SECURITIES AND EXCHANGE COMMISSION

                             Washington, D.C. 20549

                                   FORM 10-KSB

        X ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
                                       --

                              EXCHANGE ACT OF 1934

           For the Fiscal Year Ended December 31, 1999 [Fee Required]
                                       or

          ____ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE

                         SECURITIES EXCHANGE ACT OF 1934

  For the transition period from _____________to_____________ [No Fee Required]

                          Commission File No. 0-16880

--------------------------------------------------------------------------------
                            BNL FINANCIAL CORPORATION

             (Exact name of registrant as specified in its charter)

                   IOWA                         42-1239454
           (State of incorporation) (IRS Employer Identification No.)

                        2100 West William Cannon, Suite L

                                Austin, TX 78745
               (Address of principal executive offices) (Zip Code)

       Registrant's telephone number, including area code: (512) 383-0220

--------------------------------------------------------------------------------

Securities  registered  pursuant to Section  12(b) of the Act:  None  Securities
registered pursuant to Section 12(g) of the Act:

                           Common Stock, No Par Value

                                (Title of Class)

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

Check if there is no disclosure of delinquent  filers in response to Item 405 of
Regulation  S-B is not  contained  in  this  form,  and no  disclosure  will  be
contained,  to the  best of  registrant's  knowledge,  in  definitive  proxy  or
information statements incorporated by reference in Part III of this Form 10-KSB
or any amendment to this Form 10-KSB. _____

BNL Financial Corporation revenues for fiscal year 1999 were $30,533,144.

The estimated  aggregate market value of the voting stock held by non-affiliates
of the  Registrant  as of December 31, 1999,  can not be  determined  due to the
limited trading in the Company's  stock  throughout the year (see also Item 5 of
Form 10-KSB regarding the limited trading market for the Company's shares).

As of December  31, 1999,  the  Registrant  had  outstanding  23,173,149  shares
(excluding  treasury  shares)  of Common  Stock,  no par value  (which  includes
10,703,790 shares owned by affiliates of the Registrant).

                       DOCUMENTS INCORPORATED BY REFERENCE

                  Location in Form 10-KSB Incorporated Document

Transitional Small Business Disclosure Format Yes ___  No _X__
                                                           -










<PAGE>


===============================================================================
                                       I-8

                                     PART 1

                                ITEM 1. BUSINESS

General

BNL  Financial  Corporation  (the  "Company"  or  "Registrant")  is an insurance
holding   company   incorporated   in  Iowa  in  January  1984.   The  Company's
administrative offices are located at 2100 West William Cannon, Suite L, Austin,
Texas 78745; its telephone number is (512) 383-0220

The Company owns (directly or indirectly)  four wholly owned  subsidiaries,  BNL
Equity Corporation ("BNLE"),  Brokers National Life Assurance Company ("BNLAC"),
BNL  Brokerage  Corporation  and  Consumers  Protective   Association  (formerly
National Dental Benefit Association,  Inc.) Consumers Protective  Association is
an inactive association that was purchased for the purpose of marketing services
to members, including insurance products.


------------------------------------------    ----------------------------------
|                                        |    |                                |
|      BNL Financial Corporation         |----|Consumer Protective Association |
|                                        |    |      (Inactive Association)    |
------------------------------------------    ----------------------------------
                  |
------------------------------------------
|                                        |
|       BNL Equity Corporation           |
|                                        |
------------------------------------------
                  |
-------------------------------------------
|                                         |
| Brokers National Life Assurance Company |
|                                         |
-------------------------------------------
|
-------------------------------------------
|                                         |
|        BNL Brokerage Corporation        |
|                                         |
-------------------------------------------

 Industry Segments

The operations of the Company are conducted  through  BNLAC,  which in 1999 sold
life and  accident  and health  insurance  policies in 26 states.  In 1987 BNLAC
began selling  insurance in Iowa, and in 1992, BNLAC expanded its sales to other
states through the acquisition of Statesman Life Insurance Company.  The Company
has no foreign operations.

BNLAC is licensed in 26 states to offer life and accident  and health  insurance
on an  individual  and group basis.  Most of BNLAC's  premium  revenues are from
sales of group dental insurance sold primarily on a payroll  deduction basis. In
February  1999,  the  Company  was  notified  that the State of  Washington  had
increased its paid-in capital stock  requirements from $1,200,000 to $2,400,000.
Since our sales in Washington  were less than 1% of total  premium,  the Company
decided to voluntarily  withdraw its  Certificate of Authority from the State of
Washington.

The Company conducts business in the industry segment "life, accident and health
insurers".  Financial information relating thereto is contained below, in Item 6
and the Exhibits attached to this Report.

Sales and Marketing

The Company markets its products through  independent agents and brokers.  BNLAC
emphasizes  the marketing of  specialized  or "niche" life and health  insurance
products  including:  accidental  death  life  insurance,  a payroll  deductible
10-year  level  term  policy,  level  term  family  insurance  policy,  hospital
indemnity  policy and dental  insurance.  These  products are all designed to be
sold on a group or payroll deduction basis.

Statistics by line of business are as follows (gross before reinsurance):
<TABLE>
<CAPTION>
                                                                            1999                1998
                                                                       -----------------    ---------------
I. Annualized Premiums and Annuity Deposits In Force:
-----------------------------------------------------
<S>                                                                    <C>                  <C>
Ordinary Life Insurance                                                        $306,000           $340,000
Individual Annuities(1)                                                         179,000            216,000
Group Dental Insurance                                                       32,233,000         24,778,000
Miscellaneous A&H insurance                                                      93,000             84,000
                                                                       -----------------    ---------------

          Total                                                             $32,811,000        $25,418,000
                                                                       =================    ===============


II. Collected Premiums and Annuity Deposits:

Ordinary Life Insurance                                                     $324,000              $368,000
Individual Annuities(1)                                                      155,000               258,000
Group Dental Insurance                                                    29,049,000            20,294,000
Miscellaneous A&H insurance                                                  109,000                61,000
                                                                    -----------------    ------------------

          Total                                                          $29,637,000           $20,981,000
                                                                    =================    ==================

III. Face Value of Insurance:

Ordinary Life Insurance                                                  $31,000,000           $35,000,000
Accidental Death Insurance                                               104,000,000           111,000,000
                                                                    -----------------    ------------------

          Total                                                         $135,000,000          $146,000,000
                                                                    =================    ==================
<FN>

(1) Classified as a deposit liability on the financial statements.
</FN>
</TABLE>
Premiums collected by state are reflected in the following table:
<TABLE>
<CAPTION>

                                                                                 Group Dental &
        State                 Life Premiums                Annuity              Accidental Death                 Total
-----------------------    --------------------      --------------------     ----------------------      --------------------
<S>                        <C>                       <C>                      <C>                         <C>
Georgia                                 10,178                         -                  2,359,516                 2,369,694

Michigan                                 4,553                         -                  2,333,865                 2,338,418

Minnesota                                7,852                         -                  2,258,200                 2,266,052

Indiana                                 10,656                         -                  2,169,276                 2,179,932

Arkansas                                26,991                         -                  2,132,431                 2,159,422

Utah                                     3,078                         -                  2,004,994                 2,008,072

Iowa                                   222,067                   154,816                  1,512,079                 1,888,962

Mississippi                              3,511                         -                  1,509,040                 1,512,551

All Other States                        34,857                         -                 12,879,215                12,914,072
                           --------------------      --------------------     ----------------------      --------------------

Total                                 $323,743                  $154,816                $29,158,616               $29,637,175
                           ====================      ====================     ======================      ====================
</TABLE>

On December 31, 1999, BNLAC had 3,418 general agents and brokers in 26 states to
market its policies compared to 2,847 agents and brokers on December 31, 1998.

On all of its products except the dental policies,  BNLAC pays as commissions to
agents a  relatively  large  portion of the first  year's  premiums  and smaller
portions  of  subsequent  premiums.  For the dental  policies,  commissions  are
normally two percent  higher in the first year and then level in all  subsequent
years.  These  practices  are  common  in the  industry.  There is  considerable
competition   for   insurance   agents   and   BNLAC   competes   with   larger,
well-established  life  insurance  companies  for the services of agents.  BNLAC
believes  it is  able  to  attract  competent  agents  by  offering  competitive
compensation,  efficient  service  to agents  and  customers  and by  developing
products to fill special needs within the marketplace.

BNLAC also collects overwrite  commissions on sales of vision insurance policies
issued by Vision Service Plan and marketed by the BNLAC's agency force.
Reinsurance

BNLAC  reinsures  with  other  insurance  companies  portions  of the  risks  it
underwrites  on sales of life and  accident  and health  insurance.  Reinsurance
enables BNLAC, as the "ceding  company," to reduce the amount of its risk on any
particular  policy and to write policies in amounts larger than it could without
such agreements.

The reinsurer receives a portion of the premium on the reinsured policies. BNLAC
remains directly liable to policyholders to perform all policy obligations,  and
bears the contingent risk of the reinsurer's insolvency.

Before submitting an application for a policy to the reinsurer, BNLAC determines
whether the applicant is insurable,  but BNLAC rejects any application  which is
not accepted by the reinsurer.

BNLAC  reinsurers its life insurance  under  agreements  which are classified as
either "automatic" or "facultative."  Under an "automatic" treaty, the reinsurer
agrees  that it will  assume  liability  automatically  for the excess  over the
ceding company's  retention  limits on any application  acceptable to the ceding
company. Under a "facultative" treaty, the reinsurer retains the right to accept
or reject any reinsurance submitted after reviewing each application.

A. Life and Accident Insurance.

BNLAC reinsures its "Family  Shield"  accidental  death life insurance  policies
with Business Mens Assurance Company (BMA), Kansas City, Mo., under an automatic
treaty where BMA assumes  liability  for all risks over  $25,000.  Business Mens
Assurance Company was rated "A" (Excellent) by AM Best Company for 1998.

All other BNLAC life insurance  products in excess of $35,000 are reinsured with
BMA under an automatic treaty up to $175,000 and under a facultative  treaty for
amounts over $175,000.

The following chart shows life insurance in force net of reinsurance for each of
the five years ended December 31.
<TABLE>
<CAPTION>

                                             Gross                                                         Net
                                            Insurance          Reinsurance          Reinsurance          Insurance
                                            In Force              Ceded               Assumed             In Force
                                         ----------------    -----------------    ----------------    -----------------
<S>                                      <C>                 <C>                  <C>                 <C>
Life Insurance
                1999                         $31,213,000          $11,371,000          $9,986,000          $29,828,000
                1998                          34,877,000           13,684,000           9,229,000           30,422,000
                1997                          36,828,000           11,971,000           8,226,000           33,083,000
                1996                          33,796,000           11,091,000           7,252,000           29,957,000
                1995                          35,310,000           11,486,000           6,631,000           30,455,000


     Accidental Death Insurance

                1999                        $ 99,000,000         $ 93,425,000                  $0           $5,575,000
                1998                         114,000,000          107,250,000                   0            6,750,000
                1997                         119,000,000          112,250,000                   0            6,750,000
                1996                         148,000,000          139,725,000                   0            8,275,000
                1995                         180,000,000          164,426,000                   0           15,574,000
</TABLE>

B. Group Dental Insurance.

Prior to January 1, 1995,  group dental  insurance  was  reinsured  with UniLife
Insurance  Company  ("UniLife")  of San  Antonio,  Texas  under  a  quota  share
reinsurance  agreement  whereby  UniLife  assumed 90% of the risk and profits on
each of these policies.  BNLAC received a fee for ceding 90% of the premiums and
UniLife performed all the administrative  functions related to these policies at
no cost to BNLAC.  The  agreement  was  modified in 1995 to reduce the amount of
risk ceded and to impose certain claim administration fees on BNLAC.

On November 1, 1995, the agreement was terminated and BNLAC began  administering
and retaining 100% on the group dental business.

The  following  chart shows group dental  insurance  premiums  collected  net of
reinsurance for each of the five years ended December 31.
<TABLE>
<CAPTION>

                                              Gross                                     Net
                                            Premiums             Premiums            Premiums              Ceding
       Group Dental Insurance               Collected             Ceded              Collected              Fees
       ----------------------           ----------------    -----------------    ---------------- --- ----------------
       <S>                              <C>                 <C>                  <C>                  <C>

                1999                         $29,049,000                   $0         $29,049,000                   $0
                1998                          20,294,000                    0          20,294,000                    0
                1997                          10,877,000                    0          10,877,000                    0
                1996                           6,926,000                    0           6,926,000                    0
                1995                           4,159,000            1,655,000           2,504,000                    0
</TABLE>

The following chart shows group dental  insurance claims paid net of reinsurance
and  incurred  loss  ratios for each of the five years  ended  December  31. The
incurred loss ratio represents the ratio of incurred claims to premiums earned.
<TABLE>
<CAPTION>
                                              Gross               Ceded                 Net               Incurred
       Group Dental Insurance              Claims Paid            Claims            Claims Paid            Loss %
       ----------------------           ----------------    -----------------    ----------------     ----------------
       <S>                              <C>                 <C>                  <C>                  <C>

                1999                         $20,694,000                   $0         $20,694,000               72.4%
                1998                          14,859,000                    0          14,859,000               78.4
                1997                           7,842,000                    0           7,842,000               75.7
                1996                           4,653,000                    0           4,653,000               73.6
                1995                           2,719,000            1,211,000           1,508,000               72.5
</TABLE>


In 1998 BNLAC began marketing a hospital indemnity policy that is reinsured on a
50% quota share basis with European  Specialty  (North America) Limited ("ESG").
Because ESG is not licensed in Arkansas,  the reinsurance agreement requires ESG
to  maintain a deposit or letters of credit in a qualified  institution  for the
benefit of BNLAC in an amount equal to BNLAC's  reserve  credit on the reinsured
portion of the business.

