As filed with the Securities and Exchange Commission on October 10, 2003

10-Q 1 p20139form10q.htm QUARTERLY REPORT As filed with the Securities and Exchange Commission on October 10, 2003

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

_{(Mark One)}

Quarterly report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 for the quarterly period ended March 31, 2007

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: 0-19704

REGAN HOLDING CORP.

(Exact name of registrant as specified in its charter)


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


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

707-778-8638

(Registrant’s telephone number, including area code)

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 o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer. See definition of “accelerated filer and large accelerated filer” in Rule 12b-2 of the Exchange Act. (Check one):

_{Large accelerated filer}_o

_{Accelerated filer}_o

_{Non-accelerated filer}_x

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

Yes x No o

As of May 4, 2007, there were 23,525,000 shares of Common Stock-Series A outstanding and 550,000 shares of Common Stock-Series B outstanding.

PART I. FINANCIAL INFORMATION

Item 1. Financial Statements

REGAN HOLDING CORP. AND SUBSIDIARIES

Consolidated Balance Sheet



			March 31,		December 31,
			2007		2006
			(Unaudited)
Assets
Cash and cash equivalents			$	759,000	$	2,917,000
Trading investments				8,390,000		8,274,000
Accounts receivable, net of allowance of $173,000 and $167,000
	at March 31, 2007 and December 31, 2006			1,959,000		1,578,000
Prepaid expenses and deposits				612,000		545,000
		Total current assets		11,720,000		13,314,000
Net fixed assets				11,608,000		12,028,000
Notes receivable, net				465,000		553,000
Other assets				1,475,000		1,680,000
	Total non-current assets			13,548,000		14,261,000
	Total assets		$	25,268,000	$	27,575,000

Liabilities, redeemable common stock, and shareholders' deficit
Liabilities
Accounts payable and accrued liabilities			$	4,795,000	$	5,981,000
Current portion of notes payable and other borrowings				1,208,000		534,000
	Total current liabilities			6,003,000		6,515,000
Deferred compensation payable				8,297,000		8,090,000
Deferred gain on sale of building				2,365,000		2,433,000
Other liabilities				261,000		86,000
Notes payable, less current portion				8,567,000		8,139,000
	Total non-current liabilities			19,490,000		18,748,000
	Total liabilities			25,493,000		25,263,000

Redeemable common stock, Series A and B				5,897,000		5,897,000

Shareholders' deficit
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: 20,959,000
	shares at March 31, 2007 and December 31, 2006			3,921,000		3,921,000
Paid-in capital				6,650,000		6,650,000
Accumulated deficit				(16,693,000)		(14,156,000)
	Total shareholders' deficit			(6,122,000)		(3,585,000)
Total liabilities, redeemable common stock, and shareholders' deficit			$	25,268,000	$	27,575,000

See notes to financial statements.

REGAN HOLDING CORP. AND SUBSIDIARIES

Consolidated Statement of Operations

(Unaudited)


		For the Three Months Ended
		March 31,
		2007		2006
Revenue
	Marketing allowances and commission overrides	$	3,300,000	$	2,737,000
	Trailing commissions		812,000		944,000
	Administrative fees		1,787,000		2,161,000
	Other revenue		434,000		556,000

	Total revenue		6,333,000		6,398,000

Expenses
	Selling, general and administrative		7,115,000		7,671,000
	Depreciation and amortization		797,000		768,000
	Other		628,000		583,000

	Total expenses		8,540,000		9,022,000

Operating loss			(2,207,000)		(2,624,000)

Other income			84,000		76,000
Interest expense			(141,000)		(4,000)
	Total other income (expense), net		(57,000)		72,000

Loss from continuing operations before income taxes			(2,264,000)		(2,552,000)
Provision for income taxes			3,000		3,000

Loss from continuing operations			(2,267,000)		(2,555,000)
	Loss from discontinued operations, net of tax		(270,000)		(374,000)

Net loss		$	(2,537,000)	$	(2,929,000)


Basic and diluted net loss per share:
	Loss from continuing operations	$	(0.09)	$	(0.11)
	Net loss	$	(0.11)	$	(0.12)
Weighted average shares outstanding used to
	compute basic and diluted net loss per share amounts		24,076,000		24,147,000

See notes to financial statements.

