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| IOWA                                     | 42-1239454                           |
|------------------------------------------|--------------------------------------|
| (State of incorporation)                 | (I.R.S. Employer Identification No.) |
|                                     |                                 |
| 7010 Hwy 71 W., Ste 100                  |                                 |
| Austin, Texas                            | 78735                                |
| (Address of principal executive offices) | (Zip Code)                           |
|                                     |                                 |
|                                     |                                 |

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Table of Contents

Table of Contents

|                         |                                                                                  | Page   |
|------------------------------|---------------------------------------------------------------------------------------|--------|
| PART I Financial Information |                                                                                  |
|                         |                                                                                  |   |
| Item 1.                      | Financial Statements                                                                  | 3      |
| Item 2.                      | Management's Discussion and Analysis of Financial Condition and Results of Operations | 14     |
| Item 3.                      | Quantitative and Qualitative Disclosures About Market Risk                            | 16     |
| Item 4.                      | Internal Control and Procedures                                                       | 16     |
| Item 4T.                     | Controls and Procedures                                                               | 16     |
|                         |                                                                                  |   |
| PART II Other Information    |                                                                                  |
|                         |                                                                                  |   |
| Item 1.                      | Legal Proceedings                                                                     | 17     |
| Item 1A.                     | Risk Factors                                                                          | 17     |
| Item 2.                      | Unregistered Sales of Equity Securities and Use of Proceeds                           | 17     |
| Item 3.                      | Defaults Upon Senior Securities                                                       | 18     |
| Item 4.                      | (Removed and Reserved)                                                                | 18     |
| Item 5.                      | Other Information                                                                     | 18     |
| Item 6.                      | Exhibits                                                                              | 19     |
| Signatures                   |   20                                                                             |

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Table of Contents

Item 1. Financial Statements

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Table of Contents

|                                                                                                                    |   | June 30,         |       |   | December 31,   |   |
|-------------------------------------------------------------------------------------------------------------------------|--------|------------------|------------|--------|----------------|--------|
| ASSETS                                                                                                        |   | 2010 (Unaudited) |       |   | 2009 (Audited) |   |
| Cash and cash equivalents                                                                                               |   | $                | 9,655,382  |   |           | $      | 8,090,103 |   |
| Investment in fixed maturities, at fair value Available for Sale (amortized cost $42,000)                               |   |             | 158,000    |   |           |   |  146,720 |   |
| Investment in fixed maturities, at amortized cost, Held to Maturity (fair value $16,896,556; $18,423,612, respectively) |   |             | 16,402,594 |   |           |   | 18,358,628 |   |
| Other long-term investments (fair value $677,256, $769,663)                                                             |   |             | 1,156,829  |   |           |   | 1,180,041 |   |
| Investment in equity securities (cost $611,559, $711,915)                                                               |   |             | 485,280    |   |           |   | 674,671 |   |
| Total Investments, Including Cash and Cash Equivalents                                                                  |   |             | 27,858,085 |   |           |   | 28,450,163 |   |
|                                                                                                                    |   |             |       |   |           |   |   |   |
| Accrued investment income                                                                                               |   |             | 114,869    |   |           |   | 128,469 |   |
| Furniture and equipment, net                                                                                            |   |             | 835,739    |   |           |   | 835,367 |   |
| Deferred policy acquisition costs                                                                                       |   |             | 247,982    |   |           |   | 253,254 |   |
| Policy loans                                                                                                            |   |             | 151,627    |   |           |   | 162,395 |   |
| Receivable from reinsurer                                                                                               |   |             | 47,475     |   |           |   | 47,475 |   |
| Premiums due and unpaid                                                                                                 |   |             | 1,000,318  |   |           |   | 967,508 |   |
| Income tax assets                                                                                                       |   |             | 96,000     |   |           |   | 106,000 |   |
| Intangible assets                                                                                                       |   |             | 122,500    |   |           |   | 125,408 |   |
| Other assets                                                                                                            |   |             | 166,075    |   |           |   | 292,002 |   |
| Total Assets                                                                                                            |   | $                | 30,640,670 |   |           | $      | 31,368,041 |   |
|                                                                                                                    |   |             |       |   |           |   |   |   |
| LIABILITIES AND SHAREHOLDERS' EQUITY                                                                                    |   |             |       |   |           |   |   |   |
|                                                                                                                    |   |             |       |   |           |   |   |   |
| Liabilities:                                                                                                            |   |             |       |   |           |   |   |   |
| Liabilities for future policy benefits                                                                                  |   | $                | 2,051,666  |   |           | $      | 2,143,273 |   |
| Policy claims payable                                                                                                   |   |             | 1,496,935  |   |           |   | 1,348,590 |   |
| Annuity deposits                                                                                                        |   |             | 2,440,251  |   |           |   | 2,505,778 |   |
| Deferred annuity profits                                                                                                |   |             | 192,800    |   |           |   | 201,492 |   |
| Premium deposit funds                                                                                                   |   |             | 20,818     |   |           |   | 20,547 |   |
| Supplementary contracts without life contingencies                                                                      |   |             | 33,475     |   |           |   | 36,791 |   |
| Advanced and unallocated premium                                                                                        |   |             | 1,194,941  |   |           |   | 968,159 |   |
| Commissions payable                                                                                                     |   |             | 625,935    |   |           |   | 615,455 |   |
| Accrued taxes and expenses                                                                                              |   |             | 230,337    |   |           |   | 406,932 |   |
| Bonds payable                                                                                                           |   |             | 1,300,708  |   |           |   | 1,323,388 |   |
| Other liabilities                                                                                                       |   |             | 1,028,978  |   |           |   | 1,066,525 |   |
| Total Liabilities                                                                                                       |   |             | 10,616,844 |   |           |   | 10,636,930 |   |
|                                                                                                                    |   |             |       |   |           |   |   |   |
| Shareholders' Equity:                                                                                                   |   |             |       |   |           |   |   |   |
| Common stock, $.02 stated value, 45,000,000 shares authorized, 15,463,965  shares issued and outstanding      |   |             | 309,279    |   |           |   | 309,279 |   |
| Additional paid-in capital                                                                                              |   |             | 5,709,216  |   |           |   | 5,725,590 |   |
| Accumulated other comprehensive income (loss)                                                                           |   |             | (55,325    | )      |           |   | 36,042 |   |
| Accumulated surplus                                                                                                     |   |             | 14,526,450 |   |           |   | 15,092,975 |   |
| Treasury stock at cost, 368,222; 343,194 shares, respectively                                                           |   |             | (465,794   | )      |           |   | (432,775 | ) |
| Total Shareholders' Equity                                                                                              |   |             | 20,023,826 |   |           |   | 20,731,111 |   |
| Total Liabilities and Shareholders' Equity                                                                              |   | $                | 30,640,670 |   |           | $      | 31,368,041 |   |

