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, 2011

                         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, 2010:  $1,541,882  (226,747,282  shares at $.0068 /
share)

Indicate the number of shares outstanding of each of the registrant's classes of
common stock, as of the latest  practicable date:  244,409,253  shares of common
stock as of September 9, 2011.


<PAGE>
<TABLE>
<CAPTION>
<S>                 <C>                                                                        <C>
                                           TABLE OF CONTENTS

                                                                                               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                                                       8
Item 7              Management's Discussion and Analysis of Financial Condition and
                    Results of Operations                                                         8
Item 7A             Quantitative and Qualitative Disclosures About Market Risk                    22
Item 8              Financial Statements and Supplementary Data                                   22
Item 9              Changes in and Disagreements With Accountants on Accounting and
                    Financial Disclosure                                                          23
Item 9A(T)          Controls and Procedures                                                       23
Item 9B             Other Information                                                             24

                    PART III

Item 10             Directors, Executive Officers and Corporate Governance                        25
Item 11             Executive Compensation                                                        27
Item 12             Security Ownership of Certain Beneficial Owners and Management and
                    Related Stockholder Matters                                                   30
Item 13             Certain Relationships and Related Transactions and Director
                    Independence                                                                  33
Item 14             Principal Accounting Fees and Services                                        34

                    PART IV

Item 15             Exhibits, Financial Statement Schedules                                       35
</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. In October 1993 the Company changed its name to NELX,
Inc.  On or  about  December  29,  2005,  NELX  was  merged  with  and  into its
newly-formed wholly-owned subsidiary, JFG, 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.  The Company holds four wholly owned  subsidiaries,  FS Investments,
Inc.  ("FSI"),  Jacobs & Company  ("Jacobs  & Co."),  First  Surety  Corporation
("FSC") and Crystal Mountain Water, Inc. ("CMW").

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.  In June 2001,  the Jacobs & Company
Mutual Fund (the "Fund") was organized as a series of the Advisors Series Trust.
On June 27, 2005, the Fund was  reorganized as a series of Northern  Lights Fund
Trust.  The Fund's assets were  liquidated in November 2009 and  distribution of
proceeds to the Fund's shareholders was made on December 1, 2009.

On December  31, 2005 the Company  acquired  the former West  Virginia  Fire and
Casualty Company (WVFC),  subsequently  renamed First Surety  Corporation (FSC),
from The Celina Mutual Insurance Company (Celina).  The acquisition consisted of
the  purchase of  marketable  investments  and  insurance  licenses  and did not
include any  existing  policies or customer  base as the  insurance  lines being
offered by WVFC were not insurance lines that new ownership  intended to pursue.
FSC is a West  Virginia  domiciled  property and casualty  company with licenses
(multi-line) in West Virginia,  Indiana and Ohio,  targeting  primarily coal and
oil & gas industry  surety markets in the Eastern  United  States.  In 2006, the
Company was licensed for the surety line of business in West Virginia.  In 2008,
the Company's license for surety was expanded to include Ohio.

CMW has an undeveloped leasehold interest in a mineral water spring located near
Hot Springs, Arkansas.

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

                                      -4-
<PAGE>

Item 1A.  RISK FACTORS
----------------------

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

Item 2. PROPERTIES
------------------

Through  its  wholly-owned  subsidiary,  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.  The stock of CMW has been
pledged  to a group of  lenders  as  collateral  (See Item 7  "Bridge-financing,
Commitments and Material Agreements").

Item 3. LEGAL PROCEEDINGS
-------------------------

None


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

Three new members have been  appointed  to the JFG Board of Directors  since the
last annual meeting, held in December 2005, and will serve until the next called
meeting of shareholders which is not yet scheduled.




                                      -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, 2011

         4th Quarter                              .01                      .005
         3rd Quarter                              .01                      .004
         2nd Quarter                              .009                     .006
         1st Quarter                              .008                     .003


FISCAL YEAR ENDED MAY 31, 2010

         4th Quarter                              .012                     .003
         3rd Quarter                              .015                     .005
         2nd Quarter                              .026                     .006
         1st Quarter                              .04                      .003



As of May 31,  2011,  there  were  approximately  900  holders  of record of the
Company's common stock.

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

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

As of May 31, 2011, 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:

                                      -6-
<PAGE>
<TABLE>
<CAPTION>

                                               EQUITY COMPENSATION PLAN INFORMATION

-------------------------------------------- ------------------------------------------ ------------------------------------------
       Number of Shares to be Issued                     Weighted-Average                           Number of Shares
             Upon Exercise of                            Exercise Price of                         Remaining Available
            Outstanding Options                         Outstanding Options                        For Future Issuance
-------------------------------------------- ------------------------------------------ ------------------------------------------
<S>                                          <C>                                        <C>
                11,800,000                                     .0400                                   23,200,000
-------------------------------------------- ------------------------------------------ ------------------------------------------
</TABLE>

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

UNREGISTERED SALES OF EQUITY SECURITIES

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

The  Certificate of  Designations,  Powers,  Preferences  and Rights of Series C
Preferred  Stock adopted by the Board of Directors of the Company on October 29,
2009 is set forth as Exhibit 4.3.

In the  year  ended  May 31,  2011,  5,719,499  common  shares  were  issued  as
additional  consideration to various lenders in private  placements  pursuant to
short term borrowings. 8,359,326 common shares were issued to holders exercising
the  company's  warrants.  12,952,185  common  shares  were issued to the Bridge
lenders.  500,000 common shares were issued to an individual as compensation for
services  instrumental to advancing the Company's  business plan. 309,282 common
shares issued April 1, 2011 in connection with the additional 2% stock quarterly
dividend  associated  with Series B Preferred  shares that have  requested to be
redeemed upon maturity.  Subsequent to May 31, 2011,  732,000 common shares have
been issued in private placements to various individuals  pursuant to short term
borrowings  and  1,372,949  common shares were issued July 1, 2011 in connection
with the  additional  2%  stock  quarterly  dividend  associated  with  Series B
Preferred shares that have requested to be redeemed.

The Registrant's Common Shares are issued under the restrictions of Rule 144 and
bear a legend to that effect.

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.

                                      -7-
<PAGE>

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  2011,  the  Company  has  focused  its  primary  efforts  on the
development  and  marketing  of its surety  business in West  Virginia and Ohio,
securing potential strategic  relationships that will accelerate the progression
of the Company's  business plan and raising  additional  capital to increase the
capital base of its insurance  subsidiary,  First Surety  Corporation  (FSC), to
facilitate entry into other state markets.

RESULTS OF OPERATIONS  AND FINANCIAL  CONDITION AS OF AND FOR THE YEAR ENDED MAY
31, 2011

RESULTS OF OPERATIONS

Total  revenues  increased  from  approximately  $1,372,000  in  fiscal  2010 to
approximately   $1,561,000  in  fiscal  2011,  while  total  operating  expenses
decreased  from  approximately   $1,830,000  in  fiscal  2010  to  approximately
$1,583,000  in  fiscal  2011.  This  resulted  in  a  loss  from  operations  of
approximately  $22,000  in 2011  as  compared  with a loss  from  operations  of
$458,000 in fiscal 2010, an improvement of approximately $436,000.

The increase in revenues is largely  attributable to the continued growth of the
surety  business of FSC and the  recognition of gains on the sale of investments
held by the company. However, net investment income decreased due to the receipt
of large  principal  payments on mortgage backed  securities,  which resulted in
large amortization of premiums  recognized in the current year. The reduction in
expenses is  attributable  to  decreased  general and  administrative  expenses,
mostly  related to the award of stock  options on June 30,  2009, a reduction in
professional  legal fees  incurred  in the  Company's  ongoing  efforts to raise
additional  capital to expand its business and  penetrate  new markets,  and the
elimination  of expenses  absorbed  as part of the Jacobs & Company  Mutual Fund
which was liquidated on December 1, 2009.

Interest  expense  decreased  from  approximately  $957,000  in  fiscal  2010 to
approximately  $908,000  in fiscal  2011,  due  mainly to the  expense of common
shares issued  attributable  to the June 5, 2009  forbearance of the bridge loan
holders and despite additional  borrowings incurred in relation to the Company's
efforts  to raise  additional  capital  financing  and to provide  financing  of
current operations.

In the  twelve-month  periods ending May 31, 2011 and May 31, 2010, the Company,
upon advice of legal counsel,  removed certain dormant  accounts  payable in the
aggregate  amount of $54,358 and $200,240 based upon the conclusion that none of
the accounts  represented an obligation that is legally  enforceable against the
Company. Such removal was recorded as a gain on debt extinguishment.

                                      -8-
<PAGE>

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 350
shares of Series A Preferred stock and 3,980 shares of Series B Preferred stock,
each  accompanied by 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.

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
requirement of the West Virginia  Insurance  Department to downstream all future
proceeds from sales of Series A preferred stock in order to increase capital and
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.  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.
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.  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  choosing  to  exercise  conversion  privileges  prior to the stated
redemption date


                                      -9-
<PAGE>

The Company's outstanding Series B Preferred stock matured on December 30, 2010,
meaning that the holders of the Series B Stock  became  entitled to request that
the Company  redeem  their Series B Shares.  As of this report,  the Company has
received requests for redemption of 2,141.341 shares of Series B Preferred.  The
aggregate  redemption  amount to which the holders  are  entitled as of June 30,
2011, is $3,310,824.

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


                                      -10-
<PAGE>

On March 8, 2011,  the  Company's  Board of Directors  determined,  based on the
criteria established under the terms of the Series B Preferred Stock, that there
were  insufficient  funds  available  for the  redemption  of Series B Preferred
Stock.

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.  Warrants  issued to Series A Preferred
holders  have a seven year  expiration;  warrants  issued to Series B  Preferred
holders  had a  five-year  expiration  period.  Such  warrants  were  valued  at
approximately  $533,000 using the Black-Scholes  pricing model. 386,667 warrants
expired  unexercised  on  December  31,  2010,  while  600,000  warrants  remain
outstanding with an expiration date of December 31, 2012.

The  Company  experienced  a loss  after  accretion  of  mandatorily  redeemable
convertible  preferred  stock, and accrued  dividends on mandatorily  redeemable
preferred  stock of  $1,440,090  in fiscal  2011 as  compared  with a loss after
accretion of mandatorily  redeemable  convertible  preferred  stock, and accrued
dividends on  mandatorily  redeemable  preferred  stock of  $2,338,531 in fiscal
2010.


EQUITY PREFERRED STOCK

In November  2009, as a means of  alleviating  obligations  associated  with the
Company's  Series B Preferred  Stock,  which by its terms  matured at the end of
2010,  management  proposed  a  recapitalization  to assist in  stabilizing  the
financial position of the Company.  The Board deemed it advisable to designate a
Series C Preferred Stock, with 10,000 authorized  shares.  The  Recapitalization
consisted  of the  exchange of 6,804.936  Series B Shares for a  combination  of
Series C  Shares  and  Common  Stock  Shares.  For  each  Series  B  Share,  the
participating  holder  received  (i) one Series C Share and (ii) 2,000 shares of
JFG Common Stock.  The accumulated  dividend  rights and preferences  associated
with the Series B Shares transferred  undiminished to the corresponding Series C
Shares. This exchange amounted to $6,269,051 of carrying value of Series B stock
being exchanged for Series C and Common Stock. 13,609,872 shares of Common Stock
were issued to the Series C Stock holders at the rate of 2,000 Common shares for
each exchanged Series B Stock,  with the related cost associated with the Common
issuance  offsetting  the Series C carrying  value by $265,120.  The shares were
valued at  approximately  $.01948 per share based on the average  quoted closing
price of the Company's  stock for the 20-day period  proceeding  the date of the
transaction.  Series C stock may be  redeemed by the Company but does not have a
fixed maturity date and is considered  permanent equity.  Holders of over 70% of
the  outstanding  Series  B  Preferred  Shares  elected  to  participate  in the
recapitalization

Unlike the Series B Shares with their fixed  maturity  date, the Series C Shares
are permanent  equity,  with accruing  dividends only  increasing the preference
amount that must be  satisfied  before  junior  securities  may  participate  in
dividends or on liquidation. Accordingly, the effect of the accrual of dividends
with  respect  to the  Series  C Shares  on the  Company's  balance  sheet is to
increase  the  aggregate  claimbythe  Series  C  Shares  on  the  equity  of the
corporation and to increase the deficit in common equity, while having no effect
on the net equity of the corporation as a whole. The entitlement of the Series C
Shares to a priority in relation to junior  securities with respect to dividends
and on liquidation does not create an obligation by the Company and therefore no
liability  is  recorded  until the  dividends  are  declared by the Board of the
Company.  The Series C Shares are pari passu with the Series A Shares and Series

                                      -11-
<PAGE>

B Shares and no dividends or other distributions will be paid upon Common Shares
or any other  class of Shares  that is junior in priority to the Series C Shares
while dividends are in arrears.

The accrual of dividends on the equity  preferred  stock resulted in a charge to
common stockholders' equity and a credit to the equity of equity preferred stock
of $781,062 in fiscal  2011 as  compared  with a charge to common  stockholders'
equity of $374,662 in fiscal 2010.


DIVIDEND PREFERENCE AND ACCRETION

The  carrying  value of the Series B Preferred  Shares that did not convert are
listed in the  Liabilities  section of the  Balance  Sheet,  and  therefore  the
accretion and dividends  associated  with the Series B stock after  November 30,
2009 are  deductions  from net  income.  Series C stock  has no  accretion.  The
recorded  values of the Series A  preferred  stock is 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 Series A designation is entitled to receive cumulative dividends at the rate
of 4.00% per annum and the Series B and Series C  designations  are  entitled to
receive cumulative  dividends at the rate of 8.00% per annum, with the Series A,
B and C  designations  having equal  ranking and  preference as to dividends and
liquidation  rights and in priority to the Company's  common  stockholders.  The
accrued  (but  undeclared)  dividends  associated  with the  Series  C  exchange
amounted to $2,295,624 and are included in the total amount exchanged for Series
C Shares.

At this time, management has chosen to defer payment of dividends to the holders
of the Series A, B and C Preferred  Shares until the Company has sufficient cash
flow from operations to service the obligation.


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 were fixed at 10.00%.  Payments due December  2008
and March 2009 were not made by the  Company  as  scheduled,  but a  forbearance

                                      -12-
<PAGE>

agreement was subsequently entered into with the bridge lenders on June 5, 2009,
modifying payment terms to cure the default  (including  increasing the interest
rate on the loans to 17%),  issuing additional common stock to the loan holders,
and  pledging  the stock of the  Company's  subsidiary,  CMW,  as  security  for
repayment of the loans. The modification required the Company to pay interest of
$224,515 on June 10, 2009 and increase the  quarterly  payments by $67,185 (to a
total of $291,700) for eight consecutive  quarters beginning  September 10, 2009
to satisfy the  arrearage.  Although  the Company has failed to make the payment
that was due  September  10, 2009 and the payments  that were due in the ensuing
quarters,  management  has remained in close  contact  with the bridge  lenders,
providing  reports  regarding  its efforts to refinance  or otherwise  repay the
bridge loans.  To date,  none of the bridge  lenders has elected to pursue legal
remedies.

Certain  equity  inducements  in the form of common  stock of the  Company  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, 2011, such assets
amounted to approximately $7.79 million.


CRITICAL ACCOUNTING POLICIES AND ESTIMATES

INVESTMENTS

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

                                      -13-
<PAGE>

INSURANCE PREMIUMS

Insurance  premiums  are  recognized  as  revenue  ratably  over the term of the
related  policies in proportion to the insurance  protection  provided.  Premium
revenues are net of amounts ceded to reinsurers. Unearned premiums represent the
portion of  premiums  written,  before  ceded  reinsurance  which is shown as an
asset,  applicable to the unexpired  terms of policies in force  determined on a
pro rata basis.

Insurance  premium  receivables are presented net of an estimated  allowance for
doubtful  accounts,  which is based on a  periodic  evaluation  of the aging and
collectability of premium receivables.

