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


                                   FORM 10-QSB

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

                For the quarterly period ended February 28, 2006


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

<TABLE>
<CAPTION>
<S>                                      <C>                                   <C>
======================================== ===================================== =====================================
               DELAWARE                                0-21210                              84-0922335
               --------                                -------                              ----------
---------------------------------------- ------------------------------------- -------------------------------------
    (State or other jurisdiction of            (Commission File Number)         (IRS Employer Identification No.)
            incorporation)
======================================== ===================================== =====================================
</TABLE>


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



    State the number of shares outstanding of each of the issuer's classes of
               common equity, as of the latest practicable date:

                 152,604,504 common shares as of April 19, 2006



<PAGE>


                         PART I -- FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

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



                                                                         PAGE
                                                                         ----
      FINANCIAL STATEMENTS (UNAUDITED)
      --------------------------------
      Consolidated Condensed Balance Sheet                                F-1
      Consolidated Condensed Statement of Operations                      F-2
      Consolidated Condensed Statement of Cash Flows                      F-3
      Consolidated Condensed Statement Mandatorily Redeemable
        Preferred Stock and Stockholders Equity (Deficit)                 F-4
      Notes to Consolidated Condensed Financial Statements                F-5
























                                       2
<PAGE>
Jacobs Financial Group, Inc.
Consolidated Condensed Balance Sheet (Unaudited)

<TABLE>
<CAPTION>


                                                                                 February 28, 2006         May 31, 2005
                                                                                 -----------------        --------------
ASSETS

Investments and Cash:

<S>                                                                              <C>                      <C>
  Bonds held to maturity, at amortized costs                                     $    2,411,164           $           -
   (market value at 02/28/06 $ 2,408,999)
  Mortgage-back securities held to maturity, at amortized costs                          59,077                       -
   (market value at 02/28/06 $58,578)
  Short-term investments, at cost (approximates market value)                           268,479                       -
  Cash                                                                                   76,329                     437
                                                                                 -----------------        --------------

                                      TOTAL INVESTMENTS AND CASH                      2,815,049                     437

Investment income due and accrued                                                        21,917                       -
Premiums and other accounts receivable                                                   62,111                  28,286
Deferred policy acquisition costs                                                        15,727                       -
Furniture and equipment, net                                                             30,834                  10,659
Other assets                                                                              9,500                  47,560
Intangible assets                                                                       150,000                       -
                                                                                 -----------------        --------------

                                                    TOTAL ASSETS                 $    3,105,138           $      86,942
                                                                                 =================        ==============


LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)

  Reserve for losses and loss expenses                                           $          446           $           -
  Reserve for unearned premiums                                                          47,657                       -
  Accrued expenses and professional fees                                                391,155                 489,958
  Accounts payable                                                                      317,455                 271,295
  Notes payable                                                                         180,789               3,120,717
  Accrued interest payable                                                               65,713                 121,632
  Other liabilities                                                                     420,263                 309,418
                                                                                 -----------------        --------------

                                               TOTAL LIABILITIES                      1,423,478               4,313,020

  Series A  Preferred  Stock,  $.0001  par  value  per  share;
  1  million  shares authorized;  350 shares issued and  outstanding;
  stated  liquidation  value of $1,000 per share                                        269,378                       -

  Series B Preferred Stock,  $.0001 par value per share; 10,000
  shares authorized; 8,970.599 shares issued and outstanding;
  stated liquidation value of $1,000 per share                                        6,370,557                       -
                                                                                 -----------------        --------------

                    TOTAL MANDATORILY REDEEMABLE PREFERRED STOCK                      6,639,935                       -

STOCKHOLDERS' EQUITY (DEFICIT)

  Common stock, $.0001 par value per share; 490 million shares
  authorized; 141,860,413 shares issued and outstanding                                  14,186                  12,266
  Additional Paid In Capital                                                          1,658,101               1,115,138
  Accumulated deficit                                                                (6,630,562)             (5,353,482)
                                                                                 -----------------        --------------

                             TOTAL STOCKHOLDERS' EQUITY (DEFICIT)                    (4,958,275)             (4,226,078)
                                                                                 -----------------        --------------

             TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)                $    3,105,138           $      86,942
                                                                                 =================        ==============
</TABLE>


              The accompanying notes are an integral part of these
                  consolidated condensed financial statements.

                                      F-1

<PAGE>
Jacobs Financial Group, Inc,
Consolidated Condensed Statement of Operations (Unaudited)


<TABLE>
<CAPTION>



                                                          Three Months Ended February 28,          Nine Months Ended February 28,
                                                          ------------------------------           -----------------------------
                                                                2006               2005                  2006            2005
                                                         ----------------   --------------       -----------------  --------------

Revenues:

<S>                                                      <C>                <C>                  <C>                <C>
  Investment advisory services                           $        53,026    $      56,900        $      157,087     $   192,174
  Insurance premiums                                               2,072                -                 2,072               -
  Net investment income                                           16,137                -                16,137               -
  Agency commissions                                              19,594            3,944                29,031          13,106
  Other income                                                       622                -                   622               -
                                                         ----------------   --------------       -----------------  --------------
                                       TOTAL REVENUES             91,451           60,844               204,949         205,280


Expenses:

  Incurred policy losses                                             446                -                   446               -
  Insurance policy acquisition costs                               1,305                -                 1,305               -
  General and administrative                                     371,352          208,775               919,619         603,549
  Mutual fund costs                                               36,000           35,011               106,913         111,442
  Interest                                                       166,116           62,769               370,613         215,697
  Depreciation and amortization                                    2,148            1,387                 5,098           4,162
                                                         ----------------   --------------       -----------------  --------------
                                       TOTAL EXPENSES            577,367          307,942             1,403,994         934,850
                                                         ----------------   --------------       -----------------  --------------

                                     NET INCOME (LOSS)          (485,916)        (247,098)           (1,199,045)       (729,570)
                                                         ----------------   --------------       -----------------  --------------

  Accretion of Mandatorily Redeemable Convertible
  Preferred Stock                                                (78,035)               -               (78,035)              -
                                                         ----------------   --------------          --------------  --------------
NET INCOME (LOSS) ATTRIBUTABLE TO COMMON STOCKHOLDERS     $     (563,951)   $    (247,098)       $   (1,277,080)    $  (729,570)
                                                         ================   ==============       =================  ==============


BASIC AND DILUTIVE NET INCOME (LOSS) PER SHARE:

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


  WEIGHTED-AVERAGE SHARES OUTSTANDING                        135,034,346      121,905,893           126,742,042     121,399,485
                                                         ================   ==============       =================  ==============

</TABLE>

              The accompanying notes are an integral part of these
                  consolidated condensed financial statements.