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Table of Contents

|                                                                                                      |   | Three Months EndedJune 30 |       |   | Six Months EndedJune 30 |   |
|-----------------------------------------------------------------------------------------------------------|--------|---------------------------|------------|--------|-------------------------|--------|
|                                                                                                      |   | 2010(Unaudited)           |       |   | 2009(Unaudited)         |   |   | 2010(Unaudited) |   |   | 2009(Unaudited) |   |
| Income:                                                                                                   |   |                      |       |   |                    |   |   |   |   |   |   |   |
|    Premium income                                                                               |   | $                         | 10,012,029 |   |                    | $      | 10,395,720 |   |   | $ | 20,145,999 |   |   | $ | 20,940,846 |   |
|    Vision insurance income                                                                      |   |                      | 598,126    |   |                    |   | 587,522 |   |   |   | 1,181,009 |   |   |   | 1,189,040 |   |
|    Net investment income                                                                        |   |                      | 244,969    |   |                    |   | 310,613 |   |   |   | 503,222 |   |   |   | 607,345 |   |
|    Realized gains on debt retirement                                                            |   |                      | 4,860      |   |                    |   | 4,017 |   |   |   | 4,536 |   |   |   | 15,985 |   |
|    Realized gains (loss)                                                                        |   |                      | (16,552    | )      |                    |   | 2,497 |   |   |   | (16,552 | ) |   |   | 2,694 |   |
|                                                                                                      |   |                      |       |   |                    |   |   |   |   |   |   |   |   |   |   |   |
| Total Income                                                                                              |   |                      | 10,843,432 |   |                    |   | 11,300,369 |   |   |   | 21,818,214 |   |   |   | 22,755,910 |   |
|                                                                                                      |   |                      |       |   |                    |   |   |   |   |   |   |   |   |   |   |   |
| Expenses:                                                                                                 |   |                      |       |   |                    |   |   |   |   |   |   |   |   |   |   |   |
|    Liability for future policy benefits expense                                                 |   |                      | (33,311    | )      |                    |   | 83,432 |   |   |   | (91,607 | ) |   |   | 40,168 |   |
|    Policy benefits and other insurance costs                                                    |   |                      | 7,974,422  |   |                    |   | 8,073,895 |   |   |   | 15,735,019 |   |   |   | 16,127,308 |   |
|   Amortization of deferred policy acquisition  costs                                       |   |                      | 5,079      |   |                    |   | 9,116 |   |   |   | 5,273 |   |   |   | 5,134 |   |
|   Operating expenses                                                                                 |   |                      | 2,190,414  |   |                    |   | 2,241,346 |   |   |   | 4,239,923 |   |   |   | 4,339,500 |   |
|   Taxes, other than income, fees and assessments                                                     |   |                      | 390,241    |   |                    |   | 399,284 |   |   |   | 793,874 |   |   |   | 821,371 |   |
|                                                                                                      |   |                      |       |   |                    |   |   |   |   |   |   |   |   |   |   |   |
| Total Expenses                                                                                            |   |                      | 10,526,845 |   |                    |   | 10,807,073 |   |   |   | 20,682,482 |   |   |   | 21,333,481 |   |
|                                                                                                      |   |                      |       |   |                    |   |   |   |   |   |   |   |   |   |   |   |
| Income from Operations before      Income Taxes                             |   |                      | 316,587    |   |                    |   | 493,296 |   |   |   | 1,135,732 |   |   |   | 1,422,429 |   |
|                                                                                                      |   |                      |       |   |                    |   |   |   |   |   |   |   |   |   |   |   |
|    Provision for income taxes                                                                   |   |                      | 58,000     |   |                    |   | 81,566 |   |   |   | 189,000 |   |   |   | 245,005 |   |
|                                                                                                      |   |                      |       |   |                    |   |   |   |   |   |   |   |   |   |   |   |
|        Net Income                                                      |   | $                         | 258,587    |   |                    | $      | 411,730 |   |   | $ | 946,732 |   |   | $ | 1,177,424 |   |
|                                                                                                      |   |                      |       |   |                    |   |   |   |   |   |   |   |   |   |   |   |
|    Net income per common share (basic and       diluted)     |   | $                         | 0.02       |   |                    | $      | 0.03 |   |   | $ | 0.06 |   |   | $ | 0.08 |   |
|                                                                                                      |   |                      |       |   |                    |   |   |   |   |   |   |   |   |   |   |   |
|    Weighted average number of fully paid       common shares |   |                      | 15,113,923 |   |                    |   | 15,120,897 |   |   |   | 15,116,858 |   |   |   | 15,161,277 |   |
|                                                                                                      |   |                      |       |   |                    |   |   |   |   |   |   |   |   |   |   |   |
| Other comprehensive income (loss), net of tax:                                                            |   |                      |       |   |                    |   |   |   |   |   |   |   |   |   |   |   |
|    Unrealized gains (losses) on securities:                                                     |   |                      |       |   |                    |   |   |   |   |   |   |   |   |   |   |   |
| Unrealized holding gain (loss) arising     during period (net of tax)            |   | $                         | (124,160   | )      |                    | $      | 57,265 |   |   | $ | (104,930 | ) |   | $  | 75,160 |   |
| Reclassification adjustment for loss     included in net income                  |   |                      | 13,563     |   |                    |   | (2,073 | ) |   |   | 13,563 |   |   |   | (2,235 | ) |
|                                                                                                      |   |                      |       |   |                    |   |   |   |   |   |   |   |   |   |   |   |
| Other Comprehensive Income (loss)                                                                         |   |                      | (110,597   | )      |                    |   | 55,192 |   |   |   | (91,367 | ) |   |   | 72,925 |   |
|                                                                                                      |   |                      |       |   |                    |   |   |   |   |   |   |   |   |   |   |   |
| Comprehensive Income                                                                                      |   | $                         | 147,990    |   |                    | $      | 466,922 |   |   | $ | 855,365 |   |   | $ | 1,250,348 |   |

