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

                                   FORM 10-Q/A

                   QUARTERLY REPORT UNDER SECTION 13 OR 15 (d)
                     OF THE SECURITIES EXCHANGE ACT OF 1934

                For the quarterly period ended November 30, 2009

                         Commission file number 0-21210

                          JACOBS FINANCIAL GROUP, INC.
               --------------------------------------------------
             (Exact name of registrant as specified in its charter)


======================================== =====================================
               DELAWARE                               84-0922335
---------------------------------------- -------------------------------------
    (State or other jurisdiction of       (IRS Employer Identification No.)
            incorporation)
======================================== =====================================


               300 SUMMERS STREET, SUITE 970, CHARLESTON, WV 25301
               ---------------------------------------------------
                (Address of principal executive offices) (Zip Code)

       Registrant's telephone number, including area code: (304) 343-8171
                                                           --------------


Indicated  by a 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  proceeding  12 months  (or for such  shorter  period  that the
registrant was required to file such reports),  and (2) has been subject to such
filing requirements for the past 90 days.

               Yes[X]                              No[ ]

Indicate by check mark whether the registrant is a large  accelerated  filer, an
accelerated filer, a non-accelerated filer, or a smaller reporting company.

Large accelerated filer           [  ]        Accelerated filer          [  ]
Non-accelerated filer             [  ]        Smaller reporting company  [X]


<PAGE>

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

               Yes[  ]                             No[X]

Indicate the number of shares outstanding of each of the registrant's classes of
common stock, as of the latest  practicable date:  207,533,087  shares of common
stock as of January 19, 2010.




































                                      -2-

<PAGE>

EXPLANATORY NOTE

This Amendment No. 1 on Form 10-Q/A amends our Quarterly Report on Form 10-Q for
the quarter ended November 30, 2009, as initially  filed with the Securities and
Exchange  Commission  on January  19,  2010.  This  Amendment  is being filed to
correct  an error in the  reporting  of  accrued  but  unpaid  (and  undeclared)
dividends.  These accrued but unpaid (and  undeclared)  dividends  relate to the
Series B Shares  exchanged (i.e., the Series B Amount) that were carried over to
Series C shares, and had initially been reported as liabilities. The Company has
now determined that the Series B amount,  like the subsequent accrued but unpaid
(and  undeclared)  dividends  on the Series C Shares of the Series C Face Amount
should be included with the  underlying  Series C Preferred  Stock in the equity
section of the balance sheet incident to the recapitalization.

Except  for the  aforementioned  corrections,  this  Form  10-Q/A  continues  to
describe  conditions  as presented in the original  report on Form 10-Q filed on
January 19, 2010.  This Amendment does not reflect  events  occurring  after the
date of the Original  Filing,  or modify or update any disclosures that may have
been  affected  by  subsequent  events.  Except as  described  above,  all other
information included in the Original Filing remains unchanged.


PART I-- FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

The following financial statements are included herein in response to Item 1:




Financial Statements (Unaudited)                                         Page
                                                                   -------------

Consolidated Condensed Balance Sheets                                     F-1
Consolidated Condensed Statements of Operations                           F-2
Consolidated Condensed Statements of  Comprehensive Income (Loss)         F-3
Consolidated Condensed Statements of Cash Flows                           F-4
Consolidated Condensed Statement of Mandatorily Redeemable
  Preferred Stock and Stockholders Equity (Deficit)                    F-5 - F-8
Notes to Consolidated Condensed Financial Statements                      F-9














                                      -3-
<PAGE>
JACOBS FINANCIAL GROUP, INC.
CONSOLIDATED CONDENSED BALANCE SHEETS (UNAUDITED)
<TABLE>
<CAPTION>
                                                                            NOVEMBER 30,     MAY 31, 2009
                                                                                2009
                                                                           --------------   --------------
                                                                             (RESTATED)
<S>                                                                        <C>              <C>
ASSETS

INVESTMENTS AND CASH:

Bonds available for sale, at market value                                  $    913,593     $     908,766
(amortized cost - 11/30/09 $843,580; 05/31/09 $866,855)
Mortgage-back securities held to maturity, at amortized costs                 5,025,387         5,085,300
(market value - 11/30/09 $5,159,953; 05/31/09 $5,157,936)
Short-term investments, at cost (approximates market value)                     365,070           387,753
Cash                                                                            246,686            80,038
                                                                           --------------   --------------
                           TOTAL INVESTMENTS AND CASH                         6,550,736         6,461,857

Investment income due and accrued                                                27,487            28,124
Premiums and other accounts receivable                                           93,861            61,184
Prepaid reinsurance premium                                                     121,621            87,114
Funds deposited with Reinsurers                                                  79,040                 -
Deferred policy acquisition costs                                               104,879           143,173
Furniture and equipment, net of accumulated depreciation of
 $138,938 and $133,493 respectively                                              17,725            23,169
Other assets                                                                     29,288            43,517
Intangible assets                                                               150,000           150,000
                                                                           --------------   --------------
                                         TOTAL ASSETS                      $  7,174,637       $ 6,998,138
                                                                           ==============   ==============

LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)

Reserve for losses and loss expenses                                       $    530,344     $     432,658
Reserve for unearned premiums                                                   405,270           530,795
Accrued expenses and professional fees payable                                  515,784           470,099
Accounts payable                                                                383,080           268,066
Related party payable                                                           101,059            75,009
Demand note payable to related party                                              3,129             3,081
Notes payable                                                                 4,439,445         4,049,791
Accrued interest payable                                                        332,860           303,914
Ceded reinsurance payable                                                             -            92,173
Other liabilities                                                               163,338            78,470
SERIES B PREFERRED STOCK                                                      3,584,243                 -
                                                                           --------------   --------------
                                    TOTAL LIABILITIES                        10,458,552         6,304,056

Series A Preferred Stock, $.0001 Par value per share;
1 million shares authorized; 2,675 and 2,665 shares issued
and outstanding at November 30, 2009 and May 31, 2009, respectively;
stated liquidation value of $1,000 per share                                  2,936,744         2,860,670
Series B Preferred Stock, $.0001 par value per share; 3,136.405
and 9,941.341 shares authorized at November 30, 2009 and May 31, 2009,
respectively; 2,817.004 and 9,621.940 shares issued and outstanding at
November 30, 2009 and May 31, 2009, respectively; stated liquidation
value of $1,000 per share                                                             -        11,429,440
                                                                           --------------   --------------
                TOTAL  MANDATORILY  REDEEMABLE  PREFERRED  STOCK              2,936,744        14,290,110

COMMITMENTS AND CONTINGENCIES (SEE NOTES)

STOCKHOLDERS' EQUITY (DEFICIT)

Common  stock,  $.0001  par value per  share;  490  million  shares
authorized; 207,283,087 and  179,682,912 shares issued and outstanding
at November 30, 2009 and May 31, 2009,  respectively                             20,728            17,968

Additional paid in capital                                                    3,298,650         2,626,236

Series C Preferred Stock,  $.0001 par value per share; 10,000 shares
authorized; 6,804.936 and 0 shares issued and  outstanding at
November 30, 2009 and May 31, 2009,  respectively;  stated liquidation
value of $1,000 per share; includes $2,295,624 accrued Series C dividends     8,326,555                 -
Accumulated deficit                                                         (17,936,604)      (16,279,725)
Accumulated other comprehensive  income (loss)                                   70,012            39,493

                  TOTAL STOCKHOLDERS' EQUITY (DEFICIT)                       (6,220,658)      (13,596,028)
                                                                           --------------   --------------

TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)                       $  7,174,638     $   6,998,138
                                                                           ==============   ==============
</TABLE>
                             See accompanying notes
                                      F-1
<PAGE>
JACOBS FINANCIAL GROUP, INC,
CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS (UNAUDITED)


<TABLE>
<CAPTION>



                                                           THREE MONTHS ENDED                     SIX MONTHS ENDED
                                                              NOVEMBER 30,                          NOVEMBER 30,
                                                       -------------------------------       ------------------------------
                                                            2009             2008                 2009            2008
                                                       -------------    --------------       --------------  --------------
<S>                                                    <C>              <C>                  <C>             <C>
REVENUES:

Investment advisory services                           $     66,963     $     58,032         $    131,288    $    117,561
Insurance premiums and commissions                          208,517          161,531              422,850         319,037
Net investment income                                        71,260           73,163              143,503         141,843
Net realized investment gains (losses)                       (2,098)               -               (2,098)              -
Other income                                                    945                -                5,767               -
                                                       -------------    --------------       --------------  --------------
                                   TOTAL REVENUES           345,587          292,726              701,310         578,441


EXPENSES:

Incurred policy losses                                       49,501           48,249               97,686          93,033
Insurance policy acquisition costs                           67,567           39,982              130,168          79,011
General and administrative                                  327,712          402,725              728,325         938,664
Mutual fund costs                                            36,587           31,773               74,913          73,340
Depreciation                                                  2,649            3,300                5,445           6,496
                                                       -------------    --------------       --------------  --------------
                                   TOTAL EXPENSES           484,016          526,029            1,036,537       1,190,544
                                                       -------------    --------------       --------------  --------------

                 NET INCOME (LOSS) FROM OPERATIONS         (138,429)        (233,303)            (335,227)       (612,103)

Interest expense                                           (181,815)        (116,231)            (509,099)       (235,009)
Interest income                                                   -                2                    -             852
                                                       -------------    --------------       --------------  --------------

                                 NET INCOME (LOSS)         (320,244)        (349,532)            (844,326)       (846,260)

Accretion of Mandatorily Redeemable Convertible
 Preferred Stock, including accrued dividends              (393,693)        (400,277)            (812,553)       (789,576)
                                                       -------------    --------------       --------------  --------------

 NET INCOME (LOSS) ATTRIBUTABLE TO COMMON STOCKHOLDERS $   (713,937)    $   (749,809)        $ (1,656,879)   $ (1,635,836)
                                                       =============    ==============       ==============  ==============


BASIC AND DILUTIVE NET INCOME (LOSS) PER SHARE:

  NET INCOME (LOSS) PER SHARE                          $          -     $          -         $      (0.01)   $      (0.01)
                                                       =============    ==============       ==============  ==============


  WEIGHTED-AVERAGE SHARES OUTSTANDING                   198,663,501      173,595,579          189,857,107     171,117,806
                                                       =============    ==============       ==============  ==============
</TABLE>




                             See accompanying notes
                                      F-2
<PAGE>
JACOBS FINANCIAL GROUP, INC,
CONSOLIDATED CONDENSED STATEMENTS OF COMPREHENSIVE INCOME (LOSS) (UNAUDITED)

<TABLE>
<CAPTION>




                                                                                   THREE MONTHS ENDED        SIX MONTHS ENDED
                                                                                       NOVEMBER 30,             NOVEMBER 30,
                                                                               -------------------------- -------------------------
                                                                                    2009          2008        2009         2008
                                                                               ------------  ------------ ------------ ------------
<S>                                                                            <C>           <C>         <C>           <C>

COMPREHENSIVE INCOME (LOSS):

Net income (loss) attributable to common stockholders                          $ (713,937)   $ (749,809) $ (1,656,879) $(1,635,836)


OTHER COMPREHENSIVE INCOME (LOSS):

 Net unrealized gain (loss) of available-for-sale
 investments arising during period                                                 23,000       (18,506)       28,421      (23,378)

 Reclassification adjustment for realized (gain)
 loss included in net income                                                        2,098             -         2,098            -
                                                                               ------------  ------------ ------------ ------------

 Net unrealized gain (loss) attributable to
 available-for-sale investments recognized in other
 comprehensive income                                                              25,098       (18,506)       30,519      (23,378)
                                                                               ------------  ------------ ------------ ------------

COMPREHENSIVE INCOME (LOSS) ATTRIBUTABLE TO COMMON STOCKHOLDERS                 $(688,839)    $(768,315)  $(1,626,360) $(1,659,214)
                                                                               ============  ============ ============ ============

</TABLE>

















                             See accompanying notes
                                      F-3

<PAGE>
JACOBS FINANCIAL GROUP, INC,
CONSOLIDATED CONDENSED STATEMENT OF CASH FLOWS (UNAUDITED)
<TABLE>
<CAPTION>

                                                          THREE MONTHS ENDED NOVEMBER 30,    SIX MONTHS ENDED NOVEMBER 30,
                                                               2009           2008                2009           2008
                                                            ----------    ------------        ------------  -------------
<S>                                                        <C>            <C>                <C>            <C>

CASH FLOWS FROM OPERATING ACTIVITIES

Net Income (Loss)                                          $ (320,244)    $ (349,532)        $ (844,326)    $ (846,260)

Adjustments  to reconcile  net income  (loss)
 to net cash  provided by (used in) operating activities:

Unearned premium                                             (160,985)       (68,545)          (160,032)       (23,191)
Stock option expense                                           34,105         13,491            172,995         26,982
Stock issued (or to be issued) in connection with
financing arrangements                                         10,208         10,671            234,094         31,828
Provision for loss reserves                                    49,501         48,249             97,686         93,033
Amortization of premium                                        16,732         10,381             31,605         19,145
Depreciation                                                    2,649          3,300              5,444          6,495
Premium and other receivables                                 (28,118)        (8,283)           (32,677)       (13,324)
Accretion of discount                                          (4,638)        (2,396)            (9,217)        (3,674)
Investment income due and accrued                                 814            351                 (3)        (6,740)
Deferred policy acquisition costs                              53,855         13,655             38,294         10,499
Change in operating assets and liabilities:
 Other assets                                                   9,448         75,374             16,647        190,072
 Related party accounts payable                                10,525          5,675             26,050         (1,083)
 Accounts payable and cash overdraft                           57,097         48,629            115,014        (10,930)
 Accrued expenses and other liabilities                        94,384        (31,708)           (11,714)        73,110
                                                            ----------    ------------        ------------  -------------

       NET CASH FLOWS FROM (USED IN) OPERATING ACTIVITIES    (174,667)      (230,688)          (320,140)      (454,038)

CASH FLOWS FROM INVESTING ACTIVITIES

(Increase) decrease in short-term investments                 (52,825)       276,751             22,683      1,129,323
Costs of bonds acquired                                             -       (356,101)                 -       (556,101)
Costs of mortgaged-backed securities acquired                (223,744)      (456,220)          (620,087)    (1,998,787)
Redemption of bonds upon call or maturity                           -        200,000                  -        200,000
Repayment of mortgage-backed securities                       357,206        245,909            681,527        439,035
Purchase of furniture and equipment                                 -         (6,302)                 -         (6,302)
                                                            ----------    ------------        ------------  -------------

       NET CASH FLOWS FROM (USED IN) INVESTING ACTIVITIES      80,637        (95,963)            84,123       (792,832)

CASH FLOWS FROM FINANCING ACTIVITIES

Proceeds from related party debt                              149,935        278,500            256,532        306,500
Repayment of related party debt                              (153,969)        (3,400)          (256,484)       (32,400)
Proceeds from borrowings                                      315,000         15,000            632,500        955,000
Repayment of borrowings                                      (156,450)       (17,355)          (242,846)      (136,939)
Proceeds from issuance of Series A preferred stock                  -         56,000             10,000        174,000
Proceeds from exercise of common stock warrants                 1,168              -              2,963              -
                                                            ----------    ------------        ------------  -------------

   NET CASH FLOWS FROM FINANCING ACTIVITIES                   155,684        328,745            402,665      1,266,161

NET INCREASE (DECREASE) IN CASH                                61,654          2,094            166,648         19,291

CASH AT BEGINNING OF PERIOD                                   185,032         65,837             80,038         48,640
                                                            ----------    ------------        ------------  -------------

CASH AT END OF PERIOD                                       $ 246,686     $   67,931          $ 246,686     $   67,931
                                                            ==========    ============        ============  =============

SUPPLEMENTAL DISCLOSURES

 Interest paid                                             $    9,607     $  159,198          $ 267,078     $  167,325
 Income taxes paid                                                  -              -                  -              -

 Non-cash investing and financing transaction:
 Additional consideration paid for issuance of debt            10,208         10,671            234,094         31,828
</TABLE>

                             See accompanying notes
                                      F-4
<PAGE>
JACOBS FINANCIAL GROUP, INC.
CONSOLIDATED CONDENSED STATEMENT OF MANDATORILY REDEEMABLE PREFERRED STOCK AND
STOCKHOLDERS' EQUITY (DEFICIT) (UNAUDITED)
FOR THE THREE MONTH PERIOD ENDED NOVEMBER 30, 2009 (RESTATED)


                          SERIES A                 SERIES B
                   MANDATORILY REDEEMABLE    MANDATORILY REDEEMABLE
                                                  CONVERTIBLE
                      PREFERRED STOCK           PREFERRED STOCK
                     SHARES      AMOUNT        SHARES      AMOUNT
                     -------  -----------    ---------   -----------
BALANCE,
AUGUST 31, 2009       2,675   $ 2,902,070    9,621.940  $ 11,816,899

