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, 2009

                         Commission file number 0-21210

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


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


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

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



         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,  2008:  $783,348  (174,077,272  shares at $.0045 /
share)

Indicate the number of shares outstanding of each of the registrant's classes of
common stock, as of the latest  practicable date:  186,028,413  shares of common
stock as of September 9, 2009.

                                       2
<PAGE>
<TABLE>
<CAPTION>


                                             TABLE OF CONTENTS

<S>                 <C>                                                                          <C>
                                                                                                PAGE
                    PART I

Item 1              Business                                                                      4
Item 1A             Risk Factors                                                                  5
Item 2              Properties                                                                    5
Item 3              Legal Proceedings                                                             5
Item 4              Submission of Matters to a Vote of Security Holders                           5

                    PART II

Item 5              Market for Registrant's Common Equity, Related Stockholder Matters
                    and Issuer Purchases of Equity Securities                                     6
Item 6              Selected Financial Data                                                       7
Item 7              Management's Discussion and Analysis of Financial Condition and
                    Results of Operations                                                         7
Item 7A             Quantitative and Qualitative Disclosures About Market Risk                    18
Item 8              Financial Statements and Supplementary Data                                   18
Item 9              Changes in and Disagreements With Accountants on Accounting and
                    Financial Disclosure                                                          19
Item 9A(T)          Controls and Procedures                                                       19
Item 9B             Other Information                                                             20

                    PART III

Item 10             Directors, Executive Officers and Corporate Governance                        21
Item 11             Executive Compensation                                                        23
Item 12             Security Ownership of Certain Beneficial Owners and Management and
                    Related Stockholder Matters                                                   25
Item 13             Certain Relationships and Related Transactions and Director
                    Independence                                                                  28
Item 14             Principal Accounting Fees and Services                                        29

                    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>


The Company is  headquartered  in  Charleston,  West  Virginia,  and through its
wholly-owned subsidiaries, employs a total of seven (7) full-time employees.

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  $180 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















                                       5
<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 JFGI (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, 2009

         4th Quarter                              .045                     .001
         3rd Quarter                              .01                      .003
         2nd Quarter                              .01                      .003
         1st Quarter                              .01                      .003


FISCAL YEAR ENDED MAY 31, 2008

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


As of May 31,  2009,  there  were  approximately  882  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.

                                       6
<PAGE>

As of May 31, 2009, 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:

                      EQUITY COMPENSATION PLAN INFORMATION
<TABLE>
<CAPTION>
<S>                                          <C>                                        <C>
-------------------------------------------- ------------------------------------------ ------------------------------------------
       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
-------------------------------------------- ------------------------------------------ ------------------------------------------
                23,100,000                                    .06652                                   11,900,000
-------------------------------------------- ------------------------------------------ ------------------------------------------
</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, 2009, 232 shares of Series A Preferred
Stock were issued  pursuant to ongoing  bonding  programs of FSC in exchange for
cash in the amount of $232,000.

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  2009,  the  Company  has  focused  its  primary  efforts  on the
development  and  marketing  of its surety  business in West  Virginia and Ohio,
arranging  for an  increase  in FSC's  bonding  capacity  through a  reinsurance
relationship, raising additional capital to increase the capital base of FSC and
facilitate  entry into other state markets and other means of  accelerating  the
progression of the Company's business plan.


                                       7
<PAGE>


RESULTS OF OPERATIONS  AND FINANCIAL  CONDITION AS OF AND FOR THE YEAR ENDED MAY
31, 2009

RESULTS OF OPERATIONS

The  Company  experienced  a loss (after  accretion  of  mandatorily  redeemable
convertible  preferred  stock,  including  accrued  dividends)  of $3,057,687 in
fiscal 2009 as compared with a loss (after  accretion of mandatorily  redeemable
convertible  preferred  stock,  including  accrued  dividends)  of $3,332,942 in
fiscal 2008.  While total  revenues  increased  from  approximately  $957,000 in
fiscal 2008 to approximately $1,194,000 in fiscal 2009, total expenses decreased
from  approximately  $2,465,000  in fiscal 2008 to  approximately  $2,039,000 in
fiscal  2009,   resulting  in  a  decrease  in  the  loss  from   operations  of
approximately $663,000.

The increase in revenues is largely attributable to new business acquired by FSC
and  increased   investment  holdings  of  FSC.  The  decrease  in  expenses  is
attributable  to  decreased  general  and  administrative   expense  related  to
reduction  in  personnel  and  reduction in  professional  fees  incurred in the
Company's  negotiating and entering into acquisition  agreements with respect to
RSH and Unione in fiscal 2008 and ongoing efforts to raise additional capital to
expand its business.

Interest  expense  increased  from  approximately  $479,000  in  fiscal  2008 to
approximately  $605,000 in fiscal 2009 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.

Accretion and accrued dividends on preferred stock increased from  approximately
$1,471,000  in fiscal 2008 to  approximately  $1,609,000  in fiscal  2009.  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

                                        8
<PAGE>

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
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.  Effective June 1, 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.

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  evolving 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.
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.

                                        9
<PAGE>

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 a recent entry into this market. Accordingly,  management
began pursuing avenues that would provide  additional capital to facilitate such
expansion.

Beginning in fiscal 2008 and completed  during the first quarter of fiscal 2009,
the Company  obtained  two rounds of bridge  financing  totaling an aggregate of
$3,500,000.  The purpose of the financing was to pay expenses of operations  and
to pay fees and expenses  incurred or expected to be incurred in connection with
a larger permanent  financing and, in addition,  to increase the capital surplus
of FSC to make possible the reactivation of FSC's surety license in the state of
Ohio. 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 because
such a qualified  equity  offering was not  consummated  by September  10, 2008,
accrued  interest-to-date was payable,  and quarterly  installments of principal
and interest  became  payable over five years  commencing in December  2008. The
interest rates on such notes are fixed at 10.00%. Payments due December 2008 and
March  2009 were not made by the  Company as  scheduled,  but an  agreement  was
subsequently  entered  into with the bridge  lenders on June 5, 2009,  modifying
payment  terms to cure the  default  and  pledging  the  stock of the  Company's
subsidiary, CMW, as security for repayment of the loans.

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

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, 2009, such assets
amounted to approximately $6.78 million.


                                       10
<PAGE>

CRITICAL ACCOUNTING POLICIES AND ESTIMATES

INTANGIBLE ASSETS

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


RESERVE FOR LOSSES AND LOSS EXPENSES

Reserves  for  unpaid  losses  and loss  adjustment  expenses  of the  insurance
subsidiary are estimated using individual  case-basis  valuations in conjunction
with estimates derived from industry and company experience. FSC has experienced
no claims for losses as of May 31, 2009.

FSC is currently licensed to write coal permit and miscellaneous fixed-liability
limit surety bonds in West Virginia and Ohio.  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 coal reclamation bonds, management obtains estimates of costs to
reclaim the  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 and if FSC is not otherwise able to recover
under its contractual rights to indemnification.

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

                                       11
<PAGE>

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 (after  accretion of mandatorily
redeemable   convertible  preferred  stock,   including  accrued  dividends)  of
approximately  $3,058,000 and $3,333,000 for the fiscal years ended May 31, 2009
and 2008,  respectively.  The  Company  continues  to face  significant  working
capital  deficiencies and cash flow concerns.  This has resulted in the deferral
of payments to  professionals  and others and an inability to pay its  preferred
stock dividend  obligation.  A substantial portion of the Company's cash flow is
generated  by its  insurance  subsidiary  and is subject  to certain  withdrawal
restrictions.  While management expects revenue growth and cash flow to increase
significantly as its business plan is fully implemented,  it is anticipated that
losses will continue and the Company will be cash constrained  until FSC is able
to develop a substantial book of business.

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

Expansion  of  FSC's  business  to  other  states  is a key  component  to fully
implementing  the Company's  business plan. In fiscal 2009, the Company was able
to increase the capital of FSC and reactivate  FSC's  insurance  license in Ohio
and obtain  authority to issue surety bonds in that state.  However,  management
has found that entry into other states (as a surety) has been difficult  without
the benefit of more  substantial  capital and  reserves due to FSC's status as a
recent entry into this market and the financial  condition of the Company.  This
is the case  notwithstanding the reinsurance  agreement entered into by FSC with
Lloyd's of London and the  resulting  increase in bonding  capacity.  Management
believes that if FSC's  capital and surplus  reserves  were  significantly  more
substantial  and the financial  condition of the Company was  stabilized,  entry
into other states would be less challenging.  Accordingly,  management continues
to pursue avenues that can provide  additional  capital to increase the capacity
of its insurance subsidiary and to fund continuing operations as the business is
being fully developed. In addition, as an alternative means of addressing access
to markets,  management is seeking to establish a  relationship  with any one of
several  possible  sureties  that are  licensed in those  states other than West
Virginia and Ohio that comprise  significant markets for the bonding programs of
FSC and could issue surety  bonds that are  underwritten  and  reinsured by FSC.
Under such a  "fronting"  arrangement,  the need for  additional  capital at the
level of FSC to facilitate entry to other state markets would become  secondary,
since the  payment  of a  fronting  fee to the  insurance  company  with  active
licenses would provide access to the state market without formal entry.

As a means of alleviating  obligations  associated  with the Company's  Series B
Preferred  Stock,  which by its terms matures at the end of 2010,  management is
considering a recapitalization. The goal of any such recapitalization will be to
stabilize the financial position of the Company,  which management believes will
improve the  Company's  prospects  for a  relationship  with  potential  capital
sources, assist FSC as it applies to enter other state markets and be an impetus
to the growth of the Company's business.  Any such  recapitalization is expected

                                       12
<PAGE>

to involve  the  voluntary  participation  of the  holders of Series B Preferred
Stock,  and  no  assurance  can  be  given  that  a  recapitalization   will  be
accomplished.

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 2009 WITH 2008

The  Company  experienced  a loss (after  accretion  of  mandatorily  redeemable
convertible  preferred  stock,  including  accrued  dividends)  of $3,057,687 in
fiscal  2009  as  compared  with  a  loss  of  $3,332,942  (after  accretion  of
mandatorily redeemable convertible preferred stock, including accrued dividends)
in fiscal 2008.

REVENUES

Revenues in fiscal 2009  amounted to  $1,194,077  as compared  with  $957,142 in
fiscal 2008.  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  $233,298  in  fiscal  2009  as  compared  with  $262,806  in  fiscal  2008,
representing a decrease of $29,503. 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.

Revenue  from the  surety  insurance  segment,  consisting  of FSC and TSA,  was
$957,067 for fiscal 2009 as compared  with  $694,336  for fiscal 2008.  Revenues
attributable to the insurance segment are as follows:

                                                  Year Ended May 31,
                                                 2009            2008
                                            --------------- --------------

  Premiums and commissions                  $     660,222   $     465,286
  Net investment income                           288,747         225,461
  Net realized investment gains                     8,098           3,589
                                            --------------- --------------

                                     Total  $     957,067   $     694,336
                                            =============== ==============


                                       13
<PAGE>

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  2009.  However,  net premium  written
(written premium less deductions for ceded  reinsurance) in fiscal 2009 amounted
to $813,345 as compared with $586,498 in fiscal 2008, 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,  during fiscal 2009,  in  conjunction  with the  increased  surety
business  written,  proceeds  amounting  to  $259,000  from the sale of Series A
preferred stock were contributed to the surplus and capital of FSC.  $176,000 in
proceeds have been collected but not yet  contributed to the surplus and capital
of FSC.  FSC's  investment  holdings in fiscal 2009 averaged  $5.986  million as
compared with $4.553 million for fiscal 2008, with investment  yields  remaining
relatively unchanged at just below 5.00%.

