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

                                    FORM 10-Q

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

                For the quarterly period ended November 30, 2010

                         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:  233,487,622  shares of common
stock as of January 19, 2010.


                         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           F-5 and
 Preferred Stock and Stockholders Equity (Deficit)                     F-6
Notes to Consolidated Condensed Financial Statements                   F-7


















                                      -2-



<PAGE>
JACOBS FINANCIAL GROUP, INC.
Consolidated Condensed Balance Sheets (Unaudited)
<TABLE>
<CAPTION>
                                                                                               November 30, 2010     May 31, 2010
                                                                                               -----------------  ------------------
<S>                                                                                            <C>                <C>
ASSETS

INVESTMENTS AND CASH:
Bonds  and  mortgaged-back  securities  available  for  sale,  at  market  value               $     6,987,603    $      6,618,472
(amortized  cost  -  11/30/10  $6,766,540;   05/31/10   $6,413,857)
Short-term investments, at cost (approximates market value)                                            258,662             264,079
Cash                                                                                                    45,558              74,571
                                                                                               -----------------  ------------------
                   TOTAL INVESTMENTS AND CASH                                                        7,291,823           6,957,122

Investment income due and accrued                                                                       45,640              31,833
Premiums and other accounts receivable                                                                 117,552             147,466
Prepaid reinsurance  premium                                                                           185,165             214,385
Funds deposited with Reinsurers                                                                         18,735             122,568
Deferred policy acquisition costs                                                                      121,442             128,453
Furniture, Automobile, and equipment, net of accumulated depreciation of
$150,435 and $144,102, respectively                                                                     36,066              18,380
Other assets                                                                                            21,079              27,832
Intangible assets                                                                                      150,000             150,000
                                                                                               -----------------  ------------------
                   TOTAL ASSETS                                                                $     7,987,502    $      7,798,039
                                                                                               =================  ==================
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)

Reserve for losses and loss  expenses                                                                $ 703,901           $ 611,190
Reserve  for  unearned  premiums                                                                       539,257             618,095
Accrued expenses and  professional  fees payable                                                       606,703             613,301
Accounts payable                                                                                       173,125             150,673
Related party payable                                                                                   98,209              96,160
Term note payable to related  party                                                                    360,000             360,000
Demand notes  payable to related party                                                                 217,159              82,104
Notes payable                                                                                        4,337,694           4,159,119
Accrued interest payable                                                                               863,227             651,983
Accrued interest payable to related party                                                              105,925              71,481
Other liabilities                                                                                      196,504             212,995

Mandatorily  Redeemable  Series B Preferred  Stock,  $.0001 Par Value Per Share;
3,136.405 Shares Authorized; 2,817.004 Shares Issued and Outstanding At November
30, 2010 and May 31, 2010; Stated Liquidation Value of $1,000 Per Share                              4,076,377           3,826,882
                                                                                               -----------------  ------------------
                   TOTAL LIABILITIES                                                                12,278,081          11,453,983
                                                                                               -----------------  ------------------
Series a  Preferred  Stock,  $.0001  Par  Value  Per  Share;  1  Million  Shares
Authorized; 2,675 Shares Issued and Outstanding At November 30, 2010 and May 31,
2010, Respectively; Stated Liquidation Value of $1,000 Per Share                                     3,075,370           3,005,266
                                                                                               -----------------  ------------------
                   TOTAL MANDATORILY REDEEMABLE PREFERRED STOCK                                      3,075,370           3,005,266
                                                                                               -----------------  ------------------
COMMITMENTS AND CONTINGENCIES (SEE NOTES)

STOCKHOLDERS' EQUITY (DEFICIT)

Series C Preferred Stock,  $.0001 par value per share; 10,000 shares authorized;
6,804.936  shares issued and  outstanding at November 30, 2010 and May 31, 2010,
respectively;  includes  $3,054,144 and  $2,670,286  accrued Series C dividends,
respectively                                                                                         9,085,075           8,701,217

Common  stock,  $.0001  par value per  share;  490  million  shares  authorized;
226,747,282 and  214,464,012  shares issued and outstanding at November 30, 2010
and May 31, 2010, respectively                                                                          22,675              21,446
Additional  paid in capital                                                                          3,480,767           3,404,431
Accumulated deficit                                                                                (20,175,529)        (18,992,919)
Accumulated other comprehensive income (loss)                                                          221,063             204,615
                                                                                               -----------------  ------------------
                   TOTAL STOCKHOLDERS' EQUITY (DEFICIT)                                             (7,365,949)         (6,661,210)
                                                                                               -----------------  ------------------
                   TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)                        $    (7,987,502)   $      7,798,039
                                                                                               =================  ==================
</TABLE>
                            See accompanying notes.
                                      F-1
<PAGE>
JACOBS FINANCIAL GROUP, INC,
CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS (UNAUDITED)

<TABLE>
<CAPTION>



                                                               THREE MONTHS ENDED NOVEMBER 30,         SIX MONTHS ENDED NOVEMBER 30,
                                                               ------------------------------          ----------------------------
                                                                     2010            2009                  2010            2009
                                                               --------------    ------------          ------------    ------------
<S>                                                            <C>               <C>                   <C>             <C>
REVENUES:

Investment advisory services                                   $      64,427     $    66,963           $   118,597     $   131,288
Insurance premiums and commissions                                   239,793         208,517               438,783         422,850
Net investment income                                                 67,184          71,260               100,435         143,503
Net realized investment gains (losses)                                12,689          (2,098)               63,707          (2,098)
Other income                                                           6,188             945                 7,821           5,767
                                                               --------------    ------------          ------------    ------------
                   TOTAL REVENUES                                    390,281         345,587               729,343         701,310


OPERATING EXPENSES:

Incurred policy losses                                                50,384          49,501                92,711          97,686
Insurance policy acquisition costs                                    77,353          67,567               137,334         130,168
General and administrative                                           314,204         327,712               569,601         728,325
Mutual fund costs                                                          -          36,587                     -          74,913
Depreciation                                                           4,115           2,649                 7,507           5,445
                                                               --------------    ------------          ------------    ------------
                   TOTAL OPERATING EXPENSES                          446,056         484,016               807,153       1,036,537
                                                               --------------    ------------          ------------    ------------

           NET INCOME (LOSS) FROM OPERATIONS                         (55,775)       (138,429)              (77,810)       (335,227)

Accrued dividends and accretion of Series B Mandatorily
Redeemable Preferred Stock                                          (126,366)              -              (249,495)              -
Interest expense                                                    (196,890)       (181,815)             (401,258)       (509,099)
                                                               --------------    ------------          ------------    ------------

                   NET INCOME (LOSS)                                (379,031)       (320,244)             (728,563)       (844,326)

Accrued dividends on Series C Preferred Stock equity                (194,873)              -              (383,858)              -
Accretion of Mandatorily Redeemable Convertible
Preferred Stock, including accrued dividends                         (35,399)       (393,693)              (70,104)       (812,553)
                                                               --------------    ------------          ------------    ------------

      NET INCOME (LOSS) ATTRIBUTABLE TO COMMON STOCKHOLDERS    $    (609,303)    $  (713,937)          $(1,182,525)    $(1,656,879)
                                                               ==============    ============          ============    ============


BASIC AND DILUTIVE NET INCOME (LOSS) PER SHARE:

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


WEIGHTED-AVERAGE SHARES OUTSTANDING                              223,993,563     198,663,501           219,453,898     189,857,107
                                                               ==============    ============          ============    ============
</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
                                                                                -----------------------   -------------------------
                                                                                   2010         2009          2010         2009
                                                                                ----------  -----------   ------------ ------------
<S>                                                                             <C>         <C>           <C>          <C>
COMPREHENSIVE INCOME (LOSS):

Net income (loss) attributable to common stockholders                           $(609,303)  $(713,937)    $(1,182,525) $(1,656,879)


OTHER COMPREHENSIVE INCOME (LOSS):

Net unrealized gain (loss) of available-for-sale
 investments arising during period                                                 27,111      23,000          57,843       28,421

Reclassification adjustment for realized (gain) loss
 included in net income                                                            (4,551)      2,098         (41,395)       2,098
                                                                                ----------  -----------   ------------ ------------

Net unrealized gain (loss) attributable to available-for-sale
 investments recognized in other comprehensive income                              22,560      25,098          16,448       30,519
                                                                                ----------  -----------   ------------ ------------

COMPREHENSIVE INCOME (LOSS) ATTRIBUTABLE TO COMMON STOCKOLDERS                  $(586,743)  $(688,839)    $(1,166,077) $(1,626,360)
                                                                                ==========  ===========   ============ ============
</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
                                                                      ------------------------------  ----------------------------
                                                                           2010             2009           2010            2009
                                                                      --------------   -------------  --------------   -----------
<S>                                                                   <C>              <C>            <C>              <C>
CASH FLOWS FROM OPERATING ACTIVITIES

Net Income (Loss)                                                     $    (379,031)   $  (320,244)   $    (728,563)   $ (844,326)