REINSURANCE

The  Company  limits the  maximum  net loss that can arise  from large  risks by
reinsuring  (ceding)  certain  levels  of  such  risk  with  reinsurers.   Ceded
reinsurance is treated as the risk and liability of the assuming companies.  The
Company cedes  insurance to other companies and these  reinsurance  contracts do
not relieve the Company from its obligations to  policyholders.  Ceded premiums,
at a rate of 35% of written premium,  are recognized as revenue ratably over the
term of the related policies.  Ceded unearned premiums  represent the portion of
ceded premiums  written  applicable to the unexpired  terms of policies in force
determined on a pro rata basis.

Under the terms of its  reinsurance  treaty,  the  Company is  entitled  to a No
Claims  Bonus  from the  reinsurers  for each  claim year in which no claims are
received.  The bonus is 20% of the annual reinsurance premium and no claims have
been made since the inception of the treaty.

DEFERRED POLICY ACQUISITION COSTS

Policy  acquisition  costs,  consisting of commissions,  premium taxes and other
underwriting  expenses  which  vary  with,  and are  primarily  related  to, the
production of business,  are deferred and amortized as a charge to income as the
related premiums are earned. The Company periodically tests that deferred policy
acquisition costs are recoverable based on the expected  profitability  embedded
in the reserve for unearned premium. If the expected  profitability is less than
the balance of deferred  policy  acquisition  costs, a charge to income is taken
and the  deferred  policy  acquisition  cost  balance  is  reduced to the amount
determined to be recoverable. Anticipated investment income is considered in the
determination of the recoverability of deferred policy acquisition costs.


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.


                                      -14-
<PAGE>

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, 2011.

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 along with
industry  averages and  historical  experience.  Management  has estimated  such
losses based on industry experience, adjusted for factors that are unique to the
Company's approach, and in consultation with consulting actuaries experienced in
the surety field.

LIQUIDITY AND GOING CONCERN

The  Company  has  experienced  operating  losses of  approximately  $22,000 and
$458,000  for the fiscal  years ended May 31, 2011 and 2010,  respectively.  The
Company losses  increase when accretion of  mandatorily  redeemable  convertible
preferred stock, and accrued dividends on mandatorily redeemable preferred stock
are taken into account to approximately $1,440,090 and $2,338,531 for the fiscal
years ended May 31, 2011 and 2010,  respectively.  Despite increased revenue and
the continued  decline of operating  expenses,  the Company has not been able to
pay certain amounts due to  professionals  and others and continues to be unable
to pay its  preferred  stock  dividend  obligation  and to cure its  defaults in

                                      -15-
<PAGE>

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

Through the sharing of resources  (primarily  personnel)  to minimize  operating
costs, the Company and its subsidiaries  attempt to minimize  operating expenses
and preserve resources.  Although FSC is now cash flow positive,  the use of its

                                      -16-
<PAGE>

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 & Company 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 2011 WITH 2010

The Company experienced a loss from operations of approximately  $22,000 in 2011
as  compared  with a loss  from  operations  of  $458,000  in  fiscal  2010,  an
improvement of approximately $436,000. After accretion of mandatorily redeemable
convertible  preferred  stock, and accrued  dividends on mandatorily  redeemable
preferred stock, the Company  experienced a loss of $1,440,090 in fiscal 2011 as
compared  with a loss after  accretion  of  mandatorily  redeemable  convertible
preferred stock, and accrued dividends on mandatorily redeemable preferred stock
of $2,338,531 in fiscal 2010.


REVENUES

Revenues in fiscal 2011 amounted to  $1,561,475  as compared with  $1,371,783 in
fiscal 2010. The increase in revenues is largely  attributable  to the continued
growth of the surety business of FSC and the recognition of gains on the sale of
investments held by the company.

Revenue from the investment  management segment,  net of advisory referral fees,
was  $266,963  in  fiscal  2011  as  compared  with  $262,635  in  fiscal  2010,
representing an increase of $4,328. 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 increase in
revenues is primarily attributable to growth in individually managed funds.

Revenue  from the  surety  insurance  segment,  consisting  of FSC and TSA,  was
$1,275,319 for fiscal 2011 as compared with $1,095,213 for fiscal 2010. Revenues
attributable to the insurance segment are as follows:

                                                  Year Ended May 31,
                                                2011             2010
                                         ----------------- -----------------

 Premiums earned                           $   910,940       $   768,908
 Commissions earned                             18,415            11,900
 Net investment income                         229,777           273,577
 Net realized investment gains                 116,187            40,828
                                         ----------------- -----------------

                                  Total    $ 1,275,319       $ 1,095,213
                                         ================= =================

                                      -17-
<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 2011.  Gross premium  written in fiscal
2011  amounted to  $1,613,912  as compared to  $1,114,197  in fiscal 2010 and is
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.

FSC's  investment  holdings in fiscal 2011 averaged  $7.192  million as compared
with $6.553 million for fiscal 2010, with investment yields decreasing  slightly
from 4.1% to 3.57%.  In addition,  the  amortization  of premium for larger than
usual  principal  payments  on mortgage  backed  securities  during  fiscal 2011
resulted in decreased investment income.

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.  Incurred  policy losses for fiscal 2011 have been recorded
as $204,323 or 22% of earned  premium as compared to $178,531 or 23.2% of earned
premium  for  fiscal  2010.  IBNR loss  estimates  have been  based on  industry
averages  adjusted  for  factors  that  are  unique  to the  FSC's  underwriting
approach.  As of May 31, 2011 FSC has not  received any claims for losses on any
bonds  underwritten  since business began in 2006,  therefore its actuaries have
approved  reducing  the  percentage  of premiums  reserved  for IBNR due to this
historical pattern.

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 2011 such costs  amounted  to $313,223 or 34.38% of earned  premium as
compared  with  $249,478  or 32.4% in fiscal  2010.  The  increase of $63,745 in
expenses is  attributable  to costs  associated to the increase in gross premium
written,  while the increase as a  percentage  is  attributable  to the increase
specifically in new gross premiums  written,  which pay a higher commission than
renewal premiums.

                                      -18-

<PAGE>

General and administrative  expenses for fiscal 2011 were $1,050,486 as compared
with  $1,316,211  for fiscal 2010,  representing  a decrease of $265,725 and are
comprised of the following:
<TABLE>
<CAPTION>
                                                            Year Ended May 31,
                                                         2011              2010           Difference
                                                    ---------------- ----------------- ----------------
<S>                                                 <C>              <C>               <C>
Salaries and related costs                          $     483,250    $     710,750     $  (227,500)
General office expense                                    112,148          111,203             945
Legal and other professional fees                         137,250          171,535         (34,285)
Audit, accounting and related services                     87,851          110,431         (22,580)
Travel, meals and entertainment                            69,828           49,214          20,614
Other general and administrative                          160,159          163,078          (2,919)
                                                    ---------------- ----------------- ----------------
                  Total general and administrative  $   1,050,486    $   1,316,211     $  (265,725)
                                                    ================ ================= ================
</TABLE>

Salaries and related costs, net of deferred internal policy  acquisition  costs,
decreased $227,500 and are comprised of the following:
<TABLE>
<CAPTION>
                                                              Year Ended May 31,
                                                          2011               2010             Difference
                                                    ------------------ ------------------ ------------------
<S>                                                 <C>                <C>                <C>
Salaries and wages                                  $        487,341   $        469,341   $        18,000
Commissions                                                  113,324             44,374            68,950
Payroll taxes                                                 50,763             42,372             8,391
Stock option expense                                          16,782            251,631          (234,849)
Fringe benefits                                               72,796             54,027            18,769
Key-man life insurance                                        53,099             54,994            (1,895)
Deferred policy acquisition costs                           (310,855)          (205,989)         (104,866)
                                                    ------------------ ------------------ ------------------
                  Total salaries and related costs  $        483,250   $        710,750   $      (227,500)
                                                    ================== ================== ==================
</TABLE>

The increase in salaries and taxes is  attributable  to year end bonuses paid to
certain employees in December 2010 which were not paid in the previous year. The
decrease in stock option expense is  attributable  to the awarding of 10,000,000
shares of  incentive  stock  options on June 30,  2009.  Group  health  benefits
increased  due to more  employees  being  covered in 2011 and the rising cost of
health isurance  premiums.  The increase in commissions is attributable to FSC's
commission structure that pays a larger commission percentage on the origination
of a policy but reduced for subsequent policy renewals.

During fiscal year 2010,  the Company  incurred costs in response to a triennial
SEC  examination  of its  investment  advisor  subsidiary  as well as  costs  in
response to a statutory examination of its insurance subsidiary, required by the
West Virginia Insurance Commission.  Despite these costs, legal and professional
fees decreased due to the need for  significantly  less general  corporate legal
services and reduced  costs related to the Company's  pending  acquisitions  and
on-going efforts to obtain financing  necessary to expand the Company's business
and penetrate  new markets.  General  corporate  services were reduced in fiscal
2011 due  primarily to costs  incurred in the  recapitalization  and exchange of
Series B Preferred  shares for Series C Preferred shares in fiscal 2010, as well
as less  review and  assistance  required in  connection  with the filing of the
Company's   annual  and  interim   reports  with  the  Securities  and  Exchange
Commission.

                                      -19-
<PAGE>

Travel,  meals and  entertainment  expense  increased  during fiscal 2011 due to
expanded  efforts  by  management  obtain  financing  necessary  to  expand  the
Company's business and penetrate new markets

Other less significant increases and decreases were experienced in other general
administrative expenses categories in fiscal 2011 as compared to fiscal 2010.

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

While the Fund was responsible for its own operating expenses,  Jacobs & Co., as
the  investment  advisor,  had  agreed  to limit  the  Fund's  aggregate  annual
operating  expenses  to 2%  of  the  average  net  assets.  Under  this  expense
limitation  agreement,  Jacobs & Co.  absorbed  $75,038 of the Fund's  operating
expenses in 2010 as compared to having no revenue or expense attributable to the
fund during fiscal 2011. The cumulative  reimbursement due the Fund by J&C as of
May 31, 2011 was $54,866.

GAIN ON EXTINGUISHMENT OF DEBT

During the years ended May 31, 2011 and May 31, 2010,  the Company,  upon advice
of legal counsel,  removed  certain  dormant  accounts  payable in the aggregate
amounts of $54,358 and $200,240, based upon the conclusion that none of accounts
represented an obligation that is legally enforceable against the Company.  Such
removal was recorded as a gain on debt extinguishment.


INTEREST EXPENSE AND INTEREST INCOME

Interest  expense for fiscal 2011 was  $908,375  as  compared  with  $956,973 in
fiscal 2010. The increase in interest  expense is primarily  attributable to the
bridge-financing  arrangement forbearance agreement and increased debt and stock
issued  as  incentive  for debt in 2010.  Components  of  interest  expense  are
comprised of the following:


                                      -20-
<PAGE>
<TABLE>
<CAPTION>
                                                                    Year Ended May 31,
                                                                 2011               2010             Difference

                                                           ------------------ ------------------ -------------------
<S>                                                        <C>                <C>                <C>
Interest expense on bridge financing                       $         595,000  $         583,829  $          11,171
Expense of common shares issued or to be issued in
 connection with bridge financing and other arrangements             132,662            269,850           (137,188)
Interest expense on demand and term notes                            129,844             95,599             34,245
Other finance charges                                                 50,869              7,695             43,174
                                                           ------------------ ------------------ -------------------
                                   Total interest expense  $         908,375  $         956,973  $         (48,598)
                                                           ================== ================== ===================
</TABLE>

The decrease in the expense of common shares issued (or to be issued) for fiscal
year 2010 as  compared  to  fiscal  year 2010 was  largely  attributable  to the
issuance of common stock on June 5, 2009 in relation to the  agreement  with the
bridge loan holders.  Interest expense on demand and term notes increased due to
increased  borrowings and other finance charges  increased due to incentive fees
paid to a note holder to obtain  borrowings  as well as  interest  paid upon the
satisfaction of the payroll tax withholding liability with the U.S. Treasury.

PREFERRED STOCK ACCRETION AND DIVIDENDS

Accretion of mandatorily  redeemable convertible preferred stock is comprised of
accretion  of discount and accrued but unpaid  dividends  on preferred  stock as
follows:

                                                      Year Ended May 31,
                                                     2011             2010
                                               ----------------- ---------------
Accretion of discount                          $       10,888    $      273,369
Accrued dividends - mandatorily redeemable
 preferred stock                                      122,468           607,706
Accrued dividends - equity preferred stock            781,062           374,662
                                               ----------------- ---------------
                                               $      914,418    $    1,255,737
                                               ================= ===============

The Series B class of stock is treated as a liability  as of  November  30, 2009
when the majority was exchanged for Series C equity stock. Therefore,  accretion
of $106,366 and  dividends of $324,455  associated  with the Series B after that
date are  deductions  from net income and not included in the table  above.  The
decrease in the  accretion  of discount  and accrued  dividends  on  mandatorily
redeemable preferred stock results from this exclusion of Series B subsequent to
November 30, 2009,  the  application of the interest or constant yield method to
the  initial  discount  recorded  over a period of five  years  from the date of
issuance of the stock and the final month's  accretion of the discount on Series
A Preferred  stock  recognized in December  2010.  Series C equity stock accrues
dividends at the same rate as the Series B for which it was exchanged;  however,
it is  separated  in the  table  above  due to  Series C not  being  mandatorily
redeemable. Series C does not accrete.

                                      -21-
<PAGE>

OFF BALANCE SHEET ARRANGEMENTS

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


Item 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
-------------------------------------------------------------------

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


Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
---------------------------------------------------

The following financial statements are included herein in response to Item 8:

                                                                        Page
                                                                    ------------
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-10

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 - Supplementary Insurance Information - Reinsurance            F-49

Schedule VI - Supplemental Information                                     F-50

                                      -22-
<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, 2011 and May 31, 2010,
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,  2011.  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, 2011,
control  deficiencies  were identified  that  constitute a material  weakness in
internal control over financial  reporting.  Such control deficiencies relate to
the use of  internally  developed  non-integrated  accounting  systems,  lack of
internal  review of  account  reconciliations,  and lack of  internal  review of
general  journal  entries,  elimination  entries  and  the  financial  statement
consolidation  process.  As a result,  JFG's Chief  Executive  Officer and Chief
Financial Officer  concluded that as of May 31, 2011, JFG's disclosure  controls
and  procedures  were  ineffective.  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,  2011  and  2010,  and the  results  of its
operations  and  cash  flows  for the  years  ended  May 31,  2011  and  2010 in
conformity with U.S. generally accepted accounting principals (GAAP).

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.

                                      -23-
<PAGE>

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, 2011.  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, 2011. 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,  2011.  Such  control  deficiencies  relate to the use of  internally
developed non-integrated  accounting systems, lack of internal review of account
reconciliations,  and  lack of  internal  review  of  general  journal  entries,
elimination entries and the financial statement consolidation process.

Changes are to be considered as additional  financial  resources and  accounting
staff become available. Management believes that overall controls over financial
reporting are in place,  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 exemption 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


                                      -24-
<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                  57             President and CEO/CFO, Director
C. David Thomas                 58                         Director
Mario J. Marra                  57                         Director
Bradley W. Tuckwiller           58                         Director
Eric D. Ridenour                39                         Director
Robert J. Kenney                64                      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.

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.

MARIO J. MARRA

Mr.  Marra holds a Masters in Business  Administration  from the  University  of
Findlay and is the  production  supervisor  for the  Bridgeport WV facility of a
multinational  aerospace  and  building  industries  company  where  he has been
employed since 1986. Mr. Marra joined the JFG board in June 2009.

BRADLEY W. TUCKWILLER

Mr.  Tuckwiller is a licensed  resident  insurance  agent in West Virginia.  Mr.
Tuckwiller   served  in  various  bank  management  and  credit   administration
capacities  for a small  regional  bank based in West Virginia from 1977 through
2001,  concluding as Executive Vice President.  Mr. Tuckwiller is the owner of a

                                      -25-
<PAGE>

consulting  firm,  providing  assistance in financial and regulatory  compliance
matters.  He has served as a Director of Jacobs and Company  since January 2008,
Director of First Surety  Corporation  since June 2010 and Director of JFG since
June 2009.

ERIC D. RIDENOUR

Mr. Ridenour is a Certified  Public  Accountant and has been employed since 2003
in the Charlotte,  NC office of a national  wealth  management  firm that serves
several hundred wealthy families.  Mr. Ridenour serves as a Managing Director of
that firm.  His prior employer was Deloitte & Touche from 1996 to 2003 where his
most recent position was Senior Manager.  Mr. Ridenour was appointed as Director
of JFG in December 2009.