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 2009 have been recorded as $186,007 or 28.5% of earned premium
as compared to $135,867 or 30.0% of earned  premium for fiscal  2008.  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, 2009.

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 2009 such costs  amounted  to  $153,263 or 23.5% of earned  premium as
compared with $126,386 or 27.9% in fiscal 2008.

General and administrative  expenses for fiscal 2009 were $1,564,224 as compared
with  $2,037,178  for fiscal 2008,  representing  a decrease of $472,954 and are
comprised of the following:

                                       14
<PAGE>

<TABLE>
<CAPTION>

                                                           Year Ended May 31,
                                                         2009              2008          DIFFERENCE
                                                    ---------------- ----------------- ----------------
<S>                                                 <C>              <C>               <C>
Salaries and related costs                          $      550,646   $      727,219    $   (176,573)
General office expense                                     103,830          111,739          (7,909)
Legal and other professional fees                          486,878          804,512        (317,634)

Audit, accounting and related services                     126,359          118,595           7,764
Travel, meals and entertainment                             58,589           73,668         (15,079)
Other general and administrative                           237,922          201,445          36,477
                                                    ---------------- ----------------- ----------------
                  Total general and administrative  $    1,564,224   $    2,037,178    $   (472,954)
                                                    ================ ================= ================
</TABLE>

Salaries and related costs, net of deferred internal policy  acquisition  costs,
decreased approximately $176,573 and are comprised of the following:
<TABLE>
<CAPTION>

                                                             Year Ended May 31,
                                                          2009               2008            DIFFERENCE
                                                    ------------------ ------------------ ---------------
<S>                                                 <C>                <C>                <C>
Salaries and wages                                  $      528,699     $      567,522     $ (38,823)

Commissions                                                 26,131             37,147       (11,016)

Payroll taxes                                               45,262             47,107        (1,845)
Stock option expense                                        11,462             98,972       (87,510)

Fringe benefits                                             63,531             61,764         1,767
Key-man life insurance                                      57,522             42,863        14,659
Deferred policy acquisition costs                         (181,961)          (128,156)      (53,805)
                                                    ------------------ ------------------ ---------------
                  Total salaries and related costs  $      550,646     $      727,219     $(176,573)
                                                    ================== ================== ===============
</TABLE>

Decreases in salaries and wages relate to decreased  staff and year-end  bonuses
paid to  non-executive  employees.  The  decrease  in stock  option  expense  is
attributable  to  non-uniform  vesting  schedules  under which  options vest for
certain  key  employees  as well as the  expiration  of  options  for  employees
terminated in 2009. Group health benefits remained  consistent with the previous
year, but were offset by an increase in the Company's  group life insurance cost
of approximately  $2,000. The increase in key-man life insurance is attributable
to the increased debt the Company has incurred.

In fiscal 2009, legal and professional  fees of approximately  $486,900 included
approximately  $305,500  relating  to the  Company's  on-going  efforts to raise
additional capital for the expansion of the surety business into other states.

Other less significant increases and decreases were experienced in audit, travel
and other general administrative  expenses categories in fiscal 2009 as compared
to fiscal 2008.

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 $122,758 of the Fund's operating expenses in fiscal 2009 as compared to
$157,269 in fiscal 2008.  As the Fund grows in size of assets under  management,
expenses  (in excess of the 2% level)  absorbed  by Jacobs & Co.  will  decrease

                                       15
<PAGE>

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 reimbursable to it
for a period  of up to three  years.  In  fiscal  2009,  the  Fund's  investment
advisory and distribution fee revenue amounted to $24,143 as compared to $39,535
in fiscal  2008.  The Fund's  average  assets  under  management  declined  from
approximately  $3.25  million in fiscal 2008 to  approximately  $1.95 million in
fiscal 2009.  As of May 31, 2009,  assets under  management  were  approximately
$1.81 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.

INTEREST EXPENSE AND INTEREST INCOME

Interest  expense for fiscal 2009 was  $605,045  as  compared  with  $479,295 in
fiscal 2008. 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:


                                       16
<PAGE>
<TABLE>
<CAPTION>

                                                                    Year Ended May 31,
                                                                 2009               2008             DIFFERENCE
                                                           ------------------ ------------------  -----------------
<S>                                                        <C>                <C>                 <C>
Interest expense on bridge financing                       $        349,016   $        170,931    $       178,085

Expense of common shares issued or to be issued in
connection with bridge financing arrangements                       149,738            238,943            (89,205)

Expense of common shares issued or to be issued in
connection with issued debt                                          14,733                  -             14,733


Interest expense on demand and term notes                            77,460             47,920             29,540

Interest expense accrued on debt obligations
subsequently settled and recorded as gain on debt
extinguishment                                                            -             13,075            (13,075)


Other finance charges                                                14,098              8,426              5,672
                                                           ------------------ ------------------ -------------------

                                   Total interest expense  $        605,045   $        479,295   $        125,750
                                                           ================== ================== ===================
</TABLE>

Interest  income for fiscal 2009 was $4,819 as compared  with $10,137 for fiscal
2008.  Interest  income for  fiscal  2009 and 2008 is  primarily  related to the
investment of the unexpended proceeds from the  bridge-financing  arrangement in
short-term investment accounts

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,
                                               2009             2008
                                         ----------------- ----------------
Accretion of discount                    $     567,811     $    529,273
Accrued dividends                            1,041,499          942,044
Excess redemption price                              -                -
                                         ----------------- ----------------

                                         $   1,609,310     $  1,471,317
                                         ================= ================


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.

                                       17
<PAGE>

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-7
Notes to Consolidated Financial Statements                                                     F-8

SCHEDULES

SCHEDULES

Schedule I - Summary of Investments - Other than Investments in Related Parties               F-45
Schedule II - Condensed Financial Information of Registrant                                   F-46
Schedule III - Supplementary Insurance Information                                            F-48
Schedule IV - Supplemental Insurance Information - Reinsurance                                F-49
Schedule VI - Supplemental Information                                                        F-50

</TABLE>



















                                       18
<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, 2009 and May 31, 2008,
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,  2009.  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, 2009,
control  deficiencies  were identified  that  constitute a material  weakness in
internal control over financial  reporting.  Such control deficiencies relate to
inadequate   segregation  of  duties,  lack  of  effective  board  of  directors
oversight, use of internally developed  non-integrated  accounting systems, lack
of internal  review of account  reconciliations,  and lack of internal review of
general  journal  entries,  elimination  entries  and  the  financial  statement
consolidation  process.  As a result,  JFG's Chief  Executive  Officer and Chief
Financial Officer  concluded that as of May 31, 2009, 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  were  implemented  during the first  fiscal  quarter  of the  Company's
2008-2009  fiscal year.  Management  continues to monitor changes made in fiscal
2008 and 2009 and will continue to implement improvements. Other changes will be
considered  as  additional  financial  resources  and  accounting  staff  become
available.

Notwithstanding the above, 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,  2009  and  2008,  and the  results  of its
operations  and  cash  flows  for the  years  ended  May 31,  2009  and  2008 in
conformity with U.S. generally accepted accounting principals (GAAP).

                                       19
<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, 2009.  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, 2009. 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, 2009. 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 were 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

                                       20
<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                55            President and CEO/CFO
                                                                 Director
           Frederick E. Ferguson            75                   Director
              C. David Thomas               56                   Director
             Robert J. Kenney               62                Vice President



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.

                                       21
<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.

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,  judgment, 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.


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:

                                       22
<PAGE>
                           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, 2009 and 2008 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. Jacobs,    2009      $150,000        -          -         $ 10,731         $ 23,235           $183,966
CEO                2008      $150,000                             $ 49,164         $ 25,913           $225,077
------------------ ------- -------------- --------- ----------- -------------- ----------------- -------------------
Robert J.           2009     $ 75,000        -          -         $  6,336            -               $ 81,336
Kenney, VP          2008     $ 75,000                             $ 15,840                            $ 90,840
------------------ ------- -------------- --------- ----------- -------------- ----------------- -------------------
</TABLE>

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


                                       23
<PAGE>

------------------------- -------------------------------------------------
      Vesting date                  Incentive Stock Option Awards
------------------------- ---------------------- -------------------------
                            John M. Jacobs         Robert J. Kenney
------------------------- ---------------------- -------------------------
May 25, 2006                    2,500,000               2,000,000
------------------------- ---------------------- -------------------------
January 1, 2007                 2,500,000
------------------------- ---------------------- -------------------------
May 25, 2007                                            1,000,000
------------------------- ---------------------- -------------------------
January 1, 2008                 2,500,000
------------------------- ---------------------- -------------------------
May 25, 2008                                            1,000,000
------------------------- ---------------------- -------------------------
January 1, 2009                 2,500,000
------------------------- ---------------------- -------------------------
May 25, 2009                                            1,000,000
------------------------- ---------------------- -------------------------
January 1, 2010                 2,500,000
------------------------- ---------------------- -------------------------

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, 2009.
<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                        OPTIONS (#)       PRICE ($)      EXPIRATION
                                                                                          DATE
---------------- ---------------- ----------------- ----------------- -------------- ---------------
<S>              <C>              <C>               <C>               <C>            <C>
    John M.        10,000,000        2,500,000             -              $.07         05/25/2011
  Jacobs, CEO
---------------- ---------------- ----------------- ----------------- -------------- ---------------
   Robert J.        5,000,000            -                 -              $.07         05/25/2011
  Kenney, VP
---------------- ---------------- ----------------- ----------------- -------------- ---------------
</TABLE>


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.

                                       24
<PAGE>

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, 2009.

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

           NAME               FEES EARNED OR PAID IN CASH ($) (1)    TOTAL ($)
--------------------------- ---------------------------------------- -----------
  Frederick E. Ferguson                      $750                       $750
--------------------------- ---------------------------------------- -----------
     C. David Thomas                         $750                       $750
--------------------------- ---------------------------------------- -----------

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.


                                       25
<PAGE>
<TABLE>
<CAPTION>
---------------------------------- ------------------------------- ------------------------------- -------------------------------
                                                                        Amount and Nature of
                                        Name and Address of           Beneficial Ownership (1)               Percent of
         Title of Class                   Beneficial Owner                                                   Class (2)
---------------------------------- ------------------------------- ------------------------------- -------------------------------
<S>                                <C>                             <C>                             <C>
MORE THAN 5.00% BENEFICIAL OWNERSHIP
                                           John M. Jacobs
                                     300 Summers St. Suite 970
             Common                    Charleston, WV 285301               28,956,405 (3)                      15.57%


                                          Charles L. Stout
                                          Route 1, Box 41J
             Common                     Bridgeport, WV 26330               13,175,000 (4)                      7.08%


                                          Fay S. Alexander
                                      6318 Timarron Cove Lane
             Common                     Burke, VA 22015-4073               13,256,041 (5)                      7.13%

                                          William D. Jones
                                         513 Georgia Avenue
             Common                    Chattanooga, TN 37403               10,827,694 (6)                      5.82%

                                            Sue C. Hunt
                                        1508 Viewmont Drive
             Common                     Charleston, WV 25302                8,611,589 (7)                      5.18%

DIRECTORS AND NAMED EXECUTIVE OFFICERS
                                           John M. Jacobs
                                     300 Summers St. Suite 970
             Common                    Charleston, WV 285301               28,956,405 (3)                     15.57%

                                       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                6,920,000 (9)                      3.72%

                                    ALL DIRECTORS AND EXECUTIVE
             Common                     OFFICERS AS A GROUP                38,468,700                         20.68%
</TABLE>

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

(1)  Beneficial  ownership is  determined  in  accordance  with the rules of the
     Securities  Exchange Commission and generally includes voting or investment

                                       26
<PAGE>

     power with respect to securities.  Shares of common stock issuable upon the
     exercise of options or  warrants  currently  exercisable  within 60 days of
     August  18,  2009 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  186,028,413  shares of common stock issued and  outstanding as of
     August 18, 2009.

