000         (3,351,000)         4,136,000
                                                                                 ------------       ------------       ------------
Net (decrease) increase in cash and cash equivalents                                 (506,000)           787,000         (4,822,000)
Cash and cash equivalents, beginning of period                                      1,882,000          1,095,000          5,917,000
                                                                                 ------------       ------------       ------------
Cash and cash equivalents, end of period                                         $  1,376,000       $  1,882,000       $  1,095,000
                                                                                 ============       ============       ============
Supplemental cash flow information:
Taxes Paid                                                                       $     14,000       $         --       $  5,835,000
Interest Paid                                                                    $    180,000       $    224,000       $    173,000
</TABLE>

                       See notes to financial statements.

                                       21
<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").

     Legacy  Marketing  has entered  into  marketing  agreements  with  American
National  Insurance  Company  ("American  National"),  IL Annuity and  Insurance
Company  ("IL  Annuity"),   Transamerica  Life  Insurance  and  Annuity  Company
("Transamerica"),  and John  Hancock  Variable  Life  Insurance  Company  ("John
Hancock"), (the "carriers"). 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.  The highest producing producers are referred
to as  wholesalers.  For  providing  these  services,  the  carriers  pay Legacy
Marketing commissions and marketing allowances when policy premium is applied to
policyholders' insurance policies.

     Legacy  Marketing  also entered  into  administrative  agreements  with the
carriers 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 per transaction,  the amount of the
fee depends on the type of policy and type of service.

     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  agreements
primarily with insurance  companies and mutual funds that give Legacy  Financial
the non-exclusive right to sell investment products on behalf of those insurance
companies and mutual funds.  Sales of investment  products are conducted through
Legacy Financial's  network of independent  registered  representatives.  Legacy
Financial is compensated based upon predetermined percentages of broker sales.

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

     Marketing  allowances and commissions are recognized when policy premium is
applied to policyholders' insurance policies. Administrative fees are recognized
on a per transaction basis as services are performed.

     Effective  January 1, 2000,  the Company  changed  its revenue  recognition
policy  in order to comply  with SEC  Staff  Accounting  Bulletin  No.  101 with
respect  to a  production  premium  deficiency  requirement  under  one  of  its
marketing agreements. This change is reflected in the statement of operations as
a cumulative effect of accounting change of $226,000,  net of taxes of $149,000,
during the year ended  December 31,  2000.  The change in  accounting  principle
would not have a material  effect on the  statement of  operations if adopted in
1999.

                                       22
<PAGE>

d. Cash and Cash Equivalents

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

e. Investments

     The Company's  investments  are  classified as  available-for-sale  and are
carried at fair  value.  Unrealized  gains and  losses,  net of the  related tax
effect, are reported as a separate component of shareholders' equity.

     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.

     All investments 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,  less  accumulated  depreciation  and
amortization.  The Company capitalizes consulting fees and salaries and benefits
for employees who are directly  associated  with the development of internal use
software. Upon project completion,  these costs are amortized over the estimated
useful life of the software on a straight-line basis.

     Depreciation  and  amortization  expense  recorded by the  Company  totaled
approximately  $3.5 million during 2000.  Effective January 1, 2000, the Company
changed  its  estimate  of the useful  life of  certain  computer  hardware  and
software  from  five  years to three  years.  Had this  change in  estimate  not
occurred,  the  Company  would  have  recorded  approximately  $3.3  million  in
depreciation expense during 2000.

     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                                                    20-40 years

g. Intangible Assets

     Intangible  assets  comprise  purchased   intangible  assets  and  goodwill
resulting from the Company's acquisition of Values Financial Network,  Inc., and
are amortized on a straight-line basis ranging from 5 to 10 years,  depending on
the estimated useful life of each asset.

h.  Impairment 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 discounted future cash flows. The
carrying amount of all long-lived assets is evaluated  periodically to determine
if adjustment to the useful life is warranted.

                                       23
<PAGE>
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. Accounting Pronouncements to be Adopted Subsequent to December 31, 2001

     In June 2001, the Financial  Accounting Standards Board issued Statement of
Financial  Accounting  Standards  No. 142 (SFAS 142),  Goodwill  and  Intangible
Assets,  which  supercedes  Accounting  Principles Board ("APB") Opinion No. 17,
Intangible  Assets.  SFAS 142  eliminates  the current  requirement  to amortize
goodwill and indefinite-lived  intangible assets,  addresses the amortization of
intangible  assets with a defined life and addresses the impairment  testing and
recognition for goodwill and intangible  assets.  The provisions of SFAS 142 are
applicable on January 1, 2002. However,  goodwill and intangible assets acquired
after  June  30,  2001  are  subject  immediately  to SFAS  142.  The  Company's
management  anticipates  that  the  implementation  of SFAS  142 will not have a
material effect on its consolidated results of operations or financial position.

     In August 2001, the Financial  Accounting  Standards  Board issued SFAS No.
144,  Accounting  for the  Impairment  or Disposal of Long-Lived  Assets,  which
supercedes SFAS 121,  Accounting for the Impairment of Long-Lived Assets and for
Long-Lived  Assets to Be Disposed  Of, and amends APB Opinion No. 30,  Reporting
Results of  Operations  -  Reporting  the  Effects of Disposal of a Segment of a
Business.  SFAS 144 revises the  accounting  for the  measurement  of long-lived
assets  to be  disposed  of by sale  and  clarifies  implementation  issues  for
discontinued  operations.  SFAS 144 will be effective for fiscal years beginning
after  December  15,  2001.  The  Company's  management   anticipates  that  the
implementation  of SFAS 144 will not have a material effect on its  consolidated
results of operations or financial position.