Issuance of
Series A and
B Preferred
Stock and
common stock              -             -            -             -

Issuance of
common stock
as additional
consideration
for financing
arrangements              -             -            -             -

Exercise of
warrants                  -             -            -             -

Accretion of
mandatorily
redeemable
convertible
preferred stock           -         4,440            -       111,567

Accrued
dividends of
mandatorily
redeemable
convertible
preferred
stock                     -        30,234            -       247,452

Exchange of
Series C
Preferred Stock
for Series B
Mandatorily
Reedemable
Convertible
Preferred Stock           -             -   (6,804.936)   (8,591,675)

Reclassification
of Series B
from temporary
equity to
liabilities               -             -   (2,817.004)   (3,584,243)

Expense of
common shares
to be issued
in connecetion
with financing
arrangements              -             -            -             -

Common stock
option expense            -             -            -             -

Unrealized net
gain on available
for sale securities       -             -            -             -

Net income (loss),
three month period
ended
November 30, 2009         -             -            -             -
                     -------  -----------    ---------   -----------
BALANCE,
NOVEMBER 30, 2009     2,675   $ 2,936,744            -   $         -
                     -------  -----------    ---------   -----------

                                                                (CONTINUED)

                             See accompanying notes
                                      F-5
<PAGE>
JACOBS FINANCIAL GROUP, INC.
CONSOLIDATED CONDENSED STATEMENT OF MANDATORILY REDEEMABLE PREFERRED STOCK AND
STOCKHOLDERS' EQUITY (DEFICIT) (UNAUDITED)
FOR THE THREE MONTH PERIOD ENDED NOVEMBER 30, 2009 (RESTATED)(CONTINUED)
<TABLE>
<CAPTION>
                        ------------------------------------------------------------------------------------------------------
                                                              STOCKHOLDERS' EQUITY (DEFICIT)
                        ------------------------------------------------------------------------------------------------------
                                      COMMON STOCK              SERIES C PREFERRED
                                      ------------              ------------------                  ACCUMULATED
                                                 ADDITIONAL                                           OTHER
                                                  PAID-IN                  AMOUNT     ACCUMULATED  COMPREHENSIVE
                           SHARES     AMOUNT      CAPITAL      SHARES     AND APIC     DEFICIT     INCOME (LOSS)     TOTAL
                        -----------   -------    ----------  ---------  ----------  -------------     -------     ------------
<S>                     <C>          <C>        <C>          <C>        <C>         <C>               <C>         <C>
BALANCE,
AUGUST 31, 2009         187,150,178  $ 18,715   $ 2,990,061          -     $     -  $(17,222,667)     $ 44,914   $(14,168,977)

Issuance of
Series A and
B Preferred
Stock and
common stock                      -         -             -                                    -             -              -

Issuance of
common stock
as additional
consideration
or financing
arrangements                      -         -             -                                    -             -              -

Exercise of
warrants                  1,168,395       117         1,052                                    -             -          1,169

Accretion of
mandatorily
redeemable
convertible
preferred stock                   -         -             -                             (116,007)            -       (116,007)

Accrued
dividends of
mandatorily
redeemable
convertible
preferred
stock                             -         -             -                             (277,686)            -       (277,686)

Exchange of
Series C
Preferred Stock
for Series B
Mandatorily
Reedemable
Convertible
Preferred Stock          13,609,872     1,361       263,759  6,804.936   8,326,555             -             -      8,591,675

Reclassification
of Series B
from temporary
equity to
liabilities

Expense of
common shares
to be issued
in connecetion
with financing
arrangements              5,354,642       535         9,673                                    -            -          10,208

Common stock
option expense                    -         -        34,105                                    -            -          34,105

Unrealized net
gain on available
for sale securities               -         -             -                                    -       25,098          25,098

Net income (loss),
three month period
ended
November 30, 2009                 -         -             -          -           -      (320,244)           -        (320,244)
                        -----------   -------    ----------  ---------  ----------  -------------     -------     ------------
BALANCE,
NOVEMBER 30, 2009       207,283,087   $20,728    $3,298,650  6,804.936  $ 8,326,555  $(17,936,604)     $70,012     $(6,220,659)
                        -----------   -------    ----------  ---------  ----------  -------------     -------     ------------
                        ------------------------------------------------------------------------------------------------------
</TABLE>
                             See accompanying notes
                                      F-6
<PAGE>
JACOBS FINANCIAL GROUP, INC.
CONSOLIDATED STATEMENT OF MANDATORILY REDEEMABLE PREFERRED STOCK AND
STOCKHOLDERS' EQUITY (DEFICIT)
FOR THE SIX MONTH PERIOD ENDED NOVEMBER 30, 2009 (RESTATED)


                          SERIES A                 SERIES B
                   MANDATORILY REDEEMABLE    MANDATORILY REDEEMABLE
                                                  CONVERTIBLE
                      PREFERRED STOCK           PREFERRED STOCK
                     SHARES      AMOUNT        SHARES      AMOUNT
                     -------  -----------    ---------   -----------
BALANCE,
MAY 31, 2009          2,665   $ 2,860,670    9,621.940  $ 11,429,440

Issuance of
Series A and
B Preferred
Stock and
common stock             10        10,000            -             -

Issuance of
common stock
as additional
consideration
for financing
arrangements              -             -            -             -

Exercise of
warrants                  -             -            -             -

Accretion of
mandatorily
redeemable
convertible
preferred stock           -         8,820            -       255,487

Accrued
dividends of
mandatorily
redeemable
convertible
preferred
stock                     -        57,254            -       490,991

Exchange of
Series C
Preferred Stock
for Series B
Mandatorily
Reedemable
Convertible
Preferred Stock           -             -   (6,804.936)   (8,591,675)

Reclassification
of Series B
from temporary
equity to
liabilities               -             -   (2,817.004)   (3,584,243)

Expense of
common shares
to be issued
in connecetion
with financing
arrangements              -             -            -             -

Common stock
option expense            -             -            -             -

Unrealized net
gain on available
for sale securities       -             -            -             -

Net income (loss),
six months
ended
November 30, 2009         -             -            -             -
                     -------  -----------    ---------   -----------
BALANCE,
NOVEMBER 30, 2009     2,675   $ 2,936,744            -   $         -
                     -------  -----------    ---------   -----------

                                                                (CONTINUED)

                             See accompanying notes
                                      F-7
<PAGE>
JACOBS FINANCIAL GROUP, INC.
CONSOLIDATED  STATEMENT OF MANDATORILY REDEEMABLE PREFERRED STOCK AND
STOCKHOLDERS' EQUITY (DEFICIT)
FOR THE SIX MONTH PERIOD ENDED NOVEMBER 30, 2009 (RESTATED)(CONTINUED)
<TABLE>
<CAPTION>
                        ------------------------------------------------------------------------------------------------------
                                                              STOCKHOLDERS' EQUITY (DEFICIT)
                        ------------------------------------------------------------------------------------------------------
                                      COMMON STOCK              SERIES C PREFERRED
                                      ------------              ------------------                  ACCUMULATED
                                                 ADDITIONAL                                           OTHER
                                                  PAID-IN                  AMOUNT     ACCUMULATED  COMPREHENSIVE
                           SHARES     AMOUNT      CAPITAL      SHARES     AND APIC     DEFICIT     INCOME (LOSS)     TOTAL
                        -----------   -------    ----------  ---------  ----------  -------------     -------     ------------
<S>                     <C>          <C>        <C>          <C>        <C>         <C>               <C>         <C>
BALANCE,
MAY 31, 2009            179,682,912  $ 17,968   $ 2,626,236          -     $     -  $(16,279,725)     $ 39,493   $(13,596,028)

Issuance of
Series A and
B Preferred
Stock and
common stock                      -         -             -          -           -             -             -              -

Issuance of
common stock
as additional
consideration
f or financing
arrangements                500,000        50        19,025          -           -             -             -         19,075

Exercise of
warrants                  2,963,668       297         2,668          -           -             -             -          2,965

Accretion of
mandatorily
redeemable
convertible
preferred stock                   -         -             -          -           -      (264,307)            -       (264,307)

Accrued
dividends of
mandatorily
redeemable
convertible
preferred
stock                             -         -             -          -           -      (548,245)            -       (548,245)

Exchange of
Series C
Preferred Stock
for Series B
Mandatorily
Reedemable
Convertible
Preferred Stock          13,609,872     1,361       263,759  6,804.936   8,326,555             -             -      8,591,675

Reclassification
of Series B
from temporary
equity to
liabilities                       -         -             -          -           -             -            -               -

Expense of
common shares
to be issued
in connecetion
with financing
arrangements             10,526,635     1,052       213,967          -           -             -            -         215,019

Common stock
option expense                    -         -       172,995                                    -            -         172,995

Unrealized net
gain on available                                                    -           -
for sale securities               -         -             -                                    -       30,519          30,519

Net income (loss),
six months period
ended
November 30, 2009                 -         -             -          -           -      (844,327)           -        (844,327)
                        -----------   -------    ----------  ---------  ----------  -------------     -------     ------------
BALANCE,
NOVEMBER 30, 2009       207,283,087   $20,728    $3,298,650  6,804.936  $8,326,555  $(17,936,604)     $70,012     $(6,220,659)
                        -----------   -------    ----------  ---------  ----------  -------------     -------     ------------
                        ------------------------------------------------------------------------------------------------------
</TABLE>
                             See accompanying notes
                                      F-8
<PAGE>


JACOBS FINANCIAL GROUP, INC.

NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (UNAUDITED)

NOTE A - BASIS OF PRESENTATION

The accompanying  unaudited financial  statements are of Jacobs Financial Group,
Inc.  (the  "Company" or "JFG").  These  financial  statements  were prepared in
accordance with generally accepted  accounting  principles for interim financial
information and Article 8-03 of Regulation S-X. Accordingly, they do not include
all of the information and footnotes required by generally  accepted  accounting
principles for complete financial statements. In the opinion of management,  all
adjustments  considered  necessary  for a fair  presentation  of the  results of
operations and financial condition for the periods presented have been included.
Such adjustments are of a normal recurring nature. The results of operations for
the three and six month periods  ended  November 30, 2009,  are not  necessarily
indicative of the results of operations that can be expected for the fiscal year
ending May 31, 2010.  For further  information,  refer to the Company's  audited
financial  statements  and  footnotes  thereto  included in Item 8. of Form 10-K
filed on September 14, 2009.

CORRECTION OF ERROR IN PREVIOUSLY ISSUED FINANCIAL STATEMENTS

The  previously  issued  financial  statements  have been restated to correct an
error in the reporting of accrued but unpaid (and  undeclared)  dividends on the
Series B shares  that  were  exchanged  for  Series C  shares.  These  dividends
amounting to $2,295,624 were originally recorded as a liability and are restated
to correctly  classify  them to the equity  section of the balance  sheet.  This
correction had no effect on the net income or cash flows of the Company.

RECLASSIFICATIONS

Certain amounts have been  reclassified in the  presentation of the Consolidated
Financial  Statements  as of  November  30,  2008  to  be  consistent  with  the
presentation in the Consolidated  Financial  Statements as of November 30, 2009.
This reclassification had no impact on previously reported net income, cash flow
from operations or changes in shareholder equity.

LIQUIDITY AND GOING CONCERN

These  financial  statements  are  presented  on the basis that the Company is a
going  concern.  Going concern  contemplates  the  realization of assets and the
satisfaction  of  liabilities in the normal course of business over a reasonable
length of time.  The Company  incurred  operating  losses  (after  accretion  of
mandatorily redeemable convertible preferred stock, including accrued dividends)
of approximately  $3,058,000 and $3,333,000 for the years ended May 31, 2009 and
2008 and has incurred  losses of  approximately  $714,000 and $1,657,000 for the
three and six month  periods  ended  November 30,  2009.  Losses are expected to
continue  until  the  Company's  insurance  company  subsidiary,   First  Surety
Corporation  ("FSC")  develops  substantial   business.   While  improvement  is
anticipated  as the business  plan is  implemented,  restrictions  on the use of
FSC's  assets  (See  Management's   Discussion  and  Analysis),   the  Company's
significant  deficiency  in  working  capital  and  stockholders'  equity  raise
substantial doubt about the Company's ability to continue as a going concern.

Effective  April 1, 2009, FSC entered into a reinsurance  agreement with Lloyd's
of London for its coal reclamation  surety bonding programs.  This agreement has
provided  additional  bonding  capacity to FSC and has enabled FSC to write more
bonds and of greater size for its coal reclamation  bonding clients.  Management
expects this reinsurance arrangement to allow FSC to expand its market share and
to  result  in  increased  cash  flow  for  each  of  the  Company's   operating
subsidiaries.

                                      F-9
<PAGE>
JACOBS FINANCIAL GROUP, INC.

NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (UNAUDITED)

Expansion  of  FSC's  business  to  other  states  is a key  component  of fully
implementing the Company's business plan.  Regulatory  approval and licensing is
required for each state in which FSC seeks to conduct business.  In fiscal 2009,
the  Company  was able to  increase  the  capital  of FSC and  reactivate  FSC's
insurance  license in Ohio and obtain  authority  to issue  surety bonds in that
state. However,  management has found that entry into other states (as a surety)
has been difficult without the benefit of more substantial capital and reserves,
due to FSC's  status as a new entry into this  market,  and based  upon  current
financial condition of the parent company.  This is the case notwithstanding the

reinsurance  agreement  entered  into by FSC  with  Lloyd's  of  London  and the
resulting  increase  in  bonding  capacity.  Management  believes  that if FSC's
capital  and  surplus  reserves  were  significantly  more  substantial  and the
financial condition of the Company was stabilized, entry into other states would
be less challenging.  Accordingly,  management  continues to pursue avenues that
can  provide  additional  capital to  increase  the  capacity  of its  insurance
subsidiary  and to fund  continuing  operations  as the  business is being fully
developed. In addition, as an alternative means of addressing access to markets,
management  is  seeking  to  establish  a  relationship  with any one of several
possible sureties that are licensed in those states other than West Virginia and
Ohio that comprise significant markets for the bonding programs of FSC and could
issue  surety bonds that are  underwritten  and  reinsured by FSC.  Under such a
"fronting"  arrangement,  the need for additional capital at the level of FSC to
facilitate  entry to other  state  markets  would  become  secondary,  since the
payment of a fronting fee to the insurance  company with active  licenses  would
provide access to the state market without formal entry.

During fiscal 2008 and the three month period ended August 31, 2008, the Company
completed two rounds of bridge financing  totaling an aggregate of $3,500,000 in
order to pay expenses of  operations  and to pay fees and  expenses  incurred or
expected to be incurred in connection  with a larger  permanent  financing.  The
Company was not able to meet its December  2008 or March 2009 loan  amortization
payments with respect to this  financing and, thus,  incurred  payment  defaults
with respect to these obligations. On June 5, 2009 the Company reached agreement
with the Holders to forbear from  exercising  their rights and remedies  arising
from the Acknowledged Events of Default. The Holders agreed that the Company may
satisfy  its  obligation  to make the  Initial  Amortization  Payments by making
additional  quarterly payments of $67,185 each,  commencing  September 10, 2009,
(See Note K), and continuing on the payment dates prescribed by the Amortization
Schedule for the Promissory Notes and ending on June 10, 2011 (collectively, the
"Payments"),  it being  understood that the Payments shall result in the payment
of the  principal  of  and  interest  on  the  unpaid  portion  of  the  Initial
Amortization  Payments  at the rate of 15.00 % per  annum  from  and  after  the
originally  scheduled payment dates. (See Note E). The Company paid the June 10,
2009 Initial  Amortization  Payment of $224,510 as scheduled but has not met the
September 10, 2009 or December 10, 2009 payments of $291,702  each.  The Company
maintains weekly contact with the Holders  regarding the unpaid payments and has
agreed to increase the interest rate by 2.00% (to 17.00%) while payments  remain
unpaid.

Given current  financial  market  conditions  and the  uncertainties  as to when
stability will return to the financial markets, until permanent financing can be
secured, management will strive to reduce and then eliminate operating losses by
implementing  further measures to control and reduce costs while maintaining and
growing the Company's  current revenue base.  Unless permanent  financing can be
secured,  future  revenue growth can be expected to be achieved at a slower pace
than has been  projected  by the  Company.  Until  such time that the  Company's
operating costs can be serviced by the Company's revenue stream, management will
continue  to seek to raise  additional  funds  for  operations  through  private
placements  of stock,  other  long-term or permanent  financing,  or  short-term

                                      F-10
<PAGE>

JACOBS FINANCIAL GROUP, INC.

NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (UNAUDITED)

borrowings.  However,  the  Company  cannot be  certain  that it will be able to
continue to obtain  adequate  funding in order to reasonably  predict whether it
will  be  able  to  continue  as a going  concern.  The  accompanying  financial
statements do not include any adjustments  that might result from the outcome of
this uncertainty.

NOTE B - RECENT ACCOUNTING PRONOUNCEMENTS

In August  2009,  the  Financial  Accounting  Standards  Board  ("FASB")  issued
Accounting   Standards  Update  2009-04,   "Accounting  for  Redeemable   Equity
Instruments - Amendment to Section 480-10-S99". This updates Section 480-10-S99,
"Distinguishing  Liabilities  from  Equity",  to reflect the SEC  staff's  views
regarding the application of Accounting Series Release No. 268, "Presentation in
Financial Statements of "Redeemable Preferred Stocks." The exchange for Series B
Preferred shares into Series C shares as elected by those shareholders  utilizes
the view of the SEC in  classifying  the  Series C  Preferred  shares as equity.
There is no stated maturity on the Series C Preferred  shares and at the time of
redemption  the Company  will  accrete  changes in the  redemption  value at the
appropriate  time.  These amounts will be adjusted at the end of each  reporting
period as applicable.

In August 2009, the FASB issued Accounting Standards Update 2009-05, "Fair Value
Measurements and Disclosures (Topic 820) - Measuring Liabilities at Fair Value".
This update includes  amendments to Subtopic 820-10 "Fair Value Measurements and
Disclosures  -  Overall"  for the fair value  measurements  of  liabilities  and
provides  clarification that in circumstances in which quoted price in an active
market for the  identical  liability  is not  available,  a reporting  entity is
required to measurefair  value using one or more of the techniques  provided for
in this  update.  This  Statement  is effective  for fiscal  years,  and interim
periods  within those fiscal years,  beginning on or after August 26, 2009.  The
application  of this  update  did not have a  material  impact on the  Company's
results of operations or financial position.

In  September  2009,  the  FASB  issued  Accounting  Standards  Update  2009-08,
"Earnings Per  Share-Amendments  to Section  260-10-S99".  This update  includes
technical  corrections to Topic 260-10-S99,  "Earnings Per Share", based on EITF
Topic  D-53,  "Computation  of Earnings  Per Share for a Period that  Includes a
Redemption or an Induced  Conversion of a Portion of a Class of Preferred Stock"
and EITF Topic D-42,  "The Effect of the  Calculation  of Earnings Per Share for
the Redemption or Induced  Conversion of Preferred  Stock".  The  application of
this  update  did not have an impact on the  Company's  results  of  operations,
therefore not requiring an additional earnings per share computation.

In December 2007, the FASB issued Statement No. 160 "Noncontrolling Interests in
Consolidated  Financial  Statements - An Amendment  of ARB 51".  This  statement
improves the relevance, comparability, and transparency of financial information
for the reporting  entity by  establishing  accounting  and reporting  standards
attributable to noncontrolling,  or minority, interests in subsidiaries included
in the reporting  entity's  consolidated  financial  statements.  This Statement
clarifies  that  a  noncontrolling  interest  in a  subsidiary  is an  ownership
interest  in the  consolidated  entity  that should be reported as equity in the
consolidated  financial  statements and requires  consolidated  net income to be
reported at amounts that include amounts attributable to both the parent and the
noncontrolling  interest.  The  Statement  also  provides  a single  method  for
accounting for changes in the parent's  ownership  interest in a subsidiary that
does not result in deconsolidation,  as well as recognition of gain or loss when
a subsidiary is  deconsolidated  as a result of an ownership change in which the
parent ceases to have a controlling  financial  interest in the subsidiary,  and
expanded  disclosures to clearly identify and distinguish  between the interests
of the  parent's  owners and the  interests  of the  noncontrolling  owners of a
subsidiary.  This Statement is effective for fiscal years,  and interim  periods

                                      F-11
<PAGE>
JACOBS FINANCIAL GROUP, INC.

NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (UNAUDITED)

within those fiscal  years,  beginning  on or after  December 15, 2008.  Earlier
adoption is prohibited.  This Statement shall be applied prospectively as of the
beginning  of the fiscal  year in which this  Statement  is  initially  applied,
except for the presentation and disclosure requirements,  which shall be applied
retrospectively for all periods presented.  The application of Statement No. 160
did not have a  material  impact  on the  Company's  results  of  operations  or
financial position.

In March 2008, the FASB issued Statement No. 161  "Disclosures  about Derivative
Instruments  and Hedging  Activities--an  amendment of FASB  Statement No. 133".
This Statement  changes the disclosure  requirements for derivative  instruments
and hedging  activities in order to provide  improved  transparency of financial
reporting with respect to derivative  instruments and hedging  activities.  This
Statement  is effective  for  financial  statements  issued for fiscal years and
interim  periods   beginning  after  November  15,  2008,  with  early  adoption
encouraged.  The  Company  does  not  currently  employ  the  use of  derivative
instruments  or engage  in  hedging  activities  and thus the  issuance  of this
Statement did not have any impact on the Company's current  financial  statement
disclosure requirements.

In May 2008,  the FASB  issued  Statement  No.  163  "Accounting  for  Financial
Guarantee  Insurance  Contracts - an  interpretation  of FASB Statement No. 60".
This  Statement  clarifies how  Statement No. 60 applies to financial  guarantee
insurance  contracts,  including the  recognition  and measurement to be used to
account  for  premium  revenue  and claim  liabilities.  A  financial  guarantee
insurance  contract  within  the  scope  of  this  Statement  generally  insures
investment securities in the form of municipal bonds or asset-backed securities.
FASB's  intent in setting the scope of this  Statement was to address the narrow
issue relating to those contracts for which diversity  existed in the accounting
for claim losses.  This Statement is effective for financial  statements  issued
for fiscal years  beginning  after  December 15, 2008,  and all interim  periods
within those  fiscal  years,  except for some  disclosures  about the  insurance
enterprise's  risk  management  activities,  which are  effective  for the first
interim period after issuance to the  Statement.  Except for those  disclosures,
earlier  application is not permitted.  The application of Statement No. 163 did
not have a material  impact on the Company's  results of operations or financial
position.

In June 2009,  the FASB  issued  SFAS No. 168,  "The FASB  Accounting  Standards
Codification and the Hierarchy of Generally Accepted  Accounting  Principles - A
Replacement  of  FASB  Statement  No.  162."  This  SFAS  establishes  the  FASB
Accounting  Standards  Codification  as the single  source of  authoritative  US
generally  accepted  accounting  principles.  SFAS  No.  168  is  effective  for
financial  statements  issued  for  interim  and  annual  periods  ending  after
September 15, 2009 (interim period starting  September 1, 2009 for the Company).
Management  does not  expect  the  application  of  Statement  No. 168 to have a
material impact on the Company's results of operations or financial position.

In June 2009, the FASB issued SFAS No. 167,  "Amendments to FASB  Interpretation
No. 46(R)." This statement  changes how a reporting  entity  determines  when an
entity that is  insufficiently  capitalized or is not controlled  through voting
(or similar rights) should be  consolidated.  New  disclosures  will be required
regarding  involvement  with  variable  interest  entities  and any  significant
changes in risk exposure due to that involvement. SFAS No. 167 will be effective
for the start of the first fiscal year  beginning  after November 15, 2009 (June
1, 2010 for the Company). This SFAS is not expected to have a material impact on
the Company's financial statements.

In June 2009,  the FASB  issued  SFAS No.  166,  "Accounting  for  Transfers  of
Financial Assets." This is a revision to SFAS No. 140, "Accounting for Transfers
and Servicing of Financial Assets and  Extinguishments of Liabilities," and will
require  more  information  about  transfers  of  financial  assets,   including

                                      F-12
<PAGE>
JACOBS FINANCIAL GROUP, INC.

NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (UNAUDITED)

securitization transactions,  and where entities have continuing exposure to the
risks related to transferred  financial  assets.  It eliminates the concept of a
"qualifying   special-purpose   entity,"  and  changes  the   requirements   for
derecognizing  financial assets, and requires additional  disclosures.  SFAS No.
166 will be  effective  for the start of the first fiscal year  beginning  after
November 15, 2009 (June 1, 2010 for the  Company).  This SFAS is not expected to
have a material impact on the Company's financial statements.

In May 2009, the FASB issued SFAS No. 165,  "Subsequent  Events." This statement
establishes  general  standards of accounting for and disclosures of events that
occur after the balance sheet date but before financial statements are issued or
are  available to be issued.  SFAS No. 165 is  effective  for interim and annual
financial  periods  ending  after June 15,  2009,  and has been  applied with no
material impact on the Company's financial statements.

In  April  2009,  the  FASB  issued  FASB  Staff  Position  ("FSP")  FAS  157-4,
"Determining  Fair Value When the Volume and Level of Activity  for the Asset or
Liability Have Significantly Decreased and Identifying Transactions That Are Not
Orderly." This FSP provides  additional  clarification  on the  determination of
fair value,  including  illustrative  examples.  FSP FAS 157-4 is effective  for
interim and annual  periods  ending  after June 15,  2009,  with early  adoption
permitted  for  periods  ending  after March 15,  2009.  This FSP did not have a
material impact on the Company's financial statements.

In April  2009,  the FASB issued FSP FAS 115-2 and FAS 124-2,  "Recognition  and
Presentation of Other-Than-Temporary Impairments." This FSP provides guidance on
determining whether an impairment is other than temporary,  provides examples to
be considered and identifies reporting requirements related to such impairments.
FSP FAS 115-2 and FAS 124-2 is effective for interim and annual  periods  ending
after June 15, 2009,  with early  adoption  permitted  for periods  ending after
March  15,  2009.  This  FSP did not have a  material  impact  on the  Company's
financial statements.

In April 2009, the FASB issued FSP FAS 107-1 and APB 28-1, "Interim  Disclosures
about Fair Value of Financial  Instruments." This FSP requires  disclosure about
the  fair  value  of  financial   instruments   whenever  summarized   financial
information for interim periods is issued,  and requires  disclosure of the fair
value  of  all  financial   instruments  (where  practicable)  in  the  body  or
accompanying notes of interim and annual financial statements. FSP FAS 107-1 and
APB 28-1 is effective for interim periods ending after June 15, 2009, with early
adoption  permitted  for periods  ending after March 15, 2009.  This FSP did not
have a material impact on the Company's financial statements.

In December 2008,  the FASB issued FSP 132(R)-1,  "Employers'  Disclosure  about
Postretirement Benefit Plan Assets." This FSP provides guidance on an employer's
disclosures  regarding  plan  assets  of a  defined  benefit  pension  or  other
postretirement  plan. The objectives of the disclosures  required under this FSP
are to provide users of financial statements with an understanding of:

          a)   How investment allocation decisions are made;
          b)   The major categories of plan assets;
          c)   The  inputs and  valuation  techniques  used to measure  the fair
               value of plan assets;
          d)   The  effect  of  fair  value   measurements   using   significant
               unobservable inputs on changes in plan assets for the period; and
          e)   Significant concentrations of risk within plan assets.

                                      F-13
<PAGE>
JACOBS FINANCIAL GROUP, INC.

NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (UNAUDITED)

The  disclosures  about plan assets required by this FSP are required for fiscal
years ending after December 15, 2009  (effective  June 1, 2009 for the Company),
and earlier  application is permitted.  This FSP will not have a material impact
on the Company's financial statements.

In April 2008, the FASB issued FSP 142-3,  "Determination  of the Useful Life of
Intangible  Assets."  This FSP amends the factors that should be  considered  in
developing renewal or extension assumptions used to determine the useful life of
a recognized intangible asset under SFAS No. 142, "Goodwill and Other Intangible
Assets." The intent of this FSP is to improve the consistency between the useful
life of a  recognized  intangible  asset  under  SFAS No.  142 and the period of
expected  cash flows used to measure  the fair value of the asset under SFAS No.
141(R),  "Business  Combinations," and other U.S. generally accepted  accounting
principles.  FSP 142-3 is effective for financial  statements  issued for fiscal
years beginning after December 15, 2008, and interim periods within those fiscal
years.  The  application  of this FSP does not  have a  material  impact  on the
Company's financial statements.

NOTE C - INVESTMENTS AND FAIR VALUE DISCLOSURES

The Company  classifies a portion of investments as  available-for-sale,  and as
such,  they are carried at fair value.  The  amortized  cost of  investments  is
adjusted  for  amortization  of premiums and  accretion  of discounts  which are
included  in net  investment  income.  Changes in fair value are  reported  as a
component  of other  comprehensive  income,  exclusive  of  other-than-temporary
impairment  losses,  if any. For the three and six month periods ended  November
30,  2009,  there have been no  other-than-temporary  impairments.  The  Company
intends and believes it has the ability to hold all investments in an unrealized
loss position until the expected recovery in value, which may be at maturity.

The following table sets forth the amortized cost and estimated  market value of
bonds and equity  securities  available-for-sale  and carried at market value on
November 30, 2009.
<TABLE>
<CAPTION>

                                                        Gross Unrealized     Gross Unrealized
                                     Amortized Cost           Gains               Losses         Fair Market Value
                                   ------------------- -------------------- ------------------- --------------------
<S>                                <C>                 <C>                  <C>                 <C>
U.S. government agency             $          481,548  $            22,513  $                -  $           504,061
mortgage-backed securities
State and municipal securities                362,033               47,499                   -              409,532
Equity securities(1)                                -                    -                   -                    -
                                   ------------------- -------------------- ------------------- --------------------
                                   $          843,581  $            70,012  $                -  $           913,593
                                   =================== ==================== =================== ====================
</TABLE>

(1)Equity  securities consist of an investment in the original amount of $25,000
made in the Jacobs & Company Mutual Fund ("the Fund") by its investment advisor,
Jacobs & Company,  and is recorded in other  assets at market  value.  Dividends
paid by the Fund at calendar  year-end 2007 and 2008 were reinvested.  A partial
withdrawal of $11,000 was made on March 25, 2009 and the remainder of $8,182 was
withdrawn on November 25, 2009. Total amounts  withdrawn  reflect loss in market
value.

                                      F-14
<PAGE>

JACOBS FINANCIAL GROUP, INC.

NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (UNAUDITED)


The following table sets forth the amortized cost and estimated  market value of
bonds and equity  securities  available-for-sale  and carried at market value on
May 31, 2009.
<TABLE>
<CAPTION>

                                     Amortized Cost     Gross Unrealized     Gross Unrealized    Fair Market Value
                                                              Gains               Losses
                                   ------------------- -------------------- ------------------- --------------------
<S>                                <C>                 <C>                  <C>                 <C>
U.S. government agency             $          514,039  $            13,342  $                -  $           527,381
mortgage-backed securities
State and municipal securities                352,816               28,570                   -              381,386
Equity securities(1)                           10,280                    -               2,418                7,862
                                   ------------------- -------------------- ------------------- --------------------
                                   $          877,135  $            41,912  $            2,418  $           916,629
                                   =================== ==================== =================== ====================
</TABLE>

The Company's short-term  investments at November 30, 2009 of $365,070 consisted
of money-market investment funds.

The Company held the following investments,  by security type, with the positive
intent and ability to hold to maturity as of  November  30,  2009,  and as such,
they are carried at amortized  cost.  For the three and six month  periods ended
November 30, 2009, there have been no other-than-temporary impairments.
<TABLE>
<CAPTION>

                                     Amortized Cost     Gross Unrealized     Gross Unrealized    Fair Market Value
                                                              Gains               Losses
                                   ------------------- -------------------- ------------------- --------------------
<S>                                <C>                 <C>                  <C>                 <C>
U.S government agency              $        5,025,387  $           135,490  $              924  $         5,159,953
mortgage-backed securities
                                   =================== ==================== =================== ====================
</TABLE>

The Company held the following investments,  by security type, with the positive
intent and ability to hold to maturity as of May 31, 2009, and as such, they are
carried at amortized cost.
<TABLE>
<CAPTION>
                                     Amortized Cost     Gross Unrealized     Gross Unrealized    Fair Market Value
                                                              Gains               Losses
                                   ------------------- -------------------- ------------------- --------------------
<S>                                <C>                 <C>                  <C>                 <C>
U.S government agency
mortgage-backed securities         $        5,085,300  $            79,739  $            7,103  $         5,157,936
                                   =================== ==================== =================== ====================
</TABLE>

Invested assets are exposed to various risks,  such as interest rate, market and
credit risks. Due to the level of risk associated with certain of these invested
assets  and the level of  uncertainty  related  to changes in the value of these
assets,  it is possible that changes in risks in the near term may significantly
affect the amounts  reported in the  Consolidated  Condensed  Balance Sheets and
Statements of Income.