REGAN HOLDING CORP. AND SUBSIDIARIES
Consolidated Statement of Shareholders’ Deficit
(Unaudited)


		Series A Common Stock			Paid-in		Accumulated
		Shares	Amount		Capital		Deficit		Total

Balance December 31, 2006		20,959,000	$	3,921,000	$	6,650,000	$	(14,156,000)	$	(3,585,000)

	Net loss							(2,537,000)		(2,537,000)

Balance March 31, 2007 (unaudited)		20,959,000	$	3,921,000	$	6,650,000	$	(16,693,000)	$	(6,122,000)

See notes to financial statements.

REGAN HOLDING CORP. AND SUBSIDIARIES
Consolidated Statement of Cash Flows
(Unaudited)


		For the Three Months Ended
		March 31,
		2007		2006
Cash flows from operating activities:
Net loss		$	(2,537,000)	$	(2,929,000)
Adjustments to reconcile net loss to net cash used in
operating activities:
	Depreciation and amortization		805,000		803,000
	Amortization of deferred gain on sale of building		(68,000)		(69,000)
	Increase in (reduction of) allowance for doubtful accounts		6,000		(20,000)
	Losses (gains) on trading securities, net		19,000		(571,000)
	Loss on sale of prospectdigital assets		189,000		-
	Stock option compensation expense		-		5,000
	Sales (purchase) of trading securities, net		(135,000)		438,000
	Accounts receivable		(387,000)		216,000
	Prepaid expenses and deposits		(58,000)		300,000
	Accounts payable and accrued liabilities		(1,142,000)		152,000
	Deferred compensation payable		207,000		(93,000)
	Other operating assets and liabilities		6,000		(48,000)
	Net cash used in operating activities:		(3,095,000)		(1,816,000)

Cash flows from investing activities:
Purchases of fixed assets			(369,000)		(741,000)
Proceeds from the sale of prospectdigital assets			116,000		-
Repayments (issuance) of notes receivable, net			88,000		(2,000)
	Net cash used in investing activities:		(165,000)		(743,000)

Cash flows from financing activities:
Proceeds from loans payable			1,123,000		-
Payments of notes payable			(21,000)		(19,000)
Repurchases of redeemable common stock			-		(62,000)
	Net cash provided by (used in) financing activities:		1,102,000		(81,000)

Net decrease in cash and cash equivalents			(2,158,000)		(2,640,000)
Cash and cash equivalents, beginning of period			2,917,000		3,862,000
Cash and cash equivalents, end of period		$	759,000	$	1,222,000

See notes to financial statements.

REGAN HOLDING CORP. AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Unaudited)

Basis of Presentation

The accompanying 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. (the “Company”) and its wholly owned subsidiaries. All intercompany transactions have been eliminated.

The Consolidated Financial Statements are unaudited but reflect all adjustments, consisting only of normal recurring adjustments which are, in the opinion of management, necessary for a fair statement of the Company’s consolidated financial position and results of operations. The results for the three months ended March 31, 2007, are not necessarily indicative of the results to be expected for the entire year. These unaudited Consolidated Financial Statements should be read in conjunction with the audited Consolidated Financial Statements included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2006, which was filed by the Company with the Securities and Exchange Commission on April 2, 2007.

Recent Accounting Pronouncements

In February 2007, the Financial Accounting Standards Board (“FASB”) issued Statement of Financial Accounting Standards (“SFAS”) No. 159, The Fair Value Option for Financial Assets and Financial Liabilities Including an Amendment of FASB Statement No. 115, which permits entities to choose to measure many financial instruments and certain other items at fair value. SFAS No. 159 is effective for financial statements issued for fiscal years beginning after November 15, 2007. The Company is currently evaluating the effect, if any, that implementation of SFAS No. 159 will have on its results of operations and financial condition.

In September 2006, the Financial Accounting Standards Board (“FASB”) issued Statement of Financial Accounting Standards (“SFAS”) No. 157, Fair Value Measurements, which defines fair value, establishes a framework for measuring fair value under GAAP, and expands disclosures about fair value measurements. SFAS No. 157 is effective for financial statements issued for fiscal years beginning after November 15, 2007. The Company is currently evaluating the effect, if any, that implementation of SFAS No. 157 will have on its results of operations and financial condition.

