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 February 28, 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:  214,089,012  shares of common
stock as of April 19, 2010.


PART I-- FINANCIAL INFORMATION
------------------------------
ITEM 1. FINANCIAL STATEMENTS
----------------------------

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


<TABLE>
<CAPTION>


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

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

</TABLE>

























                                      -2-
<PAGE>
JACOBS FINANCIAL GROUP, INC.
CONSOLIDATED CONDENSED BALANCE SHEETS (UNAUDITED)
<TABLE>
<CAPTION>
                                                                                 FEBRUARY 28, 2010      MAY 31, 2009
                                                                                -------------------   -----------------
ASSETS

INVESTMENTS AND CASH:
<S>                                                                             <C>                   <C>
 Bonds available for sale, at market value                                      $        828,010      $       908,766
  (amortized cost - 2/28/10 $812,509; 05/31/09 $866,855)
 Mortgage-back securities held to maturity, at amortized costs                         5,144,900            5,085,300
  (market value - 2/28/10 $5,250,437; 05/31/09 $5,157,936)
 Short-term investments, at cost (approximates market value)                             552,175              387,753
 Cash                                                                                    146,023               80,038
                                                                                -------------------   -----------------
                           TOTAL INVESTMENTS AND CASH                                  6,671,109            6,461,857

 Investment income due and accrued                                                        29,630               28,124
 Premiums and other accounts receivable                                                  102,686               61,184
 Prepaid reinsurance premium                                                             157,706               87,114
 Funds deposited with Reinsurers                                                         120,289                    -
 Deferred policy acquisition costs                                                       105,169              143,173
 Furniture and equipment, net of accumulated depreciation of
  $141,439 and $133,493, respectively                                                     19,624               23,169
 Other assets                                                                             33,272               43,517
 Intangible assets                                                                       150,000              150,000
                                                                                -------------------   -----------------
                                         TOTAL ASSETS                           $      7,389,484      $     6,998,138
                                                                                ===================   =================
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)

 Reserve for losses and loss expenses                                           $        571,726             $432,658
 Reserve for unearned premiums                                                           463,343              530,795
 Accrued expenses and professional fees payable                                          549,189              470,099
 Accounts payable                                                                        187,320              268,066
 Related party payable                                                                   111,584               75,009
 Demand note payable to related party                                                    118,048                3,081
 Notes payable                                                                         4,407,232            4,049,791
 Accrued interest payable                                                                478,199              303,914
 Ceded reinsurance payable                                                                     -               92,173
 Series C dividends payable                                                            2,471,344                    -
 Other liabilities                                                                       223,619               78,470

SERIES  B  PREFERRED  STOCK,  $.0001  PAR  VALUE  PER  SHARE;
3,136.405  SHARES AUTHORIZED; 2,817.004 SHARES ISSUED AND OUTSTANDING
AT FEBRUARY 28, 2010 AND MAY 31,  2009;  STATED  LIQUIDATION  VALUE
OF  $1,000  PER SHARE                                                                  3,700,193                    -
                                                                                -------------------   -----------------
                                TOTAL  LIABILITIES                                    13,281,797            6,304,056

SERIES A  PREFERRED  STOCK,  $.0001  PAR  VALUE  PER  SHARE;
1  MILLION  SHARES AUTHORIZED;  2,675 AND 2,665 SHARES ISSUED AND
OUTSTANDING AT FEBRUARY 28, 2010 AND MAY 31, 2009,  RESPECTIVELY;
STATED  LIQUIDATION  VALUE OF $1,000 PER SHARE                                         2,970,772            2,860,670

SERIES  B  PREFERRED  STOCK,  $.0001  PAR  VALUE  PER  SHARE;
3,136.405  SHARES AUTHORIZED; 2,817.004 SHARES ISSUED AND
OUTSTANDING AT FEBRUARY 28, 2010 AND MAY 31, 2009; STATED
LIQUIDATION VALUE OF $1,000 PER SHARE                                                          -           11,429,440
                                                                                -------------------   -----------------
         TOTAL MANDATORILY REDEEMABLE PREFERRED STOCK                                  2,970,772           14,290,110

COMMITMENTS AND CONTINGENCIES (SEE NOTES)

STOCKHOLDERS' EQUITY (DEFICIT)

Common  stock,  $.0001  par value per  share;
490  million  shares  authorized; 207,533,087 and 179,682,912
shares issued and outstanding at February 28, 2010
and May 31, 2009,  respectively                                                           20,753               17,968
Additional paid in capital                                                             3,361,946            2,626,236
Series C Preferred Stock,  $.0001 par value per share;
10,000 shares authorized; 6,804.936 shares  issued and
outstanding at February 28, 2010 and May 31, 2009, respectively                        6,030,931                    -
Accumulated deficit                                                                  (18,292,216)         (16,279,725)
Accumulated other comprehensive income (loss)                                             15,501               39,493

                  TOTAL STOCKHOLDERS' EQUITY (DEFICIT)                                (8,863,085)         (13,596,028)
                                                                                -------------------   -----------------

TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)                            $      7,389,484      $     6,998,138
                                                                                ===================   =================
</TABLE>
                            See accompanying notes.
                                      F-1
<PAGE>
JACOBS FINANCIAL GROUP, INC,
CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS (UNAUDITED)
<TABLE>
<CAPTION>
                                                              THREE MONTHS ENDED                     NINE MONTHS ENDED
                                                                  FEBRUARY 28                           FEBRUARY 28
                                                          ------------------------------       -------------------------------
                                                               2010           2009                  2010            2009
                                                          -------------- ---------------       --------------  ---------------
REVENUES:
<S>                                                       <C>            <C>                   <C>             <C>
 Investment advisory services                             $     62,596   $      56,101         $     193,885   $     173,662
 Insurance premiums and commissions                            175,032         166,897               597,881         485,934
 Net investment income                                          58,435          76,608               201,938         218,451
 Net realized investment gains (losses)                         42,926          12,511                40,828          12,511
 Other income                                                    6,649           2,722                12,416           2,722
                                                          -------------- ---------------       --------------  ---------------
                                    TOTAL REVENUES             345,638         314,839             1,046,948         893,280

EXPENSES:

 Incurred policy losses                                         41,382          48,013               139,068         141,046
 Insurance policy acquisition costs                             60,721          35,934               185,640         114,947
 General and administrative                                    289,068         310,378             1,022,642       1,249,042
 Mutual fund costs                                                 125          11,088                75,038          84,428
 Depreciation                                                    2,501           3,231                 7,946           9,726
                                                          -------------- ---------------       --------------  ---------------
                                    TOTAL EXPENSES             393,797         408,644             1,430,334       1,599,189
                                                          -------------- ---------------       --------------  ---------------
                  NET INCOME (LOSS) FROM OPERATIONS            (48,159)        (93,805)             (383,386)       (705,909)

 Gain on debt extinguishment                                   200,239               -               200,239               -
 Accrued dividends and accretion of Series B Mandatorily
  Redeemable Preferred Stock                                  (115,950)              -              (115,950)              -
 Interest expense                                             (181,995)       (117,022)             (691,093)       (352,031)
 Interest and dividend income                                        -             255                     -           1,107
                                                          -------------- ---------------       --------------  ---------------
                                  NET INCOME (LOSS)           (145,865)       (210,572)             (990,190)     (1,056,833)

 Accrued dividends on Series C Preferred Stock equity         (175,720)              -              (175,720)              -
 Accretion of Mandatorily Redeemable Convertible
  Preferred Stock, including accrued dividends                 (34,028)       (408,379)             (846,580)     (1,197,955)
                                                          -------------- ---------------       --------------  ---------------

    NET INCOME (LOSS) ATTRIBUTABLE TO COMMON STOCKHOLDERS $   (355,613)  $    (618,951)        $  (2,012,490)  $  (2,254,788)
                                                          ============== ===============       ==============  ===============

BASIC AND DILUTIVE NET INCOME (LOSS) PER SHARE:

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

WEIGHTED-AVERAGE SHARES OUTSTANDING                        207,452,531     174,077,272           195,657,796     172,093,454
                                                          ============== ===============       ==============  ===============
</TABLE>



                            See accompanying notes.

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



                                                                    THREE MONTHS ENDED                    NINE MONTHS ENDED
                                                                        FEBRUARY 28                           FEBRUARY 28
                                                            ---------------------------------       -----------------------------

                                                                 2010             2009                   2010           2009
                                                            --------------  -----------------       -------------- --------------

COMPREHENSIVE INCOME (LOSS):

<S>                                                         <C>             <C>                     <C>            <C>
  Net income (loss) attributable to common stockholders     $  (355,613)    $      (618,951)        $  (2,012,490) $ (2,254,788)


OTHER COMPREHENSIVE INCOME (LOSS):

 Net unrealized gain (loss) of available-for-sale
 investments arising during period                              (11,585)             49,703                16,836        26,325

 Reclassification adjustment for realized (gain) loss
 included in net income                                         (42,926)            (12,511)              (40,828)      (12,511)
                                                            --------------  -----------------       -------------- --------------

 Net unrealized gain (loss) attributable to available-for-
 sale investments recognized in other comprehensive income      (54,511)             37,192               (23,992)       13,814
                                                            --------------  -----------------       -------------- --------------

     COMPREHENSIVE INCOME (LOSS) ATTRIBUTABLE TO COMMON
                                           STOCKHOLDERS     $  (410,124)    $      (581,759)        $  (2,036,482) $ (2,240,974)
                                                            ==============  =================       ============== ==============
</TABLE>























                            See accompanying notes.