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

Unearned premium                                                           (162,498)      (160,985)         (49,618)     (160,032)
Stock option expense                                                          1,110         34,105           14,562       172,995
Stock issued (or to be issued) in connection
 with financing arrangements                                                 37,546         10,208           60,053       234,094
Accrual of Series B preferred stock dividends and accretion                 126,366              -          249,495             -
Provision for loss reserves                                                  50,385         49,501           92,711        97,686
Amortization of premium                                                      24,276         16,732           81,734        31,605
Depreciation                                                                  4,115          2,649            7,507         5,444
Accretion of discount                                                          (578)        (4,638)            (744)       (9,217)
Realized (gain) loss on sale of securities                                  (12,689)             -          (63,707)            -
Loss on disposal of equipment                                                     -              -              336             -
Change in operating assets and liabilities:
   Other assets                                                               1,212          9,448            6,753        16,647
   Premium and other receivables                                             69,324        (28,118)          29,914       (32,677)
   Investment income due and accrued                                        (12,732)           814          (11,472)           (3)
   Deferred policy acquisition costs                                         53,826         53,855            7,011        38,294
   Related party accounts payable                                             2,025         10,525            2,050        26,050
   Accounts payable and cash overdraft                                        7,949         57,097           22,452       115,014
   Accrued expenses and other liabilities                                    36,264         94,384          326,432       (11,714)
                                                                      --------------   -------------  --------------   -----------
       NET CASH FLOWS FROM (USED IN) OPERATING ACTIVITIES                  (153,130)      (174,667)          46,906      (320,140)

CASH FLOWS FROM INVESTING ACTIVITIES

(Increase) decrease in short-term investments                               (86,024)       (52,825)           5,417        22,683
Costs of bonds acquired                                                    (504,993)             -       (1,797,178)            -
Costs of mortgaged-backed securities acquired                               (97,311)      (223,744)        (740,330)     (620,087)
Sale of securities available for sale                                       203,072              -        1,043,756             -
Repayment of mortgage-backed securities                                     366,739        357,206        1,121,452       681,527
Purchase of furniture and equipment                                          (2,361)            -           (25,529)           -
                                                                      --------------   -------------  --------------   -----------
       NET CASH FLOWS FROM (USED IN) INVESTING ACTIVITIES                  (120,878)        80,637         (392,412)       84,123

CASH FLOWS FROM FINANCING ACTIVITIES

Proceeds from related party debt                                            505,649        149,935          840,519       256,532
Repayment of related party debt                                            (385,157)      (153,969)        (705,465)     (256,484)
Proceeds from borrowings                                                    583,000        315,000          887,500       632,500
Repayment of borrowings                                                    (512,213)      (156,450)        (708,925)     (242,846)
Proceeds from issuance of Series A preferred stock                                -              -                -        10,000
Proceeds from exercise of common stock warrants                               2,864          1,168            2,864         2,963
                                                                      --------------   -------------  --------------   -----------

       NET CASH FLOWS FROM FINANCING ACTIVITIES                             194,143        155,684          316,493       402,665

NET INCREASE (DECREASE) IN CASH                                             (79,865)        61,654          (29,013)      166,648

CASH AT BEGINNING OF PERIOD                                                 125,423        185,032           74,571        80,038
                                                                      --------------   -------------  --------------   -----------
CASH AT END OF PERIOD                                                 $      45,558    $   246,686    $      45,558    $  246,686
                                                                      ==============   =============  ==============   ===========
SUPPLEMENTAL DISCLOSURES

Interest paid                                                         $      45,686    $     9,607    $      91,984    $  267,078
Income taxes paid                                                                 -              -                -             -

Non-cash investing and financing transaction:
 Additional consideration paid for issuance of debt                          37,546         10,208           60,057       234,094
</TABLE>
                            See accompanying notes.
                                      F-4
<PAGE>
<TABLE>
<CAPTION>
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, 2010

                                                                    STOCKHOLDERS' EQUITY (DEFICIT)
                      -----------------  -------------------------------------------------------------------------------------------
                         SERIES A
                   MANDATORILY REDEEMABLE          COMMON STOCK           SERIES C PREFERRED
                                         -------------------------------  --------------------               ACCUMULATED
                                                              ADDITIONAL                                       OTHER
                      PREFERRED STOCK                          PAID-IN                AMOUNT   ACCUMULATED  COMPREHENSIVE
                      SHARES   AMOUNT      SHARES      AMOUNT  CAPITAL     SHARES    AND APIC    DEFICIT    INCOME (LOSS)   TOTAL
                      ------ ----------  -----------  ------- ----------  --------- ---------- -------------  --------  ------------
<S>                   <C>    <C>         <C>          <C>     <C>         <C>       <C>        <C>            <C>       <C>
BALANCE,
 AUGUST 31, 2010       2,675 $3,039,971  215,859,012  $21,586 $3,440,332  6,804.936 $8,890,202 $(19,566,223) $ 198,503 $ (7,015,600)

Issuance of common
 stock as compensation
 for services              -          -            -        -          -                                  -          -            -

Issuance of common
 stock as additional
 consideration for
 financing arrangements    -          -    8,024,284      803     11,290                                  -          -       12,093

Exercise of warrants       -          -    2,863,986      286      2,578                                  -          -        2,864

Accretion of Series A
 mandatorily redeemable
 convertible preferred
 stock                     -      4,686            -        -                                        (4,686)         -       (4,686)

Accrued dividends of
 Series A mandatorily
 redeemable convertible
 preferred stock           -     30,713            -        -          -                            (30,716)         -      (30,716)

Accrued dividends of
 Series C equity
 preferred stock           -          -            -        -          -          -    194,873     (194,873)         -            -

Increase (Decrease)
 in accrual of common
 shares to be issued
 in connection with
 financing arrangements                                           25,457                                                     25,457

Common stock option
 expense                   -          -            -        -      1,110                                  -          -        1,110

Unrealized net gain
 on available
 for sale securities       -          -            -        -          -                                  -     22,560       22,560

Net income (loss),
 three month period
 ended November 30,
 2010                      -          -            -        -          -          -          -     (379,031)         -     (379,031)
                      ------ ----------  -----------  ------- ----------  --------- ---------- -------------  --------  ------------
BALANCE,
 NOVEMBER 30, 2010     2,675 $3,075,370  226,747,282  $22,675 $3,480,767  6,804.936 $9,085,075 $(20,175,529)  $221,063  $(7,365,949)
                      ====== ==========  ===========  ======= ==========  ========= ========== =============  ========  ============
                      -----------------  -------------------------------------------------------------------------------------------

</TABLE>

                            See accompanying notes.

                                      F-5
<PAGE>
<TABLE>
<CAPTION>
JACOBS FINANCIAL GROUP, INC.
CONSOLIDATED STATEMENT OF MANDATORILY REDEEMABLE PREFERRED STOCK AND STOCKHOLDERS' EQUITY (DEFICIT)
FOR THE SIX MONTH PERIOD ENDED NOVEMBER 30, 2010

                                                                         STOCKHOLDERS' EQUITY (DEFICIT)
                         -----------------   ---------------------------------------------------------------------------------------
                            SERIES A                                                                           ACCUMULATED
                      MANDATORILY REDEEMABLE           COMMON STOCK           SERIES C PREFERRED                  OTHER
                                             -------------------------------  --------------------             COMPREHEN-
                                                                  ADDITIONAL                                      SIVE
                         PREFERRED STOCK                           PAID-IN              AMOUNT   ACCUMULATED     INCOME
                         SHARES   AMOUNT       SHARES      AMOUNT  CAPITAL   SHARES    AND APIC    DEFICIT       (LOSS)    TOTAL
                         ------ ----------   -----------  ------- --------- --------- ---------- ------------- -------- ------------
<S>                      <C>    <C>          <C>          <C>     <C>       <C>       <C>        <C>            <C>     <C>

BALANCE,
 MAY 31, 2010             2,675 $3,005,266   214,464,012  21,446 $3,404,431 6,804.936 $8,701,217 $(18,992,919) $204,615 $(6,661,210)

Issuance of
 common stock
 as compensation
 for services                 -          -       500,000      50      1,998         -          -            -         -       2,048

Issuance of common
 stock as additional
 consideration for
 financing arrangements       -          -     8,919,284     893     15,059         -          -            -         -      15,952

Exercise of warrants          -          -     2,863,986     286      2,578         -          -            -         -       2,864

Accretion of Series
 A mandatorily
 redeemable
 convertible
 preferred stock              -      9,312             -       -          -         -          -       (9,312)        -      (9,312)

Accrued dividends of
 Series A mandatorily
 redeemable convertible
 preferred stock              -     60,792             -       -          -         -          -      (60,877)        -     (60,877)

Accrued dividends of
 Series C equity
 preferred stock              -          -             -       -          -         -    383,858     (383,858)        -           -

Increase (Decrease)
 in accrual of common
 shares to be issued
 in connection with
 financing arrangements       -          -             -       -     42,139         -          -            -         -      42,139

Common stock option
 expense                      -          -             -       -     14,562         -          -            -         -      14,562

Unrealized net gain
 (loss) on available
 for sale securities          -          -             -       -          -         -          -            -    16,448      16,448

Net income (loss),
 six months ended
 November 30, 2010            -          -             -       -          -         -          -     (728,563)        -    (728,563)
                         ------ ----------   -----------  ------- --------- --------- ---------- ------------- -------- ------------
BALANCE,
 NOVEMBER 30, 2010        2,675 $3,075,370   226,747,282 $22,675 $3,480,767 6,804.936 $9,085,075 $(20,175,529) $221,063 $(7,365,949)
                         ====== ==========   ===========  ======= ========= ========= ========== ============= ======== ============
                         -----------------   ---------------------------------------------------------------------------------------

</TABLE>

                            See accompanying notes.

                                      F-6

<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, 2010,  are not  necessarily
indicative of the results of operations that can be expected for the fiscal year
ending May 31, 2011.  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, 2010.

