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


                                    FORM 10-K

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

                     For the fiscal year ended May 31, 2008

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


        Securities registered under Section 12 (b) of the Exchange Act:

                                      NONE

        Securities registered under Section 12 (g) of the Exchange Act:

                          COMMON STOCK $.0001 PAR VALUE


Indicate  by check mark if  registrant  is a  well-known  seasoned  insurer,  as
defined in rule 405 of the Securities Act.

               Yes[ ]                              No[X]

<PAGE>

Indicate by check mark if registrant is not required to file reports pursuant to
Section 13 or Section 15(d) of the Act.

               Yes[ ]                              No[X]


Indicated by a check mark whether the issuer (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 if disclosure of delinquent  filers  pursuant to Item 405
of Regulation S-K (ss.229.405 of this chapter) is not contained herein, and will
not be contained, to the best of the registrant's knowledge, in definitive proxy
or  information  statements  incorporated  by reference in Part III of this Form
10-K or any amendment to this Form 10-K.

                                       [X]

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]


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

               Yes[ ]                              No[X]

State the aggregate market value of the voting and non-voting common equity held
by non-affiliates  computed by reference to the price at which the common equity
was sold,  or the average bid and asked price of such common  equity,  as of the
last  business day of the  registrant's  most recently  completed  second fiscal
quarter. As of November 30, 2007: $942,737 (157,122,836 shares at $.006 / share)

Indicate the number of shares outstanding of each of the registrant's classes of
common stock, as of the latest  practicable date:  169,206,823  shares of common
stock as of August 20, 2008.

<PAGE>
<TABLE>
<CAPTION>
                                             TABLE OF CONTENTS

                    PART I                                                                       Page

<S>                 <C>                                                                          <C>
Item 1              Business                                                                      4
Item 1A             Risk Factors                                                                  7
Item 2              Properties                                                                    7
Item 3              Legal Proceedings                                                             7
Item 4              Submission of Matters to a Vote of Security Holders                           7

                    PART II

Item 5              Market for Registrant's Common Equity, Related Stockholder Matters
                    and Issuer Purchases of Equity Securities                                     8
Item 6              Selected Financial Data                                                       9
Item 7              Management's Discussion and Analysis of Financial Condition and
                    Results of Operations                                                         9
Item 7A             Quantitative and Qualitative Disclosures About Market Risk                    19
Item 8              Financial Statements and Supplementary Data                                   19
Item 9              Changes in and Disagreements With Accountants on Accounting and
                    Financial Disclosure                                                          20
Item 9A(T)          Controls and Procedures                                                       20
Item 9B             Other Information                                                             21

                    PART III

Item 10             Directors, Executive Officers and Corporate Governance                        22
Item 11             Executive Compensation                                                        24
Item 12             Security Ownership of Certain Beneficial Owners and Management and
                    Related Stockholder Matters                                                   26
Item 13             Certain Relationships and Related Transactions and Director
                    Independence                                                                  29
Item 14             Principal Accounting Fees and Services                                        30

                    PART IV

Item 15             Exhibits, Financial Statement Schedules                                       32
</TABLE>


                                       3
<PAGE>

PART I

Item 1. BUSINESS

The predecessor of Jacobs Financial Group, Inc. ( the "Registrant", "JFG" or the
"Company"), NELX, Inc., was incorporated in the State of Kansas in March 1983 as
Nelson  Exploration,  Inc.  for the  purpose of  acquiring,  dealing  in, and if
warranted,  developing  oil and gas  properties.  In  October  1993 the  Company
changed its name to NELX,  Inc.  Prior to May 2001,  the Company  owned  certain
non-producing oil and gas properties as well as various real estate  properties.
Due to continuing lack of capital  partners for oil and gas  exploration  and/or
real estate development, in fiscal year 1997 the Company turned its attention to
divesting  its  interests  in said  properties.  For the next three  years,  the
principal  activities  of the Company  involved  disposing  of assets,  settling
claims and liabilities  and considering  potential  business  combinations  with
related or  complementary  businesses.  During  fiscal year 2001,  the Company's
principal  assets  consisted of a leasehold  interest in an undeveloped  mineral
spring in Arkansas and certain oil and gas properties  located in West Virginia.
The oil and gas properties were sold in May 2001.

On May 29, 2001,  the Company  acquired two  businesses,  FS  Investments,  Inc.
("FSI") and Jacobs & Company  ("Jacobs & Co." or  "Jacobs"),  in exchange for 75
million shares of common stock of NELX. The  transaction  was accounted for as a
recapitalization of FSI and Jacobs & Co. effected by a reverse acquisition.  For
accounting purposes,  NELX was treated as the acquiree, and no goodwill or other
intangible asset was recorded.

FSI,  incorporated  in 1997 in West  Virginia,  is a  holding  company  that was
organized to develop  surety  business  through the formation or  acquisition of
subsidiaries   engaged  in  the  issuance  of  surety  bonds  collateralized  by
investment accounts that are professionally  managed by Jacobs & Co. Through its
wholly-owned  subsidiary,  Triangle Surety Agency,  Inc.  ("Triangle  Surety" or
"TSA"),  FSI is actively  engaged in the placement with  insurance  companies of
surety bonds, with an emphasis on clients engaged in regulated industries.

Jacobs  & Co.,  incorporated  in  1988  in West  Virginia,  is a SEC  registered
investment advisory firm whose executive offices are located in Charleston, West
Virginia.  Jacobs & Co.  provides  fee based  investment  advisory  services  to
institutions,  companies and individuals,  including the Jacobs & Company Mutual
Fund (the "J&C  Fund" or the  "Fund"),  which  was  organized  in June 2001 as a
series of the Advisors  Series Trust. On June 27, 2005, the Fund was reorganized
as a series of Northern Lights Fund Trust.

Since the May 29, 2001 business combination,  the Company has expanded its focus
to include the ongoing  business and  activities  of FSI and Jacobs,  namely the
surety business and investment management and related services.

On or about  December 29, 2005,  NELX was merged with and into its  newly-formed
wholly-owned  subsidiary,  Jacobs Financial Group, Inc., a Delaware corporation.
JFG survived the merger as the  Registrant.  The merger effected a change in the
Registrant's name, a change in the state of incorporation of the Registrant from
Kansas to Delaware,  and amendments to the Articles of Incorporation  and Bylaws
of the Registrant.

                                       4
<PAGE>

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

The acquisition of WVFCC consisted of the purchase of marketable investments and
insurance licenses and did not include any existing policies or customer base as
the insurance  lines of business  offered by WVFCC were not insurance lines that
the Company intended to pursue. Following the acquisition, the name of WVFCC was
changed to First Surety Corporation ("First Surety" or "FSC").

The acquisition of FSC allowed the Company to pursue its business plan to market
and issue surety bonds utilizing programs developed by the Company's subsidiary,
FSI. FSI's subsidiary,  Triangle Surety, serves as the marketing agent for First
Surety, and  collateralized  accounts required as a condition of the issuance of
surety  bonds  under  FSC's  programs  are  managed by the  investment  advisory
subsidiary  of the Company,  Jacobs & Co.  Implementation  of this business plan
provides  revenue  streams to the Company in the form of insurance  premium from
the issuance of surety bonds,  investment  advisory fees from the  management of
the collateral accounts securing surety bonds and other investment accounts, and
investment income relating to investment of its insurance  subsidiary's  surplus
and reserves.  The principal  bonding programs offered are specialized in nature
and are targeted to the coal and oil & gas industries.

FSC  currently  writes  only the surety line of  business,  is licensed to write
surety in West Virginia and Ohio (effective  August 5, 2008) and has focused its
primary efforts towards coal permit bonds. Such business,  including  investment
advisory fees from managed collateral accounts,  accounted for approximately 58%
and  50%  of  the  Company's  fiscal  2008  and  2007  revenues,   respectively.
Furthermore,  FSC provides surety bonds to companies that share common ownership
interests  that  constitute  48%  and  42%  of the  Company's  fiscal  2008  and
2007revenues, respectively.

Expansion  of  FSC's  business  to  other  states  is a key  component  to fully
implementing the Company's business plan.  Regulatory  approval and licensing is
required for each state in which FSC seeks to conduct  business.  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 new
entry into this market.

In order to best  position  the  Company  to  accomplish  the  larger  financing
necessary to expand the  Company's  business  and  penetrate  new  markets,  the
Company has contracted to accomplish two  acquisitions  that the Company expects
to substantially enhance the business and prospects of the Company.

On February 8, 2008,  the Company  entered into an agreement  and plan of merger
with  Reclamation  Surety Holding Company ("RSH")  pursuant to which the Company
will  acquire by merger all of the  business  and assets of RSH,  including  the
stock of its subsidiaries  Cumberland Surety, Inc. and NewBridge Services,  Inc.

                                       5
<PAGE>

for  a  purchase  price  of  $3,400,000,  less  certain  indebtedness.  RSH  and
subsidiaries  perform  surety  underwriting  services and service surety bonding
programs  and  the  acquisition  is  expected  to  add a  substantial  depth  of
experience and expertise to the Company.

On August 20, 2008,  the Company  entered into a stock  purchase  agreement with
National  Indemnity  Company  ("NICO"),  pursuant to which the Company agreed to
acquire all of the outstanding stock of Unione Italiana  Reinsurance  Company of
America ("Unione"). Unione is a New York domiciled insurer licensed in 24 states
and has license  applications pending with the Commonwealth of Kentucky and with
the Financial  Management  Service of the United States  Department of Treasury.
The purchase price for the acquisition of Unione (the "Transaction") is equal to
the sum of (i) $2,750,000 plus (ii) an amount in cash equal to Unione's New York
statutory policyholders' surplus as of the closing date of the transaction.  The
Company's  acquisition of Unione, when coupled with a reinsurance agreement with
NICO that is to be executed  simultaneously  with  closing,  will consist of the
purchase of marketable  investments and insurance  licenses and will not include
any  existing  policies  or  customer  base as the  insurance  lines of business
offered by Unione are not  insurance  lines that the Company  intends to pursue.
The insurance  licenses are expected to enable the Company to more rapidly enter
and  penetrate  the various  state  markets that it has targeted in its business
plan.

The  acquisition  of  Unione  remains   contingent  upon  necessary   regulatory
approvals,  and both the  acquisition  of RSH and the  acquisition of Unione are
contingent upon the Company's obtaining necessary financing.

During  fiscal  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 terms of the  bridge-financing  arrangement
provide  for  payment in full upon  consummation  by the  Company of a qualified
equity  offering  providing  net  proceeds  of at least $15 million on or before
September 10, 2013; and if such a qualified  equity  offering is not consummated
by September 10, 2008, accrued  interest-to-date shall be payable, and quarterly
installments  of  principal  and  interest  shall be  payable  over  five  years
commencing  in  December  2008.  The  interest  rates on such notes are fixed at
10.00%. Upon issuance of the bridge notes, an aggregate of 7% of the outstanding
common stock of the Company was issued to the bridge lenders. Upon retirement of
the notes upon  consummation of a qualified  equity  offering,  the Company will
issue to the bridge lenders a percentage of the outstanding  common stock of the
Company which,  when added to the stock initially  issued,  may equal as much as
28% of the common stock of the Company that would  otherwise  have been retained
by  the  holders  of  the  Company's  common  shares  immediately  prior  to the
financing.  Finally,  if a qualified financing is not completed by September 10,
2008, the terms of the loan  documents  obligate the Company to issue a total of
2.8% of the Company's  outstanding common shares at such date and shall issue an
additional 2.8% of the Company's  outstanding  common shares upon each six-month
anniversary date thereof until retirement of the notes.

The ability of the Company to consummate the  acquisitions  of RSH and Unione is
contingent upon the Company's  completing its permanent  financing.  To date, no
commitment  has been secured,  and there  remains  substantial  doubt  regarding
whether the Company will be able to obtain the  necessary  financing  within the
time frames provided in the acquisition agreements to complete the acquisitions.

The Company is  headquartered  in  Charleston,  West  Virginia,  and through its
wholly-owned subsidiaries, employs a total of nine (9) full-time employees.

                                       6
<PAGE>

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. PROPERTIES

Through its wholly-owned  subsidiary,  Crystal Mountain Water, Inc. ("CMW"), the
Company has an undeveloped  leasehold interest in a mineral water spring located
near Hot Springs,  Arkansas. Under this leasehold arrangement,  CMW is obligated
for minimum lease  payments in the amount of  approximately  $170 per month with
automatic  options to extend the leasehold  through  October  2026.  CMW has the
right to cancel the lease upon sixty (60) days written  notice at any time.  The
property is presently not being actively explored or developed.  During the 2002
fiscal year,  management  evaluated the lease and determined the development was
not  currently  feasible.  Accordingly,  the Company  recorded an  impairment of
$116,661  to its  investment  in the lease.  Opportunities  will  continue to be
explored as they arise with respect to the  development or sale of the leasehold
interest.


Item 3. LEGAL PROCEEDINGS

None


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

None
















                                       7


<PAGE>

PART II

Item 5.  MARKET FOR  COMMON  EQUITY,  RELATED  STOCKHOLDER  MATTERS,  AND ISSUER
         PURCHASES OF EQUITY SECURITIES.

The Company's  common stock is traded in the  over-the-counter  market under the
symbol JFG (OTC Bulletin Board Symbol).  The table below sets forth the high and
low price information for the Company's common stock for the periods  indicated.
Such prices are inter-dealer  prices,  without mark-up,  mark-down or commission
and may not represent actual transactions.


                                         HIGH                     LOW
                                         ----                     ---

FISCAL YEAR ENDED MAY 31, 2008

         4th Quarter                     .025                    .00831
         3rd Quarter                     .07                     .006
         2nd Quarter                     .03                     .006
         1st Quarter                     .03                     .01


FISCAL YEAR ENDED MAY 31, 2007

         4th Quarter                     .04                     .011
         3rd Quarter                     .04                     .015
         2nd Quarter                     .06                     .02
         1st Quarter                     .07                     .025



As of May 31,  2008,  there  were  approximately  856  holders  of record of the
Company's common stock.

The Company has neither declared nor paid any cash dividends on its common stock
during  the last  two  fiscal  years,  and it is not  anticipated  that any such
dividend will be declared or paid in the foreseeable future.

Regulatory  approval of the  acquisition  of FSC by JFG was  provided  under the
condition  that no  dividends  or monies are to be paid to JFG from FSC  without
regulatory  approval.  For  further  information,  see  Notes  C  and  O to  the
Consolidated Financial Statements and "Restrictions on Use of Assets" within the
section  of  "Capital   Resources  and  Financial   Condition"  of  Management's
Discussion  and  Analysis  of  Financial  Condition  and  Results of  Operations
contained in Part II Item 7 of this Annual Report on Form 10-K.

As of May 31, 2008, shares of the Company's common stock authorized for issuance
under the  Registrant's  2005 Stock  Incentive  Plan,  that was  approved by the
stockholders of the Company on December 8, 2005, are as follows:

                                       8
<PAGE>

                      EQUITY COMPENSATION PLAN INFORMATION
<TABLE>
<CAPTION>

-------------------------------------------- ------------------------------------------ ------------------------------------------
       Number of Shares to be Issued                     Weighted-Average                           Number of Shares
             Upon Exercise of                            Exercise Price of                         Remaining Available
            Outstanding Options                         Outstanding Options                        For Future Issuance
-------------------------------------------- ------------------------------------------ ------------------------------------------
<S>             <C>                                           <C>                                       <C>
                26,500,000                                    .06649                                    8,500,000
-------------------------------------------- ------------------------------------------ ------------------------------------------
</TABLE>

There are no other equity compensation plans not approved by stockholders of the
Company.

UNREGISTERED SALES OF EQUITY SECURITIES

In the  three-month  period ended May 31, 2008,  32 shares of Series A Preferred
Stock were issued  pursuant to ongoing  bonding  programs of FSC in exchange for
cash in the amount of $32,000.

The  Certificate 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

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 6. SELECTED FINANCIAL DATA

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

During  fiscal  2008,  the  Company  has  focused  its  primary  efforts  on the
development and marketing of its surety business in West Virginia, arranging for
strategic  acquisitions to accelerate the progression of the Company's  business
plan,  and raising  additional  capital to increase  the capital base of FSC and
facilitate entry into other state markets.

                                       9
<PAGE>

RESULTS OF OPERATIONS  AND FINANCIAL  CONDITION AS OF AND FOR THE YEAR ENDED MAY
31, 2008

RESULTS OF OPERATIONS

The Company  experienced a loss of $3,332,942  (after  accretion of  mandatorily
redeemable  convertible preferred stock,  including accrued dividends) in fiscal
2008 as compared with a loss of $2,661,431 in fiscal 2007.  While total revenues
increased from approximately  $823,000 in fiscal 2007 to approximately  $957,000
in fiscal 2008, total expenses increased from approximately $2,042,000 in fiscal
2007 to approximately $2,465,000 in fiscal 2008, resulting in an increase in the
loss from operations of approximately $289,000.

The increase in revenues is largely attributable to new business acquired by FSC
and  increased   investment  holdings  of  FSC.  The  increase  in  expenses  is
attributable  to increased  expense related to the growth in business within the
insurance  segment and increased general and  administrative  expense related to
professional  fees incurred in the Company's ongoing efforts to raise additional
capital to expand its business.

Interest  expense  increased  from  approximately  $153,000  in  fiscal  2007 to
approximately  $479,000 in fiscal 2008 due to additional  borrowings incurred to
pay  professional  fees and expenses  related to the Company's  efforts to raise
additional  capital  financing and to provide  financing of current  operations.
Such increase was partially offset by the recognition of a gain of approximately
$115,500 relating to the settlement of the Company's delinquent pre-2006 payroll
tax  obligations  and  largely  represents  the waiver of accrued  penalties  in
connection with payment of the obligation in full.

Accretion and accrued dividends on preferred stock increased from  approximately
$1,333,000  in fiscal 2007 to  approximately  $1,471,000  in fiscal  2008.  This
increase is attributable  the accrual of dividends  associated with the issuance
of the  Company's  Series A preferred  stock in  connection  with its  partially
collateralized  bonding  programs and the  compounding  of accrued  dividends on
previously accrued but unpaid dividends.

CAPITAL RESOURCES AND FINANCIAL CONDITION

MANDATORILY REDEEMABLE PREFERRED STOCK

In conjunction with the acquisition of FSC at December 31, 2005, a restructuring
of the Company's  financing was  accomplished  through the private  placement of
preferred  stock and warrants to acquire common stock of the Company in exchange
for cash totaling $3,335,000. $2,860,000 was used in the acquisition and funding
of the  insurance  subsidiary,  with the  remaining  funds used to pay  expenses
attributable  to  the  acquisition  and  the  funding  of  on-going  operations.
Additionally,  approximately  $3,668,000  of  indebtedness  of the  Company  was
converted into preferred  stock and warrants  reducing the Company's  borrowings
under short-term financing arrangements to approximately $167,000 as of December
30, 2005.

As an  inducement  to the  initial  preferred  stock  shareholders,  warrants to
purchase  45,402,996 shares of common stock at an exercise price of one-tenth of
one cent ($.001) per share were issued with a five-year  expiration period. Such
warrants were valued at approximately  $533,000 using the Black-Scholes  pricing
model. Additionally,  the Series B preferred shares were issued at a twenty-five
percent  (25%)  discount  to the  stated  face  value  of  $1,000  per  share or

                                       10
<PAGE>

approximately  $2,217,650  in  total.  Additional  shares  of the  Series B were
subsequently  sold at a discount  of  approximately  four and  one-half  percent
(4.5%) or approximately $36,000.  Accordingly, the recorded values of the Series
A and B preferred stock are being increased to their stated  liquidation  values
using the  interest  method  over a period of five  years and such  amounts  are
categorized  as  accretion  of  mandatorily  redeemable  preferred  stock in the
consolidated statement of operations.

The  preferred  stock  issued  consisted  of  non-voting  Series A and  Series B
redeemable  preferred stock; the Series A designation  being entitled to receive
cumulative dividends at the rate of 4.00% per annum and the Series B designation
being entitled to receive  cumulative  dividends at the rate of 8.00% per annum,
with both the Series A and B designations having equal ranking and preference as
to dividends  and  liquidation  rights and in priority to the  Company's  common
stockholders.  At this time, management has chosen to defer payment of dividends
to the  holders of the Series A and B  preferred  stock  until the  Company  has
sufficient cash flow from operations to service the obligation.

The Series A designation was designed for issuance to principals desiring surety
bonds  under FSC's  partially  collateralized  bonding  programs.  As  designed,
proceeds from the sale of Series A preferred  stock is  down-streamed  to FSC to
increase  its  capital  and  insurance  capacity,  although  to the extent  that
proceeds  from the sale of Series B  preferred  shares  was used in the  initial
acquisition  and funding of FSC, the Company was allowed to use such proceeds to
redeem  Series B preferred  stock  (Company  option to redeem) or for funding of
on-going  operations.  In the fiscal year ended May 31, 2007,  proceeds from the
sale of Series A preferred  stock amounted to $318,000 of which $62,000 was used
to redeem Series B preferred shares,  $79,000 was retained for use in funding of
on-going  operations  and $177,000  being  down-streamed  to FSC to increase its
capital and surplus. Effective June1, 2007, the Company agreed to the request by
the West Virginia  Insurance  Department to downstream all future  proceeds from
the sale Series A preferred stock in order to build capital and surplus reserves
of the insurance subsidiary to more substantial levels. In fiscal 2008, proceeds
from  the  sale of  Series A  preferred  stock  amounted  to  $803,000  that was
contributed to the surplus and capital of FSC.

The Series A designation contains a conditional redemption feature providing for
the  redemption  of the  Series A shares  at any time  after the  seventh  (7th)
anniversary  of the Issue Date,  provided that the principal no longer  requires
surety bonds issued by FSC.  Furthermore,  once redeemed,  the principal will no
longer be eligible to participate in partially  collateralized  bonding programs
offered by FSC.  Surety bonds  currently  being issued by FSC are  primarily for
coal  mining  and  reclamation  permits,  which  are  long-term  in  nature  and
continually  evolve  whereby  outstanding  bonds are  periodically  released  as
properties  are mined and  reclaimed  and new bonds issued for  properties to be
mined in the future.  Accordingly,  this source of financing  was designed to be
long-term by nature.

The Series B  designation  was  designed  for  issuance to  investors in JFG and
contains both conversion  rights to common stock and redemption  features.  Each
share of the  Series B  preferred  stock is  convertible,  at the  option of the
holder,  into 1,000 shares of JFG common stock and can be converted at any time.
Additionally, the Series B preferred stock can be redeemed, at the option of the
holder,  at  full-face  value  plus  accrued  and unpaid  cumulative  dividends,
commencing  with the fifth (5th)  anniversary  of the original  issue date.  The
Company has the option to redeem the Series B preferred shares at any time after
the first (1st)  anniversary of the original  issue date,  subject to the holder
exercising  its  conversion  privileges  prior to the  stated  redemption  date.