Investments

BNLAC invests its available funds in certificates of deposit,  US Government and
Agency  bonds,  corporate  bonds  and other  investment  grade  securities.  The
earnings from such  investments  represent a substantial part of BNLAC's income.
For each of the five years ended  December  31,  BNLAC's net  investment  income
(rounded  to the  nearest  thousand)  and ratio of net  return on mean  invested
assets were as follows:

                       Net             Net Return on
                    Investment         Mean Invested
    Year              Income              Assets
--------------    ---------------    ------------------
    1999                $755,552            6.2%
    1998                 777,937            6.6
    1997                 790,000            7.1
    1996                 757,000            6.8
    1995                 734,000            6.6

For  information   concerning  realized  and  unrealized  gains  and  losses  on
securities see Note 4 of the Notes to Consolidated  Financial  Statements,  page
E-8.

Special  Factors  Relating to Accounting and  Regulatory  Reporting of Insurance
Companies

State  insurance laws and  regulations  govern the accounting  practices and the
form of financial  reports of  insurance  companies  filed with state  insurance
regulatory  agencies.  Most states have adopted the uniform rules established by
the  National  Association  of  Insurance  Commissioners.  Reports  prepared  in
accordance with statutory  accounting practices reflect primarily the ability of
an  insurance  company  to meet  its  obligations  to  policyholders  and do not
necessarily  reflect  its  going-concern  value.  Certain  statutory  accounting
practices differ from generally accepted accounting principles as applied to the
Company's audited financial statements.

Life  insurance  company  revenues are  generated  primarily  from  premiums and
investment  income.  Commissions  and other  sales cost may exceed the amount of
first year  premiums  but are  generally  lesser in later policy  years.  Policy
lapses and surrenders tend to occur more frequently in the earlier years after a
policy is sold.  Statutory  accounting rules for insurance companies require all
acquisition  costs to be expensed  immediately  and not spread over the expected
duration of the policies. This makes it difficult for a new or growing insurance
company to show net profits.

Statutory  accounting  practices also require that a relatively large portion of
premiums be held as reserves for the protection of policyholders.  The amount of
such reserves is based upon actuarial  calculations  and the annual  increase in
reserves  is  treated  as an  expense.  Such  calculations  must be  based  upon
conservative  assumptions  as to  mortality  costs and  earnings.  Premiums  are
earnings  only  to  the  extent  that  they  exceed  reserve   requirements  and
commissions.   BNLAC  calculates  reserves  using  the  Commissioner's   Reserve
Valuation  Method.  This method provides a lower reserve in the early years of a
policy to partially offset the higher  first-year costs of the policy.  Although
such  reserves  are  treated as  liabilities  and are not  available  for use in
operations,  a company  is free to  invest  such  reserves  in  accordance  with
applicable state laws.  Interest earned on invested reserves is operating income
to the life  insurance  company  to the  extent  that it  exceeds  the  interest
required to be added to the reserves.

The Company's  consolidated  financial statements are required to be prepared in
conformity with generally accepted accounting principles. The objective of these
financial statements is to provide reliable financial information about economic
resources and obligations of a business  enterprise and changes in net resources
resulting  from its business  activities,  measured as a going  concern.  To the
extent that the accounting practices prescribed or permitted by state regulatory
authorities differ from generally accepted  accounting  principles,  appropriate
adjustments will be made, including (but not limited to) the following:

     a) Premiums are reported as earned over the premium paying period. Benefits
        and expenses are associated  with earned premiums so as to result in the
        matching of  expenses  with the  related  premiums  over the life of the
        contracts.  This is  accomplished  through the provision for liabilities
        for  future  policy  benefits  and  the  deferral  and  amortization  of
        acquisition costs.

     b) Certain  assets  designated  as  "non-admitted  assets"  for  statutory
        purposes are reinstated to the accounts.

     c) The asset valuation  reserve is reclassified as retained earnings rather
        than as a liability.  The interest  maintenance  reserve is reclassified
        from a liability to investment income.

     d) Deferred  federal  income taxes are  provided for income and  deductions
        which are  recognized  in the financial  statements at a different  time
        than  for  federal   income  tax   purposes.   These  items   (temporary
        differences) relate primarily to different methods of calculating policy
        reserves,  treatment of acquisition  costs,  and recognition of deferred
        and uncollected premiums.

     e) Premium  payments  received on annuities are not reported as revenue but
        are recorded as increases to a deposit  liability  account.  The profits
        are then deferred over the life of the policy  instead of being realized
        when the payments are received.

     f) Realized gains and losses from the sale of investments are  reclassified
        to a separate  component  of summary of  operations.  Taxes  thereon are
        included in the tax provision.

     g) Investments in fixed maturity securities that are available for sale are
        carried at fair value with the  unrealized  appreciation  (depreciation)
        recorded to shareholders' equity.

The  ability  of BNLAC to pay  dividends  to the  Company  is  restricted  under
Arkansas insurance laws.

Competition

The life and health insurance business is highly competitive, and BNLAC competes
in many instances with individual  companies and groups of affiliated  companies
that have  substantially  greater financial  resources,  larger sales forces and
more widespread agency and brokerage  relationships than BNLAC. Certain of these
companies  operate on a mutual basis which may give them an advantage over BNLAC
since their profits accrue to the policyholders rather than the shareholders. In
1998 BNLAC was  assigned an A. M. Best's  financial  performance  rating of "B-"
(fair).

BNLAC focuses its marketing efforts on sales of its products to small and medium
size groups of employees,  association members and others. These groups range in
size from three to approximately 1,350 persons. BNLAC also sells its products to
individuals. BNLAC is a small insurance company which has no identifiable market
share. BNLAC is not ranked according to its size or volume of sales.

BNLAC  competes for the services of agents and brokers in several  ways.  First,
the Company's  dental  insurance  products are attractive to brokers and general
agents  because  they  can be sold  as an  "add-on"  to  other  group  insurance
products.  Second, BNLAC strives to provide a high level of service to agents by
offering products that meet their clients' needs and by providing individualized
service in the  administration  of such  products.  Finally,  BNLAC  attempts to
structure the levels of premiums, benefits and commissions on insurance products
to compare favorably with competitors.

Insurance Regulations

BNLAC is  subject to  regulation  and  supervision  by the states in which it is
admitted to transact business.  Each state has an insurance department which has
broad  administrative  and  supervisory  powers to grant and revoke  licenses to
transact business,  regulate trade practices,  establish guaranty  associations,
license agents,  approve policy forms,  regulate premium rates for some lines of
business,   establish  reserve   requirements,   regulate  competitive  matters,
prescribe  the form and content of required  financial  statements  and reports,
determine the  reasonableness  and adequacy of statutory capital and surplus and
regulate the type and amount of investments permitted.

Most states have also enacted  legislation  which  regulates  insurance  holding
company systems,  including acquisitions,  extraordinary dividends, the terms of
surplus notes,  the terms of affiliate  transactions  and other related matters.
BNLAC is registered as a holding company system pursuant to such  legislation in
Arkansas and BNLAC routinely reports to other jurisdictions.

Recently,  increased  scrutiny  has been  placed upon the  insurance  regulatory
framework. A number of state legislatures have considered or enacted legislative
proposals  that  alter,  and in many  cases  increase,  the  authority  of state
agencies to regulate  insurance  companies  and this could result in the federal
government assuming some role in the regulation of the insurance  industry.  The
Subcommittee  on Oversight  and  Investigations  of the  Committee on Energy and
Commerce of the US House of  Representatives  has made  inquiries  and conducted
hearings as part of a broad study of the regulation of US insurance companies.

The National  Association of Insurance  Commissioners  (NAIC), an association of
state  regulators and their staffs,  attempts to coordinate the state regulatory
process and  continually  re-examines  existing laws and  regulations  and their
application to insurance companies. Recently, this re-examination has focused on
insurance  interpretations  of existing law, the development of new laws and the
implementation of non-statutory  guidelines.  The NAIC has formed committees and
appointed  advisory groups to study and formulate  regulatory  proposals on such
diverse  issues as the use of surplus  debentures,  accounting  for  reinsurance
transactions and the adoption of risk-based  capital ("RBC") rules. In addition,
in  connection  with its  accreditation  of states to conduct  periodic  company
examinations,  the NAIC  has  encouraged  states  to adopt  model  NAIC  laws on
specific  topics,  such as holding  company  regulations  and the  definition of
extraordinary  dividends.  It is not  possible to predict  the future  impact of
changing state and federal regulation on operations of BNLAC.

The NAIC has  adopted  model RBC  requirements,  to  evaluate  the  adequacy  of
statutory  capital and surplus in relation to  investment  and  insurance  risks
associated  with: (i) asset quality;  (ii) mortality and morbidity;  (iii) asset
and liability  matching;  and (iv) other  business  factors.  The RBC formula is
designed to be used by the states as an early warning tool to identify  possible
weakly capitalized companies for the purpose of initiating regulatory action. In
addition,  the  formula  defines  a new  minimum  capital  standard  which  will
supplement  the  prevailing  system of low fixed  minimum  capital  and  surplus
requirements on a state-by-state basis.

The RBC requirements  provide for four different levels of regulatory  attention
depending on the ratio of a company's  total  adjusted  capital  (defined as the
total of its statutory  capital,  surplus,  asset  valuation  reserve and 50% of
apportioned  dividends) to its RBC. The "Company Action Level" is triggered if a
company's total adjusted  capital is less than 100% but greater than or equal to
75% of its RBC,  or if total  adjusted  capital  is less  than 125% of RBC and a
negative  trend has  occurred.  The trend  test  calculates  the  greater of any
decreases in the margin (i.e.,  the amount in dollars by which a company's total
adjusted  capital  exceeds its RBC)  between the current year and the prior year
and  between  the  current  year and the  average of the past three  years,  and
assumes  that the decrease  could occur again in the coming  year.  If a similar
decrease  in the margin in the coming  year would  result in an RBC of less than
95%, then Company Action Level would be triggered.  At the Company Action Level,
a company must submit a  comprehensive  plan to the regulatory  authority  which
discusses  proposed  corrective  actions to improve  its capital  position.  The
"Regulatory  Action Level" is triggered if a company's total adjusted capital is
less than 75% but  greater  than or equal to 50% of its RBC.  At the  Regulatory
Action Level the regulatory  authority will perform a special examination of the
company and issue an order specifying  corrective actions that must be followed.
The  "Authorized  Control  Level" is  triggered  if a company's  total  adjusted
capital is less than 50% but  greater  than or equal to 35% of its RBC,  and the
regulatory  authority may take any action it deems necessary,  including placing
the company under regulatory control. The "Mandatory Control Level" is triggered
if a  company's  total  adjusted  capital  is less than 35% of its RBC,  and the
regulatory  authority  is  mandated  to place the  company  under  its  control.
Calculations  using the NAIC  formula at December  31, 1998  indicated  that the
ratios of total adjusted capital to RBC for BNLAC would have been  significantly
above the Company Action Level.

As part of their  routine  regulatory  process,  approximately  once every three
years,   insurance   departments  conduct  detailed   examinations   ("triennial
examinations")  of the  books,  records  and  accounts  of  insurance  companies
domiciled in their states.  Such triennial  examinations are generally conducted
in cooperation with the departments of other states under guidelines promulgated
by the NAIC.

The Arkansas  Insurance  Department  in February  1997  conducted  the triennial
statutory  examination for the three-year  period ending December 31, 1995. As a
result of the  examination,  the Company was  required to  establish a custodial
arrangement with an Arkansas bank for certain securities, and to reclassify from
1996 to 1995 an estimated  expense of $99,000 for dental claims incurred but not
reported.

BNLAC's  management  is not aware of any failure to comply with any  significant
insurance regulatory requirement to which BNLAC is subject at this time.

Personnel

As of  February  29,  2000,  BNLAC had four  executive  officers,  41  full-time
administrative personnel and 1 part-time employee.  BNLAC's administrative staff
supervises services for the agency force, policy  underwriting,  policy issuance
and service, billing and collections,  life claims,  accounting and bookkeeping,
preparation of reports to regulatory  authorities and other matters. The Company
has not  experienced  any work  stoppages or strikes and considers its relations
with its employees and agents to be excellent.  None of the Company's  employees
is presently  represented by a union. BNLAC uses a third party  administrator to
process dental claims.

                               ITEM 2. PROPERTIES

Neither the Company, BNLE or BNLAC own any real estate.

BNLAC  leases 288 square feet of office  space in Des Moines,  IA at a rental of
$633 per month ($7,601 per year).  The rent includes the services of a secretary
that is shared with other tenants of the building.

The Company leases 12,150 square feet of office space in Austin,  Texas, under a
seven year,  triple net lease.  The annual base  rentals are  $121,944  and will
increase to $127,944 in 2000. The initial term of the lease will expire in 2005.
The  Company  may renew the lease for  another ten years at the rate of $126,000
for the first five years and $129,000 for the second five years.

BNLE leases  office space in Sherwood,  Arkansas at a rental of $1,200 per month
($14,400 per year). BNLAC shares 50% of the rental cost.

The Company  owns the  furniture  and  equipment  used in the  operation  of its
business.