RECLASSIFICATIONS

Certain amounts have been  reclassified in the  presentation of the Consolidated
Financial  Statements  as of  November  30,  2009  to  be  consistent  with  the
presentation in the Consolidated  Financial  Statements as of November 30, 2010.
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  $2,713,000 and $3,058,000 for the years ended May 31, 2010 and
2009 and has incurred  losses of  approximately  $609,000 and $1,183,000 for the
three and six month  periods  ended  November 30,  2010.  Losses are expected to
continue  until  the  Company's  insurance  company  subsidiary,   First  Surety
Corporation  ("FSC")  develops  a  more  substantial  book  of  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.

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,  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 the  current  financial
condition  of  the  parent  company.   This  is  the  case  notwithstanding  the
reinsurance  agreement entered into by FSC with Lloyd's of London in April 2009,
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

                                      F-7
<PAGE>
JACOBS FINANCIAL GROUP, INC.

NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (UNAUDITED)


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 in addition to 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 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.

Beginning in fiscal 2008 and completed  during the first quarter of fiscal 2009,
the Company  obtained  two rounds of bridge  financing  totaling an aggregate of
$3,500,000.  The  financing  paid  expenses  of  operations,  fees and  expenses
incurred in connection  with a larger  permanent  financing which was ultimately
cancelled  and, in  addition,  to increase  the capital  surplus of FSC,  making
possible  the  reactivation  of FSC's surety  license in the state of Ohio.  The
terms of the  bridge-financing  arrangement  provided  for  payment in full upon
consummation  by the  Company  of a  qualified  equity  offering  providing  net
proceeds of at least $15 million on or before  September  10, 2013;  and because
such a qualified  equity  offering was not  consummated  by September  10, 2008,
accrued  interest-to-date was payable,  and quarterly  installments of principal
and interest  became  payable over five years  commencing in December  2008. The
interest  rates on such notes were fixed at 10.00%.  Payments due December  2008
and March  2009 were not made by the  Company  as  scheduled  but a  forbearance
agreement was subsequently entered into with the bridge lenders on June 5, 2009,
modifying payment terms to cure the default  (including  increasing the interest
rate on the loans to 17%),  issuing  additional common stock to the loan holders
and  pledging  the stock of the  Company's  subsidiary,  CMW,  as  security  for
repayment of the loans. The modification required the Company to pay interest of
$224,515 on June 10, 2009 and increase the  quarterly  payments by $67,185 (to a
total of $291,700) for eight consecutive  quarters beginning  September 10, 2009
to satisfy the  arrearage.  Although  the Company has failed to make the payment
that was due  September  10, 2009 and the payments  that were due in the ensuing
quarters,  management  has remained in close  contact  with the bridge  lenders,
providing  reports  regarding  its efforts to refinance  or otherwise  repay the
bridge loans.  To date,  none of the bridge  lenders has elected to pursue legal
remedies.

Certain equity  inducements in the form of common stock of the Company have been
provided  under the terms of the bridge  loan  documents.  Upon  issuance of the
bridge notes, an aggregate of 7% of the outstanding  common stock of the Company
was issued to the bridge lenders. Upon retirement of the notes upon consummation
of a qualified equity  offering,  the Company will issue to the bridge lenders a
percentage of the outstanding  common stock of the Company which,  when added to
the stock initially issued,  may equal as much as 28% of the common stock of the
Company that would  otherwise have been retained by the holders of the Company's
common  shares  immediately  prior to the  financing.  Additionally,  because  a
qualified  financing was not  completed by September  10, 2008,  the Company was
required to issue to the bridge  lenders under the terms of the loan documents a
total of 2.8% of the  Company's  outstanding  common shares at such date with an
additional  2.8% of the  Company's  outstanding  common  shares issued upon each
six-month anniversary date thereof until retirement of the notes. (See Note D).

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  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

                                      F-8
<PAGE>
JACOBS FINANCIAL GROUP, INC.

NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (UNAUDITED)

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  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 this uncertainty.

NOTE B - RECENT ACCOUNTING PRONOUNCEMENTS
-----------------------------------------

In October 2010, the FASB issued Accounting Standards Update 2010-26, "Financial
Services - Insurance: Accounting for Costs Associated with Acquiring or Renewing
Insurance  Contracts."  This FASB is intended to specify  costs  incurred in the
acquisition of new and renewal  contracts that should be capitalized as deferred
acquisition costs and amortized over time using  amortization  methods dependent
upon the nature of the underlying  insurance contract.  This update is effective
for interim and annual  reporting  periods ending on or after December 15, 2010.
Management  does  not  expect  this  update  to have a  material  effect  on the
Company's financial statements.

In July 2010, the FASB issued Accounting Standards Update 2010-20,  "Disclosures
about the Credit Quality of Financing  Receivables  and the Allowance for Credit
Losses."  This FASB is  intended  to provide  additional  information  to assist
financial  statement  users in  assessing an entity's  credit risk  exposure and
evaluating the adequacy of its allowance for credit losses.  This update affects
all entities with financing  receivables,  excluding  short-term  trade accounts
receivable or receivables measured at fair value or lower of cost or fair value.
This update is effective for interim and annual  reporting  periods ending on or
after  December  15,  2010.  Management  does not expect  this  update to have a
material effect on the Company's financial statements.

In August 2010, the FASB issued Accounting Standards Update 2010-21, "Accounting
for Technical  Amendments to Various SEC Rules and  Schedules".  This Accounting
Standards  Update  amends  various SEC  paragraphs  pursuant to the  issuance of
Release  No.  33-9026;  Technical  Amendments  to Rules,  Forms,  Schedules  and
Codifications of Financial Reporting  Policies.  Management does not expect this
update to have a material effect on the Company's financial statements.

In  February  2010,  the  FASB  issued  Accounting   Standards  Update  2010-09,
"Subsequent   Events:   Amendments  to  Certain   Recognition   and   Disclosure
Requirements."  This FASB retracts the  requirement to disclose the date through
which  subsequent  events have been  evaluated and whether that date is the date
the financial statements were issued or were available to be issued. ASU 2010-09
is effective for interim and annual financial  periods ending after February 24,
2010,  and has been applied with no material  impact on the Company's  financial
statements.

In  February  2010,  the  FASB  issued  Accounting   Standards  Update  2010-08,
"Technical Corrections to Various Topics." This FASB eliminates  inconsistencies
and outdated provisions in GAAP and provides needed clarification on others. ASU
2010-08 is  effective  for interim and annual  financial  periods  ending  after
February  2010,  and has been applied with no material  impact on the  Company's
financial statements.

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

NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (UNAUDITED)

In January 2010, the FASB issued  Accounting  Standards  Update  2010-06,  "Fair
Value  Measurements  and  Disclosures:  Improving  Disclosures  About Fair Value
Measurements."  This FASB requires  additional  disclosures about the fair value
measurements including transfers in and out of Levels 1 and 2 and a higher level
of  disaggregation  for the different  types of financial  instruments.  For the
reconciliation of Level 3 fair value measurements,  information about purchases,
sales, issuances and settlements should be presented separately.  ASU 2010-06 is
effective for interim and annual  financial  periods  beginning  after  December
2009, and is not expected to have a material  impact on the Company's  financial
statements.

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 measure fair 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 additional earnings per share computation.

NOTE C - INVESTMENTS AND FAIR VALUE DISCLOSURES
-----------------------------------------------

The Company classifies its 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, 2010,  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.

                                      F-10

<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
November 30, 2010.
<TABLE>
<CAPTION>

                                                        Gross Unrealized     Gross Unrealized
                                     Amortized Cost           Gains               Losses         Fair Market Value
                                   ------------------- -------------------- ------------------- --------------------
<S>                                <C>                 <C>                  <C>                 <C>
U.S. government agency             $        4,969,830  $           251,912  $            3,805  $      $  5,217,937
mortgage-backed securities
State and municipal securities              1,475,058                2,241              35,196            1,442,103
Foreign obligations                           321,652                5,911                   -              327,563
                                   ------------------- -------------------- ------------------- --------------------
                                   $        6,766,540  $           260,064  $           39,001  $         6,987,603
                                   =================== ==================== =================== ====================
</TABLE>

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, 2010.

<TABLE>
<CAPTION>
                                     Amortized Cost     Gross Unrealized     Gross Unrealized    Fair Market Value
                                                              Gains               Losses
                                   ------------------- -------------------- ------------------- --------------------
<S>                                <C>                 <C>                  <C>                 <C>
U.S. government agency             $        6,413,856  $           208,315  $            3,700  $         6,618,472
mortgage-backed securities
                                   ------------------- -------------------- ------------------- --------------------
                                   $        6,413,856  $           208,315  $            3,700  $         6,618,472
                                   =================== ==================== =================== ====================
</TABLE>

The Company's  short-term  investments  of $258,662 and $264,079 at November 30,
2010 and May 31, 2010 consisted of money-market investment funds.

Management  believes  the  Company  has the  ability  to hold all  fixed  income
securities to maturity. However, during fiscal year 2010, the Company determined
it may dispose of securities prior to their scheduled maturity due to changes in
interest  rates,  prepayments,  tax  and  credit  considerations,  liquidity  or
regulatory  capital  requirements,  or other similar factors.  As a result,  the
Company  reclassified  all of its fixed  income  securities  (bonds)  and equity
securities as  available-for-sale.  These securities are reported at fair value,
with  unrealized  gains and losses,  net of deferred  income taxes,  reported in
stockholders'  equity as a separate component of accumulated other comprehensive
income.  Cost of  these  investments  totaled  $5,647,133  and  market  value at
transfer was $5,822,613 for an unrealized gain of $175,480.