Loss per Share


		For the Three Months Ended
		March 31,
		2007		2006

Loss from continuing operations		$	(2,267,000)	$	(2,555,000)
	Loss from discontinued operations		(270,000)		(374,000)
Net loss		$	(2,537,000)	$	(2,929,000)

Weighted average shares used to compute basic and
	diluted net loss per share amounts		24,076,000		24,147,000
Basic and diluted net loss per share:
	Loss from continuing operations	$	(0.09)	$	(0.11)
	Net loss	$	(0.11)	$	(0.12)

As the Company incurred net losses in the periods presented, options to purchase 4.1 million and 6.0 million shares of the Company’s common stock as of March 31, 2007 and 2006 were excluded from the computation of diluted net loss per share, as the effect would have been antidilutive.

Sale of Assets

On January 25, 2007, prospectdigital LLC ("prospectdigital"), an indirect wholly owned subsidiary of the Company, sold certain of its assets, which primarily included fixed assets and other miscellaneous operating assets, to PD Holdings LLC ("PD Holdings"). In addition, PD Holdings agreed to assume certain liabilities of prospectdigital. The action was taken in a continuing effort to reduce the Company’s operating expenses, as prospectdigital continued to sustain losses through the date of sale.

Lynda Regan, Chief Executive Officer, and R. Preston Pitts, President, Chief Operating Officer and Chief Financial Officer of the Company, are the primary owners of PD Holdings. In connection with the sale, the Company also entered into a service agreement with PD Holdings, whereby subsidiaries of the Company will provide certain administrative services to PD Holdings, for a fee equal to the cost of the services provided.

Prospectdigital received $116,000 in consideration of the sale, which was greater than the estimated fair value of the assets of prospectdigital being sold, as determined by a third-party independent valuation. The amount of consideration was approved by the Board of Directors of the Company.

Prospectdigital is being reported as a discontinued operation for the three months ended March 31, 2007 and 2006. We incurred $189,000 loss on the sale of prospectdigital’s assets.

Income Taxes

The rate of provision for income taxes for the three months ended March 31, 2007 and 2006 differs from the federal and state statutory rate primarily due to an increase in the valuation allowance against existing deferred tax assets in the amount of $1.0 million and $1.1 million.

Loan Payable

During the three months ended March 31, 2007, the Company obtained loans from its investment broker. The loans bear interest at the lender's base lending rate plus a surcharge based on the amount of the loans (9.5% at March 31, 2007), and are collateralized by the Company's investment portfolio. As of March 31, 2007, $1.1 million remained payable under this arrangement.

7 .

Subsequent Events

On April 12, 2007, Legacy Marketing Group, the primary operating subsidiary of Regan Holding Corp., amended certain terms of the credit agreement (the “Credit Agreement”) with Washington National Insurance Company dated July 20, 2006. The amendment was effected through the execution on April 12, 2007, of Amendment No. 1 to the Credit Agreement ( the Credit Agreement, as amended by Amendment No. 1, the “Amended Agreement”) and (1) extended the final maturity of the loan under the Credit Agreement from April 1, 2012, to December 31, 2012; (2) changed certain of the requirements for mandatory prepayments under the Credit Agreement; (3) changed certain terms of the financial covenants specified in the Credit Agreement ; and (4) revised certain definitions contained in the Credit Agreement. As of March 31, 2007, the balance due under the Credit Agreement was $6.0 million.

Pursuant to the terms of the Amended Agreement, beginning April 1, 2008, Legacy Marketing Group will be required to make quarterly principal payments on the Term Loan equal to a percentage of the outstanding principal balance of the Term Loan as of June 30, 2007, as follows: 3.75% of the balance for the first four payments, 5.0% of the balance for the next twelve payments and 6.25% of the balance for the final four payments. The quarterly principal payments will be reduced, in order of maturity, by any optional prepayments by Legacy Marketing Group or prepayments resulting from prepayment events specified in the Amended Agreement. Additionally, beginning September 30, 2008, Legacy Marketing Group will be required to semi-annually prepay the Term Loan on March 31 and September 30 in an amount equal to fifty percent of the Company’s excess cash flow (as defined in the Amended Agreement) for the immediately preceding six month periods ended December 31 and June 30, subject to certain conditions specified in the Amended Agreement. Interest on the unpaid principal balance of the Term Loan is currently payable on a monthly basis and accrues at the LIBOR-based rate (as defined in the Credit Agreement) plus 3.5%, which was 8.82% as of March 31, 2007. The principal balance and accrued interest on the Term Loan is payable in full by December 31, 2012.