                            ITEM 3. LEGAL PROCEEDINGS

On April  30,  1996,  Myra Jo  Pearson  and Paul  Pearson  filed a class  action
complaint in the Circuit Court of Pulaski County, Arkansas (3rd Division) naming
the Company,  BNL Equity  Corporation  and several  officers of the Company,  as
defendants.  The  plaintiffs  have  alleged  that the  defendants  violated  the
Arkansas  Securities  Act in  several  respects  in  connection  with the public
offerings of securities made by United Arkansas  Corporation  ("UAC") (now known
as BNL Equity Corporation) during the period from January 1989 until May, 1992.

The  Company  retained  the  firm of  Friday,  Eldredge  & Clark,  Little  Rock,
Arkansas,  to handle the defense of the action on behalf of all  defendants.  On
March 3, 1998, the plaintiffs  filed a Second Amended Class Action  Complaint in
which they dropped  certain claims,  including  allegations of common law fraud,
fraudulent concealment,  tolling of the statute of limitations,  and the request
for punitive damages.

The first issue determined in the case concerned the procedural issue of whether
the lawsuit would be certified as a class  action,  with the class of plaintiffs
including all Arkansas  purchasers who  participated in the public  offerings of
securities by UAC during the stated time frame.  A hearing was held on the issue
of whether the class would be certified on June 8, 1998,  and on August 27, 1998
the Court  entered a ruling  certifying  the class.  On  February  10,  2000 the
Arkansas Supreme Court affirmed the class  certification and held that the trial
court had subject matter  jurisdiction of this case. The Arkansas  Supreme Court
granted the Company's  motion to stay the mandate while the Company  appeals the
class certification to the United States Supreme Court.

The  certification  of the class  does not have any  impact  on the  substantive
issues to be litigated, including whether or not any material misrepresentations
or omissions  were made in the  offerings  in  question,  whether the claims are
barred by the applicable statute of limitations, and other issues. If the effort
to overturn the action is successful, the Company's potential liability, if any,
would be limited to the named  plaintiffs,  Myra Jo  Pearson,  Paul  Pearson and
James  Stillwell.  The Company  continues to believe  strongly  that the case is
without merit.

           ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

The Company's Annual Meeting of Shareholders was held on June 17, 1999 in Little
Rock, Arkansas. At the annual meeting, the following individuals were elected to
the Company's  Board of Directors.  The number of shares voted for each director
is set forth next to his name.
<TABLE>
<S>                        <C>                  <C>                   <C>                  <C>                        <C>
Wayne E. Ahart             12,528,877           Hayden Fry            12,523,203           C. James McCormick         12,525,103

C. Donald Byrd             12,529,879           John Greig            12,524,101           Robert R. Rigler           12,523,603

Kenneth Tobey              12,528,877           Roy Keppy             12,525,103           Chris Schenkel             12,525,103

Barry N. Shamas            12,531,079           Thomas Landry         12,523,603           L.Stanley Schoelerman      12,533,083

Cecil Alexander            12,525,103           Roy Ledbetter         12,533,083           Orville Sweet              12,533,083

Richard Barclay            12,533,083           John E. Miller        12,533,083

Eugene A. Cernan           12,525,103           James A. Mullins      12,533,083
</TABLE>

A total of 91,768 shares were voted against all directors.

The  shareholders  ratified  the  selection  of  Smith,  Carney  &  Co.,  as the
Corporation's  independent auditors for the fiscal year 1999.  12,458,631 shares
were voted in favor; 28,350 were voted against; and 59,404 shares abstained.


<PAGE>



================================================================================
================================================================================
                                      II-3

                                     PART II

ITEM 5.  MARKET  FOR THE  REGISTRANT'S  COMMON  EQUITY AND  RELATED  STOCKHOLDER
MATTERS

Market for Stock

During 1999 the stock of the Company  was traded on a workout  basis.  There has
been a limited  trading  market for the Company's  securities  during 1999.  The
stock is not traded on any recognized market.

In connection with an offering of common stock and preferred stock by BNL Equity
Corporation  (formerly  United Arkansas  Corporation)  organizers of the Company
received  5,563,212 shares which are held in escrow.  These shares were released
from escrow on August 1, 1999.

Holders

As of  December  31,  1999,  there  were  4,990  shareholders  of  record of the
Company's common stock.

Dividends

The Company has not declared  any  dividends on its common stock to date and has
no present plans to pay any dividends in the foreseeable  future.  The Company's
ability to declare and pay  dividends in the future will be  dependent  upon its
earnings and the cash needs for expansion. In addition,  payment of dividends by
BNLAC is regulated under Arkansas insurance laws.

Transfer Agent and Registrar

Regions Bank, Little Rock, Arkansas, is the Registrar and Transfer Agent for the
Company's common stock.

ITEM 6. MANAGEMENT'S  DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
--------------------------------------------------------------------------------

Liquidity and Capital Resources

At December 31, 1999, the Company had liquid assets of $1,419,618 in cash, money
market savings accounts,  and short-term  certificates of deposit;  all of which
can readily be converted to cash.

The major components of operating cash flows are premiums,  annuity deposits and
investment  income.  In 1999,  BNLAC  collected  approximately  $30  million  of
premiums  and  annuity  deposits  (gross  before  reinsurance)  and  $775,148 of
investment  income.  Other sources of cash flow are from the sale of investments
which produced gains of $27,745 in 1999 and overwrite commissions of $186,393 on
vision products.

The  Company's  investments  are  primarily in U.S.  Government  and  Government
Agencies  ($9,795,478)  and other  investment  grade bonds ($549,367) which have
been marked to market and classified as available for sale. The Company does not
hedge its investment income through the use of derivatives.

Management  believes that liquid assets along with investment and premium income
exceed the Company's long and short-term  liquidity  needs. The Company does not
plan to borrow money for operations.

The  Company  conducts  its  insurance   operations  through  its  wholly  owned
subsidiary,  BNLAC. At December 31, 1999 BNLAC had statutory capital and surplus
of $4,130,351. BNLAC is required to maintain minimum levels of statutory capital
and  surplus,  which differ from state to state,  as a condition  to  conducting
business in those states in which it is licensed.  The State of Arkansas,  which
is the legal domicile of BNLAC,  requires a minimum of $2,300,000 in capital and
surplus.  The  highest  requirement  in any state in which  BNLAC is licensed is
$3,000,000.  Some  states  in  which  BNLAC is  licensed  have  increased  these
requirements  to as much as $5,000,000,  but, in general,  BNLAC may continue to
operate  under the lower  minimum  requirements  in effect when it first  became
licensed in the applicable state. BNLAC voluntarily  withdrew its license in the
state of Washington  due to an increased  minimum  capital  requirement  in that
state  of  $2,400,000.   Management  monitors  these  developments  to  maintain
compliance with the requirements of each state. For additional information,  see
Note 2 to the financial statements.

Results of Operations

Premium  income for 1999 was  $29,730,251  compared to  $21,054,713  in 1998, an
increase of  $8,675,538.  This  increase is due to the  increase in group dental
insurance premiums written as the Company continues to expand its market share.

Net  investment  income was $775,148 in 1999 and $807,342 in 1998.  The decrease
was due to calls on  government  agency bonds and the maturity of U.S.  Treasury
bonds with higher yields than the bonds purchased to replace them.

Realized  gains were $27,745 in 1999  compared to $57,563 in 1998.  The realized
gains in 1999 and 1998 were due to gains on bonds sold in the  normal  course of
the Company's investment activity.

Increases  (decrease) in liability  for future  policy  benefits were $83,703 in
1999 compared to $39,224 for the same period in 1998. The increase of $44,479 is
primarily due to an increase in unearned premium on the group dental insurance.

Policy benefits and other  insurance costs were  $24,954,260 in 1999 compared to
$18,971,791  in  1998.  The  increase  was  due to an  increase  in  claims  and
commissions  resulting  from the  increase in insurance  business in force.  The
claims ratio on dental insurance,  which represents the ratio of claims incurred
to premium earned, was 72.4% for 1999 compared 78.4% in 1998.

Amortization  of  deferred  policy  acquisition  costs was  $27,732  in 1999 and
$53,778  in  1998.  The  decrease  was  the  result  of  an  adjustment  to  the
amortization schedule in 1998 to reflect the increase in lapsed life policies.

Operating expenses were $4,390,661 in 1999 and $3,431,929 in 1998. This increase
was primarily due to increases in claims  administrative  expense,  payroll, and
office rent - all of which relate to the increased volume of insurance in force,
and legal expenses. Despite this increase, the amount of such expenses expressed
as a percentage of premiums (on a statutory  basis)  declined from 14.5% in 1998
to 14.2% in 1999.

Taxes,  other than on income were  $869,809 for 1999 and $669,648 for 1998.  The
increase  was due to the  premium  taxes  on the  increased  insurance  premiums
collected.

The consolidated net operating gain for 1999 was $206,979  compared to a loss of
$1,246,752 in 1998. The positive turnaround was primarily due to the decrease in
the  claims  ratio on the  group  dental  business.  Modifications  to rates and
benefits  of the dental  policies,  which were  implemented  prior to and during
1999,  have been  effective in reducing the claims ratio.  The rate increases on
group dental insurance has not had a negative impact on business in force or new
business  written.  During 1999, new dental  business  written  increased 3% and
annual dental premiums in force increased from  $24,778,000 at December 31, 1998
to $32,233,000 as of December 31, 1999, a 30% increase.

Accounting Developments

The Company was required to adopt SFAS # 130 "Reporting Comprehensive Income" on
January  1,  1998.  This rule  requires  the  Company to report the year to date
change in unrealized gains or losses on its investments as comprehensive  income
on the Statement of Income.  Unrealized  gains or losses  reported in the equity
section of the balance sheet have been renamed  "accumulated other comprehensive
income."  For the year ended  December  31,  1999 other  comprehensive  loss was
$1,105,812  compared to $37,760  income for the same period in 1998. The loss in
comprehensive  income  in  1999  was  due  to a  rise  in  interest  rates  that
substantially lowered the market value of the Company's bond portfolio. Although
the bonds are marked  available  for sale,  the Company has  sufficient  working
capital and other sources of funds  available which should not make it necessary
to sell any bonds at a loss.

Market Risk

The Company's conservative investment philosophies minimize market risk and risk
of default  by  investing  in high  quality  debt  instruments,  with  staggered
maturity  dates.  The Company does not hedge  investment risk through the use of
derivative financial instruments.  The market value of the Company's investments
in debt  instruments  varies  with  changes in  interest  rates.  A  significant
increase  in  interest  rates  could  cause  decreases  in the market  values of
investments  and have a negative  effect on  comprehensive  income and  decrease
surplus.

               ITEM 7. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

The  information  on pages E-1  through  E-14  attached to this Report is hereby
incorporated by reference.

ITEM  8.  CHANGES  IN AND  DISAGREEMENTS  WITH  ACCOUNTANTS  ON  ACCOUNTING  AND
FINANCIAL DISCLOSURE
-------------------------------------------------------------------------------

None


<PAGE>



================================================================================
                                      III-6

                                    PART III

           ITEM 9. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

The directors and executive officers of the Company are as follows:
<TABLE>
<CAPTION>

                                                First Became
                                                Director or
           Name                   Age         Executive Officer                         Position
----------------------------    --------    ---------------------    -----------------------------------------------
<S>                             <C>         <C>                      <C>

Wayne E. Ahart                    59                1984                   Chairman of the Board and Director

C. Donald Byrd                    58                1984                Vice Chairman of the Board and Director

Kenneth Tobey                     41                1994                         President and Director

Barry N. Shamas                   52                1984                 Executive Vice President, Treasurer and
                                                                                        Director

Cecil Alexander                   63                1994                                Director

Richard Barclay                   62                1994                                Director

Eugene A. Cernan                  65                1994                                Director

Hayden Fry                        70                1984                                Director

John Greig                        64                1984                                Director

Roy B. Keppy                      76                1984                                Director

Tom Landry                        74                1984                                Director

Roy Ledbetter                     69                1994                                Director

John E. Miller                    70                1994                                Director

James A. Mullins                  65                1984                                Director

C. James McCormick                74                1984                                Director

Robert R. Rigler                  76                1989                                Director

Chris Schenkel                    75                1994                                Director

L. Stan Schoelerman               74                1984                                Director

Orville Sweet                     75                1984                                Director
---------------------------- -- -------- -- ---------------------
</TABLE>

The  term  of  office  of  each  director  expires  at  the  annual  meeting  of
shareholders upon election and qualification of such director's  successor.  The
Company's  executive  officers  serve at the pleasure of the Board of Directors.
The above officers and directors serve in the same capacity for BNLAC.

Identification of Certain Significant Employees

         Not applicable.

Family Relationships

         No family relationship exists between any director or executive officer
of the Company.

Business Experience

The following is a brief description of the business  experience during the past
five years of the directors and executive officers of the Company.

Wayne E. Ahart has served as  Chairman  of the Board of BNL since 1984 and BNLAC
since 1986. He has served as Chairman of the Board of BNLE since 1988 and served
as Chairman  of the Board of United  Arkansas  Life from 1990 to 1994.  Prior to
that time, Mr. Ahart served as Board Chairman of: Investors Trust,  Inc. ("ITI")
and  its  subsidiary,  Investors  Trust  Assurance  Company  ("ITAC"),  both  of
Indianapolis,     Indiana    (1973-1987);     Liberty    American    Corporation
("LAC")(President  since 1981) and its  subsidiary  Liberty  American  Assurance
Company ("LAAC"),  both of Lincoln,  Nebraska (1975-1987);  (President) American
Investors Corporation ("AIC") and its subsidiary, Future Security Life Insurance
Company ("FSL"), both of Austin, Texas (1980-1987). Mr. Ahart has been owner and
Chairman of the Board of Lone Star Pizza Garden Inc. from 1986 to the present.