                                      F-2
<PAGE>
Jacobs Financial Group, Inc,
Consolidated Condensed Statement of Cash Flows (Unaudited)


<TABLE>
<CAPTION>


                                                         Three Months Ended February 28,        Nine Months Ended February 28,
                                                         ------------------------------         -----------------------------
                                                               2006              2005                2006            2005
                                                        ----------------   --------------     -----------------  --------------

CASH FLOWS FROM OPERATING ACTIVITIES

<S>                                                     <C>                <C>                <C>                <C>
  Net Income (Loss)                                     $       (485,916)  $    (247,098)     $    (1,199,045)   $   (729,570)

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

   Depreciation                                                    2,148           1,387                5,098           4,162
   Stock issued for debt forbearance and guarantees                    -           1,354                    -          28,250
   Amortization of premium                                         2,330               -                2,330               -
   Accretion of Discount                                          (3,238)              -               (3,238)              -
   Premium and other receivables                                 (27,245)          7,189              (33,825)          8,377
   Unearned premium                                               47,657               -               47,657               -
   Deferred policy acquisition costs                             (15,727)              -              (15,727)              -
   Investment income due and accrued                             (13,058)              -              (13,058)              -
   Provision for loss reserves                                       446               -                  446               -
   Change in operating assets and liabilities:
     Other assets                                                    308          (1,030)              (1,940)          1,445
     Accounts payable                                             50,920         (31,336)              83,229          26,700
     Accrued expenses and other liabilities                       89,740          57,000              281,047         222,304
                                                        ----------------   --------------     -----------------  --------------

        NET CASH FLOWS FROM (USED IN) OPERATING ACTIVITIES      (351,635)       (212,534)            (847,026)       (438,332)


CASH FLOWS FROM INVESTING ACTIVITIES

   Redemption of short-term investments                        1,545,582               -            1,545,582               -
   Costs of bonds acquired                                    (1,545,582)              -           (1,545,582)              -
   Acquisition of insurance company                           (2,860,000)              -           (2,860,000)              -
   Purchase of furniture and equipment                           (25,273)              -              (25,273)         (3,049)
   Deposit                                                             -         (12,500)                   -         (22,500)
                                                        ----------------   --------------     -----------------  --------------

        NET CASH FLOWS FROM (USED IN) INVESTING ACTIVITIES    (2,885,273)        (12,500)          (2,885,273)        (25,549)


CASH FLOWS FROM FINANCING ACTIVITIES

   Proceeds from issuance of Series A preferred stock
         and warrants                                            350,000               -              350,000               -
   Proceeds from issuance of Series B preferred stock
         and warrants                                          3,085,000               -            3,085,000               -
   Proceeds from exercise of common stock warrants                 3,833               -                3,833               -
   Proceeds from short-term borrowings                           277,479         411,973            1,453,999       1,045,657
   Repayment of short-term borrowings                           (452,251)       (186,499)          (1,084,641)       (581,654)
                                                        ----------------   --------------     -----------------  --------------

        NET CASH FLOWS FROM FINANCING ACTIVITIES               3,264,061         225,474            3,808,191         464,003

NET INCREASE (DECREASE) IN CASH                                   27,153             440               75,892             122

CASH AT BEGINNING OF PERIOD                                       49,176             303                  437             621
                                                        ----------------   --------------     -----------------  --------------

CASH AT END OF PERIOD                                   $         76,329   $         743      $        76,329    $        743
                                                        ================   ==============     =================  ==============


SUPPLEMENTAL DISCLOSURES

   Interest paid                                        $        114,838   $      59,738      $       272,420    $    192,893
   Income taxes paid                                                   -               -                    -               -
   Non-cash investing and financing transactions:
     Additional consideration paid for issuance of debt           40,630               -               61,775               -
     Accrued interest converted to notes payable                       -               -               20,740               -

Acquisition of business (See Note A)
</TABLE>
              The accompanying notes are an integral part of these
                  consolidated condensed financial statements.

                                      F-3

<PAGE>
Jacobs Financial Group, Inc.
Consolidated Condensed Statement of Mandatorily Redeemable Preferred Stock
and Stockholders' Equity (Deficit) (Unaudited)
For the Three and Nine-month Period Ended February 28, 2006

<TABLE>
<CAPTION>

                                                                     ---------------------------------------------------------------
                                                    Series B                         Stockholders' Equity (Deficit)
                               Series A       Mandatorily Redeemable ---------------------------------------------------------------
                        Mandatorily Redeemable    Convertible                                Additional
                           Preferred Stock      Preferred Stock                               Paid-In     Accumulated
                            Shares  Amount     Shares     Amount       Shares      Amount     Capital       Deficit        Total
                             ---- --------   ---------  ----------   -----------   -------   ----------   ------------  ------------

<S>                         <C>   <C>        <C>        <C>          <C>           <C>       <C>          <C>           <C>
Balance, May 31, 2005           -        -           -           -   122,663,860   $12,266   $1,115,138   $(5,353,482)  $(4,226,078)

 Net Income (Loss),
 three-month period ended
 August 31, 2005                -        -           -           -             -         -            -      (297,274)     (297,274)
                             ---- --------   ---------  ----------   -----------   -------   ----------   ------------  ------------

Balance, August 31, 2005        -        -           -           -   122,663,860    12,266    1,115,138    (5,650,756)   (4,523,352)

 Net Income (Loss), three-
 month period ended
 November 30, 2005              -        -           -           -             -         -            -      (415,855)     (415,855)
                             ---- --------   ---------  ----------   -----------   -------   ----------   ------------  ------------

Balance, November 30, 2005      -        -           -           -   122,663,860    12,266    1,115,138    (6,066,611)   (4,939,207)

 Issuance of Series A and
 Series B Preferred Stock
 and Common Stock Warrants    350  266,957   8,870.599   6,202,978             -         -      533,015             -       533,015

 Issuance of Series B
 Preferred Stock and
 Common Stock                   -        -     100.000      91,965       100,000        10        8,025             -         8,035

 Issuance of common stock
 upon exercise of warrants      -        -           -           -    19,096,553     1,910        1,923             -         3,833

 Accretion of mandatorily
 redeemable convertible
 preferred stock                -    2,421           -      75,614             -         -            -       (78,035)      (78,035)

 Net Income (Loss), three-
 month period ended
 February 28, 2006             -         -           -           -             -         -            -      (485,916)     (485,916)
                             ---- --------   ---------  ----------   -----------   -------   ----------   ------------  ------------

Balance, February 28, 2006   350  $269,378   8,970.599  $6,370,557   141,860,413   $14,186   $1,658,101   $(6,630,562)  $(4,958,275)
                             ==== ========   =========  ==========   ===========   =======   ==========   ============  ============
</TABLE>


              The accompanying notes are an integral part of these
                  consolidated condensed financial statements.

                                      F-4


<PAGE>
JACOBS FINANCIAL GROUP, INC.

NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS

NOTE A - BASIS OF PRESENTATION
------------------------------
The accompanying  unaudited financial statements of Jacobs Financial Group, Inc.
(the "Company" or "JFG").  References  herein to the Company include NELX, Inc.,
of which JFG is successor by reincorporation  merger and name change effected on
or about  December  29,  2005.  These  financial  statements  were  prepared  in
accordance with generally accepted  accounting  principles for interim financial
information and Article 10 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 nine-month  periods ended  February 28, 2006, are not  necessarily
indicative of the results of operations that can be expected for the fiscal year
ending May 31, 2006.  For further  information,  refer to the Company's  audited
financial  statements and footnotes  thereto  included in Item 7. of Form 10-KSB
filed on September 12, 2005.

ACQUISITION

On December 30, 2005, the Company acquired all of the outstanding  stock of West
Virginia Fire and Casualty  Company  (WVFCC),  an insurance  company licensed to
engage in business in West Virginia,  Ohio and Indiana. The acquisition followed
the approval of the  transaction  by the West Virginia  Department of Insurance,
which included  approval of the Company's  business plan to operate the acquired
insurance company as a surety.  The financing of the transaction  consisted of a
combination  of a private  placement of preferred  stock and warrants to acquire
common stock of the Company in exchange for cash totaling  $3,335,000,  of which
$2,900,000  was used for the  acquisition of WVFCC.  In addition,  approximately
$3,668,000 of  indebtedness  of the Company was converted into preferred  stocks
and warrants.  Following the acquisition, the name of WVFCC was changed to First
Surety Corporation (FSC).

