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


                                   FORM 10-KSB

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

                     For the fiscal year ended May 31, 2007


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

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


               300 Summers Street, Suite 970, Charleston WV 25301
               -------------------------------------------------
               (Address of principal executive offices) (Zip Code)


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


         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


Check  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 ___

<PAGE>

Check if there is no disclosure of delinquent  filers in response to Item 405 of
Regulation S-B contained in this form, and no disclosure  will 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-KSB or any
amendment to this Form 10-KSB. [x]

Indicate by check mark whether the  registrant is a shell company (as defined in
Rule 12b-2 of the Exchange Act). Yes [ ] No [ x ]

State the issuer's revenues for the most recent fiscal year.  $823,339

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 a
specified date within the past 60 days. As of last trade on September 10, 2007:
$1,571,228 (157,122,836 shares at $.01 / share)

State the number of shares outstanding of each of the issuer's classes of common
equity, as of the latest practicable date: 157,122,836 shares of common stock as
of September 10, 2007.



                                TABLE OF CONTENTS

                                     PART I

                                                                            Page

Item 1.       Description of Business.........................................3

Item 2.       Description of Property.........................................5

Item 3.       Legal Proceedings...............................................5

Item 4.       Submission of Matters to a Vote of Security Holders.............5

                                     PART II

Item 5.       Market for Common Equity and Related
                Stockholder Matters...........................................6

Item 6.       Management's Discussion and Analysis of
                Financial Condition and Results of Operations.................7

Item 7.       Financial Statements............................................15

Item 8.       Changes In and Disagreements with Accountants
                on Accounting and Financial Disclosure........................16

                                        2

<PAGE>


                                    PART III

Item 9.       Directors, Executive Officers, Promoters and Control
                Persons; Compliance With Section 16(a) of the
                Exchange Act..................................................16

Item 10.      Executive Compensation..........................................19

Item 11.      Security Ownership of Certain Beneficial Owners
                and Management................................................19

Item 12.      Certain Relationships and Related Transactions..................21

Item 13.      Exhibits........................................................23

Item 14.      Principal Accountant Fees and Services..........................24

PART I
------

ITEM 1. BUSINESS
----------------

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

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

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

                                        3

<PAGE>

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

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

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

On December 30, 2005, the Company acquired all of the outstanding  stock of West
Virginia Fire and Casualty  Company  (WVFCC),  an insurance  company licensed to
engage in business in West Virginia,  Ohio and Indiana. The acquisition followed
the approval of the  transaction  by the West Virginia  Department of Insurance,
which included  approval of the Company's  business plan to operate the acquired
insurance company as a surety.  The financing of the transaction  consisted of a
combination  of a private  placement of preferred  stock and warrants to acquire
common stock of the Company in exchange for cash totaling  $3,335,000,  of which
$2,900,000  (including a $40,000 deposit paid in prior periods) was used for the
acquisition of WVFCC. In addition,  approximately  $3,668,000 of indebtedness of
the Company was converted  into  preferred  stocks and  warrants.  Following the
acquisition,  the name of WVFCC was changed to First Surety Corporation  ("First
Surety" or "FSC").

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

FSC  currently  writes  only the surety line of  business,  is licensed to write
surety only in West  Virginia and has focused its primary  efforts  towards coal
permit bonds.  Such  business  accounts for  approximately  50% of the Company's
fiscal 2007 revenues.  Furthermore, FSC provides surety bonds to three companies
that  share  common  ownership  interests.  In 2007,  this  group  of  customers
accounted for approximately $343,000, or 42%, of the Company's revenues.

Expansion  of  FSC's  business  to  other  states  is a key  component  to fully
implementing the Company's business plan.  Regulatory  approval and licensing is
required for each state FSC seeks to conduct business. Management has found that
entry into other states (as a surety) has been difficult without the benefit of

                                        4

<PAGE>

more substantial capital and reserves due to FSC's status as new entry into this
market.  Management is pursuing avenues that can provide  additional  capital to
facilitate such expansion.

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


ITEM 2. PROPERTIES
------------------

Through its wholly-owned  subsidiary,  Crystal Mountain Water, Inc. ("CMW"), the
Company has an undeveloped  leasehold interest in a mineral water spring located
near Hot Springs,  Arkansas. Under this leasehold arrangement,  CMW is obligated
for minimum lease  payments in the amount of  approximately  $160 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 Registrant,  through its insurance subsidiary, holds indirect investments in
real estate mortgages (primarily single family first mortgage dwellings) through
its purchase of U. S. government agency mortgage-backed/asset-backed  securities
that have guaranteed  principal and interest by the U. S. government.  There are
no limitations or restrictions with respect to such investments. Other non U. S.
government guaranteed investments in mortgage-backed/asset-backed securities are
limited or restricted by policy so that the aggregate  investment  secured by or
evidencing a single interest in a single asset or single pool of assets does not
exceed 5% of assets.  Such  investments  are held  primarily  for income  versus
capital appreciation.

Although the Registrant,  through its insurance subsidiary, has no plans to make
investments in mortgage loans or income-producing real estate at this time, such
investments are limited by policy so as not to exceed 5% of assets.

ITEM 3. LEGAL PROCEEDINGS
-------------------------

None

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

None

                                        5


<PAGE>


                                     PART II

ITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
----------------------------------------------------------------

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, 2007

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


Fiscal Year Ended May 31, 2006

         4th Quarter                         .09                       .03
         3rd Quarter                        .105                       .05
         2nd Quarter                        .105                      .006
         1st Quarter                       .0135                      .009

As of May 31,  2007,  there  were  approximately  852  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.

As of May 31, 2007, shares of the Company's common stock authorized for issuance
under the  Registrant's  2005 Stock  Incentive  Plan,  that was  approved by the
stockholders of the Company on December 8, 2005, are as follows:

                      EQUITY COMPENSATION PLAN INFORMATION
<TABLE>
<CAPTION>

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

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

                                        6

<PAGE>

ITEM 6. MANAGEMENT'S  DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
--------------------------------------------------------------------------------

INTRODUCTION

Since its acquisition of FSI and Jacobs in May 2001, the Company has focused its
efforts on the expansion of the ongoing  business  activities of FSI and Jacobs,
namely  insurance  (surety) and  investment  management  and advisory  services.
Central to its business  plan was the  acquisition  of an  insurance  company to
issue surety bonds utilizing  collateralized  surety programs  developed by FSI,
and marketed by Triangle Surety, with collateral accounts managed by Jacobs.

In May 2004,  the Company  entered  into an  Exclusivity  Agreement  with Celina
Mutual Insurance Company  ("Celina")  granting the Company an exclusive right to
acquire West Virginia Fire & Casualty Company  ("WVFCC");  and in July 2005, the
Company  entered  into a  definitive  purchase  agreement  with  Celina  for the
acquisition  of WVFCC  subject  to the  terms  and  conditions  set forth in the
agreement.

On December  30, 2005,  the Company  acquired  all of the  outstanding  stock of
WVFCC,  an insurance  company  licensed to engage in business in West  Virginia,
Ohio and Indiana.  The  acquisition  followed the approval of the transaction by
the West  Virginia  Department  of  Insurance,  which  included  approval of the
Company's  business plan to operate the acquired  insurance company as a surety.
The  financing  of the  transaction  consisted  of a  combination  of a  private
placement of preferred stock and warrants to acquire common stock of the Company
in exchange  for cash  totaling  $3,335,000,  of which  $2,900,000  (including a
$40,000 deposit paid in prior periods) was used for the acquisition of WVFCC. In
addition,  approximately $3,668,000 of indebtedness of the Company was converted
into preferred stocks and warrants. Following the acquisition, the name of WVFCC
was changed to First Surety Corporation (FSC).

The acquisition of 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.  Since its acquisition,  the Company has focused
its primary efforts on the initial  development and marketing of the business in
West Virginia and raising  additional  capital to allow for future  expansion of
the business into other states.

RESULTS OF OPERATIONS  AND FINANCIAL  CONDITION AS OF AND FOR THE YEAR ENDED MAY
31, 2007

RESULTS OF OPERATIONS

The Company  experienced a loss of $2,661,431  (after  accretion of  mandatorily
redeemable  convertible preferred stock,  including accrued dividends) in fiscal
2007 as compared with a loss of $1,874,186 in fiscal 2006.  While total revenues
increased from approximately  $333,000 in fiscal 2006 to approximately  $823,000
in fiscal 2007, total expenses increased from approximately $1,482,000 in fiscal
2006 to  approximately  $2,042,000  in fiscal 2007.  The increase in revenues is
attributable  to the  acquisition of FSC and the surety  business it has secured
since  January 1, 2006.  The  increase in expenses  is largely  attributable  to
expenses  relating to the operation of FSC for a full year,  costs  expended for
travel and  professional  fees incurred in the pursuit of additional  capital to
expand  the  business,  and  increased  costs  absorbed  by Jacobs & Company  as
investment  advisor to the Jacobs & Company  Mutual Fund.  Accretion and accrued
dividends on preferred stock increased from approximately $380,000 in fiscal

                                        7

<PAGE>

2006 to  approximately  $1,333,000 in fiscal 2007. This increase is attributable
to the preferred stock issuance being outstanding for only five months in fiscal
2006 as compared with twelve months in fiscal 2007.

FINANCIAL CONDITION

RESTRUCTURED FINANCING

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

As an  inducement  to the  initial  preferred  stock  shareholders,  warrants to
purchase  45,402,996 shares of common stock at an exercise price of one-tenth of
one cent ($.001) per share were issued with a five-year  expiration period. Such
warrants were valued at approximately  $533,000 using the Black-Scholes  pricing
model. Additionally,  the Series B preferred shares were issued at a twenty-five
percent  (25%)  discount  to the  stated  face  value  of  $1,000  per  share or
approximately  $2,217,650  in  total.  Additional  shares  of the  Series B were
subsequently  sold at a discount  of  approximately  four and  one-half  percent
(4.5%) or approximately $36,000.  Accordingly, the recorded values of the Series
A and B preferred stock are being increased to their stated  liquidation  values
using the  interest  method  over a period of five  years and such  amounts  are
categorized  as  accretion  of  mandatorily  redeemable  preferred  stock in the
consolidated statement of operations.