There  are no  securities  classified  as held to  maturity  at May 31,  2010 or
November 30, 2010.

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-11
<PAGE>
JACOBS FINANCIAL GROUP, INC.

NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (UNAUDITED)


     O    Level 1 - Quoted prices for identical instruments in active markets.

     O    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.

     O    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 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, 2010
                                         ---------------------------------------------------------------------
                                                    Fair Value Measurements Using
                                                                                                Assets At
                                             Level 1          Level 2           Level 3         Fair Value
                                         ---------------- ----------------- ---------------- -----------------
Assets:
<S>                                      <C>              <C>               <C>              <C>
Fixed income securities at fair value    $             -  $      6,987,603  $             -  $      6,987,603
Short-term investments at fair value             258,662                 -                -           258,662
                                         ---------------- ----------------- ---------------- -----------------
Total Assets                             $       258,662  $      6,987,603  $             -  $      7,246,265
</TABLE>


                                      F-12

<PAGE>

JACOBS FINANCIAL GROUP, INC.

NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (UNAUDITED)

<TABLE>
<CAPTION>


                                                                     May 31, 2010
                                         ---------------------------------------------------------------------
                                                    Fair Value Measurements Using
                                                                                                Assets At
                                             Level 1          Level 2           Level 3         Fair Value
                                         ---------------- ----------------- ---------------- -----------------
Assets:
<S>                                      <C>              <C>               <C>              <C>
Fixed income securities at fair value    $             -  $      6,618,472  $             -  $      6,618,472
Short-term investments at fair value             264,079                 -                -           264,079
                                         ---------------- ----------------- ---------------- -----------------
Total Assets                             $       264,079  $      6,618,472  $             -  $      6,882,551
</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, 2010 or
at November 30, 20010.

During the three and six months ended November 30, 2010, the company  recognized
gross realized gains on the sale of securities classified as available-for-sale.
For the three month period  ending  November 30, 2010,  the sale  consisted of a
U.S.  Government agency mortgage backed security with an amortized cost basis of
$190,384, which was sold for a gain of $12,689. For the six months period ending
November 30, 2010, the sales consisted of U.S. Government agency mortgage backed
securities with an amortized cost basis of $980,050,  which were sold for a gain
of $63,707.

NOTE D - 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, 2010 and May 31, 2010 respectively:
<TABLE>
<CAPTION>

                                                                                        November 30,           May 31,
                                                                                            2010                2010
                                                                                   -------------------- -----------------------
<S>                                                                                <C>                  <C>
Unsecured demand notes payable to individuals and others; interest rate
fixed @ 10.00% ($75,000 to related party)                                          $         1,217,000  $            1,057,000

Unsecured demand notes payable to individuals and others                                        53,000                       -

Unsecured note(s) payable to individual(s) under a bridge-financing
arrangement described below ($360,000 to related party)                                      3,500,000               3,500,000

Unsecured short-term advances from principal shareholder and chief
executive officer; interest rate fixed @ 12.00%                                                142,159                   7,104

Unsecured  term  note  payable  to  commercial  bank in the  original
amount of $250,000 and payable in equal monthly payments of $5,738;
maturing January 31, 2011                                                                        2,694                  37,119
                                                                                   -------------------- -----------------------
                                                               Notes payable       $         4,914,853  $            4,601,223
                                                                                   ==================== =======================
</TABLE>

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

NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (UNAUDITED)


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.  Upon retirement of the notes  subsequent to 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  noteholders' 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).

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 has issued 2.80%
of the Company's  outstanding common shares upon each six-month anniversary date
thereof until retirement of the notes. The following table summarizes the common
shares issued to those note holders.

                        Date of Issuance             Shares Issued
                        ------------------         ----------------
                        September 10, 2008               4,870,449
                        March 10, 2009                   5,010,640
                        September 10, 2009               5,354,642
                        March 10, 2010                   6,005,925
                        September 10, 2010               6,213,285
                                                   ----------------
                                                        27,454,941
                                                   ================

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  original  repayment  schedule  called  for  quarterly  payments  of
$224,515.  The Holders agreed that under the forbearance the Company may satisfy
its obligation by increasing the quarterly  payments by $67,185,  (to a total of
$291,700) for eight consecutive quarters beginning September 10, 2009 to satisfy
the arrearage.  In addition, the interest rate was increased to 17.00%. Although
the Company has failed to make the payment that was due  September  10, 2009 and

                                      F-14
<PAGE>
JACOBS FINANCIAL GROUP, INC.

NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (UNAUDITED)

the payments that were due in the ensuing  quarters,  management has remained in
close contact with the bridge lenders,  providing  reports regarding its efforts
to refinance or otherwise  repay the bridge loans.  To date,  none of the bridge
lenders has elected to pursue legal remedies.

During the three and six months  ended  November 30, 2010 and the year ended May
31, 2010, 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
months  ended  November  30,  2010 and  $15,525 and $31,050 in the three and six
months  ended  November  30,  2009.  Amounts owed to this company are treated as
related party  payables in the amounts  $98,209 and $96,160 at November 30, 2010
and May 31, 2010.

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%.  During the three
months ended November 30, 2010,  the principal  shareholder  personally  assumed
debt that was payable by the Company in the amount of $344,951, of which $19,951
was interest and $325,000 was  principal.  During the six months ended  November
30, 2010, the principal shareholder  personally assumed debt that was payable by
the  Company  in the amount of  $514,131,  of which  $39,131  was  interest  and
$475,000 was principal.  The following table  summarizes the activity under such
arrangement for the three and six month periods ended November 30, 2010.

                                              Three month         Six month
                                             period ended       period ended
                                             November 30,       November 30,
                                                 2010               2010
                                           ------------------ ------------------

Balance owed, beginning of period          $          21,666  $           7,104
Proceeds from borrowings                             132,806            255,181
Assumption of company debt                           344,951            514,131
Accrued payroll offsetting repayments                 27,893             71,208
Repayments                                          (385,157)          (705,465)
                                           ------------------ ------------------
Balance owed, end of period                $         142,159  $         142,159
                                           ================== ==================


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

2011 (including demand notes)          $      4,914,853
2012 - 2015                                           -
                                       -----------------
                                       $      4,914,853
                                       =================

NOTE E-STOCKHOLDERS EQUITY
--------------------------

In the three month period ending November 30, 2010, the Company issued 1,810,999
shares  of the  Company's  common  stock in  connection  with new and  continued
borrowings totaling $1,208,000. The shares were valued at approximately $.007539
per share based on the average quoted  closing price of the Company's  stock for
the 20-day period preceding the date of the transactions and totaled $13,653.

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

NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (UNAUDITED)

In the three month period ending November 30, 2010,  warrants totaling 2,863,986
were  exercised for cash and 2,863,986  common shares of the Company were issued
at a price of $.001 per share.

In the three month period ending November 30, 2010, the Company issued 6,213,285
shares of the Company's common stock in connection with the semi-annual issuance
of shares  under  terms of the  bridge-financing  arrangement.  The shares  were
valued at  approximately  $.00607 per share based on the average  quoted closing
price of the  Company's  stock for the 20-day  period  preceding the date of the
transaction and totaled $37,715.

In the three month period ending  August 31, 2010,  the Company  issued  895,000
shares  of the  Company's  common  stock in  connection  with new and  continued
borrowings totaling $895,000.  The shares were valued at approximately  $.004312
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 $3,859.

In the three month period ending August 31, 2010,  the Company  awarded  500,000
shares to an individual as compensation  for services  instrumental to advancing
the Company's  business plan,  including  introductions  and  negotiations  with
reinsurers,  investors  and  insurers  with the  potential  to  provide  license
authority in additional states. The shares were valued at approximately $.004095
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 $2,048.

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.  The 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.

                                      F-16
<PAGE>
JACOBS FINANCIAL GROUP, INC.

NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (UNAUDITED)

     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 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 (see Note J).

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

                                      F-17
<PAGE>
JACOBS FINANCIAL GROUP, INC.

NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (UNAUDITED)

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  by 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 year  ending  May 31,  2010,  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.
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,
and therefore the  accretion  and dividends  associated  with the Series B stock
after November 30, 2009 are deductions  from net income.  As the redemption date
on the Series B shares got closer (See Note J), it became  apparent  that it was
unlikely  that the shares would be  converted  to common at $1.00,  and thus the
classification  was changed.  Accretion  and  dividends on Series B  mandatorily
redeemable  preferred  stock  deducted  from net income  amounted to $45,415 and
$80,951  for the  three-month  period  ended  November  30, 2010 and $90,039 and
$159,456 for the six month period ending November 30, 2010. 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.  There were no shares of Series B Stock  surrendered  or exchanged in
the 3 or six month periods ending November 30, 2010.

NOTE F - COMMITMENTS, CONTINGENCIES, AND MATERIAL AGREEMENTS
------------------------------------------------------------

As of November  30,  2010,  the Company had accrued and  withheld  approximately
$136,000 in Federal  payroll  taxes and  approximately  $33,000 in West Virginia
payroll  withholdings,  as well  as  penalties  and  interest  of  approximately
$34,000. These amounts are reflected in the accompanying financial statements as
accrued expenses.

NOTE G - 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-18
<PAGE>
JACOBS FINANCIAL GROUP, INC.