The  acquisition  of FSC will allow the Company to pursue its  business  plan to
market and issue  surety bonds  utilizing  programs  developed by the  Company's
subsidiary,  FS  Investments,  Inc.  (FSI).  FSI's  subsidiary,  Triangle Surety
Agency,  Inc. (TSA), will serve as managing general agent for First Surety,  and
collateralized  accounts required as a condition of the issuance of surety bonds
under  the  insurance  company's  programs  will be  managed  by the  investment
advisory  subsidiary  of the Company,  Jacobs & Company  (J&C).  The  successful
implementation  of the business  plan by the Company  will create three  primary
revenue  streams,  insurance  premium for the issuance of surety  bonds,  agency
commissions for the production and placement of bonds,  and investment  advisory
fees relating to the  management  of the  collateralized  accounts  securing the
surety bonds.  The bonding  programs  offered are specialized in nature and will
initially  be targeted to the coal and oil & gas  industries,  primarily  in the
Eastern United States.

The acquisition of WVFCC consisted of the purchase of marketable investments and
insurance licenses and did not include any existing policies or customer base as
the insurance  lines of business  offered by WVFCC are not insurance  lines that
the Company intends to pursue.  Accordingly,  pro forma information  relating to
the acquisition as if it had occurred as of the beginning of the reported period
has been omitted as it would not be meaningful.

                                      F-5
<PAGE>


RECLASSIFICATIONS

Certain amounts in the 2005  Consolidated  Condensed  Financial  Statements have
been  reclassified  to be consistent with the  presentation in the  Consolidated
Financial  Statements  as of February 28, 2006 and for the three and  nine-month
periods  then  ended.  Such   reclassifications   resulted  from  the  Company's
acquisition of WVFCC (now FSC). The Company's  Consolidated  Condensed Financial
Statements  include the assets,  liabilities  and results of  operations  of FSC
subsequent to its acquisition on December 30, 2005. These  reclassifications had
no impact on  previously  reported  net  income,  cash flow from  operations  or
changes in shareholder equity.

NOTE B - RECENT ACCOUNTING PRONOUNCEMENTS
-----------------------------------------
In December 2004, the Financial  Accounting  Standards  Board (FASB) issued SFAS
No.  123R  "Share-Based  Payment"  ("SFAS  123R"),  a  revision  to SFAS No. 123
"Accounting  for  Stock-Based  Compensation"  ("SFAS 123"),  and superseding APB
Opinion  No. 25  "Accounting  for Stock  Issued to  Employees"  and its  related
implementation  guidance. SFAS 123R establishes standards for the accounting for
transactions  in which an entity  exchanges its equity  instruments for goods or
services,   including   obtaining  employee  services  in  share-based   payment
transactions.  SFAS 123R  applies  to all  awards  granted  after  the  required
effective  date and to awards  modified,  repurchased,  or cancelled  after that
date.  Adoption of the  provisions of SFAS 123R is effective as of the beginning
of the first annual reporting period that begins after June 15, 2005. Should the
Corporation  issue  employee  stock  options  after  February 28, 2006, a charge
against  earnings  would be required as provided by SFAS 123R.  The magnitude of
the charge would depend upon the number of employee  stock options  issued,  the
exercise price of the stock options and the volatility of the share price of the
Corporation's common stock on the date the employee stock options are issued.

NOTE C- CRITICAL ACCOUNTING POLICIES AND ESTIMATES
--------------------------------------------------
We believe  that the  following  critical  accounting  policies  affect our more
significant  judgments and estimates used in the preparation of our consolidated
financial statements:

REVENUE RECOGNITION

Fees for investment  advisory  services are based on an agreed percentage of the
value of client  assets under  management  and are accrued  monthly based on the
market value of client assets.

Surety  premiums are earned pro rata over the term of the policies.  The reserve
for unearned premiums represents the portion of premiums written relating to the
unexpired  terms of  coverage.  The reserve for unearned  premium is  determined
using the monthly pro rata method.

Agency  commissions  for  surety  bond  services  are based on a  percentage  of
premiums  charged for bonds placed with  insurance  companies,  and are recorded
upon issuance or effective renewal date of the bonds. No significant  continuing
services subsequent to the issuance or renewal of surety bonds are required.

Policy  acquisition costs include costs that vary with and are primarily related
to the acquisition of new business.  Such costs generally  include  commissions,
underwriting expenses, and premium taxes and are deferred and amortized over the
period in which the related premiums are earned. The deferred policy acquisition
cost assets is reviewed for recoverability based on the

                                      F-6
<PAGE>


profitability  of  the  underlying  surety  policy.  Investment  income  is  not
anticipated in the recoverability of deferred policy acquisition costs.

INVESTMENTS

Debt  securities  are  designated  at purchase as  held-to-maturity,  trading or
available for sale.  Held-to-maturity  debt  securities are carried at amortized
cost where the Company has the ability and intent to hold these securities until
maturity.  Premiums and discounts  arising from the purchase of debt  securities
are  treated as yield  adjustments  over the  estimated  lives or call date,  if
applicable.

Debt and equity  securities that are bought and held principally for sale in the
near  future are  classified  as trading  securities  and are carried at current
market  values,   with  changes  in  market  value  being  recorded  in  current
operations.

Debt and equity  securities  that the Company may not have a positive  intent to
hold  until  maturity  and not  classified  as  trading,  are  considered  to be
available for sale and carried at current market values,  with unrealized  gains
and losses reflected as a separate  component of other  comprehensive  income in
consolidated shareholders' equity currently.

Short-term  investments  consist primarily of money-market  investment funds and
other similar investments that have immediate availability.

Interest income with respect to fixed maturity  securities is accrued as earned.
Dividend income is generally recognized when receivable.

ALLOWANCE FOR UNCOLLECTIBLE PREMIUM AND OTHER RECEIVABLES

The majority of our fee revenue is  generated by services  provided to companies
throughout the Eastern United States. We evaluate the need for a reserve for the
amount  of these  receivables  that may be  uncollectible,  based on  historical
collection activity adjusted for current  conditions.  Based on this evaluation,
management  believes that substantially all accounts receivable are collectible,
and therefore  has not  established  an allowance  for  estimated  uncollectible
accounts.

IMPAIRMENT

We evaluate  long-lived  assets for impairment  annually,  or whenever events or
changes in  circumstances  indicate that the assets may not be recoverable.  The
impairment is measured by calculating  the estimated  future cash flows expected
to be generated,  and comparing  this amount to the carrying value of the asset.
Cash flows are  calculated  utilizing  forecasts and  projections  and estimated
lives of the assets being  analyzed.  Should  actual  results  differ from those
forecasted and projected, we are subject to future impairment charges related to
these facilities.

RESERVE FOR LOSSES AND LOSS EXPENSES

Losses and loss adjustment expenses represent  management's best estimate of the
ultimate net cost of all reported and unreported  losses incurred.  Reserves for
unpaid  losses and loss  adjustment  expenses  are  estimated  using  individual
case-basis  valuations in conjunction  with estimates  derived from industry and
Company  historical  experience.  These  estimates  and methods of  establishing
reserves are continually reviewed and updated.

                                      F-7
<PAGE>


INCOME TAXES

We currently have net operating loss ("NOL") carry-forwards that can be utilized
to offset future income for federal and state tax purposes.  These NOLs generate
a  significant  deferred  tax  asset.  However,  we have  recorded  a  valuation
allowance  against this deferred tax asset as we have determined that it is more
likely than not that we will not be able to fully  utilize the NOLs.  Should our
assumptions  regarding the utilization of these NOLs change,  we may reduce some
or all of this  valuation  allowance,  which would result in the  recording of a
deferred income tax benefit.