                                       11
<PAGE>

Management's  ability to execute its business plan and increase the market value
of its common stock will largely determine whether the Series B preferred shares
are converted to common shares or eventually redeemed.

BRIDGE-FINANCING, COMMITMENTS AND MATERIAL AGREEMENTS
-----------------------------------------------------
Of primary  importance to the Company's  ability to fully implement its business
plan is the  expansion  of that  business  into  additional  states.  Regulatory
approval  and  licensing  is required  for each state where FSC seeks to conduct
business.  Management  found  entry into  additional  states  (as a surety)  was
proving difficult  without the benefit of more substantial  capital and reserves
due to FSC's status as new entry into this market. Accordingly, management began
pursuing  avenues  that would  provide  additional  capital to  facilitate  such
expansion.

Beginning in September  2007, the Company secured loans totaling $2.5 million to
provide  interim  bridge-financing  until the Company was able to  accomplish  a
larger,  more permanent  financing,  and engaged an investment  bank to serve as
financial advisor to assist in accomplishing the larger financing. Additionally,
the Company entered into letters of intent to acquire two additional  companies,
Unione Italiana  Insurance Company  ("Unione"),  a New York domiciled  insurance
company with  licenses in 24 states for a purchase  price of $2.75  million plus
the surplus of Unione;  and  Reclamation  Surety Holding  Company  ("RSH") for a
purchase  price of $3.4 million,  an acquisition  that would provide  marketing,
underwriting  and  coal  reclamation  engineering  capabilities.   The  proposed
acquisitions,  when  coupled  with the  proposed  financing,  would  provide the
ability  for the  Company to enhance  and  accelerate  its  business  plan.  The
Company's   accomplishing  the  permanent  financing  and  consummation  of  the
acquisitions  of Unione and RSH are mutually  dependent  and remain  substantial
contingencies.

The  terms  of the  bridge-financing  arrangement,  as  revised  (See  Note H to
Financial  Statements),  provide  for payment in full upon  consummation  by the
Company of a qualified  equity  offering  providing net proceeds of at least $15
million by September 10, 2013;  and if such a qualified  equity  offering is not
consummated  by September  10,  2008,  then  accrued  interest-to-date  shall be
payable,  with  quarterly  installments  of principal  and  interest  based on a
five-year term payout beginning in December 2008.

RESTRICTIONS ON USE OF ASSETS
-----------------------------
Regulatory  approval of the  acquisition  of FSC by JFG was  provided  under the
condition  that no  dividends  or monies are to be paid to JFG from FSC  without
regulatory  approval.  Accordingly,  cash,  marketable  investments,  and  other
receivables  held by FSC are restricted from use to fund operations or meet cash
needs outside of the insurance company's domain. As of May 31, 2008, such assets
amounted to approximately $5.14 million.

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 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

                                       12
<PAGE>

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 May 31, 2008.

FSC is currently licensed to write coal permit and miscellaneous fixed-liability
limit surety bonds in West Virginia (and Ohio  effective  August 5, 2008).  Coal
permit bonds are required by regulatory  agencies to assure the  reclamation  of
land that has been disturbed by mining operations, and accordingly,  is a highly
regulated  process  by federal  and state  agencies.  Such  bonds are  generally
long-term in nature with mining  operations and reclamation work being conducted
in  unison  as the  property  is  mined.  Additionally,  no two  principals  and
properties are alike due to varied company  structures and unique  geography and
geology of each site.

In underwriting  such bonds,  management  obtains  estimates of costs to reclaim
such  properties,  in accordance with the  specifications  of the mining permit,
prepared by independent outside professionals experienced in this field of work.
Such  estimates  are then  periodically  updated and  compared  with  marketable
securities pledged, and held for the benefit of FSC as collateral for the surety
bond, to mitigate the exposure to significant loss. Should the principal default
in its obligation to reclaim the property as specified in the mining permit, FSC
would then use the funds held in the collateral  account to reclaim the property
or forfeit the face amount of the surety bond.  Losses can occur if the costs of
reclamation  exceed the estimates obtained at the time the bond was underwritten
or upon subsequent re-evaluations,  if sufficient collateral is not obtained, or
if the collateral held has experienced significant deterioration in value.

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

In establishing its reserves for losses and loss adjustment expense,  management
continually   reviews  its  exposure  to  loss  based  on  reports  provided  in
conjunction with the periodic monitoring and inspections performed, the value of
the  collateral  accounts  held for the  benefit  of FSC,  along  with  industry
averages and historical  experience.  Management has 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.

LIQUIDITY AND GOING CONCERN

The Company has experienced operating losses of approximately  $3,333,000 (after
accretion of  mandatorily  redeemable  convertible  preferred  stock,  including

                                       13
<PAGE>

accrued  dividends)  and  $2,661,000 for the fiscal years ended May 31, 2008 and
2007,  respectively.  The Company continues to face significant  working capital
deficiencies  and has not had adequate funds to pay its preferred stock dividend
obligation.  While  management  expects revenue growth and cash flow to increase
significantly as its business plan is fully implemented,  it is anticipated that
losses  will  continue  until  FSC is  able to  develop  a  substantial  book of
business.

Expansion  of  FSC's  business  to  other  states  is a key  component  to fully
implementing  the Company's  business plan.  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 new entry into this
market.  Management  believes  that if FSC's  capital and surplus  reserves were
significantly   more  substantial,   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.

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

COMPARISON OF RESULTS OF OPERATIONS FOR FISCAL 2008 WITH 2007

The Company  experienced a loss of $3,332,942  (after  accretion of  mandatorily
redeemable  convertible preferred stock,  including accrued dividends) in fiscal
2008 as compared with a loss of $2,661,431 in fiscal 2007.

REVENUES
--------
Revenues in fiscal 2008 amounted to $957,142 as compared with $823,339 in fiscal
2007. The increase in revenues is largely  attributable to new business acquired
by FSC and increased investment holdings of FSC.

Revenue from the investment  management segment,  net of advisory referral fees,
was  $262,806  in  fiscal  2008  as  compared  with  $275,328  in  fiscal  2007,
representing a decrease of $12,522. 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  year to  year  with  any  large  fluctuations  being
attributable to the growth or loss of assets under  management.  The decrease in
revenues is primarily  attributable to a decrease in advisory fees received from
the J&C Fund  resulting  from a decline in assets under  management.  Investment
advisory fees for  management of individual  and corporate  investment  accounts

                                       14
<PAGE>

increased  by  approximately  $11,000  from the addition of new clients and were
offset by a decrease of approximately  $18,000 in advisory and distribution fees
received from the Fund. The remaining  decrease is attributable to fees received
in fiscal year 2007 relating to other advisory services provided.

Revenue  from the  surety  insurance  segment,  consisting  of FSC and TSA,  was
$694,336 for fiscal 2008 as compared  with  $548,011  for fiscal 2007.  Revenues
attributable to the insurance segment are as follows:

                                            Year Ended May 31,
                                            2008           2007
                                        ----------- --------------

Premiums and commissions                 $ 465,286      $ 358,055
Net investment income                      225,461        189,956
Net realized investment gains                3,589              -
                                        ----------- --------------

                                 Total   $ 694,336      $ 548,011
                                        =========== ==============

Premium  revenue is  recognized  ratably over the term of the policy  period and
thus is relatively stable from period to period with fluctuations for comparable
periods  generally  reflecting the overall growth or loss of business.  Whereas,
commission  revenue,  which is dependent on the timing of issuance or renewal of
bonds, is expected to be somewhat more "seasonable" from quarter-to-quarter with
fluctuations  for comparable  periods  largely  reflecting the overall growth or
loss of business.  Investment income is expected to remain relatively consistent
from  period to  period,  but can  fluctuate  based on  interest  rates,  market
conditions,  growth or loss of business,  and  investment  funds expended in the
payment of claims.

The increase in revenues  reflected above is  attributable  to increased  surety
business  that has been  secured in fiscal  year 2008.  Net  premium  written in
fiscal 2008 amounted to $586,498 as compared  with $264,639 in fiscal 2007,  and
is more reflective of the growth experienced in this segment of the business for
the comparable periods. Commission income earned for the placement of bonds with
outside insurers has remained relatively stagnant.

Additionally,  in  conjunction  with the increased  surety  business  written in
fiscal 2008,  proceeds amounting to $803,000 from the sale of Series A preferred
stock,  a  requirement  for  issuing   partially   collateralized   bonds,  were
contributed  to the  surplus and capital of FSC.  FSC's  investment  holdings in
fiscal 2008 averaged $4.553 million as compared with $3.837 for fiscal 2007 with
investment  yields  remaining  relatively  unchanged  at just below  5.00%.  Net
realized gains from investments  resulted  primarily from higher rate investment
bonds with call features being called and redeemed prior to maturity.

EXPENSES
--------
Incurred  policy losses  represent  the  provision for loss and loss  adjustment
expense for  "incurred but not reported"  (IBNR) losses  attributable  to surety
bonds issued by FSC since its  acquisition  in December  2005.  Incurred  policy
losses for fiscal 2008 have been recorded as $135,867 or 30.0% of earned premium
as compared to $98,873 or 31.5% of earned  premium  for fiscal  2007.  IBNR loss
estimates  have been based on industry  averages  adjusted  for factors that are
unique to the FSC's  underwriting  approach.  FSC has  experienced no claims for
losses as of May 31, 2008.

                                       15
<PAGE>

Insurance  policy   acquisition   costs  represent  charges  to  operations  for
underwriting, commissions, and premium tax attributable to surety polices issued
by FSC and are recognized  ratably over the period in which premiums are earned.
In fiscal 2008 such costs  amounted  to  $126,386 or 27.9% of earned  premium as
compared with $108,065 or 34.1% in fiscal 2007.

General and administrative  expenses for fiscal 2008 were $2,037,178 as compared
with  $1,641,237 for fiscal 2007,  representing  an increase of $395,941 and are
comprised of the following:
<TABLE>
<CAPTION>

                                                            Year Ended May 31,
                                                         2008              2007          Difference
                                                    ---------------- ----------------- ----------------
<S>                                                       <C>              <C>           <C>
Salaries and related costs                                $ 727,219        $  790,725    $     (63,506)
General office expense                                      111,739           112,991           (1,252)
Legal and other professional fees                           804,512           305,908          498,604
Audit, accounting and related services                      118,595           134,047          (15,452)
Travel, meals and entertainment                              73,668            83,723          (10,055)
Other general and administrative                            201,445           213,843          (12,398)
                                                    ---------------- ----------------- ----------------
                  Total general and administrative      $ 2,037,178       $ 1,641,237        $ 395,941
                                                    ================ ================= ================
</TABLE>

Salaries and related costs, net of deferred internal policy  acquisition  costs,
decreased approximately $63,500 and are comprised of the following:
<TABLE>
<CAPTION>
                                                              Year Ended May 31,
                                                          2008               2007            Difference
                                                    ---------------- ----------------- -----------------
<S>                                                       <C>               <C>              <C>
Salaries and wages                                        $ 567,522         $ 532,131        $  35,391
Commissions                                                  37,147                 -           37,147
Payroll taxes                                                47,107            43,100            4,007
Stock option expense                                         98,972           206,681        (107,709)
Fringe benefits                                              61,764            56,075            5,689
Key-man life insurance                                       42,863            24,033           18,830
Deferred policy acquisition costs                          (128,156)          (71,295)         (56,861)
                                                    ------------------ ------------------ ------------------

                  Total salaries and related costs        $ 727,219         $ 790,725        $ (63,506)
                                                    ================== ================== ==================
</TABLE>

Increases  in  salaries  and  wages  relate to  increased  sales  staff,  salary
increases and year-end bonuses paid to non-executive  employees. The increase in
commissions  and  deferred  policy  acquisition  costs  is  attributable  to the
increase  in  insurance  business  written in fiscal  2008 as compared to fiscal
2007.  The  decrease in stock  option  expense is  attributable  to  non-uniform
vesting  schedules  under which  options vest for certain key  employees.  Group
health benefits increased approximately $8,300 or 16.46% from the previous year,
but were  offset by a decrease in the  Company's  group life  insurance  cost of
approximately  $2,600. The increase in key-man life insurance is attributable to
the increased debt the Company has incurred.

In fiscal 2008, legal and professional  fees of approximately  $804,500 included
approximately  $748,000  relating  to the  Company's  on-going  efforts to raise
additional  capital for the expansion of the surety  business into other states.
In fiscal 2007, legal and professional  fees of approximately  $306,000 included
approximately  $197,000  relating  to the  Company's  on-going  efforts to raise

                                       16
<PAGE>

additional  capital for the expansion of the surety  business into other states.
Other legal and  professional  fees  incurred in the  respective  years were for
other corporate matters.

Other less  significant  decreases were  experienced in audit,  travel and other
general administrative  expenses categories in fiscal 2008 as compared to fiscal
2007.

Jacobs & Co.  is the  investment  advisor  to the J&C  Fund.  While  the Fund is
responsible for its own operating  expenses,  Jacobs & Co., as the advisor,  has
agreed to limit the Fund's aggregate  annual operating  expenses to 2.00% of the
average  net  assets.  Under this  expense  limitation  agreement,  Jacobs & Co.
absorbed $157,269 of the Fund's operating expenses in fiscal 2008 as compared to
$181,612 in fiscal 2007. As the Fund grows in size (of assets under management),
expenses  (in excess of the 2% level)  absorbed  by Jacobs & Co.  will  decrease
until the Fund reaches  sufficient size to support its on-going operating costs.
In contrast,  as the Fund grows in size,  revenues from investment advisory fees
will  increase.  Additionally,  should the Fund's  operating  expense ratio fall
below the 2.00% level, the costs absorbed by the Company are now reimbursable to
it for a period of up to three  years.  In fiscal  2008,  the Fund's  investment
advisory  and  distribution  fees  amounted to $39,535 as compared to $58,055 in
fiscal  2007.  The  Fund's  average  assets  under   management   declined  from
approximately  $4.68 million for fiscal 2007 to approximately  $3.25 million for
fiscal 2008. As of May 31, 2008, assets under management were approximately $2.5
million.

The Fund was  initially  established  by Jacobs to provide the ability to manage
funds for smaller accounts in a more efficient and diversified manner than could
be achieved on an individual account basis.  Additionally,  the Fund provided an
investment  vehicle that would fit within the Company's broader business plan of
issuing smaller bonds under its collateralized surety programs. While the Fund's
lackluster  performance  has contributed to its gradual decline in size, and the
maintenance  of the Fund continues to be a significant  cost to the Company,  it
remains a key component in the Company's  broader  business plan.  Moreover,  if
successful in these broader  efforts,  the opportunity  exists to  significantly
increase  the assets  under  management  within the Fund.  Should the Company be
successful  in  increasing  the size of the Fund to such a level that the Fund's
operating  expense  ratio falls  below the 2.00%  level,  the costs  absorbed by
Jacobs & Co. are currently reimbursable to it for a period of up to three years.
Management continually evaluates the cost/benefit of maintaining the Fund.

GAIN ON EXTINGUISHMENT OF DEBT
------------------------------
The Company had been delinquent in paying certain of its payroll tax obligations
for periods  ending on or before  December 31, 2005. In fiscal 2008, the Company
entered into  negotiations  for the repayment and settlement of this  obligation
with the Internal Revenue Service.  In conjunction with such  negotiations,  the
Company made  payments of  approximately  $402,000  towards the tax and interest
portion of this obligation and requested  abatement of all penalties relating to
this  matter.  In February  2008,  the Company  received  notification  from the
Internal  Revenue  Service  granting  its request for  abatement of penalty with
respect to this matter.  Accordingly,  the Company recognized a gain of $115,470
upon final settlement of this matter.

In December  2006,  the Company  repaid an obligation to a creditor  relating to
professional  fees incurred in the Company's 2002 fiscal year in connection with
litigation resulting from a failed business combination  transaction.  Under the
terms of an agreement  reached in October  2006,  the  creditor  agreed to waive
payment of any accrued  interest on the  obligation  provided the obligation was

                                       17
<PAGE>

paid by a certain  agreed-upon date. At the time of repayment,  accrued interest
on this obligation  totaled $42,445,  and accordingly,  upon satisfaction of the
debt in accordance with such agreement, a gain on the extinguishment of debt was
recognized.

INTEREST EXPENSE AND INTEREST INCOME
------------------------------------
Interest  expense for fiscal 2008 was  $479,295  as  compared  with  $153,020 in
fiscal 2007. The increase in interest  expense is primarily  attributable to the
additional borrowings under the bridge-financing  arrangement  undertaken by the
Company  beginning  in  September  2007.  Components  of  interest  expense  are
comprised of the following:
<TABLE>
<CAPTION>
                                                                    Year Ended May 31,
                                                                 2008               2007             Difference
                                                           ------------------ ------------------ ------------------

<S>                                                                <C>                 <C>                <C>
Interest expense on bridge financing                               $ 170,931           $    110           $ 170,821

Expense of common shares issued or to be issued in
connection with bridge financing arrangements                        238,943                  -             238,943

Interest expense on demand and term notes                             47,920             46,400                 520

Interest expense accrued on debt obligations
subsequently settled and recorded as gain on debt
extinguishment                                                        13,075             92,886             (79,811)


Other finance charges                                                  8,426             13,624              (4,198)
                                                           ------------------ ------------------ -------------------

                                   Total interest expense          $ 479,295          $ 153,020           $ 326,275
                                                           ================== ================== ===================
</TABLE>

Interest  income for fiscal 2008 was $10,137 as compared  with $1,176 for fiscal
2007.  Interest income for fiscal 2008 is primarily related to the investment of
the  unexpended  proceeds from the  bridge-financing  arrangement  in short-term
investment accounts.  Interest income for fiscal 2007 relates to interest earned
on amounts due from a related party.

PREFERRED STOCK ACCRETION AND DIVIDENDS
---------------------------------------
Accretion of mandatorily  redeemable convertible preferred stock is comprised of
accretion of  discount,  accrued but unpaid  dividends  on  preferred  stock and
amounts by which the  redemption  price  exceeded the carrying value of redeemed
shares of Series B preferred stock as follows:

                                           Year Ended May 31,
                                          2008             2007
                                    ----------------- ----------------
Accretion of discount                    $   529,273        $ 494,651
Accrued dividends                            942,044          827,797
Excess redemption price                                        10,717
                                                   -
                                    ----------------- ----------------
                                          $1,471,317       $1,333,165
                                    ================= ================


                                       18
<PAGE>

OFF BALANCE SHEET ARRANGEMENTS
------------------------------
The Company does not have any off-balance  sheet  arrangements  that have or are
reasonably likely to have a current or future effect on the Company's  financial
condition,  changes in financial  condition,  revenues or  expenses,  results of
operations,  liquidity,  capital  expenditures  or  capital  resources  that  is
material to investors.


Item 7A. 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 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

<TABLE>
<CAPTION>
The following financial statements are included herein in response to Item 8:

                                                                                              Page
                                                                                       --------------------
<S>                                                                                            <C>
Table of Contents                                                                              F-1

Report of Independent Registered Public Accounting Firm                                        F-2

FINANCIAL STATEMENTS

Consolidated Balance Sheets                                                                    F-3
Consolidated Statements of Operations                                                          F-4
Consolidated Statements of Comprehensive Income (Loss)                                         F-5
Consolidated Statements of Cash Flows                                                          F-6
Consolidated Statements of Mandatorily Redeemable Preferred Stock and Stockholders'
Equity (Deficit)                                                                               F-8
Notes to Consolidated Financial Statements                                                     F-10

SCHEDULES

Schedule I - Summary of Investments - Other than Investments in Related Parties                F-48
Schedule II - Condensed Financial Information of Registrant                                    F-49
Schedule III - Supplementary Insurance Information                                             F-51
Schedule VI - Supplemental Information                                                         F-52
</TABLE>


                                       19
<PAGE>

Item 9.  CHANGES  IN  AND  DISAGREEMENTS  WITH  ACCOUNTANTS  ON  ACCOUNTING  AND
         FINANCIAL DISCLOSURE

In connection with the audits for the years ended May 31, 2008 and May 31, 2007,
there have been no disagreements  with  independent  accountants with respect to
any  matter  of  accounting   principles  or  practices,   financial   statement
disclosure, or auditing scope or procedure.

Item 9A(T). CONTROLS AND PROCEDURES

EVALUATION OF DISCLOSURE CONTROLS AND PROCEDURES

In  connection  with the  preparation  of this  Annual  Report on Form 10-K,  an
evaluation was carried out by JFG's management,  with the participation of JFG's
Chief Executive  Officer and Chief Financial  Officer,  of the  effectiveness of
JFG's  disclosure  controls and  procedures  (as defined in Rules  13a-15(e) and
15d-15(e)  under the Securities  Exchange Act of 1934 (Exchange  Act)) as of May
31,  2008.  Disclosure  controls  and  procedures  are  designed  to ensure that
information  required to be  disclosed in reports  filed or submitted  under the
Exchange Act is recorded,  processed,  summarized  and reported  within the time
frames specified in SEC rules and forms and that such information is accumulated
and communicated to management,  including the Chief Executive Officer and Chief
Financial Officer, to allow timely decisions regarding required disclosures.

During the evaluation of disclosure  controls and procedures as of May 31, 2008,
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.  As a result,  JFG's Chief  Executive  Officer and Chief
Financial Officer  concluded that as of May 31, 2008, JFG's disclosure  controls
and procedures were ineffective.

Upon  identification  of the material  weaknesses and under the direction of the
Chief  Executive  Officer and Chief Financial  Officer,  JFG developed a plan to
remediate  the  material  weaknesses  within the  constraints  of the  Company's
limited financial resources and the size of its accounting staff.

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  to  be
implemented 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 will be  implemented  during the first fiscal  quarter of the  Company's
2008-2009 fiscal year. Other changes will be considered as additional  financial
resources and accounting staff become available.

Notwithstanding the above, JFG believes the consolidated financial statements in
this Annual Report on Form 10-K fairly present, in all material respects,  JFG's
financial  condition  as of May  31,  2008  and  2007,  and the  results  of its
operations  and  cash  flows  for the  years  ended  May 31,  2008  and  2007 in
conformity with U.S. generally accepted accounting principals (GAAP).

                                       20
<PAGE>

MANAGEMENT'S REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING

Management of JFG is  responsible  for  establishing  and  maintaining  adequate
internal control over financial reporting. JFG's internal control over financial
reporting is a process under the  supervision of JFG's Chief  Executive  Officer
and Chief Financial Officer,  designed to provide reasonable assurance regarding
the  reliability of financial  reporting and the  preparation of JFG's financial
statements for external purposes in accordance with GAAP.