2. Investments
<TABLE>
<CAPTION>
                                                                              Maturity in years:
                                           -----------------------------------------------------------------------------------------
                                              1 to 5            5 to 10          Longer Than
                                              Years              Years             10 Years            Other               Total
                                              -----              -----             --------            -----               -----
<S>                                        <C>                <C>                <C>                <C>                <C>
December 31, 2001
Corporate bonds                            $  7,339,000       $         --       $  1,025,000       $         --       $  8,364,000
Mutual funds                                         --                 --                 --          4,376,000          4,376,000
                                           ------------       ------------       ------------       ------------       ------------
Amortized cost                                7,339,000                 --          1,025,000          4,376,000         12,740,000
Gross unrealized gains                            8,000                 --                 --                 --              8,000
Gross unrealized losses                              --                 --           (129,000)           (48,000)          (177,000)
                                           ------------       ------------       ------------       ------------       ------------
Fair value                                 $  7,347,000       $         --       $    896,000       $  4,328,000       $ 12,571,000
                                           ============       ============       ============       ============       ============
December 31, 2000
Government agency securities               $  1,055,000       $  2,000,000       $  1,407,000       $         --       $  4,462,000
Corporate bonds                                      --                 --            525,000                 --            525,000
Mutual funds                                         --                 --                 --          3,035,000          3,035,000
Equity securities                                    --                 --                 --          3,164,000          3,164,000
                                           ------------       ------------       ------------       ------------       ------------
Amortized cost                                1,055,000          2,000,000          1,932,000          6,199,000         11,186,000
Gross unrealized gains                               --                 --                 --              2,000              2,000
Gross unrealized losses                          (9,000)           (27,000)           (69,000)          (728,000)          (833,000)
                                           ------------       ------------       ------------       ------------       ------------
Fair value                                 $  1,046,000       $  1,973,000       $  1,863,000       $  5,473,000       $ 10,355,000
                                           ============       ============       ============       ============       ============

</TABLE>

<TABLE>
<CAPTION>
                                                                         2001                      2000                      1999
                                                                         ----                      ----                      ----
<S>                                                                   <C>                       <C>                       <C>
Gross realized gains                                                  $  92,000                 $ 144,000                 $  35,000
Gross realized losses                                                 $(230,000)                $(162,000)                $ (95,000)
</TABLE>

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

                                       24
<PAGE>

3. Note Receivable

     In connection with a real estate sale during 2000, the Company assigned its
rights  to  cash   consideration  of  $5.8  million  to  a  qualified   exchange
intermediary in order to defer the taxes for the gain on sale.  During 2001, the
Company  purchased  the  office  building  which  houses  its  headquarters  for
approximately  $10.6 million.  In conjunction  with the acquisition in 2001, the
Company paid a portion of the purchase  price by applying the proceeds  from the
note receivable from the intermediary.

4. Fixed Assets

                                                           December 31,
                                                  -----------------------------
                                                      2001             2000
                                                  ------------     ------------
Computer hardware and purchased
software                                          $  7,340,000     $  5,986,000
Internal use software development
costs                                               10,996,000        7,434,000
Leasehold improvements                               1,260,000        1,394,000
Furniture and equipment                              3,174,000        2,905,000
Building                                             7,780,000               --
Land                                                 2,689,000          102,000
                                                  ------------     ------------
                                                    33,239,000       17,821,000
Accumulated depreciation and amortization           (9,192,000)      (5,453,000)
                                                  ------------     ------------
Total                                             $ 24,047,000     $ 12,368,000
                                                  ============     ============

5. Equity in and Advances to Investee

     In 2000, the Company purchased a 33.3% ownership  interest in a development
stage company named prospectdigital,  LLC for $403,000. Prospectdigital provides
an on-line marketing service to brokers selling annuities and life insurance. To
date  prospectdigital  has had  nominal  revenue and used its capital to develop
software to support its business and incur  operating  expenses.  The  Company's
investment  in  prospectdigital  is accounted for under the equity  method.  The
Company  is  recording  98.8% of the  losses  of  prospectdigital  to  reflect a
hypothetical liquidation at book value at each balance sheet date. The Company's
share of prospectdigital's losses was $896,000 and $721,000 during 2001 and 2000
and is included in other expenses. In addition,  the Company loaned $1.1 million
to  prospectdigital in 2000. The loan bears interest equal to the Prime Rate. In
2001,  the Company  extended a $400,000 line of credit to  prospectdigital.  The
line of credit bears interest at 8.0%. As of December 31, 2001,  prospectdigital
had drawn $358,000 from the line of credit.  The amounts  invested and advanced,
net of the  Company's  share of cumulative  losses,  have been included in other
assets at December 31, 2001 and 2000.

     In January 2002, the Company purchased all the remaining  outstanding stock
of  prospectdigital  for  $225,000  in cash.  Under  the  terms of the  purchase
agreement,  prospectdigital  remained  liable for  payment  of the $1.5  million
indebtedness,  plus  accrued  interest,  to the  Company.  After the amounts are
repaid,  the Company  must pay up to  $475,000  in future  profits to the former
co-owners.

6. Purchase of Values Financial Network, Inc. and Related Intangible Assets

     In 2000, the Company paid $3.7 million for the purchase of Values Financial
Network  assets.  Among the assets acquired were 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.  Payments in excess of
the  identifiable  assets were recorded as goodwill and are being amortized on a
straight-line basis over ten years.  Goodwill and copyrights have been reflected
as intangible assets in the consolidated  balance sheet at December 31, 2001 and
2000. Total accumulated amortization of intangible assets was $180,000 and $- at
December 31, 2001 and 2000.  Results of Values  Financial  Network's  operations
have been included in the  consolidated  results of operations since the date of
acquisition.

                                       25
<PAGE>

7. Accounts Payable and Accrued Liabilities

                                                            December 31,
                                                     ---------------------------
                                                        2001            2000
                                                     ----------       ----------
Accrued compensation                                 $2,871,000       $2,767,000
Accrued sales convention costs                        1,039,000        1,180,000
Commissions payable                                   1,366,000          906,000
Accrued website consulting services                      94,000          802,000
Accounts payable                                        845,000           65,000
Miscellaneous accrued expenses                        1,854,000        2,413,000
                                                     ----------       ----------
Total                                                $8,069,000       $8,133,000
                                                     ==========       ==========

8. Loans 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 loan  agreement  for  approximately  $4.8  million.  The property
collateralizes  the loan,  which  bears  interest  at a rate equal to LIBOR plus
3.50%, adjusted monthly.  During 2001, the weighted average interest rate on the
loan was 7.35%.  Interest  is due and  payable  monthly.  The  unpaid  principal
balance was due and payable in December 2001,  however the Company  extended the
maturity date of the loan to June 19, 2002. As of December 31, 2001, no payments
have been made toward the principal balance of the loan.

     In 2000,  the  Company  obtained  loan  advances of $2.5  million  from its
investment  broker.  The loans bore  interest  at 1/2%  above the Call Rate,  as
published in The Wall Street Journal,  and were  collateralized by the Company's
investment  portfolio.  As of December  31,  2000,  approximately  $2.3  million
remained payable under this arrangement. This loan was fully paid in 2001.