                                      F-3
<PAGE>
JACOBS FINANCIAL GROUP, INC,
CONSOLIDATED CONDENSED STATEMENT OF CASH FLOWS (UNAUDITED)
<TABLE>
<CAPTION>
                                                        THREE MONTHS ENDED FEBRUARY 28,    NINE MONTHS ENDED FEBRUARY 28,
                                                        -------------------------------   --------------------------------
                                                              2010           2009                2010          2009
                                                        ---------------  --------------   ---------------- ---------------
CASH FLOWS FROM OPERATING ACTIVITIES
<S>                                                     <C>              <C>              <C>              <C>
 Net Income (Loss)                                      $     (145,865)  $   (210,572)    $     (990,190)  $ (1,056,833)

 Adjustments  to reconcile  net income  (loss)
 to net cash  provided by (used in) operating activities:
 Unearned premium                                               21,988         97,211           (138,044)        74,020
 Stock option expense                                           39,907          9,847            212,902         36,829
 Stock issued (or to be issued) in connection with
  financing arrangements                                        23,416         10,808            257,510         70,763
 Accrual of Series B preferred stock dividends                  72,866              -             72,866              -
 Accretion of Series B preferred stock                          43,084              -             43,084              -
 Provision for loss reserves                                    41,382         48,013            139,068        141,046
 Amortization of premium                                        22,631          9,072             54,236         28,216
 Depreciation                                                    2,501          3,231              7,945          9,726
 Premium and other receivables                                  (8,825)        (9,716)           (41,502)       (23,040)
 Accretion of discount                                               -         (4,878)            (9,217)        (8,552)
 Investment income due and accrued                                 284           (619)               281         (7,359)
 Realized (gain) loss on sale of securities                    (42,926)       (12,511)           (42,926)       (12,511)
 Gain on extinguishment of debt                               (200,239)             -           (200,239)             -
 Deferred policy acquisition costs                                (290)       (13,607)            38,004         (3,108)
 Change in operating assets and liabilities:
  Other assets                                                  (3,984)        (4,934)            12,663        157,012
  Related party accounts payable                                10,525         10,350             36,575          9,267
  Accounts payable and cash overdraft                            4,479         (1,222)           119,492        (21,419)
  Accrued expenses and other liabilities                       197,776        215,762            186,062        298,139
                                                        ---------------  --------------   ---------------- ---------------
   NET CASH FLOWS FROM (USED IN) OPERATING ACTIVITIES           78,710        146,235           (241,430)      (307,804)

CASH FLOWS FROM INVESTING ACTIVITIES

 (Increase) decrease in short-term investments                (187,105)       (90,597)          (164,422)     1,038,726
 Costs of bonds acquired                                             -              -                  -       (976,160)
 Costs of mortgaged-backed securities acquired                (958,003)      (470,409)        (1,578,090)    (1,849,137)
 Purchase of securities available for sale                           -                                          107,639
 Redemption of bonds upon call or maturity                           -         20,000                  -         20,000
 Sale of securities available for sale                         404,958        107,639            404,958              -
 Repayment of mortgage-backed securities                       482,471        220,703          1,163,998        659,739
 Purchase of furniture and equipment                            (4,400)          (261)            (4,400)        (6,563)
                                                        ---------------  --------------   ---------------- ---------------
   NET CASH FLOWS FROM (USED IN) INVESTING ACTIVITIES         (262,079)      (212,925)          (177,956)    (1,005,756)

CASH FLOWS FROM FINANCING ACTIVITIES

 Proceeds from related party debt                              268,773         51,612            525,305        358,112
 Repayment of related party debt                              (153,854)       (44,916)          (410,338)       (77,316)
 Proceeds from borrowings                                      135,000              -            767,500        955,000
 Repayment of borrowings                                      (167,213)        (9,520)          (410,059)      (146,459)
 Proceeds from issuance of Series A preferred stock                  -         29,000             10,000        203,000
 Proceeds from exercise of common stock warrants                     -              -              2,963              -
                                                        ---------------  --------------   ---------------- ---------------
   NET CASH FLOWS FROM FINANCING ACTIVITIES                     82,706         26,176            485,371      1,292,337

NET INCREASE (DECREASE) IN CASH                               (100,663)       (40,514)            65,985        (21,223)

CASH AT BEGINNING OF PERIOD                                    246,686         67,931             80,038         48,640
                                                        ---------------  --------------   ---------------- ---------------
CASH AT END OF PERIOD                                   $      146,023   $     27,417     $      146,023   $     27,417
                                                        ===============  ==============   ================ ===============
SUPPLEMENTAL DISCLOSURES
Interest paid                                           $       11,302   $      3,737     $      278,380   $    171,062
Income taxes paid                                                    -              -                  -              -
Non-cash investing and financing transaction:
Additional consideration paid for issuance of debt              23,415         10,808            257,510         70,763
</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 FEBRUARY 28, 2010

                                                       SERIES A                 SERIES B
                                                MANDATORILY REDEEMABLE    MANDATORILY REDEEMABLE
                                                                               CONVERTIBLE
                                                   PREFERRED STOCK           PREFERRED STOCK
                                                  SHARES      AMOUNT        SHARES      AMOUNT
                                                  -------  -----------    ---------   -----------
<S>                                               <C>      <C>            <C>        <C>
BALANCE, NOVEMBER 30, 2009                          2,675  $  2,936,744    2,817.004 $   3,584,243

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

Exchange of Series C
Preferred Stock for Series B
Mandatorily Reedemable
Convertible Preferred Stock

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

Exercise of warrants

Accretion of Series A
mandatorily redeemable
convertible preferred stock                            -         4,500            -             -

Accrued dividends of
Series A mandatorily
redeemable convertible
preferred stock                                        -        29,528            -             -

Accrued dividends of
preferred stock equity                                 -             -            -             -

Reclassification of accrued
dividends on shares
exchanged for Series C to
liabilities

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

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

Common stock option expense                            -             -            -             -

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

Net income (loss), three month period
ended February 28, 2010                                -             -            -             -
                                                  -------  -----------    ---------   -----------
BALANCE, FEBRUARY 28, 2010                         2,675   $ 2,970,772            -   $         -
                                                  =======  ===========    =========   ===========
</TABLE>
                                                                (CONTINUED)
                             See accompanying notes
                                      F-5
<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 FEBRUARY 28, 2010 (CONTINUED)

                                       ---------------------------------------------------------------------------------------------
                                                                          STOCKHOLDERS' EQUITY (DEFICIT)
                                       ---------------------------------------------------------------------------------------------
                                                  COMMON STOCK            SERIES C PREFERRED
                                                  ------------            ------------------                 ACCUMULATED
                                                             ADDITIONAL                                        OTHER
                                                              PAID-IN                AMOUNT     ACCUMULATED COMPREHENSIVE
                                          SHARES    AMOUNT    CAPITAL     SHARES    AND APIC     DEFICIT    INCOME (LOSS)   TOTAL
                                       -----------  -------  ---------- --------- ----------  -------------   -------   ------------
 <S>                                   <C>         <C>      <C>         <C>       <C>         <C>             <C>       <C>
 BALANCE, NOVEMBER 30, 2009            207,283,087 $ 20,728 $ 3,298,650 6,804.936 $6,030,931  $(17,936,604)   $ 70,012  $(8,516,283)

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

 Exchange of Series C
 Preferred Stock for Series B
 Mandatorily Reedemable                                                                                                           -
 Convertible Preferred Stock

 Issuance of common stock
 as additional consideration
 or financing arrangements                 250,000       25       2,728                                                       2,753

 Exercise of warrants                                                                                                             -

 Accretion of Series A
 mandatorily redeemable
 convertible preferred stock                     -        -           -                             (4,500)         -        (4,500)

 Accrued dividends of
 Series A mandatorily
 redeemable convertible
 preferred stock                                 -        -           -                            (29,528)         -       (29,528)

 Accrued dividends of
 preferred stock equity                          -        -           -                           (175,720)         -      (175,720)

 Reclassification of accrued
 dividends on shares
 exchanged for Series C to
 liabilities                                                                                                                     -

 Reclassification of Series  B
 from temporary equity to
 liabilities

 Expense of common shares
 to be issued in connecetion
 with financing arrangements                     -        -      20,662                                  -          -        20,662

 Common stock option expense                     -        -      39,906                                  -          -        39,906

Unrealized net gain (loss)
 on available for sale securities                -        -           -                                  -    (54,511)      (54,511)

Net income (loss), three month
period ended February 28, 2010                   -        -           -         -          -      (145,864)         -      (145,864)
                                       -----------  -------  ---------- --------- ----------  -------------   -------   -----------

BALANCE, FEBRUARY 28, 2010             207,533,087  $20,753  $3,361,946 6,804.936 $6,030,931  $(18,292,216)   $15,501   $(8,863,085)
                                       ===========  =======  ========== ========= ==========  =============   =======   ===========
</TABLE>

                            See accompanying notes.
                                      F-6
<PAGE>
<TABLE>
<CAPTION>
JACOBS FINANCIAL GROUP, INC.
CONSOLIDATED STATEMENT OF MANDATORILY REDEEMABLE PREFERRED STOCK AND STOCKHOLDERS' EQUITY (DEFICIT)
FOR THE NINE MONTH PERIOD ENDED FEBRUARY 28, 2010


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

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

Exchange of Series C
Preferred Stock for Series B
Mandatorily Reedemable
Convertible Preferred Stock                     -             -   (6,804.936)   (6,296,051)

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

Exercise of warrants                            -             -            -             -

Accretion of mandatorily
redeemable convertible
preferred stock                                 -        13,320            -       255,487

Accrued dividends of
mandatorily redeemable
convertible preferred stock                     -        86,782            -       490,991

Accrued dividends of
preferred stock equity

Reclassification of accrued
dividends on shares
exchanged for Series C to
liabilities                                                                -    (2,295,624)

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

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

Common stock option expense                     -             -            -             -

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

Net income (loss), six months ended
November 30, 2009                               -             -            -             -
                                        ---------  ------------  ------------ -------------
BALANCE, FEBRUARY 28, 2010                  2,675  $  2,970,772            -  $          -
                                        =========  ============  ============ =============
</TABLE>
                                                                (CONTINUED)
                             See accompanying notes
                                      F-7
<PAGE>
<TABLE>
<CAPTION>
JACOBS FINANCIAL GROUP, INC.
CONSOLIDATED STATEMENT OF MANDATORILY REDEEMABLE PREFERRED STOCK AND STOCKHOLDERS' EQUITY (DEFICIT)
FOR THE NINE MONTH PERIOD ENDED FEBRUARY 28, 2010 (CONTINUED)
                           ---------------------------------------------------------------------------------------------------------
                                                                 STOCKHOLDERS' EQUITY (DEFICIT)
                           ---------------------------------------------------------------------------------------------------------
                                         COMMON STOCK               SERIES C PREFERRED
                                         ------------               ------------------                    ACCUMULATED
                                                    ADDITIONAL                                              OTHER
                                                     PAID-IN                   AMOUNT       ACCUMULATED  COMPREHENSIVE
                              SHARES     AMOUNT      CAPITAL       SHARES     AND APIC       DEFICIT     INCOME (LOSS)     TOTAL
                           -----------   -------    ----------   ---------  ----------    -------------     -------     ------------
<S>                        <C>          <C>        <C>           <C>        <C>           <C>               <C>         <C>
BALANCE, MAY 31, 2009      179,682,912    17,968   $ 2,626,236           -  $        -    $(16,279,725)     $ 39,493   $(13,596,028)