C. Don Byrd has been Vice  Chairman  of the Board of BNL,  BNLE and BNLAC  since
August 1, 1994.  Mr.  Byrd was  President  and a Director of BNL and BNLAC since
1984 and 1986,  respectively.  Mr. Byrd was Agency  Director of FSL from 1983 to
1984 and Regional  Director  from AIC 1981 to 1983. He was an agent and Regional
Director of ITI and ITAC from 1974 to 1981.

Kenneth  Tobey has been  President and director of BNLAC and BNL since August 1,
1994.  Mr.  Tobey has  served as  President  of BNLE  since  1988 and  served as
president of United  Arkansas  Life from 1990 to 1994. He served as Assistant to
the  President  and Training  Director of BNLAC from 1986 to 1988.  From 1981 to
1986, Mr. Tobey served in various  capacities for AIC and FSL,  including Agent,
Regional Manager, Executive Sales Director and Assistant to the President.

Barry N. Shamas has served as Executive Vice President,  Secretary and Treasurer
of BNLE  since 1988 and United  Arkansas  Life from 1990 to 1994.  From 1984 and
1986,  respectively,  he has served as Executive  Vice President and Director of
BNL and BNLAC, positions he presently holds. He served in various capacities for
ITI and  ITAC,  including  Executive  Vice  President,  Senior  Vice  President,
Treasurer  and Financial  Vice  President  beginning in 1976 through  1987.  Mr.
Shamas served as Executive Vice President,  Secretary/Treasurer  and as Director
of AIC and FSL from 1980 and 1983,  respectively,  until 1987. From 1978 through
1987, Mr. Shamas served as a Director and a member of the Executive Committee of
LAC and LAAC.

Cecil L.  Alexander is currently  Vice  President of Public Affairs for Arkansas
Power & Light Company,  where he has been employed since 1980.  Prior to joining
the AP&L  Executive  Staff,  Mr.  Alexander  served for 16 years in the Arkansas
General   Assembly,   and  during   1975-76,   was   Speaker  of  the  House  of
Representatives.  Since 1971 Mr.  Alexander has been involved in the real estate
business as a partner in Heber  Springs  Realty.  He is a past  president of the
Cleburne  County  Board of Realtors and has served on the  governmental  affairs
committee of the Arkansas Association of Realtors. Alexander is currently on the
Board of Directors of Mercantile  Bank of Heber Springs,  the Board of Directors
of the Arkansas Tourism  Development  Foundation,  and the Board of Directors of
the Baptist Foundation.

Richard L. Barclay,  a Certified Public  Accountant,  has been engaged in public
accounting  since  1961.  He is a Partner  in the firm of Beall,  Barclay & Co.,
Certified Public  Accountants in Rogers,  Arkansas and an Executive  Director of
the Policy and Budget  committee for the Arkansas  office of the Governor.  From
1961 to 1997,  he was a  Partner  in the firm of  Barclay,  Yarborough  & Evans,
Certified Public Accountants in Rogers, Arkansas. He is a member of the Arkansas
Society  of  Certified  Public  Accountants  and of the  American  Institute  of
Certified  Public  Accountants.  He  was a  member  of  the  Arkansas  House  of
Representatives  from 1977 until  1991.  He  presently  serves as a Director  of
Federal  Savings Bank,  Rogers,  Arkansas;  and Vice  President,  Arkansas State
Chamber of Commerce.

Eugene A.  Cernan has been  President  and  Chairman  of the Board of The Cernan
Corporation,  since 1981. In addition,  he recently became Chairman of the Board
of Johnson Engineering  Corporation which provides the National  Aeronautics and
Space Administration (NASA) with Flight Crew Systems Development. Captain Cernan
retired from the U. S. Navy in 1976 after  serving 20 years as a naval  aviator,
13 of which were dedicated to direct involvement with the U. S. Space Program as
a NASA  astronaut.  Captain Cernan was the pilot on the Gemini 9 mission and the
second  American  to walk in  space;  lunar  module  pilot  of  Apollo  10;  and
Spacecraft  Commander of Apollo 17, which  resulted in the  distinction of being
the last man to have left his footprints on the surface of the moon. In 1973, he
served as a Senior United States  Negotiator in discussions with the USSR on the
Apollo-Soyuz  Mission. Mr. Cernan served as Executive  Consultant-Aerospace and
Government  of Digital  Equipment  Corporation  from 1986 to 1992,  and he was a
Director and Vice  President-International  of Coral Petroleum,  Inc.,  Houston,
Texas from 1976 to 1981.  Captain  Cernan is  presently  a  Director  of Up With
People, an international  educational foundation for young men and women; United
States  Space  Foundation;   the  Young  Astronaut  Council;   Alaska  Aerospace
Development Corporation,  Explorer's Club, International MicroSpace; and Johnson
Engineering  Corporation.  Captain Cernan is also on the President's Engineering
Committee,  Purdue University and is a member of the Board of Trustees of the U.
S. Naval Aviation  Museum,  NFL Alumni and Major League Baseball Players Alumni.
In addition,  Captain Cernan has served as a consultant commentator to ABC News.
He served on the Board of AIC and FSL from 1980 and 1983, respectively, to 1987.

Hayden Fry was Head Football  Coach at the University of Iowa from 1979 to 1999,
now retired.  He was Head Football  Coach at North Texas State  University  from
1973 to 1978 and at  Southern  Methodist  University  from 1962 to 1972.  He was
named Football Coach of the Year in the Big Ten (1981, 1990, 1991), the Missouri
Valley Conference (1973), and the Southwest Conference (1962, 1966 and 1968). He
is on the Board of Advisors of Wilson  Sporting Goods (1962 to date);  the Board
of Trustees of Pop Warner  Football  (1962 to date);  and the American  Football
Coaches  Association (1983 to date) and is the 1993 President.  He was President
of  Hawkeye  Marketing  Group  from 1979 - 1984.  He is a member of the Board of
Directors of the PPI Group.

John Greig has been  President of Greig and Co. since 1967.  He is a Director of
Boatmen's  Bank of Iowa,  NW.,  Estherville,  Iowa. He has been President of the
Iowa Cattlemen's Association (1975-1976) and a member of the Executive Committee
of the National Cattlemen's Association (1975-1976). He was a member of the Iowa
Board  of  Regents  from  1985  to  1991.  He  was  elected  as  an  Iowa  State
Representative in 1993.

Roy Keppy has operated his grain and livestock  farming  operation in Davenport,
Iowa since  1946.  In 1982,  he and his son founded  Town and  Country  Meats in
Davenport and he currently  serves as its Vice  President.  He was a Director of
Eldridge Cooperative Elevator Company for 33 years, retiring in 1982, serving as
President for 6 years. He is now a Director of First State Bank N.A., Davenport,
Iowa. He is a past Chairman of the National Livestock and Meat Board, and was on
its Board of  Directors  from 1970 to 1986.  He was on the Board of Directors of
the  National  Pork  Producers  from 1965 to 1972,  serving as its  President in
1970-1971.

Thomas W. Landry was Head Coach of the Dallas  Cowboys,  1960 to 1989.  He was a
member  of the  National  Board  of  Trustees  of the  Fellowship  of  Christian
Athletes.  He served as a Director of Dallas Theological Seminary. He was on the
Board of Directors of Continental Life Insurance  Company for four years. He has
served as Texas State Chairman of the American Cancer Society. Mr. Landry was an
Advisory  Member of the Board of  Directors  of  Southwest  Baptist  Theological
Seminary,  Chairman of the Dallas International Sports Commission,  and a member
of the Board of Advisors of Alexander Proudfoot Company.

Roy E. Ledbetter  presently  serves as President and Chief Executive  Officer of
Highland Industrial Park, a division of Highland Resources, Inc. in East Camden,
Arkansas.  He holds a Bachelor  of Science  Degree in  Education  from  Southern
Arkansas  University at Magnolia,  a Masters  Degree in Education from Henderson
State  University  at  Arkadelphia  and an AMP from Harvard  Business  School at
Boston. In 1966, Mr. Ledbetter joined Highland  Resources,  Inc. and coordinated
organization of Southern Arkansas  University  Technical Branch; was promoted to
Division Manager (1972), Vice President and Division Manager (1975), Senior Vice
President  (1980),  and  President in 1984.  He is past  President of the Camden
Chamber of Commerce; was 1977 Camden Jaycees' Man of the Year; was awarded first
annual Camden Area Chamber of Commerce  Community  Service Award in 1983; served
on Education Standards Committee of the State of Arkansas;  and presently serves
on the Boards of East Camden and  Highland  Railroad,  Shumaker  Public  Service
Corporation,  Merchants and Planters Bank of Camden, and First United Bancshares
of El Dorado.

C.  James  McCormick  is  Chairman  of the Board of  McCormick,  Inc.,  Best Way
Express, Inc., and President of JAMAC Corporation, all of Vincennes, Indiana. He
is also Vice  Chairman  of Golf Hosts,  Inc. He is the owner of CJ Leasing.  Mr.
McCormick  is  Chairman  of the  Board of  Directors  and CEO of First  Bancorp,
Vincennes,  Indiana;  First Vice  Chairman of  Vincennes  University; a Life
Director  of the  Indiana  Chamber  of  Commerce;  and a member  of the  Indiana
President's Organization and the Indiana Automobile Dealers Association. He is a
former  Chairman  of  the  Board  of the  American  Trucking  Association.  Mr.
McCormick is a Past Chairman of the National Board of Trustees of The Fellowship
of Christian Athletes.

John  E.  Miller  has  been  a  member  of  the  State  of  Arkansas   House  of
Representatives  since  1959.  He  has  been  self-employed  in  the  insurance,
abstract,  real estate, heavy construction and farming business for more than 20
years.  He  presently  serves on the Board of  Directors  of Calico Rock Medical
Center,  Easy K Foundation,  National Conference of Christians and Jews, Council
of State Governments,  Southern Legislative Conference, State Advocacy Services,
Lions  World  Services  for the Blind,  State  Board of Easter  Seals,  Williams
Baptist College Board of Trustees,  and Izard County Chapter of the American Red
Cross.

James A. Mullins has owned and operated Prairie Flat Farms,  Corwith, Iowa since
1969.  He was a Director  of the Omaha  Farm  Credit  Bank from 1985 to 1994,  a
Director of the Federal Farm Credit Banks Funding Corporation from 1986 to 1994,
and Director of the US Meat Export  Federation  from 1988 to 1995.  He served as
Chairman of the Foreign Trade Committee,  National Cattlemen's Association (1988
- 1993).  He was Chairman of the US Meat Export  Federation  until 1994.  He was
Chairman of the  National  Livestock & Meat Board in 1983;  Chairman of the Beef
Industry Council in 1979 and 1980; and Chairman of the Omaha Farm Credit Bank in
1988 and 1989.

Robert R.  Rigler has been  Chairman of the Board of  Security  State Bank,  New
Hampton,  Iowa since 1989; he served as its President and CEO from 1968 to 1989.
Mr. Rigler was Iowa Superintendent of Banking from 1989 to 1991. He was a member
of the  Iowa  Transportation  Commission  from  1971 to 1986 and  served  as its
Chairman  from 1973 to 1986.  He was a member of the Iowa State Senate from 1955
to 1971 and served as a Majority and Minority Floor Leader.

Chris Schenkel is presently a semi-retired television  sportscaster with Capitol
Cities  -  ABC  Sports.  From  1964  to  1997  he  was  a  full-time  television
sportscaster  of ABC Sports,  New York, New York. He also served as Spokesperson
for Owens-Illinois,  Toledo,  Ohio, from 1976 to present,  for whom he speaks as
voice on commercials, personal appearances,  conventions and shows. Mr. Schenkel
served as  Chairman of the Board of  Directors  of  Counting  House Bank,  North
Webster,  Indiana from  1974-1982.  He also served as a director of ITI and ITAC
from 1978 to 1986 and on the Board of Haskell Indian Junior  College,  Lawrence,
Kansas.

L. Stanley  Schoelerman  has been  President  and a partner of Petersen  Sheep &
Cattle Co., Spencer,  Iowa since 1964. He was a Director of Home Federal Savings
& Loan, Spencer,  Iowa, from 1969 to 1988; and Honeybee  Manufacturing,  Everly,
Iowa, from 1974 to 1986. He was President of  Topsoil-Schoenewe,  Everly,  Iowa,
from 1974 to 1986. Mr.  Schoelerman  was  Commissioner of the Iowa Department of
Transportation  from 1974 to 1978 and was a member of the National Motor Carrier
Advisory Board of the Federal Highway Administration from 1981 to 1985.

Orville Sweet served as a Visiting  Industry  Professor at Iowa State University
from 1989 to 1990 and is President of Sweet and  Associates,  a consulting  firm
for agricultural  organizations.  He was Executive Vice President of the 100,000
member National Pork Producers Council,  Des Moines, Iowa, from 1979 to 1989. He
was President of the American Polled Hereford Association, Kansas City, Missouri
in 1963-79.  He is past President of the US Beef Breeds Council and the National
Society of Livestock Records  Association and was a Director of the Agricultural
Hall of Fame and the US Meat Export  Federation.  He is a member of the American
Society  of Animal  Science.  He has  served  as a member  of the USDA  Advisory
Council Trade Policy,  the State  Department  Citizens Network and the Executive
Committee of the Agricultural Council of America.