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. Mr. Kenney is a
licensed resident  insurance agent in West Virginia and also holds Series 63 and
65  securities  licenses.  Prior to joining the  Company 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.


                                      -26-
<PAGE>

CODE OF ETHICS

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

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

Jacobs & Co., as an investment  advisor,  has its own compliance policy that was
revised and updated in  September  2006 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, 2011 and 2010 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/COMMISSIONS    AWARDS       AWARDS        COMPENSATION          TOTAL
    POSITION       YEAR         ($)              ($)             ($)      ($) (1) (2)       ($) (3)              ($)
----------------- -------- -------------- ------------------- ---------- -------------- ----------------- ------------------
<S>               <C>      <C>            <C>                 <C>        <C>            <C>               <C>
John M. Jacobs,   2011       $150,000          $ 12,751           -            $6,356     $    28,652        $  222,759
CEO               2010       $150,000                 -           -        $  147,311     $    32,259        $  304,750
----------------- -------- -------------- ------------------- ---------- -------------- ----------------- ------------------
Robert J.          2011      $  75,000         $  7,500           -        $    2,542               -         $  85,042
Kenney, VP         2010      $  75,000                -           -        $   55,830               -        $  130,830
----------------- -------- -------------- ------------------- ---------- -------------- ----------------- ------------------
</TABLE>

(1)  On June 30,  2009,  the  compensation  committee  of the board of directors
     awarded  5,000,000,  and  2,000,000 of incentive  stock  options to acquire
     common  shares at an exercise  price of four cents  ($.04) per share to Mr.

                                      -27-
<PAGE>

     Jacobs and Mr. Kenney,  respectively,  which vest as set forth in the table
     below. The term of the options is five years and they expire in June 2014.

     ------------------------- -----------------------------------------------
           Vesting date                  Incentive Stock Option Awards
     ------------------------ ---------------------- -------------------------
                                 John M. Jacobs         Robert J. Kenney
     ------------------------- ---------------------- ------------------------
     June 30, 2009                   2,500,000               1,000,000
     ------------------------- ---------------------- ------------------------
     June 30, 2010                   2,500,000               1,000,000
     ------------------------- ---------------------- ------------------------

     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, 2011.
<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.         5,000,000            -                 -              $.04         06/30/2014
  Jacobs, CEO
---------------- ---------------- ----------------- ----------------- -------------- ---------------
   Robert J.
  Kenney, VP        2,000,000            -                 -              $.04         06/30/2014
---------------- ---------------- ----------------- ----------------- -------------- ---------------
</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.

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

                                      -28-
<PAGE>

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

Directors of JFG are not compensated for board meetings or other duties as board
members.

Non-employee  board members of FSC,  which include some JFG board  members,  are
compensated at the rate of $150 per meeting.

The following table sets forth compensation  received by non-employee  directors
for the fiscal year ended May 31, 2011.
------------------------- ----------------------------------------- ------------

          NAME                FEES EARNED OR PAID IN CASH ($)        TOTAL ($)
------------------------- ----------------------------------------- ------------
    Brad Tuckwiller                        $1,350                     $1,350
------------------------- ----------------------------------------- ------------
    C. David Thomas                        $1,350                     $1,350
------------------------- ----------------------------------------- ------------
     Timothy Maddox                        $1,200                     $1,200
------------------------- ----------------------------------------- ------------
    Linda G. Aguilar                       $1,200                     $1,200
------------------------- ----------------------------------------- ------------























                                      -29-

<PAGE>

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 September  13, 2011 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.
<TABLE>
<CAPTION>
------------------------ ------------------------------------------- ------------------- ----- ---------------------
                                                                     Amount and Nature
                                                                             of
                                    Name and Address of                  Beneficial                 Percent of
    Title of Class                    Beneficial Owner                  Ownership (1)                 Class (2)
------------------------ ------------------------------------------- ------------------- ----- ---------------------

MORE THAN 5.00% BENEFICIAL OWNERSHIP
------------------------------------
<S>                              <C>                                 <C>                        <C>
        Common                         John M. Jacobs                    30,322,746     (3)           11.84%
                                 300 Summers St. Suite 970
                                   Charleston, WV 285301

        Common                      Charles D. Ungurean                  25,913,358                   10.61%
                                    8400 Dunsinane Drive
                                      Dublin, OH 43017

        Common                        Fay S. Alexander                   12,796,931     (4)            5.24%
                                  6318 Timarron Cove Lane
                                    Burke, VA 22015-4073

        Common                        William D. Jones                   13,930,970     (5)            5.69%
                                     513 Georgia Avenue
                                   Chattanooga, TN 37403

        Common                        Charles L. Stout                   12,525,000     (6)            5.12%
                                      Route 1, Box 41J
                                    Bridgeport, WV 26330

        Common                         A Thomas Falbo                    12,351,937     (7)            5.06%
                                    2700 E. DuPont Ave.
                                      Belle, WV 25015

                                      -30-
<PAGE>

DIRECTORS AND NAMED EXECUTIVE OFFICERS
--------------------------------------

                                       John M. Jacobs                    30,322,746     (3)           11.84%
        Common                   300 Summers St. Suite 970
                                   Charleston, WV 285301

                                      Robert J. Kenney                    2,920,000     (8)            1.19%
        Common                       809 Sherwood Drive
                                    Charleston, WV 25314

                                       Mario J. Marra                       989,795      *
        Common                        204 Olive Street
                                    Bridgeport, WV 26330

                                      Eric D. Ridenour                    9,421,761     (9)            3.80%
        Common                     Two Morrocroft Centre
                                4064 Colony Road, Suite 195
                                    Charlotte, NC 28211

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

                                   Bradley W. Tuckwiller                  3,869,152     (10)           1.58%
        Common                          P O Box 1294
                                    Lewisburg, WV 24901

                                 ALL DIRECTORS AND EXECUTIVE
        Common                    OFFICERS AS A GROUP                    48,515,749                   18.47%

</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
     power with respect to securities.  Shares of common stock issuable upon the
     exercise of options or  warrants  currently  exercisable  within 60 days of
     September  9, 2011 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.

                                      -31-
<PAGE>

2)   Based on  244,409,253  shares of common stock issued and  outstanding as of
     September 9, 2011.

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 5,193,416 shares held in joint tenancy with spouse,
     Kathleen  M.  Jacobs.  Includes  5,000,000  in vested  options to  purchase
     Company stock exercisable within 60 days of September 9, 2011. Includes the
     right to convert Series C Preferred  Stock holdings to 6,733,340  shares of
     common  stock  exercisable  within 60 days of  September  9, 2011.  John M.
     Jacobs  is the  CEO  and a  member  of  the  board  of  directors  for  the
     Registrant.

4)   Includes  11,425,111  shares of common  stock held in the name of  Graphite
     Investment,  LLC  ("Graphite")  and 1,157,  120 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 September 9, 2011.  Includes  214,700 shares
     held in joint tenancy with spouse, Dan C. Alexander.

5)   Includes  9,970,578  shares  of common  stock  held in joint  tenancy  with
     spouse,  Cynthia B. Jones. Includes the right to convert Series C Preferred
     Stock holdings to 2,821,160  shares of common stock  exercisable  within 60
     days of September 9, 2011.

6)   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.  Includes  12,000,000  shares held in joint  tenancy with spouse,
     Marilyn J. Stout.

7)   Includes  748,000 shares of common stock held in joint tenancy with spouse,
     Vicke  R.  Falbo.  Includes  6,518,667  shares  of  common  stock  held  in
     Montgomery  Equipment  Company,  Inc.,  of which  Mr.  Falbo is  President.
     Includes  the  right  to  convert  Series C  Preferred  Stock  holdings  to
     4,666,670 shares of common stock exercisable within 60 days of September 9,
     2011.

8)   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 2,000,000 in vested options to
     purchase Company stock exercisable within 60 days of September 9, 2011.

                                      -32-
<PAGE>

9)   Includes  562,346 shares of common stock held in joint tenancy with spouse,
     Mary K.  Ridenour.  Includes  937,504  shares of common  stock  held in the
     Individual  Retirement  Account of Eric D. Ridenour.  Includes the right to
     convert  Series C Preferred  Stock  holdings to 2,811,730  shares of common
     stock held in joint  tenancy  with  spouse.  Includes  the right to convert
     Series C Preferred Stock holdings to 810,670 shares of common stock held in
     the Individual Retirement Account of Eric D. Ridenour exercisable within 60
     days of September 9, 2011.

10)  Includes  75,000  shares of common stock held in joint tenancy with spouse,
     Lynn D.  Tuckwiller.  Includes  1,000,000  in vested  options  to  purchase
     Company stock exercisable within 60 days of September 9, 2011.


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

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

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

During  fiscal  2011,  advances  to the  Company  from Mr.  Jacobs  amounted  to
$1,125,113, which included assumption of company debt in the amount of $624,303,
and  repayments to Mr. Jacobs  amounted to  $1,162,182.  As of May 31, 2011, the
balance due the  Company  from Mr.  Jacobs was  $29,965.  The largest  aggregate
amount outstanding to Mr. Jacobs in fiscal 2011 was $143,460.

During  fiscal  2010,  advances  to the  Company  from Mr.  Jacobs  amounted  to
$710,435,  which  included  assumption of company debt in the amount of $185,652
and  repayments  to Mr.  Jacobs  amounted to $706,412.  As of May 31, 2010,  the
balance due to Mr.  Jacobs from the  Company was $7,104.  The largest  aggregate
amount outstanding to Mr. Jacobs in fiscal 2010 was $178,444.

The rate of interest on such amounts due from and  obligations due to Mr. Jacobs
was 12% for both the 2010 and 2011 fiscal years.

As of September 13, 2011, $16,746 was owed by the Company to Mr. Jacobs.

DIRECTOR'S INDEPENDENCE

The board of directors  ("Board") is comprised of five members,  John M. Jacobs,
Bradley W. Tuckwiller,  Mario J. Marra,  Eric D. Ridenour,  and C. David Thomas.
Mr. John M. Jacobs, who serves as Chief Executive Officer for the Company,  Eric

                                      -33-
<PAGE>

D.  Ridenour,  who is the  holder  of notes  from the  Company,  and  Bradley  W
Tuckwiller, who is owed fees for consulting services, are not independent within
the meaning of The Nasdaq Stock Market, Inc. listing standards.

There were no transactions,  relationships or arrangements with Mr. Marra or Mr.
Thomas that would affect their independence.

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-Q, and services provided by the accountant in connection with
statutory  and  regulatory  filings for the year ended May 31, 2011  amounted to
$99,894.

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-Q, and services provided by the accountant in connection with
statutory  and  regulatory  filings for the year ended May 31, 2010  amounted to
$108,824.

AUDIT-RELATED SERVICES

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 year ended May 31, 2011 amounted to $10,038.

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 year ended May 31, 2010 amounted to $3,164.

FEES FOR TAX PREPARATION SERVICES

During fiscal 2011,  billings for tax preparation  services were $8,729.  During
fiscal 2010, billings for tax preparation services were $9,221.

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

                                      -34-
<PAGE>

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.


PART IV
-------

Item 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES
------------------------------------------------

(a)(1     The following financial  statements are included in response to Item 8
          herein:

                                                                       Page
                                                                    ------------
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-10


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

                                                                           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 - Supplementary Insurance Information - Reinsurance            F-49

Schedule VI - Supplemental Information                                     F-50




                                      -35-
<PAGE>
JACOBS FINANCIAL GROUP, INC.
TABLE OF CONTENTS







                                                                       Page
                                                                    ------------
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-10


                                                                           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 - Supplementary Insurance Information - Reinsurance            F-49

Schedule VI - Supplemental Information                                     F-50



















                                      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, 2011 and 2010, and
the related consolidated statements of operations,  comprehensive income (loss),
cash flows, and mandatorily  redeemable preferred stock and stockholders' equity
(deficit)  for the years then ended.  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, 2011 and 2010,  and the results of its  operations and its
cash flows for the years then ended 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 & Co., LLP
Pittsburgh, PA
September 13, 2011












                                      F-2
<PAGE>
<TABLE>
<CAPTION>

JACOBS FINANCIAL GROUP, INC.
CONSOLIDATED CONDENSED BALANCE SHEETS



                                                                             MAY 31, 2011          MAY 31, 2010
                                                                            ---------------      -----------------
<S>                                                                         <C>                  <C>
ASSETS

INVESTMENTS AND CASH:

Bonds and mortgaged-back securities available for sale, at market value     $   6,038,718        $     6,618,472
  (amortized cost - 05/31/11 $5,858,595; 05/31/10 $6,413,857)
Equity investments available for sale, at market value, net                       453,456                      -
  (amortized cost - 05/31/11 $450,908; 05/31/10 $0)
Short-term investments, at cost (approximates market value)                     1,007,617                264,079
Cash                                                                              290,569                 74,571
                                                                            ---------------      -----------------
                                   TOTAL INVESTMENTS AND CASH                   7,790,360              6,957,122

Investment income due and accrued                                                  38,736                 31,833
Premiums and other accounts receivable                                            171,702                147,466
Prepaid reinsurance premium                                                       264,763                214,385
Funds deposited with Reinsurers                                                         -                122,568
Deferred policy acquisition costs                                                 190,711                128,453
Furniture, Automobile, and equipment, net of accumulated depreciation
 of $158,267 and $144,102 respectively                                             33,140                 18,380
Other assets                                                                       21,986                 27,832
Intangible assets                                                                 150,000                150,000
                                                                            ---------------      -----------------

                                                 TOTAL ASSETS               $   8,661,398        %     7,798,039
                                                                            ===============      =================


LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)

Reserve for losses and loss expenses                                         $    815,512               $611,190
Reserve for unearned premiums                                                     851,783                618,095
Advanced premium                                                                   20,195                      -
Accrued expenses and professional fees payable                                    573,568                613,301
Accounts payable                                                                  144,997                141,287
Ceded reinsurance payable                                                          77,635                      -
Related party payable                                                              99,209                 96,160
Term note payable to related party                                                360,000                360,000
Demand notes payable to related party                                              45,035                 91,490
Notes payable                                                                   4,874,500              4,159,119
Accrued interest payable                                                        1,148,730                651,983
Accrued interest payable to related party                                         140,181                 71,481
Other liabilities                                                                  89,257                212,995


Mandatorily redeemable Series B Preferred Stock, $.0001 par value
 per share; 3,136.405 shares authorized; 2,817.004
 shares issued and outstanding at May 31, 2011 and May 31,
 2010; stated liquidation value of $1,000 per share                             4,257,703              3,826,882
                                                                            ---------------      -----------------
                                            TOTAL LIABILITIES                  13,498,305             11,453,983


Series A  Preferred  Stock,  $.0001  par  value  per  share;
 1  million  shares authorized; 2,675 shares issued and outstanding
 at May 31, 2011 and May 31, 2010, respectively; stated liquidation
 value of $1,000 per share                                                      3,138,623              3,005,266
                                                                            ---------------      -----------------
                 TOTAL MANDATORILY REDEEMABLE PREFERRED STOCK                   3,138,623              3,005,266

COMMITMENTS AND CONTINGENCIES (SEE NOTES)

STOCKHOLDERS' EQUITY (DEFICIT)

Series C Preferred Stock, $.0001 par value per share;
 10,000 shares authorized;  6,804.936 shares issued and outstanding
 at May 31, 2011 and May 31, 2010, respectively; includes $3,451,348
 and $2,670,286 accrued Series C dividends, respectively                        9,482,279             8,701,217

Common stock, $.0001 par value per share; 490 million shares authorized;
 242,304,304 and 214,464,012 shares issued and outstanding
 at May 31, 2011 and May 31, 2010, respectively                                    24,230                21,446

Additional paid in capital                                                      3,549,443             3,404,431
Accumulated deficit                                                           (21,214,153)          (18,992,919)
Accumulated other comprehensive income (loss)                                     182,671               204,615
                                                                            ---------------      -----------------
                          TOTAL STOCKHOLDERS' EQUITY (DEFICIT)                 (7,975,530)           (6,661,210)
                                                                            ---------------      -----------------

                     TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)   $   8,661,398        $    7,798,039
                                                                            ===============      =================
</TABLE>






                            See accompanying notes.