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|                                                                                              |   | Six Months EndedJune 30, |       |
|---------------------------------------------------------------------------------------------------|--------|--------------------------|------------|
| Cash flows from operating activities:                                                             |   | 2010(Unaudited)          |       |   | 2009(Unaudited) |   |
| Net income                                                                                        |   | $                        | 946,732    |   |   | $ | 1,177,424 |   |
| Adjustments to reconcile net income to net cash provided by operating activities:                 |   |                     |       |   |   |   |   |   |
| Realized (gain) loss on investments                                                               |   |                     | 16,342     |   |   |   | (2,694 | ) |
| Realized gain on debt retirement                                                                  |   |                     | (4,536     | ) |   |   | (15,985 | ) |
| Decrease in deferred tax asset                                                                    |   |                     | (4,000     | ) |   |   | (29,000 | ) |
| Depreciation                                                                                      |   |                     | 141,833    |   |   |   | 147,038 |   |
| Amortization of deferred acquisition costs, and intangibles                                       |   |                     | 8,180      |   |   |   | 8,041 |   |
| Accretion of bond discount                                                                        |   |                     | 12,446     |   |   |   | 1,522 |   |
| Change in assets and liabilities:                                                                 |   |                     |       |   |   |   |   |   |
| Decrease in accrued investment income                                                             |   |                     | 13,599     |   |   |   | 7,854 |   |
| (Increase) decrease in premiums due and unpaid                                                    |   |                     | (32,811    | ) |   |   | 64,317 |   |
| Increase (decrease) in liability for future policy benefits                                       |   |                     | (91,607    |   |   |   | 40,168 |   |
| Increase (decrease) in policy claims payable                                                      |   |                     | 148,345    |   |   |   | (73,772 | ) |
| Increase (decrease) in annuity deposits and deferred profits                                      |   |                     | (74,219    | ) |   |   | 114,630 |   |
| Increase (decrease) in premium deposit funds                                                      |   |                     | 271        |   |   |   | (653 | ) |
| Increase in advanced and unallocated premium                                                      |   |                     | 226,782    |   |   |   | 325,067 |   |
| Increase in commissions payable                                                                   |   |                     | 10,479     |   |   |   | (6,263 | ) |
| Other, decrease                                                                                   |   |                     | (86,069    | ) |   |   | (178,242 | ) |
| Net Cash Provided By Operating Activities                                                         |   |                     | 1,231,767  |   |   |   | 1,579,452 |   |
|                                                                                              |   |                     |       |   |   |   |   |   |
| Cash flows from investing activities:                                                             |   |                     |       |   |   |   |   |   |
| Proceeds from maturity or redemption - Held to Maturity Investments      |   |                     | 4,288,011  |   |   |   | 6,979,475 |   |
| Proceeds from sale of equity securities                                                           |   |                     | 63,014     |   |   |   | - |   |
| Proceeds from sale of furniture and equipment                                                     |   |                     | (210       | ) |   |   | - |   |
| Purchase of furniture and equipment                                                               |   |                     | (142,236   | ) |   |   | (32,571 | ) |
| Purchase of fixed maturity securities - Held to Maturity Investments                              |   |                     | (2,337,192 | ) |   |   | (5,512,934 | ) |
| Other investments – Line of credit payments received                                        |   |                     | 23,212     |   |   |   | (2,033 | ) |
| Net Cash Provided By In Investing Activities                                                      |   |                     | 1,894,599  |   |   |   | 1,456,003 |   |
|                                                                                              |   |                     |       |   |   |   |   |   |
| Cash flows from financing activities:                                                             |   |                     |       |   |   |   |   |   |
| Net payments on supplementary contracts                                                           |   |                     | (3,316     | ) |   |   | (1,533 | ) |
| Purchase of treasury stock                                                                        |   |                     | (64,894    | ) |   |   | (109,679 | ) |
| Dividends to shareholders                                                                         |   |                     | (1,513,257 | ) |   |   | - |   |
| Bonds payable purchased                                                                           |   |                     | (27,871    | ) |   |   | (16,422 | ) |
| Exercised stock options                                                                           |   |                     | 48,251     |   |   |   | - |   |
| Net Cash Used In Financing Activities                                                             |   |                     | (1,561,087 | ) |   |   | (127,634 | ) |
| Net Increase in Cash and Cash Equivalents                                                         |   |                     | 1,565,279  |   |   |   | 2,907,821 |   |
| Cash And Cash Equivalents, Beginning Of Period                                                    |   |                     | 8,090,103  |   |   |   | 4,989,381 |   |
| Cash And Cash Equivalents, End Of Period                                                          |   | $                        | 9,655,382  |   |   | $ | 7,897,202 |   |