9. 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, a portion of their  compensation as  contributions  to the 401(k)
plan.  Employees may elect to contribute up to 15% of their annual  compensation
to the 401(k) plan. The Company matches 50% of each employee's contributions, up
to a maximum of 6% of annual compensation.  The Company's matching contributions
were $439,000,  $409,000,  and $348,000,  for the years ended December 31, 2001,
2000, and 1999.

     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 $55,000,  $48,000,  and
$53,000 during the years ended December 31, 2001, 2000, and 1999. As of December
31, 2001 and 2000,  employee  contributions and Company matching  contributions,
including accumulated investment losses, totaled $575,000 and $393,000.

     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, 2001,
2000,  and 1999,  matching  contributions  related  to the  producer  commission
deferral plan were $36,000,  $32,000,  and $56,000.  As of December 31, 2001 and
2000,  producer  contributions  and Company  matching  contributions,  including
accumulated investment losses, totaled $3.8 million and $2.6 million.

                                       26
<PAGE>
10. Commitments and Contingencies

     The  Company  leases  office and  warehouse  premises  and  certain  office
equipment under  non-cancelable  operating leases.  Related rent expense of $1.6
million, $1.5 million, and $876,000 is included in occupancy costs for the years
ended December 31, 2001,  2000, and 1999.  Total rentals for leases of equipment
included in equipment  expense  were  $922,000,  $802,000,  and $417,000 for the
years ended December 31, 2001, 2000, and 1999.

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

      Year Ended December 31,
               2002                                        $1,067,000
               2003                                           394,000
               2004                                           334,000
               2005                                           294,000
               2006                                           150,000
                                                           ----------
               Total minimum lease payments                $2,239,000
                                                           ==========

     In 1998, the Company entered into a  Shareholder's  Agreement with Lynda L.
Regan,  Chief  Executive  Officer of the Company and  Chairman of the  Company's
Board of Directors. Under the terms of this agreement, in the event of the death
of Ms. Regan, the Company shall repurchase from Ms. Regan's estate all shares of
common  stock  that were owned by Ms.  Regan at the time of her  death,  or were
transferred by her to one or more trusts prior to her death.  The purchase price
to be paid by the Company shall be equal to 125% of the fair market value of the
shares.  The purchase price was equal to $27.9 million at December 31, 2001. The
Company has purchased two life insurance policies with a combined face amount of
$29  million  for the  purpose of funding  this  obligation  in the event of 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, 2001,  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 of $2.19 per share
and $2.10 per share as of December  31, 2001 and 2000,  based on an  independent
appraisal of the stock value obtained by management.
<TABLE>
<CAPTION>
                                                  Series A                       Series B                         Total
                                              Redeemable Common              Redeemable Common                Redeemable Common
                                                   Stock                           Stock                           Stock
                                          -------------------------         -----------------------       -------------------------
                                                         Carrying                        Carrying                        Carrying
                                            Shares        Amount            Shares        Amount           Shares         Amount
                                          ---------    ------------         -------    ------------       ---------    ------------
<S>                                       <C>          <C>                  <C>        <C>                <C>          <C>
Balance January 1, 1999                   5,171,000    $  9,428,000         599,000    $  1,797,000       5,770,000    $ 11,225,000
Redemptions and retirement of common
stock                                      (250,000)       (421,000)         (9,000)        (28,000)       (259,000)       (449,000)
Accretion to redemption value                    --         787,000              --              --              --         787,000
                                          ---------    ------------         -------    ------------       ---------    ------------
Balance December 31, 1999                 4,921,000       9,794,000         590,000       1,769,000       5,511,000      11,563,000
Redemptions and retirement of common
stock                                      (410,000)       (810,000)         (6,000)        (11,000)       (416,000)       (821,000)
Accretion to redemption value                    --         495,000              --              --              --         495,000
                                          ---------    ------------         -------    ------------       ---------    ------------
Balance December 31, 2000                 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
                                          =========    ============         =======    ============       =========    ============
</TABLE>
                                       27
<PAGE>

     The Company  recorded  redeemable  common  stock  accretion of $397,000 and
$495,000  related  to Series A  redeemable  common  stock  for the  years  ended
December  31, 2001 and 2000.  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 of each year.

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 10%  shareholders  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.  The  Producer
Options  granted  through June 1999 vested ratably over five years following the
grant.  During  the second  quarter of 1999,  however,  the  Company  waived the
Producer Options' vesting  provisions,  thereby  converting the Producer Options
from  "variable"  to "fixed"  options.  As a result,  the Company  recorded $2.9
million of expense representing  management's  estimate of the fair value of the
Producer  Options at the date that the vesting  provisions were modified.  Total
expenses  recorded for Producer  stock option grants were $96,000,  $1.1 million
and $4.3  million  during  2001,  2000 and 1999.  The fair value of the Producer
options were estimated  using the  Black-Scholes  option-pricing  model with the
following assumptions:

<TABLE>
<CAPTION>
                                                      2001                               2000                              1999
                                                   ----------                         ----------                        ----------
<S>                                                <C>                                <C>                               <C>
Risk-free interest rates                           5.13%-6.80%                        5.04%-6.52%                       5.29%-6.59%
Volatility                                             27%-31%                            28%-34%                           28%-40%
Dividend yield                                            None                               None                              None
Vesting                                              Immediate                          Immediate                         Immediate
Expected life                                       6-10 years                         6-10 years                         1-6 years
</TABLE>

     The following table summarizes information with respect to shares of Series
A common stock awarded to non-employees:
<TABLE>
<CAPTION>
                                                      2001                               2000                                 1999
                                                   ----------                         ----------                        ----------

<S>                                               <C>                                    <C>                               <C>
Share grants                                           48,000                              66,000                           331,000
Fair value per share                              $1.53-$1.65                               $1.53                             $1.27
Expense recorded                                      $75,000                            $100,000                          $420,000
</TABLE>

     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, 2001.

                                       28
<PAGE>

     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 10%
shareholders,  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.  The  following  table  reflects pro forma net income  (loss) and
earnings (loss) per share had the Company elected to adopt the fair value method
of  Statement  of  Financial   Accounting  Standards  No.  123,  Accounting  for
Stock-Based Compensation.