Fair  value is the  price  that  would be  received  to sell an asset or paid to
transfer a liability in an orderly  transaction  between market  participants at
the  measurement  date. The Company uses the following  fair value  hierarchy in
selecting  inputs,  with the highest priority given to Level 1, as these are the
most transparent or reliable:

                                      F-15
<PAGE>
JACOBS FINANCIAL GROUP, INC.

NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (UNAUDITED)


          *    Level 1 - Quoted  prices  for  identical  instruments  in  active
               markets.
          *    Level  2 -  Quoted  prices  for  similar  instruments  in  active
               markets;  quoted prices for identical or similar  instruments  in
               markets  that are not active;  and  model-derived  valuations  in
               which all significant inputs are observable in active markets.
          *    Level 3 - Valuations  derived from valuation  techniques in which
               one or more significant inputs are unobservable.

Fair  market  values  are  provided  by  the  Company's  independent  investment
custodians that utilize third-party  quotation services for the valuation of the
fixed-income  investment  securities and money-market  funds held. The Company's
investment  custodians  are  large  money-center  banks.  The  Company's  equity
investment were valued using quoted market prices.

The following  section  describes the  valuation  methodologies  used to measure
different  financial  instruments at fair value,  including an indication of the
level  in the  fair  value  hierarchy  in  which  the  instrument  is  generally
classified.

FIXED INCOME SECURITIES
Securities  valued using Level 1 inputs include highly liquid  government  bonds
for which quoted market prices are  available.  Securities  using Level 2 inputs
are valued using pricing for similar securities, recently executed transactions,
cash flow models with yield curves and other pricing models utilizing observable
inputs.  Most fixed income  securities are valued using Level 2 inputs.  Level 2
includes corporate bonds, municipal bonds,  asset-backed securities and mortgage
pass-through securities.

EQUITY SECURITIES
Level 1 includes publicly traded securities valued using quoted market prices.

SHORT-TERM INVESTMENTS
The valuation of securities  that are actively  traded or have quoted prices are
classified  as Level 1. These  securities  include  money  market funds and U.S.
Treasury bills.  Level 2 includes  commercial  paper,  for which all significant
inputs are observable.

Assets measured at fair value on a recurring basis are summarized below:
<TABLE>
<CAPTION>
                                                                  November 30, 2009
                                         ---------------------------------------------------------------------
                                                   Fair Value Measurements Using
                                                                                                Assets At
                                             Level 1          Level 2           Level 3         Fair Value
                                         ---------------- ----------------- ---------------- -----------------
<S>                                      <C>              <C>               <C>              <C>
Assets:
Fixed income securities at fair value    $             -  $        913,593  $             -  $        913,593
Equity securities at fair value                        -                 -                -                 -
Short-term investments at fair value             365,070                 -                -           365,070
                                         ---------------- ----------------- ---------------- -----------------
Total Assets                             $       365,070  $        913,593  $             -  $      1,278,663
</TABLE>

                                      F-16

<PAGE>
JACOBS FINANCIAL GROUP, INC.

NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (UNAUDITED)
<TABLE>
<CAPTION>

                                                                     May 31, 2009
                                         ---------------------------------------------------------------------
                                                   Fair Value Measurements Using
                                                                                                Assets At
                                             Level 1          Level 2           Level 3         Fair Value
                                         ---------------- ----------------- ---------------- -----------------
<S>                                      <C>              <C>               <C>              <C>
Assets:
Fixed income securities at fair value    $             -  $        908,766  $             -  $        908,766
Equity securities at fair value                    7,862                 -                -             7,862
Short-term investments at fair value             387,753                 -                -           387,753
                                         ---------------- ----------------- ---------------- -----------------
Total Assets                             $       395,615  $        908,766  $             -  $      1,304,381

</TABLE>

The Company had no assets or  liabilities  measured at fair value on a recurring
basis using significant  unobservable inputs (Level 3) at either May 31, 2009 or
at November 30, 2009.

There were no gross  realized  gains and losses on  held-to-maturity  securities
sold or redeemed by the issuer,  pursuant to call features, in the three and six
month   periods   ended   November   30,  2009.   On  November  25,  2009,   the
available-for-sale  equity investment was sold for $8,182 resulting in a loss of
$2,098 for the three and six months ended November 30, 2009. There were no other
gross  realized gains or losses on  available-for-sale  securities for the three
and six month periods ending November 30, 2009.

There were no gross realized gains and losses on held-to-maturity  securities or
available for sale securities,  sold or redeemed by the issuer, pursuant to call
features, for the three and six month periods ending November 30, 2008.

NOTE D - OTHER ASSETS

As of November 30 and May 31, 2009 such balances are comprised of the following:


                                                  November 30,        May 31,
                                                     2009              2009
                                                ---------------- ---------------
Advance deposits for professional fees          $         1,311  $         1,311
Mutual fund investment at market                              -            7,862
Prepaid expense and other deposits                       27,977           34,344
                                                ---------------- ---------------
                                         Total  $        29,288  $        43,517
                                                ================ ===============


                                      F-17
<PAGE>

JACOBS FINANCIAL GROUP, INC.

NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (UNAUDITED)


NOTE E - NOTES PAYABLE AND ADVANCES FROM RELATED PARTY

The Company had the  following  unsecured  notes  payable to  individuals  and a
commercial bank as of November 30, 2009 and May 31, 2009 respectively:
<TABLE>
<CAPTION>

                                                           November 30,          May 31,
                                                               2009               2009
                                                        ------------------ ------------------
<S>                                                     <C>                <C>
Unsecured demand notes payable to individuals
and others; interest rate fixed @ 10.00%                $         482,000  $         380,000

Term note payable; interest rate fixed @ 10.00%
 maturing March 31, 2010                                          250,000                  -

Term note payable; interest rate fixed @ 8.00%
 maturing January 15, 2010                                         90,000                  -

Unsecured note(s) payable to individual(s) under
a bridge-financing arrangement described below                  3,500,000          3,500,000

Unsecured short-term advances from principal
shareholder and chief executive officer;
interest rate fixed @ 12.00%                                        3,129              3,081

Unsecured  term  note  payable  to  commercial
bank in the  original  amount of
$250,000 and payable in equal monthly payments
of $5,738;  interest rate fixed @
13.25% maturing January 31, 2012                                  117,445            169,791
                                                        ------------------ ------------------
                                    Notes payable       $       4,442,574  $       4,052,872
                                                        ================== ==================
</TABLE>

In  accordance  with  the  terms of the  first  round  bridge-financing  of $2.5
million,  on March 10,  2008,  the  holders  of such  notes  were  paid  accrued
interest-to-date and issued 5.00% of the Company's common shares. Holders of the
second round of  bridge-financing  notes of $1.0 million  received  2.00% of the
Company's  common  shares  (see  Note F).  Upon  retirement  of the  notes  upon
consummation  of a qualified  equity  offering,  the Company  shall issue to the
holders of the bridge financing notes additional Company common stock that, when
added to the stock initially issued to the holders of the notes,  will equal the
noteholder's  pro rata share of the  applicable  percentage  of the  outstanding
common stock of the Company as follows:  If the qualified  financing consists of
$50 million or more,  the  holders of such notes will  receive 28% of the common
stock of the  Company  that would  otherwise  be  retained by the holders of the
Company's  common shares  immediately  prior to the financing;  if the qualified
financing is for an amount less than $50 million, the percentage will be reduced
on a sliding scale to a fraction of 28% of the amount retained by the holders of
the Company's  common shares (where the numerator is the amount of financing and
the denominator is $50 million).

                                      F-18
<PAGE>
JACOBS FINANCIAL GROUP, INC.

NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (UNAUDITED)


Beginning  September  10,  2008,  because  a  qualified  financing  had not been
completed,  the Company became required under the terms of the bridge  financing
to issue 2.80% of the Company's  outstanding common shares and shall issue 2.80%
of the Company's  outstanding common shares upon each six-month anniversary date
thereof until retirement of the notes. On September 10, 2008, March 10, 2009 and
September  10,  2009,  4,870,449,   5,010,640,   and  5,354,642  common  shares,
respectively, were issued to those noteholders.

Pursuant  to the  terms  of the  Promissory  Notes,  the  first  two of 20 equal
quarterly installments of principal and interest payable thereunder were to have
been paid on December  10, 2008 and March 10,  2009 (the  "INITIAL  AMORTIZATION
PAYMENTS").  As the result of upheavals and dislocations in the capital markets,
the Company was unable to either  refinance  the  indebtedness  evidenced by the
Promissory Notes or make the Initial  Amortization  Payments to the Holders when
due; and an Event of Default (as defined in the Promissory Notes) occurred under
the  Promissory  Notes as a result of the  Company's  failure to pay the Initial
Amortization Payments within 14 days after same became due and payable.

On June 5, 2009 the Company entered into an agreement with the bridge lenders to
forbear from exercising  their rights and remedies arising from the Acknowledged
Events of Default.  As  consideration  for the  forbearance,  the Company issued
5,171,993  shares of  Common  stock,  and  pledged  the  stock of the  Company's
subsidiary,  Crystal  Mountain  Water (CMW),  as security  for  repayment of the
loans.  The Holders  agreed that the Company may satisfy its  obligation to make
the Initial  Amortization  Payments by making additional  quarterly  payments of
$67,185 each,  commencing  September 10, 2009,  (See Note K) , and continuing on
the payment dates  prescribed by the  Amortization  Schedule for the  Promissory
Notes  (collectively,  the  "PAYMENTS"),  it being  understood that the Payments
shall  result in the  payment of the  principal  of and  interest  on the unpaid
portion of the Initial  Amortization  Payments at the rate of 17% per annum from
and  after  the  originally  scheduled  payment  dates.  The  Payments  shall be
allocated  among and paid to the Holders in accordance  with the balances due to
each. The Company may at any time prepay the balance  remaining due with respect
to the  principal  of the  Initial  Amortization  Payments  by paying the amount
thereof, together with interest accrued through the date of such prepayment.

During the three and six months  ended  November 30, 2009 and the year ended May
31, 2009, a company owned by a board member provided consulting  services.  This
company  provided  services  totaling  $15,525  and $31,050 in the three and six
month periods  ended  November 30, 2009 and $15,525 and $31,050 in the three and
six month  periods  ended  November 30,  2008.  Amounts owed to this company are
treated as  related  party  payables  in the  amounts  $101,059  and  $75,009 at
November 30, 2009 and May 31, 2009.

Advances  have been made to the Company by its principal  shareholder  and chief
executive  officer to fund ongoing  operations  under a  pre-approved  unsecured
financing arrangement bearing interest at the rate of 12.00%. In the three month
period ending August 31, 2009, the Company borrowed  $106,597 from its principal
shareholder  and made repayments of $102,515 to its principal  shareholder.  The
following table summarizes the activity under such arrangement for the three and
six month periods ended November 30, 2009.

                                      F-19
<PAGE>
JACOBS FINANCIAL GROUP, INC.

NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (UNAUDITED)

                                             Three month        Six month
                                             period ended      period ended
                                             November 30,      November 30,
                                                 2009              2009
                                           ----------------- ------------------

Balance owed, beginning of period          $          7,163  $          3,081
Proceeds from borrowings                            149,935           256,532
Repayments                                         (153,969)         (256,484)
                                           ----------------- ------------------
Balance owed, end of period                $          3,129  $          3,129
                                           ================= ==================


Scheduled  maturities  and  principal  payments  for each of the next five years
ending November 30 are as follows:

2010 (including demand notes)          $      4,368,586
2011                                             62,702
2012                                             11,286
                                       -----------------
                                       $      4,442,574
                                       =================

NOTE F-STOCKHOLDERS EQUITY

In the three month period ended August 31, 2009,  the Company  issued  5,171,993
shares of the Company's  common stock in connection  with the June 5th agreement
with the Holders of the bridge financing arrangement.  The shares were valued at
approximately  $.0365 per share based on the average quoted closing price of the
Company's stock for the 20-day period proceeding the date of the transaction and
totaled $188,778.

In the three month period ending August 31, 2009,  warrants  totaling  1,795,273
were exercised for cash and issuance of 1,795,273 common shares of the Company.

In the three month period ending  August 31, 2009,  the Company  issued  500,000
shares of the Company's  common stock in  connection  with short term and demand
borrowing   arrangements   totaling   $250,000.   The  shares   were  valued  at
approximately $.03815 per share based on the average quoted closing price of the
Company's stock for the 20-day period proceeding the date of the transaction and
totaled $19,075.

In the three month period ending November 30, 2009,  warrants totaling 1,168,395
were exercised for cash and issuance of 1,168,395 common shares of the Company.

In the three month period ended November 30, 2009, the Company issued  5,354,624
shares of the Company's  common stock (See Note E) in connection with the bridge
financing arrangement.  The shares were valued at approximately $.0146 per share
based on the average quoted closing price of the Company's  stock for the 20-day
period  proceeding the date of the transaction and totaled  $78,177.  Such costs
have been expensed over the six month period prior to the issuance of the common
shares.


                                      F-20
<PAGE>

JACOBS FINANCIAL GROUP, INC.

NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (UNAUDITED)


As a means of alleviating  obligations  associated  with the Company's  Series B
Preferred  Stock,  which by its  terms  matures  at the end of 2010,  management
proposed a  recapitalization  to assist in stabilizing the financial position of
the Company. The Company's Certificate of Incorporation provides for two classes
of  capital  stock,  known as common  stock,  $0.0001  par value per share  (the
"COMMON  STOCK"),  and  preferred  stock,  $0.0001  par  value  per  share  (the
"PREFERRED  STOCK").  The Company's  Board is authorized by the  Certificate  of
Incorporation  to provide for the issuance of the shares of  Preferred  Stock in
series, and by filing a certificate  pursuant to the applicable law of the State
of Delaware,  to establish from time to time the number of shares to be included
in such series and to fix the designations, preferences and rights of the shares
of  each  such  series  and the  qualifications,  limitations  and  restrictions
thereof.  Board deemed it advisable to designate a Series C Preferred  Stock and
fixed and determined the preferences,  rights,  qualifications,  limitations and
restrictions relating to the Series C Preferred Stock as follows:

          1.   Designation.  The shares of such  series of  Preferred  Stock are
               designated  "Series C Preferred Stock" (referred to herein as the
               "SERIES C STOCK").  The date on which the first share of Series C
               Stock is issued shall hereinafter be referred to as the "ORIGINAL
               ISSUE DATE".

          2.   Authorized Number. The number of shares constituting the Series C
               Stock are 10,000.

          3.   Ranking.  The Series C Stock ranks,  (a) as to dividends and upon
               Liquidation  senior and prior to the  Common  Stock and all other
               equity securities to which the Series C ranks prior, with respect
               to  dividends  and  upon   Liquidation   (collectively,   "JUNIOR
               SECURITIES"),  (b) pari  passu  with the  Corporation's  Series A
               Preferred  Stock,  par value  $0.0001  per share  (the  "SERIES A
               STOCK"),  the Corporation's  Series B Stock, and any other series
               of Preferred  Stock  subsequently  established  by the Board with
               equal ranking (any such other series of Preferred Stock, together
               with the  Series C Stock,  the  Series B Stock and Series A Stock
               are  collectively  referred to as the "EQUAL RANKING  PREFERRED")
               and  (c)  junior  to  any  other   series  of   Preferred   Stock
               subsequently established by the Board with senior ranking.

          4.   Dividends.

               (a)  DIVIDEND  ACCRUAL AND  PAYMENT.  The holders of the Series C
                    Stock shall be entitled to  receive,  in  preference  to the
                    holders of Junior  Securities,  dividends  ("DIVIDENDS")  on
                    each  outstanding  share of Series C Stock at the rate of 8%
                    per annum of the sum of (i) the  Series C Face  Amount  plus
                    (ii) an amount equal to any accrued,  but unpaid,  dividends
                    on such  Series C Stock,  including  for  this  purpose  the
                    exchanged  Series B Amount  outstanding with respect to such
                    Series C Stock. For purposes  hereof,  the "SERIES B AMOUNT"
                    means  an  amount  equal to the  dividend  that  would  have
                    accrued on such  Series C Stock held by such holder from and
                    after the Series B Original  Issue Date  applicable  to such
                    share of Series C Stock,  through the Original Issue Date as
                    if such  Series C Stock  had been  issued  on such  Series B
                    Original Issue Date, less all amounts thereof distributed by
                    the  Corporation  with  respect  to  such  Series  C  Stock.
                    Dividends  shall be  payable  quarterly  in  arrears on each
                    January  1,  April 1,  July 1 and  October 1  following  the
                    Original  Issue  Date,  or, if any such date is a  Saturday,
                    Sunday or legal holiday, then on the next day which is not a
                    Saturday,  Sunday or legal holiday (each a "DIVIDEND PAYMENT
                    DATE"),  as  declared  by the Board and,  if not paid on the
                    Dividend Payment Date, shall accrue.  Amounts  available for
                    payment of Dividends  (including for this purpose the Series
                    B Amount)  shall be  allocated  and paid with respect to the
                    shares of Series C  Preferred  and any other  Equal  Ranking
                    Preferred,   FIRST,   among  the  shares  of  Equal  Ranking
                    Preferred  pro  rata  in  accordance  with  the  amounts  of
                    dividends  accruing  with  respect  to  such  shares  at the

                                      F-21
<PAGE>
JACOBS FINANCIAL GROUP, INC.

NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (UNAUDITED)

                    current  Dividend  Payment Date,  and,  THEN, any additional
                    amounts  available for  distribution  in accordance with the
                    accrued, but unpaid, dividends (and the Series B Amount then
                    outstanding) at each prior Dividend Payment Date, in reverse
                    chronological order, with respect to all shares of the Equal
                    Ranking   Preferred  then  outstanding  in  accordance  with
                    amounts accrued,  but unpaid.  For purposes hereof, the term
                    "SERIES B ORIGINAL  ISSUE DATE" shall mean,  with respect to
                    any share of Series C Stock  issued  by the  Corporation  in
                    exchange  for a share of  Series B Stock,  the date on which
                    the  Corporation  originally  issued  such share of Series B
                    Stock.

The  Recapitalization  consisted  of the  exchange  of  Series  B  Shares  for a
combination  of Series C Shares and Common Stock.  For each Series B Share,  the
participating  holder  received  (i) one Series C Share and (ii) 2,000 shares of
JFG Common Stock (for no additional consideration).

The Series B Shares have an 8.0% per annum compounding dividend preference,  are
convertible  into  Common  Shares  of JFG  at the  option  of the  holders  at a
conversion  price of $1.00 per Share (as  adjusted  for  dilution)  and,  to the
extent not  converted,  must be  redeemed by the  Corporation  at any time after
December 31, 2010 at the option of the holder. Any such redemption is subject to
legal  constraints,  such as the availability of capital or surplus out of which
to pay the redemption, and to a determination by our Board of Directors that the
redemption will not impair the operations of First Surety.

The Series C Shares issued in the Recapitalization  have the same 8.0% per annum
compounding dividend preference and carry over from the Series B Shares the same
accrued but unpaid  dividends.  While  dividends  had never been declared on the
Series B shares,  they had been accrued,  increasing the dividend preference and
the redemption price and liquidity  preference of such shares and increasing the
liability  represented  thereby  based upon the Series B Shares  fixed  maturity
date.  The  accrued  (but  undeclared)  dividends  associated  with the Series C
exchange  amounted to $2,295,624 and are included in the total amount  exchanged
for Series C Shares.  Unlike the Series B Shares with their fixed maturity date,
the  Series  C  Shares  are  permanent  equity,  with  accruing  dividends  only
increasing the preference amount that must be satisfied before junior securities
may participate in dividends or on liquidation.  Accordingly,  the effect of the
accrual  of  dividends  with  respect  to the  Series C Shares on the  Company's
balance sheet is to increase the  aggregate  claim of the Series C Shares on the
equity of the  corporation  and to increase the deficit in common equity,  while
having  no  effect  on  the  net  equity  of the  corporation  as a  whole.  The
entitlement  of the  Series  C  Shares  to a  priority  in  relation  to  junior
securities  with  respect to  dividends  and on  liquidation  does not create an
obligation  to the Company and  therefore  no  liability  is recorded  until the
dividends are declared by the Board of the Company. The Series C Shares are pari
passu with the  Corporation's  Series A Preferred  Stock and Series B Shares (to
the  extent  any  remain  outstanding  following  the  Recapitalization)  and no
dividends or other  distributions  will be paid upon Common  Shares or any other
class of Shares  that is junior in  priority  to the  Series C  Preferred  while
dividends are in arrears. In addition,  the Series C Shares are convertible into
Common Shares of JFG at the option of the holders at a conversion price of $0.10
per Share.  The  Series C Shares  may be  redeemed  by the  Corporation,  at its
option, when it is in a financial position to do so.

For the period ending November 30, 2009, 6,804.936 shares of Series B Stock were
surrendered and exchanged for 6,804.936 shares of Series C Stock.  This exchange
amounted to $6,269,051 of carrying  value of Series B stock being  exchanged for
Series C and Common Stock.  13,609,872 shares of Common Stock were issued to the
Series C Stock  holders at the rate of 2,000  Common  shares for each  exchanged
Series B Stock,  with the  related  cost  associated  with the  Common  issuance
offsetting  the Series C carrying  value by $265,120.  The shares were valued at
approximately $.01948 per share based on the average quoted closing price of the
Company's  stock for the 20-day period  proceeding the date of the  transaction.



                                      F-22
<PAGE>

JACOBS FINANCIAL GROUP, INC.

NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (UNAUDITED)

Series C stock may be redeemed by the Company but does not have a fixed maturity
date and,  thus, is classified as permanent  equity.  Holders of over 70% of the
outstanding   Series  B  Preferred   Shares   elected  to   participate  in  the
recapitalization.  Those  Series B  Preferred  Shareholders  that  chose  not to
convert at this time are listed in the Liabilities section of the Balance Sheet.
The remaining  Series B shares are continuing to be accreted from carrying value
to the face  amount for the 5 year period  from the date of  issuance.  Series C
stock has no accretion.


NOTE G - COMMITMENTS, CONTINGENCIES, AND MATERIAL AGREEMENTS

On  February  8, 2008,  the  Company  entered  into an  agreement  (the  "Merger
Agreement") with Reclamation Surety Holding Company,  Inc. ("RSH") to acquire by
merger (the "Merger") all of the business and assets of RSH, including the stock
of RSH's  subsidiaries,  Cumberland  Surety,  Inc.  ("Cumberland") and NewBridge
Services,  Inc.  ("NewBridge") for a purchase price of $3,400,000,  less certain
indebtedness of RSH (the "Merger  Consideration").  Upon execution of the Merger
Agreement, the Company made a nonrefundable deposit in the amount of $50,000 for
the  benefit of the RSH  shareholders,  such  amount to be applied  towards  the
Merger  Consideration  at closing.  On June 24,  2008,  the Company  amended its
Merger Agreement with Reclamation  Surety Holding  Company,  Inc.  releasing the
deposit to the sellers and extending the date for closing until October 31, 2008
after which time either party may  terminate the Merger  Agreement.  Discussions
continue with RSH, and the Merger Agreement has not been terminated. Among other
conditions,  closing  was  subject to the  closing  by the  Company of an equity
financing.

On August 20,  2008,  the  Company  entered  into a  definitive  Stock  Purchase
Agreement (the "Agreement") with National  Indemnity Company ("NICO"),  pursuant
to which the Company agreed to acquire 100% of the  outstanding  stock of Unione
Italiana  Reinsurance Company of America ("Unione").  Such agreement was amended
on November  13, 2008 to clarify  certain  definitions  and  calculation  of the
purchase  price,  in addition to extending  until  December 31, 2008 the date by
which the Company  must  satisfy the  financing  condition  prior to closing and
which after time  either  party may  terminate  the  Agreement.  The Company was
unable to provide  certification  to NICO that the Company had cash available or
had existing or committed borrowing facilities  ("Financing  Certificate") which
together were sufficient to enable it to consummate the acquisition of Unione by
December 31, 2008.  Accordingly,  under the terms of the Agreement,  as amended,
the NICO has the right to terminate the Agreement at its  discretion  and retain
the good faith  deposit of  $75,000.  Discussions  continue  with NICO,  and the
Agreement has not been terminated.

Unione is a New York domiciled insurer licensed in 24 states. The purchase price
for the  acquisition  of Unione (the  "Transaction")  is equal to the sum of (i)
$2,750,000  plus (ii) an amount in cash  equal to  Unione's  New York  statutory
policyholders'  surplus of not less than $20  million  dollars as of the closing
date of the  Transaction,  less (iii)  $75,000  (which amount is equal to a good
faith deposit previously provided to NICO). The Company's acquisition of Unione,
when  coupled  with a  reinsurance  agreement  with NICO that is to be  executed
simultaneously  with  closing,  will  consist  of  the  purchase  of  marketable
investments and insurance  licenses and will cede to NICO the existing  policies
and customer base (pursuant to the reinsurance agreement) as the insurance lines
of business  offered by Unione are not insurance  lines that the Company intends
to  pursue.  The  Transaction  remains  contingent  upon  necessary   regulatory
approvals and the Company's obtaining necessary financing.

                                      F-23
<PAGE>
JACOBS FINANCIAL GROUP, INC.

NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (UNAUDITED)

During fiscal year 2009 and the six months ended  November 30, 2009, the Company
sold shares of Series A Preferred  Stock in conjunction  with the sale of surety
bonds.  As of November  30,  2009,  the Company has not  transferred  all of the
monies received from the sale of stock to FSC to be applied towards its surplus.
The amount of  Preferred  A Stock was  $186,000,  of which  $70,323 has not been
remitted as of November  30,  2009.  Pursuant to the terms of the Consent  Order
dated December 23, 2005 (Consent Order) and the Amended Consent Order dated June
8,  2007  (Amended  Consent  Order),  each  with  the  West  Virginia  Insurance
Commissioner  (Commissioner)  , all  money  received  from the sale of  Series A
Preferred  Stock shall be placed into the  surplus  accounts of FSC.  The monies
received from the above described  transaction were not placed with FSC but were
retained  by the  Company.  This  action is viewed by the  Commissioner  to be a
violation of the Consent Order and Amended Consent Order. Under the terms of the
Amended Consent Order any knowing or intentional  violation of the conditions of
the Order shall constitute  grounds for the Commissioner to issue a Confidential
Order  immediately  suspending  FSC from doing  business in West  Virginia.  FSC
advised the  Commissioner of this violation and no disciplinary  action has been
taken by the  Commissioner  although it is still under  review.  The Company has
submitted a plan to correct this violation as expeditiously as possible, and the
Commissioner  has agreed  with this plan.  During the three month  period  ended
November 30, 2009,  $115,677 has been contributed to FSC by reducing the amounts
due to affiliates from FSC.  Additional amounts totaling  approximately  $65,000
have been  contributed  subsequent to November 30, 2009,  leaving an outstanding
principal balance due to FSC of approximately $5,000 as of January 19, 2010.

With respect to the failure by the Company to contribute  the proceeds of Series
A stock sales to First Surety  Corporation in a timely manner, the West Virginia
Insurance Commission has proposed and the Company has accepted, subject to final
documentation  of the  necessary  order,  a penalty  assessment  of $10,000 plus
interest  of  approximately  $3,700.

As of November  30,  2009,  the Company had accrued and  withheld  approximately
$120,000 in Federal payroll taxes.  These amounts have not been remitted and are
still  payable at  January  19,  2010,  as well as  penalties  and  interest  of
approximately $13,000. These amounts are reflected in the accompanying financial
statements as accrued expenses, and management intends to pay this obligation as
soon as possible.

NOTE H - SEGMENT REPORTING

The Company has two reportable segments, investment advisory services and surety
insurance products and services.  The following table presents revenue and other
financial information by industry segment.

                                      F-24
<PAGE>
JACOBS FINANCIAL GROUP, INC.

NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (UNAUDITED)

<TABLE>
<CAPTION>

                                                                          THREE MONTH PERIOD ENDED
                        INDUSTRY SEGMENT                             NOVEMBER 30,            NOVEMBER 30,
                        ----------------                                 2009                    2008
                                                                    --------------         ---------------
<S>                                                                 <C>                    <C>
REVENUES:
 Investment advisory                                                $     65,810           $      58,033
 Surety insurance                                                        279,777                 234,694
 Corporate                                                                     -                       1
                                                                    --------------         ---------------
 Total revenues                                                     $    345,587           $     292,728
                                                                    ==============         ===============

NET INCOME (LOSS):
 Investment advisory                                                $    (22,379)          $     (44,914)
 Surety insurance                                                         73,844                  45,664
 Corporate                                                              (371,709)               (350,282)
                                                                    --------------         ---------------
 Total net income (loss)                                            $   (320,244)          $    (349,532)
                                                                    ==============         ===============


                                                                             SIX MONTH PERIOD ENDED
                        INDUSTRY SEGMENT                             NOVEMBER 30,            NOVEMBER 30,
                        ----------------                                   2009                  2008
                                                                    --------------         ---------------
REVENUES:
 Investment advisory                                                $    134,958           $     117,562
 Surety insurance                                                        566,352                 460,880
 Corporate                                                                     -                     851
                                                                    --------------         ---------------
 Total revenues                                                     $    701,310           $     579,293
                                                                    ==============         ===============

NET INCOME (LOSS):
 Investment advisory                                                $    (33,421)          $     (99,825)
 Surety insurance                                                        203,774                  61,717
 Corporate                                                            (1,014,679)               (808,152)
                                                                    --------------         ---------------
 Total net income (loss)                                            $   (844,326)          $    (846,260)
                                                                    ==============         ===============
</TABLE>


                                      F-25
<PAGE>

JACOBS FINANCIAL GROUP, INC.

NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (UNAUDITED)


NOTE I - REINSURANCE

On March 23, 2009, the Company announced that FSC has entered into a reinsurance
agreement with Lloyd's of London  ("Reinsurer") for its coal reclamation  surety
bonding programs that took effect April 1, 2009. The reinsurance agreement is an
excess of loss contract which protects the Company  against losses up to certain
limits over  stipulated  amounts,  has an initial term of three years and can be
terminated  by either  party by written  notice of at least 90 days prior to any
April 1. The contract calls for a minimum premium to be paid to the Reinsurer of
$490,000 per year.  At November 30,  2009,  the Company had prepaid  reinsurance
premiums of $121,621 and ceded reinsurance deposited with Reinsurers of $79,040.
Additional  premiums  of  approximately  $769,000  will be  needed  in  order to
generate the approximately  $269,000 in ceded premium needed to meet the minimum
required to be paid to the Reinsurer. This can be accomplished by writing surety
bonds of approximately  $26,000,000 before March 31, 2010. Management feels this
amount will be written and the ceded premiums  collected will exceed the minimum
required by the Reinsurer.

The  Company  limits the  maximum  net loss that can arise  from large  risks by
reinsuring  (ceding) certain levels of such risk with reinsurers.  The Company's
reinsurer is comprised of five syndicates.  Ceded  reinsurance is treated as the
risk and liability of the assuming  companies.  The Company  cedes  insurance to
other companies and these reinsurance  contracts do not relieve the Company from
its obligations to policyholders.

The  effects of  reinsurance  on premium  written and earned for the three month
period ended November 30, 2009 are as follows:

                            3 months ended              3 months ended
                           November 30, 2009 -        November 30, 2009 -
                                 Written                     Earned
                        -------------------------- ---------------------------
   Direct               $                  66,304  $                  255,394
                        -------------------------- ---------------------------
   Ceded                $                  23,034  $                   51,138
                        -------------------------- ---------------------------
   Net                  $                  43,270  $                  204,256

The  effects  of  reinsurance  on premium  written  and earned for the six month
period ended November 30, 2009 are as follows:

                             6 months ended                6 months ended
                           November 30, 2009 -           November 30, 2009 -
                                 Written                     Earned
                        -------------------------- ---------------------------
   Direct               $                 379,902  $                  505,427
                        -------------------------- ---------------------------
   Ceded                $                 128,786  $                   94,279
                        -------------------------- ---------------------------
   Net                  $                 251,116  $                  411,148

There was no reinsurance  effect on premium  written for the three month and six
month periods ended November 30, 2008 due to the reinsurance agreement not being
in effect  until April 1, 2009.  There were no ceded  losses for the three month
and six month periods ended November 30, 2009 and 2008.


                                      F-26
<PAGE>
JACOBS FINANCIAL GROUP, INC.

NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (UNAUDITED)


NOTE J-STOCK-BASED COMPENSATION

On June 30, 2009 the  compensation  committee of the board of directors  awarded
10,000,000 of incentive  stock  options to acquire  common shares at an exercise
price  of four  cents  ($.04)  per  share,  of  which  4,700,000  shares  vested
immediately  and the  remaining  5,300,000  options  vesting over the next three
years ending in June 2011.  The term of the options is five years and expires in
June 2014.


NOTE K - SUBSEQUENT EVENTS

Subsequent  events have been  evaluated  through  January 19, 2010, the original
date these financial  statements  were issued.  Subsequent to November 30, 2009,
the Company  obtained  borrowings  of $60,000 from  individuals  to fund ongoing
operations and made  repayments of $90,000.  Such borrowings were obtained under
demand or 30-day notes bearing interest at the rate of 8.00%. Additionally,  the
Company obtained borrowings of $104,176 from its principal shareholder and chief
executive officer under its pre-approved  financing arrangement bearing interest
at the rate of 12.00% and made repayments totaling $85,325.