STOCK-BASED COMPENSATION

We have adopted the fair value method of accounting for stock-based compensation
recommended by SFAS No. 123R, Accounting for Stock-based Compensation.

The fair value of stock  options is  estimated at the grant date using the Black
Scholes  Option  Pricing  Model.  This model  requires  the input of a number of
assumptions,   including   expected   dividend  yields,   expected  stock  price
volatility,  risk-free  interest  rates,  and an expected  life of the  options.
Although  the  assumptions  used to reflect  management's  best  estimate,  they
involve inherent  uncertainties based on market conditions generally outside the
control of the Company.  If future  market  conditions  are  different  than the
assumptions  used,  stock-based  compensation  expense  could  be  significantly
different.


NOTE D - INVESTMENTS
--------------------
The Company's  insurance  subsidiary  (FSC) held the following  investments,  by
security type, with the positive intent and ability to hold to maturity:
<TABLE>
<CAPTION>

                                                          FEBRUARY 28, 2006
                                                          -----------------

                                                        Gross             Gross
                                     Amortized        Unrealized        Unrealized         Fair Market
                                       Cost             Gains             Losses              Value
                                    -----------      ------------      ------------       ------------
<S>                                 <C>              <C>               <C>                <C>
U. S. Government and
  government agencies               $2,411,164       $        21       $     2,186        $ 2,408,999

U.S Government agency
   mortgage-backed securities           59,077                 -               499             58,578
                                    -----------      ------------      ------------       ------------
                                    $2,470,241       $        21       $     2,685        $ 2,467,577
                                    ==========       ============      ============       ============
</TABLE>




                                      F-8


<PAGE>


The   amortized   cost  and   estimated   market   values  of   investments   in
fixed-maturities held-to-maturity at February 28, 2006 are as follows:

                                                Amortized       Fair Market
                                                  Cost             Value
                                              ------------     ------------

Due in one year or less                         $1,548,526       $1,548,547
Due after one year through five years              862,638          860,452
                                              ------------     ------------
                                                $2,411,164       $2,408,999

U.S.  government  agency  mortgaged-backed  securities held by the Company as of
February 28, 2006 have a weighted-average  estimated remaining life of less than
three years. Expected maturities may differ from contractual  maturities because
borrowers of the underlying mortgages have a right to prepay obligations.

Statutory  deposits  consisting of securities  with a carrying value of $204,155
were  deposited by the Company's  insurance  subsidiary  under  requirements  of
regulatory  authority.  In connection with regulatory  approval of the Company's
acquisition of its insurance  subsidiary,  certain  restrictions were imposed on
the ability of the Company to withdraw  funds from FSC without prior approval of
the Insurance Commissioner.  Accordingly,  investments and cash in the amount of
$2,744,414 as of February 28, 2006 are restricted to the use of FSC.

The Company held no investments  classified as  available-for-sale.  The Company
had no realized gains or losses from investments in the periods reported.


NOTE E - INTANGIBLES
--------------------
As the result of the  acquisition  of the stock of FSC on December 30, 2005,  in
exchange for the purchase  price of  $2,900,000,  the Company  received cash and
investments  held by FSC  with a fair  market  value  of  $2,750,000,  with  the
difference of $150,000 being attributed to the 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 possible
impairment loss.


NOTE F - NOTES PAYABLE TO INDIVIDUALS AND RELATED PARTY
-------------------------------------------------------
At February 28, 2006,  the Company had unsecured  notes  payable to  individuals
(primarily common shareholders)  amounting to $163,834. Such notes have maturity
dates of less than one year or are  payable on demand and bear  interest  at the
rate of ten percent (10.00%) per annum.

During 2005 and 2006, the Company's  operating expenses were partially funded by
advances  from its largest  shareholder  and chief  executive  officer,  John M.
Jacobs.  The  funding  source for these  advances  originated  with  obligations
incurred by Mr. Jacobs with third-parties  (such obligations,  together with the
loans by Mr. Jacobs to the Company,  "back-to-back  loans") with interest  rates
ranging from 6.75% to 12%. To assure that  repayments of the various  borrowings
by the  Company  that  were  either  guaranteed  by Mr.  Jacobs or loaned to the
Company by Mr. Jacobs via such  back-to-back loan arrangements did not result in
a deemed loan to Mr. Jacobs,  effective May 31, 2004, Mr. Jacobs entered into an
Assumption  Agreement with the Company,  which agreement was restated on January
1, 2006,  pursuant to which Mr. Jacobs  assumes,  and agrees to hold the Company
harmless from, principal of specified indebtedness of the Company


                                      F-9
<PAGE>


as and when necessary to fully offset what might  otherwise be deemed an advance
of  funds  arising  out  of  the  Company's  financing  activities.  During  the
three-month  period ended  February 28, 2006, the Company made net repayments of
$602,855 on the  back-to-back  loans which was  $204,845  more than the original
loans and interest charges. As a result of the Assumption Agreement, this excess
has been  offset  against  other  obligations  of the  Company  in the amount of
$251,326  for a net note  payable of $16,955 to Mr.  Jacobs as of  February  28,
2006.


NOTE G - OTHER LIABILITIES
--------------------------
The Company had been delinquent in paying certain of its payroll tax obligations
for  periods  ending on or  before  December  31,  2005.  The  total  liability,
including an estimate for penalties and interest, is approximately  $380,000 and
is included  in the  Company's  financial  statements  under Other  Liabilities.
Management is currently  arranging  financing to fully satisfy this  obligation,
and anticipates that payment will be accomplished within thirty days.


NOTE H - REDEEMABLE PREFERRED STOCK
-----------------------------------
On December 30, 2005, through a private placement, the Company issued 350 shares
of 4% Non-Voting Series A Preferred Stock (Series A Preferred Stock), along with
1,050,000   warrants  for  common   shares  of  Company   stock  as   additional
consideration,  for a cash  investment in the amount of $350,000,  in connection
with the Company's  acquisition of FSC. The purchase of Series A Preferred Stock
is a condition of the qualification of such purchasers to participate in certain
surety bonding programs of FSC under which the participant's  obligations to FSC
are not fully  secured.  Holders of Series A  Preferred  Stock are  entitled  to
participate in the FSC's partially  collateralized bonding programs,  subject to
continuing  satisfaction  of  underwriting  criteria,  based  upon  the  bonding
capacity of FSC  attributable to capital  reserves of FSC  established  with the
subscription  proceeds (I.E.,  bonding capacity equal to ten times  subscription
proceeds) and for so long as the subscriber  holds the Series A shares.  Holders
of the Series A Preferred Stock are entitled to receive, when and as declared by
the board of directors, cumulative preferential cash dividends at a rate of four
percent of the $1,000  liquidation  preference per annum  (equivalent to a fixed
annual rate of $40 per share).  The Series A Preferred Stock ranks senior to the
Company's  common stock,  and PARI PASSU with the  Company's  Series B Preferred
Stock, with respect to dividend rights and rights upon liquidation,  dissolution
or winding up of the Company. The holder may redeem the Series A Preferred Stock
on or after the seventh  anniversary of the Issue Date, if the holder provides a
written  statement  to the Company that it will no longer  require  surety bonds
issued  by  the  Company's  insurance   subsidiary  (FSC)  under  its  partially
collateralized   bonding  programs  and,  if  no  such  surety  bonds  are  then
outstanding,  the Company,  at the option of the holder,  will redeem all or any
portion  of the  Series A  Preferred  Stock of such  holder at a price per share
equal to the Series A  Preferred  Stock  Issue Price plus all accrued and unpaid
dividends  with  respect to the shares of the Series A  Preferred  Stock of such
holder to be redeemed.  The conditional redemption shall not be available to any
holder of Series A Preferred  Stock for so long as surety bonds of the Company's
insurance   subsidiary  issued  on  a  partially   collateralized  basis  remain
outstanding  for the benefit of such holder,  and upon  redemption,  such holder
shall no longer be  eligible  to  participate  in the  partially  collateralized
bonding programs of the insurance subsidiary. The Company is authorized to issue
up to  1,000,000  shares of the Series A Preferred  Stock.  Additionally,  as of
February 28, 2006, the Company has accepted Stock  Subscriptions  for 106 shares
of Series A Preferred  Stock in exchange for a cash  investment in the amount of
$106,000.