<TABLE>
<CAPTION>
                                                             Net income (loss)                                    Net income (loss)
                                                               available to                                          available to
                                                                  common                                                common
                                                                shareholders                                      shareholders after
                                                             before cumulative          Cumulative effect         cumulative effect
                                                                 effect of                of accounting             of accounting
                                                             accounting change               change                     change
                                                             -----------------         -----------------          -----------------
<S>                                    <C>                   <C>                       <C>                     <C>
December 31, 2001
Net income (loss)                      As reported           $        (348,000)        $                --        $        (348,000)
                                       Pro forma             $        (773,000)        $                --        $        (773,000)
Basic earnings (loss) per share:       As reported           $           (0.03)        $                --        $           (0.03)
                                       Pro forma             $           (0.05)        $                --        $           (0.05)
Diluted earnings (loss) per share:     As reported           $           (0.03)        $                --        $           (0.03)
                                       Pro forma             $           (0.05)        $                --        $           (0.05)
December 31, 2000
Net income (loss)                      As reported           $      (3,338,000)        $          (226,000)       $      (3,564,000)
                                       Pro forma             $      (3,817,000)        $          (226,000)       $      (4,043,000)
Basic earnings per share:              As reported           $           (0.15)        $             (0.01)       $           (0.16)
                                       Pro forma             $           (0.16)        $             (0.01)       $           (0.17)
Diluted earnings per share:            As reported           $           (0.15)        $             (0.01)       $           (0.16)
                                       Pro forma             $           (0.16)        $             (0.01)       $           (0.17)
December 31, 1999
Net income (loss)                      As reported           $       3,635,000         $                --        $       3,635,000
                                       Pro forma             $       3,423,000         $                --        $       3,423,000
Basic earnings per share:              As reported           $            0.11         $                --        $            0.11
                                       Pro forma             $            0.10         $                --        $            0.10
Diluted earnings per share:            As reported           $            0.10         $                --        $            0.10
                                       Pro forma             $            0.09         $                --        $            0.09
</TABLE>
     For purposes of estimating  the fair value of the Employee  Options for the
pro forma amounts  listed above,  the Company  applied the minimum value method,
with the following assumptions:
<TABLE>
<CAPTION>
                                                           2001                            2000                            1999
                                                        ----------                      ----------                      ----------
<S>                                                    <C>                             <C>                             <C>
Risk-free interest rates                               4.50%-4.88%                     5.92%-6.67%                     4.66%-6.32%
Expected life                                            3-5 years                       3-5 years                       5-7 years
Dividend yield                                                None                            None                            None
</TABLE>

                                       29
<PAGE>

     Stock option activity under both plans was as follows:

                                                                       Total
                                                                Weighted average
                                                    Shares        Exercise Price
                                                    ------        --------------
Outstanding at January 1, 1999                    2,476,000         $   0.75
Granted                                           6,473,000         $   1.27
Exercised                                           (72,000)        $   0.99
Forfeited                                           (67,000)        $   1.09

Outstanding at December 31, 1999                  8,810,000         $   1.13
Granted                                           5,118,000         $   1.52
Exercised                                           (27,000)        $   0.95
Forfeited                                          (525,000)        $   1.08

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

Exercisable at December 31, 1999                  6,166,000         $   1.16
Exercisable at December 31, 2000                  8,984,000         $   1.25
Exercisable at December 31, 2001                 11,512,000         $   1.31

     The following table summarizes  information about stock options outstanding
at December 31, 2001 under both plans:

<TABLE>
<CAPTION>
                                                              Options Outstanding               Options Exercisable
                                                              -------------------               -------------------
                                                           Weighted           Weighted                         Weighted
                                                            Average            Average                          Average
                                                           Remaining          Exercise                         Exercise
   Range of exercise prices              Shares        Contractual Life        Price            Shares          Price
   ------------------------              ------        ----------------        -----            ------          -----
<S>                                   <C>                    <C>                <C>           <C>                <C>
          $0.73-$0.84                 1,898,000              3.9                $0.73         1,596,000          $0.73
             $1.03                      122,000              2.3                $1.03           117,000          $1.03
          $1.27-$1.40                 6,028,000              3.7                $1.27         5,427,000          $1.27
             $1.53                    4,532,000              6.1                $1.53         2,709,000          $1.53
             $1.61                    2,145,000              6.0                $1.61         1,591,000          $1.61
             $1.65                      753,000              9.4                $1.65            50,000          $1.65
             $1.68                       86,000              3.0                $1.68            22,000          $1.68
</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  federal  and state  income  taxes  consist of amounts
currently  (receivable)  payable and  amounts  deferred  which,  for the periods
indicated, are shown below:
<TABLE>
<CAPTION>

                                                                            For the Year Ended December 31,
                                                         ---------------------------------------------------------------------------
                                                               2001                         2000                        1999
                                                         -----------------           --------------------        -------------------
<S>                                                     <C>                         <C>                         <C>
Current income taxes:
Federal                                                 $        (92,000)           $        (3,418,000)        $         3,482,000
State                                                              5,000                         (3,000)                    927,000
                                                         -----------------           --------------------        -------------------
Total current                                                    (87,000)                    (3,421,000)                  4,409,000
                                                         -----------------           --------------------        -------------------
Deferred income taxes:
Federal                                                         (117,000)                     1,712,000                  (1,524,000)
State                                                            (16,000)                       (46,000)                   (348,000)
                                                         -----------------           --------------------        -------------------
Total deferred                                                  (133,000)                     1,666,000                  (1,872,000)
                                                         -----------------           --------------------        -------------------
Provision for (benefit from) income taxes               $       (220,000)           $        (1,755,000)        $         2,537,000
                                                         =================           ====================        ===================

</TABLE>

                                       30
<PAGE>

     The Company's deferred tax assets (liabilities) consist of the following:
<TABLE>
<CAPTION>
                                                                                                               December 31,
                                                                                                      -----------------------------
                                                                                                         2001               2000
                                                                                                      -----------       -----------
<S>                                                                                                   <C>               <C>
Producer stock option and stock awards                                                                $ 2,180,000       $ 2,131,000
Producer deferred compensation                                                                          1,735,000         1,235,000
Accrued sales convention costs                                                                            414,000           470,000
State net operating loss carryforward, less valuation allowance of $264,000 and $-, net
of federal taxes                                                                                          321,000           331,000
Alternative minimum tax credit carryforward                                                               304,000           304,000
Investment impairment charge                                                                              256,000                --
Capital loss                                                                                               70,000            27,000
Unrealized losses                                                                                              --           338,000
Other                                                                                                     335,000           339,000
                                                                                                      -----------       -----------
Subtotal deferred tax assets                                                                            5,615,000         5,175,000

Fixed asset depreciation                                                                               (2,658,000)       (1,868,000)
Deferred gain on building sale                                                                         (1,364,000)       (1,464,000)
Unrealized gains                                                                                          (37,000)               --
Other                                                                                                     (27,000)          (72,000)
                                                                                                      -----------       -----------
Subtotal deferred tax liabilities                                                                      (4,086,000)       (3,404,000)
                                                                                                      -----------       -----------