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






                                                                                              YEAR ENDED MAY 31,

                                                                                      2011                             2010
                                                                                 ---------------                  ---------------
<S>                                                                              <C>                              <C>

REVENUES:

Investment advisory services                                                     $      266,963                   $     262,635
Insurance premiums and commissions                                                      929,355                         780,808
Net investment income                                                                   229,777                         273,577
Net realized investment gains (losses)                                                  116,187                          40,828
Other income                                                                             19,193                          13,935
                                                                                 ---------------                  ---------------
                                                         TOTAL REVENUES               1,561,475                       1,371,783


OPERATING EXPENSES:

Incurred policy losses                                                                  204,323                         178,531
Insurance policy acquisition costs                                                      313,223                         249,478
General and administrative                                                            1,050,486                       1,316,211
Mutual fund costs                                                                             -                          75,038
Depreciation                                                                             15,339                          10,609
                                                                                 ---------------                  ---------------
                                               TOTAL OPERATING EXPENSES               1,583,371                       1,829,867
                                                                                 ---------------                  ---------------

                                      NET INCOME (LOSS) FROM OPERATIONS                 (21,896)                       (458,084)

Gain on debt extinguishment                                                              54,358                         200,240
Accrued dividends and accretion of Series B Mandatorily
Redeemable Preferred Stock                                                             (430,821)                       (242,639)
Interest expense                                                                       (908,375)                       (956,973)
                                                                                 ---------------                  ---------------

                                                       NET INCOME (LOSS)             (1,306,734)                     (1,457,456)

Accretion of Mandatorily Redeemable Convertible
Preferred Stock, including accrued dividends                                           (133,356)                       (881,075)
Accrued dividends on Series C Preferred Stock equity                                   (781,062)                       (374,662)
                                                                                 ---------------                  ---------------

                  NET INCOME (LOSS) ATTRIBUTABLE TO COMMON STOCKHOLDERS          $   (2,221,152)                  $  (2,713,193)
                                                                                 ===============                  ===============


BASIC AND DILUTIVE NET INCOME (LOSS) PER SHARE:

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


WEIGHTED-AVERAGE SHARES OUTSTANDING                                                 227,839,197                     200,089,422
                                                                                 ===============                  ===============
</TABLE>




                            See accompanying notes.

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





                                                                                                     YEAR MONTHS ENDED
                                                                                                          MAY 31,
                                                                                                2011                      2010
                                                                                            ---------------        -----------------
<S>                                                                                         <C>                    <C>
COMPREHENSIVE INCOME (LOSS):

Net income (loss) attributable to common stockholders                                       $ (2,221,152)          $    (2,713,193)

OTHER COMPREHENSIVE INCOME (LOSS):

Reclassification of investments from Held to Maturity to Avaialble for Sale                            -                   175,479

Net unrealized gain (loss) of available-for-sale investments arising during period                39,007                    15,794

Reclassification adjustment for realized (gain) loss included in net income                      (60,951)                  (26,151)
                                                                                            ---------------        -----------------
Net unrealized gain (loss) attributable to available-for-sale investments recognized
 in other comprehensive income                                                                   (21,944)                  165,122
                                                                                            ---------------        -----------------

COMPREHENSIVE INCOME (LOSS) ATTRIBUTABLE TO COMMON STOCKHOLDERS                             $ (2,243,096)          $    (2,548,071)
                                                                                            ===============        =================

</TABLE>
















                            See accompanying notes.

                                      F-5

<PAGE>
<TABLE>
<CAPTION>
JACOBS FINANCIAL GROUP, INC,
CONSOLIDATED CONDENSED STATEMENT OF CASH FLOWS

                                                                                       YEARS ENDED MAY 31,
                                                                               2011                         2010
                                                                            --------------                --------------
<S>                                                                         <C>                           <C>
CASH FLOWS FROM OPERATING ACTIVITIES

Net Income (Loss)                                                           $ (1,306,734)                 $ (1,457,456)

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

Unearned premium                                                                 203,505                       (39,971)
Stock option expense                                                              16,782                       251,632
Stock issued (or to be issued) in connection with financing arrangements         124,197                       261,958
Stock issued (or to be issued) in connection with dividend arrangements            1,877                             -
Accrual of Series B preferred stock dividends and accretion                      430,821                       242,639
Provision for loss reserves                                                      204,322                       178,532
Amortization of premium                                                          118,580                        71,996
Depreciation                                                                      15,339                        10,609
Accretion of discount                                                            (14,478)                       (9,217)
Realized (gain) loss on sale of securities                                      (116,187)                      (42,926)
Gain on extinguishment of debt                                                   (54,358)                     (200,239)
Loss on disposal of equipment                                                        336                             -
Change in operating assets and liabilities:
   Other assets                                                                    5,848                        18,103
   Premium and other receivables                                                 (24,236)                      (86,282)
   Investment income due and accrued                                              (6,152)                       (2,860)
   Deferred policy acquisition costs                                             (62,258)                       14,720
   Related party accounts payable                                                  3,050                        21,150
   Accounts payable and cash overdraft                                            (1,318)                       82,846
   Accrued expenses and other liabilities                                        652,181                       482,536
                                                                            --------------                --------------

                        NET CASH FLOWS FROM (USED IN) OPERATING ACTIVITIES      191,117                       (202,230)

CASH FLOWS FROM INVESTING ACTIVITIES

(Increase) decrease in short-term investments                                   (743,538)                      123,674
Costs of bonds acquired                                                       (2,623,919)                            -
Costs of mortgaged-backed securities acquired                                 (1,977,132)                   (2,378,290)
Purchase of equity securities                                                   (448,992)                            -
Sale of securities available for sale                                          3,542,943                       404,958
Repayment of mortgage-backed securities                                        1,622,788                     1,490,926
Purchase of furniture and equipment                                              (30,435)                       (5,819)
                                                                            --------------                --------------

                        NET CASH FLOWS FROM (USED IN) INVESTING ACTIVITIES      (658,285)                     (364,551)

CASH FLOWS FROM FINANCING ACTIVITIES

Proceeds from related party debt                                               1,125,113                       691,764
Repayment of related party debt                                               (1,162,183)                     (687,741)
Proceeds from borrowings                                                       1,762,000                     1,017,500
Repayment of borrowings                                                       (1,046,619)                     (473,172)
Proceeds from issuance of Series A preferred stock                                     -                        10,000
Proceeds from exercise of common stock warrants                                    4,855                         2,963
                                                                            --------------                --------------

                             NET CASH FLOWS FROM FINANCING ACTIVITIES            683,166                       561,314

NET INCREASE (DECREASE) IN CASH                                                  215,998                        (5,467)

CASH AT BEGINNING OF PERIOD                                                       74,571                        80,038
                                                                            --------------                --------------

CASH AT END OF PERIOD                                                       $    290,569                  $     74,571
                                                                            ==============                ==============

SUPPLEMENTAL DISCLOSURES

Interest paid                                                               $    210,266                  $    292,689
Income taxes paid                                                                      -                             -

Non-cash investing and financing transaction:
 Additional consideration paid for issuance of debt                              124,201                       261,958

</TABLE>

                            See accompanying notes.

                                      F-6
<PAGE>

JACOBS FINANCIAL GROUP, INC.
CONSOLIDATED STATEMENT OF MANDATORILY REDEEMABLE PREFERRED STOCK AND
STOCKHOLDERS' EQUITY (DEFICIT)
FOR THE TWELVE MONTH PERIOD ENDED MAY 31, 2010


                                   SERIES A                SERIES B
                             MANDATORILY REDEEMABLE  MANDATORILY REDEEMABLE
                                                        CONVERTIBLE
                                PREFERRED STOCK        PREFERRED STOCK
                               SHARES     AMOUNT      SHARES      AMOUNT

                              ----------------------------------------------
                              --------  -----------  ---------  ------------
BALANCE,
MAY 31, 2009                     2,665  $ 2,860,670  9,621.940  $11,429,440

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

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

Exercise of warrants                 -            -          -            -

Accretion of mandatorily
redeemable convertible
preferred stock                      -       17,881          -      255,487

Accrued dividends
of mandatorily
redeemable convertible
preferred stock                      -      116,715          -      490,991

Accrued dividends
of Series C equity
preferred stock                      -            -          -            -

Exchange of Series C Preferred
Stock for Series B
Mandatorily Redeemable
Convertible Preferred Stock          -            - (6,804.936)  (8,591,675)

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

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

Common stock
option expense                       -            -          -            -

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

Net income (loss), year
ended May 31, 2010                   -            -          -            -
                               -------  -----------  ---------  ------------
BALANCE,
MAY 31, 2010                     2,675  $ 3,005,266      0.000  $         -
                               ---------------------------------------------
                                                                (CONTINUED)
                           See accompanying notes.
                                       F-7
<PAGE>
<TABLE>
<CAPTION>
JACOBS FINANCIAL GROUP, INC.
CONSOLIDATED STATEMENT OF MANDATORILY REDEEMABLE PREFERRED STOCK AND STOCKHOLDERS' EQUITY (DEFICIT)
FOR THE TWELVE MONTH PERIOD ENDED MAY 31, 2010 (CONTINUED)

                                ----------------------------------------------------------------------------------------------------
                                                                STOCKHOLDERS' EQUITY (DEFICIT)
                                ----------------------------------------------------------------------------------------------------
                                                                             SERIES C
                                          COMMON SHARES                   PREFERRED STOCK
                                -------------------------------------   --------------------
                                                                                                          ACCUMULATED
                                                           ADDITIONAL                                        OTHER
                                                            PAID-IN                 AMOUNT   ACCUMULATED COMPREHENSIVE
                                      SHARES      AMOUNT    CAPITAL       SHARES   AND APIC    DEFICIT       INCOME        TOTAL
                                                                                                             (LOSS)
                                ----------------------------------------------------------------------------------------------------
<S>                             <C>              <C>     <C>             <C>       <C>       <C>          <C>          <C>
BALANCE,
MAY 31, 2009                       179,682,912    17,968 $ 2,626,236           -        $ -  $(16,279,725)   $ 39,493  $(13,596,028)

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

Issuance of common stock as
additional consideration for
financing arrangements              18,207,560     1,820     348,184           -          -             -           -       350,004

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

Accretion of mandatorily
redeemable convertible
preferred stock                              -         -           -           -          -      (273,368)          -      (273,368)

Accrued dividends of mandatorily
redeemable convertible
preferred stock                              -         -           -           -          -      (607,706)          -      (607,706)

Accrued dividends of Series C
equity preferred stock                       -         -           -           -    374,664      (374,664)          -             -

Exchange of Series C Preferred
Stock for Series B Mandatorily
Redeemable Convertible
Preferred Stock                     13,609,872     1,361     263,759   6,804.936  8,326,553             -           -     8,591,673

Reclassification of Series B
from temporary equity
to liabilities                               -         -           -           -          -             -           -             -

Increase (Decrease) in accrual
of common shares to be issued in
connection with financing
arrangements                                 -         -     (88,047)          -          -             -           -       (88,047)

Common stock option expense                  -         -     251,631           -          -             -           -       251,631

Unrealized net gain (loss) on
available for sale securities                -         -           -           -          -             -     165,122       165,122

Net income (loss), year
ended May 31, 2010                           -         -           -           -          -    (1,457,456)          -    (1,457,456)
                                ----------------------------------------------------------------------------------------------------
BALANCE,
MAY 31, 2010                       214,464,012  $ 21,446 $ 3,404,431   6,804.936 $ 8,701,217 $(18,992,919)  $ 204,615  $ (6,661,210)
                                ----------------------------------------------------------------------------------------------------
</TABLE>
                           See accompanying notes.
                                       F-8
<PAGE>

<TABLE>
<CAPTION>
JACOBS FINANCIAL GROUP, INC.
CONSOLIDATED STATEMENT OF MANDATORILY REDEEMABLE PREFERRED STOCK AND STOCKHOLDERS' EQUITY (DEFICIT)
FOR THE TWELVE MONTH PERIOD ENDED MAY 31, 2011

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

                                                                            STOCKHOLDERS' EQUITY (DEFICIT)

                           SERIES A        -----------------------------------------------------------------------------------------
                    MANDATORILY REDEEMABLE        COMMON STOCK             SERIES C PREFERRED               ACCUMULATED
                                           ------------------------------ ---------------------                OTHER
                                                               ADDITIONAL                                  COMPREHENSIVE
                         PREFERRED STOCK                        PAID-IN               AMOUNT    ACCUMULATED    INCOME
                         SHARES   AMOUNT     SHARES    AMOUNT   CAPITAL     SHARES   AND APIC     DEFICIT      (LOSS)      TOTAL
                         -----  ---------- ----------- ------- ----------  --------- ----------- ------------  -------- ------------
<S>                      <C>    <C>        <C>         <C>     <C>         <C>       <C>         <C>           <C>      <C>
BALANCE, MAY 31, 2010    2,675  $3,005,266 214,464,012 $21,446 $3,404,431  6,804.936 $ 8,701,217 $(18,992,919) $204,615 $(6,661,210)

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

Issuance of common
 stock as additional
 consideration for
 financing arrangements      -           -  18,980,966   1,898    117,386          -           -            -         -     119,284

Exercise of warrants         -           -   8,359,326     836      4,019          -           -            -         -       4,855

Accretion of Series A
 mandatorily redeemable
 convertible preferred
 stock                       -      10,889           -       -          -          -           -      (10,889)        -     (10,889)

Accrued dividends of
 Series A mandatorily
 redeemable convertible
 preferred stock             -     122,468           -       -          -          -           -     (122,549)        -    (122,549)

Accrued dividends of
 Series C equity
 preferred stock             -           -           -       -          -          -     781,062     (781,062)        -           -

Increase (Decrease) in
 accrual of common
 shares to be issued
 in connection with
 financing arrangements      -           -           -       -      4,827          -           -            -         -       4,827

Common stock option
 expense                     -           -           -       -     16,782          -           -            -         -      16,782

Unrealized net gain
 (loss) on available
 for sale securities         -           -           -       -          -          -           -            -   (21,944)    (21,944)

Net income (loss),
 year ended
 May 31, 2011                -           -           -       -          -          -           -   (1,306,734)        -  (1,306,734)

                         -----  ---------- ----------- ------- ----------  --------- ----------- ------------  -------- ------------
BALANCE, MAY 31, 2011    2,675  $3,138,623 242,304,304 $24,230 $3,549,443  6,804.936 $ 9,482,279 $(21,214,153) $182,671 $(7,975,530)

</TABLE>

                           See accompanying notes.
                                       F-9

<PAGE>

JACOBS FINANCIAL GROUP INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE A - ORGANIZATION AND BUSINESS
----------------------------------

ORGANIZATION AND NATURE OF BUSINESS

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

LIQUIDITY AND GOING CONCERN

These  financial  statements  are  presented  on the basis that the Company is a
going  concern.  Going concern  contemplates  the  realization of assets and the
satisfaction  of  liabilities in the normal course of business over a reasonable
length of time. The Company incurred  operating losses of approximately  $22,000
and $458,000  for the years ended May 31, 2011 and 2010.  The  Company's  losses
increase when accretion of mandatorily  redeemable  convertible  preferred stock
and accrued dividends on mandatorily  redeemable  preferred stock are taken into
account to  approximately  $1,440,000 and $2,339,000 for the years ended May 31,
2011 and 2010.  Losses  are  expected  to  continue  until FSC  develops  a more
substantial book of business.  While improvement is anticipated as the Company's
business plan is implemented,  restrictions on the use of FSC's assets (See Note
C), the company's  significant  deficiency in working capital and  stockholders'
equity  raise  substantial  doubt about the  Company's  ability to continue as a
going concern.

Management  intends to  improve  cash flow  through  the  implementation  of its
business plan.  Additionally,  management  continues to seek to raise additional
funds for operations  through  private  placements of stock,  other long-term or
permanent financing,  or short-term  borrowings.  However, the Company cannot be
certain that it will be able to continue to obtain adequate  funding in order to
reasonably  predict whether it will be able to continue as a going concern.  The
accompanying  financial  statements  do not include any  adjustments  that might
result from the outcome of this uncertainty.