                                      F-10
<PAGE>


On December  30, 2005,  through a private  placement,  the Company  issued 3,980
shares of 8% Non-Voting Series B Convertible Preferred Stock (Series B Preferred
Stock),  along with  19,900,000  warrants for common  shares of Company stock as
additional consideration, for a cash investment in the amount of $2,985,000; and
issued  4,890.599  shares of Series B  Preferred  Stock,  along with  24,452,996
warrants for common shares of Company stock as additional  consideration,  for a
conversion of $3,667,949 of indebtedness of the Company,  in connection with the
Company's  acquisition  of FSC.  Holders  of the  Series B  Preferred  Stock are
entitled to receive, when and as declared by the board of directors,  cumulative
preferential cash dividends at a rate of eight percent of the $1,000 liquidation
preference per annum  (equivalent to a fixed annual rate of $80 per share).  The
Series B Preferred  Stock ranks senior to the Company's  common stock,  and PARI
PASSU with the  Company's  Series A Preferred  Stock,  with  respect to dividend
rights and rights upon  liquidation,  dissolution  or winding up of the Company.
Each share of the Series B Preferred  Stock is  convertible at the option of the
holder,  at any time after the  original  issue date,  into 1,000 fully paid and
nonassessable  shares of the  Company's  common stock at a  conversion  price of
$1.00 per common share.  The Company may redeem the Series B Preferred  Stock at
any time after the first  anniversary  of the Original Issue Date at a price per
share  equal to the Series B  Preferred  Stock Face  Amount plus all accrued and
unpaid  dividends with respect to the shares of the Series B Preferred  Stock of
such holder to be redeemed.  To the extent that the Series B Preferred Stock has
not been  redeemed by the Company,  the holder may redeem the Series B Preferred
Stock on or after the fifth  anniversary  of the Original  Issue Date at a price
per share equal to the Series B Preferred Stock Face Amount plus all accrued and
unpaid  dividends with respect to the shares of the Series B Preferred  Stock of
such  holder to be  redeemed.  The Company is  authorized  to issue up to 10,000
shares of the Series B Preferred Stock. On February 24, 2006, the Company issued
100 shares of Series B  Preferred  Stock,  and 100,000  shares of the  Company's
common stock as additional  consideration,  in exchange for a cash investment of
$100,000.  Additionally, as of February 28, 2006, the Company has accepted Stock
Subscriptions  for 125 shares of Series B Preferred Stock, and 125,000 shares of
the Company's common stock as additional  consideration,  in exchange for a cash
investment in the amount of $125,000.

Management  consulted Statement of Financial  Accounting Standards (SFAS) Number
133,  "ACCOUNTING  FOR DERIVATIVE  INSTRUMENTS AND HEDGING  ACTIVITY",  Emerging
Issues Task Force (EITF)  Number 00-19,  "ACCOUNTING  FOR  DERIVATIVE  FINANCIAL
INSTRUMENTS  INDEXED TO, AND POTENTIALLY SETTLED IN, A COMPANY'S OWN STOCK", and
SFAS 150,  "ACCOUNTING  FOR CERTAIN  INSTRUMENTS  WITH  CHARACTERISTICS  OF BOTH
LIABILITIES  AND EQUITY" in evaluating the accounting for preferred  securities.
Management determined that SFAS 150 is the appropriate accounting literature.

SFAS 150  requires  that an entity  classify as  liabilities  certain  financial
instruments  with  characteristics  of both  liabilities  and  equity.  SFAS 150
applies to certain freestanding  financial instruments that embody an obligation
for the entity that may require the entity to issue shares, redeem or repurchase
its shares.

The  Company's  Series A and B preferred  stock each have  mandatory  redemption
features that subject the Company to the analysis of equity versus liability. In
accordance  with SFAS  150,  both  Series A and B have  features  that  embody a
conditional obligation to redeem the instrument upon events not certain to occur
and accordingly, are not classified as liabilities until such events are certain
to occur.  With  respect to the Series A  Preferred  Stock,  such  condition  is
contingent upon the holder having no further need for surety bonds issued by the
Company's insurance subsidiary (FSC) under its partially  collateralized bonding
programs and, having no such surety bonds then outstanding.  With respect to the
Series B Preferred Stock, in accordance with SFAS

                                      F-11
<PAGE>


150, if the stock  provides an option to the holder to convert to common  shares
at a rate  equivalent  to fair value,  then the  financial  instruments  are not
mandatorily  redeemable  during the period in which the holder can  convert  the
shares into common shares. As the Series B Preferred Stock contains a feature to
convert to common shares at a fixed rate of $1.00 per share, and such conversion
rate appearing  reasonable  within the period prior to the redemption  date, the
Company has determined that both the Series A and B preferred  stocks should not
be  classified  as  liabilities.  However,  in accordance  with  Securities  and
Exchange  Commission  (SEC)  Issued  Topic No.  D-98,  SEC  Staff  Announcement,
"CLASSIFICATION AND MEASUREMENT OF REDEEMABLE SECURITIES", a company that issues
preferred  shares that are  conditionally  redeemable  (I.E., the shares are not
within the scope of SFAS 150 because  there is no  unconditional  obligation  to
redeem the shares at a specified or  determinable  date or upon an event certain
to occur) is  required  to account for the  conditionally  redeemable  preferred
shares in accordance with  Accounting  Series Release 268, which states that the
shares  are to be  reflected  on  the  company's  balance  sheet  between  total
liabilities and stockholders' equity as temporary equity.


NOTE I - STOCK WARRANTS AND OPTIONS
-----------------------------------
At  February  28,  2006,  the  Company  had issued and  outstanding  warrants to
purchase  26,139,590  shares of common stock that were issued in connection with
the Series A and B Preferred Stock private placements. The exercise price of the
warrants is  one-tenth  of one cent ($.001) per share and expire on December 30,
2010.  The  warrants  were valued using the  Black-Scholes  pricing  model.  The
warrants  issued in connection  with the Series A Preferred Stock were valued at
$.08 per share or $83,043.  The warrants  issued in connection with the Series B
Preferred Stock were valued at $.01 per share or $449,972.

On September 29, 2003, the Company issued  warrants to purchase 2 million common
shares to a principal  vendor in connection  with  financing and  forbearance in
payment of certain trade obligations. The exercise price of the warrants is $.04
per share and expire  September  30, 2008.  The  warrants  were valued using the
Black-Scholes pricing model at $.02 per share or $39,966.

On October 12, 2005, the board of directors approved a severance arrangement for
a long-time  employee of the Company  terminated  by reason of  disability.  The
arrangement  included (i) continuing  salary and benefits  through May 2006, and
(ii) an award of 1,000,000 options to acquire common shares at an exercise price
of four cents ($.04) per share.  The estimated  value of  continuing  salary and
benefits  was  approximately  $30,000,  and the  estimated  value of the options
awarded was approximately $13,500.


NOTE J - SUBSEQUENT EVENT
-------------------------
Subsequent to February 28, 2006,  stock warrants  issued in connection  with the
Series A and B Preferred Stock private  placements  totaling 5,485,888 have been
exercised.