Deferred tax assets, net                                                                              $ 1,529,000       $ 1,771,000
                                                                                                      ===========       ===========
</TABLE>

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

     The  provisions  for income  taxes differ from the  provisions  computed by
applying the statutory  federal income tax rate (34%) to income before taxes, as
follows:
<TABLE>
<CAPTION>
                                                                                             For the Year Ended December 31,
                                                                             -------------------------------------------------------
                                                                                 2001                  2000                 1999
                                                                             -----------           -----------           -----------
<S>                                                                          <C>                   <C>                   <C>
Federal income taxes due (benefit earned) at
statutory rate (34%)                                                         $  (193,000)          $(1,710,000)          $ 2,099,000
Increases (reductions) in income taxes resulting
from:
State franchise taxes, net of federal income
tax benefit                                                                       (7,000)              (27,000)              412,000
Other                                                                            (20,000)              (18,000)               26,000
                                                                             -----------           -----------           -----------
Provision for (benefit from) income taxes                                    $  (220,000)          $(1,755,000)          $ 2,537,000
                                                                             ===========           ===========           ===========
</TABLE>

     As of  December  31,  2001,  the  Company  has  state  net  operating  loss
carryforwards  of $10.2  million  including  $4.9 million and $4.3 million which
expire on December 31, 2010 and 2011. The Company also has, for state income tax
purposes,  $304,000 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.

                                       31
<PAGE>
14. Earnings per Share

     The basic and  diluted  earnings  per share  calculations  are based on the
weighted  average  number  of  common  shares  outstanding  including  shares of
redeemable common stock. The diluted earnings per share calculation includes the
effect of stock options to the extent that the options have a dilutive effect on
earnings per share.
<TABLE>
<CAPTION>
                                                                              Income (loss)            Shares             Per-share
                                                                               (Numerator)          (Denominator)          Amount
                                                                               -----------          -------------          ------
<S>                                                                            <C>                    <C>                 <C>
For the year ended December 31, 2001
Basic earnings (loss) per share
Income (loss)                                                                  $  (348,000)
Accretion of redeemable common stock                                              (397,000)
                                                                               -----------
Basic and diluted income (loss) available to
common shareholders                                                            $  (745,000)           25,861,000          $  (0.03)
                                                                               ===========            ==========          ========

For the year ended December 31, 2000
Basic earnings (loss) per share
Income (loss) before cumulative effect of accounting change                    $(3,338,000)

Accretion  of
redeemable common stock                                                           (495,000)
                                                                               -----------
Income (loss) available to common
shareholders before cumulative effect
of accounting change                                                            (3,833,000)           26,238,000          $  (0.15)
Cumulative effect of accounting change                                            (226,000)                   --          $  (0.01)
                                                                               -----------            ----------          --------
Basic and diluted income (loss) available to
common shareholders                                                            $(4,059,000)           26,238,000          $  (0.16)
                                                                               ===========            ==========          ========

For the year ended December 31, 1999
Basic earnings per share
Income                                                                         $ 3,635,000
Accretion of redeemable common
stock                                                                             (787,000)
                                                                               -----------
Income available to common
shareholders                                                                     2,848,000            26,394,000          $   0.11
Effect of dilutive securities -
employee and producer stock options                                                     --             1,366,000
                                                                               -----------            ----------
Diluted earnings per share                                                     $ 2,848,000            27,760,000          $   0.10
                                                                               ===========            ==========          ========
</TABLE>

     The diluted earnings per share calculation for the years ended December 31,
2001 and  2000  excludes  antidilutive  stock  options  of 3.3  million  and 6.8
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, Regan Holding Corp. (stand-alone),
Imagent  Online,  LLC,  Values  Financial  Network,   and  Other.   Intersegment
transactions are generally  accounted for at amounts  comparable to transactions
with unaffiliated customers, and are eliminated in consolidation.  Certain items
are maintained on the records of Regan Holding Corp.  (stand-alone)  and are not
allocated to the  segments.  They  primarily  relate to certain stock option and
stock award expenses.
<TABLE>
<CAPTION>
                                                                                                                           Regan
                                                                                                         Values           Holding
                                                      Legacy           Legacy          Imagent         Financial           Corp.
                                                     Marketing        Financial      Online, LLC        Network        (stand-alone)
                                                   ------------     ------------     ------------     ------------     ------------
<S>                                                <C>              <C>              <C>              <C>              <C>
Year Ended December 31, 2001
----------------------------
Total revenue                                      $ 52,517,000     $  1,899,000     $         --     $     45,000     $  2,181,000
Total expenses                                       45,963,000        3,242,000        1,142,000        2,004,000        3,724,000
                                                   ------------     ------------     ------------     ------------     ------------
Operating income (loss)                               6,554,000       (1,343,000)      (1,142,000)      (1,959,000)      (1,543,000)
Other income (loss)                                    (411,000)          14,000           92,000            2,000          (42,000)
                                                   ------------     ------------     ------------     ------------     ------------
Income (loss) before tax                              6,143,000       (1,329,000)      (1,050,000)      (1,957,000)      (1,585,000)
Tax provision (benefit)                               2,567,000         (492,000)        (390,000)        (726,000)        (760,000)
                                                   ------------     ------------     ------------     ------------     ------------
Net income (loss)                                  $  3,576,000     $   (837,000)    $   (660,000)    $ (1,231,000)    $   (825,000)
                                                   ============     ============     ============     ============     ============
Year Ended December 31, 2000
----------------------------
Total revenue                                      $ 38,126,000     $  2,753,000     $      4,000     $         --     $  2,286,000
Total expenses                                       42,218,000        3,001,000          970,000          136,000        4,603,000
                                                   ------------     ------------     ------------     ------------     ------------
Operating income (loss)                              (4,092,000)        (248,000)        (966,000)        (136,000)      (2,317,000)
Other income (loss)                                     861,000           27,000           42,000               --        3,374,000
                                                   ------------     ------------     ------------     ------------     ------------
Income (loss) before tax                             (3,231,000)        (221,000)        (924,000)        (136,000)       1,057,000
Tax provision (benefit)                              (1,210,000)         (78,000)        (343,000)         (50,000)         444,000
                                                   ------------     ------------     ------------     ------------     ------------
Net income (loss) before cumulative
effect of accounting change                          (2,021,000)        (143,000)        (581,000)         (86,000)         613,000
Cumulative effect of accounting
change                                                 (226,000)              --               --               --               --
                                                   ------------     ------------     ------------     ------------     ------------
Net income (loss)                                  $ (2,247,000)    $   (143,000)    $   (581,000)    $    (86,000)    $    613,000
                                                   ============     ============     ============     ============     ============
Year Ended December 31, 1999
----------------------------
Total revenue                                      $ 48,331,000     $  1,695,000     $         --     $         --     $  1,657,000
Total expenses                                       35,731,000        1,912,000               --               --        7,501,000
                                                   ------------     ------------     ------------     ------------     ------------
Operating income (loss)                              12,600,000         (217,000)              --               --       (5,844,000)
Other income (loss)                                   1,142,000            3,000               --               --          (95,000)
                                                   ------------     ------------     ------------     ------------     ------------
Income (loss) before tax                             13,742,000         (214,000)              --               --       (5,939,000)
Tax provision (benefit)                               5,413,000          (83,000)              --               --       (2,256,000)
                                                   ------------     ------------     ------------     ------------     ------------
Net income (loss)                                  $  8,329,000     $   (131,000)    $         --     $         --     $ (3,683,000)
                                                   ============     ============     ============     ============     ============