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

NOTE B - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
---------------------------------------------------

PRINCIPLES OF CONSOLIDATION

The consolidated  financial  statements include the accounts of Jacobs Financial
Group,  Inc.  and its  wholly  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.  The reserve for unearned premiums represents the
portion of premiums  written  relating to the unexpired  terms of coverage.  The
reserve for unearned  premium is  determined  using the monthly pro rata method.
Advance  premiums  represent  renewal  premiums paid in advance of the effective
renewal date.

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 are 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


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


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.

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

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.

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

DERIVATIVES

The  Company  uses  derivatives  in the form of  covered  call  options  sold to
generate  additional income and provide limited downside protection in the event
of a market correction.

These  transactions  expose the Company to  potential  market risk for which the
Company  receives a premium up front. The market risk relates to the requirement
to  deliver  the  underlying  security  to the  purchaser  of the call  within a
definite  time at an agreed price  regardless  of the then current  price of the
security. As a result the Company takes the risk that it may be required to sell
the  security  at the strike  price,  which  could be a price less than the then
market price.  Should the security  decline in price over the holding  period of
the call option,  the Company realizes the option premium received as income and
the Company  lessens or mitigates this risk which may be eliminated by a closing
transaction for the covered call and sale of the underlying security.

The  Company  invests  in large  capitalized  US  securities  traded on major US
exchanges and writes  standardized  covered  calls only against these  positions
(covered calls), which are openly traded on major US exchanges.  The use of such
underlying  securities  and  standardized  calls  lessens the credit risk to the
furthest extent possible.

The Company is not exposed to significant cash  requirements  through the use of
covered  calls in that it sells a call for a premium and may use these  proceeds
to enter a closing transaction for the call at a later date.

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


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.

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
required by ASC 718, Accounting for Stock-based Compensation.

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


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.

RECLASSIFICATIONS

Certain  amounts  in  the  2010  Consolidated  Financial  Statements  have  been
reclassified  to  be  consistent  with  the  presentation  in  the  Consolidated
Financial  Statements  as of May 31,  2011 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  June  2011,   the  FASB  issued   Accounting   Standards   Update   2011-05,
"Comprehensive  Income:  Presentation of Comprehensive  Income".  This object of
this Update is to improve the  comparability,  consistency,  and transparency of
financial  reporting and to increase the  prominence of items  reported in other
comprehensive  income.  This update is effective  for annual  reporting  periods
beginning on or after  December 15, 2011 and interim  periods within that fiscal
year.  Management  does not expect this update to have a material  effect on the
Company's financial statements.

In May 2011, the FASB issued  Accounting  Standards Update  2011-04,"Fair  Value
Measurement:  Amendments to Achieve Common Fair Value Measurement and Disclosure
Requirements in U.S. GAAP and AFRSs". The amendments in this Update will improve
the  comparability  of  fair  value  measurements  presented  and  disclosed  in

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


financial  statements  prepared  in  accordance  with  U.S.  generally  accepted
accounting  principles and International  Financial  Reporting  Standards.  This
update is effective for annual reporting  periods beginning on or after December
15, 2011 and interim periods within that fiscal year. Management does not expect
this update to have a material effect on the Company's financial statements.

In October 2010, the FASB issued Accounting Standards Update 2010-26, "Financial
Services - Insurance: Accounting for Costs Associated with Acquiring or Renewing
Insurance  Contracts."  This FASB is intended to specify  costs  incurred in the
acquisition of new and renewal  contracts that should be capitalized as deferred
acquisition costs and amortized over time using  amortization  methods dependent
upon the nature of the underlying  insurance contract.  This update is effective
for annual reporting periods beginning on or after December 15, 2011 and interim
periods within that fiscal year.  Management does not expect this update to have
a material effect on the Company's financial statements.

In August 2010, the FASB issued Accounting Standards Update 2010-21, "Accounting
for Technical  Amendments to Various SEC Rules and  Schedules".  This Accounting
Standards  Update  amends  various SEC  paragraphs  pursuant to the  issuance of
Release  No.  33-9026;  Technical  Amendments  to Rules,  Forms,  Schedules  and
Codifications  of  Financial  Reporting  Policies.  This  update has no material
effect on the Company's financial statements.

In July 2010, the FASB issued Accounting Standards Update 2010-20,  "Disclosures
about the Credit Quality of Financing  Receivables  and the Allowance for Credit
Losses."  This FASB is  intended  to provide  additional  information  to assist
financial  statement  users in  assessing an entity's  credit risk  exposure and
evaluating the adequacy of its allowance for credit losses.  This update affects
all entities with financing  receivables,  excluding  short-term  trade accounts
receivable or receivables measured at fair value or lower of cost or fair value.
The effective date of this update is deferred by  ASU-2011-01,  "Deferral of the
Effective Date of  Disclosures  about  Troubled Debt  Restructuring".  It is now
effective for interim and annual  reporting  periods  beginning on or after June
15, 2011.  Management  does not expect this update to have a material  effect on
the Company's financial statements.

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

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

In January 2010, the FASB issued  Accounting  Standards  Update  2010-06,  "Fair
Value  Measurements  and  Disclosures:  Improving  Disclosures  About Fair Value
Measurements."  This FASB requires  additional  disclosures about the fair value
measurements including transfers in and out of Levels 1 and 2 and a higher level

                                      F-15
<PAGE>

of  disaggregation  for the different  types of financial  instruments.  For the
reconciliation of Level 3 fair value measurements,  information about purchases,
sales, issuances and settlements should be presented separately.  ASU 2010-06 is
effective for interim and annual  financial  periods  beginning  after  December
2009, and is not expected to have a material  impact on the Company's  financial
statements.

In August  2009,  the  Financial  Accounting  Standards  Board  ("FASB")  issued
Accounting   Standards  Update  2009-04,   "Accounting  for  Redeemable   Equity
Instruments - Amendment to Section 480-10-S99". This updates Section 480-10-S99,
"Distinguishing  Liabilities  from  Equity",  to reflect the SEC  staff's  views
regarding the application of Accounting Series Release No. 268, "Presentation in
Financial Statements of "Redeemable Preferred Stocks." The exchange for Series B
Preferred shares into Series C shares as elected by those shareholders  utilizes
the view of the SEC in  classifying  the  Series C  Preferred  shares as equity.
There is no stated maturity on the Series C Preferred  shares and at the time of
redemption  the Company  will  accrete  changes in the  redemption  value at the
appropriate  time.  These amounts will be adjusted at the end of each  reporting
period as applicable.

In August 2009, the FASB issued Accounting Standards Update 2009-05, "Fair Value
Measurements and Disclosures (Topic 820) - Measuring Liabilities at Fair Value".
This update includes  amendments to Subtopic 820-10 "Fair Value Measurements and
Disclosures  -  Overall"  for the fair value  measurements  of  liabilities  and
provides  clarification that in circumstances in which quoted price in an active
market for the  identical  liability  is not  available,  a reporting  entity is
required to measure fair value using one or more of the techniques  provided for
in this  update.  This  Statement  is effective  for fiscal  years,  and interim
periods  within those fiscal years,  beginning on or after August 26, 2009.  The
application  of this  update  did not have a  material  impact on the  Company's
results of operations or financial position.

In  September  2009,  the  FASB  issued  Accounting  Standards  Update  2009-08,
"Earnings Per  Share-Amendments  to Section  260-10-S99".  This update  includes
technical  corrections to Topic 260-10-S99,  "Earnings Per Share", based on EITF
Topic  D-53,  "Computation  of Earnings  Per Share for a Period that  Includes a
Redemption or an Induced  Conversion of a Portion of a Class of Preferred Stock"
and EITF Topic D-42,  "The Effect of the  Calculation  of Earnings Per Share for
the Redemption or Induced  Conversion of Preferred  Stock".  The  application of
this  update  did not have an impact on the  Company's  results  of  operations,
therefore not requiring additional earnings per share computation.


                                      F-16
<PAGE>


JACOBS FINANCIAL GROUP INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


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, 2011:

<TABLE>
<CAPTION>
                                                  Gross Unrealized       Gross Unrealized
                            Amortized Cost              Gains                 Losses            Fair Market Value
                         ---------------------- ---------------------- ---------------------- ----------------------
<S>                      <C>                    <C>                    <C>                    <C>
State and municipal      $           1,073,724  $                   -  $              26,955  $           1,046,769
securities

Equity securities                      461,524                 11,685                  7,002                466,207
Derivatives                            (10,616)                (3,010)                  (875)               (12,751)
Mortgage Backed
 Securities                          4,784,871                208,356                  1,278              4,991,949
                         ---------------------- ---------------------- ---------------------- ----------------------
                         $           6,309,503  $             217,031  $              34,360  $           6,492,174
                         ====================== ====================== ====================== ======================
</TABLE>


The  Company  held the  following  investments,  by  security  type,  that  were
classified as available-for-sale and carried at market value at May 31, 2010:
<TABLE>
<CAPTION>

                            Amortized Cost        Gross Unrealized       Gross Unrealized       Fair Market Value
                                                        Gains                 Losses
                         ---------------------- ---------------------- ---------------------- ----------------------
<S>                      <C>                    <C>                    <C>                    <C>
Mortgage Backed          $           6,413,856  $             208,315  $               3,700  $           6,818,472
Securities
                         ---------------------- ---------------------- ---------------------- ----------------------
                         $           6,413,856  $             208,315  $               3,700  $           6,818,472
                         ====================== ====================== ====================== ======================
</TABLE>


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

There are no  securities  classified  as held to maturity at May 31, 2011 or May
31, 2010.

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

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.

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

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

     O    Level 1 - Quoted prices for identical instruments in active markets.
     O    Level 2 - Quoted  prices for similar  instruments  in active  markets;
          quoted prices for identical or similar instruments in markets that are
          not active;  and  model-derived  valuations  in which all  significant
          inputs are observable in active markets.
     O    Level 3 - Valuations derived from valuation techniques in which one or
          more significant inputs are unobservable.

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

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

<TABLE>
<CAPTION>
ASSETS MEASURED AT FAIR VALUE ON A RECURRING BASIS ARE SUMMARIZED BELOW:


                                                                               May 31, 2011
                                                    --------------------------------------------------------------------
                                                                      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               $              -  $     6,038,718  $             -  $      6,038,718
Equity securities at fair value (includes                    453,456                -                -           453,456
derivatives)
Short-term investments at fair value                       1,007,617                -                -         1,007,617
                                                    ----------------- ---------------- ---------------- ----------------
Total Assets                                        $      1,461,073  $     6,038,718  $             -  $      7,499,791

</TABLE>
<TABLE>
<CAPTION>

                                                                               May 31, 2010
                                                   ---------------------------------------------------------------------
                                                                      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              $            -  $       6,618,472  $             - $        6,618,472
Short-term investments at fair value                      264,079                  -                -            264,079
                                                   --------------- ------------------ --------------- ------------------
Total Assets                                       $      264,079  $       6,618,472  $             - $        6,882,551
</TABLE>


The Company had no assets or  liabilities  measured at fair value on a recurring
basis using significant  unobservable inputs (Level 3) at either May 31, 2011 or
at May 31, 2010.

At May 31, 2011,  the Company's  insurance  subsidiary  had securities and short
term  investment  with a fair  value of  $1,093,368  on  deposit  with the State
insurance  department to satisfy  regulatory  requirements.  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 $7,789,441 and $6,956,987 as
of May 31, 2011 and 2010, respectively, are restricted to the use of FSC.


                                      F-19
<PAGE>

JACOBS FINANCIAL GROUP INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


Principal repayments on U.S. government agency  mortgage-backed  securities held
by the Company as of May 31, 2011 are estimated as follows:

                                                                  Fair Market
                                             Amortized Cost          Value
                                            ------------------ -----------------
Due in one year or less                     $         840,527  $       $ 880,586

Due after one year through five years               2,078,869          2,173,974

Due after five years through ten years              1,131,350          1,180,987

Due after ten years                                   734,125            756,402
                                            ------------------ -----------------
                                            $       4,784,871  $       4,991,949
                                            ================== =================

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:

                                                 2011               2010
                                           ------------------ ------------------
Bonds - fixed maturities                   $          59,516  $           9,217

Mortgage-backed securities                           170,129            264,508

Short-term investments                                   132                146
                                           ------------------ ------------------
                                                     229,777            273,871
               Total investment income
                                           ------------------ ------------------
Investment expense                                         -                294
                                           ------------------ ------------------
                 Net investment income     $         229,777  $         273,577
                                           ================== ==================

The increases  (decrease)  in unrealized  appreciation  of  investments  were as
follows:
                                                        2011        2010
                                                     ----------- ----------

        Bonds-fixed maturities                       $ (26,955)   $(28,570)

        Mortgage-backed securities                       2,463     118,637
        Equity securities                                2,548       2,418
                                                     ----------- ----------
           Increase (decrease) in unrealized
                                appreciation       $   (21,944)   $ 92,485
                                                     =========== ==========

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

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

                                                        Gross         Gross
                                           Gross       Realized      Realized
                                         Proceeds       Gains         Losses
                                       ------------- ------------- -------------
2011
        Bonds-fixed maturities         $  1,592,745  $     32,187  $          -

        Mortgage-backed securities        1,952,133        84,017             -

        Equity securities (derivatives)       1,916             -           (17)
                                       ------------- ------------- -------------
                     Total             $  3,546,794  $    116,204  $        (17)
                                       ============= ============= =============
2010
        Bonds-fixed maturities         $    404,958  $     42,926  $          -

        Mortgage-backed securities                -             -             -

        Equity securities                     8,182             -         2,098
                                       ------------- ------------- -------------

                     Total             $    413,140  $     42,926  $      2,098
                                       ============= ============= =============


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,
2011 and May 31, 2010.

<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>
2011

Equity securities        $       186,825   $       7,002  $      -     $            -   $   179,823    $      7,002
Bonds- Fixed Maturities        1,073,724          26,955         -                  -     1,046,769          26,955
Mortgage-backed
securities                       136,269           1,278         -                  -       134,991           1,278
                         ---------------- --------------- ------------ --------------- --------------- ----------------

                  Total  $     1,396,818  $       35,235  $      -     $            -  $  1,361,583    $     35,235
                         ================ =============== ============ =============== =============== ================

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


2010

Mortgage-backed
securities               $       945,394  $        3,699  $      -     $            -  $    941,685    $     3,699
                         ---------------- --------------- ------------ --------------- --------------- ----------------

                  Total  $       945,394  $        3,699  $      -     $            -  $    941,685    $     3,699
                         ================ =============== ============ =============== =============== ================
</TABLE>

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

As of May 31, 2011,  the company held 4  mortgage-backed  securities  with gross
unrealized  losses  of  $1,278,  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.

As of May 31, 2011, the company held 3 fixed maturity municipal bonds with gross
unrealized  losses  of  $26,955,  all of which  have been in a  continuous  loss
position for less than 12 months.

As of May 31, 2011, the company held 6 equity  security  investments  with gross
unrealized  losses  of  $7,002,  all of which  have  been in a  continuous  loss
position for less than 12 months. These securities consist of common stock whose
fair value is sensitive to movements in market interest rates.

All unrealized losses are considered temporary since the Company has the ability
to hold the securities until maturity if needed.


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.


                                                  2011                  2010
                                           ------------------     --------------

Balance at beginning of year               $         128,453      $     143,173
Acquisition costs deferred                           372,678            242,090
Amortization charged to operations                  (310,420)          (256,810)
                                           ------------------     --------------

                    Total                  $         190,711      $     128,453
                                           ==================     ==============


NOTE E - OTHER ASSETS
---------------------

Included  in other  assets as of May 31,  2011 and May 31,  2010 are $21,986 and
$27,832 of prepaid expenses and deposits.

                                      F-22
<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, 2011 and 2010.