                                      F-12



<PAGE>



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

RECENT DEVELOPMENTS AND FUTURE DIRECTION OF COMPANY

On December 30, 2005, the Company acquired all of the outstanding  stock of West
Virginia Fire and Casualty  Company  (WVFCC),  an insurance  company licensed to
engage in business in West Virginia,  Ohio and Indiana. The acquisition followed
the approval of the  transaction  by the West Virginia  Department of Insurance,
which included  approval of the Company's  business plan to operate the acquired
insurance company as a surety.  The financing of the transaction  consisted of a
combination  of a private  placement of preferred  stock and warrants to acquire
common stock of the Company in exchange for cash totaling  $3,335,000,  of which
$2,900,000  was used for the  acquisition of WVFCC.  In addition,  approximately
$3,668,000 of  indebtedness  of the Company was converted into preferred  stocks
and warrants.  Following the acquisition, the name of WVFCC was changed to First
Surety Corporation (FSC).

The  acquisition  of FSC will allow the Company to pursue its  business  plan to
market and issue  surety bonds  utilizing  programs  developed by the  Company's
subsidiary,  FS  Investments,  Inc.  (FSI).  FSI's  subsidiary,  Triangle Surety
Agency,  Inc. (TSA), will serve as managing general agent for First Surety,  and
collateralized  accounts required as a condition of the issuance of surety bonds
under FSC's  programs will be managed by the investment  advisory  subsidiary of
the  Company,  Jacobs & Company  (J&C).  The  successful  implementation  of the
business  plan  by the  Company  will  create  three  primary  revenue  streams,
insurance premium for the issuance of surety bonds,  agency  commissions for the
production and placement of bonds, and investment  advisory fees relating to the
management of the  collateral  accounts  securing the surety bonds.  The bonding
programs offered are specialized in nature and will initially be targeted to the
coal and oil & gas industries.

CRITICAL ACCOUNTING POLICIES AND ESTIMATES

Our discussion and analysis of our financial condition and results of operations
is based upon our consolidated financial statements, which have been prepared in
accordance with principles  generally  accepted in the United States of America.
The preparation of these financial  statements requires us to make estimates and
judgments that affect the reported amounts of assets, liabilities,  revenues and
expenses,  and related  disclosure of contingent  assets and liabilities.  On an
on-going  basis,   we  evaluate  our  estimates,   including  those  related  to
stock-based compensation,  allowance for uncollectible receivables, reserves for
losses and loss adjustment expense,  impairment,  and income taxes. We based our
estimates on historical experience, current and anticipated business conditions,
the condition of the financial  markets,  and various other assumptions that are
believed to be reasonable under existing  conditions.  Actual results may differ
from these estimates.

We believe  that the  following  critical  accounting  policies  affect our more
significant  judgments and estimates used in the preparation of our consolidated
financial statements:

                                       3
<PAGE>


REVENUE RECOGNITION

Fees for investment  advisory services are based on a percentage of the value of
client  assets  under  management  and are accrued  based on the market value of
client assets on the accrual date.

Surety  premiums are earned pro rata over the term of the policies.  The reserve
for unearned premiums represents the portion of premiums written relating to the
unexpired  terms of  coverage.  The reserve for unearned  premium is  determined
using the monthly pro rata method.

Agency  commissions  for  surety  bond  services  are based on a  percentage  of
premiums  charged for bonds placed with  insurance  companies,  and are recorded
upon  issuance  or the  effective  renewal  date of the  bonds.  No  significant
continuing services subsequent to the issuance or renewal of bonds are required.

Policy  acquisition costs include costs that vary with and are primarily related
to the acquisition of new business.  Such costs generally  include  commissions,
underwriting expenses, and premium taxes and are deferred and amortized over the
period in which the related premiums are earned. The deferred policy acquisition
cost asset is reviewed  for  recoverability  based on the  profitability  of the
underlying   surety  policy.   Investment  income  is  not  anticipated  in  the
recoverability of deferred policy acquisition costs.

INVESTMENTS

Debt  securities  are  designated  at purchase as  held-to-maturity,  trading or
available for sale.  Held-to-maturity  debt  securities are carried at amortized
cost where the Company has the ability and intent to hold these securities until
maturity.  Premiums and discounts  arising from the purchase of debt  securities
are  treated as yield  adjustments  over the  estimated  lives or call date,  if
applicable.

Debt and equity  securities that are bought and held principally for the purpose
of selling them in the near future are classified as trading  securities and are
carried at current market values, with changes in market value being recorded in
current operations.

Debt and equity  securities  that the Company may not have a positive  intent to
hold  until  maturity  and not  classified  as  trading,  are  considered  to be
available for sale and carried at current market values,  with unrealized  gains
and losses reflected as a separate  component of other  comprehensive  income in
consolidated shareholders' equity currently.

Short-term  investments  consist primarily of money-market  investment funds and
other similar investments that have immediate availability.

Interest income with respect to fixed maturity  securities is accrued as earned.
Dividend income is generally recognized when receivable.



                                       4

<PAGE>


ALLOWANCE FOR UNCOLLECTIBLE PREMIUM AND OTHER RECEIVABLES

The majority of the Company's  fee revenue is generated by services  provided to
companies  throughout  the Eastern  United  States.  We evaluate  the need for a
reserve for the amount of these receivables that may be uncollectible,  based on
historical  collection activity adjusted for current  conditions.  Based on this
evaluation,  management  believes that substantially all accounts receivable are
collectible  and,  therefore,  has not  established  an allowance  for estimated
uncollectible accounts.

IMPAIRMENT

We evaluate  long-lived  assets for impairment  annually,  or whenever events or
changes in  circumstances  indicate that the assets may not be recoverable.  The
impairment is measured by calculating  the estimated  future cash flows expected
to be generated,  and comparing  this amount to the carrying value of the asset.
Cash flows are  calculated  utilizing  forecasts and  projections  and estimated
lives of the assets being  analyzed.  Should  actual  results  differ from those
forecasted and projected, we are subject to future impairment charges related to
these facilities.

RESERVE FOR LOSSES AND LOSS EXPENSES

Losses and loss adjustment expenses represent  management's best estimate of the
ultimate net cost of all reported and unreported  losses incurred.  Reserves for
unpaid  losses and loss  adjustment  expenses  are  estimated  using  individual
case-basis  valuations in conjunction  with estimates  derived from industry and
Company  historical  experience.  These  estimates  and methods of  establishing
reserves are continually reviewed and updated.

INCOME TAXES

We currently have net operating loss ("NOL") carry-forwards that can be utilized
to offset future income for federal and state tax purposes.  These NOLs generate
a  significant  deferred  tax  asset.  However,  we have  recorded  a  valuation
allowance  against this deferred tax asset as we have determined that it is more
likely than not that we will not be able to fully  utilize the NOLs.  Should our
assumptions  regarding the utilization of these NOLs change,  we may reduce some
or all of this  valuation  allowance,  which would result in the  recording of a
deferred income tax benefit.

STOCK-BASED COMPENSATION

We have adopted the fair value method of accounting for stock-based compensation
recommended by SFAS No. 123R, Accounting for Stock-based Compensation.

The fair value of stock  options is  estimated at the grant date using the Black
Scholes  Option  Pricing  Model.  This model  requires  the input of a number of
assumptions,   including   expected   dividend  yields,   expected  stock  price
volatility,  risk-free  interest  rates,  and an expected  life of the  options.
Although  the  assumptions  used to reflect  management's  best  estimate,  they
involve inherent  uncertainties based on market conditions generally outside the
control of the Company.  If future  market  conditions  are  different  from the
assumptions  used,  stock-based  compensation  expense  could  be  significantly
different.