Because of its inherent  limitations,  internal control over financial reporting
may not prevent or detect misstatements.  Also, projections of any evaluation of
effectiveness  to future  periods are subject to risk that  controls  may become
inadequate because of change in conditions, or the degree of compliance with the
policies and procedures may deteriorate.

JFG  management  conducted an assessment of the  effectiveness  of the Company's
internal  control over  financial  reporting as of May 31, 2008.  In making this
assessment,  management  used  the  criteria  set  forth  by  the  Committee  of
Sponsoring Organizations of the Treadway Commission (COSO) in Internal Control -
Integrated  Framework.  Based on this assessment,  management concluded that the
Company's internal control over financial  reporting was not effective as of May
31, 2008. A material weakness is a control deficiency, or combination of control
deficiencies,  that  results  in more than a remote  likelihood  that a material
misstatement  of  our  annual  or  interim  financial  statements  would  not be
prevented or detected.

JFG  management   identified  control   deficiencies  that,  in  the  aggregate,
constitute a material  weakness in internal control over financial  reporting as
of May 31, 2008. 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.

Effective  July 1, 2008,  management  implemented  changes in the  processing of
transactions  to  remediate  the  inadequate  segregation  of  duties  weakness.
Additionally,  management  identified steps to be implemented 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 will be  implemented
during the first fiscal quarter of the Company's  2008-2009  fiscal year.  Other
changes are to be considered as additional  financial  resources and  accounting
staff become available.  Management believes that the successful  implementation
of these changes will strengthen overall controls over financial reporting,  but
may not, at this time,  be  sufficient  to  effectively  mitigate  this material
weakness.

This  annual  report  does not include an  attestation  report of the  company's
registered  public  accounting  firm regarding  internal  control over financial
reporting.  Management's  report was not subject to attestation by the company's
registered  public accounting firm pursuant to temporary rules of the Securities
and Exchange  Commission  that permit the company to provide  only  management's
report in this annual report.


Item 9B. OTHER INFORMATION

                           None

                                       21
<PAGE>


PART III

Item 10. DIRECTORS, EXECUTIVE OFFICERS, AND CORPORATE GOVERANCE

The directors and  executive  officers of the Company,  their ages and positions
are as follows:

                   NAME                  AGE                     POSITION
           ---------------------         ---             -----------------------
              John M. Jacobs              54                President and CEO
                                                                 Director
           Frederick E. Ferguson          74                     Director
              C. David Thomas             55                     Director
             Robert J. Kenney             61                  Vice President
              Robert L. Neal              52             Chief Financial Officer


JOHN M. JACOBS

Mr.  Jacobs  is the  founder  of Jacobs & Co.,  an  independent  SEC  registered
investment advisor, a Certified Public Accountant, and is licensed as a property
and casualty  insurance agent in fifteen (15) states. Mr. Jacobs has served as a
Director and President of both Jacobs & Co. and FS Investments, Inc. since their
inception.  Prior to  establishing  Jacobs  & Co.,  in 1988,  Mr.  Jacobs  was a
practicing  public  accountant  for over thirteen  years,  during which he was a
managing  partner of his accounting firm and a business and personal  advisor to
his clients.  Mr. Jacobs has served as a director and President of JFG since May
2001.

FREDERICK E. FERGUSON

Mr. Ferguson is retired coal operator who has a diverse  experience with respect
to business  and the coal  industry.  Mr.  Ferguson  spent the first half of his
career as a state and  federal  mine  inspector.  During  the later  half of his
career,  Mr.  Ferguson owned his own coal company and was involved in all facets
of mining production. He has served as a Director of FS Investments,  Inc. since
its inception in December  1997,  and has served as a director of JFG since July
2002.


C. DAVID THOMAS

Mr.  Thomas is a licensed  resident  insurance  agent in West Virginia and holds
non-resident agent licenses in several other states. Mr. Thomas began his surety
career in 1976 with United  States  Fidelity and Guaranty  Company and served as
the surety  underwriter in the Charleston,  WV branch office until 1979. At that
time he joined George  Friedlander & Company,  a regional insurance agency based
in  Charleston,  WV, where he presently  serves as Vice President and Manager of
the Surety  Department.  Mr.  Thomas is a  shareholder  and  Director  of George
Friedlander & Company. He has served as a Director of FS Investments, Inc. since
its inception in December  1997,  and has served as a director of JFG since July
2002.

                                       22
<PAGE>

ROBERT J. KENNEY

Mr. Kenney has been Vice  President of the Company since 2003. Mr. Kenney joined
FSI and Jacobs &Co. in 2000,  and is President of First Surety  Corporation  and
Vice President and Assistant  Portfolio Manager of Jacobs & Co. Previously,  Mr.
Kenney  served as Senior Vice  President  of  Triangle  Surety  Agency,  Inc. In
addition,  he is a licensed  resident  insurance agent in West Virginia and also
holds Series 63 and 65 securities licenses. Prior to joining Triangle Surety and
Jacobs  & Co.,  Mr.  Kenney  had  over 20  years  experience  in the oil and gas
industry with  Columbia  Energy Group.  With  Columbia,  Mr. Kenney held various
positions in Treasury,  Human Resources,  and Law Departments and served as both
Manager of Risk Management and Special Projects Manager.

ROBERT L. NEAL

Mr.  Neal  re-joined  JFG in  January  2006 as  Chief  Financial  Officer  after
previously  serving in a similar  capacity from June 2000 to May 2002.  Prior to
his re-joining JFG Mr. Neal served as President and CEO of West Virginia Capital
Corporation,  a statewide  community  development  corporation from June 2002 to
December  2005.  Prior to  that,  Mr.  Neal  had  over 20  years  of  management
experience  in banking and public  accounting.  Mr.  Neal is a Certified  Public
Accountant.

There  are no family  relationships  among any of the  Company's  directors  and
executive officers.

During  the past five  years,  there have been no  filings  of  petitions  under
federal  bankruptcy  laws,  or any state  insolvency  laws,  by or  against  any
business of which any director or executive officer of the Company was a general
partner or executive  officer at the time or within two years before the time of
such filing.

During the past five years, no director or executive  officer of the Company has
been  convicted in a criminal  proceeding or been subject to a pending  criminal
proceeding.

During the past five years, no director or executive  officer of the Company has
been the subject of any order,  judgement, or decree, not subsequently reversed,
suspended  or  vacated  by a court of  competent  jurisdiction,  permanently  or
temporarily enjoining, barring, suspending or otherwise limiting his involvement
in any type of business, securities or banking activities.

During the past five years, no director or executive  officer of the Company has
been  found  by a court  of  competent  jurisdiction  (in a civil  action),  the
Commission  or the  Commodity  Futures  Trading  Commission  to have  violated a
federal or state securities or commodities law.

COMPLIANCE WITH SECTION 16(A) OF THE EXCHANGE ACT

During the most recent  fiscal year,  the Company is not aware of any  director,
officer or  beneficial  owner of more than 10 percent  of the  Company's  common
stock at any time during the fiscal  year that failed to file on a timely  basis
reports required by Section 16(a) of the Exchange Act.

                                       23
<PAGE>

CODE OF ETHICS
--------------
The Company adopted a Code of Business  Conduct and Ethics ("Code") that applies
to the  Employees,  Officers and  Directors  of Jacobs  Financial  Group,  Inc.,
Triangle Surety Agency,  Inc. and First Surety Corporation on November 13, 2007.
Further, the Code contains additional guidelines and standards for the Company's
principal  executive officer and senior financial officer. A copy of the Code of
Business  Conduct  and Ethics can be  obtained,  without  charge,  upon  written
request as follows:

                  Jacobs Financial Group, Inc.
                  Attn: Compliance Director
                  300 Summers Street, Suite 970
                  Charleston, WV  25301

Jacobs & Co., as an investment  advisor,  has its own compliance policy that was
revised  and  updated in November  2004 and is  specifically  designed to assure
compliance by Jacobs & Co. and its employees with the Investment Advisors Act of
1940 and the rules promulgated thereunder.


AUDIT (COMMITTEE) FINANCIAL EXPERT
----------------------------------
The Board has determined that John M. Jacobs is the Audit (Committee)  Financial
Expert as such term is  defined  in Item  407(d)(5)(ii)  of  Regulation  SK. Mr.
Jacobs is not  independent as that term is used in Item  7(d)(3)(iv) of Schedule
14A under the Securities Exchange Act.


Item 11. EXECUTIVE COMPENSATION

SUMMARY COMPENSATION TABLE
--------------------------
The following table sets forth the  compensation  paid by the Company during the
fiscal years ended May 31, 2008 and 2007 to the Principal  Executive Officer and
the two most highly  compensated  executive  officers of the Company (the "Named
Executive Officers").
<TABLE>
<CAPTION>
------------- ----------- -------------- -------- ---------- -------------- ----------------- -------------
                                                                                  ALL
 NAMES AND                                          STOCK       OPTION           OTHER
 PRINCIPAL                   SALARY       BONUS    AWARDS       AWARDS        COMPENSATION       TOTAL
  POSITION       YEAR          ($)         ($)       ($)        ($) (1)         ($) (2)           ($)
------------- ----------- -------------- -------- ---------- -------------- ----------------- -------------
<S>              <C>           <C>         <C>       <C>          <C>              <C>           <C>
John M.          2008          $150,000     -         -           $ 49,164          $ 25,913      $225,077
Jacobs, CEO      2007          $150,000                           $109,191          $ 16,647      $275,838
------------- ----------- -------------- -------- ---------- -------------- ----------------- -------------
Robert J.        2008          $ 75,000     -         -           $ 15,840                 -      $ 90,840
Kenney, VP       2007          $ 75,000                           $ 34,849                        $109,849
------------- ----------- -------------- -------- ---------- -------------- ----------------- -------------
Robert L.        2008          $ 90,000     -         -           $ 10,296                 -      $100,296
Neal, CFO        2007          $ 90,000                           $ 19,800                        $109,800
------------- ----------- -------------- -------- ---------- -------------- ----------------- -------------
</TABLE>

                                       24
<PAGE>

(1)  On May 25,  2006,  the  compensation  committee  of the board of  directors
     awarded  12,500,000,  5,000,000 and 2,000,000 of incentive stock options to
     acquire  common shares at an exercise price of seven cents ($.07) per share
     to Mr.  Jacobs,  Mr. Kenney and Mr. Neal,  respectively,  which vest as set
     forth in the table below. The term of the options is five years and expires
     in May 2011.


-------------------- -----------------------------------------------------------
     Vesting date                    Incentive Stock Option Awards

-------------------- -----------------------------------------------------------
                     JOHN M. JACOBS       ROBERT J. KENNEY       ROBERT L. NEAL
                     --------------       ----------------       --------------
-------------------- -------------------- ---------------------- ---------------
May 25, 2006              2,500,000             2,000,000                -
-------------------- -------------------- ---------------------- ---------------
January 1, 2007           2,500,000
-------------------- -------------------- ---------------------- ---------------
May 25, 2007                                    1,000,000             500,000
-------------------- -------------------- ---------------------- ---------------
January 1, 2008           2,500,000
-------------------- -------------------- ---------------------- ---------------
May 25, 2008                                    1,000,000             500,000
-------------------- -------------------- ---------------------- ---------------
January 1, 2009           2,500,000
-------------------- -------------------- ---------------------- ---------------
May 25, 2009                                    1,000,000             500,000
-------------------- -------------------- ---------------------- ---------------
January 1, 2010           2,500,000
-------------------- -------------------- ---------------------- ---------------
May 25, 2010                                                          500,000
-------------------- -------------------- ---------------------- ---------------

The amounts  shown in this column  represent the dollar  amount  recognized  for
financial  reporting purposes during the fiscal year for the fair value of stock
options received by the named individuals,  excluding the effects of forfeitures
relating to service-based  vesting  conditions.  The assumptions used to compute
the fair  value are  disclosed  in "Note L,  Stock-Based  Compensation",  to the
audited financial statements included herein under Part II Item 8.

(2)  Other  compensation  includes  insurance premiums paid by the Registrant on
     behalf of the named  executive  officer  under  verbal  agreement  with the
     Executive Officer.

OUTSTANDING EQUITY AWARDS AT FISCAL YEAR-END

The following table sets forth for each of our Named Executive  Officers certain
information regarding unexercised options and stock awards as of May 31, 2008.
<TABLE>
<CAPTION>

---------------- -----------------------------------------------------------------------------------
                                                   OPTION AWARDS
---------------- ---------------- ------------------ ---------------- -------------- ---------------
                                                         EQUITY
                                      NUMBER OF      INCENTIVE PLAN
                    NUMBER OF        SECURITIES      AWARDS; NUMBER
                   SECURITIES        UNDERLYING       OF SECURITIES
                   UNDERLYING        UNEXERCISED       UNDERLYING
                   UNEXERCISED       OPTIONS (#)       UNEXERCISED       OPTION
                   OPTIONS (#)      UNEXERCISABLE       UNEARNED        EXERCISE         OPTION
     NAME          EXERCISABLE           (1)           OPTIONS (#)      PRICE ($)      EXPIRATION
                                                                                          DATE
---------------- ---------------- ------------------ ---------------- -------------- ---------------
<S>                 <C>               <C>                  <C>           <C>           <C>
    John M.         7,500,000         5,000,000             -             $.07         05/25/2011
  Jacobs, CEO
---------------- ---------------- ------------------ ---------------- -------------- ---------------
   Robert J.        4,000,000         1,000,000             -             $.07         05/25/2011
  Kenney, VP
---------------- ---------------- ------------------ ---------------- -------------- ---------------
   Robert L.        1,000,000         1,000,000             -             $.07         05/25/2011
   Neal, CFO
---------------- ---------------- ------------------ ---------------- -------------- ---------------
</TABLE>

                                       25

<PAGE>

(1)  Non-vested  options of Mr.  Jacobs  will vest evenly on January 1, 2009 and
     2010,  respectively.  Non-vested options of Mr. Kenney will vest on May 25,
     2009.  Non-vested options for Mr. Neal will vest evenly on May 25, 2009 and
     2010 respectively.

OTHER EXECUTIVE COMPENSATION PLANS
----------------------------------
The Company has no plans that provide for the payment of retirement benefits, or
benefits that will be paid  primarily  following  retirement,  including but not
limited  to  tax-qualified   defined  benefit  plans,   supplemental   executive
retirement  plans,  tax-qualified  defined  contribution  plans and nonqualified
defined contribution plans.

The Company has no contract, agreement, plan or arrangement,  whether written or
unwritten,  that  provides  for  payment(s)  to a named  executive  officer  at,
following,   or  in  connection  with  the  resignation,   retirement  or  other
termination of a named executive officer,  or a change in control of the Company
or a change in the named executive officer's responsibilities following a change
in control.


DIRECTOR COMPENSATION
---------------------
The following  table sets forth  compensation  received by our directors for the
fiscal year ended May 31, 2008.

--------------------------- ---------------------------------------- -----------
           NAME               FEES EARNED OR PAID IN CASH ($) (1)    TOTAL ($)
--------------------------- ---------------------------------------- -----------
  Frederick E. Ferguson                      $150                       $150
--------------------------- ---------------------------------------- -----------
     C. David Thomas                         $150                       $150
--------------------------- ---------------------------------------- -----------

(1)      Non-employee  board  members  of JFG's  wholly-owned  subsidiary  First
         Surety Corporation, which include JFG board members, are compensated at
         the rate of $150 per meeting.

Item 12.  SECURITY  OWNERSHIP OF CERTAIN  BENEFICIAL  OWNERS AND  MANAGEMENT AND
          RELATED STOCKHOLDER MATTERS

The following  tables set forth the beneficial  ownership of common stock of the
Company as of August 22,  2008 by (i) each  person  known by the  Company to own
more than 5% of the Company's  common stock,  (ii) each of the directors,  (iii)
the Named Executive  Officers and (iv) all directors and executive officers as a
group.  Unless  otherwise  noted,  such persons have sole voting and  investment
power with respect to such shares.

                                       26
<PAGE>
<TABLE>
<CAPTION>
---------------------------------- ------------------------------- ------------------------------- -------------------------------

                                        Name and Address of             Amount and Nature of                 Percent of
         Title of Class                   Beneficial Owner            Beneficial Ownership (1)                 Class (2)
---------------------------------- ------------------------------- ------------------------------- -------------------------------
MORE THAN 5.00% BENEFICIAL OWNERSHIP
<S>                                  <C>                                   <C>                                <C>
                                           John M. Jacobs
                                     300 Summers St. Suite 970
             Common                    Charleston, WV 285301               26,548,127 (3)                      14.97%

                                          Charles L. Stout
                                          Route 1, Box 41J
             Common                     Bridgeport, WV 26330               13,175,000 (4)                      7.79%

                                          Fay S. Alexander
                                      6318 Timarron Cove Lane
             Common                     Burke, VA 22015-4073               13,256,041 (5)                      7.74%

                                          William D. Jones
                                         513 Georgia Avenue
             Common                    Chattanooga, TN 37403               10,827,694 (6)                      6.34%

                                            Sue C. Hunt
                                        1508 Viewmont Drive
             Common                     Charleston, WV 25302                8,611,589 (7)                      5.05%


DIRECTORS AND NAMED EXECUTIVE OFFICERS

                                           John M. Jacobs
                                     300 Summers St. Suite 970
             Common                    Charleston, WV 285301               26,548,127 (3)                     14.97%

                                       Frederick E. Ferguson
                                          Route 3, Box 408
             Common                    Fayetteville, WV 25840               1,600,000 (8)                       *

                                          C. David Thomas
                                          P. O., Box 5157
             Common                     Charleston, WV 25361                  992,295                           *

                                          Robert J. Kenney
                                         809 Sherwood Drive
             Common                     Charleston, WV 25314                4,920,000 (9)                      2.84%

                                           Robert L. Neal
                                          101 Sunset Drive
             Common                     Charleston, WV 25301                1,000,000 (10)                      *

                                    ALL DIRECTORS AND EXECUTIVE
             Common                     OFFICERS AS A GROUP                35,060,422                         19.15%
</TABLE>

*    Represents  beneficial  ownership of less than one percent of the Company's
     common stock.

                                       27
<PAGE>

(1)  Beneficial  ownership is  determined  in  accordance  with the rules of the
     Securities  Exchange Commission and generally includes voting or investment
     power with respect to securities.  Shares of common stock issuable upon the
     exercise of options or  warrants  currently  exercisable  within 60 days of
     August  22,  2008 are  deemed  outstanding  for  computing  the  percentage
     ownership of the person holding such options or warrants but are not deemed
     outstanding for computing the percentage ownership of any other person.

(2)  Based on  169,206,823  shares of common  stock issued and outstanding as of
     August 22, 2008.

(3)  Includes  12,233,044  shares of common stock held in the name of FS Limited
     Partnership  ("FSLP") of which Mr. Jacobs is the sole general partner.  Mr.
     Jacobs  has the power to vote and to direct  the voting of and the power to
     dispose  and direct the  disposition  of the shares  beneficially  owned by
     FSLP.  Includes  785,000  shares  of  common  stock  held in the name of JF
     Limited  Partnership  ("JFLP")  of which  Mr.  Jacobs  is the sole  general
     partner.  Mr.  Jacobs has the power to vote and to direct the voting of and
     the power to dispose and direct the disposition of the shares  beneficially
     owned by JFLP. Includes 5,363,416 shares held in joint tenancy with spouse,
     Kathleen  M.  Jacobs.  Includes  7,500,000  in vested  options to  purchase
     Company stock exercisable  within 60 days of August 22, 2008.  Includes the
     right to convert  Series B Preferred  Stock  holdings to 666,667  shares of
     common stock exercisable  within 60 days of August 22, 2008. John M. Jacobs
     is the CEO and also a member of the board of directors for the Registrant.

(4)  Includes  25,000  shares  of  common  stock  held in the  name  of  Applied
     Mechanics  Corporation  of  which  Charles  L.  Stout  is  President  and a
     director,  12,150,000 shares held in joint tenancy with spouse,  Marilyn J.
     Stout, and 1,000,000 shares  beneficially owned by members of the immediate
     family.

(5)  Includes  9,900,000  shares of common  stock  held in the name of  Graphite
     Investment,  LLC  ("Graphite")  and  1,000,000  shares  held in the name of
     Southall Management  Corporation  ("Southall") of which Fay S. Alexander is
     President (both entities). Includes the right to convert Series B Preferred
     Stock holdings of Graphite and Southall to 2,141,341 shares of common stock
     exercisable within 60 days of August 22, 2008. Includes 214,700 shares held
     in joint tenancy with spouse, Dan C. Alexander.

(6)  Includes  9,060,000  shares  of common  stock  held in joint  tenancy  with
     spouse,  Cynthia B. Jones. Includes the right to convert Series B Preferred
     Stock  holdings to 282,116 shares of common stock (182,116 in joint tenancy
     with spouse)  exercisable  within 60 days of August 22, 2008.  Includes the
     right to  purchase  1,410,578  shares of  common  stock  (910,578  in joint
     tenancy with spouse)  pursuant to issued and outstanding  stock warrants at
     an exercise  price of  one-tenth of one cent per share  ("stock  warrants")
     exercisable within 60 days of August 22, 2008.

(7)  Includes 1,209,515 shares of common stock held in the Individual Retirement
     Account ("IRA") of spouse,  Douglas E. Hunt.  Includes the right to convert
     Series B Preferred Stock holdings to 200,000 shares of common stock and the
     right to purchase  1,000,000  shares of common stock pursuant to issued and
     outstanding  stock warrants  exercisable  within 60 days of August 22, 2008
     and held in the IRA of  Douglas  E.  Hunt.  Includes  the right to  convert
     Series B Preferred  Stock holdings to 33,679 shares of common stock and the

                                       28
<PAGE>

     right to purchase  168,395  shares of common  stock  pursuant to issued and
     outstanding  stock warrants  exercisable  within 60 days of August 22, 2008
     and held jointly with spouse.

(8)  Includes  750,000 shares of common stock held in joint tenancy with spouse,
     Sandra B. Ferguson.  Includes  130,000 shares held in the name of The Party
     Store,  Inc.  ("Party  Store") of which Fred E. Ferguson is President and a
     director.  Includes the right to convert Series B Preferred  Stock holdings
     held in the name Party Store to 120,000 shares of common stock  exercisable
     within 60 days of August 22, 2008.  Includes the right to purchase  600,000
     shares of common stock  pursuant to issued and  outstanding  stock warrants
     held in the name of Party  Store  exercisable  within 60 days of August 22,
     2008.