                         ITEM 10. EXECUTIVE COMPENSATION

Executive Compensation

The following  table sets forth certain  information  regarding  remuneration of
executive  officers in excess of $100,000  during the three years ended December
31.
<TABLE>
<CAPTION>

                           SUMMARY COMPENSATION TABLE

                                                                                                     Long Term Compensation
                                           Annual Compensation                 Awards        Payouts
            (A)                 (B)       (C)          (D)         (E)           (F)            (G)          (H)           (I)
                                                                 Other
                                                                 Annual       Restricted                                All Other
     Name and Principal                                        Compensation    Stock       Options/SARs     LTIP      Compensation
          Position             Year      Salary      Bonus $        $         Award(s) $        (#)       Payouts $         $
----------------------------- ------- ------------- ---------- ------------ --------------- ------------ ------------- ------------
<S>                           <C>     <C>           <C>        <C>          <C>             <C>          <C>           <C>

Wayne E. Ahart, CEO            1999     $125,000       $0        $9,416           $0             -            $0           $0

             "                 1998     $125,000       $0        $8,605           $0             -            $0           $0

             "                 1997     $125,000       $0        $8,927           $0             -            $0           $0
</TABLE>

The total  number of  executive  officers  of the  Company is four and the total
remuneration paid to all executive officers as a group is $379,252.  The Company
does not have employment agreements with any of its officers.

Compensation of Directors

Each director  receives a fee of $100 plus  reasonable  travel expenses for each
meeting of the Board of  Directors  attended.  No  director  receives  any other
remuneration in the capacity of director.

Benefit Plans

In 1994, the Board of Directors and  stockholders  approved the 1994 Brokers and
Agents'  Nonqualified  Stock Option Plan. This plan was established as incentive
to sales persons of BNLAC.  Initially  250,000 shares were  available  under the
plan.  On November  17, 1997 the Board of  Directors  authorized  an  additional
500,000  shares.  The  option  period  may not  exceed a term of 5 years and the
duration  of the  plan  is ten  years.  A  four-member  committee  of  Directors
administers  the plan.  During  1999 and 1998 the  Company  granted  185,150 and
255,575 stock options respectively, with an exercise price of $.50 per share. At
December  31,  1999,  there were 750,500  options  outstanding.  No options were
exercised  in 1999 or 1998.  Under the fair  value  method,  total  compensation
recognized for grant of stock options was $0. The fair value of options  granted
is estimated at $600 and $1,650 in 1999 and 1998 respectively. These values were
computed  using  a  binomial  method  as  prescribed  in SFAS  123  and  certain
assumptions  include risk free interest rate of 6.0%,  expected life of 3 years,
expected   volatility  of  12%  and  no  expected  dividends  due  to  statutory
limitations. The estimated weighted average remaining life of the options is 1.9
years.

In May 1997, the Board of Directors  approved a stock bonus plan for the benefit
of certain officers of the  corporation.  The plan provides for a bonus based on
consolidated  after-tax profits subject to specified  limits.  The bonus amount,
net of taxes,  will be used to purchase stock in the Company on the open market.
No stock bonus was granted in 1999 and 1998.

On January 1, 1997 the Brokers  National Life Employee Pension Plan was adopted.
The plan is a qualified  retirement  plan under the Internal  Revenue Code.  All
employees are eligible who have  attained age 21 and have  completed one year of
service.  Employer  contributions are discretionary,  however the Company is not
contributing at this time.

Indebtedness of Management

No officer, director or nominee for director of the Company or associate of such
person was  indebted to the  Company at any time during the year ended  December
31,  1999,  other  than for  ordinary  travel  and  expense  advances  and other
reimbursable expenses, if any.

ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

Security Ownership of Certain Beneficial Owners

The  following  table  reflects  the  persons  known  to the  Company  to be the
beneficial  owners  of more than 5% of the  Company's  voting  securities  as of
December 31, 1999:
<TABLE>
<CAPTION>

                                                                         Amount and Nature of
  Title of Class             Name and Address of Beneficial Owner        Beneficial Ownership         Percent of Class as of
                                                                                  (1)                   December 31, 1999
-------------------          --------------------------------------    --------------------------    -------------------------
<S>                          <C>                                       <C>                           <C>

Common Stock                 Wayne E. Ahart                                  4,845,505(2)(3)                  20.91%
                             #14 Club Estates Parkway
                             Austin, Texas 78738

Common Stock                 Barry N. Shamas                                 2,801,816(5)                     12.09%
                             1095 Hidden Hills Dr.
                             Dripping Springs, Texas 78620

Common Stock                 Universal Guaranty Life Insurance               2,216,776(2)                      9.57%
                             Company
                             5250 S. Sixth St. Rd.
                             Springfield, Illinois 62705

Common Stock                 C. Donald Byrd                                  1,452,719(4)                     6.27%
                             631 47th Street
                             W. Des Moines, IA 37076
<FN>

     (1)To the Company's  knowledge,  all shares are beneficially  owned by, and
        the sole  voting  and  investment  power is held by the  persons  named,
        except as otherwise indicated.

     (2)Wayne E. Ahart and Commonwealth  Industries,  Inc. ("CIC"),  a parent of
        Universal Guaranty Life Insurance Company ("UGL"), have agreed: (a) that
        if Mr. Ahart sells his shares of the Company to a third party, Mr. Ahart
        or the third party must also purchase UGL's shares of the Company at the
        same price and on the same  terms;  and (b) in the event UGL  receives a
        bona fide offer to purchase its shares of the  Company,  Mr. Ahart has a
        first  right of refusal to  purchase  such  shares on the same terms and
        conditions.

     (3)Includes 2,400,000 shares held in the name of National Iowa Corporation
        and  2,178,926 shares held in the name of Arkansas National Corporation,
        both of which are controlled by Mr. Ahart.

     (4)All of Mr.  Byrd's  shares are subject to a right of first refusal of
        the Company to acquire said shares on the same terms and conditions as
        any proposed sale or other transfer by Mr. Byrd.

     (5)Includes  1,400,000  shares held in the name of Life  Industries  of
        Iowa,  Inc.,  and  1,335,171  shares held in the name of Arkansas
        Industries Corporation, both of which are controlled by Mr. Shamas.
</FN>
</TABLE>


Security Ownership of Management

The  following  table sets forth,  as of December 31, 1999  certain  information
concerning  the  beneficial  ownership  of the  Company's  Common  Stock by each
director of the Company and by all directors and officers as a group:
<TABLE>
<CAPTION>


                                                                    Amount and Nature of        Percent of Class as of
Title of Class                  Name of Beneficial Owner            Beneficial Ownership(1)     December 31, 1999
-----------------------    -----------------------------------    -------------------------    ---------------------------
     <S>                   <C>                                    <C>                          <C>

     Common Stock          Wayne E. Ahart                               4,845,505(2)                     20.91%

          "                Barry N. Shamas                              2,801,816(4)                     12.09%

          "                C. Donald Byrd                               1,452,719(3)                      6.27%

          "                Kenneth Tobey                                  761,762                         3.29%

          "                Cecil Alexander                                 37,088                          .16%

          "                Richard Barclay                                 46,088                          .20%

          "                Eugene A. Cernan                                37,088                          .16%

          "                Hayden Fry                                      69,047                          .30%

          "                John Greig                                      50,102                          .22%

          "                Roy Keppy                                       51,001                          .22%

          "                Tom Landry                                      87,088                          .38%

          "                Roy Ledbetter                                   37,088                          .16%

          "                John E. Miller                                  46,088                          .20%

          "                C. James McCormick                             137,084(5)                       .59%

          "                James A. Mullins                                50,000                          .22%

          "                Robert R. Rigler                                 3,295                          .01%

          "                Chris Schenkel                                  37,088                          .16%

          "                L. Stanley                                      50,000                          .22%
                           Schoelerman

          "                Orville Sweet                                   50,000                          .22%

          "                All executive officers and
                           directors as a group (19 persons)           10,649,947                        45.96%
----------------------- -- -----------------------------------
<FN>

(1)  To the Company's  knowledge,  all shares are beneficially  owned by the
     persons  named,  except as  otherwise  indicated  hold the sole  voting and
     investment power.

(2)  Includes 2,400,000 shares held in the name of National Iowa Corporation and
     2,178,926 shares held in the name of Arkansas National Corporation, both of
     which are controlled by Mr. Ahart.

(3)  All of Mr.  Byrd's  shares are  subject to a right of first  refusal of the
     Company to acquire  said  shares on the same  terms and  conditions  as any
     proposed sale or other transfer by Mr. Byrd.

(4)  Includes  1,400,000  shares  held in the name of Life  Industries  of Iowa,
     Inc.,  and  1,335,171  shares  held  in the  name  of  Arkansas  Industries
     Corporation, both of which are controlled by Mr. Shamas.

(5)  Includes  10,000  shares held in the name of C. James  McCormick and 90,000
     shares divided equally among and held in the names of Mr.  McCormick's four
     children.
</FN>
</TABLE>

             Item 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

         None


<PAGE>



================================================================================
                                      IV-4

                                     PART IV

 ITEM 13. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K

(a)  1.  Financial Statements

The information required by this section is set forth on page E-2 of this Report
and is incorporated herein by reference.

     2.  Financial Statement Schedules Included in item 14(a)

                                                                Page Number Form
                                                                    10-KSB
                                                                ----------------

Report of Independent Accountants on Financial Statement Schedule     E-14


     3.  Exhibits
<TABLE>
<CAPTION>

    No.                                Description                                          Page or Method of Filing
-------------    --------------------------------------------------------    ------------------------------------------------------
<S>              <C>                                                         <C>
    3.1          Articles of Incorporation of BNL Financial                  Incorporated by reference to Exhibits 3.1 of the
                 Corporation, dated January 27, 1984 and Amendment to        Company's Annual Report on Form 10-K for the period
                 Articles of Incorporation of BNL Financial                  ending December 31, 1993.
                 Corporation, dated November 13, 1987.

    3.2          Bylaws 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,        Incorporated by reference to Exhibit 4 of the
                 including indentures                                        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                  Incorporated by reference to Exhibits 4.2 of the
                 Corporation, dated January 27, 1984 and Amendment to        Company's Annual Report on Form 10-KSB for the period
                 Articles of Incorporation on BNL Financial                  ending December 31, 1998.
                 Corporation, dated November 13, 1987.

    10.1         Form of Agreement between Commonwealth Industries           Filed with 10-QSB for the period  ended  September  30,
                 Corporation, American Investors Corporation and Wayne       1994.
                 E. Ahart regarding rights to purchase shares of the
                 Company.


    10.2         Agreement dated December 21, 1990 between Registrant        Filed with 10-QSB for the period ended March 31, 1996.
                 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.

    10.3         Office lease assumption and assignment agreement dated      Incorporated by reference to Exhibits 10.9 of the
                 September 1, 1998, between Brokers National Life            Company's Annual Report on Form 10-KSB for the period
                 Assurance Company and Walgreen Company and Charles H.       ending December 31, 1998.
                 Morrison for premises in Austin.

    10.4         Sublease dated January 20, 1999 between Brokers             Incorporated by reference to Exhibits 10.10 of the
                 National Life Assurance Company and PRG, Inc.               Company's Annual Report on Form 10-KSB for the period
                                                                             ending December 31, 1998.

     11          Statement re computation of per share earnings.             Reference is made to the explanation of the
                                                                             computation of per share earnings as shown in Note 1
                                                                             to the Notes to Consolidated Financial Statements
                                                                             filed herewith under item 14(a)(1) above which clearly
                                                                             describes the same.

     12          Statements re computation of ratios.                        Not applicable.

     16          Letter Re Change in Certifying Accountant.                  Filed with Form 8-K dated September 14, 1995.

     22          Subsidiaries of Registrant.                                 Filed herewith.

</TABLE>


(b) Reports on Form 8-K

The  Company  did not file  reports on Form 8-K for the  period  covered by this
report.

                                   SIGNATURES

Pursuant to the  requirements of Section 13 or 15(d) 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,  on the 30th day of March
2000.