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

Exchange of Series C
Preferred Stock for
Series B Mandatorily
Reedemable Convertible
Preferred Stock             13,609,872     1,361      263,759    6,804.936   6,030,931               -             -      6,296,051

Issuance of common
stock as additional
consideration or
financing arrangements         750,000        75        21,753           -           -               -             -         21,828

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

Accretion of mandatorily
redeemable convertible               -         -             -           -           -        (268,807)           -        (268,807)
preferred stock

Accrued dividends of
mandatorily redeemable
convertible                          -         -             -           -           -         (577,773)           -       (577,773)
preferred stock

Accrued dividends of
preferred stock equity                                                                         (175,720)           -       (175,720)

Reclassification
of accrued dividends on
shares exchanged for
Series C to liabilities              -         -             -            -           -               -            -              -

Reclassification of Series
B from temporary
equity to liabilities

Expense of common shares
to be issued in
connecetion with
financing arrangements      10,526,635     1,052      234,629            -           -               -            -         235,681

Common stock option expense          -         -      212,901            -           -               -            -         212,901

Unrealized net gain
(loss) on available
for sale securities                  -         -             -           -           -               -      (23,992)        (23,992)

Net income (loss),
six months ended
November 30, 2009                    -         -             -           -           -        (990,191)           -        (990,191)
                           -----------   -------    ----------   ---------  ----------    -------------     -------     -----------
BALANCE,
FEBRUARY 28, 2010          207,533,087   $20,753    $3,361,946   6,804.936  $6,030,931    $(18,292,216)     $15,501     $(8,863,085)
                           ===========   =======    ==========   =========  ==========    =============     =======     ===========
</TABLE>
                            See accompanying notes.
                                      F-8
<PAGE>

JACOBS FINANCIAL GROUP, INC.

NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (UNAUDITED)

NOTE A - BASIS OF PRESENTATION

The accompanying  unaudited financial  statements are of Jacobs Financial Group,
Inc.  (the  "Company" or "JFG").  These  financial  statements  were prepared in
accordance with generally accepted  accounting  principles for interim financial
information and Article 8-03 of Regulation S-X. Accordingly, they do not include
all of the information and footnotes required by generally  accepted  accounting
principles for complete financial statements. In the opinion of management,  all
adjustments  considered  necessary  for a fair  presentation  of the  results of
operations and financial condition for the periods presented have been included.
Such adjustments are of a normal recurring nature. The results of operations for
the three and nine month periods ended  February 28, 2010,  are not  necessarily
indicative of the results of operations that can be expected for the fiscal year
ending May 31, 2010.  For further  information,  refer to the Company's  audited
financial  statements  and  footnotes  thereto  included in Item 8. of Form 10-K
filed on September 14, 2009.

RECLASSIFICATIONS

Certain amounts have been  reclassified in the  presentation of the Consolidated
Financial  Statements  as of  February  28,  2009  to  be  consistent  with  the
presentation in the Consolidated  Financial  Statements as of February 28, 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  $3,058,000 and $3,333,000 for the years ended May 31, 2009 and
2008 and has incurred  losses of  approximately  $356,000 and $2,012,000 for the
three and nine month  periods  ended  February 28, 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
continued  improvement  is  anticipated  as the  business  plan  is  more  fully
implemented,   restrictions  on  the  use  of  FSC's  assets  (See  Management's
Discussion  and  Analysis),  the  Company's  significant  deficiency  in working
capital and  stockholders'  equity raise  substantial  doubt about the Company's
ability to continue as a going concern.

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

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

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

NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (UNAUDITED)


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

During fiscal 2008 and the three month period ended August 31, 2008, the Company
completed two rounds of bridge financing  totaling an aggregate of $3,500,000 in
order to pay expenses of  operations  and to pay fees and  expenses  incurred or
expected to be incurred in connection  with a larger  permanent  financing.  The
Company was not able to meet its December  2008 or March 2009 loan  amortization
payments with respect to this  financing and, thus,  incurred  payment  defaults
with respect to these obligations. On June 5, 2009 the Company reached agreement
with the Holders to forbear from  exercising  their rights and remedies  arising
from the Acknowledged Events of Default. The Holders agreed that the Company may
satisfy  its  obligation  to make the  Initial  Amortization  Payments by making
additional  quarterly payments of $67,185 each,  commencing  September 10, 2009,
(See Note K), and continuing on the payment dates prescribed by the Amortization
Schedule for the Promissory Notes and ending on June 10, 2011 (collectively, the
"Payments"),  it being  understood that the Payments shall result in the payment
of the  principal  of  and  interest  on  the  unpaid  portion  of  the  Initial
Amortization  Payments  at the rate of 15.00 % per  annum  from  and  after  the
originally  scheduled payment dates. (See Note E). The Company paid the June 10,
2009 Initial  Amortization  Payment of $224,510 as scheduled but has not met the
September  10, 2009,  December  10, 2009 or March 10, 2010  payments of $291,702
each.  The Company  maintains  regular  contact with the Holders  regarding  the
unpaid  payments  and has  agreed to  increase  the  interest  rate by 2.00% (to
17.00%) while payments remain unpaid.

Given current  financial  market  conditions  and the  uncertainties  as to when
stability will return to the financial markets, until permanent financing can be
secured, management will strive to reduce and then eliminate operating losses by
implementing  further measures to control and reduce costs while maintaining and
growing the Company's  current revenue base.  Unless permanent  financing can be
secured,  future  revenue growth can be expected to be achieved at a slower pace
than has been  projected  by the  Company.  Until  such time that the  Company's
operating costs can be serviced by the Company's revenue stream, management will
continue  to seek to raise  additional  funds  for  operations  through  private
placements  of stock,  other  long-term or permanent  financing,  or  short-term
borrowings.  However,  the  Company  cannot be  certain  that it will be able to
continue to obtain  adequate  funding in order to reasonably  predict whether it
will  be  able  to  continue  as a going  concern.  The  accompanying  financial
statements do not include any adjustments  that might result from the outcome of
this uncertainty.

                                      F-10
<PAGE>
JACOBS FINANCIAL GROUP, INC.

NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (UNAUDITED)


NOTE B - RECENT ACCOUNTING PRONOUNCEMENTS

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.

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

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

NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (UNAUDITED)

the Redemption or Induced  Conversion of Preferred  Stock".  The  application of
this  update  did not have an impact on the  Company's  results  of  operations,
therefore not requiring an additional earnings per share computation.

In December 2007, the FASB issued Statement No. 160 "Noncontrolling Interests in
Consolidated  Financial  Statements - An Amendment  of ARB 51".  This  statement
improves the relevance, comparability, and transparency of financial information
for the reporting  entity by  establishing  accounting  and reporting  standards
attributable to noncontrolling,  or minority, interests in subsidiaries included
in the reporting  entity's  consolidated  financial  statements.  This Statement
clarifies  that  a  noncontrolling  interest  in a  subsidiary  is an  ownership
interest  in the  consolidated  entity  that should be reported as equity in the
consolidated  financial  statements and requires  consolidated  net income to be
reported at amounts that include amounts attributable to both the parent and the
noncontrolling  interest.  The  Statement  also  provides  a single  method  for
accounting for changes in the parent's  ownership  interest in a subsidiary that
does not result in deconsolidation,  as well as recognition of gain or loss when
a subsidiary is  deconsolidated  as a result of an ownership change in which the
parent ceases to have a controlling  financial  interest in the subsidiary,  and
expanded  disclosures to clearly identify and distinguish  between the interests
of the  parent's  owners and the  interests  of the  noncontrolling  owners of a
subsidiary.  This Statement is effective for fiscal years,  and interim  periods
within those fiscal  years,  beginning  on or after  December 15, 2008.  Earlier
adoption is prohibited.  This Statement shall be applied prospectively as of the
beginning  of the fiscal  year in which this  Statement  is  initially  applied,
except for the presentation and disclosure requirements,  which shall be applied
retrospectively for all periods presented.  The application of Statement No. 160
did not have a  material  impact  on the  Company's  results  of  operations  or
financial position.

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

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

In June 2009,  the FASB  issued  SFAS No. 168,  "The FASB  Accounting  Standards
Codification and the Hierarchy of Generally Accepted  Accounting  Principles - A
Replacement  of  FASB  Statement  No.  162."  This  SFAS  establishes  the  FASB

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

NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (UNAUDITED)


Accounting  Standards  Codification  as the single  source of  authoritative  US
generally  accepted  accounting  principles.  SFAS  No.  168  is  effective  for
financial  statements  issued  for  interim  and  annual  periods  ending  after
September 15, 2009 (interim period starting  September 1, 2009 for the Company).
This SFAS did not have a material impact on the Company's  results of operations
or financial position.

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

In June 2009,  the FASB  issued  SFAS No.  166,  "Accounting  for  Transfers  of
Financial Assets." This is a revision to SFAS No. 140, "Accounting for Transfers
and Servicing of Financial Assets and  Extinguishments of Liabilities," and will
require  more  information  about  transfers  of  financial  assets,   including
securitization transactions,  and where entities have continuing exposure to the
risks related to transferred  financial  assets.  It eliminates the concept of a
"qualifying   special-purpose   entity,"  and  changes  the   requirements   for
derecognizing  financial assets, and requires additional  disclosures.  SFAS No.
166 will be  effective  for the start of the first fiscal year  beginning  after
November 15, 2009 (June 1, 2010 for the  Company).  This SFAS is not expected to
have a material impact on the Company's financial statements.

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

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

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

In April 2009, the FASB issued FSP FAS 107-1 and APB 28-1, "Interim  Disclosures
about Fair Value of Financial  Instruments." This FSP requires  disclosure about
the  fair  value  of  financial   instruments   whenever  summarized   financial

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

NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (UNAUDITED)

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

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

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

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

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

NOTE C - INVESTMENTS AND FAIR VALUE DISCLOSURES

The Company  classifies a portion of investments as  available-for-sale,  and as
such,  they are carried at fair value.  The  amortized  cost of  investments  is
adjusted  for  amortization  of premiums and  accretion  of discounts  which are
included  in net  investment  income.  Changes in fair value are  reported  as a
component  of other  comprehensive  income,  exclusive  of  other-than-temporary
impairment  losses,  if any. For the three and nine month periods ended February
28,  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.