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

The Series A designation was designed for issuance to principals desiring surety
bonds  under FSC's  partially  collateralized  bonding  programs.  As  designed,
proceeds from the sale of Series A preferred  stock is  down-streamed  to FSC to
increase  its  capital  and  insurance  capacity,  although  to the extent  that
proceeds  from the sale of Series B  preferred  shares  was used in the  initial
acquisition  and funding of FSC, the Company was allowed to use such proceeds to
redeem  Series B preferred  stock  (Company  option to redeem) or for funding of
on-going  operations.  In the fiscal year ended May 31, 2007,  proceeds from the
sale of Series A preferred  stock amounted to $318,000 of which $62,000 was used
to redeem Series B preferred shares,  $79,000 was retained for use in funding of
on-going  operations  and $177,000  being  down-streamed  to FSC to increase its
capital  and  surplus.  Effective  June1,  2007,  the  Company has agreed to the
request by the West  Virginia  Insurance  Department  to  downstream  all future
proceeds  from the sale Series A preferred  stock in order to build  capital and
surplus  reserves of the insurance  subsidiary to more substantial  levels.  The
Series A designation contains a conditional redemption feature providing for the
redemption of the Series A shares at any time after the seventh (7th)

                                        8

<PAGE>

anniversary  of the Issue Date,  provided that the principal no longer  requires
surety bonds issued by FSC.  Furthermore,  once redeemed,  the principal will no
longer be eligible to participate in partially  collateralized  bonding programs
offered by FSC.  Surety bonds  currently  being issued by FSC are  primarily for
coal  mining  and  reclamation  permits,  which  are  long-term  in  nature  and
continually  evolve  whereby  outstanding  bonds are  periodically  released  as
properties  are mined and  reclaimed  and new bonds issued for  properties to be
mined in the future.  Accordingly,  this source of financing  was designed to be
long-term by nature.

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

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, 2007, such assets
amounted to approximately $4.07 million.


CRITICAL ACCOUNTING POLICIES AND ESTIMATES

INTANGIBLE ASSETS

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

RESERVE FOR LOSSES AND LOSS EXPENSES

Reserves  for  unpaid  losses  and loss  adjustment  expenses  of the  insurance
subsidiary are estimated using individual  case-basis  valuations in conjunction
with estimates derived from industry and company experience. FSC has experienced
no claims for losses as of May 31, 2007.

                                        9

<PAGE>

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

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

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

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

LIQUIDITY AND GOING CONCERN

The  Company  has  experienced  significant  operating  losses of  approximately
$2,661,000  (after  accretion of mandatorily  redeemable  convertible  preferred
stock,  including  accrued  dividends) and $1,874,000 for the fiscal years ended
May 31, 2007 and 2006,  respectively.  The Company continues to face significant
working capital deficiencies and has not had adequate funds to pay its preferred
stock dividend obligation. While management expects revenue growth and cash flow
to increase  significantly  as its  business  plan is fully  implemented,  it is
anticipated that losses will continue until FSC is able to develop a substantial
book of business.

Expansion  of  FSC's  business  to  other  states  is a key  component  to fully
implementing  the Company's  business plan.  However,  management has found that
entry into other states (as a surety) has been difficult  without the benefit of
more substantial capital and reserves due to FSC's status as new entry into this
market.  Management  believes  that if FSC's  capital and surplus  reserves were
significantly more substantial, entry into other states would be less

                                       10

<PAGE>

challenging.  Accordingly,  management  continues  to  pursue  avenues  that can
provide additional capital to increase the capacity of its insurance  subsidiary
and to fund continuing operations as the business is being fully developed.

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

COMPARISON OF RESULTS OF OPERATIONS FOR FISCAL 2007 WITH 2006

The Company  experienced a loss of $2,661,431  (after  accretion of  mandatorily
redeemable  convertible preferred stock,  including accrued dividends) in fiscal
2007 as compared with a loss of $1,874,186 in fiscal 2006.

REVENUES

Revenues in fiscal 2007 amounted to $823,339 as compared with $332,599 in fiscal
2006. The overall increase in revenues is attributable to the acquisition of FSC
and the surety business it has secured since January 1, 2006.

Revenue from the investment  management segment,  net of advisory referral fees,
was  $275,328  in  fiscal  2007  as  compared  with  $206,922  in  fiscal  2006,
representing  an increase of $68,406.  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 managed  collateral  accounts  associated
with surety bonds issued by FSC.  Investment  advisory fees for  individual  and
corporate  investment  accounts  increased  slightly  from the  addition  of new
clients, although offset by a decrease in advisory fees received from the Jacobs
& Company Mutual fund resulting from a decline in assets under management.

Revenue  from the  surety  insurance  segment,  consisting  of FSC and TSA,  was
$548,011 for fiscal 2007 as compared  with  $125,677  for fiscal 2006.  Revenues
attributable to the insurance segment are as follows:

                                       11

<PAGE>

                                      Year Ended
                                       May 31,
                                   2007         2006
                                 --------    ---------
Premiums and commissions        $ 358,055    $  72,496
Net investment income             189,956       53,181
                                 --------    ---------
                        Total   $ 548,011    $ 125,677
                                =========    =========

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 and growth or loss of business.

While  the  increase  in  revenues   reflected  above  is  attributable  to  the
acquisition  of FSC and the  surety  business  that  has  been  secured  through
Triangle  Surety,  the  increase is skewed as a result of FSC being  acquired on
December 31, 2005 and reflecting  only  five-months of operations in fiscal 2006
as compared  to a  full-year  for fiscal  2007.  Premium  written in fiscal 2007
amounted to $264,639,  as compared  with  $249,018 in fiscal  2006,  and is more
reflective  of the growth  experienced  in this  segment of the business for the
comparable  periods.  Commission  income  earned for the placement of bonds with
outside insurers has remained relatively stagnant.


EXPENSES

Incurred  policy losses  represent  the  provision for loss and loss  adjustment
expense for  "incurred but not reported"  (IBNR) losses  attributable  to surety
bonds issued by FSC since its  acquisition  in December  2005.  Incurred  policy
losses for fiscal 2007 have been recorded as $98,873 or 31.50% of earned premium
as compared to $11,911 or 21.5% of earned  premium  for fiscal  2006.  IBNR loss
estimates  have been based on industry  averages  adjusted  for factors that are
unique to the FSC's  underwriting  approach.  FSC has  experienced no claims for
losses as of May 31, 2007.

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 2007 such costs  amounted  to  $108,065 or 34.4% of earned  premium as
compared with $18,877 or 34.1% in fiscal 2006.

                                       12

<PAGE>

General and administrative  expenses for fiscal 2007 were $1,641,237 as compared
with  $1,304,025 for fiscal 2006,  representing  an increase of $337,212 and are
comprised of the following:


                                             Year Ended May 31,
                                           2007              2006    Difference
                                          ---------     ----------

Salaries and related costs                $ 790,725      $ 579,662    $ 211,063
General office expense                      112,991        103,128        9,863
Legal and other professional fees           304,108        239,836       64,272
Audit, accounting and related services      135,847        114,304       21,543
Travel, meals and entertainment              83,723         62,655       21,068
Other general and administrative            213,843        204,440        9,403
                                         ----------     ----------     ---------

Total general and administrative         $1,641,237    $ 1,304,025    $ 337,212
                                         ============   ============   =========

Salaries and related costs increased  approximately  $211,000.  $121,000 of this
increase was attributable to increased  staffing and related costs  necessitated
by the company's growth and  approximately  $90,000 is attributable to increased
stock option expense.

In fiscal 2007, legal and professional  fees of approximately  $304,000 included
approximately  $207,250  relating  to the  Company's  on-going  efforts to raise
additional  capital for the expansion of the surety  business into other states.
In  fiscal  2006,  legal  and  professional   fees  of  approximately   $240,000
includedapproximately  $167,000 relating to the Company's acquisition of FSC and
efforts to raise additional capital.  Other legal and professional fees incurred
in the respective years were for other corporate matters.

Expenses  related  to  audit,  accounting  and  related  services  increased  by
approximately  $21,500 over fiscal 2006 and can be  attributed to the annual and
quarterly statutory filings required of FSC and other financial reporting issues
encountered in fiscal 2007.

Expenses related to travel,  meals and entertainment  increased by approximately
$21,000 over fiscal 2006 and the increase is primarily attributable to increased
travel relating to the Company's  on-going efforts to raise  additional  capital
and to expand its surety business to other states.

J&C is the investment  advisor to the Jacobs & Company Mutual Fund (the "Fund").
While  the Fund is  responsible  for its own  operating  expenses,  J&C,  as the
advisor,  has agreed to limit the Fund's aggregate annual operating  expenses to
2.00% of the average net assets.  Under this expense limitation  agreement,  J&C
absorbed $181,612 of the Fund's operating expenses in fiscal 2007 as compared to
$138,695 in fiscal 2006. As the Fund grows in size (of assets under management),
expenses  (in excess of the 2% level)  absorbed by J&C will  decrease  until the
Fund  reaches  sufficient  size to support  its  on-going  operating  costs.  In
contrast, as the Fund grows in size, revenues from investment advisory fees will
increase. Additionally, should the Fund's operating expense ratio fall below the
2.00% level,  the costs absorbed by the Company are now reimbursable to it for a
period of up to three years. In fiscal 2007, the Fund's investment advisory fees
amounted to $46,444 as compared to $52,839 in fiscal 2006. The Fund's assets

                                       13

<PAGE>

under  management  declined  from  approximately  $5.0  million  in May  2006 to
approximately  $4.4 million in May 2007  resulting in the increased  expense and
decline in revenues experienced in fiscal 2007.

GAIN ON EXTINGUISHMENT OF DEBT

In December  2006,  the Company  repaid an obligation to a creditor  relating to
professional  fees incurred in the Company's 2002 fiscal year in connection with
litigation resulting from a failed business combination  transaction.  Under the
terms of an agreement  reached in October  2006,  the  creditor  agreed to waive
payment of any accrued  interest on the  obligation  provided the obligation was
paid by a certain agreed-upon date. As of November 30, 2006, accrued interest on
this obligation totaled $42,445, and accordingly,  upon satisfaction of the debt
in accordance  with such  agreement,  a gain on the  extinguishment  of debt was
recognized.