(9)  Includes  75,000  shares of common stock held in joint tenancy with spouse,
     Lee Anne  Kenney.  Includes  335,000  shares  of common  stock  held in the
     Individual  Retirement  Account  ("IRA")  of,  Robert J.  Kenney.  Includes
     510,000  shares of common stock held in the Individual  Retirement  Account
     ("IRA") of spouse, Lee Anne Kenney. Includes 4,000,000 in vested options to
     purchase Company stock exercisable within 60 days of August 22, 2008.

(10) Includes  1,000,000 in vested options to purchase Company stock exercisable
     within 60 days of August 22, 2008.

In accordance with the terms of the bridge-financing arrangement as set forth in
Note H of the  Audited  Financial  Statements  contained  in  Item 8. of Part II
herein,  in the event that a qualified  financing (as defined in said Note H) is
not  completed  and such  bridge-financing  is  extended to  September  2010 for
repayment,  one of the participants providing part of the bridge-financing would
acquire common shares of the Registrant through such arrangement equal to 10.50%
of the common shares then  outstanding.  For each six-month  period  thereafter,
such holdings would be increased by 1.40% and if extended to maturity (September
2013), such holdings would amount to 18.90%.

Item  13.  CERTAIN   RELATIONSHIPS  AND  RELATED   TRANSACTIONS,   AND  DIRECTOR
INDEPENDENCE

For the past several  years the  Company's  operating  expenses  were  partially
funded by advances from its largest  shareholder  and chief  executive  officer,
John M.  Jacobs.  The  source of  funding  for these  advances  originated  with
obligations incurred by Mr. Jacobs with third parties (such obligations together
with the loans by Mr. Jacobs to the Company, "back-to-back loans") with interest
rates ranging from 6.75% to 12%.

To assure that  repayments  of the various  borrowings  by the Company that were
either  guaranteed by Mr. Jacobs or loaned to the Company by Mr. Jacobs via such
back-to-back  loan  arrangements  did not result in a deemed loan to Mr. Jacobs,
Mr. Jacobs entered into an Assumption  Agreement  with the Company,  pursuant to
which  Mr.  Jacobs  assumes,  and  agrees  to hold the  Company  harmless  from,
principal  of  specified  indebtedness  of the Company as and when  necessary to
fully offset what might  otherwise be deemed an advance of funds  arising out of
the Company's financing activities.

During  the  year  ended  May 31,  2006,  the  Company  made net  repayments  of
$1,170,546 on the  back-to-back  loans which was $508,036 more than the original

                                       29
<PAGE>

loans and interest  charges.  In accordance with the Assumption  Agreement,  the
Company assigned to Mr. Jacobs and Mr. Jacobs assumed responsibility for payment
of certain debt totaling  $101,326 and accounts payable totaling $365,000 during
the year ended May 31, 2006.  The debt  obligation  was re-issued in the name of
Mr.  Jacobs;  and therefore the debt amount was relieved and offset  against the
receivable  from Mr.  Jacobs.  Although the Company  assigned  accounts  payable
totaling $365,000 to Mr. Jacobs through the Assumption Agreement,  for financial
reporting purposes under generally accepted accounting principles,  the accounts
payable  amount could not be  derecognized  until either paid or released by the
creditor.  On  September  13,  2006,  the Company did receive a release from the
obligee of the $365,000 accounts payable that was assumed by Mr. Jacobs pursuant
to the Assumption Agreement. Accordingly, the assumption of the accounts payable
was  offset  against  the  balance  due from Mr.  Jacobs  as of May 31,  2006 of
$361,009.  The  largest  amount  due from Mr.  Jacobs  in fiscal  2007  prior to
receiving the above mentioned release amounted to $425,423.  Interest charged to
Mr. Jacobs in fiscal 2007 amounted to $12,222.

During fiscal 2007, advances to the Company from Mr. Jacobs amounted to $285,392
and  repayments  to Mr.  Jacobs  amounted to $273,620.  As of May 31, 2007,  the
balance due Mr. Jacobs was $15,763.  The largest aggregate amount outstanding to
Mr.  Jacobs in fiscal  2007 was  $80,541.  Interest on such  obligations  to Mr.
Jacobs in fiscal 2007  amounted to $6,146 and was netted  against  interest  due
from Mr. Jacobs as stated above.

During fiscal 2008, advances to the Company from Mr. Jacobs amounted to $132,200
and  repayments  to Mr.  Jacobs  amounted to $146,963.  As of May 31, 2008,  the
balance due Mr. Jacobs was $1,000.  The largest aggregate amount  outstanding to
Mr. Jacobs in fiscal 2008 was $127,200. Interest paid on such obligations to Mr.
Jacobs in fiscal 2008 amounted to $1,387.

The rate of interest on such amounts due from and  obligations due to Mr. Jacobs
was 12% for both the 2007 and 2008 fiscal years.

As of August 22, 2008, no obligations were owed to Mr. Jacobs.

DIRECTOR'S INDEPENDENCE
-----------------------
The board of directors ("Board") is comprised of three members,  John M. Jacobs,
Frederick E. Ferguson and C. David Thomas.  Only Mr. John M. Jacobs,  who serves
as Chief  Executive  Officer  for the  Company,  is not  independent  within the
meaning of The Nasdaq Stock Market, Inc. listing standards.

There were no transactions,  relationships or arrangements  that were considered
by the Board of Directors in  determining  that Mr.  Ferguson or Mr. Thomas were
independent.

Item 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES

AUDIT FEES
----------
Billings for principal  accounting fees and services related to the annual audit
of  financial  statements,  review  of  financial  statements  included  in  the
Company's  Forms 10-QSB,  and services  provided by the accountant in connection
with statutory and  regulatory  filings for the year ended May 31, 2008 amounted
to  $70,173.  Management  estimates  that  additional  amounts  to be billed are
approximately $18,000.

                                       30
<PAGE>

Billings for principal  accounting fees and services related to the annual audit
of  financial  statements,  review  of  financial  statements  included  in  the
Company's  Forms 10-QSB,  and services  provided by the accountant in connection
with statutory and  regulatory  filings for the year ended May 31, 2007 amounted
to $82,886.

AUDIT-RELATED SERVICES
----------------------
There were no  billings  for  assurance  and related  services by the  principal
accountant that are reasonably related to the performance of the annual audit or
review of financial statements for the years ended May 31, 2008 and 2007.

TAX FEES
--------
During fiscal 2008, billings for tax preparation  services were $12,584.  During
fiscal 2007, billings for tax preparation services were $14,250

ALL OTHER FEES
--------------
Billings for other  services  related to  potential  financing  transactions  in
amounted to $11,708 and $5,675 in fiscal 2008 and 2007 respectively.

Billings  for  professional  services  related  to the audit of the  acquisition
target, RSH Holdings, Inc. amounted to $63,500.

ADMINISTRATION OF AUDIT AND NON-AUDIT ENGAGEMENTS
-------------------------------------------------
The  Company  does not  have a  standing  audit  committee.  The  full  Board of
Directors  is  performing  the  functions of the audit  committee.  The Board of
Director's policy is to pre-approve all audit and permissible non-audit services
provided by the independent auditors. These services may include audit services,
audit-related  services,  tax  services  and  other  services.  Pre-approval  is
generally provided for up to one year and any pre-approval is detailed as to the
particular  service  or  category  of  services  and is  generally  subject to a
specific  budget.  The  independent  auditors  and  management  are  required to
periodically  report to the Board of Directors  regarding the extent of services
provided by the independent  auditors in accordance with this pre-approval,  and
the fees for the  services  performed to date.  The Board of Directors  may also
pre-approve  particular services on a case-by-case basis. The Board of Directors
pre-approved  each audit and  non-audit  service  rendered to the Company by its
independent  Auditors as set forth above, with the exception of the billings for
other services related to potential financing  transactions amounting to $11,708
in fiscal  2008  which  were  approved  by the Board of  Directors  prior to the
completion of the audit for fiscal 2008 as provided by Rule  2-01(c)(7)(i)(C)(3)
of Regulation S-X.




                                       31
<PAGE>


PART IV

Item 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES
<TABLE>
<CAPTION>
(a)(1) The  following  financial  statements  are included in response to Item 8
herein:

                                                                                              Page
                                                                                       --------------------
<S>                                                                                            <C>
Report of Independent Registered Public Accounting Firm                                        F-2

FINANCIAL STATEMENTS

Consolidated Balance Sheets                                                                    F-3
Consolidated Statements of Operations                                                          F-4
Consolidated Statements of Comprehensive Income (Loss)                                         F-5
Consolidated Statements of Cash Flows                                                          F-6
Consolidated Statements of Mandatorily Redeemable Preferred Stock and Stockholders
Equity (Deficit)                                                                               F-8
Notes to Consolidated Financial Statements                                                     F-10


                                                                                              Page
                                                                                       --------------------
SCHEDULES

Schedule I - Summary of Investments - Other than Investments in Related Parties               F-48
Schedule II - Condensed Financial Information of Registrant                                   F-49
Schedule III - Supplementary Insurance Information                                            F-51
Schedule VI - Supplemental Information                                                        F-52
</TABLE>



                                       32
<PAGE>

                                JACOBS FINANCIAL GROUP, INC.
                                     TABLE OF CONTENTS


<TABLE>
<CAPTION>

                                                                                              Page
                                                                                       --------------------
<S>                                                                                            <C>
Report of Independent Registered Public Accounting Firm                                        F-2

FINANCIAL STATEMENTS

Consolidated Balance Sheets                                                                    F-3
Consolidated Statements of Operations                                                          F-4
Consolidated Statements of Comprehensive Income (Loss)                                         F-5
Consolidated Statements of Cash Flows                                                          F-6
Consolidated Statements of Mandatorily Redeemable Preferred Stock and Stockholders
Equity (Deficit)                                                                               F-8
Notes to Consolidated Financial Statements                                                     F-10


                                                                                              Page
                                                                                       --------------------
SCHEDULES

Schedule I - Summary of Investments - Other than Investments in Related Parties               F-48
Schedule II - Condensed Financial Information of Registrant                                   F-49
Schedule III - Supplementary Insurance Information                                            F-51
Schedule VI - Supplemental Information                                                        F-52

</TABLE>











                                      F-1
<PAGE>

             Report of Independent Registered Public Accounting Firm



To the Board of Directors
Jacobs Financial Group, Inc.
Charleston, West Virginia


We have audited the accompanying consolidated balance sheets of Jacobs Financial
Group,  Inc. and  subsidiaries  (the "Company") as of May 31, 2008 and 2007, and
the related consolidated statements of operations,  comprehensive income (loss),
cash flows, and mandatorily  redeemable preferred stock and stockholders' equity
(deficit) for each of the years in the two-year  period ended May 31, 2008.  Our
audits also included the financial  statement  schedules  listed in the Index as
Item  15.  These  consolidated  financial  statements  and  financial  statement
schedules are the responsibility of the Company's management. Our responsibility
is to  express  an  opinion  on  these  consolidated  financial  statements  and
financial statement schedules based on our audits.

We conducted our audits in accordance  with the standards of the Public  Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements  are free of material  misstatement.  The company is not  required to
have,  nor were we engaged to perform,  an audit of its  internal  control  over
financial reporting.  Our audit included  consideration of internal control over
financial  reporting  as  a  basis  for  designing  audit  procedures  that  are
appropriate  in the  circumstances,  but not for the  purpose of  expressing  an
opinion on the  effectiveness  of the company's  internal control over financial
reporting.  Accordingly,  we express  no such  opinion.  An audit also  includes
examining,  on a test basis,  evidence supporting the amounts and disclosures in
the  financial   statements,   assessing  the  accounting  principles  used  and
significant  estimates  made by  management,  as well as evaluating  the overall
financial  statement  presentation.   We  believe  that  our  audits  provide  a
reasonable basis for our opinion.

In our opinion, the consolidated  financial statements referred to above present
fairly, in all material  respects,  the consolidated  financial  position of the
Company as of May 31, 2008 and 2007,  and the results of its  operations and its
cash flows for each of the years in the  two-year  period  ended May 31, 2008 in
conformity with accounting principles generally accepted in the United States of
America.  Also,  in  our  opinion,  such  financial  statement  schedules,  when
considered in relation to the basic consolidated  financial statement taken as a
whole,  present  fairly,  in all material  respects,  the  information set forth
therein.

The accompanying  consolidated  financial statements have been prepared assuming
that the company will continue as a going concern. As discussed in Note A to the
financial statements,  the company's significant net working capital deficit and
operating  losses  raise  substantial  doubt  about its ability to continue as a
going  concern.  The financial  statements do not include any  adjustments  that
might result from the outcome of this uncertainty.


/s/Malin, Bergquist & Company
-----------------------------
Pittsburgh, PA
September 8, 2008




                                      F-2
<PAGE>
JACOBS FINANCIAL GROUP, INC.
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
                                                                                       MAY 31, 2008            MAY 31, 2007
                                                                                    -------------------    ------------------
ASSETS

INVESTMENTS AND CASH:
<S>                                                                                 <C>                    <C>
 Bonds available for sale, at market value                                          $        105,866       $              -
(amortized cost - 05/31/08 $98,774)
 Bonds held to maturity, at amortized costs                                                        -              2,316,875
(market value -  05/31/07 $2,308,003)
 Mortgage-back securities held to maturity, at amortized costs                             3,826,688              1,369,411
(market value - 05/31/08 $3,800,909; 05/31/07 $1,367,365)
 Short-term investments, at cost (approximates market value)                               1,176,056                335,729
 Cash                                                                                         48,640                 25,298
                                                                                     -------------------    -----------------
                                 TOTAL INVESTMENTS AND CASH                                5,157,250              4,047,313

 Investment income due and accrued                                                            19,892                 35,294
 Premiums and other accounts receivable                                                       47,353                 38,668
 Deferred policy acquisition costs                                                            75,940                 52,365
 Furniture and equipment, net of accumulated depreciation of
   $120,931 and $113,919, respectively                                                        29,168                 23,628
 Other assets                                                                                298,163                 22,801
 Intangible assets                                                                           150,000                150,000
                                                                                    -------------------    ------------------

                                                TOTAL ASSETS                        $      5,777,766       $      4,370,069
                                                                                    ===================    ==================

LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)

 Reserve for losses and loss expenses                                               $        246,651       $        110,784
 Reserve for unearned premiums                                                               277,208                144,188
 Advance premiums                                                                                  -                127,034
 Accrued expenses and professional fees                                                      412,039                547,965
 Accounts payable                                                                            315,577                345,895
 Notes payable                                                                             2,968,016                410,136
 Accrued interest payable                                                                     71,483                 16,095
 Other liabilities                                                                            16,402                511,751
                                                                                    -------------------    ------------------
                                           TOTAL LIABILITIES                               4,307,376              2,213,848

 SERIES A  PREFERRED  STOCK,  $.0001  par  value  per  share;
 1  million  shares authorized;  2,230  and 1,427 shares issued
 and outstanding at May 31, 2008 and 2007,  respectively;  stated
 liquidation  value of $1,000  per  share                                                  2,308,933              1,420,913

 SERIES B PREFERRED  STOCK,  $.0001  par value per  share;
 9,941.341  shares  authorized; 9,621.940 and 9,596,940 shares
 issued and outstanding at May 31, 2008 and 2007, respectively;
 stated liquidation value of $1,000 per share                                              9,936,866              8,526,059
                                                                                    -------------------    ------------------

                TOTAL MANDATORILY REDEEMABLE PREFERRED STOCK                              12,245,799              9,946,972

COMMITMENTS AND CONTINGENCIES (SEE NOTES)

STOCKHOLDERS' EQUITY (DEFICIT)

 Common stock, $.0001 par value per share; 490 million shares
 authorized; 166,091,242 and 156,997,836 shares issued and
 outstanding at May 31, 2008 and 2007, respectively                                           16,609                 15,700
 Additional paid in capital                                                                2,423,537              2,082,647
 Accumulated deficit                                                                     (13,222,038)            (9,889,098)
 Accumulated other comprehensive income (loss)                                                 6,483                      -
                                                                                    -------------------    ------------------
                         TOTAL STOCKHOLDERS' EQUITY (DEFICIT)                            (10,775,409)            (7,790,751)
                                                                                    -------------------    ------------------

                              TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)  $      5,777,766       $      4,370,069
                                                                                    ===================    ==================
</TABLE>
        The accompanying notes are an integral part of these consolidated
                              financial statements.

                                      F-3
<PAGE>
JACOBS FINANCIAL GROUP, INC,
CONSOLIDATED STATEMENTS OF OPERATIONS

<TABLE>
<CAPTION>

                                                                        YEAR ENDED MAY 31,
                                                                -------------------------------------
                                                                      2008              2007
                                                                ------------------- -----------------
REVENUES:
<S>                                                                 <C>                 <C>
 Investment advisory services                                       $      262,806      $    270,133
 Insurance premiums and commissions                                        465,286           358,055
 Net investment income                                                     225,461           189,956
 Net realized investment gains (losses)                                      3,589                 -
 Other income                                                                    -             5,195
                                                                ------------------- -----------------
                                        TOTAL REVENUES                     957,142           823,339


EXPENSES:

 Incurred policy losses                                                    135,867            98,873
 Insurance policy acquisition costs                                        126,386           108,065
 General and administrative                                              2,037,178         1,641,237
 Mutual fund costs                                                         157,269           181,612
 Depreciation                                                                8,379            12,419
                                                                ------------------- -----------------
                                        TOTAL EXPENSES                   2,465,079         2,042,206
                                                                ------------------- -----------------

                      NET INCOME (LOSS) FROM OPERATIONS                 (1,507,937)       (1,218,867)

 Gain on debt extinguishment                                               115,470            42,445
 Interest expense                                                         (479,295)         (153,020)
 Interest income                                                            10,137             1,176
                                                                ------------------- -----------------

                                      NET INCOME (LOSS)                 (1,861,625)       (1,328,266)

Accretion of Mandatorily Redeemable Convertible
 Preferred Stock, including accrued dividends                           (1,471,317)       (1,333,165)
                                                                ------------------- -----------------

             NET INCOME (LOSS) ATTRIBUTABLE TO COMMON STOCKHOLDERS  $   (3,332,942)   $   (2,661,431)
                                                                =================== =================


BASIC AND DILUTIVE NET INCOME (LOSS) PER SHARE:

        NET INCOME (LOSS) PER SHARE                                 $        (0.02)   $        (0.02)
                                                                =================== =================


        WEIGHTED-AVERAGE SHARES OUTSTANDING                            159,130,160       156,281,466
                                                                =================== =================
</TABLE>





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

                                      F-4
<PAGE>
JACOBS FINANCIAL GROUP, INC,
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)


<TABLE>
<CAPTION>
                                                                                                YEAR ENDED
                                                                                                  MAY 31
                                                                                    ---------------------------------------
                                                                                            2008                2007
                                                                                    ------------------  -------------------

COMPREHENSIVE INCOME (LOSS):
<S>                                                                                 <C>                 <C>
        Net income (loss) attributable to common stockholders                       $    (3,332,942)    $    (2,661,431)


OTHER COMPREHENSIVE INCOME (LOSS):

        Net unrealized gain (loss) of available-for-sale investments
         arising during period                                                                7,318                   -

        Reclassification adjustment for realized (gain) loss included
         in net income                                                                         (835)                  -
                                                                                    ------------------  -------------------
        Net unrealized gain (loss) attributable to available-for-sale
         investments recognized 6,483her comprehensive income                                  6,483                  -


COMPREHENSIVE INCOME (LOSS) ATTRIBITUABLE TO COMMON STOCKHOLDERS                    $     (3,326,459)   $    (2,661,431)
                                                                                    ==================  ===================

</TABLE>

















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

                                      F-5

<PAGE>
JACOBS FINANCIAL GROUP, INC,
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
                                                                                YEAR ENDED MAY 31
                                                                     --------------------------------------
                                                                              2008               2007
                                                                     -------------------- -----------------
CASH FLOWS FROM OPERATING ACTIVITIES
<S>                                                                  <C>                  <C>
 Net Income (Loss)                                                   $        (1,861,625) $   (1,328,266)

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

        Unearned and advance premium                                               5,986          77,606
        Stock option expense                                                      98,972         206,682
        Stock issued in connection with financing arrangements                   242,003               -
        Provision for loss reserves                                              135,867          98,873
        Amortization of premium                                                   23,496          29,745
        Depreciation                                                               8,379          12,419
        Write-off of bad debts                                                       985               -
        Loss on disposal of furniture and equipment                                  684               -
        Realized (gains) losses on sale of securities                             (3,589)              -
        Premium and other receivables                                             (9,670)          9,106
        Accretion of Discount                                                    (11,565)         (5,024)
        Investment income due and accrued                                         15,858             652
        Deferred policy acquisition costs                                        (23,575)         18,034
        (Gain) on extinguishment of debt                                        (115,470)        (42,445)
        Change in operating assets and liabilities:
         Other assets                                                           (125,531)         11,062
         Accounts payable and cash overdraft                                     (30,318)        (60,711)
         Accrued expenses and other liabilities                                 (460,417)        413,507
                                                                     -------------------- -----------------

                 NET CASH FLOWS FROM (USED IN) OPERATING ACTIVITIES           (2,109,530)       (558,760)

CASH FLOWS FROM INVESTING ACTIVITIES

 Advances to related party                                                             -         (76,173)
 Repayments from related party                                                         -         127,227
 Short-term loan                                                                 (50,000)              -
 Repayment of short-term loan                                                     50,000               -
 (Increase) decrease of short-term investments                                  (835,305)        861,002
 Repayment of mortgage-backed securities                                         476,400         431,064
 Sale of securities held-to-maturity                                             169,330               -
 Redemption of bonds upon call or maturity                                     2,155,000         500,000
 Costs of bonds acquired                                                         (97,582)     (1,793,901)
 Costs of mortgage-backed securities acquired                                 (2,956,145)       (473,036)
 Purchase of equity securities                                                   (25,438)              -
 Escow deposits for pending acquisitions                                        (125,000)
 Purchase of furniture and equipment                                             (14,603)         (6,007)
                                                                     -------------------- -----------------

                 NET CASH FLOWS FROM (USED IN) INVESTING ACTIVITIES           (1,253,343)       (429,824)

CASH FLOWS FROM FINANCING ACTIVITIES

 Proceeds from related party debt                                                132,200         158,166
 Repayment of related party debt                                                (146,963)       (197,448)
 Proceeds from issuance of Series A preferred stock and warrants                 803,000         318,000
 Proceeds from issuance of Series B preferred stock and warrants                  25,000         542,258
 Redemption of Series B preferred stock                                                -         (62,477)
 Proceeds from issuance of common stock                                                -          17,742
 Proceeds from exercise of common stock warrants                                     335           1,500
 Proceeds from borrowings                                                      2,842,000         375,000
 Repayment of borrowings                                                        (269,357)       (138,859)
                                                                     -------------------- -----------------

               NET CASH FLOWS FROM FINANCING ACTIVITIES                        3,386,215       1,013,882

NET INCREASE (DECREASE) IN CASH                                                   23,342          25,298

CASH AT BEGINNING OF PERIOD                                                       25,298               -
                                                                     -------------------- -----------------

CASH AT END OF PERIOD                                                $            48,640  $       25,298
                                                                     ===================- =================
</TABLE>
        The accompanying notes are an integral part of these consolidated
                              financial statements.