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|  June 30, 2010                                                                                |   |  Amortized Cost |       |   | Gross Unrealized Gains |   |          | Gross Unrealized Losses |   |   | Estimated Market Value |   |
|----------------------------------------------------------------------------------------------------|--------|----------------------|------------|--------|------------------------|--------|---------------|-------------------------|--------|--------|------------------------|--------|
| US Treasury securities and obligations of   US government corporations and agencies |   | $                    | 4,700,156  |   |                   | $      | 76,378        |                    |   | $      | -                      |   |   | $ | 4,776,534 |   |
| Canadian government                                                                                |   |                 | 478,623    |   |                   |   | -             |                    |   |   | 3,226                  |   |   |   | 475,397 |   |
| Corporate securities                                                                               |   |                 | 3,743,824  |   |                   |   | 184,845       |                    |   |   | 119,169                |   |   |   | 3,809,500 |   |
| Mortgage-backed securities   GNMA and FNMA CMO                                      |   |                 | 7,479,991  |   |                   |   |  369,497 |                    |   |   | 14,363                 |   |   |   | 7,835,125 |   |
|                                                                                               |   |                 |       |   |                   |   |          |                    |   |   |                   |   |   |   |   |   |
| Totals                                                                                             |   | $                    | 16,402,594 |   |                   | $      | 630,720       |                    |   | $      | 136,758                |   |   | $ | 16,896,556 |   |

| June 30, 2010        |   |   |   |   |   |   |    |   |   |   |   |   |   |   |    |   |
|----------------------|--------|--------|--------|--------|--------|--------|---------|--------|--------|--------|--------|--------|--------|--------|---------|--------|
| Corporate securities |   | $      | 42,000 |   |   | $      | 116,000 |   |   | $      | -      |   |   | $      | 158,000 |   |
|                 |   |   |   |   |   |   |    |   |   |   |   |   |   |   |    |   |
| Totals               |   | $      | 42,000 |   |   | $      | 116,000 |   |   | $      | -      |   |   | $      | 158,000 |   |

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|                                   |   | Held to Maturity |       |   | Available for Sale          |   |
|----------------------------------------|--------|------------------|------------|--------|-----------------------------|--------|
|                                   |   | June 30, 2010    |       |   | June 30, 2010               |   |
|                                   |   | Amortized Cost   |       |   | Estimated Market Value |   |   | Amortized Cost |   |   | Estimated Market Value |   |
|                                   |   |             |       |   |                        |   |   |   |   |   |   |   |
| Due in one year or less                |   | $                | 1,293,324  |   |                        | $      | 1,298,402 |   |   | $ | - |   |   | $ | - |   |
| Due after one year through five years  |   |             | 4,611,086  |   |                        |   | 4,689,152 |   |   |   | - |   |   |   | - |   |
| Due after five years through ten years |   |             | 1,218,194  |   |                        |   | 1,260,060 |   |   |   | - |   |   |   | - |   |
| Due after ten years                    |   |             | 1,800,000  |   |                        |   | 1,813,818 |   |   |   | 42,000 |   |   |   | 158,000 |   |
|                                   |   |             | 8,922,604  |   |                        |   | 9,061,432 |   |   |   | 42,000 |   |   |   | 158,000 |   |
|                                   |   |             |       |   |                        |   |   |   |   |   |   |   |   |   |   |   |
| Mortgage-backed securities             |   |             | 7,479,990  |   |                        |   | 7,835,124 |   |   |   | - |   |   |   | - |   |
|                                   |   |             |       |   |                        |   |   |   |   |   |   |   |   |   |   |   |
|                                   |   | $                | 16,402,594 |   |                        | $      | 16,896,556 |   |   | $ | 42,000 |   |   | $ | 158,000 |   |

|                                                         |   | 2010   |    |
|--------------------------------------------------------------|--------|--------|---------|
|                                                         |   | Cost   |    |   | MarketValue |   |
|                                                         |   |   |    |   |   |   |
| Banks, trusts and    Insurance companies |   | $      | 81,183  |   |   | $ | 12,680 |   |
| Industrial and other                                         |   |   | 530,376 |   |   |   | 472,600 |   |
|                                                         |   |   |    |   |   |   |   |   |
|                                                         |   | $      | 611,559 |   |   | $ | 485,280 |   |