                                       5
<PAGE>


CONTRACTUAL OBLIGATIONS AND COMMERCIAL COMMITMENTS

The Company has notes payable of $180,789,  including  current  installments and
excluding  fair value  adjustments,  outstanding  at February 28,  2006.  Future
payments required under these and other obligations are as follows:
<TABLE>
<CAPTION>

----------------------------------------- ------------- -------- -------- --------- ------- --------------- -------------
CERTAIN CONTRACTUAL OBLIGATIONS             CURRENT       2007     2008     2009      2010     THEREAFTER      TOTAL
----------------------------------------- ------------- -------- -------- --------- ------- --------------- -------------
<S>                                       <C>           <C>      <C>      <C>       <C>     <C>             <C>
Notes payable                             $   180,789         -        -        -        -            -     $  180,789
----------------------------------------- ------------- -------- -------- --------- ------- --------------- -------------
Operating lease commitments                     6,851     6,851    6,851    5,141        -            -         25,694
----------------------------------------- ------------- -------- -------- --------- ------- --------------- -------------
</TABLE>


RESULTS OF OPERATIONS FOR THE THREE MONTH PERIOD ENDED FEBRUARY 28, 2006

The Company  experienced a loss for the  three-month  period ended  February 28,
2006 in the amount of  $485,916  as  compared  with a loss of  $247,098  for the
corresponding period ended February 28, 2005.

Revenues  for the  three-month  period  ended  February 28, 2006 were $91,451 as
compared  with $60,844 for the  corresponding  period  ended  February 28, 2005,
representing a 50.3%  increase.  This increase is attributable to net investment
income of FSC and commissions  earned by TSA on the placement of and issuance of
surety bonds by FSC.

Quarterly  revenues  from the  investment  management  segment,  net of advisory
referral fees, were $53,026 for the  three-month  period ended February 28, 2006
as compared with $56,900 for the  corresponding  period ended February 28, 2005,
representing a decrease of $3,874. 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.

Quarterly  revenues from the surety insurance segment (FSC and TSA) were $38,425
for the  three-month  period ended February 28, 2006 as compared with $3,944 for
the  corresponding  period ended February 28, 2005,  representing an increase of
$34,481. Of this increase,  $16,137 is attributable to net investment income and
$18,344 is  attributable  to premiums  and  commissions  earned on surety  bonds
written.  While  ultimately  the  revenue  for this  segment of the  business is
expected to be more  "seasonable"  from  quarter to  quarter,  due merely to the
timing of the issuance or renewal of bonds  placed by the Company,  the increase
in the current  quarter  reflects the  acquisition of FSC at the end of December
2005 and  commencement  of operations of FSC in February 2006. Due to the nature
of surety bonds,  fluctuations in revenue for comparable periods largely reflect
the overall growth or loss of business.

General and  administrative  expenses for the three-month  period ended February
28, 2006 were $371,352 as compared with $208,775 for the comparable period ended
February 28, 2005,  representing an increase of $162,577.  Approximately $95,000
of this increase is largely  attributable to an increase in various professional
fees,  attributable in significant part to expenses incurred in the negotiation,
documentation,  and consummation of the Company's  acquisition of FSC, including
regulatory approval of such acquisition.  Expenses  attributable to the addition
of the operation of FSC for insurance policy

                                       6
<PAGE>


acquisition  costs,  reserves  for policy  losses and other  operating  expenses
amounted to $31,554 for the period subsequent to its acquisition on December 31,
2005.

J&C is the investment  advisor to the Jacobs & Company Mutual Fund (the "Fund").
While  the Fund is  responsible  for its own  operating  expenses,  J&C,  as the
advisor,  has agreed to limit the Fund's aggregate annual operating  expenses to
2.00% of the average net assets.  Under this expense limitation  agreement,  J&C
absorbed  approximately  $36,000 of the  Fund's  operating  expenses  during the
three-month period ended February 28, 2006. As the Fund grows in size (of assets
under  management),  expenses  (in excess of the 2% level)  absorbed by J&C will
decrease  until  the  Fund  reaches  sufficient  size to  support  its  on-going
operating  costs.  In  contrast,  as the  Fund  grows  in  size,  revenues  from
investment  advisory  fees  will  increase.  Additionally,   should  the  Fund's
operating  expense ratio fall below the 2.00% level,  the costs  absorbed by J&C
are  now  reimbursable  to  it  for a  period  of up to  three  years.  For  the
three-month period ended February 28, 2006, the Fund's investment  advisory fees
amounted to $13,057 as compared  to $17,468  for the  corresponding  three-month
period ended February 28, 2005.

Interest expense for the three-month period ended February 28, 2006 was $166,116
as compared with $62,769 for the  corresponding  period ended February 28, 2005,
representing  an increase of $103,347.  The increase is largely  attributable to
increased  debt  levels   incurred  to  fund  ongoing   operations,   additional
consideration  provided in connection with the obtaining  additional  borrowings
and as an  inducement  for  the  conversion  of  convertible  debt to  Series  B
preferred stock.

RESULTS OF OPERATIONS FOR THE NINE MONTH PERIOD ENDED FEBRUARY 28, 2006

The Company experienced a loss for the nine-month period ended February 28, 2006
in the  amount  of  $1,199,045  as  compared  with a loss  of  $729,570  for the
corresponding period ended February 28, 2005.

Revenues  for the  nine-month  period ended  February 28, 2006 were  $204,949 as
compared with  $205,280 for the  corresponding  period ended  February 28, 2005.
While overall revenue is comparable for the periods,  the Company's  revenue mix
reflects fluctuations that are discussed below.

Revenues from the investment  management segment, net of advisory referral fees,
were $157,087 for the nine-month period ended February 28, 2006 as compared with
$192,174 for the  corresponding  period ended February 28, 2005,  representing a
decrease of $35,087.  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
substantially  attributable to the loss of certain managed  collateral  accounts
(and related personal accounts)  resulting from expiration or non-renewal of the
surety  bonds that such  accounts  secured.  While the lack of  availability  of
bonding in the  marketplace  prevented  the retention  and  replacement  of this
business,  the Company's acquisition of FSC at the end of 2005, with its primary
focus  being  directed  towards  the  financial  assurance  market,  should help
alleviate loss of business such as occurred during this period in the future.

Revenues  from the surety  insurance  segment (FSC and TSA) were $47,862 for the
nine-month  period  ended  February  28, 2006 as compared  with  $13,106 for the
corresponding  period  ended  February  28,  2005,  representing  an increase of
$34,756. Of this increase, $16,137 is attributable to net investment

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<PAGE>


income and $18,344 is attributable to premiums and commissions  earned on surety
bonds written.  While ultimately the revenue for this segment of the business is
expected to be more  "seasonable"  from  quarter to  quarter,  due merely to the
timing of the issuance or renewal of bonds  placed by the Company,  the increase
during this period  reflects the  acquisition of FSC at the end of December 2005
and  commencement  of operations of FSC in February  2006.  Due to the nature of
surety bonds, fluctuations in revenue for comparable periods largely reflect the
overall growth or loss of business.

General and administrative expenses for the nine-month period ended February 28,
2006 were  $919,619 as compared with  $603,549 for the  comparable  period ended
February 28, 2005, representing an increase of $316,070.  Approximately $211,000
of this increase is largely  attributable to an increase in various professional
fees,  attributable in significant part to expenses incurred in the negotiation,
documentation,  and consummation of the Company's  acquisition of FSC, including
regulatory  approval  of  such  acquisition.  Salary  and  compensation  expense
increased  approximately  $54,000 resulting from staffing  additions,  temporary
services,  and  increases in salaries and wages.  Expenses  attributable  to the
addition of the operation of FSC for  marketing,  reserves for policy losses and
other operating  expenses  amounted to $31,554 for the period  subsequent to its
acquisition on December 31, 2005.