INTEREST EXPENSE AND INTEREST INCOME

Interest  expense in fiscal 2007  amounted to $153,020 as compared with $345,031
in fiscal 2006, representing a decrease of $192,011.  Interest expense in fiscal
2007 also includes an additional  accrual of  approximately  $98,125 relating to
additional interest owed on the Company's payroll tax liability, based on recent
notices  provided  by  the  Internal  Revenue  Service.  Such  amount  has  been
classified  with  the  obligation  and  included  in  other  liabilities  in the
Consolidated  Balance  Sheet.  The  decrease  is  largely  attributable  to  the
restructuring of the Company's  financing  accomplished  through the issuance of
its Series B  preferred  stock in December  2005.  After this  refinancing,  the
Company's  borrowings  under  short-term  financing   arrangements  amounted  to
approximately  $167,000 and were reduced to approximately $158,000 as of May 31,
2006.  In  fiscal  2007,   additional   borrowings  under  short-term  borrowing
arrangements were required in order to fund on-going  operations.  As of May 31,
2007, such short-term borrowing arrangements amounted to approximately $410,000.

Other income reflects interest earned on amounts due from a related party.

ACCRETION AND DIVIDENDS

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

                                            Year ended May 31,
                                            2007          2006
                                        -----------    ---------

Accretion of discount                    $ 494,651     $ 195,659
Accrued dividends                          827,797       184,512
Excess redemption price                     10,717             -
                                        -----------    ---------
                    Total               $1,333,165     $ 380,171
                                        ===========    =========

                                       14

<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 7. FINANCIAL STATEMENTS

The following financial statements are included herein in response to Item 7:

                                                                        PAGE

         Table of Contents                                               F-1

         Report of Independent Registered Public Accounting Firm         F-2

         FINANCIAL STATEMENTS

         Consolidated Balance Sheet                                      F-3
         Consolidated Statement of Operations                            F-4
         Consolidated Statement of Cash Flows                            F-5
         Consolidated Statement of Mandatorily Redeemable
                  Preferred Stock and Stockholders' Equity               F-7
         Notes to Consolidated Financial Statements                      F-9

         SCHEDULES

         Schedule I - Summary of Investments - Other than
                  Investments in Related Parties                         F-40
         Schedule II - Condensed Financial Information of
                  Registrant                                             F-41
         Schedule III - Supplementary Insurance Information              F-43
         Schedule VI - Supplemental Information                          F-44

                                       15

<PAGE>
                           JACOBS FINANCIAL GROUP, INC.
                                AND SUBSIDIARIES
                              FINANCIAL STATEMENTS


                                TABLE OF CONTENTS

                                                                        PAGE

         Report of Independent Registered Public Accounting Firm         F-2

         FINANCIAL STATEMENTS

         Consolidated Balance Sheet                                      F-3
         Consolidated Statement of Operations                            F-4
         Consolidated Statement of Cash Flows                            F-5
         Consolidated Statement of Mandatorily Redeemable
                  Preferred Stock and Stockholders' Equity               F-7
         Notes to Consolidated Financial Statements                      F-9

         SCHEDULES

         Schedule I - Summary of Investments - Other than
                  Investments in Related Parties                         F-40
         Schedule II - Condensed Financial Information of
                  Registrant                                             F-41
         Schedule III - Supplementary Insurance Information              F-43
         Schedule VI - Supplemental Information                          F-44











                                       F-1


<PAGE>
Malin, Bergquist & Company, LLP
CERTIFIED PUBLIC ACCOUNTANTS & Business Advisors


             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 sheet of Jacobs Financial
Group,  Inc. as of May 31,  2007,  and the related  consolidated  statements  of
operations,   cash  flows,  and  mandatorily   redeemable  preferred  stock  and
stockholders'  equity for each of the years in the two-year period ended May 31,
2007. These  consolidated  financial  statements are the  responsibility  of the
company's  management.  Our  responsibility  is to  express  an opinion on these
consolidated financial statements 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 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 Jacobs
Financial Group,  Inc. as of May 31, 2007, and the results of its operations and
its cash flows for each of the years in the  two-year  period ended May 31, 2007
in conformity with accounting principles generally accepted in the United States
of America.

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

Pittsburgh, PA
September 12, 2007


                                       F-2

<PAGE>

JACOBS FINANCIAL GROUP, INC.
CONSOLIDATED BALANCE SHEET
<TABLE>
<CAPTION>


                                                                                               MAY 31, 2007
                                                                                               -----------
ASSETS

 INVESTMENTS AND CASH:
<S>                                                                                            <C>
  Bonds held to maturity, at amortized costs                                                   $ 2,316,875
        (market value - 05/31/07 $2,308,003)
  Mortgage-back securities held to maturity, at amortized costs                                  1,369,411
        (market value - 05/31/07 $1,367,365)
  Short-term investments, at cost (approximates market value)                                      335,729
  Cash                                                                                              25,298
                                                                                               -----------

                                     TOTAL INVESTMENTS AND CASH                                  4,047,313


  Investment income due and accrued                                                                 35,294
  Premiums and other accounts receivable                                                            38,668
  Deferred policy acquisition costs                                                                 52,365
  Furniture and equipment, net of accumulated depreciation of $113,919                              23,628
  Other assets                                                                                      22,801
  Intangible assets                                                                                150,000
                                                                                               -----------

                                                   TOTAL ASSETS                                $ 4,370,069
                                                                                               ===========


LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)

  Reserve for losses and loss expenses                                                           $ 110,784
  Reserve for unearned premiums                                                                    144,188
  Advance premiums                                                                                 127,034
  Accrued expenses and professional fees                                                           547,965
  Accounts payable                                                                                 345,895
  Notes payable                                                                                    410,136
  Accrued interest payable                                                                          16,095
  Other liabilities                                                                                511,751
                                                                                               -----------

                                              TOTAL LIABILITIES                                  2,213,848

  SERIES A  PREFERRED  STOCK,  $.0001  par value  per  share;  1 million  shares
  authorized; 1,427 shares issued and outstanding; stated
  liquidation value of $1,000 per share                                                          1,420,913
  SERIES B PREFERRED STOCK, $.0001 par value per share; 9,941.341
  shares authorized;  9,596.940 shares issued and outstanding;  stated
  liquidation value of $1,000 per share                                                          8,526,059
                                                                                               -----------
                                                                                                 9,946,972
                   TOTAL MANDATORILY REDEEMABLE PREFERRED STOCK


STOCKHOLDERS' EQUITY (DEFICIT)

  Common  stock,  $.0001  par value per  share;  490  million  shares
  authorized; 156,997,836 shares  issued and outstanding                                            15,700
  Additional paid in capital                                                                     2,082,647
  Accumulated deficit                                                                           (9,889,098)

                            TOTAL STOCKHOLDERS' EQUITY (DEFICIT)                                (7,790,751)
                                                                                               -----------

                       TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)                    $ 4,370,069
                                                                                               ===========

         The  accompanying  notes are an integral part of these  consolidated financial statements.
</TABLE>


                                       F-3

<PAGE>
JACOBS FINANCIAL GROUP, INC,
CONSOLIDATED STATEMENT OF OPERATIONS



<TABLE>
<CAPTION>
                                                                              YEAR ENDED MAY 31,
                                                                        -----------------------------
                                                                            2007              2006
                                                                        -----------       -----------

REVENUES:

<S>                                                                    <C>               <C>
 Investment advisory services                                          $   270,133       $   206,922
 Insurance premiums and commissions                                        358,055            72,496
 Net investment income                                                     189,956            53,191
 Net realized investment gains (losses)                                          -               (10)
 Other income                                                                5,195                 -
                                                                        -----------       -----------
                                        TOTAL REVENUES                     823,339           332,599


EXPENSES:

 Incurred policy losses                                                     98,873            11,911
 Insurance policy acquisition costs                                        108,065            18,877
 General and administrative                                              1,641,237         1,304,025
 Mutual fund costs                                                         181,612           138,695
 Depreciation                                                               12,419             8,075
                                                                        -----------       -----------
                                        TOTAL EXPENSES                   2,042,206         1,481,583
                                                                        -----------       -----------

                       NET INCOME (LOSS) FROM OPERATIONS                (1,218,867)       (1,148,984)

 Gain on debt extinguishment                                                42,445                 -
 Interest expense                                                         (153,020)         (345,031)
 Interest income                                                             1,176                 -
                                                                        -----------       -----------

                                      NET INCOME (LOSS)                 (1,328,266)       (1,494,015)

 Accretion of Mandatorily Redeemable Convertible
  Preferred Stock, including accrued dividends                          (1,333,165)         (380,171)
                                                                        -----------       -----------

           NET INCOME (LOSS) ATTRIBUTABLE TO COMMON STOCKHOLDERS       $(2,661,431)      $(1,874,186)
                                                                        ===========       ===========


BASIC AND DILUTIVE NET INCOME (LOSS) PER SHARE:

NET INCOME (LOSS) PER SHARE                                            $     (0.02)       $    (0.01)
                                                                        ===========       ===========


WEIGHTED-AVERAGE SHARES OUTSTANDING                                    156,281,466       133,022,038
                                                                       ===========       ===========

     The  accompanying  notes are an integral part of these  consolidated financial statements.
</TABLE>


                                       F-4



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

                                                                              YEAR ENDED MAY 31
                                                                        -----------------------------
                                                                            2007            2006
                                                                        ------------      -----------

CASH FLOWS FROM OPERATING ACTIVITIES

<S>                                                                    <C>             <C>
 Net Income (Loss)                                                     $ (1,328,266)   $ (1,494,015)

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

   Unearned and advance premium                                              77,606         193,616
   Stock option expense                                                     206,682         117,979
   Stock issued for debt forbearance and guarantees                               -          61,775
   Provision for loss reserves                                               98,873          11,911
   Amortization of premium                                                   29,745           9,336
   Depreciation                                                              12,419           8,075
   Realized gains (losses) on sale of securities                                  -              10
   Premium and other receivables                                              9,106         (19,488)
   Accretion of Discount                                                     (5,024)        (20,274)
   Investment income due and accrued                                            652         (40,382)
   Deferred policy acquisition costs                                         18,034         (70,399)
   (Gain) on extinguishment of debt                                         (42,445)              -
   Change in operating assets and liabilities:
     Other assets                                                            11,062         (26,303)
     Accounts payable and cash overdraft                                    (60,711)        176,550
     Accrued expenses and other liabilities                                 413,507         323,665
                                                                        ------------      -----------

                    NET CASH FLOWS FROM (USED IN) OPERATING ACTIVITIES     (558,760)       (767,944)