(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 5,271,694 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 18, 2009.  Includes the
     right to convert  Series B Preferred  Stock  holdings to 666,667  shares of
     common stock exercisable  within 60 days of August 18, 2009. 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 18, 2009. 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 18, 2009.  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 18, 2009.

(7)  Includes 2,243,302 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 18, 2009
     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
     right to purchase  168,395  shares of common  stock  pursuant to issued and
     outstanding  stock warrants  exercisable  within 60 days of August 18, 2009
     and held jointly with spouse.

                                       27
<PAGE>

(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 18, 2009.  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 18,
     2009.

(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 6,000,000 in vested options to
     purchase Company stock exercisable within 60 days of August 18, 2009.


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 March 2012 for repayment,
one of the  participants  providing part of the  bridge-financing  would acquire
common shares of the Registrant  through such arrangement equal to 10.96% 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 14.15%.


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.

At the beginning of fiscal 2008, the balance due Mr. Jacobs from the Company was
$15,763. 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.

                                       28
<PAGE>

During fiscal 2009, advances to the Company from Mr. Jacobs amounted to $437,388
and  repayments  to Mr.  Jacobs  amounted to $454,777.  As of May 31, 2009,  the
balance due to Mr.  Jacobs from the  Company was $2,281.  The largest  aggregate
amount outstanding to Mr. Jacobs in fiscal 2009was $294,546.

The rate of interest on such amounts due from and  obligations due to Mr. Jacobs
was 12% for both the 2008 and 2009 fiscal years.

As of September 10, 2009, $27,806 was owed by the Company 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, 2009 amounted
to $89,098.

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.

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, 2009 and 2008.

FEES FOR TAX PREPARATION SERVICES

During fiscal 2009, billings for tax preparation  services were $10,666.  During
fiscal 2008, billings for tax preparation services were $12,584


                                       29
<PAGE>

ALL OTHER FEES

Billings for other  services  related to  potential  financing  transactions  in
amounted to $4,863 and $11,708 in fiscal 2009 and 2008 respectively.

Billings  for  professional  services  related  to the audit of the  acquisition
target, RSH Holdings, Inc. amounted to $21,659 during fiscal 2008.

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 $4,863
in fiscal  2009  which  were  approved  by the Board of  Directors  prior to the
completion of the audit for fiscal 2009 as provided by Rule  2-01(c)(7)(i)(C)(3)
of Regulation S-X.

























                                       30

<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-7
Notes to Consolidated Financial Statements                                                     F-9


(a)(2) The following  financial  statement schedules are included in response to
Item 8 herein:

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

SCHEDULES

Schedule I - Summary of Investments - Other than Investments in Related Parties               F-45
Schedule II - Condensed Financial Information of Registrant                                   F-46
Schedule III - Supplementary Insurance Information                                            F-48
Schedule IV - Supplemental Insurance Information - Reinsurance                                F-49
Schedule VI - Supplemental Information                                                        F-50

</TABLE>











                                       31

<PAGE>
<TABLE>
<CAPTION>

JACOBS FINANCIAL GROUP, INC.
TABLE OF CONTENTS




                                                                                              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-7
Notes to Consolidated Financial Statements                                                     F-9


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

Schedule I - Summary of Investments - Other than Investments in Related Parties               F-45
Schedule II - Condensed Financial Information of Registrant                                   F-46
Schedule III - Supplementary Insurance Information                                            F-48
Schedule IV - Supplemental Insurance Information - Reinsurance                                F-49
Schedule VI - Supplemental Information                                                        F-50

</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, 2009 and 2008, 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, 2009.  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, 2009 and 2008,  and the results of its  operations and its
cash flows for each of the years in the  two-year  period  ended May 31, 2009 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, LLP
-----------------------------
Malin, Bergquist & Company, LLP
Pittsburgh, PA
September 14, 2009




                                      F-2
<PAGE>

JACOBS FINANCIAL GROUP, INC.
CONSOLIDATED CONDENSED BALANCE SHEETS
<TABLE>
<CAPTION>
                                                                                       MAY 31, 2009          MAY 31, 2008
                                                                                     ---------------       ---------------
<S>                                                                                  <C>                   <C>
ASSETS

INVESTMENTS AND CASH:

Bonds available for sale, at market value                                            $      908,766        $     105,866
 (amortized cost - 05/31/09 $866,855; 05/31/08 $98,774)
Mortgage-back securities held to maturity, at amortized costs                             5,085,300            3,826,688
 (market value - 05/31/09 $5,157,936; 05/31/08 $3,800,909)
Short-term investments, at cost (approximates market value)                                 387,753            1,176,056
Cash                                                                                         80,038               48,640
                                                                                     ---------------       ---------------
                                  TOTAL INVESTMENTS AND CASH                              6,461,857            5,157,250

Investment income due and accrued                                                            28,124               19,892
Premiums and other accounts receivable                                                       61,184               47,353
Prepaid reinsurance premium                                                                  87,114                    -
Deferred policy acquisition costs                                                           143,173               75,940
Furniture and equipment, net of accumulated depreciation
 of $133,493 and $120,931, respectively                                                      23,169               29,168
Other assets                                                                                 43,517              298,163
Intangible assets                                                                           150,000              150,000
                                                                                     ---------------       ---------------

                                                TOTAL ASSETS                         $    6,998,138        $   5,777,766
                                                                                     ===============       ===============


LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)

Reserve for losses and loss expenses                                                 $      432,658        $     246,651
Reserve for unearned premiums                                                               530,795              277,208
Accrued expenses and professional fees payable                                              470,099              367,464
Accounts payable                                                                            268,066              299,585
Related party payable                                                                        75,009               60,567
Demand note payable to related party                                                          3,081                1,000
Notes payable                                                                             4,049,791            2,967,016
Accrued interest payable                                                                    303,914               71,483
Ceded reinsurance payable                                                                    92,173                    -
Other liabilities                                                                            78,470               16,402
                                                                                     ---------------       ---------------
                                           TOTAL LIABILITIES                              6,304,056            4,307,376

SERIES A  PREFERRED  STOCK,  $.0001  par  value  per  share;  1  million
 shares authorized;  2,665 and 2,230 shares  issued and outstanding
 at May 31, 2009 and May 31, 2008, respectively;  stated liquidation value
 of $1,000 per share                                                                      2,860,670            2,308,933

SERIES B PREFERRED  STOCK,  $.0001 par value per share;  9,941.341
 shares  authorized; 9,621.940 shares issued and outstanding at
 May 31, 2009 and May 31, 2008; stated liquidation value of $1,000 per share             11,429,440            9,936,866
                                                                                     ---------------       ---------------
                TOTAL MANDATORILY REDEEMABLE PREFERRED STOCK                             14,290,110           12,245,799

COMMITMENTS AND CONTINGENCIES (SEE NOTES)

STOCKHOLDERS' EQUITY (DEFICIT)

Common stock, $.0001 par value per share; 490 million shares authorized;
 179,682,912 and 166,091,242 shares issued and outstanding at
 May 31, 2009 and May 31, 2008, respectively                                                  17,968              16,609
Additional paid in capital                                                                 2,626,236           2,423,537
Accumulated deficit                                                                      (16,279,725)        (13,222,038)
Accumulated other comprehensive income (loss)                                                 39,493               6,483
                                                                                     ---------------       ---------------
                         TOTAL STOCKHOLDERS' EQUITY (DEFICIT)                            (13,596,028)        (10,775,409)
                                                                                     ---------------       ---------------

                              TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)   $     6,998,138       $   5,777,766
                                                                                     ===============       ===============
</TABLE>
                            See accompanying notes.
                                      F-3
<PAGE>
JACOBS FINANCIAL GROUP, INC,
CONSOLIDATED STATEMENTS OF OPERATIONS


<TABLE>
<CAPTION>



                                                                             YEAR ENDED MAY 31,
                                                                      --------------------------------
                                                                           2009              2008
                                                                      -------------      -------------
<S>                                                                   <C>                <C>

REVENUES:

 Investment advisory services                                         $    233,298       $   262,806
 Insurance premiums and commissions                                        660,222           465,286
 Net investment income                                                     288,747           225,461
 Net realized investment gains (losses)                                      8,098             3,589
 Other income                                                                3,712                 -
                                                                      -------------      -------------
                                        TOTAL REVENUES                   1,194,077           957,142


EXPENSES:

 Incurred policy losses                                                    186,007           135,867
 Insurance policy acquisition costs                                        152,964           126,386
 General and administrative                                              1,564,224         2,037,178
 Mutual fund costs                                                         122,758           157,269
 Depreciation                                                               12,562             8,379
                                                                      -------------      -------------
                                        TOTAL EXPENSES                   2,038,515         2,465,079
                                                                      -------------      -------------

                     NET INCOME (LOSS) FROM OPERATIONS                    (844,438)       (1,507,937)

Gain on debt extinguishment                                                      -           115,470
Interest expense                                                          (605,045)         (479,295)
Interest income                                                              1,107            10,137
                                                                      -------------      -------------

                                      NET INCOME (LOSS)                 (1,448,376)       (1,861,625)

Accretion of Mandatorily Redeemable Convertible
Preferred Stock, including accrued dividends                            (1,609,311)       (1,471,317)
                                                                      -------------      -------------

        NET INCOME (LOSS) ATTRIBUTABLE TO COMMON STOCKHOLDERS         $ (3,057,687)      $(3,332,942)
                                                                      =============      =============


BASIC AND DILUTIVE NET INCOME (LOSS) PER SHARE:

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


    WEIGHTED-AVERAGE SHARES OUTSTANDING                                173,788,315       159,130,160
                                                                      =============      =============
</TABLE>















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

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

<TABLE>
<CAPTION>




                                                                                                         YEAR MONTHS ENDED
                                                                                                              MAY 31
                                                                                                  --------------------------------

                                                                                                       2009             2008
                                                                                                  ---------------  ---------------
<S>                                                                                               <C>              <C>

COMPREHENSIVE INCOME (LOSS):

 Net income (loss) attributable to common stockholders                                            $ (3,057,687)    $  (3,332,942)


OTHER COMPREHENSIVE INCOME (LOSS):

 Net unrealized gain (loss) of available-for-sale investments arising during period                     41,108             7,318

 Reclassification adjustment for realized (gain) loss included in net income                            (8,098)             (835)
                                                                                                  ---------------  ---------------

Net unrealized gain (loss) attributable to available-for-sale investments recognized
 in other comprehensive income                                                                          33,010             6,483
                                                                                                  ---------------  ---------------

             COMPREHENSIVE INCOME (LOSS) ATTRIBUTABLE TO COMMON STOCKHOLDERS                      $ (3,024,677)    $  (3,326,459)
                                                                                                  ---------------  ---------------
</TABLE>


































                            See accompanying notes.