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

                                                                                  THREE MONTH PERIOD ENDED
                                                                            NOVEMBER 30,              NOVEMBER 30,
                        INDUSTRY SEGMENT                                        2010                      2009
                        ----------------                                  -----------------          --------------
<S>                                                                       <C>                        <C>
REVENUES:
 Investment advisory                                                      $          70,615          $       65,810
 Surety insurance                                                                   319,666                 279,777
 Corporate                                                                                -                       -
                                                                          -----------------          --------------
 Total revenues                                                           $         390,281          $      345,587
                                                                          =================          ==============

NET INCOME (LOSS):
 Investment advisory                                                      $         (14,352)         $      (22,379)
 Surety insurance                                                                   107,066                  73,844
 Corporate                                                                         (474,745)               (371,709)
                                                                          -----------------          --------------
 Total net income (loss)                                                  $        (379,031)         $     (320,244)
                                                                          =================          ==============


                                                                                    SIX MONTH PERIOD ENDED
                        INDUSTRY SEGMENT                                     NOVEMBER 30,              NOVEMBER 30,
                        ----------------                                        2010                      2009
                                                                          -----------------          --------------
REVENUES:
 Investment advisory                                                      $         126,418          $      134,958
 Surety insurance                                                                   602,925                 566,352
 Corporate                                                                                -                       -
                                                                          -----------------          --------------
 Total revenues                                                           $         729,343          $      701,310
                                                                          =================          ==============

NET INCOME (LOSS):
 Investment advisory                                                      $          (2,455)         $      (33,421)
 Surety insurance                                                                   227,387                 203,774
 Corporate                                                                         (953,495)             (1,014,679)
                                                                          -----------------          --------------
 Total net income (loss)                                                  $        (728,563)         $     (844,326)
                                                                          =================          ==============
</TABLE>



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

NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (UNAUDITED)


NOTE H - REINSURANCE
--------------------

The  Company  limits the  maximum  net loss that can arise  from large  risks by
reinsuring  (ceding)  certain  levels  of  such  risk  with  reinsurers.   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.

Effective  April 1, 2009, FSC entered into a reinsurance  agreement with various
syndicates  at Lloyd's of London and one Bermuda based  reinsurer  ("Reinsurer")
for its coal reclamation surety bonding programs.  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 39 months and can
be terminated by either party by written notice of at least 90 days prior to any
July 1. The contract called for the first year of the agreement to consist of 15
months with premium due within 30 days of the end of the first  Agreement  Year,
June 1, 2010,  at a rate of 35% of gross written  premium,  subject to a minimum
premium $490,000.  Year 2 of the contract is 12 months in duration, with premium
due within 30 days of the end of the second  Agreement  Year, June 1, 2011, at a
rate of 35% of gross written premium,  subject to a minimum premium $490,000. At
November 30, 2010 and May 31, 2010, the Company had prepaid reinsurance premiums
of $185,165 and $214,385.  At November 30 2010 and May 31, 2010, the Company had
ceded  reinsurance  deposited  with the  Reinsurer  in excess  of ceded  premium
written resulting in net deposits of $18,735 and $122,568.

There were no ceded  losses or loss  adjustment  expenses  for the three and six
months ended November 30, 2010 or 2009.

The effects of reinsurance  on premium  written and earned for the three and six
month periods ending November 30, 2010 and 2009 are as follows;
<TABLE>
<CAPTION>

                                  THREE MONTH         THREE MONTH        THREE MONTH          THREE MONTH
                                 PERIOD ENDING       PERIOD ENDING      PERIOD ENDING        PERIOD ENDING
                                  NOVEMBER 30,        NOVEMBER 30,       NOVEMBER 30,         NOVEMBER 30,
                                    2010 -               2010 -            2009 -               2009 -
                                    WRITTEN              EARNED            WRITTEN              EARNED
                                   ---------           ---------          ---------            ---------
<S>                                <C>                 <C>                <C>                  <C>
             DIRECT                $  99,366           $ 340,421          $  66,304            $ 255,394
             CEDED                 $  26,005           $ 104,563          $  23,034            $  51,138
                                   ---------           ---------          ---------            ---------
             NET                   $  73,361           $ 235,858          $  43,270            $ 204,256
                                   =========           =========          =========            =========

                                   SIX MONTH           SIX MONTH          SIX MONTH            SIX MONTH
                                 PERIOD ENDING       PERIOD ENDING      PERIOD ENDING        PERIOD ENDING
                                  NOVEMBER 30,        NOVEMBER 30,       NOVEMBER 30,         NOVEMBER 30,
                                    2010 -               2010 -            2009 -               2009 -
                                    WRITTEN              EARNED            WRITTEN              EARNED
                                   ---------           ---------          ---------            ---------
             DIRECT                $ 548,290           $ 627,127          $ 379,902            $ 505,427
             CEDED                 $ 178,293           $ 207,513          $ 128,786            $  94,279
                                  ----------           ---------          ---------            ---------
             NET                   $ 369,997           $ 419,614          $ 251,116            $ 411,148
                                  ==========           =========          =========            =========
</TABLE>


                                      F-20
<PAGE>
JACOBS FINANCIAL GROUP, INC.

NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (UNAUDITED)


NOTE I - STOCK-BASED COMPENSATION
---------------------------------

On June 30, 2009 the  compensation  committee of the board of directors  awarded
10,000,000 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 J - SUBSEQUENT EVENTS
--------------------------

Subsequent to November 30, 2010, the Company obtained borrowings of $69,000 from
individuals  and  business' to fund ongoing  operations  and made  repayments of
$173,000. Such borrowings were obtained under demand or short term notes bearing
interest at the rate of 10.00%.  These  borrowings,  and the renewal of previous
borrowings,  included the  issuance of  1,245,000  shares of its common stock as
additional  consideration.  Additionally,  the Company  obtained  borrowings  of
$5,550 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 $145,850.

Subsequent to November 30, 2010 and prior to their December 30, 2010 expiration,
6,257,244  warrants were exercised for conversion  into Common stock.  Of these,
1,990,578  were  exercised by payment of cash at the warrant  price of $.001 per
share and 4,266,666  (gross) were exercised under the cashless  exercise option,
resulting  in 761,904  warrants  surrendered  at the  market  price of $.0056 to
effect those holders'  purchase of 3,504,762 net shares.  Subsequent to November
30, 2010, 986,667 warrants expired unexercised on the fifth anniversary of their
issuance and the company no longer has any warrants outstanding.

On  December  31,  2010,  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
$31,022,  $82,583 and  $198,802,  respectively.  As of December  31,  2010,  the
accumulated  accrued and unpaid dividend amounted to $432,967,  $1,361,058,  and
$3,252,946, respectively

Subsequent to November 30, 2010, the Company  entered into a repayment plan with
the West Virginia State Tax Department.  Monthly installment payments of $2,874,
including  interest  and  penalties,  are to be made  through  November  2011 to
satisfy the payroll tax withholding obligation.

Subsequent  to November  30, 2010,  the Company has remitted  $92,000 in Federal
payroll taxes and is in the process of establishing a monthly  installment  plan
to satisfy the remaining obligation.

The company's  Series B Preferred stock matured on December 30, 2010.  Under its
terms,  the  Company's  Board was  required  to make a good faith  determination
regarding  (A)  whether  the  funds of the  Corporation  legally  available  for
redemption of shares of Series B Stock are sufficient to redeem the total number
of shares  of Series B Stock to be  redeemed  on such date and (B)  whether  the
amounts  otherwise legally available for redemption would, if used to effect the
redemption,  not result in an  impairment  of the  operations  of the  Insurance

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

NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (UNAUDITED)

Subsidiary.  If the Board  determines  that  there is a  sufficiency  of legally
available  funds to accomplish  the redemption and that the use of such funds to
effect the redemption  will not result in an impairment of the operations of the
Insurance  Subsidiary,  then the redemption  shall occur on the Redemption Date.
If, however,  the Board  determines  either that there are not sufficient  funds
legally  available to accomplish the redemption or that the use of such funds to
effect the  redemption  will result in an  impairment  of the  operations of the
Insurance  Subsidiary,  then (X) the  Corporation  shall  notify the  holders of
shares that would otherwise have been redeemed of such fact and the consequences
as provided in this paragraph,  (Y) the  Corporation  will use those funds which
are legally  available  therefor and which would not result in an  impairment of
the operations of the Insurance Subsidiary to redeem the maximum possible number
of shares of Series B Stock for  which  Redemption  Notices  have been  received
ratably  among the  holders  of such  shares to be  redeemed  based  upon  their
holdings of such shares,  and (Z) thereafter,  until such shares are redeemed in
full, the dividends  accruing and payable on such shares of Series B Stock to be
redeemed  shall be increased by 2% of the Series B Face Amount,  with the amount
of such  increase  (I.E.,  2% of the Series B Face  Amount) to be  satisfied  by
distributions  on each Dividend  Payment Date of shares of Common Stock having a
value (determined by reference to the average closing price of such Common Stock
over the  preceding 20 trading days) equal to the amount of such  increase.  The
shares of Series B Stock not redeemed shall remain  outstanding  and entitled to
all the rights and  preferences  provided  herein.  At any time  thereafter when
additional funds of the Corporation are legally  available for the redemption of
shares of Series B Stock and such redemption will not result in an impairment of
operations of the Insurance  Subsidiary,  such funds will immediately be used to
redeem the balance of the shares of Series B Stock to be redeemed.  No dividends
or other  distributions  shall be declared or paid on, nor shall the Corporation
redeem,  purchase or acquire any shares of, the Common  Stock or any other class
or series of Junior  Securities  or Equal Ranking  Preferred of the  Corporation
unless the Redemption Price per share of all shares for which Redemption Notices
have been given shall have been paid in full, provided that the redemption price
of any Equal Ranking  Preferred  subject of  redemption  shall be paid on a pari
passu  basis  with  the  Redemption  Price  of the  Series  B Stock  subject  of
redemption in accordance herewith.  Until the Redemption Price for each share of
Series B Stock elected to be redeemed  shall have been paid in full,  such share
of Series B Stock shall  remain  outstanding  for all  purposes  and entitle the
holder thereof to all the rights and privileges  provided herein,  and Dividends
shall  continue  to accrue  and,  if unpaid  prior to the date such  shares  are
redeemed, shall be included as part of the Redemption Price.,.