CASH FLOWS FROM INVESTING ACTIVITIES

 Advances to related party                                                  (76,173)        361,009
 Repayments from related party                                              127,227
(Increase) decrease of short-term investments                               861,002         656,317
 Repayment of mortgage-backed securities                                    431,064          89,672
 Redemption of bonds upon maturity                                          500,000               -
 Costs of bonds acquired                                                 (1,793,901)       (170,078)
 Costs of mortgage-backed securities acquired                              (473,036)     (1,389,911)
 Acquisition of insurance company                                                 -      (2,860,000)
 Purchase of furniture and equipment                                         (6,007)        (27,456)
                                                                        ------------      -----------

                    NET CASH FLOWS FROM (USED IN) INVESTING                (429,824)     (3,340,447)

CASH FLOWS FROM FINANCING ACTIVITIES

 Proceeds from related party debt                                           158,166               -
 Repayment of related party debt                                           (197,448)              -
 Proceeds from issuance of Series A preferred stock and warrants            318,000       1,109,000
 Proceeds from issuance of Series B preferred stock and warrants            542,258       3,191,921
 Redemption of Series B preferred stock                                     (62,477)              -
 Proceeds from issuance of common stock                                      17,742          18,079
 Proceeds from exercise of common stock warrants                              1,500          14,171
 Proceeds from borrowings                                                   375,000       1,038,531
 Repayment of borrowings                                                   (138,859)     (1,263,748)
                                                                        ------------      -----------

            NET CASH FLOWS FROM FINANCING ACTIVITIES                      1,013,882       4,107,954

NET INCREASE (DECREASE) IN CASH                                              25,298            (437)

CASH AT BEGINNING OF PERIOD                                                       -             437
                                                                        ------------      -----------

CASH AT END OF PERIOD                                                  $     25,298       $       -
                                                                        ============      ===========

      The  accompanying  notes are an integral part of these  consolidated financial statements.
</TABLE>

                                                  F-5

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

                                                                              YEAR ENDED MAY 31
                                                                        -----------------------------
                                                                            2007            2006
                                                                        ------------      -----------

SUPPLEMENTAL DISCLOSURES
<S>                                                                    <C>                <C>
 Interest paid                                                         $     49,388       $ 188,022
 Income taxes paid                                                                -               -
 Non-cash investing and financing transactions:
 Assumption of accounts payable by related party                            365,000               -
 Additional consideration for issuance of debt                                    -          61,775
 Accrued interest converted to notes payable                                      -          20,740
 Notes payable converted to Series B preferred stock                              -       3,480,026
 Accrued interest converted to Series B preferred stock                           -         154,184
 Accounts payable converted to Series B preferred stock                           -          33,740

 Acquisition of business (See Note C)





























       The  accompanying  notes are an integral part of these  consolidated financial statements.
</TABLE>

                                                  F-6

<PAGE>

JACOBS FINANCIAL GROUP, INC.
CONSOLIDATED STATEMENT OF MANDATORILY REDEEMABLE PREFERRED STOCK AND
STOCKHOLDERS' EQUITY (DEFICIT)

<TABLE>
<CAPTION>
                                                               SERIES B
                                    SERIES A            MANDATORILY REDEEMABLE
                             MANDATORILY REDEEMABLE          CONVERTIBLE
                                 PREFERRED STOCK           PREFERRED STOCK
                              SHARES        AMOUNT       SHARES       AMOUNT
                              -------       -------      -------      -------
                             -------------------------------------------------

<S>                             <C>     <C>          <C>         <C>
BALANCE, MAY 31, 2006           1,109   $ 1,035,841  9,095.599   $ 6,780,186

 Issuance of Series A
  and B Preferred Stock
  and common stock               318        318,000    560.000       542,258

 Issuance of common stock
  upon exercise of warrants        -              -          -             -

 Accretion of mandatorily
  redeemable convertible
  preferred stock                  -         15,199          -       479,451

 Accrued dividends of
  mandatorily redeemable
  convertible preferred stock      -         51,873          -       775,924

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

 Common stock option expense       -              -          -             -

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

BALANCE, MAY 31, 2007          1,427   $ 1,420,913   9,596.940   $ 8,526,059
                               ======  ============  ==========  ===========
</TABLE>

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


                                       F-7



<PAGE>
JACOBS FINANCIAL GROUP, INC.
CONSOLIDATED STATEMENT OF MANDATORILY REDEEMABLE PREFERRED STOCK AND
STOCKHOLDERS' EQUITY (DEFICIT) (CONTINUED)

<TABLE>
<CAPTION>

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

                                          STOCKHOLDERS' EQUITY (DEFICIT)

                           -----------------------------------------------------------------
                             ADDITIONAL
                              PAID-IN                             ACCUMULATED
                              SHARES        AMOUNT     CAPITAL      DEFICIT        TOTAL
                              -------       -------    -------      -------        -----
                           -----------------------------------------------------------------

<S>                          <C>           <C>       <C>          <C>           <C>
BALANCE, MAY 31, 2006        154,937,836   $ 15,494  $ 1,856,929  $(7,227,668)  $(5,355,245)

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

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

 Accretion of mandatorily
  redeemable convertible
  preferred stock                      -          -            -     (494,650)     (494,650)

 Accrued dividends of
  mandatorily redeemable
  convertible preferred stock          -          -            -     (827,797)     (827,797)

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

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

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

BALANCE, MAY 31, 2007        156,997,836   $ 15,700  $ 2,082,647   $(9,889,098)  $(7,790,751)
                             ===========  ========= ============  ============  ============
</TABLE>

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

                                       F-7
                                   (continued)

<PAGE>

JACOBS FINANCIAL GROUP, INC.
CONSOLIDATED STATEMENT OF MANDATORILY REDEEMABLE PREFERRED STOCK
AND STOCKHOLDERS' EQUITY (DEFICIT)


<TABLE>
<CAPTION>

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

                                                                                        STOCKHOLDERS' EQUITY (DEFICIT)
                                                       SERIES B
                                  SERIES A       MANDATORILY REDEEMABLE  -----------------------------------------------------------
                           MANDATORILY REDEEMABLE    CONVERTIBLE                              ADDITIONAL
                               PREFERRED STOCK     PREFERRED STOCK                             PAID-IN    ACCUMULATED
                             SHARES      AMOUNT  SHARES     AMOUNT      SHARES      AMOUNT     CAPITAL      DEFICIT        TOTAL
                            -------- ----------  -------   ---------   -----------  --------  ------------  -----------  -----------
<S>                         <C>      <C>         <C>       <C>         <C>          <C>       <C>           <C>          <C>

BALANCE, MAY 31, 2005               -          -        -           -  122,663,860    12,266     1,115,138  (5,353,482)  (4,226,078)

Issuance of Series A and
 Series B Preferred Stock and   1,109  1,025,957 9,095.599  6,409,899      225,000        23       551,072           -      551,095
 Common Stock Warrants

Issuance of common stock upon
 exercise of warrants               -          -        -           -   30,331,476     3,033        11,138           -       14,171

Accretion of mandatorily
 redeemable convertible
 preferred stock                    -      6,094        -     189,565            -         -             -     (195,659)   (195,659)

Issuance of common stock as
 additional consideration for
 financing arrangements                                                  1,717,500       172        61,602                   61,774

Accrued dividends of
 mandatorily redeemable
 convertible preferred stock               3,790              180,722                                          (184,512)   (184,512)

Issuance of common stock
 options                                                                                           117,979                  117,979

Net income (loss), from
 operations, year ended
 May 31, 2006                       -          -        -           -            -         -             -   (1,494,015) (1,494,015)
                             -------- ----------  -------   ---------  -----------  --------  ------------  -----------  -----------

BALANCE, MAY 31, 2006           1,109 $1,035,841 9,095.599 $6,780,186  154,937,836  $ 15,494  $  1,856,929  $(7,227,668)$(5,355,245)
                             ======== ==========  =======   =========  ===========  ========  ============  ===========  ===========
                             ----------------------------------------  -------------------------------------------------------------

</TABLE>





               Theaccompanying notes are an integral part of these
                       consolidated financial statements.

                                       F-8

<PAGE>


                           JACOBS FINANCIAL GROUP INC.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


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

ORGANIZATION AND NATURE OF BUSINESS

Jacobs Financial Group, Inc. (the "Company" or "JFG"),  formerly NELX, Inc., was
incorporated in Kansas on March 25, 1983. In 2001, the Company  acquired all the
outstanding  stock of two  corporations  located in  Charleston,  West Virginia:
Jacobs &  Company  ("Jacobs")  and FS  Investments,  Inc.  ("FSI").  Jacobs is a
registered  investment  advisory firm that derives its revenue from  asset-based
investment  advisory fees. FSI,  through its  wholly-owned  subsidiary  Triangle
Surety Agency, Inc.  ("Triangle"),  is engaged in the business of placing surety
bonds with insurance companies for clients engaged in regulated industries, such
as the extraction of coal, oil and gas. FSI receives  commission income from the
placement of these bonds and is licensed in ten states  primarily in the eastern
United States. On December 30, 2005, the Company acquired all of the outstanding
stock of West Virginia Fire & Casualty Company  ("WVFCC"),  an insurance company
licensed to engage in business in West Virginia, Ohio and Indiana. Following the
acquisition,  the name of WVFCC was changed to First Surety Corporation ("FSC").
FSC receives  insurance premium income in connection with the issuance of surety
bonds.  The  Company and its  subsidiaries  are  subject to the  business  risks
inherent in the financial services industry.

LIQUIDITY AND GOING CONCERN

These  financial  statements  are  presented  on the basis that the Company is a
going  concern.  Going concern  contemplates  the  realization of assets and the
satisfaction  of  liabilities in the normal course of business over a reasonable
length of time.  The Company  incurred  losses (after  accretion of  mandatorily
redeemable   convertible  preferred  stock,   including  accrued  dividends)  of
approximately  $2,661,000  and  $1,874,000  for the years ended May 31, 2007 and
2006. Losses are expected to continue until FSC develops  substantial  business.
While improvement is anticipated as the Company's  business plan is implemented,
restrictions on the use of FSC's assets (See Note D), the company's  significant
deficiency in working capital and  stockholders'  equity raise substantial doubt
about the Company's ability to continue as a going concern.