                                      F-6
<PAGE>

JACOBS FINANCIAL GROUP, INC,
CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
<TABLE>
<CAPTION>

                                                                                YEAR ENDED MAY 31
                                                                     --------------------------------------
                                                                              2008               2007
                                                                     -------------------- -----------------
<S>                                                                  <C>                  <C>
SUPPLEMENTAL DISCLOSURES
Interest paid                                                        $           171,889  $       49,388
Income taxes paid                                                                      -               -
Non-cash investing and financing transactions:
 Assumption of accounts payable by related party                                       -         365,000
</TABLE>



































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

                                      F-7

<PAGE>
<TABLE>
<CAPTION>
JACOBS FINANCIAL GROUP, INC.
CONSOLIDATED STATEMENT OF MANDATORILY REDEEMABLE PREFERRED STOCK AND STOCKHOLDERS' EQUITY (DEFICIT)
FOR THE YEAR ENDED MAY 31, 2007

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

                                                                                       STOCKHOLDERS' EQUITY (DEFICIT)
                                                 SERIES B
                         SERIES A          MANDATORILY REDEEMABLE  -----------------------------------------------------------------
                   MANDATORILY REDEEMABLE       CONVERTIBLE                                  ADDITIONAL
                       PREFERRED STOCK        PREFERRED STOCK                                 PAID-IN     ACCUMULATED
                      SHARES     AMOUNT      SHARES     AMOUNT         SHARES      AMOUNT     CAPITAL       DEFICIT        TOTAL
                      ------  -----------  ---------  ----------     -----------   -------  -----------   -----------   -----------
                  -------------------------------------------------  ---------------------------------------------------------------
<S>                   <C>     <C>          <C>         <C>            <C>           <C>       <C>          <C>           <C>
BALANCE,
MAY 31, 2006          1,109    $1,035,841  9,095.599   $6,780,186    154,937,836   $15,494  $1,856,929  $(7,227,668)  $(5,355,245)

 Issuance of Series
  A and B Preferred
  Stock and common
  stock                 318       318,000    560.000      542,258        560,000        56      17,686            -        17,742

 Issuance of common
  stock upon exercise
  of warrants             -             -          -            -      1,500,000       150       1,350            -         1,500

 Accretion of
  mandatorily redeem-
  able convertible
  preferred stock         -        15,199          -      479,451              -         -           -     (494,650)     (494,650)

 Accrued dividends
  of mandatorily
  redeemable convert-
  ible preferred stock    -        51,873          -      775,924              -         -            -     (827,797)     (827,797)

 Redemption of Series
  B Preferred Stock       -             -    (58.659)     (51,760)             -         -            -      (10,717)      (10,717)

 Common stock option
  expense                 -             -          -            -              -         -      206,682            -       206,682

 Net income (loss)
  from operations,
  year ended
  May 31, 2007            -             -          -            -              -         -            -   (1,328,266)   (1,328,266)
                      ------  -----------  ---------  ----------     -----------   -------  -----------   -----------   -----------

BALANCE,
MAY 31, 2007          1,427    $1,420,913  9,596.940  $8,526,059     156,997,836   $15,700   $2,082,647   $(9,889,098)  $(7,790,751)
                      ======  ===========  =========  ==========     ===========   ======== ===========   ============  ============
                  -------------------------------------------------  ---------------------------------------------------------------
</TABLE>



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

                                      F-8
<PAGE>
<TABLE>
<CAPTION>
JACOBS FINANCIAL GROUP, INC.
CONSOLIDATED STATEMENT OF MANDATORILY REDEEMABLE PREFERRED STOCK AND STOCKHOLDERS' EQUITY (DEFICIT)
FOR THE YEAR ENDED MAY 31, 2008


                                                                 -------------------------------------------------------------------
                                                                                   STOCKHOLDERS' EQUITY (DEFICIT)
                                                                 -------------------------------------------------------------------
                                                                                                                ACCUM.
                                            SERIES B                                                            OTHER
                      SERIES A        MANDATORILY REDEEMABLE                                                    COMPRE-
              MANDATORILY REDEEMABLE      CONVERTIBLE                                  ADDITIONAL               HENSIVE
                  PREFERRED STOCK       PREFERRED STOCK                                 PAID-IN   ACCUMULATED   INCOME
                 SHARES     AMOUNT       SHARES     AMOUNT          SHARES    AMOUNT    CAPITAL    DEFICIT      (LOSS)     TOTAL
                 ------   -----------   ---------  ----------    ----------- -------  ----------  ------------  ------  ------------
<S>              <C>      <C>          <C>        <C>            <C>         <C>      <C>         <C>           <C>     <C>

BALANCE,
MAY 31, 2007      1,427   $ 1,420,913  9,596.940   $8,526,059    156,997,836 $15,700  $2,082,647  $(9,889,098)  $   -   $(7,790,751)

Issuance of
Series A
and B Preferred
Stock and common
stock               803       803,000     25.000       24,510         25,000       2         488            -       -           490

Issuance of
common stock as
additional
consideration for
financing arrange-
ments                 -             -           -           -      8,735,304     874     223,330            -       -       224,204

Issuance of common
stock upon exercise
of warrants           -             -           -           -        333,102      34         301            -       -           335

Accretion of
mandatorily
redeemable
convertible
preferred stock       -        16,045           -     513,228              -       -           -     (529,273)      -      (529,273)

Accrued dividends
of mandatorily
redeemable
convertible
preferred stock       -        68,975           -     873,069              -       -           -     (942,044)      -      (942,044)

Expense of
common shares
to be issued
in connection
with financing
arrangements          -             -           -           -              -       -      17,799            -       -        17,799

Common stock
option expense        -             -           -           -              -       -      98,972            -       -        98,972

Unrealized net
gain on available
for sale
securities            -             -           -           -              -       -           -            -   6,483         6,483

Net income (loss),
year ended
May 31, 2008          -             -           -           -              -       -           -   (1,861,624)      -    (1,861,624)
                 ------   -----------   ---------  ----------    ----------- -------  ---------- ------------- ------  -------------
BALANCE,
MAY 31, 2008      2,230   $ 2,308,933   9,621.940  $9,936,866    166,091,242 $16,610  $2,423,537 $(13,222,039) $6,483  $(10,775,409)
                 ------   -----------   ---------  ----------    ----------- -------  ---------- ------------- ------  -------------

                  -------------------------------------------    -------------------------------------------------------------------
</TABLE>

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

                                      F-9
<PAGE>

JACOBS FINANCIAL GROUP INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE A - ORGANIZATION AND BUSINESS

ORGANIZATION AND NATURE OF BUSINESS
-----------------------------------
Jacobs Financial Group, Inc. (the "Company" or "JFG"),  formerly NELX, Inc., was
incorporated in Kansas on March 25, 1983. In 2001, the Company  acquired all the
outstanding  stock of two  corporations  located in  Charleston,  West Virginia:
Jacobs &  Company  ("Jacobs")  and FS  Investments,  Inc.  ("FSI").  Jacobs is a
registered  investment  advisory firm that derives its revenue from  asset-based
investment  advisory fees. FSI,  through its  wholly-owned  subsidiary  Triangle
Surety Agency, Inc.  ("Triangle"),  is engaged in the business of placing surety
bonds with insurance companies for clients engaged in regulated industries, such
as the extraction of coal, oil and gas. FSI receives  commission income from the
placement of these bonds and is licensed in ten states  primarily in the eastern
United States. On December 30, 2005, the Company acquired all of the outstanding
stock of West Virginia Fire & Casualty Company  ("WVFCC"),  an insurance company
licensed  to  engage  in  business  in West  Virginia,  Ohio  and  Indiana.  The
acquisition  of WVFCC  consisted of the purchase of marketable  investments  and
insurance licenses and did not include any existing policies or customer base as
the insurance  lines of business  offered by WVFCC were not insurance lines that
the Company intended to pursue. Following the acquisition, the name of WVFCC was
changed to First Surety  Corporation  ("FSC").  FSC receives  insurance  premium
income in  connection  with the  issuance of surety  bonds.  The Company and its
subsidiaries  are  subject  to the  business  risks  inherent  in the  financial
services industry.

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  losses (after  accretion of  mandatorily
redeemable   convertible  preferred  stock,   including  accrued  dividends)  of
approximately  $3,333,000  and  $2,661,000  for the years ended May 31, 2008 and
2007. Losses are expected to continue until FSC develops  substantial  business.
While improvement is anticipated as the Company's  business plan is implemented,
restrictions on the use of FSC's assets (See Note C), 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.

Management  intends to  improve  cash flow  through  the  implementation  of its
business plan.  Additionally,  management  continues to seek to raise additional
funds for operations  through  private  placements of stock,  other long-term or

                                      F-10
<PAGE>
JACOBS FINANCIAL GROUP INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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.


NOTE B - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

PRINCIPLES OF CONSOLIDATION
---------------------------
The consolidated  financial  statements include the accounts of Jacobs Financial
Group,  Inc. and its  majority  owned  subsidiaries,  after the  elimination  of
intercompany transactions.

USE OF ESTIMATES
----------------
Preparation of financial  statements in conformity  with  accounting  principles
generally  accepted in the United States of America requires  management to make
estimates  and  assumptions  that affect the amounts  reported in the  financial
statements  and  accompanying  notes.  Significant  areas  requiring  the use of
management  estimates  are loss  reserves,  stock  options and the  valuation of
deferred  tax  benefits.  Actual  results  inevitably  will  differ  from  those
estimates, and such differences may be material to the financial statements.

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

Surety  premiums  are recorded as  receivables  when due and are earned pro rata
over the term of the policies.  Thereserve for unearned premiums  represents the
portion of premiums  written  relating to the unexpired  terms of coverage.  The
reserve for unearned  premium is  determined  using the monthly pro rata method.
Advance  premiums  representrenewal  premiums  paid in advance of the  effective
renewal date.

                                      F-11
<PAGE>
JACOBS FINANCIAL GROUP INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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

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

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

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

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

Short-term investments consist primarily of debt securities having maturities of
one year or less at date of purchase,  money-market  investment  funds and other
similar investments that have immediate availability.

                                      F-12
<PAGE>
JACOBS FINANCIAL GROUP INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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

Realized  gains and losses are  determined  by  specific  identification  of the
security sold.

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

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

FURNITURE AND EQUIPMENT
-----------------------
Furniture and equipment is recorded at cost. Maintenance and repairs are charged
to operations  when  incurred.  When property and equipment are sold or disposed
of, the asset account and related accumulated depreciation account are relieved,
and any  gain or loss is  included  in  operations.  The  cost of  property  and
equipment is depreciated  over the estimated useful lives of the related assets,
ranging from three to seven years, using the straight-line and  double-declining
balance methods, which approximates estimated economic depreciation.


                                      F-13
<PAGE>
JACOBS FINANCIAL GROUP INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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

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

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

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

EARNINGS (LOSS) PER SHARE
-------------------------
Basic earnings  (loss) per share of common stock are computed using the weighted
average number of shares  outstanding  during each period.  Diluted earnings per
share  are  computed  on the  basis  of the  average  number  of  common  shares
outstanding  plus the dilutive  effect of  convertible  debt,  stock options and
warrants.  In periods of net loss, there are no diluted earnings per share since
the result would be anti-dilutive.

                                      F-14
<PAGE>
JACOBS FINANCIAL GROUP INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

RECLASSIFICATIONS
-----------------
Certain  amounts  in  the  2007  Consolidated  Financial  Statements  have  been
reclassified  to  be  consistent  with  the  presentation  in  the  Consolidated
Financial  Statements  as of May 31,  2008 and for the year  then  ended.  These
reclassifications  had no impact on  previously  reported net income,  cash flow
from operations or changes in shareholder equity.

RECENT ACCOUNTING PRONOUNCEMENTS
--------------------------------
In  February  2006,  FASB  issued SFAS No. 155  "Accounting  for Certain  Hybrid
Financial  Instruments-an  amendment of FASB  Statements No. 133 and 140".  This
statement  address  accounting  issues  relating  to  beneficial   interests  in
securitized  financial  assets.  This  Statement is effective  for all financial
instruments  acquired or issued after the beginning of an entity's first fisyear
that begins after September 15, 2006. The adoption of the provisions of SFAS No.
155 did not have a material  impact on the  Company's  results of  operations or
financial position.

In March 2006,  FASB issued SFAS No. 156  "Accounting for Servicing of Financial
Assets-an  amendment  of FASB  Statement  No.  140".  This  statement  addresses
accounting for separately  recognized servicing assets and servicing liabilities
when an entity undertakes a contract to service financial assets. This Statement
is to be adopted as of the  beginning of the first fiscal year that begins after
September 15, 2006.  The adoption of the provisions of SFAS No. 156 did not have
a material impact on the Company's results of operations or financial position.

In September  2006,  the  Financial  Accounting  Standards  Board (FASB)  issued
Statement  of  Financial  Accounting  Standards  ("SFAS")  No.  157 "Fair  Value
Measurements"  and SFAS No.  158  "Employers'  Accounting  for  Defined  Benefit
Pension and Other  Postretirement  Plans-an amendment of FASB Statements No. 87,
88, 106 and 132(R)".

SFAS No. 157 defines fair value,  establishes  a framework  for  measuring  fair
value in generally accepted accounting principles, and expands disclosures about
fair value  measurements.  The  Statement  does not  require  any new fair value
measurements, however, for some entities, the application of this Statement will
change  current  practice.  This  Statement  is to be adopted  for fiscal  years

                                      F-15
<PAGE>
JACOBS FINANCIAL GROUP INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

beginning  after  November 15,  2007,  and interim  periods  within those fiscal
years. Management does not expect the adoption of the provisions of SFAS No. 157
to have a material  impact on the  Company's  results of operations or financial
position.

SFAS No. 158 requires  employers  to recognize  the  overfunded  or  underfunded
status of a defined  benefit  postretirement  plan (other  than a  multiemployer
plan) as an asset or  liability in its  statement  of financial  position and to
recognize  changes in that funded  status in the year in which the changes occur
through  comprehensive income of a business entity. The Company does not provide
any defined benefit  postretirement  plans, and  accordingly,  the provisions of
SFAS No. 158 will have no material impact on the Company's results of operations
or financial position.

In  February  2007,  the FASB  issued  SFAS No. 159 "The Fair  Value  Option for
Financial Assets and Financial  Liabilities--Including  an amendment  oStatement
No. 115." This  Statement  permits  entities to choose to measure many financial
instruments and certain other items at fair value. Such items include recognized
financial assets and financial  liabilities,  firm commitments that involve only
financial instruments,  nonfinancial insurance contracts and warranties that the
insurer  can settle by paying a third  party to provide  these goods or services
and  host  financial  instruments  resulting  from  separation  of  an  embedded
nonfinancial  derivative  instrument from a nonfinancial hybrid instrument.  The
objective  of the  Statement  is to improve  financial  reporting  by  providing
entities with the opportunity to mitigate volatility in reported earnings caused
by measuring related assets and liabilities  differently without having to apply
complex  hedge  accounting  provisions.  This  Statement is effective for fiscal
years  ending after  November 15, 2007  although  early  adoption is  permitted.
Management  does not expect the  application  of SFAS No. 159 to have a material
impact on the Company's results of operations or financial position.

                                      F-16
<PAGE>
JACOBS FINANCIAL GROUP INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

In June 2006,  Financial  Accounting Standards Board Interpretation (FIN) No. 48
"Accounting  for  Uncertainty  in Income Taxes" was issued and  interprets  FASB
Statement No. 109  "Accounting  for Income  Taxes.  FIN No. 48  establishes  the
accounting for uncertain tax positions, including recognition and measurement of
their  financial  statement  effects.  FIN No. 48 is effective  for fiscal years
beginning  after December 15, 2006. The Company has  significant  operating loss
carryforwards,  the benefits of which having been fully  reserved by a valuation
allowance of the same amount due to uncertainty as to the likelihood of ultimate
realization.  Management has evaluated the  implications  of FIN No. 48, and has
determined  that the application of FIN 48 did not result in any material impact
on the Company's results of operations or financial position.

In December  2007,  the FASB issued a revised  Statement No. 141 (revised  2007)
"Business  Combinations"  and  Statement No. 160  "Non-controlling  Interests in
Consolidated Financial Statements - an amendment of Accounting Research Bulletin
No. 51".

Statement  No.  141 was  revised  to  improve  the  relevance,  representational
faithfulness,  and  comparability  of the  information  that a reporting  entity
provides in its financial  report about a business  combination and its effects.
The Statement  establishes  principles and requirements for how the acquirer: a)
recognizes  and measures in its financial  statements  the  identifiable  assets
acquired,  the  liabilities  assumed,  and any  noncontrolling  interest  in the
acquiree;  b)  recognizes  and measures  the  goodwill  acquired in the business
combination  or  a  gain  from  a  bargain  purchase;  and  c)  determines  what
information to disclose to enable users of the financial  statements to evaluate
the  nature  and  financial  effects  of the  business  combination.  While  the
Statement  retains the fundamental  requirement that the acquisition or purchase
method of  accounting  be used for all  business  combinations,  it replaces the
cost-allocation  process  that  resulted  in not  recognizing  some  assets  and
liabilities at the acquisition date and measuring some assets and liabilities at
amounts  other than fair  market  value at the  acquisition  date.  Among  other
matters,   the  revised   Statement   requires  that   acquisition-related   and
restructuring  costs be recognized  separately from the business  combination as
expenses  in the  periods  in which the costs are  incurred  and  provides  that
"bargain   purchases"   (those   business   combinations   in  which  the  total
acquisition-date  fair value of the identifiable net assets acquired exceeds the
fair  value  of the  consideration  transferred  plus  any  non-controlling,  or

                                      F-17
<PAGE>
JACOBS FINANCIAL GROUP INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

minority,  interest  in the  acquiree)  be  recognized  in the  earnings  of the
acquirer  as  a  gain.  This  Statement   applies   prospectively   to  business
combinations  for which the acquisition date is on or after the beginning of the
first annual reporting  period beginning on or after December 15, 2008.  Earlier
adoption  is  prohibited.  Application  of FAS 141R would be  effective  for any
acquisitions that are consummated by the Company after May 31, 2009.

Statement  No. 160 was  issued to  improve  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.  Management  does not expect the  application of Statement No. 160 to
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

                                      F-18
<PAGE>
JACOBS FINANCIAL GROUP INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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 is not expected to have any impact on the Company's  current financial
statement disclosure requirements.

In May 2008,  the FASB issued  Statement  No. 162 "The  Hierarchy  of  Generally
Accepted  Accounting  Principles".  This  Statement  identifies  the  sources of
accounting  principles and the framework for selecting  principles to be used in
the  preparation of financial  statements of  nongovernmental  entities that are
presented in conformity with generally accepted accounting  principles (GAAP) in
the United States (the GAAP  hierarchy).  This  Statement  shall be effective 60
days  following the SEC's approval of the Public  Company  Accounting  Oversight
Board  (PCAOB)  amendments  to AU Section 411, THE MEANING OF Present  Fairly in
Conformity With Generally Accepted  Accounting  Principles.  Management does not
expect the  application  of Statement  No. 162 to have a material  impact on the
Company's results of operations or financial position.

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. Management does not expect the application
of  Statement  No. 163 to have a  material  impact on the  Company's  results of
operations or financial position.

                                      F-19
<PAGE>
JACOBS FINANCIAL GROUP INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

In November 2007, the Securities and Exchange Commission issued Staff Accounting
Bulletin (SAB) No. 109 "Written Loan Commitments  Recorded at Fair Value Through
Earnings."  SAB 109 provides that  consistent  with the guidance in SFAS No. 156
"Accounting for Servicing of Financial  Assets" and SFAS No. 159 "The Fair Value
Option for Financial Assets and Financial  Liabilitithe expected net future cash
flows related to the associated  servicing of the loan should be included in the
measurement of all written loan commitments that are accounted for at fair value
through earnings.  SAB 109 is to be applied on a prospective basis to derivative
loan commitments  issued or modified in fiscal quarters beginning after December
15,  2007.  The  application  of SAB 109 did not have a  material  impact on the
Company's results of operations or financial position.

In December 2007, the Securities and Exchange Commission issued Staff Accounting
Bulletin (SAB) No. 110 "Shared Based Payment". SAB 110 expresses the views, that
under  certain  circumstances,  the staff will  continue  to accept the use of a
"simplified  method" in  developing  an estimate of the expected  term of "plain
vanilla"  share options in accordance  with SFAS No. 123 "Shared- Based Payment"
for share  option  grants  issued  after  December  31,  2007.  Examples of such
circumstances  might include those in which the company does not have sufficient
historical  share option exercise  experience upon which to estimate an expected
term,  situations  where  historical  exercise  data  may no  longer  provide  a
reasonable  basis upon which to estimate an expected  term, or situations  where
more  relevant  detailed  information  (employee  exercise  patterns by industry
and/or other categories of companies) is not widely  available.  The application
of SAB 110 is not expected to have a material impact on the Company's results of
operations or financial position.


NOTE C - INVESTMENTS

The Company held the following  investments,  by security  type,  that have been
classified as available-for-sale and carried at market value at May 31, 2008:
<TABLE>
<CAPTION>

                                                 Gross Unrealized        Gross Unrealized
                            Amortized Cost              Gains                 Losses            Fair Market Value
                         ---------------------- ---------------------- ---------------------- ----------------------
<S>                                <C>                   <C>                    <C>                    <C>
State and municipal                $    98,774           $      7,092           $          -           $    105,866
securities

Equity securities                       25,438                      -                    609                 24,829
                         ---------------------- ---------------------- ---------------------- ----------------------
                                   $   124,212           $      7,092           $        609           $    130,695
                         ====================== ====================== ====================== ======================
</TABLE>


                                      F-20
<PAGE>
JACOBS FINANCIAL GROUP INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

In September,  2007,  an equity  investment in the amount of $25,000 was made in
the Jacobs & Company  Mutual 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 were reinvested.