                                      F-5
<PAGE>
JACOBS FINANCIAL GROUP, INC,
CONSOLIDATED CONDENSED STATEMENT OF CASH FLOWS
<TABLE>
<CAPTION>
                                                                       YEAR ENDED MAY 31
                                                                 ------------------------------
                                                                       2009           2008
                                                                 --------------  --------------
<S>                                                              <C>              <C>
CASH FLOWS FROM OPERATING ACTIVITIES

 Net Income (Loss)                                               $  (1,448,376)   $(1,861,625)

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

        Unearned premium                                               166,473          5,986
        Stock option expense                                            11,451         98,972
        Stock issued (or to be issued) in connection with
         financing arrangements                                        192,607        242,003
        Provision for loss reserves                                    186,007        135,867
        Amortization of premium                                         44,286         23,496
        Depreciation                                                    12,562          8,379
        Write off of bad debts                                               -            985
        Premium and other receivables                                  (13,831)        (9,670)
        Accretion of discount                                          (13,072)       (11,565)
        Investment income due and accrued                               (7,770)        15,858
        Realized (gain) loss on sale of securities                     (12,511)        (3,589)
        Deferred policy acquisition costs                              (67,233)       (23,575)
        (Gain) on extinguishment of debt                                     -       (115,470)
        Loss on disposal of furniture and equipment                          -            684
        Change in operating assets and liabilities:
         Other assets                                                  252,837       (125,531)
         Related party accounts payable                                 14,442         60,567
         Accounts payable and cash overdraft                           (31,519)       (46,310)
         Accrued expenses and other liabilities                        489,307       (504,992)
                                                                 --------------  --------------
           NET CASH FLOWS FROM (USED IN) OPERATING ACTIVITIES         (224,340)    (2,109,530)

CASH FLOWS FROM INVESTING ACTIVITIES

 Short-term loan                                                             -        (50,000)
 Repayment of short-term loan                                                -         50,000
 (Increase) decrease in short-term investments                         788,303       (835,305)
 Cost of bonds acquired                                               (356,101)       (97,582)
 Costs of mortgaged-backed securities acquired                      (2,851,803)    (2,956,145)
 Purchase of equity securities                                               -        (25,438)
 Sale of securities held to maturity                                         -        169,330
 Sale of securities available for sale                                 107,639              -
 Escrow deposits for pending acquisitions                                    -       (125,000)
 Redemption of available for sale securities upon call                  20,000              -
 Repayment of mortgage-backed securities                             1,034,407        476,400
 Redemption of bonds upon call or at maturity                                -      2,155,000
 Purchase of furniture and equipment                                    (6,563)       (14,603)
                                                                 --------------  --------------
           NET CASH FLOWS FROM (USED IN) INVESTING ACTIVITIES       (1,264,118)    (1,253,343)

CASH FLOWS FROM FINANCING ACTIVITIES

 Proceeds from related party debt                                      456,858        132,200
 Repayment of related party debt                                      (454,777)      (146,963)
 Proceeds from borrowings                                            1,402,500      2,842,000
 Repayment of borrowings                                              (319,725)      (269,357)
 Proceeds from issuance of Series A preferred stock                    435,000        803,000
 Proceeds from issuance of Series B preferred stock                          -         25,000
 Proceeds from exercise of common stock warrants                             -            335
                                                                 --------------  --------------
            NET CASH FLOWS FROM FINANCING ACTIVITIES                 1,519,856      3,386,215

NET INCREASE (DECREASE) IN CASH                                         31,398         23,342

CASH AT BEGINNING OF PERIOD                                             48,640         25,298
                                                                 --------------  --------------

CASH AT END OF PERIOD                                            $      80,038   $     48,640
                                                                 ==============  ==============
SUPPLEMENTAL DISCLOSURES

 Interest paid                                                       $ 181,037      $ 171,889
 Income taxes paid                                                           -              -

 Non-cash investing and financing transaction:
  Additional consideration paid for issuance of debt                   192,607              -
  Reclassification of bonds held-to-maturity to bonds
  available for sale                                                         -              -
</TABLE>
                            See accompanying notes.

                                      F-6
<PAGE>
<TABLE>
<CAPTION>
JACOBS FINANCIAL GROUP, INC.
CONSOLIDATED STATEMENT OF MANDATORILY REDEEMABLE PREFERRED STOCK AND STOCKHOLDERS' EQUITY (DEFICIT)
FOR THE 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-7

<PAGE>
JACOBS FINANCIAL GROUP, INC.
CONSOLIDATED STATEMENT OF MANDATORILY REDEEMABLE PREFERRED STOCK AND
STOCKHOLDERS' EQUITY (DEFICIT) FOR THE YEAR ENDED MAY 31, 2009
<TABLE>
<CAPTION>
                                                              ----------------------------------------------------------------------
                                                                                STOCKHOLDERS' EQUITY (DEFICIT)
                                                              ----------------------------------------------------------------------

                      SERIES A               SERIES B
               MANDATORILY REDEEMABLE  MANDATORILY REDEEMABLE                                                ACCUMULATED
                                           CONVERTIBLE                              ADDITIONAL                  OTHER
                  PREFERRED STOCK        PREFERRED STOCK                             PAID-IN    ACCUMULATED COMPREHENSIVE
                 SHARES     AMOUNT      SHARES      AMOUNT      SHARES      AMOUNT    CAPITAL     DEFICIT       INCOME      TOTAL
                                                                                                                (LOSS)
               ---------------------------------------------- ----------------------------------------------------------------------
               -------- -----------  ---------  -----------   -----------  -------  -----------  ------------- ------- -------------
BALANCE,
<S>            <C>      <C>          <C>        <C>           <C>          <C>      <C>          <C>           <C>     <C>
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)

Issuance of
Series A            435      435,000          -            -            -        -            -            -         -            -
and B
Preferred
Stock and
common stock

Issuance of
common stock          -            -          -            -   13,591,670    1,358      104,684            -         -      106,042
stock as
additional
consideration
for financing
arrangement

Less expense
previously
recognized           -            -          -            -             -        -      (38,958)           -         -      (38,958)

Accretion of
mandatorily
redeemable
convertible
preferred stock      -       16,939          -      550,874             -        -            -     (567,812)        -     (567,812)

Accrued
dividends
of mandatorily
redeemable
convertible
preferred stock      -       99,798          -      941,700             -        -            -   (1,041,498)        -   (1,041,498)

Expense of
common shares
to be issued
in connection
with financing
arrangements         -            -          -            -             -        -      125,511            -         -      125,511

Common stock
option
expense              -            -          -            -             -        -       11,462            -         -       11,462

Unrealized net
gain on
available for
sale securities      -            -          -            -             -        -            -            -    33,010       33,010

Net income
(loss), year
ended
May 31, 2009         -            -          -            -             -        -            -    (1,448,376)       -   (1,448,376)
               -------- -----------  ---------  -----------   -----------  -------  -----------  ------------- ------- -------------
BALANCE,
MAY 31, 2009     2,665  $ 2,860,670  9,621.940  $11,429,440   179,682,912  $17,968  $ 2,626,236  $(16,279,725) $39,493 $(13,596,028)
               ---------------------------------------------- ----------------------------------------------------------------------
</TABLE>
                            See accompanying notes.

                                      F-8
<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 $3,058,000 and $3,333,000
         for the years  ended May 31,  2009 and 2008.  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.

                                      F-9
<PAGE>
JACOBS FINANCIAL GROUP INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

         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 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-10
<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.

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

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

         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-12

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

         RECLASSIFICATIONS

         Certain amounts in the 2008 Consolidated Financial Statements have been
         reclassified to be consistent with the presentation in the Consolidated
         Financial  Statements  as of May 31,  2009 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 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 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

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

         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 financialposition.

         In March 2008,  the FASB issued  Statement No. 161  "Disclosures  about
         Derivative  Instruments  and Hedging  Activities--an  amendment of FASB
         Statement No. 133". This Statement changes the disclosure  requirements
         for derivative  instruments and hedging  activities in order to provide
         improved transparency of financial reporting with respect to derivative
         instruments  and hedging  activities.  This .Statement is effective for
         financial  statements  issued  for  fiscal  years and  interim  periods

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

         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.  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.

         In June 2009, the Financial  Accounting Standards Board ("FASB") issued
         SFAS No.  168,  "The FASB  Accounting  Standards  Codification  and the
         Hierarchy of Generally Accepted  Accounting  Principles - A Replacement
         of FASB Statement No. 162." This SFAS  establishes  the FASB Accounting
         Standards  Codification  as  the  single  source  of  authoritative  US
         generally accepted accounting principles. SFAS No. 168 is effective for
         financial statements issued for interim and annual periods ending after
         September  15,  2009.  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.

         In June  2009,  the FASB  issued  SFAS  No.  167,  "Amendments  to FASB
         Interpretation  No.  46(R)."  This  statement  changes  how a reporting
         entity determines when an entity that is insufficiently  capitalized or
         is  not  controlled  through  voting  (or  similar  rights)  should  be
         consolidated.  New disclosures will be required  regarding  involvement
         with variable  interest  entities and any  significant  changes in risk
         exposure due to that  involvement.  SFAS No. 167 will be effective  for

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

         the start of the first fiscal year  beginning  after  November 15, 2009
         (June 1, 2010 for the  Company).  This SFAS is not  expected  to have a
         material impact on the Company's financial statements.

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

         In May 2009,  the FASB issued SFAS No. 165,  "Subsequent  Events." This
         statement   establishes   general   standards  of  accounting  for  and
         disclosure of events that occur after the balance sheet date but before
         financial statements are issued or are available to be issued. SFAS No.
         165 is effective for interim and annual financial  periods ending after
         June 15, 2009, and shall be applied prospectively.

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

         In  April  2009,   the  FASB  issued  FSP  FAS  115-2  and  FAS  124-2,
         "Recognition  and  Presentation of  Other-Than-Temporary  Impairments."
         This FSP provides  guidance on  determining  whether an  impairment  is
         other than temporary, provides examples to be considered and identifies
         reporting  requirements related to such impairments.  FSP FAS 115-2 and
         FAS 124-2 is effective for interim and annual periods ending after June
         15, 2009, with early adoption  permitted for periods ending after March


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

         15,  2009.  This FSP did not have a  material  impact on the  Company's
         financial statements.

         In April  2009,  the FASB  issued FSP FAS 107-1 and APB 28-1,  "Interim
         Disclosures  about  Fair  Value  of  Financial  Instruments."  This FSP
         requires  disclosure  about  the fair  value of  financial  instruments
         whenever  summarized  financial  information  for  interim  periods  is
         issued,  and  requires  disclosure  of the fair value of all  financial
         instruments  (where  practicable) in the body or accompanying  notes of
         interim and annual financial statements.  FSP FAS 107-1 and APB 28-1 is
         effective for interim  periods  ending after June 15, 2009,  with early
         adoption permitted for periods ending after March 15, 2009.