                                       F-9

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

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


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

PRINCIPLES OF CONSOLIDATION

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

USE OF ESTIMATES

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

RECENT ACCOUNTING PRONOUNCEMENTS

In December  2004,  the  Financial  Accounting  Standards  Board  (FASB)  issued
Statement  of  Financial  Accounting  Standard  ("SFAS")  No. 123R  "Share-Based
Payment" ("SFAS 123R"),  a revision to SFAS No. 123 "Accounting for Stock- Based
Compensation"  ("SFAS 123"),  and superseding APB Opinion No. 25 "Accounting for
Stock Issued to Employees" and its related  implementation  guidance.  SFAS 123R
establishes  standards for the  accounting for  transactions  in which an entity
exchanges  its equity  instruments  for goods or services,  including  obtaining
employee services in share-based payment transactions.  SFAS 123R applies to all
awards  granted  after  the  required  effective  date and to  awards  modified,
repurchased,  or cancelled  after that date.  Adoption of the provisions of SFAS
123R is effective as of the beginning of the first annual reporting period that

                                      F-10

<PAGE>

                           JACOBS FINANCIAL GROUP INC.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

begins after June 15,  2005.  JFG has adopted the  provisions  of SFAS 123R with
respect to its stock-based compensation plan (See Note L).

In  December  2004,  the FASB  issued  FASB  Statement  No.  153  "Exchanges  of
Nonmonetary  Assets-an  amendment  of  APB  Opinion  Non.  29".  This  Statement
addresses the  measurement of exchanges of nonmonetary  assets.  The guidance in
APB Opinion No. 29,  ACCOUNTING FOR  NONMONETARY  TRANSACTIONS,  is based on the
principle that  exchanges of nonmonetary  assets should be measured based on the
fair value of the assets  exchanged.  The  guidance  in that  Opinion,  however,
included certain exceptions to that principle.  This Statement amends Opinion 29
to eliminate  the  exception  for  nonmonetary  exchanges of similar  productive
assets and replaces it with a general  exception  for  exchanges of  nonmonetary
assets  that do not  have  commercial  substance.  A  nonmonetary  exchange  has
commercial  substance  if the future  cash flows of the entity are  expected  to
change  significantly  as a result of the exchange.  This Statement is effective
for financial statements for fiscal years beginning after June 15, 2005. Earlier
application was permitted for nonmonetary asset exchanges incurred during fiscal
years beginning after the date of this Statement was issued. The adoption of the
provisions  of SFAS No.  153 did not have a  material  impact  on the  Company's
results of operations or financial position.

In June 2005,  the FASB  issued  Statement  154,  "Accounting  Changes and Error
Corrections"  which  replaces APB Opinion 20 and FASB Statement 3. Statement 154
changes  the  requirements  for the  accounting  and  reporting  of a change  in
accounting principle. Opinion 20 previously required that most voluntary changes
in accounting principles be recognized by including the cumulative effect of the
new  accounting  principle in net income of the period of change.  Statement 154
now requires  retrospective  application  of changes in accounting  principle to
prior period financial statements,  unless it is impractical to determine either
the  period-specific  effects  or  the  cumulative  effect  of the  change.  The
statement was effective for fiscal years  beginning after December 15, 2005. The
adoption of the provisions of SFAS No. 154 did not have a material impact on the
Company's results of operations or financial position.

In  February  2006,  FASB  issued SFAS No. 155  "Accounting  for Certain  Hybrid
Financial  Instruments-an  amendment of FASB  Statements No. 133 and 140".  This
statement  address  accounting  issues  relating  to  beneficial   interests  in
securitized  financial  assets.  This  Statement is effective  for all financial
instruments  acquired or issued after the beginning of an entity's  first fiscal

                                      F-11

<PAGE>

                           JACOBS FINANCIAL GROUP INC.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

year that  begins  after  September  15,  2006.  Management  does not expect the
adoption  of the  provisions  of SFAS No. 155 to have a  material  impact on the
Company's results of operations or financial position.

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

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

SFAS No. 157 defines fair value,  establishes  a framework  for  measuring  fair
value in generally accepted accounting principles, and expands disclosures about
fair value  measurements.  The  Statement  does not  require  any new fair value
measurements, however, for some entities, the application of this Statement will
change  current  practice.  This  Statement  is to be adopted  for fiscal  years
beginning  after  November 15,  2007,  and interim  periods  within those fiscal
years. Management does not expect the adoption of the provisions of SFAS No. 157
to have a material  impact on the  Company's  results of operations or financial
position.

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

                                      F-12

<PAGE>

                           JACOBS FINANCIAL GROUP INC.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

In  September  2006,  the  Securities  and  Exchange   Commission  issued  Staff
Accounting  Bulletin  (SAB) No.  108  "Considering  the  Effects  of Prior  Year
Misstatements   when   Quantifying   Misstatements  in  Current  Year  Financial
Statements." SAB 108 provides guidance on the consideration of the effprior year
misstatements  in quantifying  current year  misstatements  for the purpose of a
materiality  assessment.  SAB 108 is  effective  for fiscal  years  ending after
November 15, 2006. The  application of SAB 108 did not have a material impact on
the Company's results of operations or financial position.

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

In June 2006,  Financial  Accounting Standards Board Interpretation (FIN) No. 48
"Accounting  for  Uncertainty  in Income Taxes" was issued and  interprets  FASB
Statement No. 109  "Accounting  for Income  Taxes.  FIN No. 48  establishes  the
accounting for uncertain tax positions, including recognition and measurement of
their  financial  statement  effects.  FIN No. 48 is effective  for fiscal years
beginning  after December 15, 2006. The Company has  significant  operating loss
carryforwards,  the benefits of which having been fully  reserved by a valuation
allowance of the same amount due to uncertainty as to the likelihood of ultimate
realization.  Management is in the process of evaluating the implications of FIN
No. 48, and while no material  impact on the Company's  results of operations or
financial position are foreseen.

                                      F-13

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

REVENUE RECOGNITION

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

Surety  premiums  are 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 is reviewed for  recoverability  based on the  profitability  of the
underlying   surety  policy.   Investment  income  is  not  anticipated  in  the
recoverability of deferred policy acquisition costs.

INVESTMENTS

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

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

                                      F-14

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

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

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

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

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

ALLOWANCE FOR UNCOLLECTIBLE PREMIUM AND OTHER RECEIVABLES

The majority of our fee revenue is  generated by services  provided to companies
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 as  uncollectible  if not collected within 120 days.
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
facilities.


                                      F-15


<PAGE>

                           JACOBS FINANCIAL GROUP INC.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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.

INCOME TAXES

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

STOCK-BASED COMPENSATION

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

                                      F-16

<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.

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  2006  Consolidated  Financial  Statements  have  been
reclassified  to  be  consistent  with  the  presentation  in  the  Consolidated
Financial  Statements  as of May 31,  2007 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.

NOTE C-ACQUISITION
------------------

On December 30, 2005, the Company acquired all of the outstanding  stock of West
Virginia Fire and Casualty  Company  (WVFCC),  an insurance  company licensed to
engage in business in West Virginia,  Ohio and Indiana. The acquisition followed
the approval of the  transaction  by the West Virginia  Department of Insurance,
which included  approval of the Company's  business plan to operate the acquired
insurance company as a surety.  The financing of the transaction  consisted of a
combination  of a private  placement of preferred  stock and warrants to acquire
common stock of the Company in exchange for cash totaling  $3,335,000,  of which
$2,860,000  was used for the  acquisition of WVFCC.  In addition,  approximately
$3,668,000 of  indebtedness  of the Company was converted into preferred  stocks
and warrants.  Following the acquisition, the name of WVFCC was changed to First
Surety Corporation (FSC).

                                      F-17

<PAGE>

                           JACOBS FINANCIAL GROUP INC.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

The  acquisition of FSC allows the Company to pursue its business plan to market
and issue surety bonds utilizing programs developed by the Company's subsidiary,
FS  Investments,  Inc. (FSI).  FSI's  subsidiary,  Triangle Surety Agency,  Inc.
(TSA), served as managing general agent for First Surety. Collateral required as
a condition  of the  issuance  of surety  bonds  under the  insurance  company's
programs is  generally  managed by the  investment  advisory  subsidiary  of the
Company, Jacobs & Company (J&C).

The  successful  implementation  of the business plan by the Company will create
revenue  streams  from  insurance  premium for the  issuance of surety bonds and
investment  advisory fees relating to the management of the collateral  securing
the surety bonds. The bonding programs offered are specialized in nature and are
targeted to the coal and oil & gas industries.

The acquisition of WVFCC consisted of the purchase of marketable investments and
insurance licenses and did not include any existing policies or customer base as
the insurance  lines of business  offered by WVFCC are not insurance  lines that
the Company intends to pursue.  Accordingly,  pro forma information  relating to
the acquisition as if it had occurred as of the beginning of the reported period
has been omitted as it would not be meaningful. The Company's Consolidated
Financial Statements include the assets, liabilities and results of operationsof
FSC subsequent to its acquisition on December 30, 2005.

NOTE D - INVESTMENTS
--------------------

The Company's  insurance  subsidiary  (FSC) held the following  investments,  by
security type, with the positive intent and ability to hold to maturity:

                                              MAY 31, 2007

                                              GROSS       GROSS
                              AMORTIZED     UNREALIZED  UNREALIZED  FAIR MARKET
                                COST          GAINS       LOSSES       VALUE
                              ---------     ----------  ---------   ----------
  U. S. Government and
  government agencies        $2,216,875     $     199   $   9,071   $2,208,003

  U.S Government agency
  mortgage-backed
  securities                  1,369,411         1,728       3,774    1,367,365

  Certificate of deposit        100,000             -           -      100,000
                             ----------     ---------  ----------   ----------

                             $3,686,286     $   1,927   $  12,845   $3,675,368
                             ==========     =========  ==========   ==========


                                      F-18

<PAGE>


The  amortized  cost and  estimated  market  values  of  investments  in  fixed-
maturities held-to-maturity at May 31, 2007 are as follows:

                                                     AMORTIZED       FAIR MARKET
                                                       COST             VALUE
                                                     ----------      -----------

         Due in one year or less                     $  450,692      $   449,469

         Due after one year through five years          869,199          866,968

         Due after five years through ten years         996,984          991,566
                                                     ----------      -----------

                                                     $2,316,875      $ 2,308,003
                                                     ==========      ===========



U.S. government agency mortgaged-backed securities held by the Company as of May
31,  2007  have  the  following   estimated  average  remaining  life.  Expected
maturities  differ  from  contractual   maturities   because  borrowers  of  the
underlying mortgages have a right to prepay obligations.