                                          BNL FINANCIAL CORPORATION

                                          /S/ Wayne E. Ahart
                                          --------------------------
                                      By: Wayne E. Ahart, Chairman of the Board



Pursuant to the requirements of the Securities Exchange Act of 1934, this Report
has been signed below by the following  persons on behalf of the  Registrant and
in the capacities and on the dates indicated:
<TABLE>
<CAPTION>

                 Signature                       Title                                  Date
             <S>                     <C>                                               <C>

             /S/ Wayne E. Ahart      Chairman of the Board, Director                    3/30/00
             ------------------

             /S/ C. Donald Byrd       Vice Chairman of the Board and Director           3/14/00
             ------------------


             /S/ Kenneth Tobey        President and Director                            3/14/00
             -----------------


             /S/ Barry N. Shamas       Executive V.P., Treasurer and Director           3/30/00
             -------------------


             /S/ Hayden Fry            Director                                         3/30/00
             ----------------


             /S/ Roy Keppy             Director                                         3/7/00
             ---------------


            /S/ C. James McCormick     Director                                         3/7/00
            ----------------------


            /S/ James A. Mullins       Director                                         3/8/00
            --------------------


            /S/ Robert R. Rigler       Director                                         3/12/00
            --------------------


            /S/ Stanley Schoelerman    Director                                         3/20/00
            -----------------------


             /S/ Orville Sweet         Director                                         3/06/00
             ------------------


            /S/ Cecil Alexander        Director                                         3/05/00
            -------------------


            /S/ Richard Barclay        Director                                         3/08/00
            -------------------


            /S/ Eugene A. Cernan       Director                                         3/07/00
            --------------------


             /S/ Roy Ledbetter         Director                                         3/05/00
             -----------------


             /S/ John E. Miller        Director                                         3/08/00
             ------------------


             /S/ Chris Schenkel        Director                                         3/08/00
             ------------------
</TABLE>


<PAGE>


BNL Financial Corporation - 1998 Form 10-KSB

================================================================================
================================================================================
                                       E-1

                          ANNUAL REPORT ON FORM 10-KSB

                              ITEM 14 (a) AND 14 (d)



                              FINANCIAL STATEMENTS

                       FOR THE YEAR ENDED DECEMBER 31, 1999



                   BNL FINANCIAL CORPORATION AND SUBSIDIARIES

                                DES MOINES, IOWA

-------------------------------------------------------------------------------









                     Financial Statements Required by Item 8

<TABLE>
<CAPTION>
                                                                                                        Page Number of 1999
                                                                                                            Form 10-KSB

                                                                                                      -------------------------
<S>                                                                                                   <C>

Consolidated Balance Sheet, December 31, 1999 and 1998                                                          E-2

Consolidated Statement of Operations and Comprehensive Income for the years ended December 31,                  E-3
1999 and 1998

Consolidated Statement of Changes in Shareholders' Equity for the years ended December 31, 1999                 E-4
and 1998

Consolidated Statement of Cash Flows for the years ended December 31, 1999 and 1998                             E-5

Notes to Consolidated Financial Statements                                                                      E-6

Report of Independent Accountants on Financial Statements                                                       E-14


</TABLE>


<PAGE>








===============================================================================

<TABLE>

-----------------------------------------------------------------------------------------------------------------------------------
BNL FINANCIAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
December 31, 1999 and 1998

-----------------------------------------------------------------------------------------------------------------------------------
<CAPTION>

  ASSETS

                                                                      December 31,           December 31,
                                                                          1999                   1998
                                                                  ------------------     ------------------
<S>                                                               <C>                    <C>
Cash and cash equivalents                                               $ 1,419,619            $ 2,426,963
Investments available for sale, at fair value (amortized cost
  $11,144,220;  9,692,368;  respectively )                               10,344,845             10,006,208
Investment in equity securities, common stock
   at market  (cost $108,123)                                                 3,312                  2,573
                                                                  ------------------     ------------------
               Total Investments, Including Cash and

                     Cash Equivalents                                    11,767,776             12,435,744

Accrued investment income                                                   193,337                195,652
Furniture and equipment, net                                                438,147                325,717
Deferred policy acquisition costs                                           352,186                379,917
Premium and policy loans                                                    135,680                132,050
Receivable from reinsurer                                                    40,051                 33,531
Premiums due and unpaid                                                     760,941                611,786
Other assets                                                                261,282                213,379
                                                                  ------------------     ------------------

               Total Assets                                             $13,949,400            $14,327,776
                                                                  ==================     ==================

                    LIABILITIES AND SHAREHOLDERS' EQUITY

Liabilities:

   Liabilities for future policy benefits                               $ 1,488,857            $ 1,398,633
   Policy claims payable                                                  2,729,175              2,508,175
   Annuity deposits                                                       2,982,839              3,259,195
   Deferred annuity profits                                                 500,000                521,212
   Premium deposit funds                                                    118,703                114,841
   Supplementary contracts without life contingencies                       105,120                129,944
   Advanced and unallocated premium                                         714,482                352,999
   Commissions payable                                                      410,903                310,303
   Other liabilities                                                        594,187                528,507
                                                                  ------------------     ------------------

               Total Liabilities                                          9,644,266              9,123,809
                                                                  ------------------     ------------------

Commitments and contingencies (Note 6)

Shareholders' Equity:

   Common stock, $.02 stated value, 45,000,000 shares
      Authorized; 23,311,944 shares issued and outstanding                  466,239                466,239
   Additional paid-in capital                                            14,308,230             14,308,230
   Accumulated other comprehensive income (loss)                          (897,523)                208,289
   Accumulated deficit                                                  (9,507,707)            (9,714,686)
   Treasury stock, at cost, 138,795 shares                                 (64,105)               (64,105)
                                                                  ------------------     ------------------

               Total Shareholders' Equity                                 4,305,134              5,203,967
                                                                  ------------------     ------------------

               Total Liabilities and Shareholders' Equity               $13,949,400            $14,327,776
                                                                  ==================     ==================

----------------------------------------------------------------------------------------------------------------------------------
The  accompanying  notes  are an  integral  part of the consolidated financial statements.

                                       E-2
</TABLE>

<PAGE>

<TABLE>
-----------------------------------------------------------------------------------------------------------------------------------
BNL FINANCIAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME
For the years ended December 31, 1999 and 1998
-----------------------------------------------------------------------------------------------------------------------------------
<CAPTION>

                                                                                      Year Ended December 31,
                                                                            -----------------------------------------
                                                                                    1999                   1998
                                                                             ------------------    ------------------
<S>                                                                      <C>                   <C>
Income:

   Premium income                                                                  $29,730,251            $21,054,713
   Net investment income                                                               775,148                807,342
   Realized gains                                                                       27,745                 57,563
                                                                             ------------------    -------------------

               Total Income                                                         30,533,144             21,919,618
                                                                             ------------------    -------------------

Expenses:

   Increase in liability for future policy benefits                                     83,703                 39,224
   Policy benefits and other insurance costs                                        24,954,260             18,971,791
   Amortization of deferred policy acquisition costs                                    27,732                 53,778
   Operating expenses                                                                4,390,661              3,431,929
   Taxes, other than on income                                                         869,809                669,648
                                                                             ------------------    -------------------

                Total Expenses                                                      30,326,165             23,166,370
                                                                             ------------------    -------------------

                Income (Loss) from Operations before
                     Income Taxes                                                      206,979            (1,246,752)

   Provision for income taxes                                                             -                      -
                                                                             ------------------    -------------------

               Net Income (Loss)                                                      $206,979           ($1,246,752)
                                                                             ==================    ===================

Net income (loss) per common share (basic and diluted)                                   $0.01                $(0.05)
                                                                             ==================    ===================

Weighted average number of fully
    paid common shares                                                              23,311,944             23,311,944
                                                                             ==================    ===================

Other comprehensive income, net of tax:
     Unrealized gains on securities:
          Unrealized holding gain (loss) arising
             during period                                                        $(1,078,067)              $  95,323
       Reclassification adjustment for loss included
           in net income                                                              (27,745)               (57,563)
                                                                             ------------------    -------------------

                Other comprehensive income (loss)                                  (1,105,812)                 37,760
                                                                             ------------------    -------------------

                Comprehensive Loss                                                  ($898,833)           ($1,208,992)
                                                                             ==================    ===================


----------------------------------------------------------------------------------------------------------------------------------
The  accompanying  notes  are an  integral  part of the consolidated financial statements.

                                       E-3
</TABLE>
<PAGE>
<TABLE>

-----------------------------------------------------------------------------------------------------------------------------------
FINANCIAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
For the years ended December 31, 1999 and 1998
-----------------------------------------------------------------------------------------------------------------------------------
<CAPTION>


                                                                                                        Accumulated
                                         Common Stock               Additional                             Other
                              -------------------------------        Paid-In           Accumulated      Comprehensive      Treasury
                                  Shares            Amount           Capital             Deficit            Income          Stock
                              --------------    -------------    ---------------    ----------------     ------------    ----------
<S>                           <C>               <C>              <C>                <C>                  <C>             <C>
Balance, January 1, 1998         23,311,944         $466,239        $14,308,230         $(8,467,934)        $170,530      $(64,105)

Accumulated other
     comprehensive income           -                   -                 -                   -               37,759           -
Net loss                            -                   -                 -              (1,246,752)             -             -
                              --------------    -------------     --------------    -----------------    -------------- ------------

Balance, December 31, 1998       23,311,944         $466,239        $14,308,230         ($9,714,686)        $208,289      ($64,105)
                              ==============    =============     ==============    =================    ============== ============

Accumulated other
     comprehensive loss            -                    -                 -                   -           (1,105,812)          -
Net income                         -                    -                 -                 206,979              -             -

                              --------------    -------------     --------------    -----------------    --------------  -----------

Balance, December 31, 1998       23,311,944         $466,239        $14,308,230         ($9,507,707)        $(897,523)     ($64,105)
                              ==============    =============     ==============    =================    ==============  ===========

























-----------------------------------------------------------------------------------------------------------------------------------
The  accompanying  notes  are an  integral  part of the consolidated financial statements.

                                       E-4
</TABLE>
<PAGE>


<TABLE>
-----------------------------------------------------------------------------------------------------------------------------------
BNL FINANCIAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the years ended December 31, 1999 and 1998
-----------------------------------------------------------------------------------------------------------------------------------
<CAPTION>
                                                                                                Year Ended December 31,
                                                                                         ----------------------------------
                                                                                                1999               1998
                                                                                         ---------------    ---------------
<S>                                                                                      <C>                <C>
Cash flows from operating activities:

     Net income (loss)                                                                          $ 206,979       ($1,246,752)
     Adjustments to reconcile net loss to net cash
        Used in operating activities:
            Realized gains on investments                                                        (28,399)           (57,563)
            Realized loss on sale of furniture and equipment                                          654                 -
            Depreciation                                                                          133,364             96,670
            Amortization of deferred acquisition costs,
               Organization costs and state licenses acquired                                      30,841              3,109
            Accretion of bond discount                                                                285            (3,647)
        Change in assets and liabilities:
             Increase in accrued investment income                                                  2,315             29,390
             Increase in receivable from reinsurer                                                (6,520)            (6,854)
             Increase in premiums due and unpaid                                                (149,155)          (255,993)
             Increase in liability for future policy benefits                                      90,224             46,078
             Increase in policy claims payable                                                    221,000          1,139,545
             Decrease  in annuity deposits and deferred profits                                 (297,568)          (171,654)
             Increase (decrease) in premium deposit funds                                           3,862           (12,856)
             Increase in advanced and unallocated premium                                         361,483             24,185
             Increase in commissions payable                                                      100,599            125,626
             Other, decrease                                                                       11,029            215,667
                                                                                           ---------------    ---------------

                    Net Cash Provided by (Used In) Operating Activities                           680,993           (75,049)
                                                                                           ---------------    ---------------

Cash flows from investing activities:

     Proceeds from sales of investments                                                           420,000            249,000
     Proceeds from maturity or redemption of investments                                        2,562,937         10,427,683
     Proceeds from sale of furniture and equipment                                                  4,000                 -
     Purchase of furniture and equipment                                                        (250,449)          (163,012)
     Purchase of fixed maturity securities                                                    (4,400,000)        (8,800,110)
                                                                                           ---------------    ---------------

                     Net Cash Provided By (Used In) Investing Activities                      (1,663,512)          1,713,561
                                                                                           ---------------    ---------------

Cash flows from financing activities:

     Net receipts (payments)
                  on supplementary contracts                                                     (24,825)             73,912
                                                                                           ---------------    ---------------

                      Net Cash Provided By (Used In) Financing Activities                        (24,825)             73,912
                                                                                           ---------------    ---------------

Net increase (decrease) in cash and cash equivalents                                          (1,007,344)          1,712,424

Cash and cash equivalents, beginning of period                                                  2,426,963            714,539
                                                                                           ---------------    ---------------

Cash and cash equivalents, end of period                                                       $1,419,619         $2,426,963
                                                                                           ===============    ===============





-----------------------------------------------------------------------------------------------------------------------------------
The  accompanying  notes  are an  integral  part of the consolidated financial statements.

                                       E-5

-----------------------------------------------------------------------------------------------------------------------------------

</TABLE>
<PAGE>


--------------------------------------------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

-------------------------------------------------------------------------------


1.  Summary of Significant Accounting Policies:
    ------------------------------------------

The  consolidated  financial  statements  include the accounts of BNL  Financial
Corporation and its wholly owned subsidiaries,  BNL Equity Corporation,  Brokers
National Life Assurance Company (BNLAC), BNL Brokerage Corporation and Consumers
Protective  Association,  Inc. All significant  intercompany  balances have been
eliminated.

The preparation of financial  statements in conformity  with generally  accepted
accounting principles requires management to make estimates and assumptions that
affect  the  reported  amounts  of assets  and  liabilities  and  disclosure  of
contingent  assets and  liabilities at the date of the financial  statements and
the  reported  amounts of revenues  and expenses  during the  reporting  period.
Actual results could differ from those estimates.

The Company's  principal  activity is the sale of individual  and group life and
accident and health insurance within the United States. The Company's plan is to
utilize dental  insurance to attract agents who will market other BNLAC products
along  with  dental.  The  significant  premium  growth is  primarily  due to an
increase  in sales of dental  insurance  for which the  maximum  annual risk per
policy is $2,000.  See Note 10. The  Company is licensed to sell in 26 states as
of December  31,  1999.  See Note 2.  Substantially  all of the  Company's  life
insurance in force is nonparticipating business.

Premiums  from  accident  and health  insurance  are reported as earned when due
since these policies are short duration contracts.

Benefits  and expenses are  associated  with earned  premiums so as to result in
recognition  over the life of the policy.  Such  recognition is  accomplished by
means of the provision for future policy  benefits and  amortization of deferred
policy acquisition costs.

Costs of  acquiring  new business  and certain  expenses of policy  issuance and
underwriting  have been deferred. These deferred policy  acquisition  costs are
being amortized over the  premium-paying  period of the policies  (maximum of 30
years) in  proportion  to the ratio of annual  premium  revenue to total premium
revenue  anticipated.  As  described  in Note 11,  lapse rate  assumptions  were
revised to reflect actual  experience and reduce the deferred  acquisition costs
to correspond to remaining active policies.