On September  10, 2009 and December 10, 2009,  the Company  became  obligated to
make  principal  and  interest  payments to the holders of the  bridge-financing
notes of  approximately  $291,700 each. The Company is currently in default with
respect to each payment.  Under the terms of such  bridge-financing  agreements,
upon  the   occurrence   of  any  Event  of   Default,   the   holders  of  said
bridge-financing  notes have the right to declare,  upon  written  notice to the
Company,  that the entire  principal  amount  and  interest  be due and  payable
immediately.

On December  30,  2009,  the Company  issued  250,000  shares of common stock as
incentive  to extend for one year the terms of a loan that was to mature on that
day.  The shares  were  valued at  approximately  $.0111 per share  based on the
average  quoted  closing  price of the  Company's  stock for the  20-day  period
proceeding the date of the transaction and totaled $2,753.

On  December  31,  2009,  the Company  elected to  continue to defer  payment of
dividends on its Series A Preferred stock,  Series B Preferred stock, and Series
C Preferred stock with such accrued and unpaid quarterly  dividends amounting to
$29,528,  $72,866 and  $175,720,  respectively.  As of December  31,  2009,  the
accumulated  accrued and unpaid dividend on the Series A Preferred stock, Series
B Preferred stock, and Series C Preferred stock amounted to $311,220, $1,036,178
and $2,471,344 respectively.

With respect to the failure by the Company to contribute  the proceeds of Series
A stock sales to First Surety  Corporation in a timely manner, the West Virginia
Insurance Commission has proposed and the Company has accepted, subject to final
documentation  of the  necessary  order,  a penalty  assessment  of $10,000 plus
interest of approximately $3,700.


                                      F-27

<PAGE>

ITEM 2. MANAGEMENT'S  DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS

During fiscal 2009 and the six-month period ended November 30, 2009, the Company
has focused its primary  efforts on the  development and marketing of its surety
business  in West  Virginia  and  Ohio,  arranging  for  reinsurance  and  other
potential  strategic  relationships  that will accelerate the progression of the
Company's  business plan, and raising additional capital to increase the capital
base  of  its  insurance  subsidiary,   First  Surety  Corporation  ("FSC"),  to
facilitate entry into other state markets.

RESULTS OF OPERATIONS FOR THE THREE-MONTH PERIOD ENDED NOVEMBER 30, 2009

The  Company  experienced  a loss (after  accretion  of  mandatorily  redeemable
convertible  preferred stock) for the three-month period ended November 30, 2009
of $713,937 as compared  with a loss of $749,809  for the  corresponding  period
ended November 30, 2008.

REVENUES

Revenues from operations for the three-month period ended November 30, 2009 were
$345,587 as compared with $292,726 for the  corresponding  period ended November
30, 2008.  The overall  increase in revenues is  attributable  to the  continued
growth of the surety business of FSC.

INVESTMENT ADVISORY REVENUES

Quarterly  revenues from the Company's  investment  management segment (Jacobs &
Company or J&C), net of advisory referral fees, were $66,963 for the three-month
period ended  November 30, 2009 as compared  with $58,032 for the  corresponding
period ended  November 30, 2008.  As  investment  advisory fees are based on the
market  value of assets under  management,  some  fluctuation  will occur due to
overall market conditions. For the most part, however, such revenues will remain
relatively  constant from quarter to quarter with any large  fluctuations  being
attributable to the growth or decline of assets under  management.  The increase
in revenues is attributable to the growth in  individually  managed  accounts as
summarized below:

                                                   Three-month Period Ended
                                                         November 30,
                                                         ------------
                                                    2009              2008
                                              ----------------- ----------------

Individually managed accounts                 $         61,099  $         52,003
Mutual fund                                              5,864             6,029
                                              ----------------- ----------------
                                       Total  $         66,963  $         58,032
                                              ================= ================

                                      -4-
<PAGE>

THE JACOBS & COMPANY  MUTUAL FUND WAS CLOSED AND LIQUIDATED  EFFECTIVE  NOVEMBER
30, 2009. SEE "EXPENSES, MUTUAL FUND COSTS," BELOW.

INSURANCE AND INVESTMENT REVENUES

Quarterly  revenues from the Company's surety insurance  segment,  consisting of
FSC and Triangle Surety Agency,  Inc ("TSA"),  were $279,777 for the three-month
period ended  November 30, 2009 as compared with $234,694 for the  corresponding
period ended November 30, 2008.  Revenues  attributable to premium  earned,  net
investment income and commissions earned are as follows:

                                                   Three-month Period Ended
                                                         November 30,
                                                         ------------
                                                    2009              2008
                                              ----------------- ----------------
Premium earned                                $        204,256  $        158,452
Net investment income                                   71,260            73,163
Commissions earned                                       4,262             3,079
                                              ----------------- ----------------
                                       Total  $        279,778  $        234,694
                                              ================= ================

Revenues for this segment of the business  are  somewhat  more  seasonable  from
quarter-to-quarter  as commission revenue is dependent on the timing of issuance
or renewal of bonds placed by the Company, whereas premium revenue is recognized
ratably  over the term of the policy  period and thus is more stable from period
to period.  Fluctuations  in premium  revenue  for  comparable  periods  largely
reflect the overall growth or loss of business.  The increase in premium revenue
for  the  three-month  period  ended  November  30,  2009 in  comparison  to the
corresponding  period  from the prior  year is a result of the  addition  of new
clients to FSC's surety business and increased  business from existing  clients.
Investment income should remain relatively  consistent,  but can fluctuate based
on interest  rates and market  conditions as well as the average assets held for
investment.  The increase in  corresponding  periods  reflects growth in average
assets held for  investment in FSC's  investment  portfolio  from  approximately
$5.798  million  for  the   three-month   period  ended  November  30,  2008  to
approximately  $6.43 million for the three-month period ended November 30, 2009,
offset by a  decrease  in  investment  yield  from  approximately  4.93% for the
three-month  period  ended  November  30,  2008 to  approximately  4.68% for the
three-month period ended November 30, 2009.

EXPENSES

INCURRED POLICY LOSSES

The  Company  has  experienced  no claims for losses as of  November  30,  2009.
However,  "incurred but not reported"  (IBNR) policy losses for the  three-month
period  ended  November  30,  2009 and 2008  amounted  to  $49,501  and  $48,249
respectively.  Such amounts represent the provision for loss and loss adjustment
expense  attributable to surety bonds issued by FSC. Such estimates are based on
industry averages adjusted for factors that are unique to the FSC's underwriting
approach  and are  constantly  reviewed  for  adequacy  based on current  market
conditions  and  other  factors  unique  to  FSC's  business.  For each of these
periods,  IBNR policy losses were  approximately  24% and 30% of earned premium,
respectively.

                                      -5-
<PAGE>

POLICY ACQUISITION COSTS

Insurance  policy  acquisition  costs of $67,567 and $39,982 for the three-month
periods ended  November 30, 2009 and 2008,  respectively,  represent  charges to
operations for policy acquisition expense and premium tax attributable to surety
polices  issued  by FSC and are  recognized  ratably  over the  period  in which
premiums  are  earned.   Such  cost  as  a  percentage  of  earned  premium  was
approximately  33% and 25% for the  periods  ended  November  30,  2009 and 2008
respectively.

GENERAL AND ADMINISTRATIVE

General and administrative  expenses for the three-month  periods ended November
30,  2009 and 2008 were  $327,712  and  $402,725  respectively,  representing  a
decrease of $75,013, and were comprised of the following:
<TABLE>
<CAPTION>

                                                                 Three-month Period Ended
                                                                       November 30,
                                                           ------------------ ------------------
                                                                 2009               2008             Difference
                                                           ------------------ ------------------ -------------------
<S>                                                        <C>                <C>                <C>
Salaries and related costs                                 $         184,627  $         173,131  $          11,496
General office expense                                                29,566             30,708             (1,142)
Legal and other professional fees and costs                           30,786            114,539            (83,753)
Audit, accounting and related services                                24,508             26,945             (2,437)
Travel, meals and entertainment                                       12,617             14,534             (1,917)
Other general and administrative                                      45,608             42,868              2,740
                                                           ------------------ ------------------ -------------------
                         Total general and administrative  $         327,712  $         402,725  $         (75,013)
                                                           ================== ================== ===================
</TABLE>


Salaries and related costs, net of deferred internal policy  acquisition  costs,
increased approximately $11,500 and are comprised of the following:
<TABLE>
<CAPTION>
                                                                Three-month Period Ended
                                                                      November 30,
                                                          --------------------------------------
                                                                 2009               2008            Difference
                                                          ------------------- ------------------ -------------------
<S>                                                       <C>                 <C>                <C>
Salaries and taxes                                        $          125,377  $         144,958  $         (19,581)
Commissions                                                            3,937              1,379              2,558
Stock option expense                                                  34,105             13,491             20,614
Fringe benefits                                                       14,824             17,104             (2,280)
Key-man insurance                                                     19,038             18,128                910
Deferred payroll costs                                               (12,654)           (21,929)             9,275
                                                          ------------------- ------------------ -------------------
                         Total salaries and related costs $          184,627  $         173,131  $          11,496
                                                          =================== ================== ===================
</TABLE>

                                      -6-
<PAGE>


The decrease in salaries and taxes for the three-month period ended November 30,
2009 as compared to the same period of the  previous  year was the result of the
decrease of two staff  position.  The increase in commissions is attributable to
the  Company's  commission  structure  that  pays  a  larger  commission  on the
origination of a policy but reduced for subsequent policy renewals. The increase
in stock option  expense is  attributable  to the award of stock options on June
30, 2009.

Legal and other professional fees and costs were comprised of the following:
<TABLE>
<CAPTION>
                                                                Three-month Period Ended
                                                                      November 30,
                                                          --------------------------------------
                                                                 2009               2008            Difference
                                                          ------------------- ------------------ -------------------
<S>                                                       <C>                 <C>                <C>
General corporate services                                $           29,046  $          8,291   $          20,755
Expansion of surety license to other states                              344            25,574             (25,230)
Acquisition and financing related costs                                1,396            80,674             (79,278)
                                                          ------------------- ------------------ -------------------
                  Total legal and other professional fees $           30,786  $        114,539   $         (83,753)
                                                          =================== ================== ===================
</TABLE>


The increase in general  corporate  services  results  primarily  from increased
review and  assistance  provided in connection  with the filing of the Company's
annual report with the Securities and Exchange  Commission.  In the  three-month
period ended November 30, 2008, the Company incurred expense of $25,574 relating
to  expansion  of FSC's  surety  license to the State of Ohio and other  license
expansion  related  services.  Legal and other  professional  services and costs
related to the Company's  pending  acquisitions  and on-going  efforts to obtain
financing  necessary to expand the Company's  business and penetrate new markets
amounted to $1,396 and $80,674 for the  three-month  periods ended  November 30,
2009 and 2008, respectively. This decrease correlates to a decrease in this area
of professional service required.

The  decrease in travel,  meals and  entertainment  expense for the  three-month
period  ended  November  30, 2009 as compared to the  corresponding  2008 period
related primarily to additional efforts made by management to reduce expense.

Other general and administrative expense increased  approximately $2,740 for the
three-month period ended November 30, 2009 as compared to the corresponding 2008
period.  This  increase  in  general  and  administrative  expense is result IRS
penalties  assessed  in the  current  quarter.  Other  aspects  of  general  and
administrative expense represent an overall decrease as a result of management's
efforts to curtail its operating costs.

MUTUAL FUND COSTS

J&C is the investment  advisor to the Jacobs & Company Mutual Fund (the "Fund").
While  the Fund is  responsible  for its own  operating  expenses,  J&C,  as the
advisor,  has agreed to limit the Fund's aggregate annual operating  expenses to
2% of the average net  assets.  Under this  expense  limitation  agreement,  J&C
absorbed $36,586 of the Fund's operating  expenses during the three-month period
ended November 30, 2009 as compared to $31,773 for corresponding period from the
previous  year.  Expense  reimbursement  accruals are recorded  monthly based on

                                      -7-
<PAGE>

billings  received  from  the  Fund of  estimated  expense  reimbursement.  Such
estimates are adjusted to actual expenses  incurred by the Fund as of January 31
of each year, the fiscal year-end for the Fund.

As the Fund grows in size (of assets under  management),  expenses (in excess of
the 2% level)  absorbed by J&C will decrease  until the Fund reaches  sufficient
size to support its on-going  operating  costs,  while revenues from  investment
advisory  fees will  increase.  In  contrast,  as the Fund  declines in size (of
assets under  management),  expenses (in excess of the 2% level) absorbed by J&C
will increase,  while revenues from investment advisory fees will decrease.  For
the three-month  period ended November 30, 2009, the Fund's investment  advisory
fees  decreased  to  $5,864  as  compared  with  $6,106  for  the  corresponding
three-month period ended November 30, 2008 as a result of a decrease in the Fund
size.  The Fund's average assets under  management  declined from  approximately
$2.14  million  for  the   three-month   period  ended   November  30,  2008  to
approximately  $1.87 million for the three-month period ended November 30, 2009.
As of November  30, 2009,  assets  under  management  were  approximately  $1.86
million.

The Fund was  initially  established  by J&C to  provide  the  ability to manage
smaller  accounts  in a more  efficient  and  diversified  manner and provide an
investment  vehicle that would fit within the Company's broader business plan of
issuing  smaller  bonds under its  collateralized  surety  programs.  The delays
incurred by the Company in  accomplishing  a financing  that would make possible
the full  implementation of the Company's  business plan coupled with the Fund's
lackluster  performance  during  the  interim  period  contributed  to a gradual
decline in assets and the fixed cost  maintenance  of the Fund was a significant
expense to the Company.  The Fund's independent Board of Trustees had determined
that  unless the Fund  experienced  a  significant  growth in assets it would be
necessary to liquidate the Fund.  Growth in assets was not  accomplished and J&C
was often  delinquent in  reimbursements  required under the expense  limitation
agreement.  As a result, the board directed the liquidation of the Fund's assets
in November and the  distribution of the proceeds to the Fund's  shareholders on
December 1, 2009.  Additional  distributions to the former  shareholders will be
made as the Company makes payment of the cumulative reimbursement due the Fund.

INTEREST EXPENSE

Interest expense for the three-month period ended November 30, 2009 was $181,815
as compared with $116,231 for the corresponding  period ended November 30, 2008.
Components of interest expense are comprised of the following:
<TABLE>
<CAPTION>

                                                                           Three-month Period Ended
                                                                                 November 30,
                                                                     ---------------- --------------------
                                                                          2009               2008             Difference
                                                                     ---------------- -------------------- -----------------
<S>                                                                  <C>              <C>                  <C>
Interest expense on bridge-financing                                 $       142,301  $            87,022  $         55,279
Expense of common shares issued or to be issued in connection with
bridge financing and other arrangements                                       12,222               12,935              (713)
Interest expense on demand and term notes                                     24,858               14,124            10,734
Other finance charges                                                          2,434                2,150               284
                                                                     ---------------- -------------------- -----------------
                                             Total interest expense  $       181,815  $           116,231  $         65,584
                                                                     ================ ==================== =================
</TABLE>
                                      -8-
<PAGE>

The  increase in interest  expense on bridge  financing is due to an increase in
the interest  rate on the bridge loans from 10% to 17% as of September 10, 2009.
Interest expense on demand and term notes increased due to increased  borrowings
and other finance  charges  increased due to IRS interest  charged on unremitted
payroll taxes.

ACCRETION AND DIVIDENDS

Accretion of  mandatorily  redeemable  convertible  preferred  stock issued at a
discount and accrued  dividends for three-month  periods ended November 30, 2009
and 2008 are as follows:
<TABLE>
<CAPTION>
                                                                Three-month Period Ended
                                                                      November 30,
                                                          --------------------------------------
                                                                 2009               2008            Difference
                                                          ------------------- ------------------- ------------------
<S>                                                       <C>                 <C>                 <C>
Accretion of discount                                     $          116,007  $         140,683   $        (24,676)
Accrued dividends                                                    277,686            259,594             18,092
                                                          ------------------- ------------------- ------------------
                            Total accretion and dividends $          393,693  $         400,277   $         (6,584)
                                                          =================== =================== ==================
</TABLE>


The decrease in the accretion of discount  results from the  application  of the
interest or constant yield method to the initial discount  recorded with respect
to the mandatorily  redeemable  preferred stock over a period of five years from
the date of issuance of the stock  offset by the  exchange of 70.72% of Series B
mandatorily convertible preferred stock to Series C stock with no accretion. The
increase in accrued  dividends results from the issuance of additional shares of
the company's  Series A Preferred stock (in connection  with additional  bonding
provided), and the compounding of dividends on accrued but unpaid dividends.