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|                                        |   | 2010   |    |
|---------------------------------------------|--------|--------|---------|
| Beginning Balance                           |   | $      | 204,582 |   |
| Additions charged to operations             |   |   | -       |   |
| Direct write downs                          |   |   | -       |   |
| Recoveries previously charged to operations |   |   | -       |   |
|                                        |   |   |    |   |
| Ending Balance                              |   | $      | 204,582 |   |

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|                                                                                       |   | Less than 12 Months |      |   | 12 Months or Greater |   |   | Total      |   |
|--------------------------------------------------------------------------------------------|--------|---------------------|-----------|--------|----------------------|--------|--------|------------|--------|
| Description of Securities                                                                  |   | Fair Value          |      |   | Unrealized Losses    |   |   | Fair Value |   |   | UnrealizedLosses |   |   | Fair Value |   |   | UnrealizedLosses |   |
|                                                                                       |   |                |      |   |                 |   |   |       |   |   |   |   |   |   |   |   |   |   |
| Investment in Fixed Maturities,  Held to Maturity:                               |   |                |      |   |                 |   |   |       |   |   |   |   |   |   |   |   |   |   |
| Canadian Government                                                                        |   | $                   | 475,397   |   |                 | $      | 3,226  |       |   | $ | - |   |   | $ | - |   |   | $ | 475,397 |   |   | $ | 3,226 |   |
| Corporate securities                                                                       |   |                | 449,952   |   |                 |   | 3,835  |       |   |   | 400,000 |   |   |   | 107,588 |   |   |   | 849,952 |   |   |   | 111,423 |   |
| Mortgage-backed securities  GNMA and FNMA CMO                                    |   |                | 660,359   |   |                 |   | 15,364 |       |   |   | - |   |   |   | - |   |   |   | 660,359 |   |   |   | 15,364 |   |
|               Totals |   | $                   | 1,585,708 |   |                 | $      | 22,425 |       |   | $ | 400,000 |   |   | $ | 107,588 |   |   | $ | 1,985,708 |   |   | $ | 130,013 |   |
|                                                                                       |   |                |      |   |                 |   |   |       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Other Long-Term Investments                                                                |   | $                   | -         |   |                 | $      | -      |       |   | $ | 673,252 |   |   | $ | 479,572 |   |   | $ | 673,252 |   |   | $ | 479,572 |   |
|               Totals |   | $                   | -         |   |                 | $      | -      |       |   | $ | 673,252 |   |   | $ | 479,572 |   |   | $ | 673,252 |   |   | $ | 479,572 |   |
|                                                                                       |   |                |      |   |                 |   |   |       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Equity Securities                                                                          |   | $                   | 101,325   |   |                 | $      | 1,795  |       |   | $ | 284,073 |   |   | $ | 204,536 |   |   | $ | 385,398 |   |   | $ | 206,331 |   |
|               Totals |   | $                   | 101,325   |   |                 | $      | 1,795  |       |   | $ | 284,073 |   |   | $ | 204,536 |   |   | $ | 385,398 |   |   | $ | 206,331 |   |

| Corporate Bonds June 30, 2010 |   | S&PRating |                       |   | Amortized Book Value |    |    | Gross Unrealized Losses |   |   | Estimated Market Value |   |
|------------------------------------|--------|---------------|----------------------------|--------|----------------------|---------|---------|-------------------------|--------|--------|------------------------|--------|
| American General Finance           |   |          | B      |   |                 | $       | 200,000 |                    |   | $      | 43,086                 |   |   | $ | 156,914 |   |
| MBIA                               |   | BB+           |                       |   |                 | 200,000 |    |                    |   | 72,248 |                   |   |   | 127,752 |   |
|                               |   |          |                       |   |                 |    |    |                    |   |   |                   |   |   |   |   |   |
| Totals                             |   |          |                       |   |                 | $       | 400,000 |                    |   | $      | 115,334                |   |   | $ | 284,666 |   |

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| Equity Securities June 30, 2010 |   | Cost   |    |   | Gross Unrealized Gains (Losses) |   |     | Estimated Market Value |   |
|--------------------------------------|--------|--------|---------|--------|---------------------------------|--------|----------|------------------------|--------|
| Garmin LTD                           |   | $      | 220,322 |   |                            | $      | (118,192 | )                      |   | $ | 102,130 |   |
| Treaty Oak Bank                      |   |   | 50,813  |   |                            |   | (44,713  | )                      |   |   | 6,100 |   |
| Regions Financial Corporation        |   |   | 30,370  |   |                            |   | (23,790  | )                      |   |   | 6,580 |   |
| International Assets                 |   |   | 27,282  |   |                            |   | (17,842  | )                      |   |   | 9,440 |   |
| Kimberly Clark                       |   |   | 62,125  |   |                            |   | (1,495   | )                      |   |   | 60,630 |   |
| Intel                                |   |   | 39,200  |   |                            |   | (300     | )                      |   |   | 38,900 |   |
|                                 |   |   |    |   |                            |   |     |                   |   |   |   |   |
| Totals                               |   | $      | 430,112 |   |                            | $      | (206,332 | )                      |   | $ | 223,780 |   |