Liability  for  future  policy  benefits  for  traditional  and  limited-payment
contracts has been  determined  primarily by the net level premium  method using
the 1975 through 1980 Select and Ultimate Mortality Table,  interest assumptions
starting  at 7%  graded  to 5% at the end of the  sixteenth  year and  estimated
future withdrawals based upon Linton Tables B or C.

For annuity  contracts  without mortality risk, net premium deposits and benefit
payments are recorded as  increases or decreases in a liability  account  rather
than as revenue and expense.  Expenses  incurred and fees charged upon  issuance
are deferred and recognized in  relationship  to the amount of funds held.  This
deferred  annuity  profit  is  being  amortized  based on  lapse  and  mortality
assumptions  (maximum of 30 years) which were revised as described in Note 11 to
reflect  actual  experience.  Increases  in the  liability  account for interest
credited to  contracts  are charged to expense.  The interest  rate  assumptions
ranged from 5.5% to 6.75% during 1999 and 1998.

The liability for policy claims  payable is composed of claims  reported but not
paid and claims incurred but not reported. The Company has developed a procedure
for  calculating  incurred but not reported  dental  claims based on prior years
claims using dates incurred,  reported to the insurance company and subsequently
paid.

The Company classifies its fixed maturity  investments as investments  available
for sale.  Such  securities  may be sold prior to maturity  due to changes  that
might occur in market interest rates, changes in the security's prepayment risk,
the Company's  liquidity  needs,  and similar  factors,  including the Company's
asset/liability management strategy.  Investments available for sale are carried
at fair  value.  Unrealized  gains and  losses  resulting  from  changes  in the
valuation  of  fixed  maturity   securities  are  recorded  as  a  component  of
comprehensive  income.  Realized  gains or  losses  on sale of  investments  are
determined on a specific identification basis.  Investments in equity securities
are carried at fair value.

Cash equivalents are carried at amortized cost, which  approximates  fair value.
Cash equivalents  represent other  short-term  securities and US Treasury Bills.
For purposes of the  Statement of Cash Flows,  the Company  considers all highly
liquid short-term  investments to be cash equivalents.  For purpose of cash flow
disclosures,  there have been no material  federal income taxes or interest paid
for 1999 or 1998.

Furniture  and  equipment  are  recorded  at cost.  Maintenance  and repairs are
charged to expense as incurred.  Provision for depreciation is made on the basis
of estimated useful lives of 3 to 10 years utilizing the  straight-line  method.
Accumulated  depreciation totaled $560,184 and $473,767 at December 31, 1999 and
1998, respectively.  Depreciation expense was $133,364 and $96,670 for the years
ended December 31, 1999 and 1998, respectively.
<PAGE>

                                       E-6

1.  Summary of Significant Accounting Policies (continued):
    ------------------------------------------------------

Other  assets  include  agents'  balances of $57,808 and $47,816 at December 31,
1999 and 1998, respectively, after reduction for allowance of doubtful accounts.
Reductions in the allowance  account were a credit to bad debt expense  recorded
in operations  of ($9,000) and  ($13,389) for the years ended  December 31, 1999
and 1998, respectively.

Other assets also include the cost of 26 state licenses acquired in 1991 as part
of the Statesmen Life Insurance Company acquisition. Such licenses are amortized
over  the  related   estimated   life  of  the  license  (40  years)  using  the
straight-line method.  Amortization expense of approximately $3,109 was recorded
for each of the years ended December 31, 1999 and 1998.

The Company accounts for the 1994 brokers and agents stock option plan using the
fair value method as required by SFAS # 123. Under this method the fair value of
the options granted is recorded as expense at the date of grant. See Note 9.

Net gain (loss) per share is based on net loss divided by the  weighted  average
number of fully paid shares.

Effective January 1, 1998, the Company adopted Statement of Accounting Standards
#130,  "Reporting  Comprehensive  Income".  Under SFAS # 130,  enterprises  that
provide a full set of  financial  statements  that  report  financial  position,
results of  operations,  and cash flows should  report  comprehensive  income in
addition to net income on the Statement of Operations.

2.  Shareholders' Equity:
    --------------------

At  December  31, 1999 and 1998,  shareholders'  equity  includes  approximately
$3,876,000 and $4,630,000 respectively,  of BNLAC net assets,  substantially all
of which are restricted  from  distribution  to the parent  company  without the
prior approval of the Arkansas Insurance Department.

BNLAC reports to state  regulatory  authorities on a statutory  accounting basis
that  differs  from  the  basis  used  herein.  Due  to an  Arkansas  regulatory
requirement  associated with the  redomestication in 1994, BNLAC must maintain a
minimum of $2,300,000 in capital and surplus. Additionally,  each state in which
BNLAC is licensed  has  statutory  minimum  capital  requirements  required  for
maintaining its license to sell.  Minimum capital and surplus  requirements vary
from $300,000 to as much as $3,000,000 in the states in which BNLAC is licensed.
The two states with the greatest capital and surplus requirements  accounted for
less than one  percent of gross  income in 1999.  The  ability of the Company to
continue  its  premium  growth and to  continue  marketing  its  products in its
current market areas is dependent on management's  efforts to maintain  adequate
capital and surplus.

The states periodically  increase minimum capital  requirements,  often allowing
companies with existing  Certificates of Authority to continue doing business in
the state under the previous existing requirements  (grandfathering).  States in
which BNLAC is licensed to do business have increased minimum requirements to as
much as $5,000,000.  Management actively monitors these developments to maintain
compliance  with the  requirements  of each state. In February 1999, the Company
was notified  that the State of Washington  had  increased  its paid-in  capital
requirements  from $1,200,000 to $2,400,000.  Insurance sales in Washington were
less than 1% of total  premium and  management  believes  that it was not in the
Company's  best  interest  to  invest  additional  surplus  funds at this  time.
Therefore,  the Company  voluntarily  withdrew its Certificate of Authority from
the State of Washington.

Capital and  surplus and net loss of BNLAC as reported on a statutory  basis are
as follows:

                                            December 31,
                              -----------------------------------------
                                    1999                  1998
                                    ----                  ----

Capital and surplus             $4,130,351             $3,995,706
                                ==========             ==========

Net income (loss)                 $335,458             ($999,128)
                                  ========             ==========

The following is a  reconciliation  of consolidated  net loss and  shareholders'
equity per the financial  statements included herein to BNLAC unconsolidated net
loss and capital and surplus on a statutory basis:

                                       E-7
<PAGE>

2.Shareholders' Equity (continued):
-------------------------------------------------------------------------------
<TABLE>
<CAPTION>

                                                          December 31, 1999                           December 31, 1998
                                                 --------------------------------------     --------------------------------------
                                                 Income/Loss        Capital and Surplus     Income/Loss        Capital and Surplus
                                                 ---------------  ---------------------     --------------   ----------------------
<S>                                              <C>             <C>                       <C>               <C>

Consolidated Reporting Under
  Generally Accepted Accounting Principles             $206,979              $4,305,135       ($1,246,752)              $5,203,966
Attributable to  Parent Company and BNL Equity          128,529                 428,703            355,625                 573,992
                                              -----------------  ----------------------  -----------------  ----------------------

Brokers National Life Assurance Company                 335,508               3,876,432          (891,127)               4,629,974
                                              -----------------  ----------------------  -----------------  ----------------------
Deferred Acquisition Costs                              $27,732              $(352,185)            $53,778              $(379,917)
Reserve and Premium Adjustments                           (121)                 154,507           (27,103)                 158,229
Interest Maintenance Reserve/AVR                        (3,829)               (388,472)           (32,547)               (379,454)
Unrealized Appreciation (Depreciation)
    of Securities                                           -                   785,038               -                  (307,667)
Annuity Deposits and Related Adjustments               (21,209)                 499,999          (150,845)                 521,211
Other                                                   (2,623)               (444,968)             48,716               (246,670)
                                              -----------------  ----------------------  -----------------  ----------------------

   BNLAC Statutory Basis                               $335,458              $4,130,351         ($999,128)              $3,995,706
                                              =================  ======================  =================  ======================
</TABLE>

3.  Income Taxes:
    ------------

The Company follows Statement of Financial  Accounting Standards (SFAS) No. 109,
"Accounting  for  Income  Taxes,"  which  prescribes  the  liability  method  of
accounting  for deferred  income taxes.  Under the liability  method,  companies
establish  a deferred  tax  liability  or asset for the  future  tax  effects of
temporary  differences  between  book and tax basis of assets  and  liabilities.
Changes in future tax rates will  result in  immediate  adjustments  to deferred
taxes.

The total net operating loss carryovers at December 31, 1999 were  approximately
$9,700,000 for income tax reporting. The net operating loss carryovers expire in
years 2000 - 2012. The Company and its  Subsidiaries  will file separate  income
tax returns for 1999.

A deferred tax asset of $3,500,000  resulted from net operating loss  carryovers
and temporary  differences  primarily related to the life insurance  subsidiary.
The Company has  recognized a  corresponding  valuation  allowance of $3,500,000
against the deferred tax asset. This represents a net decrease of $70,000 in the
deferred  tax  asset for 1999 and  corresponding  valuation  allowance  over the
previous  year.  The Company  recognized  no current or deferred  tax expense or
benefit.

4.  Investments:
    -----------

The amortized  cost and estimated  market value of investments in fixed maturity
securities are as follows:
<TABLE>
<CAPTION>

                                                                                Gross            Gross
                                                                             Unrealized        Unrealized       Estimated
December 31, 1999                                       Amortized Cost          Gains            Losses        Market Value
-----------------                                       ---------------    --------------    -------------    --------------
<S>                                                    <C>                 <C>               <C>              <C>

US Treasury securities and obligations of
   US government corporations and agencies                 $10,524,992          $ 88,021       ($828,099)        $9,784,914
Obligations of states and political subdivisions               297,871           -               (19,051)           278,820
Corporate securities                                           211,000           -               (25,003)           185,997
Mortgage-backed  securities
   GNMA                                                         10,257               307          -                  10,564
Public utility bonds                                           100,000           -               (15,450)            84,550
                                                        ---------------    --------------    -------------    --------------

Totals                                                     $11,144,120          $ 88,328       ($887,603)       $10,344,845
                                                        ===============    ==============    =============    ==============

                                       E-8
<PAGE>

4. Investments (continued):
   ------------------------

                                                                                                                   Gross
                                                                             Unrealized        Unrealized       Estimated
December 31, 1998                                        Amortized Cost         Gains            Losses        Market Value
-----------------                                       ---------------    --------------    -------------    --------------

US Treasury securities and obligations of
   US government corporations and agencies                  $8,870,176          $309,243        ($22,104)        $9,157,315
Obligations of states and political subdivisions               297,725            15,835          -                 313,560
Corporate securities                                           310,841             7,859          (1,055)           317,645
Mortgage-backed  securities
   GNMA                                                         14,257               321          -                  14,578
Public utility bonds                                           199,369             4,141            (400)           203,110
                                                        ---------------    --------------    -------------    --------------

Totals                                                      $9,692,368          $337,399        ($23,559)       $10,006,208
                                                        ===============    ==============    =============    ==============
</TABLE>

The amortized  cost and estimated  fair value of  investments  in fixed maturity
securities  at  December  31,  1999 by  contractual  maturity  are shown  below.
Expected maturities may differ from contractual maturities because borrowers may
have the right to call or prepay  obligations with or without call or prepayment
penalties  and because  most  mortgage-backed  securities  provide for  periodic
payments throughout their life.

                                                      December 31, 1999
                                              ----------------------------------
                                                                     Estimated
                                               Amortized Cost      Market Value
                                             ---------------    ---------------

Due in one year or less                            $ 149,911          $ 150,150
Due after one year through five years              1,029,383            992,203
Due after five years through ten years             2,097,103          1,932,760
Due after ten years                                7,857,466          7,259,168
                                             ---------------    ---------------
                                                  11,133,863         10,334,281
Mortgage-backed securities                            10,257             10,564
                                             ---------------    ---------------

                                                 $11,144,120        $10,344,845
                                             ===============    ===============

Proceeds from sales and maturities of  investments in fixed maturity  securities
for the years ended December 31, 1999 and 1998 were $2,982,927 and  $10,676,683,
respectively.  Gross gains of $28,119  and $57,618 and gross  losses of $374 and
$55 were realized on those December 31, 1999 and 1998 sales, respectively.

Investment in equity  securities at December 31, 1999 and 1998 represents common
stock investments as follows:

                                     1999                       1998
                                     ----                       ----

                                Cost     Market Value     Cost      Market Value
                             -------    -------------  ---------   -------------

Banks, trusts and
     Insurance companies     $2 ,423          $2,062     $2,423             $813
Industrial, savings
     And loans and other     105,700           1,250    105,700            1,760
                             --------    -----------   ----------  -------------

                            $108,123          $3,312   $108,123           $2,573
                            =========    ===========   ==========  =============



                                       E-9
<PAGE>

4. Investments (continued):
   ------------------------

Net  investment  income for the years  ended  December  31,  1999 and 1998 is as
follows:

                                                          December 31,
                                                -------------------------------
                                                     1999             1998
                                                 -------------    -------------

Interest on debt securities and
     cash investments                                $792,116         $827,902
Dividends on equity securities                        -                -
                                                 -------------    -------------

                                                      792,116          827,902
Investment expenses                                  (16,968)         (20,560)
                                                 -------------    -------------

Net investment income                                $775,148         $807,342
                                                 =============    =============


Net realized gains and losses are summarized below:

                                                           December 31,
                                                 ------------------------------
                                                     1999             1998
                                                 -------------    -------------

Debt securities                                       $27,745          $57,563
Equity securities                                         -                -
                                                 -------------    -------------

                                                      $27,745          $57,563
                                                 =============    =============


Included  in 1999 and 1998  realized  gains on debt  securities  is  $2,968  and
$1,815, respectively, of gains on taxable municipal bonds that were written down
in 1991 to 25% of par value  ($700,000)  for a total  realized loss of $522,282.
The taxable  municipal  bonds were of three issuers  whereby the proceeds of the
securities were invested in guaranteed  investment contracts (GICs) of Executive
Life  Insurance  Company  (Executive  Life).  Executive  Life was  placed  under
rehabilitation  by the California  regulators in 1991. In 1993, a rehabilitation
plan was approved and each year thereafter the Company has received a portion of
the principal in excess of the book value and back interest on the bonds.  As of
December  31,  1999  the  Company  has  received  a total of  $751,863  from the
rehabilitation plan.