The Term Loan is primarily secured by Regan Holding Corp.’s bank and securities accounts, equipment and investment property, and Legacy Marketing Group’s obligations are currently guaranteed by Regan Holding Corp., Legacy Advisory Services, Inc., Imagent Online LLC and certain shareholders of Regan Holding Corp. In addition, Legacy Marketing Group is required to comply with other financial and non-financial covenants specified in the Credit Agreement. In the event of default under the Credit Agreement, the entire balance of the Term Loan would become immediately payable .

Segment Information


	Total Revenue				Loss from Continuing Operations
	Three Months Ended				Three Months Ended
	March 31,				March 31,
	2007		2006		2007		2006

Legacy Marketing Group	$	5,487,000	$	5,661,000	$	(2,115,000)	$	(2,468,000)
Legacy Financial Services, Inc.		933,000		826,000		(152,000)		(87,000)
Intercompany Eliminations		(87,000)		(89,000)		-		-

Total	$	6,333,000	$	6,398,000	$	(2,267,000)	$	(2,555,000)


	Total Assets
	March 31,		December 31,
	2007		2006

Legacy Marketing Group	$	24,159,000	$	26,722,000
Legacy Financial Services, Inc.		1,572,000		1,386,000
Intercompany Eliminations		(463,000)		(533,000)
Total	$	25,268,000	$	27,575,000

Item 2.

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 those expressed or implied by such forward-looking statements. These risks, uncertainties and factors include, among other things, the following: general market conditions and the changing interest rate environment; the interruption, deterioration, or termination of our relationships with the insurance carriers who provide our products or the agents who market and sell them; the ability to develop and market new products to keep up with the evolving industry in which we operate; increased governmental regulation, especially regulations affecting insurance, reinsurance, and holding companies; the ability to attract and retain talented and productive personnel; the ability to effectively fund our working capital requirements; the risk of substantial litigation or insurance claims; and other factors referred to in Management’s Discussion and Analysis of Financial Condition and Results of Operations located in our Annual Report on Form 10-K for the year ended December 31, 2006.

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.

Recent Industry Developments

During the past few years, several federal, state and insurance self-regulatory organization proposals have been made that could affect our business. As discussed below, a few of these proposals have become effective, and others may be made or adopted.

In 2005, the Securities and Exchange Commission (“SEC”) informed certain issuers of equity-indexed annuities that it is examining whether such annuities need to be registered under the Securities Act of 1933. Also in 2005, the National Association of Securities Dealers (“NASD”) issued guidance to its members indicating that broker-dealers regulated by the NASD have certain responsibilities with respect to the offer and sale of equity-indexed annuities, including an obligation to determine the suitability of such products for their customers, regardless of whether equity-indexed annuities are deemed to be securities. Finally, some state insurance regulators are considering whether additional suitability regulations should be implemented with respect to all sales of fixed annuities, particularly with respect to senior citizens. In California, Commissioner Garamendi issued a letter in 2005, to California life insurance companies urging them to develop suitability standards for the sale of annuity products to seniors.

Our core business consists of selling fixed annuity products, on behalf of insurance carriers, through a network of independent insurance producers (“Producers”). If the initiatives undertaken by California and other states, the Securities and Exchange Commission or the NASD with respect to equity-indexed and other annuities result in new regulation or legislation, our operations and those of our Producers could be adversely affected. We are unable to predict whether, or which, of these initiatives will result in new laws or regulations, or whether other initiatives may affect our business and the demand for fixed annuity products marketed by Legacy Marketing. If such initiatives result in new regulation or laws, they could have a material adverse effect on the insurance industry in general or on our financial condition and results of operations.

In recent years, the U.S. insurance regulatory framework has come under increased scrutiny. Some state legislatures have considered laws that may alter or increase state regulation of insurance, reinsurance, and holding companies. Moreover, the National Association of Insurance Commissioners and state insurance regulators regularly re-examine existing laws and regulations, often focusing on modifications to holding company regulations, interpretations of existing laws, and the development of new laws. Changes in these laws and regulations or their interpretation could have a material adverse effect on our financial condition or results of operations. In addition, the U.S. Congress and insurance regulatory groups have recently held hearings on, and the U.S. Congress has in the past considered statutes that would impose certain national uniform standards and repeal the McCarran-Ferguson antitrust exemption for the business of insurance. The U.S. Congress could adopt laws or regulations that could have a material adverse effect on our financial condition or results of operations.