         In April 2009, the FASB issued FSP FAS 141(R)-1, "Accounting for Assets
         Acquired and Liabilities  Assumed in a Business  Combination That Arise
         from  Contingencies."  This  FSP  requires  that  assets  acquired  and
         liabilities   assumed  in  a  business   combination  that  arise  from
         contingencies  be  recognized  at  fair  value  if  fair  value  can be
         reasonably  estimated,  and eliminates  the  requirement to disclose an
         estimate of the range of outcomes of  recognized  contingencies  at the
         acquisition  date.  This FSP is  effective  for  assets or  liabilities
         arising  from  contingencies  in  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.

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

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

         The disclosures about plan assets required by this FSP are required for
         fiscal years ending after December 15, 2009, and earlier application is
         permitted.

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

         In April 2008, the FASB issued FSP 142-3,  "Determination of the Useful
         Life of Intangible  Assets." This FSP amends the factors that should be
         considered  in  developing  renewal or  extension  assumptions  used to
         determine the useful life of a recognized  intangible  asset under SFAS
         No. 142, "Goodwill and Other Intangible Assets." The intent of this FSP
         is to improve the  consistency  between the useful life of a recognized
         intangible  asset  under SFAS No. 142 and the period of  expected  cash
         flows  used to  measure  the fair  value of the  asset  under  SFAS No.
         141(R),  "Business  Combinations,"  and other U.S.  generally  accepted
         accounting principles.  FSP 142-3 is effective for financial statements
         issued for fiscal years  beginning after December 15, 2008, and interim
         periods within those fiscal years.

         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, 2009:
<TABLE>
<CAPTION>

                                                  Gross Unrealized       Gross Unrealized
                            Amortized Cost              Gains                 Losses            Fair Market Value
                         ---------------------- ---------------------- ---------------------- ----------------------
<S>                                  <C>                    <C>                        <C>                <C>
State and municipal                  $ 352,816              $  28,570                  $   -              $ 381,386
securities

Equity securities                       10,280                      -                  2,418                  7,862
Mortgage Backed
Securities                           $ 514,039              $  13,342                  $   -            $   527,381
                         ---------------------- ---------------------- ---------------------- ----------------------
                                     $ 877,135              $  41,912               $  2,418              $ 916,629
                         ====================== ====================== ====================== ======================
</TABLE>
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>

         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.  In
         March  2009,  $15,412 of the  equity  investment  was sold for  $11,000
         resulting in a loss of $4,413.



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

         The Company held the following investments,  by security type, with the
         positive intent and ability to hold to maturity:
<TABLE>
<CAPTION>
                                                              MAY 31, 2009

                         -------------------------------------------------------------------------------------------
                            Amortized Cost        Gross Unrealized       Gross Unrealized       Fair Market Value
                                                       Gains                 Losses
                         ---------------------- ---------------------- ---------------------- ----------------------
<S>                            <C>                       <C>                    <C>                   <C>
U.S Government agency          $   5,085,300             $   79,739             $    7,103            $ 5,157,936
mortgage-backed
securities
                         ====================== ====================== ====================== ======================
</TABLE>
<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             $   3,826,688             $   23,206            $    48,985            $ 3,800,909
mortgage-backed
securities
                         ====================== ====================== ====================== ======================
</TABLE>

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

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

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

         O        Level 2 - Quoted  prices  for  similar  instruments  in active
                  markets; quoted prices for identical or similar instruments in
                  markets that are not active;  and model-derived  valuations in
                  which all significant inputs are observable in active markets.

         O        Level 3 - Valuations  derived  from  valuation  techniques  in
                  which one or more significant inputs are unobservable.

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

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

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

         FIXED INCOME SECURITIES

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

         EQUITY SECURITIES

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

         SHORT-TERM INVESTMENTS

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

         Assets  measured  at fair  value on a  recurring  basis are  summarized
         below:

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

         The  Company had no assets or  liabilities  measured at fair value on a
         recurring  basis using  significant  unobservable  inputs  (Level 3) at
         either the adoption of SFAS 157 on June 1, 2008 or at May 31, 2009.


                                      F-21
<PAGE>
JACOBS FINANCIAL GROUP INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

         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 $
         6,440,387  and $ 5,142,101  as of May 31, 2009 and 2008,  respectively,
         are restricted to the use of FSC.

         The amortized  cost and estimated  market  values of  investments  with
         fixed- maturities available-for-sale as of May 31, 2009, by contractual
         maturity, are as follows:

                                         Amortized Cost        Fair Market Value
                                      ---------------------- -------------------
                Due after ten years         $  352,816           $    381,386
                                      ====================== ===================


         Principal   repayments  on  U.S.  government  agency   mortgaged-backed
         securities  held by the  Company as of May 31,  2009 are  estimated  as
         follows:

                                            Amortized Cost     Fair Market
                                                                  Value
                                          ----------------- ------------------
Due in one year or less                         $1,098,337         $1,112,857

Due after one year through five years            2,284,503          2,320,319

Due after five years through ten years           1,051,586          1,069,507

Due after ten years                                650,874            655,253
                                          ----------------- ------------------
                                               $ 5,085,300        $ 5,157,936
                                          ================= ==================

         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:

                                                   2009               2008
                                             -------------- ------------------
Bonds - fixed maturities                          $ 15,006           $ 76,185

Mortgage-backed securities                         267,993            111,115

Short-term investments                               7,842             39,377
                                             -------------- ------------------
                                                   290,841            226,677
               Total investment income
                                             -------------- ------------------
Investment expense                                   2,094              1,216
                                             -------------- ------------------
                 Net investment income            $288,747           $225,461
                                             ============== ==================

         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 $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.


                                      F-22

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

         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:


                                                      2009             2008
                                                 ---------------- --------------

        Bonds-fixed maturities                   $        -           $ 2,754

        Mortgage-backed securities                      (46)                -
        Equity securities                                 -                 -
        Short-term investments                            -                 -
                                                 ----------------- -------------
                           Net realized gain     $      (46)          $ 2,754
                                                 ================ ==============

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

                                                      2009             2008
                                                 --------------- ---------------

        Bonds-fixed maturities                   $    21,478     $    15,964

        Mortgage-backed securities                   111,757         (23,732)
        Equity securities                             (1,810)           (609)
                                                 --------------- ---------------
        Increase (decrease) in unrealized
        appreciation                             $   131,425     $    (8,377)
                                                 =============== ===============


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

                                                     Gross          Gross
                                         Gross      Realized       Realized
                                        Proceeds      Gains         Losses
                                      ------------ ------------- ---------------
2009
         Bonds-fixed maturities        $ 107,639    $   12,577   $          -

         Mortgage-backed securities            -             -              -

         Equity securities                11,000             -         (4,413)
                                     ------------  ------------- ---------------

                      Total            $ 118,639    $   12,577   $     (4,413)
                                     ============  ============= ===============



                                      F-23
<PAGE>


JACOBS FINANCIAL GROUP INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

2008

         Bonds-fixed maturities        $ 830,000    $      835    $         -

         Mortgage-backed securities            -             -              -
         Equity securities                     -             -              -
                                     ------------  -------------  --------------
                      Total            $ 830,000    $      835    $         -
                                     ============  =============  ==============


         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, 2009 and May 31, 2008.

<TABLE>
<CAPTION>

                               Less than 12 Months             12 Months or More                    Total
                          ------------------------------- ---------------------------- --------------------------------
                               Cost         Unrealized       Cost        Unrealized         Fair         Unrealized
                               (a)            Losses          (a)          Losses          Value           Losses
                          --------------- --------------- ------------ --------------- --------------- ----------------
<S>                       <C>             <C>             <C>          <C>             <C>             <C>
2009

Mortgage-backed
securities                $  686,543      $    7,103      $      -     $            -  $     679,440   $      7,103

Equity                             -               -        10,290              2,418          7,861          2,418
                          --------------- --------------- ------------ --------------- --------------- ----------------

                   Total  $  686,543      $    7,103      $ 10,290     $        2,418  $     687,301   $      9,521
                          =============== =============== ============ =============== =============== ================



2008


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.

         As of May 31, 2009, the company held 3 mortgage-backed  securities with
         gross  unrealized  losses  of  $7,103,  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.

                                      F-24
<PAGE>
JACOBS FINANCIAL GROUP INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

         Equity securities  consist of the company's  investment in the Jacobs &
         Company Mutual Fund with an unrealized loss of $2,418 which has been in
         a continuous  loss position for more 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, 2009 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.


                                                 2009               2008
                                           ------------------ ------------------

           Balance at beginning of year           $  75,940          $   52,365
           Acquisition costs deferred               220,496             149,961
           Amortization charged to operations      (153,263)           (126,386)
                                           ------------------ ------------------

                               Total              $ 143,173          $   75,940
                                           ================== ==================


         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 2009.
         As of May 31,  2009  and  2008,  such  balances  are  comprised  of the
         following:

                                                            2009         2008
                                                        ------------- ----------
           Advance deposits for professional fees       $      1,311  $  133,498
           Escrow deposits for proposed acquisitions               -     125,000
           Mutual fund investment at market                    7,862      24,829
           Prepaid expense and other deposits                 34,344      14,836
                                                        ------------- ----------
                                                 Total  $     43,517  $  298,163
                                                        ============= ==========




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

         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,
         2009 and 2008.

         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,
         2009,  the  Company's  insurance  subsidiary,  FSC, is only licensed to
         write  surety in West  Virginia  and Ohio 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
         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 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  collateral  in amounts  deemed to be
         sufficient to reclaim the disturbed land and thus mitigate the exposure
         to  significant   loss.  Such  collateral  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, 2009 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.


                                      F-26
<PAGE>
JACOBS FINANCIAL GROUP INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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

                                                         2009          2008
                                                    -------------- ------------

                Balance at beginning of year        $     246,651  $    110,784

                Incurred policy losses-current year       186,007       135,867
                Incurred policy losses-prior year                             -

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


                Balance at end of year              $     432,658  $    246,651
                                                    ============== ============

         NOTE H - NOTES PAYABLE

         At May 31, 2009 and 2008, the Company had the following unsecured notes
         payable to individuals and a commercial bank:

<TABLE>
<CAPTION>
                                                                        2009          2008
                                                                    ------------- --------------

<S>        <C>                                                      <C>           <C>
           Unsecured demand notes payable to individuals and
           others; interest rate fixed @ 10.00%                     $   380,000   $    127,000

           Unsecured    short-term    advances   from   principal
           shareholder and chief executive officer; interest rate
           fixed @ 12.00% (Also See Note T -
           Related Party Transactions)                                    3,081          1,000

           Unsecured note(s)payable to individual(s) under a
           bridge- financing arrangement described below              3,500,000      2,635,000

           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% maturing January 31, 2012                     169,791        205,016
                                                                    ------------- --------------

                               Total                                $ 4,052,872   $  2,968,016
                                                                    ============= ==============
</TABLE>


                                      F-27
<PAGE>

JACOBS FINANCIAL GROUP INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

         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.

         Additional  borrowings  in the amount of $75,000,  $60,000 and $865,000
         were  transacted  in  April,  May  and  June  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 July 2, 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 cumulative $3,500,0000  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 was not  consummated by September 10, 2008,
         accrued interest-to-date became 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  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 received 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).