J&C is the investment  advisor to the Jacobs & Company Mutual Fund (the "Fund").
While  the Fund is  responsible  for its own  operating  expenses,  J&C,  as the
advisor,  has agreed to limit the Fund's aggregate annual operating  expenses to
2.00% of the average net assets.  Under this expense limitation  agreement,  J&C
absorbed  approximately  $106,913 of the Fund's  operating  expenses  during the
nine-month  period ended February 28, 2006. As the Fund grows in size (of assets
under  management),  expenses  (in excess of the 2% level)  absorbed by J&C will
decrease  until  the  Fund  reaches  sufficient  size to  support  its  on-going
operating  costs.  In  contrast,  as the  Fund  grows  in  size,  revenues  from
investment  advisory  fees  will  increase.  Additionally,   should  the  Fund's
operating  expense ratio fall below the 2.00% level,  the costs  absorbed by the
Company are now  reimbursable  to it for a period of up to three years.  For the
nine-month period ended February 28, 2006, the Fund's  investment  advisory fees
amounted  to $39,847 as compared  to $57,380  for the  corresponding  nine-month
period ended February 28, 2005.

Interest expense for the nine-month  period ended February 28, 2006 was $370,613
as compared with $215,697 for the corresponding  period ended February 28, 2005,
representing  an increase of $154,916.  The increase is largely  attributable to
increased  debt  levels   incurred  to  fund  ongoing   operations,   additional
consideration  provided in connection with the obtaining  additional  borrowings
and as an  inducement  for  the  conversion  of  convertible  debt to  Series  B
preferred stock.

ANALYSIS OF LIQUIDITY, CAPITAL RESOURCES AND FINANCIAL POSITION

Pursuant to the approval of the  transaction to acquire FSC by the West Virginia
Department  of  Insurance,  the Company is restricted in its ability to withdraw
monies  from FSC  without  the prior  approval  of the  Insurance  Commissioner.
Accordingly,  of total  investments  and cash in the amount of  $2,815,049 as of
February 28, 2006,  the use of $2,744,414  is  restricted  to FSC.  Furthermore,
additional  capital raised  pursuant to the sale of Series A preferred  stock of
the Company in connection with the issuance of  partially-collateralized  surety
bonds must generally be contributed by the Company into the surplus  accounts of
FSC. Accordingly, as a result of these restrictions,  as of February 28, 2006, a
deficiency in working capital exists as the Company's current liabilities exceed
its available current assets by approximately $1,175,000.  The Company's ability
to pay dividends accrued with respect to its

                                       8
<PAGE>


Series A and Series B preferred stock will be limited until such time as current
liabilities  are   substantially   liquidated  and  sufficient  cash  flow  from
operations is being generated to service such obligations.

Management is seeking to raise  additional  funds through  private  placement of
stock at prices  that would not be dilutive  to current  shareholders.  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.

Going  concern  contingency:  The Company has incurred  significant  losses from
operations since  inception.  Losses are expected to continue until FSC develops
substantial  business.  The Company  has  experienced  negative  cash flows from
operations of  approximately  $350,000 and $847,000 for the three and nine-month
periods  ended  February 28,  2006.  While  improvement  is  anticipated  as the
business plan is  implemented,  the  restrictions on the use of assets of FSC as
discussed above and the Company's  significant  deficiency in working capital as
of February  28, 2006 raise  substantial  doubt about the  Company's  ability to
continue  as a going  concern.  The  consolidated  financial  statements  do not
include any adjustments that might result from the outcome of this uncertainty.

ITEM 3. CONTROLS AND PROCEDURES

EVALUATION OF INTERNAL AND DISCLOSURE CONTROLS

As required by Rule 13a-15 under the Securities  Exchange Act of 1934, as of the
end of the period covered by the quarterly  report,  being February 28, 2006, we
have carried out an evaluation of the  effectiveness of the design and operation
of the Company's disclosure controls and procedures. This evaluation was carried
out  under  the  supervision  and  with  the   participation  of  the  Company's
management,  including  Company's  president and chief financial officer.  Based
upon that evaluation,  the Company's  president and chief financial officer have
concluded that the Company's disclosure controls and procedures are effective as
of the end of the period  covered by this report.  There have been no changes in
our internal  controls over financial  reporting  that occurred  during the most
recent fiscal quarter that have materially affected, or are reasonably likely to
materially affect our internal controls over financial reporting.

                           PART II - OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

None.

ITEM 2. CHANGE IN SECURITIES

None, except as previously reported.

ITEM 3. DEFAULTS UPON SENIOR SECURITIES

None.

                                       9
<PAGE>


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

At a Special  Meeting of the  stockholders  of the  Company  held on December 8,
2005,  87,793,074 of the  122,663,860  shares  outstanding  were  represented in
person or by proxy. The following matters were submitted to a vote:

1.   Election of  directors - the  following  directors  were  elected  with the
     number  of votes  indicated:  John M.  Jacobs -  84,268,062,  Frederick  E.
     Ferguson - 84,328,062, and C. David Thomas - 84,349,513.

2.   Change of name of the Company from NELX,  Inc. to Jacobs  Financial  Group,
     Inc. - adopted  by vote of  87,675,783  for,  104,184  against,  and 13,107
     abstentions.

3.   Amendment to the  Articles of  Incorporation  to authorize  the issuance of
     preferred  stock as  designated by the Board of Directors - adopted by vote
     of 87,376,725 for, 113,004 against, and 303,345 abstentions.

4.   Reincorporation  of the Company in Delaware - adopted by vote of 87,628,808
     for, 82,784 against, and 80,482 abstentions.

5.   2005 Stock Incentive Plan - adopted by vote of 67,021,253  for,  20,401,055
     against, and 257,470 abstentions.

ITEM 5. OTHER INFORMATION

Robert L. Neal was employed by the Company on January 2, 2006, and was appointed
by the Board of Directors as the Company's  Chief  Financial  Officer on January
22,  2006.  Mr.  Neal has no  familial  relationship  with any  other  member of
management and has not engaged in any  transactions  with the Company.  Prior to
his employment with the Company, Mr. Neal held the position of President and CEO
of West Virginia  Capital  Corporation,  a  bank-sponsored  statewide  community
development corporation,  from June 2002 to December 2005. From June 2000 to May
2002,  Mr. Neal was employed by Jacobs & Company and the Registrant as its Chief
Financial Officer.

ITEM 6. EXHIBITS

31.1 Certification  of  Chief  Executive  Officer  pursuant  to  Rule  13a-146.1
     promulgated under the Securities Exchange Act of 1934

31.2 Certification   of  Chief  Financial   Officer  pursuant  to  Rule13a-146.1
     promulgated under the Securities Exchange Act of 1934

32.1 Certification  of Chief  Executive  Officer  pursuant to 18 U.S.C.  Section
     1950, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

32.2 Certification  of Chief  Financial  Officer  pursuant to 18 U.S.C.  Section
     1950, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

                                       10
<PAGE>


SIGNATURES


In accordance with the  requirements of the Exchange Act, the registrant  caused
this  report to be  signed on its  behalf  by the  undersigned,  thereunto  duly
authorized.

                                    JACOBS FINANCIAL GROUP, INC.
                                    (Registrant)

Dated: April 19, 2006               BY:  /s/  John M. Jacobs
                                    ----------------------------------------
                                    John M. Jacobs
                                    President