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, 2011, 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 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 cash in amounts deemed sufficient to reclaim the disturbed land and thus
mitigate the exposure to significant  loss.  Such cash is invested in investment
collateral  accounts  managed  by  Jacobs  utilizing   conservative   investment
strategies. Inspections of mining activity and reclamation work are performed on
a regular basis with initial costs estimates being updated periodically.  Should
the  principal  default in the  obligation to reclaim the property in accordance
with the mining  permit,  FSC would  then use the funds  held in the  collateral
account to reclaim the  property or would be required to forfeit the face amount
of the bond to the agency to which the bond is  issued.  Losses can occur if the
costs  of  reclamation  exceed  estimates  obtained  at the  time  the  bond was
underwritten or upon subsequent re-evaluations,  if sufficient collateral is not
obtained and increased if necessary,  or if  collateral  held has  experienced a
significant  deterioration in value. FSC has experienced no claims for losses as
of May 31, 2011 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-23
<PAGE>
JACOBS FINANCIAL GROUP INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


At May 31,  2011 and May 31,  2010,  the  reserve  for losses and loss  expenses
consisted of:

                                                   2011               2010
                                           ------------------  -----------------

Balance at beginning of year               $     611,190       $    432,658

Incurred policy losses-current year              204,322            178,532
Incurred policy losses-prior year                      -                  -

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


Balance at end of year                     $     815,512       $    611,190
                                           ==================  =================


NOTE H - NOTES PAYABLE
----------------------
<TABLE>
<CAPTION>
At May 31, 2011 and 2010, the Company had the following  unsecured notes payable
to individuals and a commercial bank:

<S>                                                       <C>                    <C>
                                                                 2011               2010
                                                          ------------------ ------------------

 Unsecured demand notes payable to individuals and
 others; interest rate fixed @ 10.00% ($75,000 to
 related party)                                           $      1,492,500       $  1,057,000

 Unsecured demand notes payable to individuals and
 others                                                            103,000                  -


 Secured demand note payable to  individuals;  interest
 rate fixed @ 14%;  secured by accounts  receivable for
 investment  advisory fees for the quarter  ending June
 30, 2011                                                           45,000                  -


 Secured demand note payable to  individuals;  interest
 rate fixed @ 12%;  secured by accounts  receivable for
 investment  advisory fees for the quarter  ending June
 30, 2011                                                           40,000                  -


 Secured demand note payable to  individuals;  interest
 rate fixed @ 12%;  secured by accounts  receivable for
 investment  advisory  fees  for  the  quarters  ending
 September 30 and December 2011                                    129,000                  -

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


 Unsecured    short-term    advances   from   principal
 shareholder and chief executive officer; interest rate
 fixed @ 12.00% (Also See Note T -
 Related Party Transactions)                                       (29,965)             7,104

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

 Unsecured 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                                -            37,119
                                                          ------------------ ------------------

                     Total                                $      5,279,535   $     4,601,223
                                                          ================== ==================
</TABLE>

In accordance with the terms of the first round bridge-financing of $2.5 million
on March 10, 2008, the holders of such notes were paid accrued  interest-to date
and issued 5.00% of the Company's common shares.  Holders of the second round of
bridge-financing  notes of $1.0 million  received 2.00% of the Company's  common
shares.  Upon retirement of the notes  subsequent to consummation of a qualified
equity offering,  the Company shall issue to the holders of the bridge financing
notes  additional  Company  common stock that when added to the stock  initially
issued to the holders of the notes,  will equal the note holders' pro rata share
of the applicable  percentage of the outstanding  common stock of the Company as
follows: If the qualified financing consists of $50 million or more, the holders
of such notes will  receive 28% of the common  stock of the  Company  that would
otherwise be retained by the holders of the Company's common shares  immediately
prior to the  financing;  if the qualified  financing is for an amount less than
$50 million,  the percentage will be reduced on a sliding scale to a fraction of
28% of the amount retained by the holders of the Company's  common shares (where
the numerator is the amount of financing and the denominator is $50 million).

Beginning  September  10,  2008,  because  a  qualified  financing  had not been
completed,  the Company became required under the terms of the bridge  financing
to issue 2.80% of the Company's  outstanding common shares and shall issue 2.80%
of the Company's  outstanding common shares upon each six-month anniversary date
thereof until retirement of the notes. The following table summarizes the common
shares issued to those note holders.

         Date of Issuance                Shares Issued
--------------------------------------- ---------------
         September 10, 2008                  4,870,449
         March 10, 2009                      5,010,640
         September 10, 2009                  5,354,642
         March 10, 2010                      6,005,925
         September 10, 2010                  6,213,285
         March 10, 2011                      6,738,900
                                        ---------------
                                            34,193,841
                                        ===============


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

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

On June 5, 2009 the Company entered into an agreement with the bridge lenders to
forbear from exercising  their rights and remedies arising from the Acknowledged
Events of Default.  As  consideration  for the  forbearance,  the Company issued
5,171,993  shares of  Common  stock,  and  pledged  the  stock of the  Company's
subsidiary,  Crystal  Mountain  Water (CMW),  as security  for  repayment of the
loans.  The  original  repayment  schedule  called  for  quarterly  payments  of
$224,515.  The Holders agreed that under the forbearance the Company may satisfy
its obligation by increasing the quarterly  payments by $67,185,  (to a total of
$291,700) for eight consecutive quarters beginning September 10, 2009 to satisfy
the arrearage.  In addition, the interest rate was increased to 17.00%. Although
the Company has failed to make the payment that was due  September  10, 2009 and
the payments that were due in the ensuing  quarters,  management has remained in
close contact with the bridge lenders,  providing  reports regarding its efforts
to refinance or otherwise  repay the bridge loans.  To date,  none of the bridge
lenders has elected to pursue legal remedies.

Scheduled  maturities and principal payments for each of the next five years are
as follows:
                                                                      2011
                                                              ------------------

               Fiscal year 2011-2012 (including demand notes) $      5,279,535
               Fiscal year 2012-2013                                         -
               Fiscal year 2013-2014                                         -
               Fiscal year 2014-2015                                         -
               Fiscal year 2015-2016                                         -
               Fiscal year 2016-2017                                         -
                                                              ------------------

                                                  Total       $      5,279,535
                                                              ==================

NOTE I - OTHER LIABILITIES
--------------------------

In the  twelve-month  periods ending May 31, 2011 and May 31, 2010, the Company,
upon advice of legal counsel,  removed certain dormant  accounts  payable in the
aggregate amount of $54,358 and $200,240, based upon the conclusion that none of
accounts  represented  an  obligation  that is legally  enforceable  against the
Company. Such removal was recorded as a gain on debt extinguishment.

As of May 31, 2011, the Company had accrued and withheld  approximately  $17,000
in West Virginia payroll  withholdings,  of which $12,000 was non current and is
being remitted as part of a monthly  payment plan  negotiated  with the State of


                                      F-26
<PAGE>

JACOBS FINANCIAL GROUP INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

West Virginia.  This 12 month plan runs through November 2011 and will result in
the full payment of all non current  withholding  taxes,  including interest and
penalties  of  approximately  $5,000  which are  reflected  in the  accompanying
financial statements as accrued expenses.

During the fiscal year 2011, the Company  satisfied its obligation with the U.S.
Treasury concerning Federal payroll taxes accrued and withheld in previous years
of approximately $155,000.

NOTE J - PREFERRED STOCK
------------------------

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 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  and Series C Preferred  Stock with respect to
dividend  rights and rights upon  liquidation,  dissolution or winding up of the
Company.  The holder may  redeem  the Series A  Preferred  Stock on or after the
seventh  anniversary  of the  Issue  Date,  if the  holder  provides  a  written
statement to the Company that it will no longer  require  surety bonds issued by
the Company's  insurance  subsidiary  (FSC) under its  partially  collateralized
bonding programs and, if no such surety bonds are then outstanding, the Company,
at the option of the  holder,  will  redeem  all or any  portion of the Series A
Preferred  Stock of such  holder  at a price  per  share  equal to the  Series A
Preferred  Stock Issue Price plus all accrued and unpaid  dividends with respect
to the shares of the Series A Preferred Stock of such holder to be redeemed. The
conditional  redemption  shall  not be  available  to any  holder  of  Series  A
Preferred  Stock  for  so  long  as  surety  bonds  of the  Company's  insurance
subsidiary issued on a partially collateralized basis remain outstanding for the
benefit of such  holder,  and upon  redemption,  such holder  shall no longer be
eligible to participate in the partially  collateralized bonding programs of the
insurance subsidiary.  The Company is authorized to issue up to 1,000,000 shares
of the Series A  Preferred  Stock.  As of May 31,  2011,  the Company has issued
2,675 shares of Series A Preferred Stock in exchange for cash investments in the
amount of  $2,675,000,  of which no  shares  were  issued in fiscal  2011 and 10
shares were issued in fiscal 2010.

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


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

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  and Series C 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  non-assessable  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.

The Company's outstanding Series B Preferred stock matured on December 30, 2010,
meaning that the holders of the Series B Stock  became  entitled to request that
the Company  redeem  their Series B Shares.  As of this report,  the Company has
received requests for redemption of 2,141.341 shares of Series B Preferred.  The
aggregate amount to which the holders  requesting  redemption are entitled as of
June 30, 2011, is $3,310,824.

Under the terms of the Series B Preferred Stock, upon receipt of such a request,
the Company's  Board was required to make a good faith  determination  regarding
(A) whether the funds of the Company legally  available for redemption of shares
of Series B Stock are  sufficient to redeem the total number of shares of Series
B Stock to be  redeemed  on such  date and (B)  whether  the  amounts  otherwise
legally  available for redemption  would, if used to effect the redemption,  not
result in an impairment of the  operations of the Insurance  Subsidiary.  If the
Board  determines  that there is a  sufficiency  of legally  available  funds to
accomplish  the  redemption  and  that  the  use of such  funds  to  affect  the
redemption  will not result in an impairment of the  operations of the Insurance
Subsidiary, then the redemption shall occur on the Redemption Date. If, however,
the  Board  determines  either  that  there  are not  sufficient  funds  legally
available to accomplish  the  redemption or that the use of such funds to effect
the  redemption  will result in an impairment of the operations of the Insurance
Subsidiary,  then (X) the Company  shall notify the holders of shares that would
otherwise  have been redeemed of such fact and the  consequences  as provided in
this paragraph, (Y) the Company will use those funds which are legally available
therefor and which would not result in an  impairment  of the  operations of the
Insurance Subsidiary to redeem the maximum possible number of shares of Series B
Stock for which Redemption  Notices have been received ratably among the holders
of such shares to be redeemed based upon their holdings of such shares,  and (Z)
thereafter,  until such shares are redeemed in full, the dividends  accruing and
payable on such shares of Series B Stock to be redeemed shall be increased by 2%
of the Series B Face Amount,  with the amount of such increase  (I.E., 2% of the
Series B Face Amount) to be satisfied by  distributions on each Dividend Payment
Date of shares of Common  Stock having a value  (determined  by reference to the
average  closing  price of such Common Stock over the preceding 20 trading days)
equal to the amount of such increase.  The shares of Series B Stock not redeemed
shall remain outstanding and entitled to all the rights and preferences provided


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

herein.  At any time thereafter when additional funds of the Company are legally
available  for the  redemption  of shares of Series B Stock and such  redemption
will not result in an impairment of operations of the Insurance Subsidiary, such
funds will  immediately  be used to redeem the balance of the shares of Series B
Stock to be redeemed.  No dividends or other  distributions shall be declared or
paid on, nor shall the  Company  redeem,  purchase or acquire any shares of, the
Common Stock or any other class or series of Junior  Securities or Equal Ranking
Preferred of the Company unless the Redemption Price per share of all shares for
which Redemption Notices have been given shall have been paid in full,  provided
that the redemption price of any Equal Ranking  Preferred  subject of redemption
shall be paid on a pari passu  basis with the  Redemption  Price of the Series B
Stock subject of redemption in accordance  herewith.  Until the Redemption Price
for each share of Series B Stock elected to be redeemed  shall have been paid in
full, such share of Series B Stock shall remain outstanding for all purposes and
entitle the holder thereof to all the rights and privileges provided herein, and
Dividends  shall continue to accrue and, if unpaid prior to the date such shares
are redeemed, shall be included as part of the Redemption Price.

On March 8, 2011,  the  Company's  Board of  Directors  determined  based on the
criteria  established under the terms of the Series B Preferred Stock that there
were insufficient funds available for the redemption of Series B Stock.

The  Company  experienced  a loss  after  accretion  of  mandatorily  redeemable
convertible  preferred  stock, and accrued  dividends on mandatorily  redeemable
preferred  stock of  $1,440,090  in fiscal  2011 as  compared  with a loss after
accretion of mandatorily  redeemable  convertible  preferred  stock, and accrued
dividends on  mandatorily  redeemable  preferred  stock of  $2,338,531 in fiscal
2010.

EQUITY PREFERRED STOCK

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

1.   Designation.  The shares of such series of Preferred  Stock are  designated
     "Series C Preferred  Stock"  (referred  to herein as the "SERIES C STOCK").


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


     The date on  which  the  first  share of  Series  C Stock is  issued  shall
     hereinafter be referred to as the "ORIGINAL ISSUE DATE".

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

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

4.   Dividends.

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

The  Recapitalization  consisted  of the  exchange  of  Series  B  Shares  for a
combination  of Series C Shares and Common Stock.  For each Series B Share,  the
participating  holder  received  (i) one Series C Share and (ii) 2,000 shares of
JFG Common Stock (for no additional consideration).

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

For the year  ending  May 31,  2010,  6,804.936  shares of  Series B Stock  were
surrendered and exchanged for 6,804.936 shares of Series C Stock.  This exchange
amounted to $6,269,051 of carrying  value of Series B stock being  exchanged for
Series C and Common Stock.  13,609,872 shares of Common Stock were issued to the
Series C Stock  holders at the rate of 2,000  Common  shares for each  exchanged
Series B Stock,  with the  related  cost  associated  with the  Common  issuance
offsetting  the Series C carrying  value by $265,120.  The shares were valued at
approximately $.01948 per share based on the average quoted closing price of the
Company's  stock for the 20-day period  proceeding the date of the  transaction.
Series C stock may be redeemed by the Company but does not have a fixed maturity
date and, thus, is classified as permanent equity.

The accrual of dividends on the equity  preferred  stock resulted in a charge to
common stockholders' equity and a credit to the equity of equity preferred stock
of $781,062 in fiscal 2011 as compared  with a a charge to common  stockholders'
equity of $374,662 in fiscal 2010.

DIVIDEND PREFERENCE AND ACCRETION

The Series A Shares are entitled to receive cumulative  dividends at the rate of
4.00% per annum.

The Series B Shares have an 8.0% per annum compounding dividend preference,  are
convertible  into  Common  Shares  of JFG  at the  option  of the  holders  at a
conversion  price of $1.00 per Share (as  adjusted  for  dilution)  and,  to the
extent not  converted,  must be  redeemed by the  Corporation  at any time after
December 31, 2010 at the option of the holder. Any such redemption is subject to
legal  constraints,  such as the availability of capital or surplus out of which
to pay the redemption, and to a determination by our Board of Directors that the
redemption will not impair the operations of First Surety.

The Series C Shares issued in the Recapitalization  have the same 8.0% per annum
compounding dividend preference and carry over from the Series B Shares the same
accrued but unpaid  dividends.  While  dividends  had never been declared on the
Series B shares,  they had been accrued,  increasing the dividend preference and
the redemption price and liquidity  preference of such shares and increasing the
liability  represented  thereby  based upon the Series B Shares  fixed  maturity
date.  The  accrued  (but  undeclared)  dividends  associated  with the Series C
exchange  amounted to $2,295,624 and are included in the total amount  exchanged
for Series C Shares.  Unlike the Series B Shares with their fixed maturity date,
the  Series  C  Shares  are  permanent  equity,  with  accruing  dividends  only
increasing the preference amount that must be satisfied before junior securities
may participate in dividends or on liquidation.  Accordingly,  the effect of the
accrual  of  dividends  with  respect  to the  Series C Shares on the  Company's
balance sheet is to increase the  aggregate  claim of the Series C Shares on the
equity of the  corporation  and to increase the deficit in common equity,  while
having  no  effect  on  the  net  equity  of the  corporation  as a  whole.  The
entitlement  of the  Series  C  Shares  to a  priority  in  relation  to  junior
securities  with  respect to  dividends  and on  liquidation  does not create an
obligation  to the Company and  therefore  no  liability  is recorded  until the


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

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

Holders of over 70% of the  outstanding  Series B  Preferred  Shares  elected to
participate  in  the   recapitalization.   The  shares  of  Series  B  Preferred
Shareholders that chose not to convert are listed in the Liabilities  section of
the Balance Sheet, and therefore the accretion and dividends associated with the
Series B stock after November 30, 2009 are deductions from net income. Accretion
and dividends on Series B mandatorily  redeemable  preferred stock deducted from
net income  amounted to $106,366  and $324,455 for the twelve month period ended
May 31, 2011.  The remaining  Series B shares not  converted  were accreted from
carrying  value  to the  face  amount  for the 5 year  period  from  the date of
issuance.  Series C stock  has no  accretion.  There  were no shares of Series B
Stock surrendered or exchanged in the twelve month periods ending May 31, 2011.