The Company held the following investments,  by security type, with the positive
intent and ability to hold to maturity:
<TABLE>
<CAPTION>

                                                              MAY 31, 2008
                         -------------------------------------------------------------------------------------------
                            Amortized Cost        Gross Unrealized       Gross Unrealized       Fair Market Value
                                                        Gains                  Losses
                         ---------------------- ---------------------- ---------------------- ----------------------
<S>                             <C>                        <C>                   <C>                  <C>
U.S Government agency
mortgage-backed
securities                      $    3,826,688             $   23,206            $    48,985          $   3,800,909
                         ====================== ====================== ====================== ======================
</TABLE>
<TABLE>
<CAPTION>


                                                               MAY 31, 2007
                         -------------------------------------------------------------------------------------------
<S>                             <C>                        <C>                   <C>                  <C>
U.S. Government and             $    2,216,875             $      199            $     9,071          $   2,208,003
government agencies

U.S Government agency
mortgage-backed
securities                           1,369,411                  1,728                  3,774              1,367,365
Certificate of deposit                 100,000                      -                      -                100,000
                         ---------------------- ---------------------- ---------------------- ----------------------
                                $    3,686,286             $    1,927            $    12,845          $   3,675,368
                         ====================== ====================== ====================== ======================
</TABLE>


Statutory deposits  consisting of securities with a carrying value of $1,056,245
were  deposited by the Company's  insurance  subsidiary  under  requirements  of
regulatory  authority.  In connection with regulatory  approval of the Company's
acquisition of its insurance  subsidiary,  certain  restrictions were imposed on
the ability of the Company to withdraw  funds from FSC without prior approval of
the Insurance Commissioner. Accordingly, investments and cash in the amount of $
5,142,101 and $4,034,630 as of M2008 and 2007,  respectively,  are restricted to
the use of FSC.

                                      F-21
<PAGE>

The  amortized  cost and  estimated  market  values of  investments  with fixed-
maturities  available-for-sale as of May 31, 2008, by contractual maturity,  are
as follows:

                               Amortized Cost        Fair Market Value
                            ---------------------- ----------------------
Due after ten years         $             98,774   $            105,866
                            ====================== ======================


Principal repayments on U.S. government agency mortgaged-backed  securities held
by the Company as of May 31, 2008 are estimated as follows:

                                               Amortized Cost    Fair Market
                                                                    Value
                                              --------------- ---------------
Due in one year or less                       $      589,507  $      587,384

Due after one year through five years              1,675,400       1,664,470

Due after five years through ten years               971,209         963,453

Due after ten years                                  590,572         585,602
                                              --------------- ---------------
                                              $    3,826,688  $    3,800,909
                                              =============== ===============


Estimated  repayments are forecast based on varying  prepayment  speeds for each
particular security held assuming that interest rates remain constant.  Expected
repayments  will  differ  from  actual  repayments   because  borrowers  of  the
underlying mortgages have a right to prepay obligations.

An analysis of net investment income follows:

                                                  2008               2007
                                             ----------------- ---------------
Bonds - fixed maturities                           $   76,185       $  55,836

Mortgage-backed securities                            111,115          71,132

Short-term investments                                 39,377          63,779
                                             ----------------- ---------------
               Total investment income                226,677         190,747
                                             ----------------- ---------------
Investment expense                                      1,216             791
                                             ----------------- ---------------
                 Net investment income             $  225,461       $ 189,956
                                             ================= ===============


In the  three-month  period ended November 30, 2007, the Company sold one of its
investments in debt securities of Federal National Mortgage  Association ("FNMA"
or "Fannie Mae") previously  classified as  held-to-maturity  (carrying value of

                                      F-22
<PAGE>
JACOBS FINANCIAL GROUP INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

$169,881) and reclassified its remaining FNMA securities aggregating $828,653 to
the available-for-sale  classification in response to uncertainties attributable
to the slumping U.S.  mortgage and housing  markets and its potential  effect on
the issuer's  financial  condition.  Such remaining FNMA securities,  which were
subject to call by the  issuer,  were  called in the  three-month  period  ended
February 29, 2008.

Realized gains from held-to-maturity securities resulted from certain securities
subject  to call being  called by the  issuer.  Net  realized  investment  gains
(losses) were as follows:


                                                  2008             2007
                                            ----------------- ----------------

   Bonds-fixed maturities                   $        2,754    $            -
   Mortgage-backed securities                            -                 -
   Equity securities                                     -                 -
   Short-term investments                                -                 -
                                            ----------------- -----------------
                      Net realized gain     $        2,754    $            -
                                            ================= =================

The increases  (decrease)  in unrealized  appreciation  of  investments  were as
follows:




                                                  2008               2007
                                            ------------------ ----------------

   Bonds-fixed maturities                   $       15,964     $      (3,061)
   Mortgage-backed securities                      (23,732)           15,624
   Equity securities                                  (609)                -
                                            ------------------ ----------------
   Increase (decrease) in unrealized
   appreciation                             $       (8,377)    $      12,563
                                            ================== ================



                                      F-23
<PAGE>
JACOBS FINANCIAL GROUP INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

The gross gains and gross losses realized on available-for-sale  securities were
as follows:


                                                     Gross          Gross
                                     Gross          Realized       Realized
                                    Proceeds         Gains          Losses
                               ------------------- ------------ ---------------
2008
   Bonds-fixed maturities           $ 830,000        $   835        $      -

   Mortgage-backed securities               -              -               -
   Equity securities                        -              -               -
                               ------------------- ------------ ---------------
                    Total           $ 830,000        $   835        $      -
                               =================== ============ ===============
2007
   Bonds-fixed maturities           $       -        $     -        $      -

   Mortgage-backed securities               -              -               -
   Equity securities                        -              -               -
                               ------------------- ------------ ---------------
                    Total           $       -        $     -        $      -
                               =================== ============ ===============


The following  table  summarizes the gross  unrealized  losses and fair value on
investment securities aggregated by major investment category and length of time
that  individual  securities  have been in a continuous loss position at May 31,
2008 and May 31, 2007.
<TABLE>
<CAPTION>
                               Less than 12 Months             12 Months or More                    Total
                          ------------------------------- ---------------------------- --------------------------------
                               Cost         Unrealized       Cost        Unrealized         Fair         Unrealized
                               (a)            Losses          (a)          Losses          Value           Losses
                          --------------- --------------- ------------ --------------- --------------- ----------------
2008
<S>                       <C>             <C>             <C>          <C>             <C>             <C>
Mortgage-backed
securities                $    2,525,173  $       48,985  $         -  $         -     $   2,476,188   $     48,985

Equity securities
                                  25,438             609            -            -            24,829            609
                          --------------- --------------- ------------ --------------- --------------- ----------------

                   Total  $    2,550,611  $       49,594  $         -  $         -     $   2,501,217   $     49,594
                          =============== =============== ============ =============== =============== ================
</TABLE>
     (a)  For bonds-fixed maturities and mortgage-backed securities,  represents
          amortized costs.

                                      F-24

<PAGE>
JACOBS FINANCIAL GROUP INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>


                               Less than 12 Months             12 Months or More                    Total
                          ------------------------------- ---------------------------- --------------------------------
                               Cost         Unrealized       Cost        Unrealized         Fair         Unrealized
                               (a)            Losses          (a)          Losses          Value           Losses
                          --------------- --------------- ------------ --------------- --------------- ----------------
2007
<S>                       <C>             <C>             <C>          <C>             <C>             <C>
Bonds-fixed maturities
                              $1,694,084        $  7,848    $350,692          $ 1,223    $2,035,705      $   9,071

Mortgage-backed
securities                       178,576           1,645     245,013            2,129       419,815          3,774
                          --------------- --------------- ------------ --------------- --------------- ----------------

                   Total      $1,872,660      $    9,493    $595,705          $ 3,352    $2,455,520      $  12,845
                          =============== =============== ============ =============== =============== ================
</TABLE>


     (a)  For bonds-fixed maturities and mortgage-backed securities,  represents
          amortized costs.

As of May 31, 2008, the company held 17  mortgage-backed  securities  with gross
unrealized  losses  of  $48,985,  all of which  have been in a  continuous  loss
position  for less  than 12  months.  These  securities  consist  of  fixed-rate
securities issued by Government  National Mortgage  Association  (GNMA) that are
sensitive to movements  in market  interest  rates.  The  unrealized  losses are
considered  temporary  since the  Company has the ability and intent to hold the
securities until maturity.

Equity  securities  consist of the company's  investment in the Jacobs & Company
Mutual Fund with an unrealized  loss of $609 which has been in a continuous loss
position  for less  than 12  months.  The fair  value  of such  investment  will
fluctuate  based on the  underlying  values of the  investments  held within the
mutual  fund,  which  are  sensitive  to  overall  economic  market  conditions.
Accordingly,  the unrealized  loss was considered  temporary at May 31, 2008 and
has not been reduced to their fair value through the income statement.


NOTE D-DEFERRED POLICY ACQUISITION COSTS

The following  reflects the policy  acquisition  costs deferred for amortization
against future income and the related amortization charged to operations.


                                                     2008              2007
                                                ---------------  ---------------

      Balance at beginning of year                $  52,365          $   70,399
      Acquisition costs deferred                    149,961              90,031
      Amortization charged to operations           (126,386)           (108,065)
                                                ---------------  ---------------

                          Total                   $  75,940          $   52,365
                                                ===============  ===============

                                      F-25
<PAGE>
JACOBS FINANCIAL GROUP INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE E - OTHER ASSETS

Included in other assets are escrow  deposits  relating to pending  acquisitions
and advance  deposits for  professional  fees relating to such  acquisitions and
certain  equity  financing  matters  (see Note  P-Commitments)  the  Company has
endeavored  to  undertake  in fiscal  2008.  As of May 31,  2008 and 2007,  such
balances are comprised of the following:

                                                            2008         2007
                                                        ------------- ----------
Advance deposits for professional fees                      $133,498  $      -
Escrow deposits for proposed acquisitions                    125,000         -
Mutual fund investment at market                              24,829         -
Prepaid expense and other deposits                            14,836    22,801
                                                        ------------- ----------
                                                 Total      $298,163  $ 22,801
                                                        ============= ==========


NOTE F - INTANGIBLES

As the result of the  acquisition  of the stock of FSC on December 30, 2005,  in
exchange for the purchase  price of  $2,900,000,  the Company  received cash and
investments  held by FSC  with a fair  market  value  of  $2,750,000,  with  the
difference of $150,000 being attributed to the property and casualty licenses of
FSC in the  states  of West  Virginia,  Ohio and  Indiana.  Such  licenses  have
indefinite lives and are evaluated annually, or more frequently if circumstances
indicate  that a  possible  impairment  has  occurred,  for  recoverability  and
possible  impairment loss. No impairment has been recorded in fiscal years ended
May 31, 2008 and 2007.


NOTE G-RESERVE FOR LOSSES AND LOSS EXPENSE

Reserves for unpaid  losses and loss  adjustment  expenses are  estimated  using
individual  case-basis  valuations in conjunction  with  estimates  derived from
industry and Company  historical  experience.  As of May 31, 2008, the Company's
insurance subsidiary, FSC, is only licensed to write surety in West Virginia and
has focused its primary  efforts  towards coal permit bonds while also providing
other  miscellaneous  surety bonds that are substantially  secured by collateral
consisting of investment  accounts  that are managed by Jacobs.  Reclamation  of
land that has been  disturbed  by mining  operations  is a highly  regulated  by
federal and state  agencies and the required  bonds are  generally  long-term in
nature with mining  operations and reclamation work being conducted in unison as
the property is being mined.  Additionally,  no two principals or properties are

                                      F-26

<PAGE>
JACOBS FINANCIAL GROUP INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

alike due to varied company  structures and unique geography and geology of each
site.  In  underwriting  such bonds,  management  obtains  estimates of costs to
reclaim the properties  subject of the permit(s) in accordance with those mining
permit(s), as prepared by independent outside professionals  experienced in this
field of work, and hired by FSC, in addition to other underwriting and financial
risk  considerations.  FSC  requires  the  principal  to provide cash in amounts
deemed to be  sufficient  to reclaim the  disturbed  land and thus  mitigate the
exposure to  significant  loss.  Such cash is invested in investment  collateral
accounts  managed  by  Jacobs  utilizing  conservative   investment  strategies.
Inspections of mining activity and  reclamation  work are performed on a regular
basis with  initial  costs  estimates  being  updated  periodically.  Should the
principal  default in the obligation to reclaim the property in accordance  with
the mining permit,  FSC would then use the funds held in the collateral  account
to reclaim  the  property or would be required to forfeit the face amount of the
bond to the agency to which the bond is issued. Losses can occur if the costs of
reclamation  exceed estimates  obtained at the time the bond was underwritten or
upon  subsequent  re-evaluations,  if sufficient  collateral is not obtained and
increased if  necessary,  or if  collateral  held has  experienced a significant
deterioration  in value.  FSC has experienced no claims for losses as of May 31,
2008 and thus provisions for losses and loss adjustment  expense have been based
on  industry  averages  adjusted  for  other  factors  unique  to the  Company's
approach,  and in  consultation  with  consulting  actuaries  experienced in the
surety field.

At December 31, the reserve for losses and loss expenses consisted of:

                                                   2008               2007
                                           ------------------ ------------------

 Balance at beginning of year              $   110,784        $     11,911

 Incurred policy losses-current year           135,867              98,873
 Incurred policy losses-prior year                                       -

 Amounts paid-current year losses                    -                   -
 Amounts paid-prior year losses                      -                   -
                                           ------------------ ------------------


 Balance at end of year                    $    246,651       $    110,784
                                           ================== ==================

                                      F-27
<PAGE>
JACOBS FINANCIAL GROUP INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE H - NOTES PAYABLE

At May 31, 2008 and 2007, the Company had the following  unsecured notes payable
to individuals and a commercial bank:
<TABLE>
<CAPTION>
                                                                   2008               2007
                                                             ------------------ ------------------
<S>                                                             <C>                <C>
     Unsecured demand notes payable to individuals and
     others; interest rate fixed @ 10.00%                       $  127,000         $    75,000

     Unsecured    short-term    advances   from   principal
     shareholder and chief executive officer; interest rate
     fixed @ 12.00% (Also See Note T -
     Related Party Transactions)                                     1,000              15,762

     Unsecured notes payable to individuals maturing
     December 31, 2007; interest payable calendar
     quarterly; interest rate fixed @ 10.00%                             -              49,985

     Unsecured note(s)payable to individual(s) under a
     bridge- financing arrangement described below               2,635,000              25,000

     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%                                                205,016             244,389
                                                             ------------------ ------------------

                         Total                                 $ 2,968,016         $   410,136
                                                             ================== ==================
</TABLE>

In September 2007, the Company borrowed $2,100,000 in the aggregate from a group
of individuals to provide interim bridge-financing of operations until a larger,
more permanent financing the Company endeavored to undertake was consummated and
to pay fees and expenses in connection with the larger financing.  Additionally,
terms of the $25,000 note payable  outstanding  as of May 31, 2007 were modified
to  correspond  to the  terms  of the  $2,100,000  bridge-financing.  Additional
borrowings  with similar terms were transacted in November 2007 in the amount of
$275,000 and in February 2008 for $100,000.  Such borrowings totaling $2,500,000
are referred to as the "first round" bridge-financing.

                                      F-28
<PAGE>
JACOBS FINANCIAL GROUP INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Additional  borrowings  in the amount of $75,000 and $60,000 were  transacted in
April  and May  2008,  respectively,  in  conjunction  with  additional  bridge-
financing  (referred  to as "second  round"  bridge-financing  in the  aggregate
amount of $1,000,000)  that was finalized  subsequent to May 31, 2008.  Terms of
the  bridge-financing  arrangements  were amended  (first round) and  structured
(second round) to provide similar terms and conditions.

The terms of the bridge-financing  arrangement,  as revised, provide for payment
in  full  upon  consummation  by the  Company  of a  qualified  equity  offering
providing net proceeds of at least $15 million on or before  September 10, 2013;
and if such a qualified  equity  offering is not  consummated  by September  10,
2008, accrued  interest-to-date shall be payable, with quarterly installments of
principal and interest in the aggregate  amount of $169,028  ($224,515  based on
the full  $3.5  million  bridge-financing)  commencing  in  December  2008.  The
interest rates on such notes are fixed at 10.00%.

In accordance with the terms of the first round  bridge-financing,  on March 10,
2008,  the holders of such notes were paid accrued  interest-to-date  and issued
5.00% of the  Company's  common  shares.  Holders of the second round of bridge-
financing notes receive 2.00% of the Company's common shares. 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).

In the event that a qualified  financing is not completed by September 10, 2008,
then the  Company  shall issue a total of 2.108%  (2.80%  based on the full $3.5
million  bridge-financing)  of the Company's  outstanding  common shares at such
date and shall  issue a total of 2.108%  (2.80%  based on the full $3.5  million

                                      F-29
<PAGE>
JACOBS FINANCIAL GROUP INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

bridge-financing) of the Company's outstanding common shares upon each six-month
anniversary date thereof until retirement of the notes.

Scheduled  maturities and principal  payments for each of the next six years are
as follows:

                                                                2008
                                                          ------------------

           Fiscal year 2008-2009 (including demand notes)      $   385,321
           Fiscal year 2009-2010                                   501,382
           Fiscal year 2010-2011                                   555,411
           Fiscal year 2011-2012                                   594,876
           Fiscal year 2012-2013                                   605,238
           Fiscal year 2013-2014                                   325,788
                                                          -------------------

                                              Total            $ 2,968,016
                                                          ==================

NOTE I - OTHER LIABILITIES

The Company had been delinquent in paying certain of its payroll tax obligations
for  periods  ending on or before  December  31,  2005.  The  Company's  accrued
liability, including estimates for penalties and interest, approximated $517,600
of which  $500,625 was  recorded as of May 31, 2007.  In  September,  2007,  the
Company  entered into  negotiations  for the  repayment  and  settlement of this
obligation  with  the  Internal  Revenue  Service.   In  conjunction  with  such
negotiations,  the Company made payments of  approximately  $402,130 towards the
tax and interest due and requested  abatement of all penalties  relating to this
matter.  In February 2008, the Company received  notification  from the Internal
Revenue  Service  granting its request for  abatement of penalty with respect to
this matter.  Accordingly,  the Company recognized a gain of $115,470 upon final
settlement of this matter.


NOTE J - REDEEMABLE PREFERRED STOCK

On December 30, 2005, through a private placement, the Company issued 350 shares
of 4% Non-Voting Series A Preferred Stock (Series A Preferred Stock), along with
1,050,000   warrants  for  common   shares  of  Company   stock  as   additional
consideration,  for a cash  investment in the amount of $350,000,  in connection
with the Company's  acquisition of FSC. The purchase of Series A Preferred Stock
is a condition of the qualification of such purchasers to participate in certain
surety bonding programs of FSC under which the participant's  obligations to FSC
are not fully  secured.  Holders of Series A  Preferred  Stock are  entitled  to
participate in the FSC's partially  collateralized bonding programs,  subject to

                                      F-30
<PAGE>
JACOBS FINANCIAL GROUP INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

continuing  satisfaction  of  underwriting  criteria,  based  upon  the  bonding
capacity of FSC  attributable to capital  reserves of FSC  established  with the
subscription  proceeds (i.e.,  bonding capacity equal to ten times  subscription
proceeds) and for so long as the subscriber  holds the Series A shares.  Holders
of the Series A Preferred Stock are entitled to receive, when and as declared by
the board of directors, cumulative preferential cash dividends at a rate of four
percent of the $1,000  liquidation  preference per annum  (equivalent to a fixed
annual rate of $40 per share).  The Series A Preferred Stock ranks senior to the
Company's  common stock,  and pari passu with the  Company's  Series B Preferred
Stock, with respect to dividend rights and rights upon liquidation,  dissolution
or winding up of the Company. The holder may redeem the Series A Preferred Stock
on or after the seventh  anniversary of the Issue Date, if the holder provides a
written  statement  to the Company that it will no longer  require  surety bonds
issued  by  the  Company's  insurance   subsidiary  (FSC)  under  its  partially
collateralized   bonding  programs  and,  if  no  such  surety  bonds  are  then
outstanding,  the Company,  at the option of the holder,  will redeem all or any
portion  of the  Series A  Preferred  Stock of such  holder at a price per share
equal to the Series A  Preferred  Stock  Issue Price plus all accrued and unpaid
dividends  with  respect to the shares of the Series A  Preferred  Stock of such
holder to be redeemed.  The conditional redemption shall not be available to any
holder of Series A Preferred  Stock for so long as surety bonds of the Company's
insurance   subsidiary  issued  on  a  partially   collateralized  basis  remain
outstanding  for the benefit of such holder,  and upon  redemption,  such holder
shall no longer be  eligible  to  participate  in the  partially  collateralized
bonding programs of the insurance subsidiary. The Company is authorized to issue
up to 1,000,000 shares of the Series A Preferred Stock.

As of May 31, 2008, the Company has issued an additional  1,880 shares of Series
A Preferred Stock in exchange for cash  investments in the amount of $1,880,000,
of which 803 shares were issued in fiscal 2008 and 318 shares in fiscal 2007. As
of May 31,  2008 the  Company has chosen to defer  payment of  dividends  on the
Series A Preferred  Stock with such  accrued and unpaid  dividends  amounting to
$124,638 through March 31, 2008.

On December  30, 2005,  through a private  placement,  the Company  issued 3,980
shares of 8% Non-Voting Series B Convertible Preferred Stock (Series B Preferred

                                      F-31
<PAGE>
JACOBS FINANCIAL GROUP INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Stock),  along with  19,900,000  warrants for common  shares of Company stock as
additional consideration, for a cash investment in the amount of $2,985,000; and
issued  4,890.599  shares of Series B  Preferred  Stock,  along with  24,452,996
warrants for common shares of Company stock as additional  consideration,  for a
conversion of $3,667,949 of indebtedness of the Company,  in connection with the
Company's  acquisition  of FSC.  Holders  of the  Series B  Preferred  Stock are
entitled to receive, when and as declared by the board of directors,  cumulative
preferential cash dividends at a rate of eight percent of the $1,000 liquidation
preference per annum  (equivalent to a fixed annual rate of $80 per share).  The
Series B Preferred  Stock ranks senior to the Company's  common stock,  and pari
passu with the  Company's  Series A Preferred  Stock,  with  respect to dividend
rights and rights upon  liquidation,  dissolution  or winding up of the Company.
Each share of the Series B Preferred  Stock is  convertible at the option of the
holder,  at any time after the  original  issue date,  into 1,000 fully paid and
nonassessable  shares of the  Company's  common stock at a  conversion  price of
$1.00 per common share.  The Company may redeem the Series B Preferred  Stock at
any time after the first  anniversary  of the Original Issue Date at a price per
share  equal to the Series B  Preferred  Stock Face  Amount plus all accrued and
unpaid  dividends with respect to the shares of the Series B Preferred  Stock of
such holder to be redeemed.  To the extent that the Series B Preferred Stock has
not been  redeemed by the Company,  the holder may redeem the Series B Preferred
Stock on or after the fifth  anniversary  of the Original  Issue Date at a price
per share equal to the Series B Preferred Stock Face Amount plus all accrued and
unpaid  dividends with respect to the shares of the Series B Preferred  Stock of
such  holder to be  redeemed.  The Company is  authorized  to issue up to 10,000
shares of the Series B  Preferred  Stock.  As of May 31,  2008,  the Company has
issued an additional  810 shares of Series B Preferred  Stock and 810,000 shares
of the Company's common stock as additional consideration,  in exchange for cash
investments in the amount of $810,000;  of which 25 shares of Series B Preferred
Stock and 25,000 shares of the Company's common stock were issued in fiscal 2008
and 560 shares of Series B Preferred  Stock and 560,000  shares of the Company's
common stock were issued in fiscal 2007.  Additionally the .Company has redeemed
58.659 shares at a redemption  price of $62,477.  As of May 31, 2008 the Company
has chosen to defer  payment of dividends  on the Series B Preferred  Stock with
such accrued and unpaid  dividends  amounting to  $1,826,246  through  March 31,
2008.