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|   Description                                                                                                                                                                              |   | Quoted Prices in Active Markets for Identical Assets(Level 1) |       |   |   Significant Other Observable Inputs(Level 2) |    |      | Significant Unobservable Inputs(Level 3) |   |    |    Total |   |
|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|---------------------------------------------------------------|------------|--------|-----------------------------------------------------|---------|-----------|------------------------------------------|--------|---------|-------------------------|--------|
|                                                                                                                                                                                                      |   |                                                          |       |   |                                                |    |      |                                     |   |    |                    |   |
| Trading Securities                                                                                                                                                                                        |   |                                                          |       |   |                                                |    |      |                                     |   |    |                    |   |
|    Equity Securities – Banks                                                                                                                                                         |   | $                                                             | 12,680     |   |                                                | $       | -         |                                     |   | $       | -                       |   |   | $ | 12,680 |   |
|    Equity Securities - Industrial        and Other                                                                                                 |   |                                                          | 472,600    |   |                                                |    | -         |                                     |   |    | -                       |   |   |   | 472,600 |   |
|            Total Trading Securities                                                                                                                |   | $                                                             | 485,280    |   |                                                | $       | -         |                                     |   | $       | -                       |   |   | $ | 485,280 |   |
|                                                                                                                                                                                                      |   |                                                          |       |   |                                                |    |      |                                     |   |    |                    |   |   |   |   |   |
| Fixed Maturity, Available for     Sale – Corporate                                                                                                                         |   | $                                                             | -          |   |                                                | $       | 158,000   |                                     |   | $       | -                       |   |   | $ | 158,000 |   |
|             Total Fixed Maturity,               Available for Sale |   | $                                                             | -          |   |                                                | $       | 158,000   |                                     |   | $       | -                       |   |   | $ | 158,000 |   |
|                                                                                                                                                                                                      |   |                                                          |       |   |                                                |    |      |                                     |   |    |                    |   |   |   |   |   |
| Fixed Maturities , Held to     Maturity                                                                                                                                          |   |                                                          |       |   |                                                |    |      |                                     |   |    |                    |   |   |   |   |   |
| US Treasury Securities and    Obligations of  US Government    Corporations and Agencies                                                                |   | $                                                             | 4,776,534  |   |                                                | $       | -         |                                     |   | $       | -                       |   |   | $ | 4,776,534 |   |
| Canadian Government Securities                                                                                                                                                                            |   |                                                          | 475,397    |   |                                                |    | -         |                                     |   |    | -                       |   |   |   | 475,397 |   |
| Corporate Securities                                                                                                                                                                                      |   |                                                          | 3,456,835  |   |                                                |    | 224,913   |                                     |   |    | 127,752                 |   |   |   | 3,809,500 |   |
| Mortgage-Backed Securities   GNMA and FNMA CMO                                                                                                                                             |   |                                                          | 7,835,125  |   |                                                |    | -         |                                     |   |    | -                       |   |   |   | 7,835,125 |   |
|           Total Fixed Maturities,             Held to Maturity                         |   | $                                                             | 16,543,891 |   |                                                | $       | 224,913   |                                     |   | $       | 127,752                 |   |   | $ | 16,896,556 |   |
|                                                                                                                                                                                                      |   |                                                          |       |   |                                                |    |      |                                     |   |    |                    |   |   |   |   |   |
| Other Long Term Investments                                                                                                                                                                               |   | $                                                        | -          |   |                                                | $  | -         |                                     |   | $  | 677,256                 |   |   | $  | 677,256 |   |
| Cash                                                                                                                                                                                                      |   |                                                          | 4,443,312  |   |                                                |    | -         |                                     |   |    | -                       |   |   |   | 4,443,312 |   |
| Cash Equivalents                                                                                                                                                                                          |   |                                                          | -          |   |                                                |    | 5,212,070 |                                     |   |    | -                       |   |   |   | 5,212,070 |   |
|           Total Other Investments                                                                                                                       |   | $                                                             | 4,443,312  |   |                                                | $       | 5,212,070 |                                     |   | $       | 677,256                 |   |   | $ | 10,332,638 |   |
|                                                                                                                                                                                                      |   |                                                          |       |   |                                                |    |      |                                     |   |    |                    |   |   |   |   |   |
|                  Total Assets                                                                                        |   | $                                                             | 21,472,483 |   |                                                | $       | 5,594,983 |                                     |   | $       | 805,008                 |   |   | $ | 27,872,474 |   |

|                                                                 |   | Other Long-term Investments |    |   | FixedMaturity |   |    |  Total |   |
|----------------------------------------------------------------------|--------|-----------------------------|---------|--------|---------------|--------|---------|-------------|--------|
| Fair value, beginning of period                                      |   | $                           | 769,663 |   |          | $      | 90,000  |        |   | $ | 859,663 |   |
| Other-than-temporary decline in fair value:                          |   |                        |    |   |          |   |    |        |   |   |   |   |
|      Included in net income                 |   |                        | -       |   |          |   | -       |        |   |   | - |   |
|      Included in other comprehensive income |   |                        | -       |   |          |   | -       |        |   |   | - |   |
| Purchases, sales, issuances and settlements                          |   |                        | (23,211 | )      |          |   | -       |        |   |   | (23,211 | ) |
| Investment reclassified                                              |   |                        | -       |   |          |   | -       |        |   |   | - |   |
| Temporary increase (decline) in fair value                           |   |                        | (69,196 | )      |          |   | 37,752  |        |   |   | (31,444 | ) |
|                                                                 |   |                        |    |   |          |   |    |        |   |   |   |   |
|      Total                                  |   | $                           | 677,256 | )      |          | $      | 127,752 |        |   | $ | 805,008 |   |