                                                      AMORTIZED    FAIR MARKET
                                                         COST         VALUE
                                                     ----------    -----------

         Due in one year or less                     $   16,610    $    16,379

         Due after one year through five years          569,533        568,453

         Due after five years through ten years         783,268        782,533
                                                     ----------    -----------

                                                     $1,369,411    $ 1,367,366
                                                     ==========    ===========

Statutory  deposits  consisting of securities  with a carrying value of $522,791
were  deposited by the Company's  insurance  subsidiary  under  requirements  of
regulatory  authority.  In connection with regulatory  approval of the Company's
acquisition of its insurance  subsidiary,  certain  restrictions were imposed on
the ability of the Company to withdraw  funds from FSC without prior approval of
the Insurance Commissioner.  Accordingly,  investments and cash in the amount of
$4,034,630 as of May 31, 2007 are restricted to the use of FSC.

The Company held no investments classified as available-for-sale.

                                      F-19

<PAGE>

                           JACOBS FINANCIAL GROUP INC.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

An analysis of net investment income follows:

                                                2007             2006
                                             --------          --------

       Bonds-fixed maturities                $ 55,836          $ 17,027

       Mortgage-backed securities              71,132             6,913

       Short-term investments                  63,779            32,880
                                             --------          --------

       Total investment income                190,747            56,820

       Investment expenses                        791             3,629
                                             --------          --------

       Net investment income                 $189,956          $ 53,191
                                             ========          ========


The realized  investment  gains  (losses) and increase  (decrease) in unrealized
appreciation of investments were as follows:

                                                       2007             2006
                                                    --------         ---------

     Realized gains (losses) on investments:

              Bonds-fixed maturities                $      -         $      -

              Mortgage-backed securities                   -                -

              Short-term investments                       -              (10)
                                                    --------         ---------

     Realized gains (losses)                        $      -         $    (10)
                                                    ========         =========



     Increase (decrease) in unrealized appreciation of investments:

              Bonds-fixed maturities                $ (3,061)       $  (5,811)

              Mortgage-backed securities              15,624          (17,670)
                                                    --------         ---------

     Increase (decrease) in
       unrealized appreciation                      $ 12,563        $ (23,481)
                                                    ========         =========

                                      F-20

<PAGE>

                           JACOBS FINANCIAL GROUP INC.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE E-DEFERRED POLICY ACQUISITION COSTS
----------------------------------------

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

                                                      2007           2006
                                                    ---------     ----------

         Balance at beginning of year              $  70,399      $       -

         Acquisition costs deferred                   90,031         89,276

         Amortization charged to operations         (108,065)       (18,877)
                                                    ---------     ----------

         Balance at end of year                    $  52,365      $  70,399
                                                    =========     ==========



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, 2007 and 2006.


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, 2007, the Company's
insurance subsidiary, FSC, is only licensed to write surety in West Virginia and
has focused its primary  efforts  towards coal permit bonds while also providing
other  miscellaneous  surety bonds that are substantially  secured by collateral
consisting of investment accounts that are managed by Jacobs.

Reclamation  of land that has been  disturbed by mining  operations  is a highly
regulated by federal and state  agencies and the  required  bonds are  generally
long-term in nature with mining operations and reclamation work .being conducted
in unison as the property is being mined.  Additionally,  no two  principals  or
properties are alike due to varied company structures and unique

                                      F-21

<PAGE>

                           JACOBS FINANCIAL GROUP INC.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

geography  and geology of each site.  In  underwriting  such  bonds,  management
obtains estimates of costs to reclaim the properties subject of the permit(s) in
accordance  with those  mining  permit(s),  as prepared by  independent  outside
professionals  experienced  in this field of work, and hired by FSC, in addition
to other  underwriting  and  financial  risk  considerations.  FSC  requires the
principal  to provide  cash in amounts  deemed to be  sufficient  to reclaim the
disturbed land and thus mitigate the exposure to significant  loss. Such cash is
invested  in  investment   collateral   accounts  managed  by  Jacobs  utilizing
conservative   investment   strategies.   Inspections  of  mining  activity  and
reclamation  work are performed on a regular basis with initial costs  estimates
being updated  periodically.  Should the principal  default in the obligation to
reclaim the property in accordance  with the mining  permit,  FSC would then use
the funds held in the  collateral  account to reclaim  the  property or would be
required  to forfeit the face amount of the bond to the agency to which the bond
is  issued.  Losses  can  occur if the  costs of  reclamation  exceed  estimates
obtained   at  the  time  the  bond   was   underwritten   or  upon   subsequent
re-evaluations,  if  sufficient  collateral  is not  obtained  and  increased if
necessary, or if collateral held has experienced a significant  deterioration in
value. As a newly licensed insurance company,  FSC has experienced no claims for
losses as of May 31,  2007 and thus  provisions  for losses and loss  adjustment
expense have been based on industry  averages  adjusted for other factors unique
to  the  Company's  approach,  and in  consultation  with  consulting  actuaries
experienced in the surety field.

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

                                                      2007              2006
                                                    --------         --------

         Balance at beginning of year               $ 11,911         $      -

         Incurred policy losses-current year          98,873           11,911
         Incurred policy losses-prior years                -                -

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

         Balance at end of year                     $110,784         $ 11,911
                                                    ========         ========

                                      F-22

<PAGE>

                           JACOBS FINANCIAL GROUP INC.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


NOTE H - NOTES PAYABLE
----------------------

At May 31,  2007,  the  Company had the  following  unsecured  notes  payable to
individuals and a commercial bank:

         Unsecured demand notes payable to individuals;            $ 75,000
         interest rate fixed @ 10.00%

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

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

         Unsecured note payable to an individual due                 25,000
         in full upon consummation by Company of a
         qualified equity offering providing net proceeds
         of at least $50 million; or if such a qualified
         equity offering is not consummated by the six-month
         anniversary date of the note (November 16, 2007),
         accrued interest-to-date shall be payable, with
         quarterly installments of principal and interest
         in the amount of $1,607 commencing February 16, 2008;
         interest rate fixed @ 10.00%

         Furthermore,   upon   retirement   of   note   upon
         consummation of a qualified  equity  offering,  the
         Company   shall  issue  .0125%  of  the   Company's
         outstanding  common  shares  immediately  following
         such offering as additional  consideration;  in the
         event  that  consummation  of  a  qualified  equity
         offering is not achieved by November 16, 2007, then
         the  Company  shall issue  .0625% of the  Company's
         outstanding  common  shares  at such date and shall
         issue  .025% of the  Company's  outstanding  common
         shares upon each six-month anniversary date thereof
         until retirement of the note

         Unsecured term note payable to commercial bank            244,389
         in the original amount of $250,000 and payable
         in equal monthly payments of $5,738; interest
         rate fixed @ 13.25%                                      --------
                                                                  $410,136
                                                                  ========


                                      F-23



<PAGE>

                           JACOBS FINANCIAL GROUP INC.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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

         Fiscal year 2007-2008 (including demand notes)     $188,142
         Fiscal year 2008-2009                                49,218
         Fiscal year 2009-2010                                56,064
         Fiscal year 2010-2011                                63,868
         Fiscal year 2011-2012                                49,748
         Thereafter                                            3,096
                                                            --------
                                                            $410,136
                                                            ========


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

The Company had been delinquent in paying certain of its payroll tax obligations
for  periods  ending on or  before  December  31,  2005.  The  total  liability,
including an estimate for penalties and interest, is approximately  $500,625 and
is included  in the  Company's  financial  statements  under Other  Liabilities.
Management continues to seek financing  arrangements that will allow it to fully
satisfy this obligation as soon as possible.

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

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

                                      F-24

<PAGE>

                           JACOBS FINANCIAL GROUP INC.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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

As of May 31, 2007, the Company has issued an additional  1,077 shares of Series
A Preferred Stock in exchange for cash  investments in the amount of $1,077,000.
As of May 31, 2007 the Company has chosen to defer  payment of  dividends on the
Series A Preferred  Stock with such  accrued and unpaid  dividends  amounting to
$55,663 through March 31, 2007.

On December  30, 2005,  through a private  placement,  the Company  issued 3,980
shares of 8% Non-Voting Series B Convertible Preferred Stock (Series B Preferred
Stock),  along with  19,900,000  warrants for common  shares of Company stock as
additional consideration, for a cash investment in the amount of $2,985,000; and
issued  4,890.599  shares of Series B  Preferred  Stock,  along with  24,452,996
warrants for common shares of Company stock as additional  consideration,  for a
conversion of $3,667,949 of indebtedness of the Company,  in connection with the
Company's  acquisition  of FSC.  Holders  of the  Series B  Preferred  Stock are
entitled to receive, when and as declared by the board of directors,  cumulative
preferential cash dividends at a rate of eight percent of the $1,000 liquidation
preference per annum  (equivalent to a fixed annual rate of $80 per share).  The
Series B Preferred Stock ranks senior to the Company's common stock, and pari

                                      F-25

<PAGE>

                           JACOBS FINANCIAL GROUP INC.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

passu with the  Company's  Series A Preferred  Stock,  with  respect to dividend
rights and rights upon  liquidation,  dissolution  or winding up of the Company.
Each share of the Series B Preferred  Stock is  convertible at the option of the
holder,  at any time after the  original  issue date,  into 1,000 fully paid and
nonassessable  shares of the  Company's  common stock at a  conversion  price of
$1.00 per common share.  The Company may redeem the Series B Preferred  Stock at
any time after the first  anniversary  of the Original Issue Date at a price per
share  equal to the Series B  Preferred  Stock Face  Amount plus all accrued and
unpaid  dividends with respect to the shares of the Series B Preferred  Stock of
such holder to be redeemed.  To the extent that the Series B Preferred Stock has
not been  redeemed by the Company,  the holder may redeem the Series B Preferred
Stock on or after the fifth  anniversary  of the Original  Issue Date at a price
per share equal to the Series B Preferred Stock Face Amount plus all accrued and
unpaid  dividends with respect to the shares of the Series B Preferred  Stock of
such  holder to be  redeemed.  The Company is  authorized  to issue up to 10,000
shares of the Series B  Preferred  Stock.  As of May 31,  2007,  the Company has
issued an additional  785 shares of Series B Preferred  Stock and 785,000 shares
of the Company's common stock as additional consideration,  in exchange for cash
investments  in the amount of  $785,000.  Additionally  the Company has redeemed
58.659 shares at a redemption  price of $62,477.  As of May 31, 2007 the Company
has chosen to defer  payment of dividends  on the Series B Preferred  Stock with
such accrued and unpaid dividends amounting to $953,178 through March 31, 2007.