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
February 28, 2010.

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

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

                                                        Gross Unrealized     Gross Unrealized
                                     Amortized Cost           Gains               Losses         Fair Market Value
                                   ------------------- -------------------- ------------------- --------------------
<S>                                <C>                 <C>                  <C>                 <C>
U.S. government agency             $          812,509  $            18,574  $            3,073  $           828,010
mortgage-backed securities
                                   ------------------- -------------------- ------------------- --------------------
                                   $          812,509  $            18,574  $            3,073  $           828,010
                                   =================== ==================== =================== ====================
</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, 2009.
<TABLE>
<CAPTION>

                                     Amortized Cost     Gross Unrealized     Gross Unrealized    Fair Market Value
                                                              Gains               Losses
                                   ------------------- -------------------- ------------------- --------------------
<S>                                <C>                 <C>                  <C>                 <C>
U.S. government agency             $          514,039  $            13,342  $                -  $           527,381
mortgage-backed securities
State and municipal securities(2)             352,816               28,570                   -              381,386
Equity securities(1)                           10,280                    -               2,418                7,862
                                   ------------------- -------------------- ------------------- --------------------
                                    $         877,135  $            41,912  $            2,418   $          916,629
                                   =================== ==================== =================== ====================
</TABLE>
(1)Equity  securities consist of an investment in the original amount of $25,000
made in the Jacobs & Company Mutual Fund ("the Fund") by its investment advisor,
Jacobs & Company,  and is recorded in other  assets at market  value.  Dividends
paid by the Fund at calendar  year-end 2007 and 2008 were reinvested.  A partial
withdrawal of $11,000 was made on March 25, 2009 and the remainder of $8,182 was
withdrawn on November 25, 2009. Total amounts  withdrawn  reflect loss in market
value.

(2)All state and municipal  securities,  totaling $362,033 were sold in December
2009 for a gain of $42,926.

The Company's short-term  investments at February 28, 2010 of $552,175 consisted
of money-market investment funds.

The Company held the following investments,  by security type, with the positive
intent and ability to hold to maturity as of  February  28,  2010,  and as such,
they are carried at amortized  cost.  For the three and nine month periods ended
February 28, 2010, there have been no other-than-temporary impairments.
<TABLE>
<CAPTION>

                                     Amortized Cost     Gross Unrealized     Gross Unrealized    Fair Market Value
                                                              Gains               Losses
                                   ------------------- -------------------- ------------------- --------------------
<S>                                <C>                 <C>                  <C>                 <C>
U.S government agency              $        5,144,900  $           116,131  $           10,594  $         5,250,437
mortgage-backed securities
                                   =================== ==================== =================== ====================
</TABLE>

The Company held the following investments,  by security type, with the positive
intent and ability to hold to maturity as of May 31, 2009, and as such, they are
carried at amortized cost.

                                      F-15
<PAGE>

JACOBS FINANCIAL GROUP, INC.

NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (UNAUDITED)

<TABLE>
<CAPTION>
                                     Amortized Cost     Gross Unrealized     Gross Unrealized    Fair Market Value
                                                              Gains               Losses
                                   ------------------- -------------------- ------------------- --------------------
<S>                                <C>                 <C>                  <C>                 <C>
U.S government agency              $        5,085,300  $            79,739  $            7,103  $         5,157,936
mortgage-backed securities
                                   =================== ==================== =================== ====================
</TABLE>

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

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

     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  Company's  equity
investments were valued using quoted market prices.

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

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

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

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

NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (UNAUDITED)


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>

                                                                     February 28, 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       $              -  $       828,010  $              -  $       828,010
Short-term investments at fair value                 552,172                -                 -          552,175
                                            ----------------- ---------------- ----------------- ----------------
Total Assets                                $        552,175  $       828,010  $              -  $     1,380,185
</TABLE>
<TABLE>
<CAPTION>

                                                                        May 31, 2009
                                            ---------------------------------------------------- ----------------
                                                        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       $              -  $       908,766  $              -  $       908,766
Equity securities at fair value                        7,862                -                 -            7,862
Short-term investments at fair value                 387,753                -                 -          387,753
                                            ----------------- ---------------- ----------------- ----------------
Total Assets                                $        395,615  $       908,766  $              -  $     1,304,381
</TABLE>

The Company had no assets or  liabilities  measured at fair value on a recurring
basis using significant  unobservable inputs (Level 3) at either May 31, 2009 or
at February 28, 2010.

There were no gross  realized  gains and losses on  held-to-maturity  securities
sold or redeemed by the issuer, pursuant to call features, in the three and nine
month   periods   ended   February   28,  2010.   On  November  25,  2009,   the
available-for-sale  equity investment was sold for $8,182 resulting in a loss of
$2,098 for the three month period ending  November 30, 2009.  In December  2009,
all state and municipal  securities were sold for $404,958,  resulting in a gain
of $42,926 and $40,828 for the three and nine month periods ending  February 28,
2010,  respectively.  There  were no other  gross  realized  gains or  losses on
available-for-sale  securities  for the  three  and nine  month  periods  ending
February 28, 2010.

Gross realized  gains and losses on available for sale  securities for the three
and nine month periods ending February 28, 2009 amounted to $12,511.  There were
no gross  realized  gains and  losses on  held-to-maturity  securities,  sold or
redeemed by the issuer,  pursuant to call features, for the three and nine month
periods ending February 28, 2009.

                                      F-17
<PAGE>

JACOBS FINANCIAL GROUP, INC.

NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (UNAUDITED)


NOTE D - OTHER ASSETS

As of February  28, 2010 and May 31, 2009 such  balances  are  comprised  of the
following:

                                                   November 30,      May 31,
                                                      2009            2009
                                                 -------------- --------------
Advance deposits for professional fees           $       1,311  $       1,311
Mutual fund investment at market                             -          7,862
Prepaid expense and other deposits                      31,961         34,344
                                                 -------------- --------------
                                          Total  $      33,272  $      43,517
                                                 ============== ==============

NOTE E - NOTES PAYABLE AND ADVANCES FROM RELATED PARTY

The Company had the  following  unsecured  notes  payable to  individuals  and a
commercial bank as of February 28, 2010 and May 31, 2009 respectively:

                                                     February 28,     May 31,
                                                         2010          2009
                                                   -------------- --------------
Unsecured demand notes payable to individuals
and others; interest rate fixed @ 10.00%           $     482,000  $     380,000

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

Term note payable; interest rate fixed @ 10.00%           75,000              -
maturing May 26, 2010

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

Unsecured short-term advances from principal
shareholder and chief executive officer;
interest rate fixed @ 12.00%                             118,048          3,081

Unsecured  term  note  payable  to  commercial
bank in the original amount of $250,000 and
payable in equal monthly payments of $5,738;
interest rate fixed @ 13.25% maturing
January 31, 2012                                         100,232        169,791
                                                   -------------- --------------
                                    Notes payable  $   4,525,280  $   4,052,872
                                                   ============== ==============

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

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

NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (UNAUDITED)

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

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

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

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

During the three and nine months ended  February 28, 2010 and the year ended May
31, 2009, a company owned by a board member provided consulting  services.  This
company  provided  services  totaling  $15,525 and $46,575 in the three and nine
month periods  ended  February 28, 2010 and $15,525 and $46,575 in the three and
nine month  periods  ended  February 28, 2009.  Amounts owed to this company are
treated as  related  party  payables  in the  amounts  $111,584  and  $75,009 at
February 28, 2010 and May 31, 2009.

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

NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (UNAUDITED)


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%.  The  following
table  summarizes  the activity  under such  arrangement  for the three and nine
month periods ended February 28, 2010.

                                             Three month        Nine month
                                             period ended      period ended
                                              February,          February,
                                                 2010              2010
                                           ----------------- ------------------

Balance owed, beginning of period          $          3,129  $           3,081
Proceeds from borrowings                            268,773            525,305
Repayments                                        (153,854)          (410,338)
                                           ----------------- ------------------
Balance owed, end of period                $        118,048  $         118,048
                                           ================= ==================


Scheduled  maturities  and  principal  payments  for each of the next five years
ending February 28 are as follows:

2011 (including demand notes)          $      4,481,793
2012                                             43,487
                                       -----------------
                                       $      4,525,280
                                       =================

NOTE F-STOCKHOLDERS EQUITY

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

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

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

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

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

                                      F-20
<PAGE>

JACOBS FINANCIAL GROUP, INC.

NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (UNAUDITED)


In the three month period ending  February 28, 2010,  the Company issued 250,000
shares of the Company's  common stock in connection  with an existing short term
borrowing   arrangements   totaling   $250,000.   The  shares   were  valued  at
approximately $.01101 per share based on the average quoted closing price of the
Company's stock for the 20-day period proceeding the date of the transaction and
totaled $2,753.

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

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

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

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

     4.   Dividends.

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

                                      F-21
<PAGE>

JACOBS FINANCIAL GROUP, INC.

NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (UNAUDITED)


               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.

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. The accrued dividends associated with the Series C
exchange  amounted to $2,295,624  and were  separated  from the Series B accrued
dividends on the face of the balance  sheet.  The Series C Shares are pari passu
with the  Corporation's  Series A  Preferred  Stock and  Series B Shares (to the
extent any remain outstanding  following the  Recapitalization) and no dividends
or other  distributions  will be paid upon  Common  Shares or any other class of
Shares that is junior in priority to the Series C Preferred  while dividends are
in arrears. In addition,  the Series C Shares are convertible into Common Shares
of JFG at the option of the  holders at a  conversion  price of $0.10 per Share.
The Series C Shares may be redeemed by the Corporation,  at its option,  when it
is in a financial position to do so.

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

                                      F-22
<PAGE>
JACOBS FINANCIAL GROUP, INC.

NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (UNAUDITED)

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.  Accretion and dividends
on Series B  mandatorily  redeemable  preferred  stock  deducted from net income
amounted to $43,084 and $72,866 for the  three-month  period ended  February 28,
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 month period ending February 28, 2010.

At  February  28,  2010,  the  Company  had issued and  outstanding  warrants to
purchase 10,107,896 shares of common stock.

On December 30, 2005, the Company issued warrants to purchase  45,402,996 shares
of common stock in  connection  with the Series A and B Preferred  Stock private
placements of which  10,107,896  remain  outstanding.  The exercise price of the
warrants is  one-tenth of one cent  ($.001) per share.  The  warrants  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.