RESULTS OF OPERATIONS FOR THE SIX-MONTH PERIOD ENDED NOVEMBER 30, 2009

The  Company  experienced  a loss (after  accretion  of  mandatorily  redeemable
convertible preferred stock) for the six-month period ended November 30, 2009 of
$1,656,879 as compared with a loss of $1,635,836  for the  corresponding  period
ended November 30, 2008.

REVENUES

Revenues from  operations for the six-month  period ended November 30, 2009 were
$701,310 as compared with $578,441 for the  corresponding  period ended November
30, 2008.  The overall  increase in revenues is  attributable  to the  continued
growth of the surety business of FSC.

INVESTMENT ADVISORY REVENUES

Quarterly  revenues from the Company's  investment  management segment (Jacobs &
Company or J&C), net of advisory  referral fees, were $131,288 for the six-month
period ended  November 30, 2009 as compared with $117,561 for the  corresponding
period ended  November 30, 2008.  As  investment  advisory fees are based on the
market  value of assets under  management,  some  fluctuation  will occur due to
overall market conditions. For the most part, however, such revenues will remain
relatively  constant from quarter to quarter with any large  fluctuations  being
attributable to the growth or loss of assets under  management.  The increase in
revenues  is  attributable  to the growth in  individually  managed  accounts as
summarized below:

                                      -9-
<PAGE>

                                                    Six-month Period Ended
                                                         November 30,
                                                         ------------
                                                    2009              2008
                                              ----------------- ----------------

Individually managed accounts                 $        119,517  $        104,539
Mutual fund                                             11,771            13,022
                                              ----------------- ----------------
                                       Total  $        131,288  $        117,561
                                              ================= ================

INSURANCE AND INVESTMENT REVENUES

Quarterly  revenues from the Company's surety insurance  segment,  consisting of
FSC and Triangle  Surety  Agency,  Inc ("TSA"),  were $566,353 for the six-month
period ended  November 30, 2009 as compared with $460,880 for the  corresponding
period ended November 30, 2008.  Revenues  attributable to premium  earned,  net
investment income and commissions earned are as follows:

                                                    Six-month Period Ended
                                                         November 30,
                                                         ------------
                                                    2009              2008
                                                    ----              ----

Premium earned                                $        411,148  $        307,762
Net investment income                                  143,503           141,843
Commissions earned                                      11,702            11,275
                                              ----------------- ----------------
                                       Total  $        566,353  $        460,880
                                              ================= ================

Revenues  for this  segment of the  business  are  expected to be somewhat  more
"seasonable" from  quarter-to-quarter  as commission revenue is dependent on the
timing of issuance or renewal of bonds  placed by the Company,  whereas  premium
revenue is  recognized  ratably  over the term of the policy  period and thus is
more  stable  from  period  to  period.  Fluctuations  in  premium  revenue  for
comparable  periods largely reflect the overall growth or loss of business.  The
increase in premium revenue for the six-month  period ended November 30, 2009 in
comparison  to the  corresponding  period from the prior year is a result of the
addition of new clients to FSC's surety  business and  increased  business  from
existing clients. Investment income should remain relatively consistent, but can
fluctuate  based on  interest  rates and  market  conditions.  The  increase  in
corresponding  periods  reflects growth in average assets held for investment in
FSC's investment  portfolio from approximately  $5.798 million for the six-month
period  ended  November  30,  2008  to  approximately  $ 6.441  million  for the
six-month  period ended  November 30, 2009,  offset by a decrease in  investment
yield from approximately  4.93% for the six-month period ended November 30, 2008
to approximately 4.75% for the six-month period ended November 30, 2009.


                                      -10-
<PAGE>
EXPENSES

INCURRED POLICY LOSSES

The  Company  has  experienced  no claims for losses as of  November  30,  2009.
However,  "incurred  but not  reported"  (IBNR)  policy losses for the six-month
period  ended  November  30,  2009 and 2008  amounted  to  $97,686  and  $93,033
respectively.  Such amounts represent the provision for loss and loss adjustment
expense  attributable to surety bonds issued by FSC. Such estimates are based on
industry averages adjusted for factors that are unique to the FSC's underwriting
approach  and are  constantly  reviewed  for  adequacy  based on current  market
conditions and other factors unique to FSC's  business.  IBNR policy losses were
approximately  24% and 30% of earned  premium for the six-month  periods  ending
November 30, 2009 and 2008, respectively.

POLICY ACQUISITION COSTS

Insurance  policy  acquisition  costs of $130,168 and $79,011 for the  six-month
periods ended  November 30, 2009 and 2008,  respectively,  represent  charges to
operations for policy acquisition expense and premium tax attributable to surety
polices  issued  by FSC and are  recognized  ratably  over the  period  in which
premiums  are  earned.   Such  cost  as  a  percentage  of  earned  premium  was
approximately 31.66% and 25.67% for the periods ended November 30, 2009 and 2008
respectively.

GENERAL AND ADMINISTRATIVE

General and administrative expenses for the six-month periods ended November 30,
2009 and 2008 were $728,325 and $938,664  respectively,  representing a decrease
of $210,339, and were comprised of the following:
<TABLE>
<CAPTION>

                                                                  Six-month Period Ended
                                                                       November 30,
                                                           -------------------------------------
                                                                 2009               2008             Difference
                                                           ------------------ ------------------ -------------------
<S>                                                        <C>                <C>                <C>
Salaries and related costs                                 $         417,845  $         339,042  $         78,803
General office expense                                                57,407             58,424            (1,017)
Legal and other professional fees and costs                           97,861            366,826          (268,965)
Audit, accounting and related services                                48,526             49,855            (1,329)
Travel, meals and entertainment                                       28,236             34,329            (6,093)
Other general and administrative                                      78,450             90,188           (11,738)
                                                           ------------------ ------------------ -------------------
                         Total general and administrative  $         728,325  $         938,664  $       (210,339)
                                                           ================== ================== ===================
</TABLE>

                                      -11-
<PAGE>

Salaries and related costs, net of deferred internal policy  acquisition  costs,
increased approximately $79,000 and are comprised of the following:
<TABLE>
<CAPTION>

                                                                 Six-month Period Ended
                                                                      November 30,
                                                          --------------------------------------
                                                                 2009               2008            Difference
                                                          ------------------- ------------------ -------------------
<S>                                                       <C>                 <C>                <C>
Salaries and taxes                                        $          252,137  $         296,160  $         (44,023)
Commissions                                                           15,269              6,686              8,583
Stock option expense                                                 172,995             26,982            146,013
Fringe benefits                                                       27,386             34,121             (6,735)
Key-man life insurance                                                30,257             30,352                (95)
Deferred policy acquisition costs                                    (80,199)           (55,259)           (24,940)
                                                          ------------------- ------------------ -------------------
                         Total salaries and related costs $          417,845  $         339,042  $          78,803
                                                          =================== ================== ===================
</TABLE>


Decreases in salaries and taxes paid for the six-month period ended November 30,
2009 as  compared  to the same  period  the  previous  year was a result  in the
decrease of two staff positions.  The increase in commissions is attributable to
the  increase  in  insurance  business  written in the  six-month  period  ended
November 30, 2009. The increase in stock option expense is  attributable  to the
award of stock options on June 30, 2009.

Legal and other professional fees and costs were comprised of the following:

<TABLE>
<CAPTION>
                                                                Six-month Period Ended
                                                                      November 30,
                                                          --------------------------------------
                                                                 2009               2008            Difference
                                                          ------------------- ------------------- ------------------
<S>                                                       <C>                 <C>                 <C>
General corporate services                                $           37,165  $          22,454   $        14,711
Expansion of surety license to other states                              344             61,236           (60,892)
Acquisition and financing related costs                               60,352            283,136          (222,784)
                                                          ------------------- ------------------- ------------------
                  Total legal and other professional fees $           97,861  $         366,826   $      (268,965)
                                                          =================== =================== ==================
</TABLE>

The increase in general  corporate  services  results  primarily  from increased
review and  assistance  provided in connection  with the filing of the Company's
annual  report with the  Securities  and Exchange  Commission.  In the six-month
period ended November 30, 2008, the Company incurred expense of $61,236 relating
to  expansion  of FSC's  surety  license to the State of Ohio and other  license
expansion  related  services.  Legal and other  professional  services and costs
related to the Company's  pending  acquisitions  and on-going  efforts to obtain
financing  necessary to expand the Company's  business and penetrate new markets
amounted to $60,352 and $283,136 for the six-month  periods  ended  November 30,
2009 and 2008, respectively. This decrease correlates to a decrease in this area
of professional service required.


                                      -12-
<PAGE>
MUTUAL FUND COSTS

J&C is the investment  advisor to the Jacobs & Company Mutual Fund (the "Fund").
While  the Fund is  responsible  for its own  operating  expenses,  J&C,  as the
advisor,  has agreed to limit the Fund's aggregate annual operating  expenses to
2% of the average net  assets.  Under this  expense  limitation  agreement,  J&C
absorbed  $74,912 of the Fund's  operating  expenses during the six-month period
ended November 30, 2009 as compared to $73,340 for corresponding period from the
previous year. As the Fund grows in size (of assets under management),  expenses
(in excess of the 2% level) absorbed by J&C will decrease until the Fund reaches
sufficient  size to support its on-going  operating  costs,  while revenues from
investment  advisory fees will  increase.  In contrast,  as the Fund declines in
size (of assets under management), expenses (in excess of the 2% level) absorbed
by J&C  will  increase,  while  revenues  from  investment  advisory  fees  will
decrease.  For  the  six-month  period  ended  November  30,  2009,  the  Fund's
investment  advisory fees  decreased to $11,771 as compared with $13,022 for the
corresponding six-month period ended November 30, 2008 as a result of a decrease
in the Fund size.  The Fund's  average  assets under  management  declined  from
approximately  $2.24 million for the six-month period ended November 30, 2008 to
approximately $1.84 million for the six-month period ended November 30, 2009. As
of November 30, 2009, assets under management were approximately $1.86 million.

The Fund was  initially  established  by J&C to  provide  the  ability to manage
smaller  accounts  in a more  efficient  and  diversified  manner and provide an
investment  vehicle that would fit within the Company's broader business plan of
issuing  smaller  bonds under its  collateralized  surety  programs.  The delays
incurred by the Company in  accomplishing  a financing  that would make possible
the full  implementation of the Company's  business plan coupled with the Fund's
lackluster  performance  during  the  interim  period  contributed  to a gradual
decline in assets and the fixed cost  maintenance  of the Fund was a significant
expense to the Company.  The Fund's independent Board of Trustees had determined
that  unless the Fund  experienced  a  significant  growth in assets it would be
necessary to liquidate the Fund.  Growth in assets was not  accomplished and J&C
was often  delinquent in  reimbursements  required under the expense  limitation
agreement.  As a result, the board directed the liquidation of the Fund's assets
in November and the  distribution of the proceeds to the Fund's  shareholders on
December 1, 2009.  Additional  distributions to the former  shareholders will be
made as the Company makes payment of the cumulative reimbursement due the Fund.

INTEREST EXPENSE

Interest  expense for the six-month  period ended November 30, 2009 was $509,099
as compared with $235,009 for the corresponding  period ended November 30, 2008.
Components of interest expense are comprised of the following:

                                      -13-
<PAGE>
<TABLE>
<CAPTION>
                                                                     Six-month Period Ended
                                                                          November 30,
                                                               -----------------------------------
                                                                     2009              2008           Difference
                                                               ----------------- ----------------- -----------------
<S>                                                            <C>               <C>               <C>
Interest expense on bridge financing                           $         26,212  $        170,906  $         55,306
Expense of common shares issued or to be issued in
connection with bridge financing and other arrangements                 238,192            36,943           201,249
Interest expense on demand and term notes                                41,057            23,804            17,253
Other finance charges                                                     3,638             3,356               282
                                                               ----------------- ----------------- -----------------
                                       Total interest expense  $        509,099  $        235,009  $        274,090
                                                               ================= ================= =================
</TABLE>

The  increase in interest  expense on bridge  financing is due to an increase in
the interest  rate on the bridge loans from 10% to 17% as of September 10, 2009.
The  increase in the expense of common  shares  issued (or to be issued) for the
six-month period ended November 30, 2009 as compared to the corresponding period
of the previous year was largely attributable to the issuance of common stock on
June 5, 2009 in relation to the agreement with the bridge loan holders. Interest
expense demand and term notes increased due to increased borrowings.

ACCRETION AND DIVIDENDS

Accretion of  mandatorily  redeemable  convertible  preferred  stock issued at a
discount and accrued dividends for six-month periods ended November 30, 2009 and
2008 are as follows:

<TABLE>
<CAPTION>
                                                                 Six-month Period Ended
                                                                      November 30,
                                                         --------------------------------------
                                                                 2009               2008            Difference
                                                          ------------------- ------------------- ------------------
<S>                                                       <C>                 <C>                 <C>
Accretion of discount                                     $          264,308  $         278,916   $        (14,608)
Accrued dividends                                                    548,245            510,660             37,585
                                                          ------------------- ------------------- ------------------
                            Total accretion and dividends $          812,553  $         789,576   $         22,977
                                                          =================== =================== ==================
</TABLE>

The decrease in the accretion of discount  results from the  application  of the
interest or constant yield method to the initial discount  recorded with respect
to the mandatorily  redeemable  preferred stock over a period of five years from
the date of issuance of the stock  offset by the  exchange of 70.72% of Series B
mandatorily convertible preferred stock to Series C stock with no accretion. The
increase in accrued  dividends results from the issuance of additional shares of
the company's  Series A Preferred stock (in connection  with additional  bonding
provided), and the compounding of dividends on accrued but unpaid dividends.


                                      -14-
<PAGE>

CRITICAL ACCOUNTING POLICIES AND ESTIMATES

INTANGIBLE ASSETS

In exchange for the purchase  price of $2.9 million for the  acquisition of FSC,
the Company  received cash and  investments  held by FSC totaling $2.75 million,
with the difference  being  attributed to the  multi-line  property and casualty
licenses of FSC in the states of West Virginia,  Ohio and Indiana. Such licenses
have  indefinite  lives  and  are  evaluated  annually  for  recoverability  and
impairment loss.  Impairment loss, if any, is measured by estimating future cash
flows  attributable  to such  assets  based on  forecasts  and  projections  and
comparing such  discounted cash flow amounts to the carrying value of the asset.
Should actual results differ from such  forecasts and  projections,  such assets
may be subject to future impairment charges.

RESERVE FOR LOSSES AND LOSS EXPENSES

Reserves  for  unpaid  losses  and loss  adjustment  expenses  of the  insurance
subsidiary are estimated using individual  case-basis  valuations in conjunction
with estimates derived from industry and company experience. FSC has experienced
no claims for losses as of November 30, 2009.

FSC is licensed to write  surety in West  Virginia  and Ohio and has focused its
efforts  primarily  on coal  permit  bonds.  Reclamation  of land  that has been
disturbed  by  mining  operations  is  highly  regulated  by  federal  and state
jurisdictions,   and  surety  bonds  posted  to  assure  that   reclamation   is
accomplished  are  generally  long-term in nature,  with mining  operations  and
reclamation work conducted in unison as the property is mined. Additionally,  no
two  principals or properties  are alike due to varied  company  structures  and
unique geography and geology of each site.

In underwriting coal reclamation bonds,  management obtains estimates,  prepared
by independent outside professionals experienced in this field of work, of costs
to reclaim the relevant  properties in accordance with the specifications of the
mining  permit.  The  estimates are  periodically  updated and compared with the
value of marketable  securities held in an account in which FSC has a collateral
security  interest,  significantly  mitigating its exposure to loss.  Should the
principal  default in its obligation to reclaim the property as specified in the
mining permit,  FSC can use the funds held in the  collateral  account either to
reclaim the  property  or as credit  towards  forfeiting  the face amount of the
surety bond.  Losses can occur if the costs of reclamation  exceed the estimates
at the time the bond was underwritten,  or upon subsequent  re-evaluations,  and
sufficient  collateral  is not  obtained or if the  collateral  has  experienced
significant deterioration in value.

In establishing its reserves for losses and loss adjustment expense,  management
continually   reviews  its  exposure  to  loss  based  on  reports  provided  in
conjunction with the periodic monitoring and inspections performed, the value of
the  collateral  accounts  held for the  benefit  of FSC,  along  with  industry
averages and  historical  experience.  At the  inception  of surety  operations,
management  estimated  such losses  based on industry  experience,  adjusted for
factors that are unique to the  Company's  approach,  and in  consultation  with
consulting actuaries experienced in the surety field.