Total assets
December 31, 2001                                  $ 45,473,000     $  1,624,000     $     98,000     $  1,399,000     $ (2,565,000)
                                                   ============     ============     ============     ============     ============
December 31, 2000                                  $ 41,530,000     $  1,512,000     $    974,000     $  3,608,000     $ (4,964,000)
                                                   ============     ============     ============     ============     ============
</TABLE>

<TABLE>
                                                                                                    Intercompany
                                                              Other              Subtotal           Eliminations          Total
                                                           ------------        ------------        ------------        ------------
<S>                                                        <C>                 <C>                 <C>                 <C>
Year Ended December 31, 2001
------------------------------
Total revenue                                              $    120,000        $ 56,762,000        $ (2,568,000)       $ 54,194,000
Total expenses                                                  910,000          56,985,000          (2,568,000)         54,417,000
                                                           ------------        ------------        ------------        ------------
Operating income (loss)                                        (790,000)           (223,000)                 --            (223,000)
Other income (loss)                                                  --            (345,000)                               (345,000)
                                                           ------------        ------------        ------------        ------------
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)
                                                           ============        ============        ============        ============
Year Ended December 31, 2000
----------------------------
Total revenue                                              $    535,000        $ 43,704,000        $ (1,991,000)       $ 41,713,000
Total expenses                                                2,182,000          53,110,000          (1,991,000)         51,119,000
                                                           ------------        ------------        ------------        ------------
Operating income (loss)                                      (1,647,000)         (9,406,000)                 --          (9,406,000)
Other income (loss)                                               9,000           4,313,000                  --           4,313,000
                                                           ------------        ------------        ------------        ------------
Income (loss) before tax                                     (1,638,000)         (5,093,000)                 --          (5,093,000)
Tax provision (benefit)                                        (518,000)         (1,755,000)                 --          (1,755,000)
                                                           ------------        ------------        ------------        ------------
Net income (loss) before cumulative
effect of accounting change                                  (1,120,000)         (3,338,000)                 --          (3,338,000)
Cumulative effect of accounting
change                                                               --            (226,000)                 --            (226,000)
                                                           ------------        ------------        ------------        ------------
Net income (loss)                                          $ (1,120,000)       $ (3,564,000)       $         --        $ (3,564,000)
                                                           ============        ============        ============        ============
Year Ended December 31, 1999
----------------------------
Total revenue                                              $    206,000        $ 51,889,000        $ (1,858,000)       $ 50,031,000
Total expenses                                                1,629,000          46,773,000          (1,858,000)         44,915,000
                                                           ------------        ------------        ------------        ------------
Operating income (loss)                                      (1,423,000)          5,116,000                  --           5,116,000
Other income (loss)                                               6,000           1,056,000                  --           1,056,000
                                                           ------------        ------------        ------------        ------------
Income (loss) before tax                                     (1,417,000)          6,172,000                  --           6,172,000
Tax provision (benefit)                                        (537,000)          2,537,000                  --           2,537,000
                                                           ------------        ------------        ------------        ------------
Net income (loss)                                          $   (880,000)       $  3,635,000        $         --        $  3,635,000
                                                           ============        ============        ============        ============

Total assets
December 31, 2001                                          $     (2,000)       $ 46,027,000        $         --        $ 46,027,000
                                                           ============        ============        ============        ============
December 31, 2000                                          $    300,000        $ 42,960,000        $         --        $ 42,960,000
                                                           ============        ============        ============        ============
</TABLE>
                                       32
<PAGE>

16. Concentration of Risk

     As of December 31, 2001,  Legacy  Marketing sells its products on behalf of
four  unaffiliated   insurance   carriers:   American   National,   IL  Annuity,
Transamerica,  and John Hancock.  The  agreements  with three of these  carriers
generated a significant  portion of the  Company's  total  consolidated  revenue
(sales on behalf of John Hancock began in the fourth quarter of 2001):

                                          2001         2000            1999
                                          ----         ----            ----
American National                            6%         10%            11%
IL Annuity                                  21%         29%            74%
Transamerica                                69%         51%            11%

     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:

                                                           2001     2000    1999
                                                           ----     ----    ----
SelectMarkSM series (sold on behalf of Transamerica)       69%      50%     11%
VisionMarkSM series (sold on behalf of IL Annuity)         20%      28%     73%

     Legacy  Marketing  began  phasing out  marketing of IL Annuity  products in
December  2001.  The phaseout will be completed by March 31, 2002,  depending on
the product line.

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

     None.

                                       33
<PAGE>

                                    PART III

Item 10. Directors and Executive Officers of the Company

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

Item 11. Executive Compensation

     Information  required by Item 11 is 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

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

Item 13. Certain Relationships and Related Transactions

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

                                       34
<PAGE>

                                     PART IV

Item 14.  Exhibits, Financial Statement Schedules, and Reports on Form 8-K

    (a)  Index to Exhibits and Financial Statement Schedules:

<TABLE>
          1.  The following financial statements are included in Item 8:
<S>         <C>
                   (i)        Independent Accountants Report.
                   (ii)       Consolidated Balance Sheet as of December 31, 2001 and 2000.
                   (iii)      Consolidated Statement of Operations for the years ended December 31, 2001, 2000, and 1999.
                   (iv)       Consolidated Statement of Shareholders' Equity for the years ended December 31, 2001, 2000,
                              and 1999.
                   (v)        Consolidated Statement of Cash Flows for the years ended December 31, 2001, 2000, and 1999.
                   (vi)       Notes to Consolidated Financial Statements.