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.

                                      F-26

<PAGE>

                           JACOBS FINANCIAL GROUP INC.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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

NOTE K - STOCK WARRANTS
-----------------------

At May 31,  2007,  the Company had issued and  outstanding  warrants to purchase
15,404,666 shares of common stock.

On December 30, 2005, the Company issued warrants to purchase  45,402,996 shares
of common stock in  connection  with the Series A and B Preferred  Stock private
placements of which  13,404,666  remain  outstanding.  The exercise price of the
warrants is  one-tenth of one cent  ($.001) per share.  The  warrants  expire on
December 30,  2010.  The warrants  were valued using the  Black-Scholes  pricing
model. The warrants issued in connection with the Series A Preferred Stock were

                                      F-27

<PAGE>

                           JACOBS FINANCIAL GROUP INC.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

valued at $.08 per share or $83,043.  The warrants issued in connection with the
Series B Preferred Stock were valued at $.01 per share or $449,972.

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

NOTE L-STOCK-BASED COMPENSATION

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

On October 12, 2005, the board of directors approved a severance arrangement for
a long-time  employee of the Company  terminated  by reason of  disability.  The
arrangement  included (i) continuing  salary and benefits  through May 2006, and
(ii) an award of 1,000,000 options to acquire common shares at an exercise price
of four cents ($.04) per share.  The estimated  value of  continuing  salary and
benefits  was  approximately  $30,000,  and the  estimated  value of the options
awarded  was  approximately  $13,500.  The term of the options is five years and
expires in October 2010.

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

On December  28,  2006,  the  compensation  committee  of the board of directors
awarded  2,100,000 of incentive  stock  options to acquire  common  shares at an
exercise price of four cents ($.04) per share, of which 450,000 shares vested

                                      F-28

<PAGE>

                           JACOBS FINANCIAL GROUP INC.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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.

Stock-based  compensation  expense  attributable  to  such  awards  amounted  to
approximately  $206,700 and $118,000 in fiscal years ended May 31, 2007 and 2006
respectively.  Unrecognized compensation expense related to non-vested awards at
May 31, 2007 was  approximately  $154,500 and is expected to be recognized  over
the next three years.

The following  table  summarizes  option  activity  under the Plan for the years
ended May 31, 2006 and 2007.

                                                         2006
                                            WEIGHTED-AVG.
                                              EXERCISE        NO. OF SHARES
                                                PRICE          UNDER OPTION
                                            ---------         ------------
         Balance at June 1, 2005                 n/a                     -
         Options granted                     $.06877            24,400,000
         Options exercised                         -                     -
         Options canceled/expired                  -                     -
                                            ---------         ------------
         Balance at May 31, 2006             $.06877            24,400,000
                                            =========         ============
         Exercisable at May 31, 2006         $.06538             6,500,000
                                            =========         ============


                                                        2007
                                            WEIGHTED-AVG.
                                              EXERCISE        NO. OF SHARES
                                                PRICE          UNDER OPTION
                                            ---------         ------------
         Balance at June 1, 2006             $.06877            24,400,000
         Options granted                     $.04000             2,100,000
         Options exercised                         -                     -
         Options canceled/expired                  -                     -
                                            ---------         ------------
         Balance at May 31, 2007             $.06649            26,500,000
                                            =========         ============

         Exercisable at May 31, 2007         $.06635            11,916,667
                                            =========         ============

                                      F-29


<PAGE>


                           JACOBS FINANCIAL GROUP INC.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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

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

                 Weighted-average fair
                 value per option granted         $0.018

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, 2007,  the Company had operating  loss  carryforwards  of  approximately
$12.4 million.  These  carryforwards  begin expiring in 2015 and, as a result of
the ownership change resulting from the 2001 acquisitions of FSI and Jacobs, the
utilization of  approximately  $6.4 million of the operating loss  carryforwards
are substantially limited.

The Company has fully  reserved  the $4.2  million tax benefit of the  operating
loss  carryforward,  by a valuation  allowance of the same  amount,  because the
likelihood of realization of the tax benefit cannot be determined.

NOTE N-STOCKHOLDERS EQUITY
--------------------------

In fiscal  2006,  the Company  issued  1,717,500  shares of its common  stock to
certain  individuals as  consideration in connection with arranging or providing
financing to the  Company.  The shares were valued at  approximately  $.0719 per
share based on quoted  closing  prices on the dates the stock was  committed,  a
total of $61,774.

                                      F-30

<PAGE>

                           JACOBS FINANCIAL GROUP INC.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

In fiscal 2006,  the Company has issued an  additional  225,000 of the Company's
common stock as  additional  consideration  in  connection  with the sale of 225
shares of Series B Preferred  Stock,  in exchange  for cash  investments  in the
amount of  $225,000.  The shares were valued at  approximately  $.0804 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 $18,079.

In fiscal 2007,  the Company has issued an  additional  560,000 of the Company's
common stock as  additional  consideration  in  connection  with the sale of 560
shares of Series B Preferred  Stock,  in exchange  for cash  investments  in the
amount of  $560,000.  The shares were valued at  approximately  $.0317 per share
based on the average quoted closing price of the Company's  stock for the 20-day
period proceeding the date of the transaction and totaled $17,742.

NOTE O-STATUTORY FINANCIAL DATA (UNAUDITED)
------------------------------------------

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

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

                  Statutory Surplus, May 31, 2007             $ 3,556,077
                  Net Income (Loss), Calendar year 2006          (100,851)
                  Net Income (Loss), Five-month period 2007      (  9,301)
                  Net Income (Loss), Five-month period 2006      (144,246)

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


                                      F-31

<PAGE>

                           JACOBS FINANCIAL GROUP INC.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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

NOTE P - COMMITMENTS
--------------------

LEASE COMMITMENTS

The Company leases certain office  equipment with combined  monthly  payments of
approximately  $835 that have varying  remaining  terms of less than five years.
The Company's lease of office,  parking space and storage space have lease terms
of one year or less at an  approximate  monthly rate of $3,845  through  January
2008.

The Company leases an apartment for corporate use that has a remaining term of 6
months at a monthly rate of $545.00 plus electric utilities.

The Company holds an  undeveloped  leasehold  interest in a mineral water spring
located near Hot Springs, Arkansas. Under the leasehold arrangement, the Company
makes  minimum  lease  payments  of $160 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  $62,250 and
$49,500 during 2007 and 2006.

Minimum  future lease  payments  under  non-cancelable  operating  leases having
remaining terms in excess of one year as of May 31, 2007 are:

                           2008                     $12,965
                           2009                       9,695
                           2010                       8,534
                           2011                       6,909
                           2012                       6,909

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:

                                      F-32

<PAGE>

                           JACOBS FINANCIAL GROUP INC.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

INVESTMENT SECURITIES

Fair values for investment securities (U.S. Government,  government agencies and
government agency mortgage-backed securities) held for investment purposes (held
to maturity)  are based on quoted market  prices or dealer  quotes.  If a quoted
market  prices 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,  notes  payable,  accounts  payable  and  accrued  expenses  and other
liabilities  approximate  fair value  because  of the  immediate  or  relatively
short-term maturity of these financial instruments.

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

CONCENTRATION OF CREDIT RISK

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

As of  May  31,  2007  the  Company's  investment  securities  of  approximately
$4,022,000  are solely  comprised  of bonds  issued by the U.S.  government  and
government  agencies,  mortgage-backed  securities  that are  guaranteed  by U.S
government  agencies,  certificates  of deposit  fully  insured  by the  Federal
Deposit  Insurance  Corporation and money-market  mutual funds. Such instruments
are  generally  considered  to be  of  the  highest  credit  quality  investment
available.

The  Company  transacts  the  majority  of  its  business  with  four  financial
institutions,  two for commercial  banking services and the others for brokerage
and  custodial  services.  Periodically,  the  amount on  deposit  in  financial
institutions   providing   commercial  banking  services  exceeds  the  $100,000
federally insured limit.  Management  believes these financial  institutions are
financially  sound.  With  respect  to  the  financial   institutions  providing
brokerage  and  custodial  services,  amounts on deposit  are  invested in money
market funds comprised of high quality money market instruments consisting of

                                      F-33

<PAGE>

                           JACOBS FINANCIAL GROUP INC.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

certificates of deposit, bankers' acceptances, prime commercial paper, corporate
obligations, municipal obligations and U.S. government securities.

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

CONCENTRATION IN PRODUCTS, MARKETS AND CUSTOMERS

The  Company's  insurance  subsidiary  currently  writes only the surety line of
business,  is licensed to write surety only in West Virginia and has focused its
primary  efforts  towards  coal  permit  bonds.   Such  business   accounts  for
approximately  50% of the  Company's  fiscal  2007  revenues.  Furthermore,  the
Company  provides  surety bonds to three  companies that share common  ownership
interests.  In  2007,  this  group  of  customers  accounted  for  approximately
$343,000,  or 42%, of the Company's revenues,  of which  approximately  $263,000
constituted  revenues in the surety  insurance  segment and $80,000  constituted
revenues in the investment advisory segment of the Company's business.

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-34

<PAGE>

                           JACOBS FINANCIAL GROUP INC.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                                                       YEAR ENDED
INDUSTRY SEGMENT                             MAY 31, 2007       MAY 31, 2006
----------------                             ------------       ------------
REVENUES:
 Investment advisory                         $    275,328       $    206,922
 Surety insurance                                 548,011            125,677
 Corporate                                          1,176                  -
                                             ------------       ------------
 Total revenues                              $    824,515       $    332,599
                                             ============       ============

OPERATING INCOME (LOSS):
 Investment advisory                         $  (372,839)       $  (537,298)
 Surety insurance                                  93,759          (161,255)
 Corporate                                    (1,049,186)          (795,462)
                                             ------------       ------------
 Total operating income (loss)               $(1,328,266)       $(1,494,015)
                                             ============       ============

IDENTIFIABLE ASSETS:
 Investment advisory                         $    45,555        $    40,271
 Surety insurance                              4,298,295          3,858,319
 Corporate                                        26,219            402,306
                                             ------------       ------------
 Total assets                                $ 4,370,069        $ 4,300,896
                                             ============       ============

CAPITAL ACQUISITIONS:
 Investment advisory                         $         -        $       317
 Surety insurance                                      -             15,992
 Corporate                                         6,007             11,696
                                             ------------       ------------
 Total capital acquisitions                  $     6,007        $    28,005
                                             ============       ============

DEPRECIATION CHARGED TO
IDENTIFIABLE ASSETS:
 Investment advisory                         $     4,800        $     5,900
 Surety insurance                                  3,310                965
 Corporate                                         4,309              1,210
                                             ------------       ------------
Total depreciation                           $    12,419        $     8,075
                                             ============       ============

INTEREST EXPENSE:
  Investment advisory                        $    91,487        $   124,864
  Surety insurance                                 4,362             41,246
  Corporate                                       57,171            178,921
                                             ------------       ------------
Total interest expense                       $   153,020        $   345,031
                                             ============       ============


                                      F-35

<PAGE>

                           JACOBS FINANCIAL GROUP INC.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE T - COMPREHENSIVE INCOME
-----------------------------

There  are  no  adjustments   necessary  to  net  income  as  presented  in  the
accompanying   statements  of  operations  to  derive  comprehensive  income  in
accordance with SFAS No. 130, "Reporting Comprehensive Income."