                                      F-32
<PAGE>
JACOBS FINANCIAL GROUP INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Management  consulted Statement of Financial  Accounting Standards (SFAS) Number
133,  "Accounting  for Derivative  Instruments and Hedging  Activity",  Emerging
Issues Task Force (EITF)  Number 00-19,  "Accounting  for  Derivative  Financial
Instruments  Indexed to, and Potentially Settled in, a Company's Own Stock", and
SFAS 150,  "Accounting  for Certain  Instruments  with  Characteristics  of Both
Liabilities  and Equity" in evaluating the accounting for preferred  securities.
Management determined that SFAS 150 is the appropriate accounting literature.

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

The  Company's  Series A and B preferred  stock each have  mandatory  redemption
features that subject the Company to the analysis of equity versus liability. In
accordance  with SFAS  150,  both  Series A and B have  features  that  embody a
conditional obligation to redeem the instrument upon events not certain to occur
and accordingly, are not classified as liabilities until such events are certain
to occur.  With  respect to the Series A  Preferred  Stock,  such  condition  is
contingent upon the holder having no further need for surety bonds issued by the
Company's insurance subsidiary (FSC) under its partially  collateralized bonding
programs and, having no such surety bonds then outstanding.  With respect to the
Series B Preferred  Stock, in accordance with SFAS 150, if the stock provides an
option to the holder to convert to common  shares at a rate  equivalent  to fair
value, then the financial instruments are not mandatorily  redeemable during the
period  in  which  the  holder  can  convert  the  shares  into  common  shares.
Accordingly,  the Company has determined  that both the Series A and B preferred
stocks should not be  classified as  liabilities.  However,  in accordance  with
Securities  and  Exchange  Commission  (SEC)  Issued  Topic No. D- 98, SEC Staff
Announcement,  "Classification  and  Measurement  of Redeemable  Securities",  a
company that issues preferred shares that are  conditionally  redeemable  (i.e.,
the  shares  are  not  within  the  scope  of  SFAS  150  because  there  is  no
unconditional  obligation  to redeem the shares at a specified  or  determinable
date  or upon an  event  certain  to  occur)  is  required  to  account  for the
conditionally  redeemable  preferred shares in accordance with Accounting Series
Release 268,  which states that the shares are to be reflected on the  company's
balance sheet between total  liabilities and  stockholders'  equity as temporary
equity.

                                      F-33
<PAGE>
JACOBS FINANCIAL GROUP INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE K - STOCK WARRANTS

At May 31,  2008,  the Company had issued and  outstanding  warrants to purchase
15,071,564 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  13,071,564  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.

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

NOTE L-STOCK-BASED COMPENSATION

On October 12,  2005,  the board of directors  adopted its 2005 Stock  Incentive
Plan (the  "Plan") to allow the Company to make awards of stock  options as part
of  the  Company's  compensation  to  key  employees,   non-employee  directors,
contractors  and  consultants.  The Plan was  approved  by the  stockholders  on
December 8, 2005. The aggregate  number of shares of Common Stock issuable under
all awards under the Plan is 35,000,000. No awards may be granted under the Plan
after December 8, 2015.

On October 12, 2005, the board of directors approved a severance arrangement for
a long-time  employee of the Company  terminated  by reason of  disability.  The
arrangement  included an award of 1,000,000  options to acquire common shares at
an exercise  price of four cents ($.04) per share.  The  estimated  value of the
options awarded was approximately $13,500. The term of the options is five years
and expires in October 2010.

                                      F-34
<PAGE>
JACOBS FINANCIAL GROUP INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

On May 25, 2006, the  compensation  committee of the board of directors  awarded
23,400,000 of incentive  stock  options to acquire  common shares at an exercise
price of  seven  cents  ($.07)  per  share,  of which  5,500,000  shares  vested
immediately  and the  remaining  17,900,000  options  vesting over the next four
years  ending in May 2010.  The term of the options is five years and expires in
May 2011.

On December  28,  2006,  the  compensation  committee  of the board of directors
awarded  2,100,000 of incentive  stock  options to acquire  common  shares at an
exercise  price of four cents ($.04) per share,  of which 450,000  shares vested
immediately  and the  remaining  1,650,000  options  vesting over the next three
years ending in December 2009. The term of the options is five years and expires
in December 2011.

The following  table  summarizes  option  activity under the Plan for the fiscal
year ended May 31, 2008.
<TABLE>
<CAPTION>

                                           2008
                                                     Number         Weighted-Avg.
                               Weighted-Avg.       Of Shares         Remaining      Aggregate
                                 Exercise            Under              Life        Intrinsic
                                   Price             Option           (Years)         Value
                               -------------- ----------------     -------------  ------------
<S>                            <C>               <C>               <C>            <C>
Balance at June 1, 2007        $  .06649         26,500,000
Options granted                       -                   -
Options exercised                     -                   -
Options canceled/expired              -                   -
                               -------------- ----------------
Balance, May 31, 2008          $  .06649         26,500,000
                               ============== ================

Exercisable at May 31, 2008    $  .06633         17,583,334             2.99       $     -
                               ============== ================
Expected to vest               $  .06680          8,916,666             3.05       $     -
                               ============== ================
</TABLE>


                                      F-35

<PAGE>

JACOBS FINANCIAL GROUP INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


The following  table  summarizes  activity and pricing  information for the non-
vested shares under the Plan for the year ended May 31, 2008.

                                                      2008

                                         Weighted-Avg.         Number
                                          Grant Date             Of
                                          Fair Value         Non-vested
                                                               Shares
                                       ------------------ ----------------

       Balance at June 1, 2007             $ .01798           14,583,333
       Options granted                            -                    -
       Options vested                        .01789          ( 5,666,667)
       Options canceled/expired                   -                    -
                                       ------------------ ----------------

       Balance at May 31, 2008             $ .01804            8,916,666
                                       ================== ================


The  weighted-average  grant-date  fair value of options was  $.00993  cents for
options  granted  during  fiscal  2007.  No options were granted in fiscal 2008.
There were no options  exercised in fiscal 2008 or 2007. The total fair value of
shares vested amounted to approximately  $101,000 and $99,000 in fiscal 2008 and
2007 respectively.

Stock-based  compensation  expense  attributable  to  such  awards  amounted  to
approximately  $99,000 and  $206,700 in fiscal years ended May 31, 2008 and 2007
respectively.  Unrecognized compensation expense related to non-vested awards at
May 31, 2008 was approximately $55,500 and is expected to be recognized over the
next two years.

The company  estimates  the fair value of stock  options  using a  Black-Scholes
valuation  model,  consistent  with the  provisions of SFAS 123R. Key inputs and
assumptions  used to estimate the fair value of stock options  include the grant
price of the award, the expected option term, volatility of the company's stock,
the  risk-free  interest rate and the company's  dividend  yield.  The following
table presents the weighted-average assumptions used for the options granted.

                     Option term (years)                4.76
                     Volatility                          100%
                     Risk-free interest rate            4.93%
                     Dividend yield                     0.00%

                     Weighted-average fair
                     value per option granted          $0.018


                                      F-36
<PAGE>
JACOBS FINANCIAL GROUP INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE M - INCOME TAXES

Deferred  tax assets and  liabilities  are recorded for the effects of temporary
differences  between  the tax basis of an asset or  liability  and its  reported
amount in the consolidated  financial  statement.  Such differences  include the
income  recognition of a portion of the unearned premium  reserve,  accruals not
currently  deductible  relating to stock  option  expense  and  certain  accrued
expenses that are not paid within  specified time frames by the Internal Revenue
Service,  and the deductibility of deferred policy acquisition costs paid. As of
May 31, 2008,  the Company had operating  loss  carryforwards  of  approximately
$14.4 million.  These  carryforwards  begin expiring in 2015 and, as a result of
the ownership change resulting from the 2001 acquisitions of FSI and Jacobs, the
utilization of  approximately  $6.4 million of the operating loss  carryforwards
are substantially limited.

The Company has fully  reserved  the $4.9  million tax benefit of the  operating
loss  carryforward,  by a valuation  allowance of the same  amount,  because the
likelihood of realization of the tax benefit cannot be determined.

NOTE N-STOCKHOLDERS EQUITY

In fiscal 2008,  the Company has issued 25,000 of the Company's  common stock as
additional  consideration  in connection  with the sale of 25 shares of Series B
Preferred Stock, in exchange for a cash investment in the amount of $25,000. The
shares were valued at approximately $.0196 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 $490.

In fiscal 2008, the Company issued 270,000 shares of the Company's  common stock
as additional  consideration  in connection with short-term and demand borrowing
arrangements  totaling $145,000.  The shares were valued at approximately $.0171
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 $4,610.

In fiscal 2008,  the Company  issued  8,266,437  shares of the Company's  common
stock in connection with the first round of  bridge-financing  arrangements (see
Note H) totaling $2,500,000.  The shares were valued at approximately $.0263 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 $217,314.

                                      F-37
<PAGE>
JACOBS FINANCIAL GROUP INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

In fiscal 2008, the Company issued 198,867 shares of the Company's  common stock
in connection with the second round of  bridge-financing  arrangements (see Note
H) totaling  $60,000.  The shares were valued at approximately  $.0115 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 $2,280.

In fiscal 2007,  the Company has issued an  additional  560,000 of the Company's
common stock as  additional  consideration  in  connection  with the sale of 560
shares of Series B Preferred  Stock,  in exchange  for cash  investments  in the
amount of  $560,000.  The shares were valued at  approximately  $.0317 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 $17,742.

NOTE O-STATUTORY FINANCIAL DATA (UNAUDITED)

The Company's  insurance  subsidiary  files calendar year  financial  statements
prepared  in  accordance  with  statutory  accounting  practices  prescribed  or
permitted by regulatory authorities. The principal differences between statutory
financial  statements  and  financial  statements  prepared in  accordance  with
generally accepted accounting principals are that statutory financial statements
do not  reflect  deferred  policy  acquisition  costs  and  certain  assets  are
non-admitted.

Statutory  surplus as of May 31, 2008 and 2007 and net income for the  Company's
insurance  subsidiary  the  calendar  year ended  December 31, 2007 and 2006 and
five-month periods ended May 31, 2008 and 2007 are as follows:

            Statutory Surplus        May 31, 2008                   $ 4,564,352
            Statutory Surplus        May 31, 2007                     3,556,077

            Net Income               Calendar year 2007                  54,173
            Net Income (loss)        Calendar year 2006                (100,851)

            Net Income               Five-month period 2008             108,957
            Net Income (loss)        Five-month period 2007              (9,301)


                                      F-38
<PAGE>
JACOBS FINANCIAL GROUP INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Statutory  surplus  exceeds the minimum  capital  requirements  provided by West
Virginia state law of $2.0 million.

Under the Consent Order issued by the Commissioner of the State of West Virginia
for the acquisition of the insurance subsidiary by the Company, no dividends can
be  declared or paid from the  insurance  subsidiary  without the prior  written
approval of the Insurance Commissioner.


NOTE P - COMMITMENTS

ACQUISITION COMMITMENTS AND MATERIAL AGREEMENTS
-----------------------------------------------
On December 3, 2007,  the Company  entered  into an agreement  (the  "December 3
Agreement) with National  Indemnity Company  ("National  Indemnity") to purchase
all of the outstanding  shares of Unione Italiana  Insurance  Company of America
("Unione")  for a purchase  price of $2.75 million plus the surplus of Unione on
the  date of the  closing.  Unione  is a New  York  Corporation  with  insurance
licenses in 26 states.  Prior to closing,  National  Indemnity will enter into a
reinsurance  agreement with Unione under which National  Indemnity will reinsure
all liabilities of Unione under  contracts of insurance and reinsurance  arising
prior to  closing.  Among  other  conditions,  closing is subject to  applicable
regulatory  approvals,  including  approval  by the New York  Superintendent  of
IInsurance.  Either party may  terminate the December 3 Agreement if the closing
does not  take  place on or prior  to June  30,  2008.  The  Company  has made a
nonrefundable  deposit  (except for failure by National  Indemnity  or Unione to
meet  certain  required  conditions  for  closing) to National  Indemnity in the
amount of $75,000  which amount will be applied  towards the  purchase  price at
closing.

By Agreement dated December 5, 2007 (the  "Engagement  Agreement"),  the Company
engaged an  investment  bank (the  "Bank") to act as  placement  agent/financial
advisor with respect to certain equity financing matters. The agreement provided
for a retainer of $250,000  and fees equal to 7% of the gross  proceeds  raised,
against  which the  retainer  will be  credited,  as well as  reimbursement  for
expenses.  The agreement was  terminated  with an effective date of June 9, 2008
(see Subsequent Event Note U).

                                      F-39
<PAGE>
JACOBS FINANCIAL GROUP INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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").  The Merger  Consideration is
payable in stock of the  Company  or, at the  election  of certain  non-employee
shareholders,  cash.  Currently,  NewBridge performs certain surety underwriting
services for the Company's  subsidiary,  First Surety  Corporation.  Among other
conditions, closing is subject to, and will take place following, the closing by
the  Company  of an equity  financing.  Either  party may  terminate  the Merger
Agreement  if the  closing  does  not take  place  on or prior to June 30,  2008
(extended to October 31,  2008--see  Subsequent Event Note U). 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,  which  amount will be applied
toward the Merger Consideration at closing.

By agreement  dated April 15, 2008, the Company  engaged a financial  advisor to
act on behalf of the Company in connection  with a transaction  with a strategic
partner.  The  financial  advisor will be entitled to a fee of $250,000 upon the
successful  completion  of a transaction  that meets the Company's  requirements
within the one year engagement period.

LEASE COMMITMENTS
-----------------
The Company leases certain office  equipment with combined  monthly  payments of
approximately  $840 that have varying  remaining  terms of less than five years.
The Company leases office,  parking and storage space under month-to-month lease
arrangements that approximate $3,965 each month.

The Company  leases an apartment for corporate use that has a remaining  term of
18 months at a monthly rate of $545.00 plus electric utilities.

The Company holds an  undeveloped  leasehold  interest in a mineral water spring
located near Hot Springs, Arkansas. Under the leasehold arrangement, the Company
makes  minimum  lease  payments  of $170 per month.  The  Company has options to
extend the leasehold  arrangement  through  October 2026 and also has a right to
cancel the lease at any time upon sixty (60) days written notice.

Rental expense for these lease  commitments  totaled  approximately  $65,650 and
$62,250 during 2008 and 2007.

                                      F-40
<PAGE>
JACOBS FINANCIAL GROUP INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Minimum  future lease  payments  under  non-cancelable  operating  leases having
remaining terms in excess of one year as of May 31, 2008 are:

          Fiscal year 2008-2009         $ 16,270
          Fiscal year 2009-2010           11,839
          Fiscal year 2010-2011            6,944
          Fiscal year 2011-2012            6,944
                                      -----------
                          Total         $ 41,997
                                      ===========


NOTE Q - FINANCIAL INSTRUMENTS

FAIR VALUE
----------
The following methods and assumptions were used to estimate fair market value of
each class of financial instruments for which it is practicable to estimate that
value:

INVESTMENT SECURITIES
---------------------
Fair values for investment  securities (U.S.  Government,  government  agencies,
government agency  mortgage-backed  securities,  state and municipal securities,
and equity  securities)  held for investment  purposes  (available-for-sale  and
held-to-maturity)  are based on quoted  market  prices  or dealer  quotes.  If a
quoted  market  price is not  available,  fair value is  estimated  using quoted
market prices for similar securities.

OTHER FINANCIAL INSTRUMENTS
---------------------------
The  carrying  amount  of cash,  short-term  investments,  receivables,  prepaid
expenses,  short-term  and  demand  notes  payable,  accounts  payable,  accrued
expenses and other  liabilities  approximate fair value because of the immediate
or relatively short-term maturity of these financial instruments.  Fair value of
term  notes  payable,   including  notes  payable  under  the   bridge-financing
arrangement,  were  deemed to  approximate  their  carrying  value  based on the
Company's  incremental  borrowing  rates for similar  types of  borrowings  with
maturities consistent with those remaining for the debt being valued.

                                      F-41
<PAGE>
JACOBS FINANCIAL GROUP INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

The carrying  values and fair values of the Company's  financial  instruments at
May 31, 2008 and 2007 are as follows:
<TABLE>
<CAPTION>
                                                                    2008                                 2007
                                                     ------------------------------------------------------------------------
                                                         Carrying            Fair             Carrying            Fair
                                                          Amount             Value             Amount            Value
                                                     ----------------- ------------------ ----------------- -----------------
<S>                                                  <C>                 <C>                <C>               <C>
ASSETS
Bonds available for sale                             $   105,866         $   105,866        $         -       $         -
Bonds held to maturity                                         -                   -          2,316,875         2,308,003
Mortgage-backed securities held to maturity            3,826,688           3,800,909          1,369,411         1,367,365
Cash and short-term investments                        1,224,696           1,224,696            361,027           361,027
Premiums and other receivables                            67,245              67,245             73,962            73,962
Equity securities (included in other assets)              24,829              24,829                  -                 -

LIABILITIES
Notes payable                                          2,968,016           2,968,016            410,136           410,136
Accounts payable and advance premiums                    315,577             315,577            472,929           472,929
Accrued expenses and other liabilities                   499,924             499,924          1,075,811         1,075,811
</TABLE>



NOTE R - OTHER RISKS, UNCERTAINTIES AND CONCENTRATIONS

CONCENTRATION OF CREDIT RISK
----------------------------
Statement of Financial  Accounting Standards No. 105, "Disclosure of Information
about  Financial   Instruments   with   Off-Balance-Sheet   Risk  and  Financial
Instruments  with  Concentrations  of  Credit  Risk",   requires  disclosure  of
significant concentration of credit risk regardless of the degree of such risk.

As of  May  31,  2008  the  Company's  investment  securities  of  approximately
$5,109,000  are solely  comprised  of  mortgage-backed  securities  and defeased
municipal bonds that are guaranteed by U.S government agencies,  certificates of
deposit  fully  insured  by  the  Federal  Deposit  Insurance   Corporation  and
money-market  mutual funds that invest  principally in obligations issued by the
U.S  government,  its  agencies  or  instrumentalities.   Such  instruments  are
generally considered to be of the highest credit quality investment available.

                                      F-42
<PAGE>
JACOBS FINANCIAL GROUP INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

The  Company  transacts  the  majority  of  its  business  with  four  financial
institutions,  two for commercial  banking services and the others for brokerage
and  custodial  services.  Periodically,  the  amount on  deposit  in  financial
institutions   providing   commercial  banking  services  exceeds  the  $100,000
federally insured limit.  Management  believes these financial  institutions are
financially  sound.  With  respect  to  the  financial   institutions  providing
brokerage  and  custodial  services,  amounts on deposit  are  invested in money
market  funds  that  invest   principally  in  obligations  issued  by  the  U.S
government, its agencies or instrumentalities.

Management  believes that  substantially  all receivables are  collectible,  and
therefore has not established an allowance for estimated uncollectible accounts.

CONCENTRATION IN PRODUCTS, MARKETS AND CUSTOMERS
------------------------------------------------
The  Company's  insurance  subsidiary  currently  writes only the surety line of
business,  is licensed to write surety only in West Virginia and has focused its
primary efforts towards coal permit bonds. Such business,  including  investment
advisory fees from managed collateral accounts,  accounted for approximately 58%
and  50%  of  the  Company's  fiscal  2008  and  2007  revenues,   respectively.
Furthermore,  the Company  provides  surety bonds to companies that share common
ownership interests that constitute 48% and 42% of the Company's fiscal 2008 and
2007 revenues, respectively, as follows:
<TABLE>
<CAPTION>
                                               2008                          2007
                                ------------------------------------------------------------------

                                                      Investment                    Investment
                                     Surety            Advisory       Surety         Advisory
                                     Premium             Fees        Premium           Fees
                                ------------------ ------------- --------------- -----------------
<S>                             <C>                <C>           <C>             <C>
Customer group # 1              $   270,000        $   80,000    $   263,000     $    80,000
Customer group # 2                   96,000            11,000              -               -
                                ------------------ ------------- --------------- -----------------
                         TOTAL      366,000            91,000        263,000          80,000
                                ================== ============= =============== =================
</TABLE>

NOTE S - 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-43

<PAGE>
JACOBS FINANCIAL GROUP INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


                                                      YEAR ENDED
INDUSTRY SEGMENT                           MAY 31, 2008        MAY 31, 2007
----------------                         ------------------- -----------------
REVENUES:
 Investment advisory                        $    263,250       $    275,328
 Surety insurance                                694,336            548,011
 Corporate                                         9,693              1,176
                                         ------------------- -----------------
 Total revenues                             $    967,279       $    824,515
                                         =================== =================

OPERATING INCOME (LOSS):
 Investment advisory                        $   (200,009)      $   (372,839)
 Surety insurance                                 92,368             93,759
 Corporate                                    (1,753,984)        (1,049,186)
                                         ------------------- -----------------
 Total operating income (loss)              $ (1,861,625)      $ (1,328,266)
                                         =================== =================

IDENTIFIABLE ASSETS:
 Investment advisory                        $     69,112       $     45,555
 Surety insurance                              5,420,727          4,298,295
 Corporate                                       287,927             26,219
                                         ------------------- -----------------
 Total assets                               $  5,777,766       $  4,370,069
                                         =================== =================

CAPITAL ACQUISITIONS:
 Investment advisory                        $          -       $          -
 Surety insurance                                 13,093                  -
 Corporate                                         1,510              6,007
                                         ------------------- -----------------
 Total capital acquisitions                 $     14,603       $      6,007
                                         =================== =================

DEPRECIATION CHARGED TO
IDENTIFIABLE ASSETS:
 Investment advisory                        $         45       $      4,800
 Surety insurance                                  3,311              3,310
 Corporate                                         5,023              4,309
                                         ------------------- -----------------
 Total Depreciation                         $      8,379       $     12,419
                                         =================== =================

INTEREST EXPENSE:
 Investment advisory                        $     13,892       $     91,487
 Surety insurance                                      -              4,362
 Corporate                                       465,403             57,171
                                         ------------------- -----------------
 Total interest expense                     $    479,295       $    153,020
                                         =================== =================


                                      F-44
<PAGE>
JACOBS FINANCIAL GROUP INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE T - RELATED PARTY TRANSACTIONS

BORROWING AND OTHER TRANSACTIONS OF LARGEST SHAREHOLDER AND CEO
---------------------------------------------------------------
For the past several  years the  Company's  operating  expenses  were  partially
funded by advances from its largest  shareholder  and chief  executive  officer,
John M.  Jacobs.  The  source of  funding  for these  advances  originated  with
obligations incurred by Mr. Jacobs with third parties (such obligations together
with the loans by Mr. Jacobs to the Company, "back-to-back loans") with interest
rates ranging from 6.75% to 12%.