NOTE G - COMMITMENTS, CONTINGENCIES, AND MATERIAL AGREEMENTS

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

On August 20,  2008,  the  Company  entered  into a  definitive  Stock  Purchase
Agreement (the "Agreement") with National  Indemnity Company ("NICO"),  pursuant
to which the Company agreed to acquire 100% of the  outstanding  stock of Unione
Italiana  Reinsurance Company of America ("Unione").  Such agreement was amended
on November  13, 2008 to clarify  certain  definitions  and  calculation  of the
purchase  price,  in addition to extending  until  December 31, 2008 the date by
which the Company  must  satisfy the  financing  condition  prior to closing and
which after time  either  party may  terminate  the  Agreement.  The Company was
unable to provide  certification  to NICO that the Company had cash available or
had existing or committed borrowing facilities  ("Financing  Certificate") which
together were sufficient to enable it to consummate the acquisition of Unione by
December 31, 2008.  Under the terms of the Agreement,  as amended,  NICO had the
right to terminate  the  Agreement at its  discretion  and retain the good faith
deposit of $75,000.  By letter dated January 15, 2010, NICO exercised this right
of termination.

During fiscal year 2009 and 2010,  the Company sold shares of Series A Preferred
Stock in conjunction with the sale of surety bonds. Pursuant to the terms of the
Consent Order dated  December 23, 2005 (Consent  Order) and the Amended  Consent
Order dated June 8, 2007 (Amended  Consent  Order),  each with the West Virginia

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

NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (UNAUDITED)

Insurance  Commissioner  (Commissioner)  , all money  received  from the sale of
Series A Preferred  Stock shall be placed into the surplus  accounts of FSC. The
monies received from transactions  totaling $186,000 were not immediately placed
with  FSC but were  retained  by the  Company.  This  action  is  viewed  by the
Commissioner  to be a violation of the Consent Order and Amended  Consent Order.
Under  the  terms of the  Amended  Consent  Order  any  knowing  or  intentional
violation  of the  conditions  of the Order  shall  constitute  grounds  for the
Commissioner to issue a Confidential Order immediately suspending FSC from doing
business in West Virginia. FSC advised the Commissioner of this violation and no
disciplinary  action has been  taken by the  Commissioner  although  it is still
under  review.  The Company has  submitted a plan to correct  this  violation as
expeditiously  as  possible,  and the  Commissioner  has agreed  with this plan.
During the nine month period ended February 28, 2010, all unremitted  funds have
been contributed to FSC by reducing the amounts due to affiliates from FSC.

With respect to the failure by the Company to contribute  the proceeds of Series
A stock sales to First Surety  Corporation in a timely manner, the West Virginia
Insurance  Commission  has  proposed  and the  Company  has  accepted  a penalty
assessment of $10,000  payable to the West  Virginia  Insurance  Commission  and
payment was made on March 12, 2010.  Interest of $11,370 payable to First Surety
Corporation  was  remitted  as of February  28,  2010 and no further  obligation
exists in relation to this matter.

In the three-month period ending February 28, 2010, the Company,  upon advice of
legal counsel,  removed certain dormant accounts payable in the aggregate amount
of $200,239,  based upon the  conclusion  that none of accounts  represented  an
obligation  that is legally  enforceable  against the Company.  Such removal was
recorded as a gain on debt extinguishment.

As of February  28,  2010,  the Company had accrued and  withheld  approximately
$160,000 in Federal  payroll  taxes and  approximately  $23,000 in West Virginia
payroll withholdings. These amounts have not been remitted and are still payable
at April 19, 2010, as well as penalties and interest of  approximately  $20,000.
These amounts are reflected in the accompanying  financial statements as accrued
expenses, and management intends to pay this obligation as soon as possible.


NOTE H - SEGMENT REPORTING

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

                                      F-24
<PAGE>

JACOBS FINANCIAL GROUP, INC.

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

                                                           THREE MONTH PERIOD ENDED
                                                 ---------------------------------------------
                        INDUSTRY SEGMENT            FEBRUARY 28, 2010     FEBRUARY 28, 2009
                        ----------------         --------------------- -----------------------
REVENUES:
<S>                                              <C>                   <C>
 Investment advisory                             $             69,245  $               59,078
 Surety insurance                                             276,393                 256,016
 Corporate                                                          -                       -
                                                 --------------------- -----------------------
 Total revenues                                  $            345,638  $              315,094
                                                 ===================== =======================

NET INCOME (LOSS):
 Investment advisory                             $            115,007  $               (9,134)
 Surety insurance                                             224,616                  91,928
 Corporate                                                   (485,488)               (293,366)
                                                 --------------------- -----------------------
 Total net income (loss)                         $           (145,865) $             (210,572)
                                                 ===================== =======================
</TABLE>
<TABLE>
<CAPTION>
                                                            NINE MONTH PERIOD ENDED
                                                 ---------------------------------------------
                        INDUSTRY SEGMENT            FEBRUARY 28, 2010     FEBRUARY 28, 2009
                        ----------------         --------------------- -----------------------
REVENUES:
<S>                                              <C>                   <C>
 Investment advisory                             $            204,203  $              176,640
 Surety insurance                                             842,745                 716,896
 Corporate                                                          -                     851
                                                 --------------------- -----------------------
 Total revenues                                  $          1,046,948  $              894,387
                                                 ===================== =======================

NET INCOME (LOSS):
 Investment advisory                             $             81,586  $             (108,960)
 Surety insurance                                             428,390                 177,645
 Corporate                                                 (1,500,166)             (1,125,518)
                                                 --------------------- -----------------------
 Total net income (loss)                         $           (990,190) $           (1,056,833)
                                                 ===================== =======================
</TABLE>


                                      F-25
<PAGE>
JACOBS FINANCIAL GROUP, INC.

NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (UNAUDITED)


NOTE I - REINSURANCE

On March 23, 2009, the Company announced that FSC has entered into a reinsurance
agreement with Lloyd's of London  ("Reinsurer") for its coal reclamation  surety
bonding programs that took effect April 1, 2009. The reinsurance agreement is an
excess of loss contract which protects the Company  against losses up to certain
limits  over  stipulated  amounts,  has an initial  term of 39 months and can be
terminated  by either  party by written  notice of at least 90 days prior to any
April 1. The contract calls for a minimum premium to be paid to the Reinsurer of
$490,000 in the first 15 months.  At February 28, 2010,  the Company had prepaid
reinsurance premiums of $157,706 and ceded reinsurance deposited with Reinsurers
of $120,289.  Additional  premiums of  approximately  $457,000 will be needed in
order to generate the approximately $160,000 in ceded premium needed to meet the
minimum  required  to be paid to the  Reinsurer.  This  can be  accomplished  by
writing  surety  bonds  of  approximately   $16,000,000  before  July  1,  2010.
Management  feels  that the  minimum  premiums  will be  written  and the  ceded
premiums collected will exceed the minimum required by the Reinsurer.

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

The  effects of  reinsurance  on premium  written and earned for the three month
period ended February 28, 2010 are as follows;


                           3 months ended February    3 months ended February
                           28, 2010 -                 28, 2010 -
                           Written                     Earned
                           -------------------------- --------------------------
           Direct          $            311,773       $          253,700
                           -------------------------- --------------------------
           Ceded           $            108,752       $           72,667
                           -------------------------- --------------------------
           Net             $            203,021       $          181,033


The  effects of  reinsurance  on premium  written  and earned for the nine month
period ended February 28, 2010 are as follows;

                           9 months ended February    9 months ended February
                           28, 2010 -                 28, 2010 -
                           Written                     Earned
                           -------------------------- --------------------------
           Direct          $            691,676       $          759,127
                           -------------------------- --------------------------
           Ceded           $            237,538       $          166,946
                           -------------------------- --------------------------
           Net             $            454,138       $          592,181

There was no reinsurance  effect on premium written for the three month and nine
month periods ended February 28, 2009 due to the reinsurance agreement not being
in effect  until April 1, 2009.  There were no ceded  losses for the three month
and nine month periods ended February 28, 2010 and 2009.

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

NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (UNAUDITED)


NOTE J-STOCK-BASED COMPENSATION

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

NOTE K - SUBSEQUENT EVENTS

Subsequent  to February 28, 2010,  the Company  obtained  borrowings of $150,000
from  individuals  to fund  ongoing  operations  and  made no  repayments.  Such
borrowings  were obtained  under demand or 30-day notes bearing  interest at the
rate of 10.00% and included  the  issuance of 300,000  shares of common stock of
the Company as  additional  consideration.  Additionally,  the Company  obtained
borrowings of $78,275 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 $123,250.

On September 10, 2009, December 10, 2009, and March 10, 2010, the Company became
obligated  to  make  principal  and  interest  payments  to the  holders  of the
bridge-financing  notes of approximately $291,700 each. The Company is currently
in   default   with   respect  to  each   payment.   Under  the  terms  of  such
bridge-financing  agreements,  upon the occurrence of any Event of Default,  the
holders of said  bridge-financing  notes have the right to declare, upon written
notice to the Company,  that the entire principal amount and interest be due and
payable immediately.

On March 10, 2010,  in accordance  with the bridge  financing  arrangement,  the
Company issued 6,005,925 shares of common stock to the holders of such notes.

On March 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
29,041,  $71,540  and  $172,648,   respectively.  As  of  March  31,  2010,  the
accumulated  accrued and unpaid dividend on the Series A Preferred stock, Series
B Preferred stock, and Series C Preferred stock amounted to $340,261, $1,107,718
and $2,643,993 respectively.





                                      F-27
<PAGE>
ITEM 2. MANAGEMENT'S  DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
--------------------------------------------------------------------------------

During  fiscal 2009 and the  nine-month  period ended  February  28,  2010,  the
Company has focused its primary  efforts on the development and marketing of its
surety  business in West Virginia and Ohio,  arranging for reinsurance and other
potential  strategic  relationships  that will accelerate the progression of the
Company's  business plan, and raising additional capital to increase the capital
base  of  its  insurance  subsidiary,   First  Surety  Corporation  ("FSC"),  to
facilitate entry into other state markets.

RESULTS OF OPERATIONS FOR THE THREE-MONTH PERIOD ENDED FEBRUARY 28, 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
February  28,  2010 of $355,613  as  compared  with a loss of  $618,951  for the
corresponding period ended February 28, 2009.