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

          3.  The following exhibits are included in response to Item 14(c):

     3(a)          Restated Articles of Incorporation. (1)
     3(b)(2)       Amended and Restated Bylaws of the Company. (5)
     10(a)         Administrative Services Agreement effective January 1, 1991, as amended, between Allianz Life Insurance Company
                   of North America and the Company.(2)
     10(b)(1)      Marketing Agreement effective June 1, 1993, as amended, between American National Insurance Company and the
                   Company.(2)
     10(b)(2)      Amendment Three to Marketing Agreement with American National Insurance Company.(3)
     10(b)(3)      Amendment Four to Marketing Agreement with American National Insurance Company.(3)
     10(b)(4)      Amendment Five to Marketing Agreement with American National Insurance Company.(4)
<FN>
---------------
(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 quarterly Form 10-Q for the three months and nine months ended September 30,
     1996.
(3)  Incorporated herein by reference to the Company's quarterly Form 10-Q for the three months and six months ended June 30, 1998.
(4)  Incorporated herein by reference to the Company's annual report on Form 10-K for the year ended December 31, 1998.
(5)  Incorporated  herein by reference to the Company's quarterly Form 10-Q for the three months and nine months ended September 30,
     2000.
</FN>
</TABLE>

                                       35
<PAGE>
<TABLE>
<CAPTION>
<S>                <C>

     10(b)(5)      Amendment Six to Marketing Agreement with American National Insurance Company (5)
     10(b)(6)      Amendment Seven to Marketing Agreement with American National Insurance Company.(2)
     10(b)(7)      Amendment Eight to Marketing Agreement with American National Insurance Company.(3)
     10(b)(8)      Amendment Nine to Marketing Agreement with American National Insurance Company.(3)
     10(b)(9)      Amendment Ten to Marketing Agreement with American National Insurance Company.(4)
     10(b)(10)     Amendment Eleven to Marketing Agreement with American National Insurance Company.(9)
     10(b)(11)     Amendment Twelve to Marketing Agreement with American National Insurance Company.(9)
     10(b)(12)     Amendment Thirteen to Marketing Agreement with American National Insurance Company. (10)
     10(b)(13)     Amendment Fourteen to Marketing Agreement with American National Insurance Company. (11)
     10(b)(14)     Amendment Sixteen to Marketing Agreement with American National Insurance Company. (12)
     10(b)(15)     Amendment Seventeen to Marketing Agreement with American National Insurance Company. (13)
     10(b)(16)     Amendment Eighteen to Marketing Agreement with American National Insurance Company. (13)
     10(b)(17)     Amendment Nineteen to Marketing Agreement with American National Insurance Company. (14)
     10(b)(18)     Amendment Twenty to Marketing Agreement with American National Insurance Company. (15)
     10(b)(19)     Amendment Twenty One to Marketing Agreement with American National Insurance Company. (16)
     10(b)(20)     Amendment Twenty Two to Marketing Agreement with American National Insurance Company. (17)
     10(b)(21)     Amendment Twenty Three to Marketing Agreement with American National Insurance Company. (17)
     10(b)(22)     Amendment Twenty Four to Marketing Agreement with American National Insurance Company. (18)
     10(b)(23)     Amendment Twenty Five to the Marketing Agreement with American National Insurance Company.
     10(c)(1)      Insurance Processing Agreement effective June 1, 1993, as amended, between American National Insurance
                   Company and the Company.(1)
     10(c)(2)      Amendment to Insurance Processing Agreement with American National Insurance Company.(2)
     10(c)(3)      Amendment Two to Insurance Processing Agreement with American National Insurance Company.(3)
     10(c)(4)      Amendment Three to Insurance Processing Agreement with American National Insurance Company.(4)
     10(c)(5)      Amendment Four to Insurance Processing Agreement with American National Insurance Company.(5)
     10(c)(6)      Amendment Five to Insurance Processing Agreement with American National Insurance Company.(5)
     10(c)(7)      Amendment Six to Insurance Processing Agreement with American National Insurance Company.(6)
     10(c)(8)      Amendment Seven to Insurance Processing Agreement with American National Insurance Company.(7)
     10(c)(9)      Amendment Eight to Insurance Processing Agreement with American National Insurance Company.(7)
     10(c)(10)     Amendment Nine to Insurance Processing Agreement with American National Insurance Company.(8)
<FN>
---------------
(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 quarterly Form 10-Q for the three months ended March 31, 1998.
(3)  Incorporated herein by reference to the Company's quarterly Form 10-Q for the three months and six months ended June 30, 1998.
(4)  Incorporated herein by reference to the Company's quarterly Form 10-Q for the three months and nine months ended September 30,
     1998.
(5)  Incorporated herein by reference to the Company's annual report on Form 10-K for the year ended December 31, 1998.
(6)  Incorporated herein by reference to the Company's quarterly Form 10-Q for the three months ended March 31, 1999.
(7)  Incorporated herein by reference to the Company's quarterly Form 10-Q for the three months and six months ended June 30, 1999.
(8)  Incorporated herein by reference to the Company's quarterly Form 10-Q for the three months and nine months ended September 30,
     1999.
(9)  Incorporated  herein by reference  to the  Company's  annual  report on Form 10-K for the year ended  December  31, 1999.
(10) Incorporated herein by reference to the Company's quarterly Form 10-Q for the three months ended March 31, 2000.
(11) Incorporated  herein by reference to the Company's quarterly report on Form 10-Q for the three months and six months ended June
     30, 2000.
(12) Incorporated  herein by reference to the Company's quarterly Form 10-Q for the three months and nine months ended September 30,
     2000.
(13) Incorporated herein by reference to the Company's Form S-1/A Post Effective Amendment No. 1, dated February 2, 2001.
(14) Incorporated herein by reference to the Company's annual report on Form 10-K for the year ended December 31, 2000.
(15) Incorporated herein by reference to the Company's quarterly report on Form 10-Q for the three months ended March 31, 2001.
(16) Incorporated herein by reference to the Company's quarterly report on Form 10-Q for the six months ended June 30, 2001.
(17) Incorporated herein by reference to the Company's quarterly report on Form 10-Q for the nine months ended September 30, 2001.
(18) Incorporated herein by reference to the Company's Form S-2/A, Amendment No. 2, dated February 11, 2002.
</FN>
</TABLE>