         Beginning  September  10, 2008,  because a qualified  financing had not
         been  completed,  the Company  became  required  under the terms of the
         bridge  financing to issue 2.80% of the  Company's  outstanding  common
         shares and shall issue 2.80% of the Company's outstanding common shares

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

         upon each six-month  anniversary  date thereof until  retirement of the
         notes.  On  September  10,  2008 and  March  10,  2009,  4,870,449  and
         5,010,640   common   shares,   respectively,   were   issued  to  those
         noteholders.

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

         The Company asked the Holders to forbear from  exercising  their rights
         and  remedies  arising  from the  Acknowledged  Events of  Default  and
         reached agreement subsequent to May 31, 2009.

         The Holders  agreed that the Company may satisfy its obligation to make
         the Initial  Amortization  Payments by making 8  consecutive  quarterly
         payments of $67,185 each,  commencing  September 10, 2009, and within a
         14 day grace period after the same, and continuing on the payment dates
         (and 14 day grace periods) prescribed by the Amortization  Schedule for
         the  Promissory  Notes and ending on June 10, 2011  (collectively,  the
         "PAYMENTS"),  it being understood that the Payments shall result in the
         payment of the  principal of and interest on the unpaid  portion of the
         Initial  Amortization  Payments  at the rate of 10% per annum  from and
         after the originally  scheduled  payment  dates.  The Payments shall be
         allocated among and paid to the Holders in accordance with the balances
         due to each.  The Company may at any time prepay the balance  remaining
         due with respect to the principal of the Initial Amortization  Payments
         by paying the amount  thereof,  together with interest  accrued through
         the date of such prepayment.

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


                                                                       2009
                                                                  -------------

                          Fiscal year 2009-2010
                          (including demand notes)               $  1,028,539
                          Fiscal year 2010-2011                       958,809
                          Fiscal year 2011-2012                       832,668
                          Fiscal year 2012-2013                       801,035
                          Fiscal year 2013-2014                       431,821
                          Fiscal year 2014-2015                             -
                                                                 --------------

                                                      Total       $ 4,052,872
                                                                 ==============

                                      F-29

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


         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,  in  fiscal  2008  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. Holders of Series A Preferred Stock are entitled to participate in
         the  FSC's  partially  collateralized  bonding  programs,   subject  to
         continuing  satisfaction  of  underwriting  criteria,  based  upon  the
         bonding  capacity  of  FSC  attributable  to  capital  reserves  of FSC
         established  with the  subscription  proceeds (i.e.,  bonding  capacity
         equal  to ten  times  subscription  proceeds)  and  for so  long as the
         subscriber holds the Series A shares. Holders of the Series A Preferred
         Stock are  entitled  to  receive,  when and as declared by the board of
         directors,  cumulative  preferential  cash  dividends at a rate of four
         percent of the $1,000 liquidation preference per annum (equivalent to a
         fixed annual rate of $40 per share). The Series A Preferred Stock ranks
         senior to the Company's common stock, and pari passu with the Company's
         Series B Preferred  Stock,  with respect to dividend  rights and rights
         upon liquidation,  dissolution or winding up of the Company. The holder
         may  redeem  the  Series A  Preferred  Stock on or  after  the  seventh
         anniversary  of the  Issue  Date,  if the  holder  provides  a  written
         statement  to the Company that it will no longer  require  surety bonds
         issued by the Company's insurance  subsidiary (FSC) under its partially
         collateralized  bonding  programs and, if no such surety bonds are then
         outstanding,  the Company, at the option of the holder, will redeem all
         or any  portion of the  Series A  Preferred  Stock of such  holder at a
         price per share equal to the Series A Preferred  Stock Issue Price plus
         all  accrued  and unpaid  dividends  with  respect to the shares of the
         Series A Preferred Stock of such holder to be redeemed. The conditional
         redemption  shall not be  available to any holder of Series A Preferred
         Stock for so long as surety bonds of the Company's insurance subsidiary
         issued on a partially  collateralized  basis remain outstanding for the




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

         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, 2009, the Company has issued 2,665 shares of Series A Preferred
         Stock in exchange for cash investments in the amount of $2,665,000,  of
         which 435 shares  were issued in fiscal 2009 and 803 shares were issued
         in fiscal  2008.  As of May 31,  2009 the  Company  has chosen to defer
         payment of dividends on the Series A Preferred  Stock with such accrued
         and unpaid dividends amounting to $224,437 through May 31, 2009.

         On December 30, 2005, through a private  placement,  the Company issued
         3,980 shares of 8%  Non-Voting  Series B  Convertible  Preferred  Stock
         (Series B Preferred Stock),  along with 19,900,000  warrants for common
         shares  of  Company  stock  as  additional  consideration,  for a  cash
         investment in the amount of $2,985,000;  and issued 4,890.599 shares of
         Series B Preferred  Stock,  along with  24,452,996  warrants for common
         shares of Company stock as additional  consideration,  for a conversion
         of $3,667,949 of  indebtedness  of the Company,  in connection with the
         Company's  acquisition of FSC.  Holders of the Series B Preferred Stock
         are  entitled  to  receive,  when  and  as  declared  by the  board  of
         directors,  cumulative  preferential  cash dividends at a rate of eight
         percent of the $1,000 liquidation preference per annum (equivalent to a
         fixed annual rate of $80 per share). The Series B Preferred Stock ranks
         senior to the Company's common stock, and pari passu with the Company's
         Series A Preferred  Stock,  with respect to dividend  rights and rights
         upon liquidation,  dissolution or winding up of the Company. Each share
         of the Series B  Preferred  Stock is  convertible  at the option of the
         holder,  at any time after the  original  issue date,  into 1,000 fully
         paid  and  nonassessable  shares  of the  Company's  common  stock at a
         conversion  price of $1.00 per common share. The Company may redeem the
         Series B Preferred Stock at any time after the first anniversary of the
         Original  Issue  Date  at a price  per  share  equal  to the  Series  B
         Preferred Stock Face Amount plus all accrued and unpaid  dividends with
         respect to the shares of the Series B Preferred Stock of such holder to
         be  redeemed.  To the extent that the Series B Preferred  Stock has not
         been  redeemed  by the  Company,  the  holder  may  redeem the Series B
         Preferred Stock on or after the fifth anniversary of the Original Issue
         Date at a price per share  equal to the Series B  Preferred  Stock Face
         Amount plus all accrued and unpaid dividends with respect to the shares
         of the Series B  Preferred  Stock of such  holder to be  redeemed.  The
         Company  is  authorized  to issue up to 10,000  shares of the  Series B
         Preferred  Stock.  The Company has not issued any additional  shares of
         Series B Preferred  Stock during this fiscal year.  During  fiscal year
         2008,  25 shares of Series B Preferred  Stock and 25,000  shares of the
         Company's  common  stock were issued as  additional  consideration,  in
         exchange  for  cash  investments  of  $25,000.  As of May 31,  2009 the
         Company  has  chosen to defer  payment  of  dividends  on the  Series B
         Preferred  Stock with such  accrued and unpaid  dividends  amounting to
         $2,767,946 through May 31, 2009.


                                      F-31
<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.


         NOTE K - STOCK WARRANTS

         At May 31,  2009,  the Company had issued and  outstanding  warrants to
         purchase 13,071,564 shares of common stock.

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

         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.

         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 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.  As of May 31,
         2009, the awarded options had been reduced to 21,300,000 due to changes
         in  employment  status for two  employees.  Subsequent to May 31, 2009,
         1,500,000 vested options expired,  leaving  19,800,000 options awarded,
         of which 17,300,000 are vested.

         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.  As of
         May 31, 2009, the awarded  options had been reduced to 1,800,000 due to
         changes in employment status. As of May 31, 2009,  1,550,000 in options
         have vested.

         Subsequent to May 31, 2009, on June 30, 2009 the compensation committee
         of the board of directors awarded 10,000,000 of incentive stock options
         to acquire  common shares at an exercise price of four cents ($.04) per
         share, of which 4,700,000  shares vested  immediately and the remaining
         5,300,000  options  vesting  over the next three  years  ending in June
         2011. The term of the options is five years and expires in June 2014.

         The following table  summarizes  option activity under the Plan for the
         fiscal year ended May 31, 2009.


                                      F-33
<PAGE>
JACOBS FINANCIAL GROUP INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
                                                                 2009
                                          -------------------------------------------------------------
                                                                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, 2008                   $  .06649         26,500,000
Options granted                                   -                  -
Options exercised                                 -                  -

Options canceled/expired                     .06625          2,400,000
                                          -------------- ----------------
Balance, May 31, 2009                     $  .06652         24,100,000
                                          ============== ================

Exercisable at May 31, 2009               $  .06642         21,350,000            2.00       $     -
                                          ============== ================
Expected to vest                          $  .06727          2,750,000            2.04       $     -
                                          ============== ================

</TABLE>


         The following table summarizes activity and pricing information for the
         non- vested shares under the Plan for the year ended May 31, 2009.


                                                             2009
                                                 -------------------------------

                                                 Weighted-Average     Number
                                                   Grant Date           Of
                                                    Fair Value      Non-vested
                                                                      Shares
                                                 ---------------- --------------

Balance at June 1, 2008
                                                  $ .01804           8,916,666
Options granted                                          -                  -
Options vested                                      .01804        ( 5,166,666)
Options canceled/expired                            .01810        ( 1,000,000)
                                                 ---------------- --------------

Balance at May 31, 2009                           $  .01818         2,750,000
                                                 ================ ==============


         No options were  granted in fiscal 2009 or 2008.  There were no options
         exercised in fiscal 2009 or 2008. The total fair value of shares vested
         amounted to approximately  $93,000 and $101,000 in fiscal 2009 and 2008
         respectively.

         Stock-based  compensation  expense attributable to such awards amounted
         to approximately $11,000 and $99,000 in fiscal years ended May 31, 2009
         and 2008  respectively.  Unrecognized  compensation  expense related to
         non-vested  awards  at May 31,  2009 was  approximately  $8,200  and is
         expected to be recognized over the next year.

         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.

                                      F-34
<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,
         2009, the Company had operating  loss carry  forwards of  approximately
         $15  million.  These carry  forwards  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 carry forwards are substantially limited.

         The  Company  has fully  reserved  the $5.1  million tax benefit of the
         operating  loss carry  forward,  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 2009,  the Company  issued  595,000  shares of the  Company's
         common stock as additional  consideration in connection with short-term
         and demand borrowing  arrangements  totaling $435,000.  The shares were
         valued at approximately  $.024761 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 $14,733.

         In fiscal 2009,  the Company issued  3,115,581  shares of the Company's
         common stock in  connection  with the second round of  bridge-financing
         arrangements (see Note H) totaling $940,000.  The shares were valued at
         approximately  $.009027 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 $28,126.

         In fiscal 2009,  the Company issued  5,010,640  shares of the Company's
         common  stock in  connection  with the  semi-annual  issuance of shares
         under terms of the bridge-financing arrangement. The shares were valued
         at approximately $.004350 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 $21,796.

         In fiscal 2009,  the Company issued  4,870,449  shares of the Company's
         common  stock in  connection  with the  semi-annual  issuance of shares
         under terms of the bridge-financing arrangement. The shares were valued
         at approximately $.008498 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 $41,389.

         In fiscal 2008, the Company 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

                                      F-35
<PAGE>
JACOBS FINANCIAL GROUP INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


         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.

         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.