The Company's  Board of Directors met on December 30, 2010 and determined  there
were insufficient funds available for the redemption of Series B Stock.

As of this report, the Company has received requests for redemption of 2,141.341
shares of Series B Preferred.




                                      F-22
<PAGE>

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

During fiscal 2010 and the six-month period ended November 30, 2010, the Company
focused its  primary  efforts on the  development  and  marketing  of its surety
business  in  West  Virginia  and  Ohio,   arranging  for  potential   strategic
relationships  to 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, 2010
The  Company  experienced  a loss (after  accretion  of  mandatorily  redeemable
convertible  preferred  stock, and accrued  dividends on mandatorily  redeemable
preferred stock and equity  preferred  stock) for the  three-month  period ended
November  30,  2010 of $609,303  as  compared  with a loss of  $713,937  for the
corresponding period ended November 30, 2009.

REVENUES

Revenues from operations for the three-month period ended November 30, 2010 were
$390,281 as compared with $345,587 for the  corresponding  period ended November
30, 2009.  The overall  increase in revenues is  attributable  to an increase in
written  premium  by  FSC,  as  well  as the  gain  recognized  on the  sale  of
investments held by the company.

INVESTMENT ADVISORY REVENUES

Quarterly  revenues from the Company's  investment  management segment (Jacobs &
Company or J&C), net of advisory referral fees, were $64,427 for the three-month
period ended  November 30, 2010 as compared  with $66,963 for the  corresponding
period ended November 30, 2009. Investment advisory fees are based on the market
value of assets under  management  therefore 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.




                                      -3-
<PAGE>

INSURANCE AND INVESTMENT REVENUES

Quarterly  revenues from the Company's surety insurance  segment,  consisting of
FSC and Triangle Surety Agency,  Inc ("TSA"),  were $319,666 for the three-month
period ended  November 30, 2010 as compared with $279,777 for the  corresponding
period ended November 30, 2009.  Revenues  attributable to premium  earned,  net
investment income and commissions earned are as follows:

                                                   Three-month Period Ended
                                                         November 30,
                                              ----------------------------------
                                                    2010              2009
                                              ----------------- ----------------

Premium earned                                $        235,858  $        204,255
Net investment income                                   79,873            71,260
Commissions earned                                       3,935             4,262
                                              ----------------- ----------------
                                       Total  $        319,666  $        279,777
                                              ================= ================

Premium  revenue is  recognized  ratably over the term of the policy  period and
thus is relatively stable from period to period with fluctuations for comparable
periods  generally  reflecting the overall  growth or loss of business.  Whereas
commission  revenue,  which is dependent on the timing of issuance or renewal of
bonds, is expected to be somewhat more "seasonable" from quarter-to-quarter with
fluctuations  for comparable  periods  largely  reflecting the overall growth or
loss of business.  The increase in premiums  earned for the  three-month  period
ended November 30, 2010 in comparison to the corresponding period from the prior
year is a result of  increased  premiums  written for new and  existing  clients
despite having 12 months covered by reinsurance and thus reduced by 12 months of
ceded  premiums,  versus  only  8  months  of  reinsurance  in the  prior  year.
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 $6.430 million for
the  three-month  period  ended  November  30,  2009 to $7.058  million  for the
three-month  period ended  November 30, 2010,  offset by a decline in investment
yield from  approximately  4.68% for the  three-month  period ended November 30,
2009 to approximately  3.29% for the three-month period ended November 30, 2010.
In addition, the sale of investments resulted in a realized gain.

EXPENSES

INCURRED POLICY LOSSES

The  Company  has  experienced  no claims for losses as of  November  30,  2010.
However,  "incurred but not reported"  (IBNR) policy losses for the  three-month
period  ended  November  30,  2010 and 2009  amounted  to  $50,384  and  $49,501
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 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  21% and 24% of earned premium,
respectively.





                                      -4-
<PAGE>

POLICY ACQUISITION COSTS

Insurance  policy  acquisition  costs of $77,353 and $67,567 for the three-month
periods ended November 30, 20010 and 2009,  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 33% for the  periods  ended  November  30,  2010 and 2009
respectively.

GENERAL AND ADMINISTRATIVE

General and administrative  expenses for the three-month  periods ended November
30,  2010 and 2009 were  $314,204  and  $327,712  respectively,  representing  a
decrease of $13,508, and were comprised of the following:

<TABLE>
<CAPTION>
                                                                Three-month Period Ended
                                                                       November 30,
                                                           ------------------ ------------------
                                                                 2010               2009             Difference
                                                           ------------------ ------------------ -------------------
<S>                                                        <C>                <C>                <C>
Salaries and related costs                                 $         154,118  $         184,627  $          (30,509)
General office expense                                                31,914             29,566               2,348
Legal and other professional fees and costs                           43,035             30,786              12,249
Audit, accounting and related services                                31,812             24,508               7,304
Travel, meals and entertainment                                       15,356             12,617               2,739
Other general and administrative                                      37,969             45,608              (7,639)
                                                           ------------------ ------------------ -------------------
                         Total general and administrative  $         314,204  $         327,712  $          (13,508)
                                                           ================== ================== ===================
</TABLE>


Salaries and related costs, net of deferred internal policy  acquisition  costs,
decreased approximately $31,000 and are comprised of the following:
<TABLE>
<CAPTION>

                                                                Three-month Period Ended
                                                                      November 30,
                                                           -------------------------------------
                                                                 2010               2009            Difference
                                                           ------------------ ------------------ -------------------
<S>                                                        <C>                <C>                <C>
Salaries and taxes                                         $         129,685  $         125,377  $            4,308
Commissions                                                           27,714              3,937              23,777
Stock option expense                                                   1,110             34,105             (32,995)
Fringe benefits                                                       18,538             14,824               3,714
Key-man insurance                                                     19,832             19,038                 794
Deferred payroll costs                                               (42,761)           (12,654)            (30,107)
                                                           ------------------ ------------------ -------------------
                         Total salaries and related costs  $         154,118  $         184,627  $          (30,509)
                                                           ================== ================== ===================
</TABLE>

The  decrease  in stock  option  expense is  attributable  to the award of stock
options on June 30, 2009.  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.





                                      -5-
<PAGE>

Legal and other professional fees and costs were comprised of the following:
<TABLE>
<CAPTION>

                                                                Three-month Period Ended
                                                                      November 30,
                                                          --------------------------------------
                                                                 2010                 2009            Difference
                                                          --------------------  -----------------   ----------------
<S>                                                       <C>                   <C>                 <C>
General corporate services                                $              919    $        18,060     $       (17,141)
SEC related costs                                                     29,594                  -              29,594
Coal reclamation consulting                                            5,463                344               5,119
Acquisition and financing related costs                                7,059             12,382              (5,323)
                                                          --------------------  -----------------   ----------------
                  Total legal and other professional fees $           43,035    $        30,786     $        12,249
                                                          ====================  =================   ================
</TABLE>


In the three month period ending  November 30, 2010, the Company  incurred costs
in  response  to  a  triennial  SEC  examination  of  its  investment   advisory
subsidiary.  The decrease in general  corporate  services results primarily from
legal fees incurred in the  recapitalization  and exchange of Series B Preferred
shares for Series C Preferred shares, as well as timing  differences  related to
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, 2010, the Company  incurred  expense of $5,463 related
to a coal reclamation consulting services agreement between FSC and an unrelated
individual.  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
$7,059 and $12,382 for the three-month periods ended November 30, 2010 and 2009,
respectively.

The  increase in travel,  meals and  entertainment  expense for the  three-month
period  ended  November  30, 2010 as compared to the  corresponding  2009 period
related  primarily to additional  efforts made by management to pursue financing
and strategic partnerships.

Other general and administrative expense decreased  approximately $7,500 for the
three-month period ended November 30, 2010 as compared to the corresponding 2009
period.

MUTUAL FUND COSTS

J&C was the investment  advisor to the Jacobs & Company Mutual Fund (the "Fund")
until its liquidation and  distribution to its shareholders on December 1, 2009.
While the Fund was  responsible  for its own  operating  expenses,  J&C,  as the
investment  advisor,  had agreed to limit the Fund's  aggregate annual operating
expenses to 2% of the average net assets.  The cumulative  reimbursement due the
Fund by J&C as of November 30, 2010 was $54,866.

J&C had no  revenue or  expenses  attributable  to the Fund for the three  month
period ending November 30, 2010; it had absorbed $36,587 of the Fund's operating
expenses during the corresponding period from the previous year.