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|                                               |   | 2010     |       |   |
|----------------------------------------------------|--------|----------|------------|--------|
|                                               |   | Carrying |       |   | Fair |   |   |
| Assets                                             |   | Amount   |       |   | Value |   |   |
|                                               |   |     |       |   |   |   |   |
| Cash and Cash Equivalents                          |   | $        | 9,655,382  |   |   | $ | 9,655,382 |   | (a) |
| Investments-fixed maturity, available for sale     |   |     | 158,000    |   |   |   | 158,000 |   | (b) |
| Investments-fixed maturity, held to maturity       |   |     | 16,402,594 |   |   |   | 16,896,556 |   | (b) |
| Investments-equity securities                      |   |     | 485,280    |   |   |   | 485,280 |   | (b) |
| Other long term investments                        |   |     | 1,156,829  |   |   |   | 677,256 |   | (b) |
| Other financial instruments-Assets                 |   |     | 323,885    |   |   |   | 323,885 |   | (a) |
|                                               |   |     |       |   |   |   |   |   |   |
| Total financial instruments-Assets                 |   | $        | 28,181,970 |   |   | $ | 28,196,359 |   |   |
|                                               |   |     |       |   |   |   |   |   |   |
| Liabilities                                        |   |     |       |   |   |   |   |   |   |
|                                               |   |     |       |   |   |   |   |   |   |
| Premium deposit funds                              |   | $        | 20,818     |   |   | $ | 20,818 |   | (a) |
| Bonds payable                                      |   |     | 1,300,708  |   |   |   | 1,300,708 |   | (a) |
| Supplementary contracts without life contingencies |   |     | 33,475     |   |   |   | 33,475 |   | (a) |
| Annuity deposits                                   |   |     | 2,440,251  |   |   |   | 2,440,251 |   | (a) |
|                                               |   |     |       |   |   |   |   |   |   |
| Total financial instruments-Liabilities            |   | $        | 3,795,252  |   |   | $ | 3,795,252 |   |   |

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Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

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Item 3. Quantitative and Qualitative Disclosures About Market Risk

Item 4. Internal Control and Procedures

Item 4T.  Controls and Procedures

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Item 1. Legal Proceedings.

Item 1A.  Risk Factors.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.

| Period                                |   | (a)TotalNumber ofSharesPurchased |   |   | (b)AveragePricePaidPer Share |   | (c)Total number of shares purchased as part of publicly announced plans or programs | (d)Maximum number of shares that may yet be purchased under the plans or programs |
|---------------------------------------|--------|----------------------------------|--------|--------|------------------------------|--------|-------------------------------------------------------------------------------------|-----------------------------------------------------------------------------------|
| Month #1, Jan. 1 thru Jan. 31, 2010   |   |                             | 13,706 |   |                         | $      | 1.25                                                                                |                                                                              | None | None |
| Month #2, Feb. 1 thru Feb. 28, 2010   |   |                             | -      |   |                         |   | -                                                                                   |                                                                              | None | None |
| Month #3, March 1 thru March 31, 2010 |   |                             | 12,582 |   |                         | $      | 1.37                                                                                |                                                                              | None | None |
| Month #4, April 1 thru April 30, 2010 |   |                             | 1,860  |   |                         | $      | 1.37                                                                                |                                                                              | None | None |
| Month #5, May 1 thru May 31, 2010     |   |                             | -      |   |                         |   | -                                                                                   |                                                                              | None | None |
| Month #6, June 1 thru June 30, 2010   |   |                             | 22,381 |   |                         | $      | 1.25                                                                                |                                                                              | None | None |
| Totals                                |   |                             | 50,529 |   |                         |   |                                                                                |                                                                              |   |   |

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Item 3. Defaults Upon Senior Securities.

Item 4.  (Removed and Reserved)

Item 5. Other Information.