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

Recent Accounting Pronouncements

Results of Operations

We had a consolidated net loss from continuing operations of $2. 3 million in the three months ended March 31, 2007, compared to a consolidated net loss from continuing operations of $2. 6 million in the same period in 2006. Total revenue remained flat, at $6. 3 million, in the three months ended March 31, 2007, compared to the same period in 2006, primarily as an increase in marketing allowances and commissions of $431,000 was offset by a decrease in administrative fees revenue of $374,000.

The increase in marketing allowances and commission overrides during the three months ended March 31, 2007, was primarily attributable to sales of new products issued by Washington National Insurance Company (“Washington National”), an unaffiliated insurance carrier. We began marketing Washington National products in March 2006.

The decrease in administrative fees revenue was primarily due to the transition of the administration of certain IL Annuity and Insurance Company (“IL Annuity”) insurance contracts to AmerUs Annuity Group Co. (“Amerus”) upon expiration of the administrative agreement with IL Annuity, effective April 30, 2006. The expiration of the administrative agreement does not affect the commissions earned by Legacy Marketing on additional premium received or assets under management with respect to the underlying IL Annuity insurance contracts.

During the three months ended March 31, 2007 and 2006, Legacy Marketing sold and administered products primarily on behalf of three unaffiliated insurance carriers: Washington National, American National Insurance Company (“American National”), and Transamerica Life and Annuity Company (“Tranamerica”). As indicated below, the agreements with these carriers generated a significant portion of our total consolidated revenue:


	Three Months Ended
	March 31,
	2007	2006
Washington National	24%	0%
American National	18%	22%
Transamerica	15%	18%

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


	Three Months Ended
	March 31,
	2007	2006
RewardMark(SM) series (sold on behalf of Washington National)	24%	0%
BenchMark(SM) series (sold on behalf of American National)	17%	20%
SelectMark® series (sold on behalf of Transamerica)	15%	18%

Selling, general and administrative expenses decreased $556,000 (7%) during the three months ended March 31, 2007, compared to the same period in 2006, mainly due to a decrease in salaries and related benefits expense as a result of reduced headcount.

We have established a valuation allowance related primarily to our federal and state deferred tax assets, which increased $ 1.0 million and $1.1 million for the three months ended March 31, 2007 and 2006.

Liquidity and Capital Resources

Our cash provided by or used in operating activities generally follows the trend in our revenue and operating results. Our cash used in operating activities in the three months ended March 31, 2007 and 2006 of $3.1 million and $1.8 million was primarily the result of our net loss, partially offset by non-cash charges such as depreciation and amortization and losses on the sale of prospectdigital’s assets. We also paid incentive bonuses to our producers in the three months ended March 31, 2007, which is reflected in the decrease in the accounts payable and accrued liabilities of $1.1 million. Other uses of cash during the three months ended March 31, 2006, consisted of gains on trading securities, partially offset by proceeds from the sales of trading securities.

Net cash used in investing activities of $165,000 and $743,000 for the three months ended March 31, 2007 and 2006, consisted primarily of purchases of fixed assets, partially offset in 2007 by proceeds from the sale of prospectdigital’s assets and repayments of notes receivable.

Net cash provided by financing activities of $1.1 million for the three months ended March 31, 2007, primarily consisted of proceeds from loans received from our investment broker. Net cash used in financing activities during the three months ended March 31, 2006, of $81,000 reflected repurchases of our redeemable common stock and payments of notes payable.

On July 20, 2006, Legacy Marketing Group, our primary operating subsidiary, entered into a credit agreement (the “Agreement”) with Washington National Insurance Company (the “Lender”), which was subsequently amended on April 12, 2007. Pursuant to the terms of the Agreement, as amended, the Lender ma de a non-revolving multiple advance term loan (the “Term Loan”) to Legacy Marketing Group totaling $6.0 million. As of March 31, 2007, the balance due under this Agreement was $6.0 million.

Pursuant to the terms of Amendment No. 1 to the Agreement (the “Amended Agreement”), beginning April 1, 2008, Legacy Marketing Group will be required to make quarterly principal payments on the Term Loan equal to a percentage of the outstanding principal balance of the Term Loan as of June 30, 2007, as follows: 3.75% of the balance for the first four payments, 5.0% of the balance for the next twelve payments and 6.25% of the balance for the final four payments. The quarterly principal payments will be reduced, in order of maturity, by any optional prepayments by Legacy Marketing Group or prepayments resulting from prepayment events specified in the Amended Agreement. Additionally, beginning September 30, 2008, Legacy Marketing Group will be required to semi-annually prepay the Term Loan on March 31 and September 30 in an amount equal to fifty percent of the Company’s excess cash flow (as defined in the Amended Agreement) for the immediately preceding six month periods ended December 31 and June 30, subject to certain conditions specified in the Amended Agreement. Interest on the unpaid principal balance of the Term Loan is currently payable on a monthly basis and accrues at the LIBOR-based rate (as defined in the Agreement) plus 3.5%, which was 8.82% as of March 31, 2007. The principal balance and accrued interest on the Term Loan is payable in full by December 31, 2012.