                                      -15-
<PAGE>

ANALYSIS OF  LIQUIDITY,  CAPITAL  RESOURCES  AND  FINANCIAL  POSITION AND RECENT
DEVELOPMENTS AND FUTURE DIRECTION OF COMPANY

The Company has experienced  significant  losses (after accretion of mandatorily
redeemable   convertible  preferred  stock,   including  accrued  dividends)  of
approximately  $3,058,000 and $3,333,000 for the fiscal years ended May 31, 2009
and 2008, respectively, and a loss of approximately $714,000 for the three-month
period  ended  November  30, 2009.  The Company  continues  to face  significant
working capital  deficiencies and cash flow concerns.  The Company used $175,000
in cash flow from operating activities for the three-month period ended November
30, 2009.  This has resulted in the  deferral of payments to  professionals  and
others, an inability to pay its preferred stock dividend obligation and defaults
in certain quarterly  payments due its  bridge-financing  lenders (see Note E in
the accompanying  unaudited  consolidated  condensed  financial  statements).  A
substantial  portion of the  Company's  cash flow is generated by its  insurance
subsidiary and is subject to certain withdrawal  restrictions.  While management
expects revenue growth and cash flow to increase  significantly  as its business
plan is fully  implemented,  it is anticipated that losses will continue and the
Company will be cash constrained until FSC is able to develop a substantial book
of business.

The Company is restricted in its ability to withdraw monies from FSC without the
prior approval of the Insurance  Commissioner.  Of the Company's investments and
cash of  $6,550,736  as of November 30, 2009,  $6,538,883  is restricted to FSC.
Furthermore,  additional  capital  raised  pursuant  to the  sale  of  Series  A
preferred  stock of the Company in  connection  with the  issuance of  partially
collateralized  surety bonds must be contributed by the Company into the surplus
accounts of FSC. As of November 30, 2009,  $70,324 in proceeds  from the sale of
Series A  preferred  stock had been  collected  but not yet  contributed  to the
surplus and capital of FSC.

Effective  April 1, 2009, FSC entered into a reinsurance  agreement with Lloyd's
of London for its coal reclamation  surety bonding programs.  This agreement has
provided  additional  bonding  capacity to FSC and has enabled FSC to write more
bonds and of greater size for its coal reclamation  bonding clients.  Management
expects this reinsurance arrangement to allow FSC to expand its market share and
to  result  in  increased  cash  flow  for  each  of  the  Company's   operating
subsidiaries.

Expansion  of  FSC's  business  to  other  states  is a key  component  to fully
implementing  the Company's  business plan. In fiscal 2009, the Company was able
to increase the capital of FSC,  reactivate FSC's insurance license in Ohio, and
obtain  authority to issue surety bonds in that state.  However,  management has
found that entry into other states (as a surety) has been difficult  without the
benefit of more substantial capital and reserves due to FSC's status as a recent
entry into this market and the financial  condition of the Company.  This is the
case notwithstanding the reinsurance  agreement entered into by FSC with Lloyd's
of London and the resulting  increase in bonding capacity.  Management  believes
that if FSC's capital and surplus reserves were  significantly  more substantial
and the  financial  condition  of the Company was  stabilized,  entry into other
states would be less challenging.  Accordingly,  management  continues to pursue
avenues  that can provide  additional  capital to increase  the  capacity of its
insurance  subsidiary and to fund continuing  operations as the business becomes

                                      -16-
<PAGE>

fully developed.  In addition,  as an alternative  means of addressing access to
markets,  management  is seeking to  establish  a  relationship  with any one of
several possible  sureties  licensed in states other than West Virginia and Ohio
that  comprise  significant  markets for the  bonding  programs of FSC and could
issue  surety bonds that are  underwritten  and  reinsured by FSC.  Under such a
"fronting"  arrangement,  the need for additional capital at the level of FSC to
facilitate  entry to other  state  markets  would  become  secondary,  since the
payment of a fronting fee to the insurance  company with active  licenses  would
provide access to the state market without formal entry.

As a means of alleviating  obligations  associated  with the Company's  Series B
Preferred  Stock,  which by its  terms  matures  at the end of 2010,  management
proposed a recapitalization  to assist in. stabilizing the financial position of
the  Company.  Holders  of  the  Series  B  Preferred  Stock  were  offered  the
opportunity to exchange their Series B Shares for an equal number of shares of a
new series of JFG preferred  stock  designated as Series C Preferred  Stock plus
2,000 shares of JFG Common Stock.  Series C Preferred Stock is equal in priority
to the Series B Preferred  Stock,  is entitled to  dividends at the same rate as
Series B Preferred  Stock, is entitled to convert to common stock of the Company
at a  conversion  rate of $.10 per common  share (in contrast to $1.00 per share
for Series B  Preferred)  and may be redeemed by the Company but does not have a
fixed  maturity date and,  thus, is classified as permanent  equity.  Holders of
over 70% of the outstanding  Series B Preferred Shares elected to participate in
the recapitalization.  Management believes the recapitalization will improve the
Company's  prospects for engaging in a larger  financing,  will assist FSC as it
applies to enter  other state  markets,  and will be an impetus to the growth of
the Company's business.

Through the sharing of resources  (primarily  personnel)  to minimize  operating
costs, the Company and its subsidiaries  attempt to minimize  operating expenses
and preserve resources.  Although FSC is now cash flow positive,  the use of its
assets and profits are  restricted  to its  stand-alone  operation by regulatory
authority  until its  capital and surplus  reserves  reach  levels that are more
substantial.  And  while  growth  of  the  FSC  business  continues  to  provide
additional  cash flow to the Company's other  subsidiaries,  Jacobs and Triangle
Surety,  it is anticipated that working capital  deficiencies  will continue and
will  need to be met  either  through  the  raising  of  additional  capital  or
borrowings.  However, there can be no assurance that additional capital (or debt
financing)  will be available when and to the extent  required or, if available,
on terms  acceptable to the Company.  Accordingly,  concerns as to the Company's
ability  to  continue  as a going  concern  are  substantial.  The  consolidated
financial  statements do not include any adjustments  that might result from the
outcome of this uncertainty.

In order to best  position  the  Company  to  accomplish  the  larger  financing
necessary to expand the  Company's  business  and  penetrate  new  markets,  the
Company   contracted  to  accomplish  two  acquisitions   (see  Note  G  in  the
accompanying  unaudited  consolidated  condensed financial  statements) that the
Company believed would  substantially  enhance the business and prospects of the
Company. The acquisitions were contingent upon the Company's obtaining necessary
financing  and one (for an insurance  company) was and remains  contingent  upon
necessary  regulatory  approvals.  The  Company  failed to obtain the  necessary
financing within the time periods prescribed by the acquisition agreements;  but
remains in discussions  with both parties.  Neither  agreement has been formally
terminated.

                                      -17-
<PAGE>
Until  such time that the  Company's  operating  costs  can be  serviced  by the
Company's  revenue stream,  management will continue to seek to raise additional
funds for operations  through  private  placements of stock,  other long-term or
permanent financing,  or short-term  borrowings.  However, the Company cannot be
certain that it will be able to continue to obtain adequate  funding in order to
reasonably  predict whether it will be able to continue as a going concern.  The
accompanying  financial  statements  do not include any  adjustments  that might
result from the outcome of this uncertainty.

The  Company's  exposure  to the  subprime  mortgage  risk is minimal due to its
investment  in  mortgage-backed  securities  having  been  limited to only those
securities  backed by the United States  government  (i.e.  Government  National
Mortgage  Association  or GNMA  securities).  The Company  also holds  municipal
obligations  that have been fully  defeased  through the purchase of  Resolution
Funding  Corporation  ("REFCORP")  strips  that have been  placed in escrow  and
provide the means for the bond  repayment.  REFCORP was created by the Financial
Institutions Reform,  Recovery and Enforcement Act of 1989 ("FIRREA") to provide
funds to the Resolution Trust  Corporation  ("RTC") in order to help resolve the
Savings and Loan failures.  REFCORP  operates as a United States Treasury agency
under the direction of the RTC Oversight Board,  whose chair is the secretary of
the United States  Treasury,  and its obligations  are ultimately  backed by the
United States government.

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

As  the  Registrant  qualifies  as a  small  reporting  company  as  defined  by
ss.229.10(f)(1) of Regulation S-K, the Registrant is not required to provide the
information required by this item.

ITEM 4T. CONTROLS AND PROCEDURES

We maintain  disclosure controls and procedures that are designed to ensure that
information  required to be disclosed  in the reports that the Company  files or
submits  under  the  Securities   and  Exchange  Act  is  recorded,   processed,
summarized,  and reported  within the time periods  specified in the SEC's rules
and forms,  and that such  information is accumulated  and  communicated  to the
Company's management,  including its Chief Executive Officer and Chief Financial
Officer,   as  appropriate,   to  allow  timely  decisions   regarding  required
disclosures.

Our management,  with the participation of its Chief Executive Officer and Chief
Financial  Officer,  has evaluated the effectiveness of our disclosure  controls
and procedures as defined in Rules 13a-15(e)  under the Securities  Exchange Act
of 1934, as of May 31, 2009. As previously reported in our Annual Report on Form
10-K for the year ended May 31, 2009, control  deficiencies were identified that
constitute a material  weakness in internal  control over  financial  reporting.
Such control  deficiencies  relate to inadequate  segregation of duties, lack of
effective   board  of  directors   oversight,   use  of   internally   developed
non-integrated   accounting   systems,   lack  of  internal  review  of  account
reconciliations,  and  lack of  internal  review  of  general  journal  entries,
elimination entries and the financial  statement  consolidation  process.  Based
upon their  evaluation,  the Chief Executive Officer and Chief Financial Officer
concluded that the Company's  disclosure controls and procedures,  as of May 31,
2009, were ineffective.

                                      -18-

<PAGE>
Effective  July 1, 2008,  management  implemented  changes in the  processing of
transactions  to  remediate  the  inadequate   segregation  of  duties  weakness
previously  identified.  Additionally,   management  identified  steps  at  both
management and the board of directors'  level to increase the  effectiveness  of
review as it relates to the financial reporting process.  Such changes have been
implemented  during the first fiscal quarter of the Company's  2008-2009  fiscal
year. While management  believes that the changes  implemented have strengthened
the overall control over financial  reporting,  such changes were not sufficient
to conclude that the Company's disclosure and control procedures, as of November
30,  2009,  were  effective.  Accordingly,  the  Chief  Executive  Officer/Chief
Financial  Officer  concluded  that  the  Company's   disclosure   controls  and
procedures,  as of November 30, 2009, were ineffective.  Management continues to
monitor  changes  made in fiscal 2008 and 2009 and will  continue  to  implement
improvements. Other changes will be considered as additional financial resources
and accounting staff become available.

Notwithstanding  the  above,  management  believes  the  unaudited  consolidated
condensed  financial  statements  in this  Quarterly  Report on Form 10-Q fairly
present,  in all material  respects,  the  Company's  financial  condition as of
November  30, 2009 and May 31, 2009 and the results of its  operations  and cash
flows for the three month period ended  November 30, 2009 and 2008 in conformity
with U.S. generally accepted accounting principals (GAAP).

                           PART II - OTHER INFORMATION

ITEM 1.      LEGAL PROCEEDINGS

None.

ITEM 1A.   RISK FACTORS

As  the  Registrant  qualifies  as a  small  reporting  company  as  defined  by
ss.229.10(f)(1) of Regulation S-K, the Registrant is not required to provide the
information required by this item.

ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES

In June 2009,  10 shares of Series A  Preferred  Stock were  issued  pursuant to
ongoing bonding programs of FSC in exchange for cash of $10,000.

Certificates  of  Designations,  Powers,  Preferences  and  Rights  of  Series A
Preferred Stock adopted by the Board of Directors of the Company on December 22,
2005 is set forth as Exhibit 4.1.

In the three-month period ending November 30, 2009,  warrants totaling 1,168,395
were exercised for cash and issuance of 1,168,395 common shares of the Company.

                                      -19-
<PAGE>


In the three month period ended November 30, 2009, the Company issued  5,354,624
shares of the Company's  common stock (See Note E) in connection with the bridge
financing arrangement.  The shares were valued at approximately $.0146 per share
based on the average quoted closing price of the Company's  stock for the 20-day
period  proceeding the date of the transaction and totaled  $78,177.  Such costs
have been expensed over the six-month period prior to the issuance of the common
shares.

On November 20, 2009,  one share of Series C Preferred  Stock and 2000 shares of
common stock were issued in exchange for each share of Series B Preferred  Stock
that was tendered to the  corporation  for  cancellation  pursuant to a proposed
recapitalization  of the  corporation.  As the  result  of the  recapitalization
6,804.936  shares of Series C Preferred  Stock were  issued,  13,609,872  common
shares  were  issued,  and  6,804.936  shares of Series B  Preferred  Stock were
tendered to the corporation and cancelled in exchange therefore.

The  Certificate of  Designations,  Powers,  Preferences  and Rights of Series C
Preferred  Stock adopted by the Board of Directors of the Company on December 8,
2009, is set forth as Exhibit 4.3; and the Certificate of Designations,  Powers,
Preferences  and  Rights of Series B  Preferred  Stock  adopted  by the Board of
Directors of the Company on December 22, 2005, is set forth as Exhibit 4.2

The  issuance  of the  aforementioned  securities  is exempt  from  registration
provisions of the Securities Act of 1933, as amended (the "Securities  Act"), by
reason of the provision of Section 4(2) of the Securities  Act, as  transactions
not involving any public  offering,  in reliance upon,  among other things,  the
representations made by the investors, including representations regarding their
status  as  accredited  investors  (as  such  term is  defined  under  Rule  501
promulgated  under the Securities Act), and their  acquisition of the securities
for  investment  and not  with a  current  view  to  distribution  thereof.  The
securities  contain  a  legend  to the  effect  that  such  securities  are  not
registered  under  the  Securities  Act  pursuant  to  an  exemption  from  such
registration. The issuance of the securities was not underwritten.

ITEM 3. DEFAULTS UPON SENIOR SECURITIES

The Company has incurred an event of default with respect to quarterly  interest
and principal payments under its bridge-financing arrangement. As of the date of
filing this report, the amount required to cure the default is $583,404.

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

None.

ITEM 5. OTHER INFORMATION

None.

                                      -20-
<PAGE>

ITEM 6. EXHIBITS
<TABLE>
<CAPTION>
<S>   <C>
3.1   Company's Articles of Incorporation (1)
3.2   Company's By-laws (1)
3.3   Certificate of the Designations, Powers, Preferences and Rights of Series A Preferred Stock of Jacobs Financial Group (1)
3.4   Certificate of the Designations, Powers, Preferences and Rights of Series B Preferred Stock of Jacobs Financial Group (1)
4.1   Certificate of the Designations, Powers, Preferences and Rights of Series A Preferred Stock of Jacobs Financial Group (1)
4.2   Certificate of the Designations, Powers, Preferences and Rights of Series B Preferred Stock of Jacobs Financial Group (1)
4.3   Certificate of the Designations, Powers, Preferences and Rights of Series C Preferred Stock of Jacobs Financial Group (7)
10.1  Agreement to acquire by merger Reclamation Surety Holding Company, Inc. (2) (4)
10.2  Stock Purchase Agreement with National Indemnity Company to purchase Unione Italiana Insurance Company of America dated
      August 20, 2008 (5) (6)
31.1  Certification  of Chief  Executive  Officer  and Chief  Financial  Officer pursuant to Rule 13a-146.1  promulgated under the
      Securities Exchange Act of 1934
32.1  Certification of Chief Executive Officer and Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant
      to Section 906 of the Sarbanes-Oxley Act of 2002
99.1  Form of Subscription Agreement and Promissory Note  (Bridge-financing) (3)
--------------------------------------------------------------------------------------------------------------------
      (1)   Incorporated by reference to the Company's Current Report on form 8-K dated December 29, 2005.
      (2)   Incorporated by reference to the Company's Current Report on form 8-K dated February 8, 2008.
      (3)   Incorporated by reference to the Company's Current Report on form 8-K dated June 6, 2008
      (4)   Incorporated by reference to the Company's Current Report on form 8-K dated June 24, 2008
      (5)   Incorporated by reference to the Company's Current Report on form 8-K dated August 20, 2008
      (6)   Incorporated by reference to the Company's Current Report on form 8-K dated November 13, 2008
      (7)   Incorporated by reference to the Company's Current Report on form 8-K dated December 14, 2009
</TABLE>








                                      -21-
<PAGE>



SIGNATURES


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


Date: May 27, 2010                     JACOBS FINANCIAL GROUP, INC.
                            ----------------------------------------------------
                                              (Registrant)
                         By:
                            /s/John M. Jacobs
                            ----------------------------------------------------
                            John M. Jacobs, President































                                      -22-