REVENUES

Revenues from operations for the three-month period ended February 28, 2010 were
$345,638 as compared with $314,839 for the  corresponding  period ended February
28, 2009.  The overall  increase in revenues is  attributable  to the  continued
growth of the surety  business of FSC, as well as the sale of  securities  for a
gain.

INVESTMENT ADVISORY REVENUES

Quarterly  revenues from the Company's  investment  management segment (Jacobs &
Company or J&C), net of advisory referral fees, were $62,596 for the three-month
period ended  February 28, 2010 as compared  with $56,101 for the  corresponding
period ended  February 28, 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 decline of assets under  management.  The increase
in revenues is attributable to the growth in  individually  managed  accounts as
summarized below:

                                                THREE-MONTH PERIOD ENDED
                                                     FEBRUARY 28,
                                                 2010            2009
                                              -------------- ---------------
Individually managed accounts                 $      62,582  $       50,372
Mutual fund                                              14           5,729
                                              -------------- ---------------
                                       Total  $      62,596  $       56,101
                                              ============== ===============

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

                                      -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 $276,393 for the three-month
period ended  February 28, 2010 as compared with $243,505 for the  corresponding
period ended February 28, 2009.  Revenues  attributable to premium  earned,  net
investment income, net realized  investment gains, and commissions earned are as
follows:

                                                THREE-MONTH PERIOD ENDED
                                                     FEBRUARY 28,
                                                 2010            2009
                                              -------------- ---------------
Premium earned                                $     181,034  $      166,422
Net investment income                                58,435          76,608
Net realized investment gains                        42,926               -

Commissions earned                                  (6,002)             475
                                              -------------- --------------
                                       Total  $     276,393  $      243,505
                                              ============== ==============

Revenues for this segment of the business  are  somewhat  more  seasonable  from
quarter-to-quarter  as commission revenue is dependent on the timing of issuance
or renewal of bonds placed by the Company, whereas premium revenue is recognized
ratably  over the term of the policy  period and thus is more stable from period
to period.  Fluctuations  in premium  revenue  for  comparable  periods  largely
reflect the overall growth or loss of business.  The increase in premium revenue
for  the  three-month  period  ended  February  28,  2010 in  comparison  to the
corresponding  period  from the prior  year is a result of the  addition  of new
clients to FSC's surety business and increased  business from existing  clients.
Investment income should remain relatively  consistent,  but can fluctuate based
on interest  rates and market  conditions as well as the average assets held for
investment.  The decrease in  corresponding  periods  reflects growth in average
assets held for  investment in FSC's  investment  portfolio  from  approximately
$6.061  million  for  the   three-month   period  ended  February  28,  2009  to
approximately  $6.61 million for the three-month period ended February 28, 2010,
offset by a  decrease  in  investment  yield  from  approximately  5.16% for the
three-month  period  ended  February  28,  2009 to  approximately  3.95% for the
three-month  period ended February 28, 2010. Due to releases on coal reclamation
bonds  written and timing  difference  in the  recording of these  transactions,
commissions  earned resulted in a negative $6,002 for the quarter ended February
28, 2010.

In the  three-month  period ending  February 28, 2010,  the Company sold certain
available for sale zero-coupon bond municipal securities for $404,958, resulting
in a realized gain of $42,926.

GAIN FROM EXTINGUISHMENT OF DEBT

In the three-month period ending February 28, 2010, the Company,  upon advice of
legal counsel,  removed certain dormant accounts payable in the aggregate amount
of $200,239,  based upon the  conclusion  that none of accounts  represented  an
obligation  that is legally  enforceable  against the Company.  Such removal was
recorded as a gain on debt extinguishment.


                                      -4-
<PAGE>

EXPENSES

INCURRED POLICY LOSSES

The  Company  has  experienced  no claims for losses as of  February  28,  2010.
However,  "incurred but not reported"  (IBNR) policy losses for the  three-month
period  ended  February  28,  2010 and 2009  amounted  to  $41,382  and  $48,013
respectively.  Such amounts represent the provision for loss and loss adjustment
expense  attributable to surety bonds issued by FSC. Such estimates are based on
industry averages adjusted for factors that are unique to the FSC's underwriting
approach  and are  constantly  reviewed  for  adequacy  based on current  market
conditions  and  other  factors  unique  to  FSC's  business.  For each of these
periods,  IBNR policy losses were  approximately  23% and 29% of earned premium,
respectively. The decrease in policy losses and policy losses as a percentage of
earned  premiums  are due to the reserve rate  lowering on  partially  and fully
collateralized  bonds  written  after  May 2009.  These  loss  ratios  have been
established  with the  assistance  of consulting  actuaries and are  continually
reviewed and updated based on both industry and Company historical experience.

POLICY ACQUISITION COSTS-

Insurance  policy  acquisition  costs of $60,721 and $35,934 for the three-month
periods ended  February 28, 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  33% and 22% for the  periods  ended  February  28,  2010 and 2009
respectively.  This percentage  increased due to a higher expense  percentage on
agent  commissions  for new premium  written,  which  increased for the quarter,
versus renewal premiums.

GENERAL AND ADMINISTRATIVE

General and administrative  expenses for the three-month  periods ended February
28,  2010 and 2009 were  $289,068  and  $310,378  respectively,  representing  a
decrease of $21,310, and were comprised of the following:

<TABLE>
<CAPTION>


                                                                 Three-month Period Ended
                                                                       February 28,
                                                           -------------------------------------
                                                                 2010               2009             Difference
                                                           ------------------ ------------------ -------------------
<S>                                                        <C>                <C>                <C>
Salaries and related costs                                 $         155,015  $         159,804  $          (4,789)
General office expense                                                28,823             22,298              6,525
Legal and other professional fees and costs                           34,334             46,981            (12,647)
Audit, accounting and related services                                33,237             33,349               (112)
Travel, meals and entertainment                                        8,331             10,489             (2,158)
Other general and administrative                                      29,328             37,457             (8,129)
                                                           ------------------ ------------------ -------------------
                         Total general and administrative  $         289,068  $         310,378  $         (21,310)
                                                           ================== ================== ===================
</TABLE>

                                      -5-
<PAGE>

Salaries and related costs, net of deferred internal policy  acquisition  costs,
decreased approximately $4,800 and are comprised of the following:

<TABLE>
<CAPTION>
                                                                Three-month Period Ended
                                                                      February 28,
                                                           -------------------------------------
                                                                 2010               2009            Difference
                                                           ------------------ ------------------ -------------------
<S>                                                        <C>                <C>                <C>
Salaries and taxes                                         $         128,021  $         147,667  $   $     (19,646)
Commissions                                                           16,995             16,717                278
Stock option expense                                                  39,906              9,847             30,059
Fringe benefits                                                       12,379             13,816             (1,437)
Key-man insurance                                                     12,587             12,224                363
Deferred payroll costs                                              (54,873)           (40,467)            (14,406)
                                                           ------------------ ------------------ -------------------
                         Total salaries and related costs  $         155,015  $         159,804   $         (4,789)
                                                           ================== ================== ===================
</TABLE>

The decrease in salaries and taxes for the three-month period ended February 28,
2010 as compared to the same period of the  previous  year was the result of the
decrease  of two staff  positions.  The  increase  in stock  option  expense  is
attributable to the award of stock options on June 30, 2009.

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

                                                                Three-month Period Ended
                                                                      February 28,
                                                           -------------------------------------
                                                                 2010               2009            Difference
                                                           ------------------ ------------------ -------------------
<S>                                                        <C>                <C>                <C>
Coal reclamation consulting                                $           4,500  $               -  $           4,500
General corporate services                                            27,321             20,710              6,611
Expansion of surety license to other states                                -              2,000             (2,000)
Acquisition and financing related costs                                2,513             24,271            (21,758)
                                                           ------------------ ------------------ -------------------
                  Total legal and other professional fees  $          34,334  $          46,981  $         (12,647)
                                                           ================== ================== ===================
</TABLE>


The increase in general  corporate  services  results  primarily  from increased
review and  assistance  provided in connection  with the filing of the Company's
annual report with the Securities and Exchange  Commission.  In the  three-month
period ended February 28, 2009, the Company  incurred expense of $2,000 relating
to  expansion  of FSC's  surety  license to the State of Ohio and other  license
expansion  related  services.  Legal and other  professional  services and costs
related to the Company's  pending  acquisitions  and on-going  efforts to obtain
financing  necessary to expand the Company's  business and penetrate new markets
amounted to $2,513 and $24,271 for the  three-month  periods ended  February 28,
2010 and 2009, respectively. This decrease correlates to a decrease in this area
of professional service required.

                                      -6-
<PAGE>

The  decrease in travel,  meals and  entertainment  expense for the  three-month
period  ended  February  28, 2010 as compared to the  corresponding  2009 period
related primarily to additional efforts made by management to reduce expense.

The increase in general office expense for the three-month period ended February
28, 2010 as compared to the  corresponding  2009 period related  primarily to an
increase in taxes recorded in December 2009.

Other general and administrative expense decreased  approximately $8,129 for the
three-month period ended February 28, 2010 as compared to the corresponding 2009
period.   This  decrease  in  general  and  administrative   expense  is  result
management's efforts to curtail its operating costs, as well as the reduction of
certain accrued consulting expenses.

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 February 28, 2010 was $54,866.

J&C had no revenue and minimal expenses  attributable to the Fund for the period
ending  February  28,  2010;  it had  absorbed  $11,088 of the Fund's  operating
expenses during the corresponding period from the previous year.

INTEREST EXPENSE

Interest expense for the three-month period ended February 28, 2010 was $181,995
as compared with $117,022 for the corresponding  period ended February 28, 2009.
Components of interest expense are comprised of the following:

<TABLE>
<CAPTION>
                                                                  Three-month Period Ended
                                                                        February 28,
                                                           -------------------------------------
                                                                     2010              2009           Difference
                                                           ------------------ ------------------ -------------------

<S>                                                        <C>                <C>                <C>
Interest expense on bridge-financing                       $          129,452 $          90,166  $         39,286
Expense of common shares issued or to be issued in
connection with bridge financing and other arrangements                25,354            10,808            14,546
Interest expense on demand and term notes                              25,833            15,600            10,233
Other finance charges                                                   1,356               448               908
                                                           ------------------ ------------------ -------------------
                                  Total interest expense   $          181,995 $         117,022  $         64,973
                                                           ================== ================== ===================
</TABLE>

The  increase in interest  expense on bridge  financing is due to an increase in
the interest  rate on the bridge loans from 10% to 17% as of September 10, 2009.
Interest   expense  of  common  shares  issued  in  connection   with  financing
arrangements  increased  due to the rising number of shares to accrue for bridge
loan holders and more stock issued in current quarter than in the  corresponding

                                      -7-

<PAGE>

previous  year.  Interest  expense  on demand and term  notes  increased  due to
increased borrowings.