                                      -6-
<PAGE>


INTEREST EXPENSE

Interest expense for the three-month period ended November 30, 2010 was $196,890
as compared with $181,815 for the corresponding  period ended November 30, 2009.
Components of interest expense are comprised of the following:
<TABLE>
<CAPTION>
                                                                   Three-month Period Ended
                                                                          November 30,
                                                               -----------------------------------
                                                                     2010              2009           Difference
                                                               ----------------- ----------------- -----------------
<S>                                                            <C>               <C>               <C>
Interest expense on bridge-financing                           $        148,343  $        142,301  $          6,042
Expense of common shares issued or to be issued in
connection with bridge financing and other arrangements                  39,228            12,222            27,006
Interest expense on demand and term notes                                 4,747            24,858          (20,111)
Other finance charges                                                     4,572             2,434             2,138
                                                               ----------------- ----------------- -----------------
                                       Total interest expense  $        196,890  $        181,815  $         15,075
                                                               ================= ================= =================
</TABLE>


The  increase in the expense of common  shares  issued (or to be issued) for the
three-month  period  ended  November  30, 2010 as compared to the  corresponding
period of the previous  year was  attributable  to the  increase in  borrowings.
Interest  expense on bridge  financing  increased due to increasing the interest
rate to 17% as part of the  forbearance  agreement  terms.  Interest  expense on
demand  and  term  notes  decreased  despite  increased  borrowings,  due  to an
adjustment of accrued interest on a line of credit.

ACCRETION AND DIVIDENDS

Accretion of  mandatorily  redeemable  convertible  preferred  stock issued at a
discount and accrued  dividends for three-month  periods ended November 30, 2010
and 2009 are as follows:
<TABLE>
<CAPTION>
                                                                Three-month Period Ended
                                                                      November 30,
                                                          --------------------------------------
                                                                 2010                 2009             Difference
                                                          --------------------  -----------------  -----------------
<S>                                                       <C>                   <C>                <C>
Accretion of discount                                     $            4,686    $       116,007    $      (111,321)
Accrued dividends - mandatorily redeemable preferred
stock                                                                 30,713            277,686           (246,973)
Accrued dividends - equity preferred stock                           194,873                  -            194,873
                                                          --------------------  -----------------  -----------------
                            Total accretion and dividends $          230,272    $       393,693    $      (163,521)
                                                          ====================  =================  =================
</TABLE>


The Series B class of stock is treated as a liability  as of  November  30, 2009
after the majority was exchanged for Series C equity stock. Therefore, accretion
of $45,415 and dividends of $80,951 associated with the Series B remaining after
that date are  deductions  from net income and not  included in the table above.
The  decrease  in the  accretion  of  discount  and  the  accrued  dividends  on
mandatorily  redeemable  preferred stock results from this exclusion of Series B
subsequent to November 30, 2009, as well as the  application  of the interest or
constant  yield  method to the initial  discount  recorded  with  respect to the

                                      -7-
<PAGE>

mandatorily redeemable preferred stock over a period of five years from the date
of issuance of the stock.  Series C equity stock  accrues  dividends at the same
rate as the Series B it was exchanged for,  however it is separated in the table
above  due to  Series  C not  being  mandatorily  redeemable.  Series C does not
accrete.

RESULTS OF OPERATIONS FOR THE SIX-MONTH PERIOD ENDED NOVEMBER 30, 2010

The  Company  experienced  a loss (after  accretion  of  mandatorily  redeemable
convertible  preferred  stock, and accrued  dividends on mandatorily  redeemable
preferred  stock and equity  preferred  stock) for the  six-month  period  ended
November 30, 2010 of $1,182,525  as compared  with a loss of $1,656,879  for the
corresponding period ended November 30, 2009.

REVENUES

Revenues from  operations for the six-month  period ended November 30, 2010 were
$729,343 as compared with $701,310 for the  corresponding  period ended November
30, 2009.  Overall revenue  increased due to the continued  growth of the surety
business of FSC and the recognition of gains on the sale of investments  held by
the company.  However,  investment  advisory  services and net investment income
decreased  due to the  removal of mutual fund fees upon the  liquidation  of the
Jacobs & Company  Mutual Fund,  and the receipt of large  principal  payments on
mortgage  backed  securities,  which resulted in large  amortization of premiums
recognized in the six-month period.

INVESTMENT ADVISORY REVENUES

Quarterly  revenues from the Company's  investment  management segment (Jacobs &
Company or J&C), net of advisory  referral fees, were $118,597 for the six-month
period ended  November 30, 2010 as compared with $131,288 for the  corresponding
period ended  November 30, 2009.  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 decrease in
revenues is  attributable to the liquidation of the Jacobs & Company Mutual Fund
in November 2009, as summarized below. (See "Expenses, Mutual Fund Costs,")

                                                    Six-month Period Ended
                                                         November 30,
                                                    2010              2009
                                              ----------------- ----------------
Individually managed accounts                 $        118,597  $        119,517
Mutual fund                                                  -            11,771
                                              ----------------- ----------------
                                       Total  $        118,597  $        131,288
                                              ================= ================


                                       -8-
<PAGE>

INSURANCE AND INVESTMENT REVENUES

Quarterly  revenues from the Company's surety insurance  segment,  consisting of
FSC and Triangle  Surety  Agency,  Inc ("TSA"),  were $602,925 for the six-month
period ended  November 30, 2010 as compared with $566,353 for the  corresponding
period ended November 30, 2009.  Revenues  attributable to premium  earned,  net
investment income and commissions earned are as follows:

                                                    Six-month Period Ended
                                                         November 30,
                                                    2010              2009
                                              ----------------- ----------------
Premium earned                                $        419,614  $        411,148
Net investment income                                  164,142           143,503
Commissions earned                                      19,169            11,702
                                              ----------------- ----------------
                                       Total  $        602,925  $        566,353
                                              ================= ================

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  earned for the six-month  period ended November 30, 2010 in
comparison  to the  corresponding  period  from the  prior  year is a result  of
increased premiums written for new and existing clients despite having 12 months
covered by  reinsurance,  and thus reduced by 12 months of ceded premiums versus
only 8 months of reinsurance in the prior year.  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
$6.441 million for the six-month period ended November 30, 2009 to approximately
$ 7.016 million for the six-month  period ended  November 30, 2010,  offset by a
decrease in investment yield from  approximately  4.75% for the six-month period
ended November 30, 2009 to  approximately  3.50% for the six-month  period ended
November 30, 2010. In addition,  the sale of investments  resulted in a realized
gain,  which was offset by the  amortization  of premium  for larger  than usual
principal payments on mortgage backed securities.

EXPENSES

INCURRED POLICY LOSSES

The  Company  has  experienced  no claims for losses as of  November  30,  2010.
However,  "incurred  but not  reported"  (IBNR)  policy losses for the six-month
period  ended  November  30,  2010 and 2009  amounted  to  $92,711  and  $97,686
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

                                      -9-
<PAGE>

conditions and other factors unique to FSC's  business.  IBNR policy losses were
approximately  22% and 24% of earned  premium for the six-month  periods  ending
November 30, 2010 and 2009, respectively.

POLICY ACQUISITION COSTS

Insurance  policy  acquisition  costs of $137,334 and $130,168 for the six-month
periods ended  November 30, 2010 and 2009,  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 32.73% and 31.66% for the periods ended November 30, 2010 and 2009
respectively.

GENERAL AND ADMINISTRATIVE

General and administrative expenses for the six-month periods ended November 30,
2010 and 2009 were $569,601 and $728,325  respectively,  representing a decrease
of $158,724, and were comprised of the following:
<TABLE>
<CAPTION>

                                                                  Six-month Period Ended
                                                                       November 30,
                                                           -------------------------------------
                                                                  2010               2009             Difference
                                                           ------------------ ------------------ -------------------
<S>                                                        <C>                <C>                <C>
Salaries and related costs                                 $         264,576  $         417,845  $     (153,269)
General office expense                                                60,292             57,407           2,885
Legal and other professional fees and costs                           68,361             97,861         (29,500)
Audit, accounting and related services                                57,355             48,526           8,829
Travel, meals and entertainment                                       27,106             28,236          (1,130)
Other general and administrative                                      91,911             78,450          13,461
                                                           ------------------ ------------------ -------------------
                         Total general and administrative  $         569,601  $         728,325  $     (158,724)
                                                           ================== ================== ===================
</TABLE>

Salaries and related costs, net of deferred internal policy  acquisition  costs,
decreased approximately $153,000 and are comprised of the following:
<TABLE>
<CAPTION>

                                                                 Six-month Period Ended
                                                                      November 30,
                                                          --------------------------------------
                                                                 2010                 2009            Difference
                                                          -------------------  -----------------  ------------------
<S>                                                       <C>                  <C>                <C>
Salaries and taxes                                        $       258,232      $     252,137      $         6,095
Commissions                                                        35,345             15,269               20,076
Stock option expense                                               14,562            172,995             (158,433)
Fringe benefits                                                    32,400             27,386                5,414
Key-man life insurance                                             30,820             30,257                  563
Deferred policy acquisition costs                                (107,183)           (80,199)             (26,984)
                                                          -------------------  -----------------  ------------------
                         Total salaries and related costs $       264,576      $     417,845      $      (153,269)
                                                          ===================  =================  ==================
</TABLE>

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 decrease in stock option expense is
attributable to the award of stock options on June 30, 2009.