                                       36
<PAGE>

<TABLE>
<CAPTION>
<S>             <C>
     10(c)(11) Amendment Ten to Insurance Processing Agreement with American National Insurance Company.(4)
     10(c)(12) Amendment Eleven to Insurance Processing Agreement with American National Insurance Company.(4)
     10(c)(13) Amendment Twelve to Insurance Processing Agreement with American National Insurance Company. (5)
     10(c)(14) Amendment Thirteen to Insurance Processing Agreement with American National Insurance Company. (6)
     10(c)(15) Amendment Fifteen to Insurance Processing Agreement with American National Insurance Company.(7)
     10(c)(16) Amendment Sixteen to Insurance Processing Agreement with American National Insurance Company. (9)
     10(c)(17) Amendment Seventeen to Insurance Processing Agreement with American National Insurance Company. (9)
     10(c)(18) Amendment Eighteen to Insurance Processing Agreement with American National Insurance Company. (10)
     10(c)(19) Amendment Nineteen to Insurance Processing Agreement with American National Insurance Company. (11)
     10(c)(20) Amendment Twenty to Insurance Processing Agreement with American National Insurance Company. (12)
     10(c)(21) Amendment Twenty One to Insurance Processing Agreement with American National Insurance Company.(14)
     10(c)(22) Amendment Twenty Two to Insurance Processing Agreement with American National Insurance Company.(14)
     10(c)(23) Amendment Twenty Three to Insurance Processing Agreement with American National Insurance Company.(15)
     10(c)(24) Amendment Twenty Four to Insurance Processing Agreement with American National Insurance Company.
     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 the Company.(2)
     10(h)     Insurance  Processing  Agreement  effective  January 1, 1996  between  IL  Annuity  and  Insurance  Company  and the
               Company.(2)
     10(i)     Marketing Agreement effective January 1, 1996 between Indianapolis Life Insurance Company and the Company.(2)
     10(j)     Insurance  Processing  Agreement  effective  January 1, 1996 between  Indianapolis  Life  Insurance  Company and the
               Company.(2)
     10(k)     Marketing  Agreement  effective May 29, 1998 between  Transamerica  Life  Insurance  and Annuity  Company and Legacy
               Marketing Group.(3)
     10(k)(1)  Amendment Two to Marketing  Agreement with  Transamerica Life Insurance and Annuity  Company.(12)  10(k)(2)Amendment
               Three to Marketing Agreement with Transamerica Life Insurance and Annuity Company.(14)
     10(l)(1)  Administrative Services Agreement effective May 29, 1998 between Transamerica Life Insurance and Annuity Company and
               Legacy Marketing Group, as amended.(3)
     10(l)(2)  Amendment to the Administrative Services Agreement with Transamerica Life Insurance and Annuity Company.(4)
     10(l)(3)  Amendment Two to the Administrative Services Agreement with Transamerica Life Insurance and Annuity Company.(4)
     10(l)(4)  Amendment Three to Administrative Services Agreement with Transamerica Life Insurance and Annuity Company. (12)
     10(l)(5)  Amendment Four to Administrative Services Agreement with Transamerica Life Insurance and Annuity Company.(14)
     10(m)(1)  Agreement of Purchase and Sale, dated March 8, 2001, by and between Regan Holding Corp. and G & W/Lakeville
               Corporate Center, LLC. (13)
     10(m)(2)  Loan Agreement, dated June 19, 2001, by and between Regan Holding Corp. and Wells Fargo Bank, N.A.(13)
     10(m)(3)  Promissory Note Secured by Deed of Trust, dated June 19, 2001, by and between Regan Holding Corp. and Wells Fargo
               Bank, N.A.(13)
     10(n)     Producer Stock Award and Stock Option Plan, as amended.(8)
     10(o)     1998 Stock Option Plan, as amended.(8)
     21        Subsidiaries of the Registrant
<FN>
---------------
(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 Form 8-K, dated June 1, 1998.
(4)  Incorporated herein by reference to the Company's annual report on Form 10-K for the year ended December 31, 1999.
(5)  Incorporated herein by reference to the Company's quarterly Form 10-Q for the three months ended March 31, 2000.
(6)  Incorporated herein by reference to the Company's quarterly Form 10-Q for the three months and six months ended June 30, 2000.
(7)  Incorporated herein by reference to the Company's quarterly Form 10-Q for the three months and nine months ended September 30,
     2000.
(8)  Incorporated herein by reference to the Company's Definitive Proxy Statement dated July 31, 2001.
(9)  Incorporated herein by reference to the Company's Form S-1/A Post Effective Amendment No. 1, dated February 2, 2001.
(10) Incorporated herein by reference to the Company's annual report on Form 10-K for the year ended December 31, 2000.
(11) Incorporated herein by reference to the Company's quarterly report on Form 10-Q for the three months ended March 31, 2001.
(12) Incorporated herein by reference to the Company's quarterly report on Form 10-Q for the six months ended June 30, 2001.
(13) Incorporated herein by reference to the Company's Form 8-K, dated June 21, 2001.
(14) Incorporated herein by reference to the Company's quarterly report on Form 10-Q for the nine months ended September 30, 2001.
(15) Incorporated herein by reference to the Company's Form S-2/A, Amendment No. 2, dated February 11, 2002.

</FN>

</TABLE>

      (b) Reports on Form 8-K filed during the quarter ended December 31, 2001.

           None.

                                       37
<PAGE>

                                   SIGNATURES

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

           REGAN HOLDING CORP.


           By: /s/ R. Preston Pitts                        Date:  March 18, 2002
           ----------------------------------
           R. Preston Pitts
           President and Chief Operating Officer


           By: /s/ G. Steven Taylor                        Date:  March 18, 2002
           ----------------------------------
           G. Steven Taylor
           Chief Financial Officer

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


           By: /s/ Lynda L. Regan                          Date:  March 18, 2002
           ----------------------------------
           Lynda L. Regan
           Chairman

           By: /s/ R. Preston Pitts                        Date:  March 18, 2002
           ----------------------------------
           R. Preston Pitts
           President and Chief Operating Officer

           By: /s/ Donald Ratajczak                        Date:  March 18, 2002
           ----------------------------------
           Donald Ratajczak
           Director

           By: /s/ Ute Scott-Smith                         Date:  March 18, 2002
           ----------------------------------
           Ute Scott-Smith
           Director

           By: /s/ J. Daniel Speight, Jr.                  Date:  March 18, 2002
           ----------------------------------
           J. Daniel Speight, Jr.
           Director


                                       38