Accretion  and  dividends on Series B  mandatorily  redeemable  preferred  stock
amounted to $43,084 and $72,866 for the quarter  ended  February 28, 2010.  This
class of stock is  treated  as a  liability  as of  November  30,  2009 when the
majority was exchanged  for Series C equity  stock,  and therefore the accretion
and dividends  associated  with the Series B after that date are deductions from
net income.

ACCRETION AND DIVIDENDS

Accretion of  mandatorily  redeemable  convertible  preferred  stock issued at a
discount and accrued  dividends for three-month  periods ended February 28, 2010
and 2009 are as follows:

<TABLE>
<CAPTION>
                                                                Three-month Period Ended
                                                                      February 28,
                                                           -------------------------------------
                                                                 2010               2009            Difference
                                                           ------------------ ------------------ -------------------
<S>                                                        <C>                <C>                <C>
Accretion of discount                                      $           4,500  $         143,179  $       (138,679)
Accrued dividends on mandatorily redeemable
  preferred stock                                                     29,528            265,200          (235,672)
Accrued dividends on equity stock                                    175,720                  -           175,720
                                                           ------------------ ------------------ -------------------
                            Total accretion and dividends  $         209,748  $         408,379  $       (198,631)
                                                           ================== ================== ===================
</TABLE>

As noted  above,  the Series B class of stock is treated  as a  liability  as of
November 30, 2009 when the majority was exchanged for Series C equity stock, and
therefore the accretion  and dividends  associated  with the Series B after that
date are  deductions  from net income and not included in the table  above.  The
decrease in the  accretion of discount  results from this  exclusion of Series B
for the quarter as well as the  application  of the  interest or constant  yield
method  to the  initial  discount  recorded  with  respect  to  the  mandatorily
redeemable preferred stock over a period of five years from the date of issuance
of the stock.  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.

RESULTS OF OPERATIONS FOR THE NINE-MONTH PERIOD ENDED FEBRUARY 28, 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  nine-month  period ended
February 28, 2010 of $2,012,490  as compared  with a loss of $2,254,788  for the
corresponding period ended February 28, 2009.


                                      -8-
<PAGE>

REVENUES

Revenues from operations for the nine-month  period ended February 28, 2010 were
$1,046,948 as compared with $893,280 for the corresponding period ended February
28, 2009.  The overall  increase in revenues is  attributable  to the  continued
growth of the surety business of FSC.

INVESTMENT ADVISORY REVENUE

Quarterly  revenues from the Company's  investment  management segment (Jacobs &
Company or J&C), net of advisory referral fees, were $193,885 for the nine-month
period ended  February 28, 2010 as compared with $173,662 for the  corresponding
period ended  February 28, 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 increase in
revenues  is  attributable  to the growth in  individually  managed  accounts as
summarized below:

                                                   Nine-month Period Ended
                                                         February 28,
                                                    2010              2009
                                              ---------------- -----------------
Individually managed accounts                        $ 182,100         $ 154,912
Mutual fund                                             11,785            18,750
                                              ---------------- -----------------
                                       Total         $ 193,885         $ 173,662
                                              ================ =================


INSURANCE AND INVESTMENT REVENUE

Quarterly  revenues from the Company's surety insurance  segment,  consisting of
FSC and Triangle  Surety Agency,  Inc ("TSA"),  were $842,745 for the nine-month
period ended  February 28, 2010 as compared with $704,384 for the  corresponding
period ended February 28, 2009.  Revenues  attributable to premium  earned,  net
investment income, net realized  investment gains, and commissions earned are as
follows:

                                                   Nine-month Period Ended
                                                         February 28,
                                                    2010              2009
                                              ----------------  ----------------

Premium earned                                $        592,181  $        474,183
Net investment income                                  201,938           218,451
Net realized investment gain                            42,926                 -
Commissions earned                                       5,700            11,750
                                              ----------------- ----------------
                                       Total  $        842,745  $        704,384
                                              ================= ================

Revenues  for this  segment of the  business  are  expected to be somewhat  more
"seasonable" from  quarter-to-quarter  as commission revenue is dependent on the
timing of issuance or renewal of bonds  placed by the Company,  whereas  premium
revenue is  recognized  ratably  over the term of the policy  period and thus is
more  stable  from  period  to  period.  Fluctuations  in  premium  revenue  for
comparable  periods largely reflect the overall growth or loss of business.  The
increase in premium revenue for the nine-month period ended February 28, 2010 in

                                      -9-
<PAGE>

comparison  to the  corresponding  period from the prior year is a result of the
addition of new clients to FSC's surety  business and  increased  business  from
existing clients. Investment income should remain relatively consistent, but can
fluctuate  based on  interest  rates and  market  conditions.  The  decrease  in
corresponding  periods  reflects growth in average assets held for investment in
FSC's investment  portfolio from approximately $5.885 million for the nine-month
period  ended  February  28,  2009  to  approximately  $ 6.500  million  for the
nine-month  period ended  February 28, 2010,  offset by a decrease in investment
yield from approximately 5.01% for the nine-month period ended February 28, 2009
to approximately 4.48% for the nine-month period ended February 28, 2010.

EXPENSES

INCURRED POLICY LOSSES

The  Company  has  experienced  no claims for losses as of  February  28,  2010.
However,  "incurred  but not reported"  (IBNR) policy losses for the  nine-month
period  ended  February  28, 2010 and 2009  amounted to  $139,068  and  $141,046
respectively.  Such amounts represent the provision for loss and loss adjustment
expense  attributable to surety bonds issued by FSC. Such estimates are based on
industry averages adjusted for factors that are unique to the FSC's underwriting
approach  and are  constantly  reviewed  for  adequacy  based on current  market
conditions and other factors unique to FSC's  business.  IBNR policy losses were
approximately  23% and 30% of earned premium for the  nine-month  periods ending
February  28, 2010 and 2009,  respectively.  The  decrease in policy  losses and
policy  losses as a  percentage  of earned  premiums are due to the reserve rate
lowering on partially  and fully  collateralized  bonds  written after May 2009.
These loss  ratios  have been  established  with the  assistance  of  consulting
actuaries  and are  continually  reviewed and updated based on both industry and
Company historical experience.

POLICY ACQUISITION COSTS

Insurance policy  acquisition  costs of $185,640 and $114,947 for the nine-month
periods ended  February 28, 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  31% and 24% for the  periods  ended  February  28,  2010 and 2009
respectively.  This percentage  increased due to a higher expense  percentage on
agent  commissions for new premium  written,  which increased for the nine-month
period, versus renewal premiums.

GENERAL AND ADMINISTRATIVE COSTS

General and  administrative  expenses for the nine-month  periods ended February
28, 2010 and 2009 were  $1,022,642 and $1,249,042  respectively,  representing a
decrease of $266,400, and were comprised of the following:

                                      -10-
<PAGE>
<TABLE>
<CAPTION>

                                                                 Nine-month Period Ended
                                                                       February 28,
                                                           -------------------------------------
                                                                 2010               2009             Difference
                                                           ------------------ ------------------ -------------------

<S>                                                        <C>                <C>                <C>
Salaries and related costs                                 $         572,888  $         498,797  $           74,091
General office expense                                                86,230             80,686               5,544
Legal and other professional fees and costs                          137,445            413,806            (276,361)
Audit, accounting and related services                                81,763             83,204              (1,441)
Travel, meals and entertainment                                       36,539             44,868              (8,329)
Other general and administrative                                     107,777            127,681             (19,904)
                                                           ------------------ ------------------ -------------------
                         Total general and administrative  $       1,022,642  $       1,249,042  $         (226,400)
                                                           ================== ================== ===================
</TABLE>

Salaries and related costs, net of deferred internal policy  acquisition  costs,
increased approximately $74,000 and are comprised of the following:
<TABLE>
<CAPTION>

                                                                 Nine-month Period Ended
                                                                      February 28,
                                                           -------------------------------------
                                                                 2010               2009            Difference
                                                           ------------------ ------------------ -------------------
<S>                                                        <C>                <C>                <C>
Salaries and taxes                                         $         380,158  $         443,828  $          (63,670)
Commissions                                                           32,264             23,403               8,861
Stock option expense                                                 212,901             36,829             176,072
Fringe benefits                                                       39,765             47,936              (8,171)
Key-man life insurance                                                42,844             42,576                 268
Deferred policy acquisition costs                                   (135,044)           (95,775)            (39,269)
                                                           ------------------ ------------------ -------------------
                         Total salaries and related costs  $         572,888  $         498,797  $           74,091
                                                           ================== ================== ===================
</TABLE>


Decreases in salaries and taxes paid for the  nine-month  period ended  February
28, 2010 as compared  to the same period the  previous  year was a result in the
decrease of two staff positions.  The increase in commissions is attributable to
the  increase in  insurance  business  written in the  nine-month  period  ended
February 28, 2010. The increase in stock option expense is  attributable  to the
award of stock options on June 30, 2009.

Legal and other professional fees and costs were comprised of the following:
<TABLE>
<CAPTION>
                                                                 Nine-month Period Ended
                                                                      February 28,
                                                           -------------------------------------
                                                                 2010               2009            Difference
                                                           ------------------ ------------------ -------------------
<S>                                                        <C>                <C>                <C>
Coal reclamation consulting                                $           9,750  $               -  $            9,750
General corporate services                                            64,486             44,417              20,069
Expansion of surety license to other states                              344             61,982             (61,638)
Acquisition and financing related costs                               62,862            307,407            (244,542)
                                                           ------------------ ------------------ -------------------
                  Total legal and other professional fees  $         137,445  $         413,806  $         (276,361)
                                                           ================== ================== ===================
</TABLE>

                                      -11-
<PAGE>

The increase in general  corporate  services  results  primarily  from increased
review and  assistance  provided in connection  with the filing of the Company's
annual report with the  Securities  and Exchange  Commission.  In the nine-month
period ended February 28, 2009, the Company incurred expense of $61,982 relating
to  expansion  of FSC's  surety  license to the State of Ohio and other  license
expansion  related  services.  Legal and other  professional  services and costs
related to the Company's  pending  acquisitions  and on-going  efforts to obtain
financing  necessary to expand the Company's  business and penetrate new markets
amounted to $62,862 and $307,407 for the  nine-month  periods ended February 28,
2010 and 2009, respectively. This decrease correlates to a decrease in this area
of professional service required.