5.  Fair Value of Financial Instruments
    -----------------------------------
<TABLE>
<CAPTION>

                                                                      1999                                     1998
                                                        ---------------- ----------------        ---------------- ----------------
                                                           Carrying           Fair                  Carrying           Fair
Assets                                                      Amount            Value                  Amount            Value
------                                                  ---------------- ----------------        ---------------- ----------------
<S>                                                     <C>              <C>                     <C>              <C>

Cash and Cash Equivalents
       (Note 1)                                             $ 1,419,619      $ 1,419,619    (a)      $ 2,426,963      $ 2,426,963(a)
Investments-fixed maturity, available for sale
       (Note 4 & Note 1)                                     10,344,845       10,344,845    (b)       10,006,208       10,006,208(b)
Investments -equity securities
       (Note 4 & Note 1)                                          3,313            3,313    (b)            2,573            2,573(b)
Other financial instruments-Assets                              329,018          329,018    (a)          327,702          327,702(a)
                                                        ---------------- ----------------        ---------------- ----------------

Total financial instruments-Assets                          $12,096,795      $12,096,795             $12,763,446      $12,763,446
                                                        ================ ================        ================ ================



                                      E-10
<PAGE>

5.  Fair Value of Financial Instruments (continued):
    ------------------------------------------------
                                                                      1999                                     1998
                                                        ---------------- ----------------        ---------------- ----------------
                                                           Carrying           Fair                  Carrying           Fair
Liabilities                                                 Amount            Value                  Amount            Value
-----------                                             ---------------- ----------------        ---------------- ----------------

Premium deposit funds                                         $ 118,703        $ 118,703    (a)        $ 114,841        $ 114,841(a)
Supplementary contracts without life contingencies
       (Note 1)                                                 105,120          105,120    (a)          129,944          129,944(a)
Annuity deposits
       (Note 1)                                               2,982,839        2,982,839    (a)        3,259,195        3,259,195(a)
                                                        ---------------- ----------------        ---------------- ----------------

Total financial instruments-Liabilities                      $3,206,662       $3,206,662              $3,503,980       $3,503,980
                                                        ================ ================        ================ ================
</TABLE>

(a) The  indicated  assets and  liabilities  are  carried at book  value,  which
    approximate fair value.

(b) Fair value of  investments is based on quoted market price or dealer quotes,
    when available. If quotes are not available, fair values are based on quoted
    prices of comparable instruments.

6.  Commitments and Contingencies:
    -----------------------------

     The Company, BNL Equity Corporation and several officers in the Company are
defendants in a pending class action lawsuit alleging  violation of the Arkansas
Securities  Act.  Subsequent  to year end the Arkansas  Supreme  Court  affirmed
certification  of the class.  The  Company  plans to appeal  that  ruling to the
United States Supreme Court. The Company expects to obtain a favorable  judgment
in the case and believes the action is frivolous and that  substantial  evidence
exists which directly refutes the allegations.  However, the ultimate outcome of
this litigation is unknown at the present time.  Accordingly,  no provisions for
any liability that might result have been made in the financial statements.  The
Company has  expended a  substantial  amount to date in legal  expenses.  Future
litigation  costs are not estimable at this time. In the opinion of  management,
the  existing  litigation  is  without  merit and the  Company  intends  to seek
sanctions against appropriate parties to the extent permitted by law.

The Company has entered into noncancelable operating leases for office space and
equipment. Future minimum payments under the leases are as follows:

                                         2000                         $170,000
                                         2001                          160,000
                                         2002                          153,000
                                         2003                          143,000
                                         Thereafter                    213,000
                                                                --------------

                                         Total                        $839,000
                                                                ==============

Related lease cost  incurred for the years ended  December 31, 1999 and 1998 was
$197,175 and $146,917, respectively.

The  Company's  wholly  owned  insurance  subsidiary  might be subject to losses
related to guaranty fund assessments.  Such assessments  result from liquidation
of troubled  insurers by state  regulators.  The assessment to BNLAC, if any, is
not  reasonably  estimable,  nor  expected  to  have a  material  effect  on the
financial statements.

Cash deposits in excess of federally insured limits are  approximately  $860,665
at December 31, 1999.

For information  regarding minimum capital requirements to maintain a license to
sell in various states, see Note 2.

7. Liability for Unpaid Claims

Activity in the liability for unpaid claims is summarized as follows.

                                         1999                     1998
                                   --------------           --------------
Balance at January 1                 $2,508,175               $1,368,630
   Less reinsurance recoverable           --                       --
                                   --------------           --------------
Net Balance at January 1              2,508,175                1,368,630
                                   --------------           --------------

<PAGE>

                                      E-11

7. Liability for Unpaid Claims (continued):
   ----------------------------------------
                                         1999                     1998
                                  --------------           --------------
Incurred related to:
   Current year                     $20,829,383              $16,120,733
   Prior years                          113,360                 (42,064)
                                  --------------           --------------
Total Incurred                       20,942,743               16,078,669
                                  --------------           --------------

Paid related to:
   Current year                      18,100,208               13,640,558
   Prior years                        2,621,535                1,298,566
                                  --------------           --------------
Total Paid                           20,721,743               14,939,124
                                  --------------           --------------

Net Balance at December 31            2,729,175                2,508,175
   Plus reinsurance recoverable            -                        -
                                  --------------           --------------
Balance at December 31               $2,729,175               $2,508,175
                                  ==============           ==============

8.  Reinsurance:
    -----------

Liability  for  future  policy  benefits  is  reported  before  the  effects  of
reinsurance.  Reinsurance  receivable  (including  amounts  related to insurance
liabilities)  is  reported  as  assets.   Estimated  reinsurance  receivable  is
recognized in a manner consistent with the liabilities related to the underlying
reinsurance  contracts.  Such amounts have been  presented  in  accordance  with
Statement  of  Financial  Standards  No.  113,  "Accounting  and  Reporting  for
Reinsurance  of Short  Duration  and Long  Duration  Contracts."  The Company is
liable if the reinsuring  companies are unable to meet their  obligations  under
the reinsurance agreements.

The Company  retains a maximum of $35,000 on any one risk for its life insurance
policies and reinsures the remainder with Business Mens Assurance  Company.  The
rating by A.M. Best Company of Business Mens Assurance Company, the primary life
reinsurer, was "A" (Excellent) for 1998.

The Company began  marketing a new Hospital  Indemnity  Plan in 1998 and retains
50% of the  risk.  The  remaining  risk  is born by a  reinsurer  considered  an
unauthorized  reinsurer  under  Arkansas  statutes.  The  reinsurance  agreement
requires the reinsurer to maintain a deposit or letters of credit in a qualified
institution  for the benefit of the Company,  in an amount equal to  liabilities
(insurance  reserves)  associated  with the  reinsured  risk,  as is required by
Arkansas  statute for  allowance of  accounting  recognition  of the decrease in
risk.

Following is a summary of reinsurance for December 31, 1999 and 1998:

<TABLE>

December 31, 1999                                                Ceded To         Assumed                            Percentage Of
-----------------                                                Other           From Other                              Amount
                                            Gross Amount        Companies        Companies          Net Amounts      Assumed to Net
                                           ---------------    -------------    --------------     --------------     -------------
<S>                                        <C>                <C>              <C>                <C>                <C>
Life Insurance in force  (in thousands)         $  31,213         $ 11,371           $ 9,986          $  29,828         33.5%
                                           ===============    =============    ==============     ==============     =============

Premiums-life insurance                         $ 323,302          $60,155          $ 28,617          $ 291,764          9.8%
Premiums-accident and health                   29,155,507           36,057            99,146         29,218,596          0.3%
                                           ---------------    -------------    --------------     --------------     -------------
Total insurance premiums                      $29,478,809          $96,212         $ 127,763        $29,510,360          0.4%
                                           ===============    =============    ==============     ==============     =============

December 31, 1998

Life Insurance in force  (in thousands)         $  34,877         $ 13,684           $ 9,229          $  30,422         30.3%
                                           ===============    =============    ==============     ==============     =============

Premiums-life insurance                         $ 350,829         $ 61,432          $ 25,654          $ 315,051          8.0%
Premiums-accident and health                   20,507,123           29,133           -               20,477,990           -
                                           ---------------    -------------    --------------     --------------     -------------
Total insurance premiums                      $20,857,952         $ 90,565          $ 25,654        $20,793,041          0.1%
                                           ===============    =============    ==============     ==============     =============
</TABLE>



                                      E-12
<PAGE>

9.  Benefit Plans for Certain Brokers/Agents and Employees
    ------------------------------------------------------
In 1994, the Board of Directors and  shareholders  approved the 1994 Brokers and
Agents'  Nonqualified  Stock Option Plan. This plan was established as incentive
to sales persons of BNLAC.  Initially  250,000 shares were  available  under the
plan.  On November 17, 1997,  the Board of Directors  authorized  an  additional
500,000  shares.  The option  period may not exceed a term of five years and the
duration  of the  plan  is ten  years.  A  four-member  committee  of  Directors
administers  the plan.  During  1999 and 1998 the  Company  granted  185,150 and
255,575 stock options,  respectively,  with an exercise price of $.50 per share.
There were 750,500  stock options  outstanding  at December 31, 1999. No options
have been exercised  since  inception of the plan.  Under the fair value method,
total compensation  recognized for grant of stock options was $0. The fair value
of  options  granted  is  estimated  at  $600  and  $1,650  in  1999  and  1998,
respectively.  These values were computed using a binomial  method as prescribed
in SFAS 123 and certain  assumptions  include a risk free interest rate of 6.0%,
expected life of 3.0 years, expected volatility of 12% and no expected dividends
due to statutory  limitations.  The estimated weighted average remaining life of
the options is 1.9 years.  The options do not have a dilutive effect on earnings
per share at this time, but may have such an effect in the future. See Note 1.

The Company  has a stock  bonus plan for the benefit of certain  officers of the
Corporation.  The plan  provides  for a bonus  based on  consolidated  after-tax
profits subject to specified  limits.  The bonus amount,  net of taxes,  will be
used to  purchase  stock in the Company on the open  market.  No stock bonus was
granted in 1999 or 1998.

The Company has an Employee  Pension  Plan that is a qualified  retirement  plan
under the Internal Revenue Code. All employees who have attained age 21 and have
completed one year of service are eligible to contribute. Employer contributions
are discretionary and the Company did not contribute in 1999 or 1998.

10.  Concentrations
     --------------
The majority of the Company's  premium income growth and gross income  continues
to be generated by the dental insurance  products.  This concentration makes the
Company  increasingly  dependent  upon the success of this block of business and
any economic factors and risks unique to dental insurance. See Note 1.

11.  Change in Accounting Estimate
     -----------------------------
Actuarial  estimates relating to the amortization of deferred  acquisition costs
and deferred liability reserves  associated with an annuity product were revised
in 1998 after it was  determined  that lapse  rate  assumptions  used to compute
these  deferrals  were  significantly  different  from actual lapse  rates.  The
cumulative  effect of this change in estimate  was recorded in 1998 as a $72,104
net  increase  to current  year  income as is  required  by  generally  accepted
accounting  principles.  Of this current  adjustment,  $68,951 of the amount was
attributable to prior years.

12.  Subsequent Events
     -----------------
No events have  occurred  subsequent  to the close of the books on December  31,
1999, which have a material effect on the financial condition of the Company.

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<PAGE>

--------------------------------------------------------------------------------
BNL FINANCIAL CORPORATION AND SUBSIDIARIES
REPORT OF INDEPENDENT ACCOUNTANTS

 -------------------------------------------------------------------------------

To the Board of Directors and Shareholders
BNL Financial Corporation and Subsidiaries

We have audited the  accompanying  Consolidated  Balance Sheets of BNL Financial
Corporation  and  Subsidiaries  as of December 31, 1999 and 1998 and the related
Consolidated  Statements  of Operations  and  Comprehensive  Income,  Changes in
Shareholders'   Equity,   and  Cash  Flows  for  the  years  then  ended.  These
consolidated  financial  statements  are  the  responsibility  of the  Company's
management.  Our  responsibility is to express an opinion on these  consolidated
financial statements based on our audits.

We  conducted  our  audits  in  accordance  with  generally   accepted  auditing
standards. Those standards require that we plan and perform the audits to obtain
reasonable assurance about whether the financial statements are free of material
misstatement.  An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements.  An audit also includes
assessing the  accounting  principles  used and  significant  estimates  made by
management,  as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the consolidated  financial statements referred to above present
fairly, in all material  respects,  the consolidated  financial  position of BNL
Financial Corporation and Subsidiaries as of December 31, 1999 and 1998, and the
consolidated  results of their operations and their  consolidated cash flows for
the  years  then  ended  in  conformity  with  generally   accepted   accounting
principles.

Oklahoma City, Oklahoma                                SMITH, CARNEY & CO., p.c
February 12, 2000



















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