         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,  2009 and 2008 and net income for the
         Company's  insurance  subsidiary  the calendar year ended  December 31,
         2008 and 2007 and five-month periods ended May 31, 2009 and 2008 are as
         follows:


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

         Statutory Surplus        May 31, 2009                $ 5,439,269
         Statutory Surplus        May 31, 2008                  4,564,352

         Net Income               Calendar year 2008              177,018
         Net Income               Calendar year 2007               54,173

         Net Income               Five-month period 2009           76,395
         Net Income               Five-month period 2008          108,957


         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 AND CONTINGENCIES

         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 Insurance.  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.

         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. for a purchase price of $3,400,000,  less
         certain indebtedness. The Company made a $50,000 deposit that was to be
         applied toward the purchase price. RSH and subsidiaries  perform surety
         underwriting   services  and  service  surety  bonding  programs.   The
         acquisition  was expected to add a substantial  depth of experience and
         expertise to the Company.


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

         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 made a $75,000 deposit that was to
         be applied  toward the purchase  price.  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 of Unione were 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 were and are contingent upon the Company's  obtaining  necessary
         financing.  Based on the  dislocation in the capital markets that began
         in the fall of 2007 and has continued through the present,  the Company
         has not been able to obtain the  financing  necessary  to complete  the
         acquisitions of RSH and Unione.  Each  acquisition  agreement as become
         terminable by the parties by reason of the Company's  inability to meet
         the  financing  conditions  within  the  time  frames  provided  in the
         acquisition  agreements.  The Company has released its $50,000 purchase
         money deposit to the  shareholders  of RSH. NICO  continues to hold the
         Company's $75,000 deposit made with respect to the Unione  acquisition.
         Neither agreement has been formally terminated.

         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  October  31,  2008.  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.

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

         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 $3,905
         each month.

         The Company  leases an apartment for corporate use that has a remaining
         term of 6 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 $180 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
         $66,092 and $65,650 during 2009 and 2008.

         Minimum  future lease payments under  non-cancelable  operating  leases
         having remaining terms in excess of one year as of May 31, 2009 are:

                          Fiscal year 2009-2010                   11,839
                          Fiscal year 2010-2011                    6,944
                          Fiscal year 2011-2012                    6,944
                                                              ------------

                                                  Total         $ 25,727
                                                              ============

         CONTINGENCIES

         On May 15, 2009, the Company sold shares of Series A Preferred Stock in
         conjunction  with the sale of surety bonds.  As of September  14th, the
         Company has not  transferred the monies received from the sale of stock
         to FSC to be applied  towards its  surplus.  The amount of  Preferred A
         Stock was  $176,000.  Pursuant to the terms of the Consent  Order dated
         December 23, 2005 (Consent  Order) and the Amended  Consent Order dated
         June 8, 2007  (Amended  Consent  Order),  each  with the West  Virginia
         Insurance  Commissioner  (Commissioner)  , all money  received from the
         sale of  Series A  Preferred  Stock  shall be placed  into the  surplus
         accounts  of  FSC.  The  monies   received  from  the  above  described
         transaction  were not placed with FSC but were retained by the Company.
         This  action is viewed by the  Commissioner  to be a  violation  of the
         Consent Order and Amended Consent Order. Under the terms of the Amended
         Consent Order any knowing or intentional violation of the conditions of
         the Order  shall  constitute  grounds for the  Commissioner  to issue a
         Confidential  Order  immediately  suspending FSC from doing business in
         West  Virginia.   FSC  advised  the  Commissioner  of  this  violation.
         Presently the Commissioner has advised FSC that no action will be taken
         by the Commissioner with respect to this violation. FSC has submitted a
         plan to correct this violation as  expeditiously  as possible,  and the
         Company has agreed with this plan.

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

         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.

         The  carrying  values  and  fair  values  of  the  Company's  financial
         instruments at May 31, 2009 and 2008 are as follows:

<TABLE>
<CAPTION>
                                                                    2009                                 2008
                                                     ------------------------------------------------------------------------
                                                         Carrying            Fair             Carrying            Fair
                                                          Amount             Value             Amount            Value
                                                     ----------------- ------------------ ----------------- -----------------
ASSETS
<S>                                                  <C>               <C>                <C>               <C>
Bonds available for sale                             $   908,766       $   908,766        $   105,866       $   105,866
Mortgage-backed securities held to maturity            5,085,300         5,157,936          3,826,688         3,800,909
Cash and short-term investments                          467,791           467,791
                                                                                            1,224,696         1,224,696
Premiums and other receivables                            89,308            89,308             67,245            67,245
Equity securities (included in other assets)               7,862             7,862             24,829            24,829

LIABILITIES
Notes payable                                          4,052,872         4,052,872          2,968,016         2,968,016
Accounts payable and advance premiums                    268,066           268,066            299,585           299,585
Accrued expenses and other liabilities
                                                       1,019,665         1,019,665            515,916           515,916
</TABLE>


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

         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, 2009 the Company's investment securities of approximately
         $6,382,000  are solely  comprised  of  mortgage-backed  securities  and
         defeased   municipal  bonds  that  are  guaranteed  by  U.S  government
         agencies,  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.

         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  $250,000  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
         Ohio and has focused its primary  efforts  towards  coal permit  bonds.
         Such  business,   including   investment  advisory  fees  from  managed
         collateral  accounts,  accounted for  approximately  65% and 58% of the
         Company's fiscal 2009 and 2008 revenues, respectively. Furthermore, the
         Company  provides surety bonds to companies that share common ownership
         interests that constitute 52% and 48% of the Company's  fiscal 2009 and
         2008 revenues, respectively, as follows:
<TABLE>
<CAPTION>
                                               2009                                 2008
                                ------------------------------------------------------------------------
                                                      Investment                          Investment
                                     Surety            Advisory           Surety           Advisory
                                     Premium             Fees            Premium             Fees
                                ------------------ ----------------- ----------------- -----------------
<S>                             <C>                <C>               <C>               <C>
Customer group # 1              $   259,000        $    71,000       $   270,000       $    80,000
Customer group # 2                  248,000             40,000            96,000            11,000
                                ------------------ ----------------- ----------------- -----------------
                         TOTAL      507,000            111,000           366,000            91,000
                                ================== ================= ================= =================
</TABLE>

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

         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.

                                                      YEAR ENDED
                                          -------------------------------------
INDUSTRY SEGMENT                           MAY 31, 2009        MAY 31, 2008
----------------                          ------------------- -----------------

 Investment advisory                        $    232,853         $    263,250
 Surety insurance                                961,480              694,336
 Corporate                                           851                9,693
                                          ------------------- -----------------
 Total revenues                             $  1,195,184         $    967,279
                                          =================== =================

OPERATING INCOME (LOSS):
 Investment advisory                        $   (136,830)        $   (200,009)
 Surety insurance                                313,556               92,368
 Corporate                                    (1,625,102)          (1,753,984)
                                          ------------------- -----------------
 Total operating income (loss)              $ (1,448,376)        $ (1,861,625)
                                          =================== =================

IDENTIFIABLE ASSETS:
 Investment advisory                        $     49,752         $     69,112
 Surety insurance                              6,828,127            5,420,727
 Corporate                                       107,345              287,927
                                          ------------------- -----------------
 Total assets                               $  6,985,224         $  5,777,766
                                          =================== =================

CAPITAL ACQUISITIONS:
 Investment advisory                        $          -         $          -
 Surety insurance                                      -               13,093
 Corporate                                         6,563                1,510
                                          ------------------- -----------------
 Total capital acquisitions                 $      6,563         $     14,603
                                          =================== =================

DEPRECIATION CHARGED TO
IDENTIFIABLE ASSETS:
 Investment advisory                        $         50         $         45
 Surety insurance                                  7,513                3,311
 Corporate                                         4,999                5,023
                                          ------------------- -----------------
 Total Depreciation                         $     12,562         $      8,379
                                          =================== =================

INTEREST EXPENSE:
 Investment advisory                        $      1,023         $     13,892
 Surety insurance                                     23                    -
 Corporate                                       603,999              465,403
                                          ------------------- -----------------
 Total interest expense                     $    605,045         $    479,295
                                          =================== =================

                                      F-42
<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 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.

         During  2009,  advances  to the  Company  from Mr.  Jacobs  amounted to
         $456,858 and  repayments  amounted to $454,777.  As of May 31, 2009 the
         balance due Mr. Jacobs was $3,081.

         During the years ended May 31, 2009 and May 31, 2008,  a company  owned
         by a board member provided consulting  services.  This company provided
         services  totalling $62,531 and $102,488 in 2009 and 2008. Amounts owed
         to this  company at year end are treated as related  party  payables in
         the amounts $75,009 and $60,567 at May 31, 2009 and 2008.

         NOTE U - REINSURANCE

         On March 23, 2009,  the Company  announced  that FSC has entered into a
         reinsurance agreement with Lloyd's of London ("Reinsurer") for its coal
         reclamation surety bonding programs that took effect April 1, 2009. The
         reinsurance  agreement is an excess of loss contract which protects the
         Company  against losses up to certain limits over  stipulated  amounts,
         has an  initial  term of three  years and can be  terminated  by either
         party by  written  notice of at least 90 days prior to any April 1. The
         contract  calls for a minimum  premium to be paid to the  Reinsurer  of
         $490,000 per year. At May 31, 2009 The Company had prepaid  reinsurance
         premiums of $87,114 and ceded reinsurance payable of $92,173.

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


                                      F-43
<PAGE>
JACOBS FINANCIAL GROUP INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

         The effect of  reinsurance  on  premiums  written and earned for fiscal
         2009 is as follows:

                                               2009             2009
                                             Written           Earned

                Direct                    $   905,519       $   651,933
                Ceded                     $    92,174       $     5,060
                                          -----------       -----------
                Net                       $   813,345       $   646,873
                                          ===========       ===========


         NOTE V - EVENTS SUBSEQUENT TO MAY 31, 2009

         Subsequent  events have been evaluated  through September 14, 2009, the
         date these  financial  statements  were issued.  Subsequent  to May 31,
         2009, the Company  obtained  borrowings of $157,500 from individuals to
         fund ongoing operation and made repayments of $32,000.  Such borrowings
         were obtained under demand notes bearing interest at the rate of 10%.

         Additionally,  the Company borrowed  $250,000 at the rate of 10%, which
         matures on December 31, 2009.  This borrowing  included the issuance of
         500,000  shares  of  its  common  stock  as  additional  consideration.
         Additionally,  advances to the Company from its largest shareholder and
         CEO amounting to $100,025, with repayments totaling $75,300.

         On June 5, 2009 the Company  asked the  Holders of the Bridge  loans to
         forbear from  exercising  their  rights and  remedies  arising from the
         Acknowledged  Events of Default  and  reached  agreement.  The  Holders
         agreed that the Company may satisfy its  obligation to make the Initial
         Amortization  Payments by making 8  consecutive  quarterly  payments of
         $67,185 each,  commencing September 10, 2009, and within a 14 day grace
         period  after  the  due  date,  and  continuing  on the  payment  dates
         prescribed by the  Amortization  Schedule for the Promissory  Notes and
         ending  on June  10,  2011  (collectively,  the  "PAYMENTS"),  it being
         understood  that  the  Payments  shall  result  in the  payment  of the
         principal  of  and  interest  on the  unpaid  portion  of  the  Initial
         Amortization  Payments  at the rate of 10% per annum from and after the
         originally scheduled payment dates.