MUTUAL FUND COSTS

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

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.  Under  this  expense  limitation
agreement,  J&C absorbed  $75,037 of the Fund's  operating  expenses  during the
nine-month   period  ended   February  28,  2010  as  compared  to  $84,428  for
corresponding  period from the  previous  year.  Due to the Fund's  liquidation,
there was no revenues and minimal  expenses  attributable to the fund subsequent
to  December 1, 2009.  The  cumulative  reimbursement  due the Fund by J&C as of
February 28, 2010 was $54,866.

INTEREST EXPENSE

Interest expense for the nine-month  period ended February 28, 2010 was $691,093
as compared with $352,031 for the corresponding  period ended February 28, 2009.
Components of interest expense are comprised of the following:


                                      -12-
<PAGE>
<TABLE>
<CAPTION>

                                                                    Nine-month Period Ended
                                                                          February 28,
                                                               -----------------------------------
                                                                     2010              2009           Difference
                                                               ----------------- ----------------- -----------------
<S>                                                            <C>               <C>               <C>
Interest expense on bridge financing                           $        355,663  $        266,186  $         89,477
Expense of common shares issued or to be issued in
connection with bridge financing and other arrangements                 263,546            42,637           220,909
Interest expense on demand and term notes                                66,891            39,404            27,486
Other finance charges                                                     4,994             3,804             1,190
                                                               ----------------- ----------------- -----------------
                                       Total interest expense  $        691,093  $        352,031  $        339,062
                                                               ================= ================= =================
</TABLE>

The  increase in interest  expense on bridge  financing is due to an increase in
the interest  rate on the bridge loans from 10% to 17% as of September 10, 2009.
The  increase in the expense of common  shares  issued (or to be issued) for the
nine-month  period  ended  February  28, 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 demand and term notes increased due to increased borrowings.

Accretion  and  dividends on Series B  mandatorily  redeemable  preferred  stock
deducted  from net income  amounted to $43,084  and  $72,866 for the  nine-month
period ended February 28, 2010. This class of stock is treated as a liability as
of November 30, 2009 when the majority was  exchanged for Series C equity stock,
and therefore the  accretion  and dividends  associated  with the Series B after
that date are deductions from net income.

ACCRETION AND DIVIDENDS

Accretion of  mandatorily  redeemable  convertible  preferred  stock issued at a
discount and accrued  dividends for  nine-month  periods ended February 28, 2010
and 2009 are as follows:

<TABLE>
<CAPTION>
                                                                    Nine-month Period Ended
                                                                         February 28,
                                                               -----------------------------------
                                                                    2010               2009            Difference
                                                               ----------------- ----------------- -----------------
<S>                                                            <C>               <C>               <C>
Accretion of discount                                          $     268,808     $      422,095    $      (153,287)
Accrued dividends on mandatorily redeemable
preferred stock                                                      577,772            775,860           (198,088)
Accrued dividends on equity stock                                    175,720                  -            175,720
                                                               ----------------- ----------------- -----------------
                            Total accretion and dividends      $   1,022,300     $    1,197,955    $      (175,655)
                                                               ================= ================= =================
</TABLE>

As noted  above,  the Series B class of stock is treated  as a  liability  as of
November 30, 2009 when the majority was exchanged for Series C equity stock, and
therefore the accretion  and dividends  associated  with the Series B after that
date are  deductions  from net income and not included in the table  above.  The
decrease in the  accretion of discount  results from this  exclusion of Series B
for the quarter as well as the  application  of the  interest or constant  yield

                                      -13-
<PAGE>

method  to the  initial  discount  recorded  with  respect  to  the  mandatorily
redeemable preferred stock over a period of five years from the date of issuance
of the stock.  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.

CRITICAL ACCOUNTING POLICIES AND ESTIMATES

INTANGIBLE ASSETS

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

RESERVE FOR LOSSES AND LOSS EXPENSES

Reserves  for  unpaid  losses  and loss  adjustment  expenses  of the  insurance
subsidiary are estimated using individual  case-basis  valuations in conjunction
with estimates derived from industry and company experience. FSC has experienced
no claims for losses as of February 28, 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  surety  bonds  posted  to  assure  that   reclamation   is
accomplished  are  generally  long-term in nature,  with mining  operations  and
reclamation work conducted in unison as the property is mined. Additionally,  no
two  principals or properties  are alike due to varied  company  structures  and
unique geography and geology of each site.

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

                                      -14-
<PAGE>

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

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

The Company has experienced  significant  losses (after accretion of mandatorily
redeemable   convertible  preferred  stock,   including  accrued  dividends)  of
approximately  $3,058,000 and $3,333,000 for the fiscal years ended May 31, 2009
and 2008, respectively, and a loss of approximately $356,000 for the three-month
period  ended  February  28, 2010.  The Company  continues  to face  significant
working  capital  deficiencies  and  cash  flow  concerns.  The  Company  netted
approximately $79,000 in cash flow from operating activities for the three-month
period ended  February 28, 2010.  Gain on debt  extinguishment  had no impact on
increased cash flow from operations. Despite increased revenue and the continued
decline  of  operating  expenses,  the  Company  still  has not been able to pay
certain  amounts due to  professionals  and others and continues to be unable to
pay  its  preferred  stock  dividend  obligation,   certain  payroll  taxes  and
withholdings from 2009, and to cure its defaults in certain  quarterly  payments
due its  bridge-financing  lenders  (see  Note E in the  accompanying  unaudited
consolidated  condensed  financial  statements).  A  substantial  portion of the
Company's  cash flow is generated by its insurance  subsidiary and is subject to
certain  withdrawal  restrictions.  While management  expects revenue growth and
profitability  and cash flow to increase  significantly  as its business plan is
fully  implemented,  it is anticipated that the Company will continue to be cash
constrained until FSC is able to develop a more substantial book of business.

The Company is restricted in its ability to withdraw monies from FSC without the
prior approval of the Insurance  Commissioner.  Of the Company's investments and
cash of  $6,671,108  as of February 28, 2010,  $6,615,056  is restricted to FSC.
Furthermore,  additional  capital  raised  pursuant  to the  sale  of  Series  A
preferred  stock of the Company in  connection  with the  issuance of  partially
collateralized  surety bonds must be contributed by the Company into the surplus
accounts of FSC.

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

Expansion  of  FSC's  business  to  other  states  is a key  component  to fully
implementing  the Company's  business plan. In fiscal 2009, the Company was able
to increase the capital of FSC,  reactivate FSC's insurance license in Ohio, and
obtain  authority to issue surety bonds in that state.  However,  management has
found that entry into other states (as a surety) has been difficult  without the
benefit of more substantial capital and reserves due to FSC's status as a recent

                                      -15-
<PAGE>

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

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

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

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

                                      -16-
<PAGE>

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

The  Company's  exposure  to the  subprime  mortgage  risk is minimal due to its
investment  in  mortgage-backed  securities  having  been  limited to only those
securities  backed by the United States  government  (i.e.  Government  National
Mortgage  Association or GNMA  securities).  Prior to December 2009, the Company
also held  municipal  obligations  that have been  fully  defeased  through  the
purchase of Resolution  Funding  Corporation  ("REFCORP")  strips that have been
placed in escrow  and  provide  the means for the bond  repayment.  REFCORP  was
created by the Financial  Institutions  Reform,  Recovery and Enforcement Act of
1989 ("FIRREA") to provide funds to the Resolution Trust Corporation  ("RTC") in
order to help  resolve  the  Savings and Loan  failures.  REFCORP  operates as a
United States  Treasury  agency under the direction of the RTC Oversight  Board,
whose chair is the secretary of the United States Treasury,  and its obligations
are ultimately backed by the United States government.


ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
------------------------------------------------------------------

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


ITEM 4T. CONTROLS AND PROCEDURES
--------------------------------

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

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

Effective  July 1, 2008,  management  implemented  changes in the  processing of
transactions  to  remediate  the  inadequate   segregation  of  duties  weakness
previously  identified.  Additionally,   management  identified  steps  at  both
management and the board of directors'  level to increase the  effectiveness  of
review as it relates to the financial reporting process.  Such changes have been

                                      -17-
<PAGE>

implemented  during the first fiscal quarter of the Company's  2008-2009  fiscal
year. While management  believes that the changes  implemented have strengthened
the overall control over financial  reporting,  such changes were not sufficient
to conclude that the Company's disclosure and control procedures, as of February
28,  2010,  were  effective.  Accordingly,  the  Chief  Executive  Officer/Chief
Financial  Officer  concluded  that  the  Company's   disclosure   controls  and
procedures,  as of February 28, 2010, were ineffective.  Management continues to
monitor  changes  made in fiscal 2008 and 2009 and will  continue  to  implement
improvements. Other changes will be considered as additional financial resources
and accounting staff become available.

Notwithstanding  the  above,  management  believes  the  unaudited  consolidated
condensed  financial  statements  in this  Quarterly  Report on Form 10-Q fairly
present,  in all material  respects,  the  Company's  financial  condition as of
February  28, 2010 and May 31, 2009 and the results of its  operations  and cash
flows for the three month period ended  February 28, 2010 and 2009 in conformity
with U.S. generally accepted accounting principals (GAAP).



                           PART II - OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS
-------------------------

None.

ITEM 1A. RISK FACTORS
---------------------

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

ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES
-----------------------------------------------

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

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

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

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

                                      -18-
<PAGE>

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

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

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

ITEM 3. DEFAULTS UPON SENIOR SECURITIES
---------------------------------------

The Company has incurred an event of default with respect to quarterly  interest
and principal payments under its bridge-financing arrangement. As of the date of
filing this report, the amount required to cure the default is $875,106.

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

None.

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

None.


                                      -19-
<PAGE>

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











                                      -20-

<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: April 19, 2010                  JACOBS FINANCIAL GROUP, INC.
                                --------------------------------------------
                                             (Registrant)
                             By:
                                /s/John M. Jacobs
                                --------------------------------------------
                                John M. Jacobs, President





























                                      -21-