As of May 31, 2011 the Company has chosen to defer  payment of  dividends on the
Series A Preferred  Stock with such  accrued and unpaid  dividends  amounting to
$463,621 through May 31, 2011.

As of May 31, 2011 the Company has chosen to defer  payment of  dividends on the
Series B and Series C Preferred  Stock with such  accrued  and unpaid  dividends
amounting to $1,443,475 and $3,451,348 through May 31, 2011.

ACCOUNTING TREATMENT

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

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


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 only the Series A 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
-----------------------

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.  The exercise price of the warrants is one-tenth of one cent ($.001)
per share. 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.

In the twelve month period ending May 31, 2011, warrants totaling 4,854,564 were
exercised for cash and  4,854,564  common shares of the Company were issued at a
price of $.001 per share. In addition,  warrants totaling 4,266,666 (gross) were
exercised  under the cashless  exercise  option,  resulting in 761,904  warrants
surrendered at the market price of $.0056 to effect those  holders'  purchase of
3,504,762 net common shares. 386,667 warrants issued in connection with Series B
Preferred  Stock expired  unexercised  on the fifth  anniversary at December 31,
2010; 600,000 warrants issued in connection with Series A Preferred Stock remain
outstanding with an expiration on the seventh anniversary of their issuance.


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

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

immediately  and the  remaining  17,900,000  options  vesting over the next four
years ending in May 2010. Due to changes in employment  status for two employees
during fiscal year 2010, the awarded options had been reduced to 19,800,000, all
of which expired in May 2011.

On December  28,  2006,  the  compensation  committee  of the board of directors
awarded  2,100,000 of incentive  stock  options to acquire  common  shares at an
exercise  price of four cents ($.04) per share,  of which 450,000  shares vested
immediately  and the  remaining  1,650,000  options  vesting over the next three
years ending in December 2009. The term of the options is five years and expires
in December  2011. As of May 31, 2010,  the awarded  options had been reduced to
1,800,000 due to changes in employment  status. As of May 31, 2011, all of these
options have vested.

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.  As of May 31, 2011,  9,700,000  options were vested and 300,000 were
unvested.

The following  table  summarizes  option  activity under the Plan for the fiscal
year ended May 31, 2011.
<TABLE>
<CAPTION>
                                              2011
                                                      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, 2010          $  .05822         32,600,000
Options granted                          -                  -
Options exercised                        -                  -

Options canceled/expired            .06856         20,800,000
                                 ------------- ----------------
Balance, May 31, 2011            $  .04000         11,800,000
                                 ============= ================

Exercisable at May 31, 2011      $  .04000         11,500,000       2.69       $     -
                                 ============= ================
Expected to vest                 $  .04000            300,000       3.08       $     -
                                 ============= ================
</TABLE>


The following  table  summarizes  activity and pricing  information for the non-
vested shares under the Plan for the year ended May 31, 2011.

                                      F-34

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

                                      2011

                                                          Number
                                   Weighted-Average         Of
                                      Grant Date         Non-vested
                                      Fair Value           Shares
                                    ---------------- -----------------
Balance at June 1, 2010
                                     $  .02962             5,300,000
Options granted                              -                     -
Options vested                          .02962           ( 5,000,000)
Options canceled/expired                     -                     -
                                    ---------------- -----------------

Balance at May 31, 2011              $  .02962               300,000
                                    ================ =================


There were no options  exercised in fiscal 2011 or 2010. The total fair value of
shares vested amounted to approximately $148,000 and $189,000 in fiscal 2011 and
2010 respectively.

Stock-based  compensation  expense  attributable  to  such  awards  amounted  to
approximately  $17,000 and  $252,000 in fiscal years ended May 31, 2011 and 2010
respectively.  Unrecognized compensation expense related to non-vested awards at
May 31, 2011 was  approximately  $400 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.

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, 2011,  the Company had operating  loss carry  forwards of  approximately
$17.8  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 $5.6  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 2011,  the Company  issued  5,719,499  shares of the Company's  common
stock  as  additional   consideration  in  connection  with  new  and  continued
borrowings totaling $4,912,500.  The shares were valued at approximately $.00619

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

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 $35,405.

In  fiscal  2011,  warrants  totaling  4,854,564  were  exercised  for  cash and
4,854,564  common  shares  of the  Company  were  issued at a price of $.001 per
share. In addition, warrants totaling 4,266,666 (gross) were exercised under the
cashless  exercise  option,  resulting in 761,904  warrants  surrendered  at the
market price of $.0056 to effect those holders' purchase of 3,504,762 net common
shares.  386,667  warrants  issued in connection  with Series B Preferred  Stock
expired  unexercised  on the fifth  anniversary  at December 31,  2010;  600,000
warrants issued in connection  with Series A Preferred Stock remain  outstanding
with an expiration of December 31, 2012.

On March 31, 2011 the Company  issued  309,282  shares of the  Company's  common
stock in connection with the additional 2% stock dividend associated with Series
B Preferred  shares that were  requested to be redeemed  upon maturity (see Note
J). The shares  were  valued at  approximately  $.00607  per share  based on the
average  quoted  closing  price of the  Company's  stock for the  20-day  period
proceeding the date of the transaction and totaled $1,877.

In fiscal 2011,  the Company  issued  6,213,285  shares of the Company's  common
stock in connection with the  semi-annual  issuance of shares under terms of the
bridge-financing  arrangement.  The shares were valued at approximately  $.00607
per share based on the average quoted  closing price of the Company's  stock for
the 20-day period proceeding the date of the transaction and totaled $37,715.

In fiscal 2011,  the Company  issued  6,738,900  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 $.006790
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 $45,757.

In  fiscal  2011,  the  Company  awarded  500,000  shares  to an  individual  as
compensation for services instrumental to advancing the Company's business plan,
including introductions and negotiations with reinsurers, investors and insurers
with the potential to provide license authority in additional states. The shares
were valued at  approximately  $.004095  per share  based on the average  quoted
closing price of the Company's  stock for the 20-day period  proceeding the date
of the transaction and totaled $2,048

In fiscal 2010,  the Company  issued  1,675,000  shares of the Company's  common
stock as additional  consideration  in  connection  with  short-term  and demand
borrowing   arrangements   totaling   $500,000.   The  shares   were  valued  at
approximately  $.0169 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 $28,275.

In fiscal 2010, warrants totaling 2,963,668 were exercised for cash and issuance
of 2,963,668 common shares of the Company.

In fiscal 2010,  the Company  issued  5,354,642  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 $.0146 per
share based on the average quoted  closing price of the Company's  stock for the
20-day period proceeding the date of the transaction and totaled $78,178.

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


In fiscal 2010,  the Company  issued  6,005,925  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  $.00912
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 $54,774.

In fiscal 2010,  the Company  issued  5,171,993  shares of the Company's  common
stock in  connection  with the  forbearance  agreement  of the  bridge-financing
arrangement  (See Note H). The shares  were valued at  approximately  $.0365 per
share based on the average quoted  closing price of the Company's  stock for the
20-day period proceeding the date of the transaction and totaled $188,778.

In fiscal 2010, the Company  issued  13,609,872  shares of the Company's  common
stock in connection with the exchange of Series B Preferred  Shares for Series C
Preferred Shares (See Note J).

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  notreflect   deferred  policy  acquisition  costs  and  certain  assets  are
non-admitted.

Statutory  surplus as of May 31, 2011 and 2010 and net income for the  Company's
insurance  subsidiary  the  calendar  year ended  December 31, 2010 and 2009 and
five-month periods ended May 31, 2011 and 2010 are as follows:

      Statutory Surplus        May 31, 2011                      $ 6,105,504

      Statutory Surplus        May 31, 2010                        5,869,182

      Net Income               Calendar year 2010                    201,683
      Net Income               Calendar year 2009                    279,136

      Net Income               Five-month period 2011                 86,700
      Net Income               Five-month period 2010                 72,782


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.

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


NOTE P - COMMITMENTS AND CONTINGENCIES
--------------------------------------

LEASE COMMITMENTS

The Company leases certain office  equipment with combined  monthly  payments of
approximately  $615 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 3
months at a monthly rate of $560.00 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  $63,291 and
$63,452 during 2011 and 2010.

Minimum  future lease  payments  under  non-cancelable  operating  leases having
remaining terms in excess of one year as of May 31, 2011 are:

              Fiscal year 2011-2012                          $  8,682
                                                             ---------

                                                      Total  $  8,682
                                                             =========

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-)  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, 2011 and 2010 are as follows:

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

                                                                    2011                                 2010

                                                         Carrying            Fair             Carrying           Fair
                                                          Amount             Value             Amount            Value
                                                     ----------------- ------------------ ----------------- -----------------
<S>                                                  <C>               <C>                <C>               <C>
ASSETS
Bonds available for sale                             $ 5,858,595       $ 6,038,718        $ 6,618,472       $ 6,618,472
Cash and short-term investments                        1,291,186         1,291,186            338,650           338,650
Premiums and other receivables                           210,438           210,438            179,299           179,299
Equity securities (including derivatives)                450,908           453,456                  -                 -

LIABILITIES
Notes payable                                          5,279,535         5,279,535          4,610,609         4,610,609
Accounts payable and advance premiums                    342,036           342,036            237,447           237,447
Accrued expenses and other liabilities                 1,951,736         1,951,736          1,549,760         1,549,760

</TABLE>


NOTE R - OTHER RISKS, UNCERTAINTIES AND CONCENTRATIONS
------------------------------------------------------

CONCENTRATION OF CREDIT RISK

As of  May  31,  2011  the  Company's  investment  securities  of  approximately
$7,500,000 are solely comprised of  mortgage-backed  securities,  fixed maturity
municipal bonds, equity  investments,  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  three  financial
institutions,  one 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  74% and 69% of the  Company's  fiscal  2011  and  2010  revenues,
respectively.  Furthermore,  the Company provides surety bonds to companies that
share common  ownership  interests that  constitute 54% and 51% of the Company's
fiscal 2011 and 2010 revenues, respectively, as follows:

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

                                           2011                                 2010

                                                  Investment                          Investment
                                 Surety            Advisory           Surety           Advisory
                                 Premium             Fees            Premium             Fees
                            ------------------ ----------------- ----------------- -----------------
<S>                         <C>                <C>               <C>               <C>
Customer group # 1          $   267,000        $    75,000       $   277,000       $    73,000
Customer group # 2              462,000             83,000           262,000            46,000
Customer group # 3              203,000              2,800           167,000             1,400
                            ------------------ ----------------- ----------------- -----------------
                     TOTAL      932,000            160,800           706,000           120,400
                            ================== ================= ================= =================
</TABLE>


NOTE S - SEGMENT REPORTING
--------------------------

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























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


                                                     YEAR ENDED
INDUSTRY SEGMENT                             MAY 31, 2011    MAY 31, 2010
----------------                           ---------------- ---------------
REVENUES:
 Investment advisory                       $      286,695   $      361,412
 Surety insurance                               1,279,138        1,210,611
 Corporate                                         50,000                -
                                           ---------------- ---------------
 Total revenues                            $    1,615,833   $    1,572,023
                                           ================ ===============

OPERATING INCOME (LOSS):
 Investment advisory                       $       70,222   $      113,005
 Surety insurance                                 475,455          536,938
 Corporate                                     (1,852,411)      (2,107,399)
                                           ---------------- ---------------
 Total operating income (loss)             $   (1,306,734)  $   (1,457,456)
                                           ================ ===============

IDENTIFIABLE ASSETS:
 Investment advisory                       $       59,949   $       51,097
 Surety insurance                               8,584,860        7,724,941
 Corporate                                         16,589           22,001
                                           ---------------- ---------------
 Total assets                              $    8,661,398   $    7,798,039
                                           ================ ===============

CAPITAL ACQUISITIONS:
 Investment advisory                       $           -    $            -
 Surety insurance                                  25,919            5,819
 Corporate                                          4,516                -
                                           ---------------- ---------------
 Total capital acquisitions                $       30,435   $        5,819
                                           ================ ===============

DEPRECIATION CHARGED TO
IDENTIFIABLE ASSETS:
 Investment advisory                       $           45   $           45
 Surety insurance                                  12,229            7,282
 Corporate                                          3,065            3,282
                                           ---------------- ---------------
 Total Depreciation                        $       15,339   $       10,609
                                           ================ ===============

INTEREST EXPENSE:
 Investment advisory                       $            5   $            -
 Surety insurance                                       -                -
 Corporate                                        908,370          956,973
                                           ---------------- ---------------
 Total interest expense                    $      908,375   $      956,973
                                           ================ ===============


                                      F-41

<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  2010,  advances  to the  Company  from Mr.  Jacobs  amounted  to
$710,435,  which included  assumption of company debt in the amount of $185,652,
and  repayments  to Mr.  Jacobs  amounted to $706,412.  As of May 31, 2010,  the
balance due Mr. Jacobs was $7,104.  The largest aggregate amount  outstanding to
Mr. Jacobs in fiscal 2010 was $178,444.

During  fiscal  2011,  advances  to the  Company  from Mr.  Jacobs  amounted  to
$1,125,113, which included assumption of company debt in the amount of $624,303,
and  repayments to Mr. Jacobs  amounted to  $1,162,182.  As of May 31, 2011, the
balance due the  Company  from Mr.  Jacobs was  $29,965.  The largest  aggregate
amount outstanding to Mr. Jacobs in fiscal 2011 was $143,460.

The rate of interest on such amounts due from and  obligations due to Mr. Jacobs
was 12% for both the 2011 and 2010 fiscal years.

As of September 13, 2011, $16,746 was owed by the Company to Mr. Jacobs.

OTHER RELATED PARTIES

During the years ended May 31, 2011 and May 31, 2010, a company owned by a board
member provided  consulting  services.  This company provided  services totaling
$62,100 and $62,100 in 2011 and 2010.  Amounts  owed to this company at year end
are treated as related party payables in the amounts  $99,209 and $96,160 at May
31, 2011 and 2010.

During  the  year  ended  May 31,  2009,  the  company  borrowed  money  from an
individual  that became a board member  during 2010.  Total amounts owed to this
board  member at May 31,  2011 and May 31, 2010  consisted  of $75,000 in demand
notes and $360,000 in bridge financing.

NOTE U - REINSURANCE
--------------------

The  Company  limits the  maximum  net loss that can arise  from large  risks by
reinsuring  (ceding)  certain  levels  of  such  risk  with  reinsurers.   Ceded
reinsurance is treated as the risk and liability of the assuming companies.  The

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


Company cedes  insurance to other companies and these  reinsurance  contracts do
not relieve the Company from its obligations to policyholders.

Effective  April 1, 2009, FSC entered into a reinsurance  agreement with various
syndicates  at Lloyd's of London and one Bermuda based  reinsurer  ("Reinsurer")
for its coal reclamation surety bonding programs.  The reinsurance  agreement is
an excess of loss  contract  which  protects  the Company  against  losses up to
certain limits over stipulated amounts, has an initial term of 39 months and can
be terminated by either party by written notice of at least 90 days prior to any
July 1. The contract  calls for the first year of the agreement to consist of 15
months with premium due within 30 days of the end of the first  Agreement  Year,
June 1, 2010,  at a rate of 35% of gross written  premium,  subject to a minimum
premium  $490,000.  For the second  agreement  year,  which covers twelve months
beginning  July 1,  2010,  the  premium  rate  remains  the same at 35% with the
premium due within 30 days of the close of the second agreement year, subject to
a minimum premium of $490,000.  Deposits are made to the reinsurers quarterly in
arrears in equal amounts of $122,500.  At May 31, 2011 and 2010, the Company had
prepaid  reinsurance  premiums of $264,763 and  $214,385  and ceded  reinsurance
payable/(deposited)  of  $77,635  and  ($122,568).   During  2010,  the  amounts
deposited  with the  Reinsurer  were  greater  than the ceded  premium  written,
resulting in a net deposit instead of a payable.