         On  September  10,  2009,  in  accordance  with  the  Bridge  financing
         agreement,  the  Company  became  obligated  to issue in the  aggregate
         5,354,642 shares of its common stock to the holders of such notes.

         Subsequent to May 31, 2009,  warrants totaling 1,795,273 were exercised
         for cash and the issuance 1,795,273 common shares of the Company.

         On June 30, 2009,  the Board of Directors  of the  Registrant  voted to
         expand the number of Directors comprising the Board from three to five.
         The Board then elected two new members to fill the  vacancies  created.
         The new  Directors  so  elected  are  Mario J.  Marra  and  Bradley  W.
         Tuckwiller.  Each will serve until the next meeting of the shareholders
         of the Registrant at which there is an election of members of the Board
         of Directors (and until his successor is elected and qualified) and, if
         nominated, may stand for reelection.

         On June 30, 2009,  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
         $251,458 and $3,011,518 as of June 30, 2009.

                                      F-44
<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, 2009                                                                                                    SHOWN IN THE
                                                                              COST*                VALUE            BALANCE SHEET
                                                                          ----------------    ----------------   ------------------
 Fixed maturities:
  Bonds:
<S>                                                                       <C>                 <C>                <C>
        United States Government and government agencies and authorities  $             -     $             -    $               -
        States, municipalities, and political subdivisions                        352,816             381,386              381,386
                                                                          ----------------    ----------------   ------------------
        Total fixed maturities                                                    352,816             381,386              381,386

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


 Mortgage-backed securities guaranteed by U.S. government agency                5,599,339           5,685,317            5,612,681

 Short-term investments, at cost (approximates market value)                      387,753             387,753              387,753
                                                                          ----------------    ----------------   ------------------

        Total investments                                                 $     6,339,908     $     6,454,456    $       6,381,820
                                                                          ================    ================   ==================
</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-45
<PAGE>
JACOBS FINANCIAL GROUP, INC.
AND SUBSIDIARIES
<TABLE>
<CAPTION>
------------------------------------------------------------------------------------------------------------
CONDENSED FINANCIAL INFORMATION OF REGISTRANT                                                   SCHEDULE II
------------------------------------------------------------------------------------------------------------


BALANCE SHEETS - PARENT COMPANY ONLY
<S>                                                                                <C>          <C>
                                                                                   MAY 31, 2009 MAY 31, 2008
                                                                                   ------------ ------------
 Assets:
 Cash                                                                              $    (2,028) $    12,385
 Accounts receivable from affiliates                                                         -        2,740
 Prepaid expense and other assets                                                       24,822      264,816
 Furniture and equipment, net                                                            9,551        7,987
 Investment in subsidiaries, equity method                                           4,661,611    3,807,434
 Due from affiliates, net                                                              989,836      772,966
                                                                                   ------------ ------------

        Total assets                                                               $ 5,683,792  $ 4,868,328
                                                                                   ============ ============

 LIABILITIES:
 Accounts payable                                                                      $ 6,460      $ 8,339
 Accrued expenses and professional fees                                                365,859      289,584
 Related party payable                                                                  67,275       52,192
 Notes payable                                                                       4,049,791    2,967,017
 Related party notes payable                                                             2,281        1,000
 Due to affiliates                                                                     176,000            -
 Other liabilities                                                                     361,538       86,289
                                                                                   ------------ ------------

        Total liabilities                                                            5,029,204    3,404,421

 MANDATORILY REDEEMABLE PREFERRED STOCK                                             14,290,109   12,245,799

 STOCKHOLDERS EQUITY:
 Common stock                                                                           17,968       16,609
 Additional paid in capital                                                          2,626,236    2,423,537
 Accumulated deficit                                                               (16,279,725) (13,222,038)
                                                                                   ------------ ------------

        Total stockholders equity (deficit)                                        (13,635,521) (10,781,892)
                                                                                   ------------ ------------

        Total liabilities and stockholders equity                                  $ 5,683,792  $ 4,868,328
                                                                                   ============ ============

</TABLE>




















                                      F-46
<PAGE>
JACOBS FINANCIAL GROUP, INC.
AND SUBSIDIARIES

<TABLE>
<CAPTION>

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


STATEMENTS OF CASH FLOWS - PARENT COMPANY ONLY
 YEAR ENDED MAY 31,
<S>                                                                               <C>           <C>
                                                                                       2009         2008
                                                                                  ------------- -------------
 CASH FLOWS FROM OPERATING ACTIVITIES:

 Net income (loss)                                                                $ (1,448,376) $(1,861,625)

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

 Equity in undistributed net loss of consolidated subsidiaries                         (95,177)      (7,829)
 Stock option compensation expense                                                      11,462       98,972
 Stock issued in connection with financing arrangements                                231,554      242,003
 Depreciation                                                                            4,999        5,023
 Loss on disposal of equipment                                                               -          684
 Change in other assets, accounts payable and accrued expense, net                     568,504     (398,549)
                                                                                  ------------- -------------

 TOTAL CASH USED IN OPERATIONS                                                        (727,034)  (1,921,321)


 CASH FLOWS FROM INVESTING ACTIVITIES:

 Contributions to insurance company subsidiary                                        (759,000)    (804,000)
 Funds provided to affiliates for operations                                           (40,871)    (659,377)
 Purchase of furniture and equipment                                                    (6,563)      (1,510)
                                                                                  ------------- -------------

 TOTAL CASH USED IN INVESTING ACTIVITIES                                              (806,434)  (1,464,887)

 CASH FLOWS FROM FINANCING ACTIVITIES:

 Proceeds from issuance of mandatorily redeemable preferred stock                      435,000      828,000
 Proceeds from exercise of stock warrants                                                    -          335
 Redemption of mandatorily redeemable preferred stock                                        -            -
 Proceeds from borrowings                                                            1,402,500    2,842,000
 Repayment of borrowings                                                              (319,725)    (269,357)
 Proceeds from short-term borrowings from related party                                456,057      132,200
 Repayment of short-term borrowings to related party                                  (454,777)    (146,963)
                                                                                  ------------- -------------

 TOTAL CASH PROVIDED BY FINANCING ACTIVITIES                                         1,519,055    3,386,215
                                                                                  ------------- -------------

 CHANGE IN CASH                                                                        (14,413)           7

 Cash at beginning of year                                                              12,385       12,378
                                                                                  ------------- -------------

 Cash at end of year                                                              $     (2,028) $    12,385
                                                                                  ============= =============
</TABLE>











                                      F-47

<PAGE>

JACOBS FINANCIAL GROUP, INC.
AND SUBSIDIARIES

<TABLE>
<CAPTION>

--------------------------------------------------------------------------------------------------------------------------------
 SUPPLEMENTARY INSURANCE INFORMATION
 AS OF MAY 31, 2009 AND 2008 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>
2009

Surety    $ 143,173     $ 432,658     $ 530,794       $ -   $ 646,873   $ 288,747   $ 186,007     $ 153,263        $ -     $ 813,345


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

2008

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



</TABLE>




















                                      F-48

<PAGE>
<TABLE>
<CAPTION>
------------------------------------------------------------------------------------------------------------------------------------
 SUPPLEMENTAL INSURANCE INFORMATION - REINSURANCE
 AS OF MAY 31, 2009 AND 2008 AND FOR THE YEARS THEN ENDED                                                               SCHEDULE IV
------------------------------------------------------------------------------------------------------------------------------------

                                                                                       CEDED TO OTHER
2009                                                            GROSS AMOUNT             COMPANIES             NET AMOUNT
<S>                                                         <C>                      <C>                   <C>
Premiums written:
         Property and casualty insurance                               $ 905,519               $ 92,174             $ 813,345

                                                            ---------------------    -------------------   -------------------
         Total premiums written                                        $ 905,519               $ 92,174             $ 813,345
                                                            =====================    ===================   ===================

Premiums earned:
         Property and casualty insurance                               $ 651,933                $ 5,060             $ 646,873

                                                            ---------------------    -------------------   -------------------
         Total premiums earned                                         $ 651,933                $ 5,060             $ 646,873
                                                            =====================    ===================   ===================


There were no premiums ceded to other companies for the year ended May 31, 2008.

</TABLE>


























                                      F-49



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

------------------------------------------------------------------------------------------------------------------------------------
 SUPPLEMENTAL INFORMATION
 AS OF MAY 31, 2009 AND 2008 AND 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     DISCOUNT                                CLAIMS, LOSSES  AMORTIZATION
                                 AND        IF ANY,                                AND SETTLEMENT       OF
                  DEFERRED  LOSS EXPENSES, DEDUCTED                                EXPENSES IN-     DEFERRED    PAID CLAIMS
                   POLICY       FUTURE        IN                           NET    CURRED RELATED TO   POLICY     AND CLAIMS   NET
  AFFILIATION   ACQUISITION     POLICY      COLUMN   UNEARNED  PREMIUM INVESTMENT  CURRENT  PRIOR   ACQUISITION  ADJUSTMENT PREMIUMS
WITH REGISTRANT   COSTS         CLAIMS        C      PREMIUMS  REVENUE   INCOME      YEAR   YEARS      COSTS      EXPENSES  WRITTEN
--------------- ----------- ------------- --------- --------- -------- ---------- ----------------- ----------- ----------- --------
<S>             <C>         <C>           <C>       <C>       <C>      <C>        <C>               <C>         <C>         <C>
2009

Consolidated
property-
casualty
entities        $ 143,173    $ 432,658         $ -  $ 530,794 $ 646,873 $ 288,747  $ 186,007  $ -  $ 153,263     $ -       $ 813,345


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

2008

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


</TABLE>






















                                      F-50

<PAGE>
<TABLE>
<CAPTION>
 (b) The following exhibits are filed as a part of this Annual Report.

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 26, 2008
     (12) Incorporated by reference to the Company's  Current Report on Form 8-K
          dated November 20, 2008
     (13) Incorporated by reference to the Company's  Current Report on Form 8-K
          dated March 23, 2009
     (14) Incorporated by reference to the Company's  Current Report on Form 8-K
          dated June 16, 2009
     (15) Incorporated by reference to the Company's  Current Report on Form 8-K
          dated July 7, 2009
</TABLE>


                                       32

<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.


                                     JACOBS FINANCIAL GROUP, INC.

Dated:   September 14, 2009          By: /s/ John M. Jacobs
                                     -------------------------------------------
                                         John M. Jacobs
                                         President and CEO
                                         Director



































                                       33
<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 14, 2009                        By:/s/John M. Jacobs
        ------------------------                   ----------------------------
                                                     John M. Jacobs
                                                     President and CEO
                                                     Director


Dated:   September 14, 2009                        By:/s/ John M. Jacobs
        ------------------------                   ----------------------------
                                                     John M. Jacobs
                                                     Chief Financial Officer



Dated:   September 14, 2009                        By:/s/ Mario J. Marra
        ------------------------                   ----------------------------
                                                     Mario J. Marra
                                                     Director


Dated:   September 14, 2009                        By:/s/ C. David Thomas
        ------------------------                   ----------------------------
                                                     C. David Thomas
                                                     Director



Dated:   September 14, 2009                        By:/s/ Frederick E. Ferguson
        ------------------------                   ----------------------------
                                                     Frederick E. Ferguson
                                                     Director



Dated:   September 14, 2009                        By:/s/ Bradley W. Tuckwiller
        ------------------------                   ----------------------------
                                                     Bradley W. Tuckwiller
                                                     Director


















                                       34