To assure that  repayments  of the various  borrowings  by the Company that were
either  guaranteed by Mr. Jacobs or loaned to the Company by Mr. Jacobs via such
back-to-back  loan  arrangements  did not result in a deemed loan to Mr. Jacobs,
Mr. Jacobs entered into an Assumption  Agreement  with the Company,  pursuant to
which  Mr.  Jacobs  assumes,  and  agrees  to hold the  Company  harmless  from,
principal  of  specified  indebtedness  of the Company as and when  necessary to
fully offset what might  otherwise be deemed an advance of funds  arising out of
the Company's financing activities.

During  the  year  ended  May 31,  2006,  the  Company  made net  repayments  of
$1,170,546 on the  back-to-back  loans which was $508,036 more than the original
loans and interest  charges.  In accordance with the Assumption  Agreement,  the
Company assigned to Mr. Jacobs and Mr. Jacobs assumed responsibility for payment
of certain debt totaling  $101,326 and accounts payable totaling $365,000 during
the year ended May 31, 2006.  The debt  obligation was re- issued in the name of
Mr.  Jacobs;  and therefore the debt amount was relieved and offset  against the
receivable  from Mr.  Jacobs.  Although the Company  assigned  accounts  payable
totaling $365,000 to Mr. Jacobs through the Assumption Agreement,  for financial
reporting purposes under generally accepted accounting principles,  the accounts
payable  amount could not be  derecognized  until either paid or released by the
creditor.  On  September  13,  2006,  the Company did receive a release from the
obligee of the $365,000 accounts payable that was assumed by Mr. Jacobs pursuant
to the Assumption Agreement. Accordingly, the assumption of the accounts payable
was  offset  against  the  balance  due from Mr.  Jacobs  as of May 31,  2006 of
$361,009.

During fiscal 2007, advances to the Company from Mr. Jacobs amounted to $285,392
and  repayments  to Mr.  Jacobs  amounted to $273,620.  As of May 31, 2007,  the
balance due Mr. Jacobs was $15,763.

                                      F-45

<PAGE>
JACOBS FINANCIAL GROUP INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

During fiscal 2008, advances to the Company from Mr. Jacobs amounted to $132,200
and  repayments  to Mr.  Jacobs  amounted to $146,962.  As of May 31, 2008,  the
balance due Mr. Jacobs was $1,000.

NOTE U - EVENTS SUBSEQUENT TO MAY 31, 2008

Subsequent  to May 31,  2008,  the  Company  finalized  its  "second  round"  of
bridge-financing to provide interim financing of operations until a larger, more
permanent  financing that the Company has endeavored to undertake is consummated
and to pay fees and expenses in connection with the larger financing.  In total,
additional  borrowings  under  such  bridge-financing   arrangement   aggregated
$865,000,  with 3,115,581  shares of the Company's  common stock being issued in
connection  with  said   borrowings,   bringing  total   borrowings   under  the
bridge-financing  arrangements  (first and second round combined) to $3,500,000.
Terms  of the  bridge-financing  arrangement  are  set  forth  in  Note H to the
financial statements.

Additionally,  advances to the  Company  from its  largest  shareholder  and CEO
amounting to $28,000, with repayments totaling $29,000.

Effective  June 9, 2008,  the Company  terminated  its  engagement  agreement of
December 5, 2007 with an  investment  bank to act as  placement  agent/financial
advisor with respect to certain equity financing matters.

On June 24, 2008,  the Company  amended its Merger  Agreement  with  Reclamation
Surety  Holding  Company,  Inc. to extend the date for closing until October 31,
2008 at which time either party may  terminate the Merger  Agreement.  All other
terms and conditions of the Merger Agreement remained unchanged.

On June 30, 2008, the Company  elected to continue to defer payment of dividends
on its  Series  A  Preferred  Stock  and  Series B  Preferred  stock  with  such
accumulated accrued and unpaid dividends amounting to $147,991 and $2,053,992 as
of June 30, 2008.

In July 2008, First Surety Corporation  (FSC), a wholly-owned  subsidiary of the
Company,  filed  its  application  with the  Insurance  Commissioner  of Ohio to
reactivate its insurance license in Ohio and to obtain authority to issue surety
bonds in that  state.  On August 5, 2008,  FSC  received  approval  to write the
surety line of business in Ohio from the Ohio Department of Insurance.

                                      F-46
<PAGE>
JACOBS FINANCIAL GROUP INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

On August 20,  2008,  the  Company  entered  into a  definitive  Stock  Purchase
Agreement (the "Purchase  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").  Unione is a New York
domiciled  insurer  licensed in 24 states and has license  applications  pending
with the Commonwealth of Kentucky and with the Financial  Management  Service of
the United States Department of Treasury. The purchase price for the acquisition
of Unione (the "Transaction") is equal to the sum of (i) $2,750,000 plus (ii) an
amount in cash equal to Unione's New York statutory policyholders' surplus as of
the closing date of the Transaction less (iii) $75,000 (which amount is equal to
a good faith deposit previously  provided to NICO. The Company's  acquisition of
Unione,  when  coupled  with a  reinsurance  agreement  with  NICO that is to be
executed simultaneously with closing, will consist of the purchase of marketable
investments and insurance licenses and will not include any existing policies or
customer  base as the  insurance  lines of  business  offered  by Unione are not
insurance  lines that the Company  intends to pursue.  The  Transaction  remains
contingent  upon  necessary  regulatory  approvals and the  Company's  obtaining
necessary financing.





























                                      F-47
<PAGE>


                                                 JACOBS FINANCIAL GROUP, INC.
                                                       AND SUBSIDIARIES
<TABLE>
<CAPTION>

----------------------------------------------------------------------------------------------------------------------------
 SUMMARY OF INVESTMENTS-
 OTHER THAN INVESTMENTS IN RELATED PARTIES                                                                    SCHEDULE I
----------------------------------------------------------------------------------------------------------------------------




                                                                                                                    AMOUNT
                                                                                                                   AT WHICH
 AT MAY 31, 2008                                                                                                 SHOWN IN THE
                                                                             COST*              VALUE            BALANCE SHEET
                                                                        --------------      --------------      ---------------

<S>                                                                     <C>                 <C>                 <C>
 Fixed maturities:
  Bonds:
    United States Government and government agencies and authorities    $           -       $           -       $            -
    States, municipalities, and political subdivisions                         98,774             105,866              105,866
                                                                        --------------      --------------      ---------------
    Total fixed maturities                                                     98,774             105,866              105,866

 Equity securities:
                                                                                    -                   -                    -
                                                                        --------------      --------------      ---------------
    Total equity securities                                                         -                   -                    -


 Mortgage-backed securities guaranteed by U.S. government agency            3,826,688           3,800,909            3,826,688

 Short-term investments, at cost (approximates market value)                1,176,056           1,176,056            1,176,056
                                                                        --------------      --------------      ---------------

    Total investments                                                   $   5,101,518       $   5,082,831       $    5,108,610
                                                                        ==============      ==============      ===============

</TABLE>

 * Original cost of equity securities and, as to fixed maturities, original cost
 reduced by repayments and adjusted for  amortization of premiums and accrual of
 discounts









                                      F-48

<PAGE>
<TABLE>
<CAPTION>
                                         JACOBS FINANCIAL GROUP, INC.
                                               AND SUBSIDIARIES

------------------------------------------------------------------------------------------------------------
CONDENSED FINANCIAL INFORMATION OF REGISTRANT                                                   SCHEDULE II
------------------------------------------------------------------------------------------------------------

BALANCE SHEETS - PARENT COMPANY ONLY
                                                                                   MAY 31, 2008  MAY 31, 2007
                                                                                   ------------- ------------
<S>                                                                                <C>           <C>
 ASSETS:
  Cash                                                                             $     12,385  $    12,378
  Accounts receivable from affiliates                                                     2,740        2,656
  Prepaid expense and other assets                                                      264,816        1,656
  Furniture and equipment, net                                                            7,987       12,184
  Investment in subsidiaries, equity method                                           3,807,434    2,995,605
  Due from affiliates, net                                                              772,966      113,589
                                                                                   ------------- ------------

        Total assets                                                               $  4,868,328  $ 3,138,068
                                                                                   ============= ============

 LIABILITIES:
  Accounts payable                                                                     $ 15,956     $ 83,121
  Accrued expenses and professional fees                                                334,159      462,640
  Notes payable                                                                       2,968,017      410,136
  Other liabilities                                                                      86,289       25,950
                                                                                   ------------- ------------

        Total liabilities                                                             3,404,421      981,847

 MANDATORILY REDEEMABLE PREFERRED STOCK                                              12,245,799    9,946,972

 STOCKHOLDERS EQUITY:
  Common stock                                                                           16,609       15,700
  Additional paid in capital                                                          2,423,537    2,082,647
  Accumulated deficit                                                               (13,222,038)  (9,889,098)
                                                                                   ------------- ------------

        Total stockholders equity (deficit)                                         (10,781,892)  (7,790,751)
                                                                                   ------------- ------------

        Total liabilities and stockholders equity                                  $  4,868,328  $ 3,138,068
                                                                                   ============= ============

STATEMENTS OF INCOME - PARENT COMPANY ONLY
 YEAR ENDED MAY 31,
                                                                                        2008         2007
                                                                                   ------------- ------------
 REVENUES
  Equity in undistributed net income (loss) of consolidated subsidiaries           $      7,829  $  (279,080)
  Tax benefit to parent from subsidiary attributable to utilization of net
   operating loss carryforwards                                                          47,000            -
  Interest income                                                                         9,693            -
                                                                                   ------------- ------------

        Total revenues                                                                   64,522     (279,080)

 EXPENSES:
  General and administrative                                                          1,455,721      987,734
  Interest                                                                              465,403       57,143
  Depreciation                                                                            5,023        4,309
                                                                                   ------------- ------------

        Total expenses                                                                1,926,147    1,049,186
                                                                                   ------------- ------------

        Net income (loss)                                                            (1,861,625)  (1,328,266)

 Accretion of mandatorily redeemable convertible preferred stock,
  including accrued dividends                                                        (1,471,317)  (1,333,165)
                                                                                   ------------- ------------

        Net income (loss) attributable to common stockholders                      $ (3,332,942) $(2,661,431)
                                                                                   ============= ============
</TABLE>

                                      F-49
<PAGE>
<TABLE>
<CAPTION>
                                         JACOBS FINANCIAL GROUP, INC.
                                               AND SUBSIDIARIES

------------------------------------------------------------------------------------------------------------
CONDENSED FINANCIAL INFORMATION OF REGISTRANT                                                   SCHEDULE II
------------------------------------------------------------------------------------------------------------

STATEMENTS OF CASH FLOWS - PARENT COMPANY ONLY
 YEAR ENDED MAY 31,
                                                                                       2008         2007
                                                                                   ------------- ------------
 CASH FLOWS FROM OPERATING ACTIVITIES:
<S>                                                                                <C>          <C>
 Net income (loss)                                                                 $(1,861,625) $(1,328,266)

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

  Equity in undistributed net loss of consolidated subsidiaries                         (7,829)     279,080
  Stock option compensation expense                                                     98,972      206,682
  Stock issued in connection with financing arrangements                               242,003            -
  Depreciation                                                                           5,023        4,309
  Loss on disposal of equipment                                                            684            -
  Change in other assets, accounts payable and accrued expense, net                   (398,549)     261,850
                                                                                   ------------- ------------

        TOTAL CASH USED IN OPERATIONS                                               (1,921,321)    (576,345)


 CASH FLOWS FROM INVESTING ACTIVITIES:

  Contributions to insurance company subsidiary                                       (804,000)    (191,000)
  Funds provided to affiliates for operations                                         (659,377)    (209,655)
  Purchase of furniture and equipment                                                   (1,510)      (6,007)
                                                                                   ------------- ------------

        TOTAL CASH USED IN INVESTING ACTIVITIES                                     (1,464,887)    (406,662)

 CASH FLOWS FROM FINANCING ACTIVITIES:

  Proceeds from issuance of mandatorily redeemable preferred stock                     828,000      878,000
  Proceeds from exercise of stock warrants                                                 335        1,500
  Redemption of mandatorily redeemable preferred stock                                       -      (62,477)
  Proceeds from borrowings                                                           2,842,000      375,000
  Repayment of borrowings                                                             (269,357)    (138,859)
  Proceeds from short-term borrowings from related party                               132,200       79,616
  Repayment of short-term borrowings to related party                                 (146,963)    (137,395)
                                                                                   ------------- ------------

        TOTAL CASH PROVIDED BY FINANCING ACTIVITIES                                  3,386,215      995,385
                                                                                    ------------- ------------

        CHANGE IN CASH                                                                       7       12,378

 Cash at beginning of year                                                              12,378            -
                                                                                   ------------- ------------

 Cash at end of year                                                               $    12,385   $   12,378
                                                                                   ============= ============
</TABLE>











                                      F-50


<PAGE>
<TABLE>
<CAPTION>
                                                    JACOBS FINANCIAL GROUP, INC.
                                                          AND SUBSIDIARIES


------------------------------------------------------------------------------------------------------------------------------------
 SUPPLEMENTARY INSURANCE INFORMATION
 AS OF MAY 31, 2008 AND 2007 AND FOR THE YEARS THEN ENDED                                                               SCHEDULE III
------------------------------------------------------------------------------------------------------------------------------------



                            RESERVE FOR
                               LOSSES                 OTHER                                     AMORTIZATION
                                AND                  POLICY                           CLAIMS        OF
                DEFERRED   LOSS EXPENSES,              AND                          LOSSES AND    DEFERRED
                POLICY        FUTURE                CONTRACT                NET     SETTLEMENT     POLICY        OTHER       NET
              ACQUISITION     POLICY      UNEARNED   CLAIMS    PREMIUM   INVESTMENT   EXPENSES   ACQUISITION    OPERATING  PREMIUMS
    SEGMENT      COSTS        CLAIMS      PREMIUMS  PAYABLE    REVENUE    INCOME     INCURRED      COSTS        EXPENSES    WRITTEN
------------- -----------  -------------  --------- --------   --------  ----------  ----------  -----------    ---------  ---------

<S>            <C>            <C>         <C>          <C>     <C>        <C>         <C>          <C>              <C>     <C>
2008
 Surety        $75,940        $246,651    $277,208     $ -     $453,478   $225,461    $135,867     $126,386         $ -     $586,498


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

2007

 Surety        $52,365        $110,784    $271,222     $ -     $314,067   $189,956     $98,873     $108,065         $ -     $264,639
</TABLE>





























                                      F-51
<PAGE>
<TABLE>
<CAPTION>
                                                    JACOBS FINANCIAL GROUP, INC.
                                                          AND SUBSIDIARIES


------------------------------------------------------------------------------------------------------------------------------------
 SUPPLEMENTAL INFORMATION
 AS OF MAY 31, 2008 AND 2007 FOR THE YEARS THEN ENDED                                                                   SCHEDULE VI
------------------------------------------------------------------------------------------------------------------------------------



    COLUMN A     COLUMN B    COLUMN C    COLUMN D   COLUMN E   COLUMN F  COLUMN G     COLUMN H        COLUMN I     COLUMN J COLUMN K

                            RESERVE FOR
                              LOSSES                                                 CLAIMS, LOSSES
                               AND       DISCOUNT                                    AND SETTELMENT  AMORTIZATION    PAID
                               LOSS        IF ANY,                                      EXPENSES          OF        CLAIMS
                 DEFERRED    EXPENSES,   DEDUCTED                                   INCURRED RELATED   DEFERRED   AND CLAIMS
  AFFILIATION     POLICY      FUTURE        IN                              NET            TO           POLICY      ADJUST-    NET
     WITH       ACQUISITION   POLICY      COLUMN    UNEARNED   PREMIUM  INVESTMENT  CURRENT   PRIOR  ACQUISITION     MENT   PREMIUMS
   REGISTRANT     COSTS       CLAIMS        C       PREMIUMS   REVENUE    INCOME      YEAR    YEARS     COSTS      EXPENSES  WRITTEN
--------------- -----------  ----------  --------   --------   -------  ----------  -------   -----  -----------  ---------- -------
<S>             <C>          <C>         <C>        <C>        <C>      <C>         <C>       <C>    <C>          <C>        <C>

2008

 Consolidated
 property-
 casualty
 entities        $75,940     $246,651      $ -      $277,208  $453,478   $225,461   $135,867   $ -     $126,386       $ -   $586,498


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

2007

 Consolidated
 property-
 casualty
 entities        $52,365     $110,784      $ -      $271,222  $314,067   $189,956    $98,873   $ -     $108,065       $ -   $264,639

</TABLE>





















                                      F-52
<PAGE>

(b) The following exhibits are filed as a part of this Annual Report.

<TABLE>
<CAPTION>
EXHIBITS
<S>   <C>
2.1   Agreement and Plan of Merger dated as of May 18, 2001 by and among NELX, Inc., FSI Acquisition Corp. and FS
      Investments, Inc. (1)
2.2   Agreement and Plan of Merger dated as of May 18, 2001 by and among NELX, Inc., J&C Acquisition Corp. and
      Jacobs & Company (1)
2.3   Agreement and Plan of Merger dated as of  December 8, 2006 by and among NELX, Inc. and Jacobs Financial
      Group, Inc. (2)
3.1   Company's Articles of Incorporation (3)
3.2   Company's By-laws (3)
3.3   Certificate of the Designations, Powers, Preferences and Rights of Series A Preferred Stock of Jacobs
      Financial Group (3)
3.4   Certificate of the Designations, Powers, Preferences and Rights of Series B Preferred Stock of Jacobs
      Financial Group (3)
4.1   Certificate of the Designations, Powers, Preferences and Rights of Series A Preferred Stock of Jacobs
      Financial Group (3)
4.2   Certificate of the Designations, Powers, Preferences and Rights of Series B Preferred Stock of Jacobs
      Financial Group (3)
10.1  Stock Purchase Agreement with National Indemnity Company to purchase Unione Italiana Insurance Company of
      America dated August 20, 2008 (11)
10.2  Engagement Agreement between Friedman, Billings, Ramsey & Co., Inc. and Jacobs Financial Group, Inc. dated
      December 5, 2007 (7) (9)
10.3  Agreement to acquire by merger Reclamation Surety Holding, Inc. (5) (6) (10)
21.1  Subsidiaries of the Registrant
31.1  Certification of Chief Executive Officer pursuant to Rule 13a-14(a)/15d-14(a) promulgated under the
      Securities Exchange Act of 1934
31.2  Certification of Chief Financial Officer pursuant to Rule
      13a-14(a)/15d-14(a) promulgated under the Securities Exchange Act of 1934
32.1  Certification of Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section
      906 of the Sarbanes-Oxley Act of 2002
32.2  Certification of Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section
      906 of the Sarbanes-Oxley Act of 2002
99.1  Form of Subscription Agreement and Promissory Note (4)
99.2  Form of Amended Subscription Agreement and Promissory Note (8)
99.3  Form of Subscription Agreement and Promissory Note (Second Round) (8)
----------------------------
      (1)   Incorporated by reference to the Company's Current Report On Form 8-K dated May 29, 2001.
      (2)   Incorporated by reference to the Company's Definitive Proxy Statement dated November 7, 2005.
      (3)   Incorporated by reference to the Company's Current Report on Form 8-K dated December 29, 2005.
      (4)   Incorporated by reference to the Company's Current Report on Form 8-K dated September 10, 2007.
      (5)   Incorporated by reference to the Company's Current Report on Form 8-K dated December 14, 2007.
      (6)   Incorporated by reference to the Company's Current Report on Form 8-K dated February 8, 2008.
      (7)   Incorporated  by reference to the Company's  Quarterly  Report on Form 10-QSB for the quarterly
            period ended February 29, 2008
      (8)   Incorporated by reference to the Company's Current Report on Form 8-K dated May 30, 2008
      (9)   Incorporated by reference to the Company's Current Report on Form 8-K dated April 15, 2008
      (10)  Incorporated by reference to the Company's Current Report on Form 8-K dated June 24, 2008
      (11)  Incorporated  by reference  to the  Company's  Current  Report on Form 8-K dated August 20, 2008
</TABLE>

                                       33
<PAGE>


SIGNATURES

Pursuant to the  requirements of Section 13 or 15(d) of the Securities  Exchange
Act of 1934,  the  registrant  has duly  caused  this report to be signed on its
behalf by the undersigned, thereunto duly authorized.


Dated: September 08, 2008                 JACOBS FINANCIAL GROUP, INC.

                                       By:
                                          /s/John M. Jacobs
                                          -----------------------------------
                                          John M. Jacobs
                                          President and CEO
                                          Director





























                                       34


<PAGE>

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following  persons on behalf of the  registrant and
in the capacities and on the dates indicated.


Dated: September 08, 2008                       By:/s/John M. Jacobs
                                                -----------------------------
                                                John M. Jacobs
                                                President and CEO
                                                Director

Dated: September 08, 2008                       By: /s/Robert L. Neal
                                                -----------------------------
                                                Robert L. Neal
                                                Chief Financial Officer

Dated: September 08, 2008                       By: /s/Frederick E. Ferguson
                                                -----------------------------
                                                Frederick E. Ferguson
                                                Director

Dated: September 08, 2008                       By: /s/ C. David Thomas
                                                -----------------------------
                                                C. David Thomas
                                                Director











                                       35