                                      -10-
<PAGE>

Legal and other professional fees and costs were comprised of the following:
<TABLE>
<CAPTION>

                                                                 Six-month Period Ended
                                                                      November 30,
                                                          --------------------------------------
                                                                  2010                 2009            Difference
                                                          ---------------------  ----------------  -----------------
<S>                                                       <C>                    <C>               <C>
General corporate services                                $            9,508     $       37,165    $       (27,657)
SEC related costs                                                     29,594                  -             29,594
Coal reclamation consulting                                           11,883                344             11,539
Acquisition and financing related costs                               17,376             60,352            (42,976)
                                                          ---------------------  ----------------  -----------------
                  Total legal and other professional fees $           68,361     $       97,861    $       (29,500)
                                                          =====================  ================  =================
</TABLE>


In the six month period ending November 30, 2010, the Company  incurred costs in
response to a triennial SEC  examination of its investment  advisor  subsidiary.
The decrease in general  corporate  services  results  primarily from legal fees
incurred in the  recapitalization  and exchange of Series B Preferred shares for
Series C Preferred shares, as well as timing  differences  related to 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, 2010,  the Company  incurred  expense of $11,883  related to a coal
reclamation   consulting   services  agreement  between  FSC  and  an  unrelated
individual.  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
$17,376 and $60,352 for the six-month  periods ended November 30, 2010 and 2009,
respectively.

MUTUAL FUND COSTS

J&C was the investment  advisor to the Jacobs & Company Mutual Fund (the "Fund")
until its liquidation and  distribution to its shareholders on December 1, 2009.
While the Fund was  responsible  for its own  operating  expenses,  J&C,  as the
investment  advisor,  had agreed to limit the Fund's  aggregate annual operating
expenses to 2% of the average net assets.  The cumulative  reimbursement due the
Fund by J&C as of November 30, 2010 was $54,866.

J&C had no revenue or expenses attributable to the Fund for the six month period
ending  November  30,  2010;  it had  absorbed  $74,913 of the Fund's  operating
expenses during the corresponding period from the previous year.


                                      -11-
<PAGE>

INTEREST EXPENSE

Interest  expense for the six-month  period ended November 30, 2010 was $401,258
as compared with $509,099 for the corresponding  period ended November 30, 2009.
Components of interest expense are comprised of the following:
<TABLE>
<CAPTION>
                                                                     Six-month Period Ended
                                                                          November 30,
                                                               -----------------------------------
                                                                     2010              2009           Difference
                                                               ----------------- ----------------- -----------------
<S>                                                            <C>               <C>               <C>
Interest expense on bridge financing                           $       298,316   $        226,212  $        72,104
Expense of common shares issued or to be issued in
connection with bridge financing and other arrangements                 63,586            238,192         (174,606)
Interest expense on demand and term notes                               33,195             41,057           (7,862)
Other finance charges                                                    6,161              3,638            2,523
                                                               ----------------- ----------------- -----------------
                                       Total interest expense  $       401,258   $        509,099  $      (107,841)
                                                               ================= ================= =================
</TABLE>

The increase in interest  expense on bridge  financing is due to increasing  the
interest rate on the bridge loans from 10% to 17% as of September 10, 2009.  The
decrease  in the  expense of common  shares  issued  (or to be  issued)  for the
six-month period ended November 30, 2010 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 on demand and term notes decreased despite increased borrowings,  due to
an adjustment of accrued interest on a line of credit.

ACCRETION AND DIVIDENDS

Accretion of  mandatorily  redeemable  convertible  preferred  stock issued at a
discount and accrued dividends for six-month periods ended November 30, 2010 and
2009 are as follows:
<TABLE>
<CAPTION>
                                                                 Six-month Period Ended
                                                                      November 30,
                                                          --------------------------------------
                                                                 2010                  2009            Difference
                                                          ---------------------  -----------------  ----------------
<S>                                                       <C>                    <C>                <C>
Accretion of discount                                     $            9,312     $      264,308     $     (254,996)
Accrued dividends - mandatorily redeemable preferred
stock                                                                 60,792            548,245           (487,453)
Accrued dividends - equity preferred stock                           383,858                  -            383,858
                                                          ---------------------  -----------------  ----------------
                            Total accretion and dividends $          453,962     $      812,553     $     (358,591)
                                                          =====================  =================  ================
</TABLE>


The Series B class of stock is treated as a liability  as of  November  30, 2009
after the majority was exchanged for Series C equity stock. Therefore, accretion
of $90,390 and dividends of $159,456  associated with the remaining Series B are
deductions from net income and not included in the table above.  The decrease in
the accretion of discount and the accrued  dividends on  mandatorily  redeemable
preferred  stock results from this  exclusion of Series B subsequent to November
30, 2009 as well as the  application of the interest or constant yield method to
the  initial  discount  recorded  over a period of five  years  from the date of


                                      -12-

<PAGE>

issuance of the stock.  Series C equity stock accrues dividends at the same rate
as the Series B for which it was  exchanged;  however,  it is  separated  in the
table above due to Series C not being mandatorily redeemable.  Series C does not
accrete.

CRITICAL ACCOUNTING POLICIES AND ESTIMATES

INTANGIBLE ASSETS

In exchange for the purchase  price of $2.9 million for the 2005  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, 2010.

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 the  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  being  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 of costs to
reclaim the relevant  properties in accordance  with the  specifications  of the
mining permit prepared by independent outside professionals  experienced in this
field of work.  Such estimates are then  periodically  updated and compared with
marketable  securities  pledged by the principal and held in an account in which
FSC has a security  interest as collateral for the surety bond to mitigate FSC's
exposure to loss.  Should the principal default in its obligation to reclaim the
property as specified in the mining permit,  FSC would then use the funds in the
collateral  account to reclaim the  property or as an offset in  forfeiting  the
face  amount of the surety  bond.  Losses can occur if the costs of  reclamation
exceed the  estimates  obtained  at the time the bond was  underwritten  or upon
subsequent  re-evaluations  unless sufficient  collateral is obtained, or if the
collateral has  experienced  significant  deterioration  in value and FSC is not
otherwise able to recover under its contractual rights to indemnification.


                                      -13-
<PAGE>

Miscellaneous fixed-liability surety bonds generally are fully collateralized by
the  principal's  cash  investment  into a  collateral  account  managed  by the
Company's  investment  advisory  subsidiary  (Jacobs & Co.) that mitigates FSC's
exposure  to  loss.  Losses  can  occur  should  the  principal  default  on the
performance  required  by the bond  and the  collateral  held in the  investment
account experiences deterioration in value.

In establishing its reserves for losses and loss adjustment expense,  management
continually  reviews  its  exposure  to loss  based on  reports  provided  after
periodic monitoring and inspections, along with industry averages and historical
experience.  Management has estimated such losses based on industry  experience,
adjusted  for  factors  that  are  unique  to  the  Company's  approach,  and in
consultation with actuaries experienced in the surety field.

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 and accrued  dividends on  mandatorily
redeemable   preferred  stock  and  equity  preferred  stock)  of  approximately
$2,713,000  and  $3,058,000  for the fiscal  years  ended May 31, 2010 and 2009,
respectively,  and a loss of  approximately  $1,183,000 for the six-month period
ended  November 30, 2010.  The Company had positive  cash flow of  approximately
$47,000 from operating  activities  for the six-month  period ended November 30,
2010.  A  substantial  portion of the  Company's  cash flow is  generated by its
insurance subsidiary and is subject to certain withdrawal restrictions.  Despite
the continued reduction of operating expenses,  the Company has not been able to
pay certain amounts due to professionals  and others,  continues to be unable to
pay  its  preferred  stock  dividend  obligation,   certain  payroll  taxes  and
withholdings from 2009 or to cure its default in certain quarterly  payments due
its bridge-financing  lenders.  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  $7,291,823  as of November 30, 2010,  $7,290,601  is restricted to FSC.
Furthermore,  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.

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 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.
The reinsurance  agreement was renewed  effective July 1, 2010 for an additional
one year period.

                                      -14-
<PAGE>

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 has been  difficult  without  the benefit of
more  substantial  capital and reserves  due to FSC's status as a  comparatively
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 became stabilized,  entry
into other states would be less challenging.  Accordingly,  management continues
to  pursue  avenues  that  can  provide  additional  capital  to  its  insurance
subsidiary and to fund continuing  operations as the business fully develops. 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 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  matured  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 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.  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 this uncertainty.

                                      -15-
<PAGE>

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 were 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  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 November 30, 2010. As previously reported
in our  Annual  Report on Form 10-K for the year  ended  May 31,  2010,  control
deficiencies  were identified  that  constitute a material  weakness in internal
control over financial reporting. Such control deficiencies relate to the 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
November 30, 2010,  were  ineffective.  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, 2010 and May 31, 2010 and the results of its  operations  and cash
flows for the three and six month  periods  ended  November 30, 2010 and 2009 in
conformity with U.S. generally accepted accounting principals (GAAP).


                                      -16-
<PAGE>
                           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
-----------------------------------------------

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 six months ended November 30, 2010,  3,205,999  common shares were issued
as additional consideration to various lenders in private placements pursuant to
short-term borrowings, 2,863,986 common shares were issued to holders exercising
the company's  warrants,  and 6,213,285  common shares were issued to the Bridge
lenders. Subsequent to November 30, 2010, 1,245,000 common shares were issued in
private placements to various individuals  pursuant to short term borrowings and
5,495,340  common  shares  were  issued  to  holders  exercising  the  company's
warrants.

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 $1,750,212.

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

None.

ITEM 5. OTHER INFORMATION
-------------------------

None.

                                      -17-
<PAGE>

ITEM 6. EXHIBITS
----------------

     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)

     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


                                      -18-
<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: January 19, 2011                  JACOBS FINANCIAL GROUP, INC.
                                ------------------------------------------------
                                               (Registrant)
                             By:
                                /s/John M. Jacobs
                                ------------------------------------------------
                                John M. Jacobs, President






























                                      -19-