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Item 6. Exhibits and Reports on Form 10-Q.

| No.       |   | Description                                                                                                                                                                                   |   | Page or Method of Filing                                                                                                                                                                      |
|-----------|--------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|  3.1 |   | Articles of Incorporation of BNL Financial Corporation, dated January 27, 1984 and Amendment to Articles of Incorporation of BNL Financial Corporation, dated November 13, 1987.              |   | Incorporated by reference to Exhibit 3.1 of the Company's Annual Report on Form 10-K for the period ending December 31, 1993.                                                                 |
| 3.2       |   | By-laws of BNL Financial Corporation.                                                                                                                                                         |   | Incorporated by reference to Exhibit 3.2 of the Company’s Registration Statement No. 33-70318.                                                                                          |
| 4.1       |   | Instruments defining the rights of security holders, including indentures.                                                                                                                    |   | Incorporated by reference to Exhibit 4 of the Company's Registration Statement No. 2-94538 and Exhibits 3.5 and 4 of Post-Effective Amendment No. 3 thereto.                                  |
| 4.2       |   | Articles of Incorporation of BNL Financial Corporation, dated January 27, 1984 and Amendment to Articles of Incorporation on BNL Financial Corporation, dated November 13, 1987.              |   | Incorporated by reference to Exhibits 4.2 of the Company's Annual Report on Form 10-KSB for the period ending December 31, 1998.                                                              |
| 10.1      |   | Form of Agreement between Commonwealth Industries Corporation, American Investors Corporation and Wayne E. Ahart regarding rights to purchase shares of the Company.                          |   | Incorporated by reference to Exhibit I of the Company's Quarterly Report on 10-QSB for the period ended September 30, 1994.                                                                   |
| 10.2      |   | Agreement dated December 21, 1990 between Registrant and C. Donald Byrd granting Registrant right of first refusal as to future transfers of Mr. Byrd's shares of the Company's common stock. |   | Incorporated by reference to Exhibit I of the Company's Quarterly Report on 10-QSB for the period ended March 31, 1996.                                                                       |
| 10.3      |   | Convertible Debenture Agreement dated July 25, 2001 between BNL Equity Corporation and EPSI Benefits Inc.                                                                                     |   | Incorporated by reference to Exhibit 10.9 of the Company's Annual Report on 10-K for the period ended December 31, 2005.                                                                      |
| 10.4      |   | Claims Service Agreement dated June 1, 1999 between Brokers National Life Assurance Company and Employer Plan Services Inc.                                                                   |   | Incorporated by reference to Exhibit 10.5 of the Company's Annual Report on 10-K for the period ended December 31, 2005.                                                                      |
| 10.5      |   | Office lease agreement dated January 21, 2005, between Brokers National Life Assurance Company and KIMCO for premises in Austin.                                                              |   | Incorporated by reference to Exhibit 10.6 of the Company's Annual Report on 10-K for the period ended December 31, 2005.                                                                      |
| 10.6      |   | Line of Credit Agreement dated October 15, 2004 between Brokers National Life Assurance Company and Employer Plan Services Inc.                                                               |   | Incorporated by reference to Exhibit 10.7 of the Company's Annual Report on 10-K for the period ended December 31, 2005.                                                                      |
| 10.7      |   | Marketing Agreement dated July 25, 2001 between BNL Equity Corporation and Employer Plan Services Inc. and EPSI Benefits Inc.                                                                 |   | Incorporated by reference to Exhibit 10.8 of the Company's Annual Report on 10-K for the period ended December 31, 2005.                                                                      |
| 10.8      |   | Outsourcing Agreement dated May 1, 2007 between Brokers National Life Assurance Company and Virtual Item Processing Systems, Inc.                                                             |   | Incorporated by reference as filed with the Company’s Annual Report on 10-K for the period ended December 31, 2007.                                                                     |
| 10.9      |   | Amended Convertible Debenture Date July 14, 2008 between BNL Financial Corporation and EPSI Benefits Inc.                                                                                     |   | Incorporated by reference to Exhibit 1 of the Company’s periodic Report on Form 8-K dated July 14, 2008.                                                                                |
| 11        |   | Statement Re computation of per share earnings.                                                                                                                                               |   | Reference is made to the computation of per share earnings as shown page 5 herein and the explanation in Note 1 to the Notes to Consolidated Financial Statements (unaudited), page 5 herein. |
| 18        |   | Letter Re Change in accounting principles.                                                                                                                                                    |   | None.  Not applicable.                                                                                                                                                              |
| 22        |   | Published report regarding matters submitted to vote of security holders.                                                                                                                     |   | The Company’s definitive proxy statement dated May 27, 2010, as filed with the SEC on Schedule 14A on April 20, 2010, is incorporated by reference herein.                              |

| 23   |   | Consents of experts and counsel incorporated by reference into a previously filed Securities Act registration statement. |   | Not applicable.           |
|------|--------|--------------------------------------------------------------------------------------------------------------------------|--------|---------------------------|
| 31.1 |   | Certification of Chief Executive Officer Section 302                                                                |   | Filed herewith - E1       |
| 31.2 |   | Certification of Chief Financial Officer Section 302                                                                |   | Filed herewith – E3 |
| 32   |   | Certification of Chief Executive Officer and Chief Financial Officer Section 906                                    |   | Filed herewith – E5 |

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SIGNATURES

|                        |   | BNL FINANCIAL CORPORATION                                                                               |
|-----------------------------|--------|---------------------------------------------------------------------------------------------------------|
|                        |   | (Registrant)                                                                                            |
|                        |   |                                                                                                    |
|                        |   | /s/ Wayne E. Ahart                     |
| Date: August 13, 2010       |   | By: Wayne E. Ahart, Chairman of the Board                                                               |
|                        |   | (Chief Executive Officer)                                                                               |
|                        |   |                                                                                                    |
|                        |   | /s/ Barry N. Shamas               |
| Date: August 13, 2010  |   | By: Barry N. Shamas, Executive V.P.                                                                     |
|                        |   | (Chief Financial Officer)                                                                               |

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