The Term Loan is primarily secured by our bank and securities accounts, equipment and investment property, and Legacy Marketing Group’s obligations are currently guaranteed by Regan Holding Corp., Legacy Advisory Services, Inc., Imagent Online LLC and certain shareholders of Regan Holding Corp. In addition, Legacy Marketing Group is required to comply with other financial and non-financial covenants specified in the Agreement. In the event of default under the Agreement, the entire balance of the Term Loan would become immediately payable unless Legacy Marketing Group obtains a waiver from the Lender.

We used $3.1 million of cash in our operations and incurred consolidated net losses of $2.5 million during the three months ended March 31, 2007. If our consolidated net losses continue, a cash shortfall could ultimately occur. To address this issue, during 2006, we lowered our cost structure by reducing our employee headcount. In January 2007, we exited the prospectdigital business and disposed of its assets. This action eliminated approximately $1.2 million of annual cash use. In addition, we intend to continue lowering costs by refining our business model to focus on higher value added activities. This will include multiple initiatives to increase efficiencies. Certain activities may be eliminated completely; other activities may be restructured. We have also restructured a portion of our debt, which enabled us to defer our obligation to begin making scheduled principal payments until March 2008 and improved our liquidity by allowing us to leverage certain assets the use of which was previously restricted by the debt agreement. We are also in negotiations to sell certain assets, which sales, if successful, will result in additional cash inflows. In the event that a cash shortfall does occur, we believe that adequate financing could be obtained to meet our cash flow needs. However, there can be no assurances that such financing would be available on favorable terms.

Item 3.

Quantitative and Qualitative Disclosures About Market Risk

There have been no material changes in our market risk, interest rate risk, credit risk, or equity price risk since December 31, 2006. Please see our Annual Report on Form 10-K for the year ended December 31, 2006 for more information concerning Quantitative and Qualitative Disclosures About Market Risk.

Item 4.

Controls and Procedures

We maintain disclosure controls and procedures (as defined in Rule 13a-15(e) of the Securities Exchange Act of 1934, as amended) designed to ensure that information required to be disclosed in reports filed under the Securities Exchange Act of 1934, as amended, is recorded, processed, summarized and reported within the specified time periods. In designing and evaluating the disclosure controls and procedures, management recognizes that any controls and procedures, no matter how well designed and executed, can provide only reasonable assurance of achieving the desired control objectives. As of March 31, 2007, our Chief Executive Officer and Chief Financial Officer evaluated, with the participation of our management, the effectiveness of our disclosure controls and procedures. Based on that evaluation, our Chief Executive Officer and Chief Financial Officer have concluded that our disclosure controls and procedures were effective as of the end of the period covered by this report. Our management, including the Chief Executive Officer and the Chief Financial Officer, also evaluated our internal control over financial reporting to determine whether any changes occurred during the quarter covered by this report that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting. Based on that evaluation, there have been no such changes during the period covered by this report.

PART II - OTHER INFORMATION

Item 1.

Legal Proceedings

From time to time, we are involved in various claims and legal proceedings arising in the ordinary course of business. There have been no material changes to any legal matters from those reported in our Annual Report on Form 10-K for the year ended December 31, 2006.

Item 1A. Risk Factors

There have been no material changes to our risk factors from those reported in our Annual Report on Form 10-K for the year ended December 31, 2006.

Item 6.

Exhibits

31.1

Certification of Chief Executive Officer required by Rule 13a-14(a)/15d-14(a) under the Exchange Act.

31.2

Certification of Chief Financial Officer required by Rule 13a-14(a)/15d-14(a) under the Exchange Act.

32.1

Certification of Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

32.2

Certification of Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.


	REGAN HOLDING CORP.


Date: May 15, 2007	Signature: /s/ R. Preston Pitts
	R. Preston Pitts
	President, Chief Operating Officer and Chief Financial Officer