There were no ceded Loss and LAE  expenses  for the years  ended May 31, 2011 or
2010.

The  effects of  reinsurance  on premium  written and earned for fiscal 2011 and
2010 are as follows;

          2011 Written   2011 Earned   2010 Written   2010 Earned
          -------------  ------------  -------------  ------------
Direct    $  1,613,912   $  1,380,225  $  1,114,197   $  1,026,896
Ceded     $    519,663   $    469,285  $    385,259   $    257,987
          -------------  ------------  -------------  ------------
Net       $  1,094,249   $    910,940  $    728,938   $    768,909



NOTE V - EVENTS SUBSEQUENT TO MAY 31, 2011
------------------------------------------

Subsequent to May 31, 2011, the Company  obtained new borrowings of $35,000 from
individuals  to fund ongoing  operation  and made  repayments  of $65,000.  Such
borrowings were obtained under demand notes bearing interest at the rate of 10%.
These  borrowings  included the issuance of 35,000 shares of its common stock as
additional  consideration.   Additionally,   the  company  obtained  short  term
borrowings  from a  business  totaling  $170,000  and made  repayments  on these
borrowing of $141,000 as well as $7,500 in interest.

Subsequent  to May 31,  2011,  the  Company  obtained  various  borrowings  from
individuals and businesses  totaling $82,000 at the rate of 10%, which mature in
October 2011. These borrowings,  and the renewal of other  borrowings,  included
the issuance of 697,000 shares of its common stock as additional  consideration.
Additionally,  there were  advances to the Company from its largest  shareholder
and CEO amounting to $247,284, with repayments totaling $200,573.

On September 10, 2011, in accordance with the Bridge  financing  agreement,  the
Company  became  obligated  to issue in the  aggregate  7,043,710  shares of its
common stock to the holders of such notes.

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


On June 30, 2011, the Company  elected to continue to defer payment of dividends
on its  Series  A  Preferred  Stock,  Series B  Preferred  Stock,  and  Series C
Preferred Stock with such accumulated  accrued and unpaid dividends amounting to
$494,921, $1,528,451, and $3,655,912 as of June 30, 2011.

On July 6, 2011 the Company  issued  1,372,949  Common shares  representing  the
additional 2% stock dividend for the quarter ending June 30, 2011 to the holders
of Series B Preferred  shares that had  requested to be redeemed  upon  maturity
(see Note J).

On August 31, 2011 the Company's insurance subsidiary,  FSC, recorded receipt of
$213,281 from its reinsurers  representing  cumulative No Claims Bonus under the
terms of its  reinsurance  treaty for the claim  years  ending June 30, 2010 and
June 30, 2011.



































                                      F-44
<PAGE>
<TABLE>
<CAPTION>
------------------------------------------------------------------------------------------------------------------------------------
 SUMMARY OF INVESTMENTS-
 OTHER THAN INVESTMENTS IN RELATED PARTIES                                                                              SCHEDULE I
------------------------------------------------------------------------------------------------------------------------------------
<S>                                                                             <C>                 <C>              <C>
                                                                                                                         AMOUNT
                                                                                                                        AT WHICH
 AT MAY 31, 2011                                                                                                      SHOWN IN THE
                                                                                   COST*             VALUE            BALANCE SHEET
                                                                                ------------        ------------     ---------------
 Fixed maturities:
  Bonds:
   United States Government and government agencies and authorities             $          -        $         -      $           -
   States, municipalities, and political subdivisions                              1,073,724          1,046,769          1,046,769
                                                                                ------------        ------------     ---------------
        Total fixed maturities                                                     1,073,724          1,046,769          1,046,769

 Equity securities (including derivatives):
   Common stock and derivatives                                                      450,908            453,456            453,456
                                                                                ------------        ------------     ---------------
        Total equity securities                                                      450,908            453,456            453,456


 Mortgage-backed securities guaranteed by U.S. government agency                   4,784,871          4,991,949          4,991,949

 Short-term investments, at cost (approximates market value)                       1,007,617          1,007,617          1,007,617
                                                                                ------------        ------------     ---------------

 Total investments                                                              $  7,317,120        $ 7,499,791      $   7,499,791
                                                                                ============        ============     ===============

</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>
<TABLE>
<CAPTION>
------------------------------------------------------------------------------------------------------------------------------------
CONDENSED FINANCIAL INFORMATION OF REGISTRANT                                                                          SCHEDULE II
------------------------------------------------------------------------------------------------------------------------------------
<S>                                                                                             <C>                     <C>


BALANCE SHEETS - PARENT COMPANY ONLY
                                                                                                MAY 31, 2011            MAY 31, 2010
                                                                                                ------------            ------------
 Assets:
 Cash                                                                                           $   (27,461)            $   (16,526)
 Accounts receivable from affiliates                                                                      -                       -
 Prepaid expense and other assets                                                                     9,192                  15,696
 Furniture and equipment, net                                                                         7,385                   6,269
 Investment in subsidiaries, equity method                                                        5,798,422               5,360,750
 Due from affiliates, net                                                                           677,801                 753,919
                                                                                                ------------            ------------

 Total assets                                                                                   $ 6,465,339             $ 6,120,108
                                                                                                ============            ============

 LIABILITIES:
 Accounts payable                                                                               $    20,922             $    33,189
 Accrued expenses and professional fees                                                             495,169                 519,187
 Related party payable                                                                              231,656                 159,907
 Notes payable                                                                                    4,874,500               4,159,119
 Related party note payable                                                                         405,035                 451,490
 Due to affiliates                                                                                        -                       -
 Other liabilities                                                                                1,199,932                 830,893
 Series B Preferred Stock                                                                         4,257,703               3,826,882
                                                                                                ------------            ------------

 Total liabilities                                                                               11,484,917               9,980,667

 MANDATORILY REDEEMABLE PREFERRED STOCK                                                           3,138,623               3,005,266

 STOCKHOLDERS EQUITY:
 Common stock                                                                                        24,230                  21,446
 Additional paid in capital                                                                       3,549,443               3,404,431
 Series C Stock                                                                                   9,482,279               8,701,217
 Accumulated deficit                                                                            (21,214,153)            (18,992,919)
                                                                                                ------------            ------------

 Total stockholders equity (deficit)                                                             (8,158,201)             (6,865,825)
                                                                                                ------------            ------------

 Total liabilities and stockholders equity                                                      $ 6,465,339             $ 6,120,108
                                                                                                ============            ============


STATEMENTS OF INCOME - PARENT COMPANY ONLY
 YEAR ENDED MAY 31,
                                                                                                   2011                    2010
                                                                                                ------------            ------------
 REVENUES
 Equity in undistributed net income (loss) of consolidated subsidiaries                         $   437,671             $   513,139
 Tax benefit to parent from subsidiary attributable to utilization of net
  operating loss carryforwards                                                                      108,006                 148,174
 Gain on extinguishment of debt                                                                      50,000                       -
                                                                                                ------------            ------------

 Total revenues                                                                                     595,677                 661,313

 EXPENSES:
 General and administrative                                                                         560,155                 904,505
 Interest                                                                                           908,370                 968,343
 Accrued dividends on stock liability                                                               430,821                 242,639
 Depreciation                                                                                         3,065                   3,282
                                                                                                ------------            ------------

 Total expenses                                                                                   1,902,411               2,118,769
                                                                                                ------------            ------------

 Net income (loss)                                                                               (1,306,734)             (1,457,456)

 Accrued dividends on equity stock                                                                 (781,062)               (374,662)
 Accretion of mandatorily redeemable convertible preferred stock,
 including accrued dividends                                                                       (133,356)               (881,075)
                                                                                                ------------            ------------

 Net income (loss) attributable to common stockholders                                          $(2,221,152)            $(2,713,193)
                                                                                                ============            ============


                                      F-46
<PAGE>
------------------------------------------------------------------------------------------------------------------------------------
CONDENSED FINANCIAL INFORMATION OF REGISTRANT                                                                          SCHEDULE II
------------------------------------------------------------------------------------------------------------------------------------

STATEMENTS OF CASH FLOWS - PARENT COMPANY ONLY
 YEAR ENDED MAY 31,
                                                                                                   2011                    2010
                                                                                                ------------            ------------
 CASH FLOWS FROM OPERATING ACTIVITIES:

 Net income (loss)                                                                              $(1,306,734)            $(1,457,456)

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

 Equity in undistributed net loss of consolidated subsidiaries                                     (437,672)               (513,139)
 Accrual of preferred stock dividend                                                                324,455                 155,708
 Accretion of preferred stock                                                                       106,366                  86,931
 Stock option compensation expense                                                                   16,782                 251,632
 Stock issued in connection with financing arrangements                                             126,074                 261,958
 Depreciation                                                                                         3,065                   3,282
 Loss on disposal of equipment                                                                          335                       -
 Gain on extinguishment of debt                                                                     (50,000)                      -
 Change in other assets, accounts payable and accrued expense, net                                  461,011                 724,690
                                                                                                ------------            ------------

 TOTAL CASH USED IN OPERATIONS                                                                     (756,318)               (486,394)


 CASH FLOWS FROM INVESTING ACTIVITIES:

 Contributions to insurance company subsidiary                                                            -                (186,000)
 Funds provided to affiliates for operations                                                         76,118                  95,782
 Purchase of furniture and equipment                                                                 (4,516)                      -
                                                                                                ------------            ------------

 TOTAL CASH USED IN INVESTING ACTIVITIES                                                             71,602                 (90,218)

 CASH FLOWS FROM FINANCING ACTIVITIES:

 Proceeds from issuance of mandatorily redeemable preferred stock                                         -                  10,000
 Proceeds from exercise of stock warrants                                                             4,855                   2,963
 Proceeds from borrowings                                                                         1,762,000               1,017,500
 Repayment of borrowings                                                                         (1,046,619)               (473,172)
 Proceeds from short-term borrowings from related party                                           1,125,113                 691,764
 Repayment of short-term borrowings to related party                                             (1,171,568)               (686,941)
                                                                                                ------------            ------------

 TOTAL CASH PROVIDED BY FINANCING ACTIVITIES                                                        673,781                 562,114
                                                                                                ------------            ------------

 CHANGE IN CASH                                                                                     (10,935)                (14,498)

 Cash at beginning of year                                                                          (16,526)                 (2,028)
                                                                                                ------------            ------------

 Cash at end of year                                                                            $   (27,461)            $   (16,526)
                                                                                                ============            ============
</TABLE>


                                      F-47
<PAGE>
<TABLE>
<CAPTION>
                                                    JACOBS FINANCIAL GROUP, INC.
                                                          AND SUBSIDIARIES

------------------------------------------------------------------------------------------------------------------------------------
 SUPPLEMENTARY INSURANCE INFORMATION
 AS OF MAY 31, 2011 AND 2010 AND FOR THE YEARS THEN ENDED                                                               SCHEDULE III
------------------------------------------------------------------------------------------------------------------------------------


                       RESERVE FOR
                         LOSSES
                          AND                     OTHER                                         AMORTIZATION
                          LOSS                   POLICY                                CLAIMS        OF
           DEFERRED     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>
2011

Surety     $ 190,711    $ 815,512   $ 851,783       $ -     $ 910,940   $ 229,777     $ 204,323   $ 310,420        $ -    $1,094,249

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

2010

Surety     $ 128,453    $ 611,190   $ 618,095       $ -     $ 768,909   $ 273,577     $ 178,531   $ 256,810        $ -    $  728,938




</TABLE>



















                                      F-48
<PAGE>
<TABLE>
<CAPTION>

------------------------------------------------------------------------------------------------------------------------------------
 SUPPLEMENTAL INSURANCE INFORMATION - REINSURANCE
 AS OF MAY 31, 2011 AND 2010 AND FOR THE YEARS THEN ENDED                                                               SCHEDULE IV
------------------------------------------------------------------------------------------------------------------------------------
<S>                                                           <C>                         <C>                      <C>

                                                                                           CEDED TO OTHER
2011                                                              GROSS AMOUNT                COMPANIES              NET AMOUNT
                                                              -----------------           ---------------          -------------

Premiums written:
         Property and casualty insurance                      $      1,613,912            $      519,663           $  1,094,249

                                                              -----------------           ---------------          -------------
         Total premiums written                               $      1,613,912            $      519,663           $  1,094,249
                                                              =================           ===============          =============

Premiums earned:
         Property and casualty insurance                      $      1,380,225            $      469,285           $    910,940

                                                              -----------------           ---------------          -------------
         Total premiums earned                                $      1,380,225            $      469,285           $    910,940
                                                              =================           ===============          =============



                                                                                          CEDED TO OTHER
2010                                                              GROSS AMOUNT                 COMPANIES              NET AMOUNT
                                                              -----------------           ---------------          -------------

Premiums written:
         Property and casualty insurance                      $      1,114,197            $      385,259           $    728,938

                                                              -----------------           ---------------          -------------
         Total premiums written                               $      1,114,197            $      385,259           $    728,938
                                                              =================           ===============          =============

Premiums earned:
         Property and casualty insurance                      $      1,026,896            $      257,987           $    768,909

                                                              -----------------           ---------------          -------------
         Total premiums earned                                $      1,026,896            $      257,987           $    768,909
                                                              =================           ===============          =============


</TABLE>


















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


------------------------------------------------------------------------------------------------------------------------------------
 SUPPLEMENTAL INFORMATION
 AS OF MAY 31, 2011 AND 2010 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                                             CLAIMS, LOSSES
                                  AND    DISCOUNT                                  AND SETTLEMENT  AMORTIZATION
                                 LOSS     IF ANY,                                EXPENSES INCURRED     OF
                    DEFERRED   EXPENSES, DEDUCTED                                    RELATED TO      DEFERRED   PAID CLAIMS
                     POLICY      FUTURE     IN                           NET                          POLICY    AND CLAIMS     NET
AFFILIATION WITH  ACQUISITION    POLICY   COLUMN  UNEARNED  PREMIUM  INVESTMENT  CURRENT    PRIOR  ACQUISITION  ADJUSTMENT  PREMIUMS
   REGISTRANT        COSTS       CLAIMS     C     PREMIUMS  REVENUE    INCOME      YEAR     YEARS     COSTS      EXPENSES    WRITTEN
----------------- ----------- ---------- -------- --------- -------- ---------- ---------  -------  ---------   ----------- --------
<S>               <C>         <C>        <C>      <C>       <C>      <C>        <C>        <C>     <C>          <C>         <C>

2011

Consolidated
property-casualty
entities             $190,711 $ 815,512    $ -    $851,783 $ 910,940 $ 229,777  $ 204,323    $ -    $ 310,420       $ -   $1,094,249


2010

Consolidated
property-casualty
entities             $128,453 $ 611,190    $ -    $618,095 $ 768,909 $ 273,577  $ 178,531    $ -    $ 256,810       $ -     $728,938


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


</TABLE>













                                      F-50
<PAGE>

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



                                      -36-
<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 13, 2011          By: /s/ John M. Jacobs
                                     -------------------------------------------
                                     John M. Jacobs
                                     President and CEO
                                     Director

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 13, 2011                        By:/s/ John M. Jacobs
        ------------------------                   ----------------------------
                                                     John M. Jacobs
                                                     President and CEO
                                                     Director


Dated:   September 13, 2011                        By:/s/ John M. Jacobs
        ------------------------                   ----------------------------
                                                     John M. Jacobs
                                                     Chief Financial Officer


Dated:   September 13, 2011                        By:/s/ Mario J. Marra
        ------------------------                   ----------------------------
                                                     Mario J. Marra
                                                     Director


Dated:   September 13, 2011                        By:/s/ C. David Thomas
        ------------------------                   ----------------------------
                                                     C. David Thomas
                                                     Director


Dated:   September 13, 2011                        By:/s/ Eric D. Ridenour
        ------------------------                   ----------------------------
                                                     Eric D. Ridenour
                                                     Director


Dated:   September 13, 2011                        By:/s/ Bradley W. Tuckwiller
        ------------------------                   ----------------------------
                                                     Bradley W. Tuckwiller
                                                     Director


                                      -37-