NOTE U - RELATED PARTY TRANSACTIONS
-----------------------------------

BORROWING AND OTHER TRANSACTIONS OF LARGEST SHAREHOLDER AND CEO

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

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

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

                                      F-36

<PAGE>

                           JACOBS FINANCIAL GROUP INC.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

creditor.  On  September  13,  2006,  the Company did receive a release from the
obligee of the $365,000 accounts payable that was assumed by Mr. Jacobs pursuant
to the Assumption Agreement. Accordingly, the assumption of the accounts payable
was  offset  against  the  balance  due from Mr.  Jacobs  as of May 31,  2006 of
$361,009.

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

During  fiscal 2006,  Mr. Jacobs  invested  $500,000 for the purchase of 666.667
shares of the Company's Series B preferred stock and 3,333,333 stock warrants on
the same terms and conditions as other initial  investors that made  investments
in the Company's  Series B preferred  shares.  Such warrants were exercised in a
cashless  transaction  resulting  in the  issuance  in  3,300,000  shares of the
Company's common stock.

BORROWING FROM DIRECTOR

On three separate occasions,  dating from January 26, 2004 to March 5, 2004, the
Company borrowed funds totaling  $105,000 from a closely-held  company of one of
the  Company's  directors.  Such  promissory  notes were  unsecured  borrowings,
payable on demand with interest  accruing at a rate of ten percent  (10.00%) per
annum,  which was comparable to other Company  borrowings from  individuals that
were  obtained  from time to time.  On July 19,  2004,  the Company  borrowed an
additional $25,000 on the same terms and conditions as the previous notes.

During  fiscal  2006,  principal  in the amount of $90,000 was  converted to 120
shares of the Company's  Series B preferred  stock and 600,000 stock warrants on
the same terms and  conditions as other  individuals  that had made loans to the
Company. The principal balance owed after this transaction was $21,221 which was
repaid in full over the following  12-month period and included interest expense
of $1,840.

BORROWING FROM EXECUTIVE OFFICER

During  fiscal  2006,  as an  accommodation  to  assist  in the  closing  of the
transaction  for the purchase of WVFCC by the Company  from Celina,  the Company
borrowed funds from one of its executive officers in the amount of $75,000

                                      F-37

<PAGE>

                           JACOBS FINANCIAL GROUP INC.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

facilitated through a back-to-back  borrowing from a commercial bank. Such funds
were repaid within one week upon receipt by the Company of committed  funds from
an  unrelated  third-party.  Interest  and fees  paid in  connection  with  this
borrowing  amounted to $1,001 which is identical to the amounts  incurred by the
executive officer from the commercial bank.

75,000 shares of the Company's common stock was issued to the executive  officer
as  additional   consideration  for  extending  such  credit,   consistent  with
additional  consideration (shares of common stock) provided to other individuals
extending credit to the Company.

NOTE V - EVENTS SUBSEQUENT TO MAY 31, 2007
------------------------------------------

Subsequent to May 31, 2007, the Company has borrowed  $150,000 from  individuals
and  closely-held  companies under unsecured demand notes bearing interest rates
at 10.00%  per annum  and has  issued  100,000  shares  of its  common  stock as
additional  consideration  for the extension of such credit.  Additionally,  the
Company has received net unsecured advances from its largest shareholder and CEO
amounting to approximately  $111,500.  Also, the Company has issued 25 shares of
its Series B preferred  stock and 25,000  shares of its common stock in exchange
for  proceeds  of  $25,000.  Such  borrowings  have been  used to fund  on-going
operations.

On June 30, 2007, the Company  elected to continue to defer payment of dividends
on its  Series  A  Preferred  Stock  and  Series B  Preferred  stock  with  such
accumulated  accrued and unpaid dividends amounting to $70,465 and $1,163,652 as
of June 30, 2007.

In September 2007, the Company borrowed $2,100,000 in the aggregate from a group
of  individuals  to provide  bridge-financing  to finance  the  Company  until a
larger, more permanent financing the Company contemplates undertaking and to pay
fees and expenses in  connection  with such a capital  raise.  The terms of this
borrowing  provide  for  payment in full upon  consummation  by the Company of a
qualified equity offering providing net proceeds of at least $50 million;  or if
such a qualified equity offering is not consummated by the six-month anniversary
date of the notes (March 2008), accrued  interest-to-date shall be payable, with
quarterly  installments  of principal  and interest in the  aggregate  amount of
$134,975  commencing in June 2008.  The interest rate on such notes are fixed at
10.00%.  Furthermore,  upon  retirement  of the  notes  upon  consummation  of a
qualified  equity  offering,  the  Company  shall  issue a total of 4.20% of the
Company's  outstanding  common  shares  immediately  following  such offering as
additional  consideration;  in the event that consummation of a qualified equity
offering is not achieved by March 2008, then the Company shall issue a total of

                                      F-38

<PAGE>

                           JACOBS FINANCIAL GROUP INC.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

4.20% of the Company's  outstanding common shares at such date and shall issue a
total of 1.68% of the Company's  outstanding  common shares upon each  six-month
anniversary date thereof until retirement of the notes.

Additionally,  terms of the $25,000 note payable  outstanding as of May 31, 2007
have been modified in accordance with the terms of the Company's  agreement with
the  holder  of  the  note  to  correspond  to  the  terms  of  the   $2,100,000
bridge-financing obtained in September 2007. Accordingly, upon retirement of the
note upon consummation of a qualified equity offering, the Company shall issue a
total of 0.05% of the Company's  outstanding common shares immediately following
such offering as additional  consideration;  in the event that consummation of a
qualified  equity offering is not achieved by March 2008, then the Company shall
issue a total of 0.05% of the Company's  outstanding  common shares at such date
and shall issue a total of .02% of the Company's  outstanding common shares upon
each six-month  anniversary date thereof until retirement of the note. All other
terms and conditions remain unchanged.






























                                      F-39


<PAGE>
                          JACOBS FINANCIAL GROUP, INC.
                                AND SUBSIDIARIES
<TABLE>
<CAPTION>
----------------------------------------------------------------------------------------------------------------------------
 SUMMARY OF INVESTMENTS-
 OTHER THAN INVESTMENTS IN RELATED PARTIES                                                                    SCHEDULE I
----------------------------------------------------------------------------------------------------------------------------




                                                                                                                    AMOUNT
                                                                                                                   AT WHICH
 AT MAY 31, 2007                                                                                                 SHOWN IN THE
                                                                           COST*                VALUE            BALANCE SHEET
                                                                          ---------           ---------            ---------
 Fixed maturities:
 Bonds:
<S>                                                                       <C>                 <C>                  <C>
  United States government and government agencies and authorities        2,216,875           2,208,003            2,216,875
  Certificate of deposit                                                    100,000             100,000              100,000
                                                                          ---------           ---------            ---------
  Total fixed maturities                                                  2,316,875           2,308,003            2,316,875

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


 Mortgage-backed securities guaranteed by U.S. government agency          1,369,411           1,367,365            1,369,411

 Short-term investments, at cost (approximates market value)                335,729             335,729              335,729
                                                                          ---------           ---------            ---------

  Total investments                                                       4,022,015           4,011,097            4,022,015
                                                                          =========           =========            =========
</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-40

<PAGE>

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

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


BALANCE SHEET - PARENT COMPANY ONLY
                                                                                MAY 31, 2007
                                                                                ------------
 ASSETS:
<S>                                                                            <C>
  Cash                                                                          $     12,378
  Accounts receivable from affiliates                                                  2,656
  Prepaid expense and other assets                                                     1,656
  Furniture and equipment, net                                                        12,184
  Investment in subsidiaries, equity method                                        2,995,605
  Due from affiliates, net                                                           113,589
                                                                                ------------

        Total assets                                                            $  3,138,068
                                                                                ============

 LIABILITIES:
  Accounts payable                                                              $     83,121
  Accrued expenses and professional fees                                             478,735
  Notes payable                                                                      410,136
  Other liabilities                                                                    9,855
                                                                                ------------

        Total liabilities                                                            981,847

 MANDATORILY REDEEMABLE PREFERRED STOCK                                            9,946,972

 STOCKHOLDERS EQUITY:
  Common stock                                                                        15,700
  Additional paid in capital                                                       2,082,647
  Accumulated deficit                                                             (9,889,098)
                                                                                ------------

        Total stockholders equity (deficit)                                       (7,790,751)
                                                                                ------------

        Total liabilities and stockholders equity                               $  3,138,068
                                                                                ============
</TABLE>
<TABLE>
<CAPTION>
STATEMENT OF INCOME - PARENT COMPANY ONLY
 YEAR ENDED MAY 31,
                                                                                    2007          2006
                                                                                -----------   -----------
 REVENUES
<S>                                                                             <C>           <C>
  Equity in undistributed net income (loss) of consolidated subsidiaries        $  (279,080)  $  (698,553)

 EXPENSES:
  General and administrative                                                        987,734       615,331
  Interest                                                                           57,143       178,921
  Depreciation                                                                        4,309         1,210
                                                                                -----------   -----------

        Total expenses                                                            1,049,186       795,462
                                                                                -----------   -----------

        Net income (loss)                                                        (1,328,266)   (1,494,015)

  Accretion of mandatorily redeemable convertible preferred stock,
  including accrued dividends                                                    (1,333,165)     (380,171)
                                                                                -----------   -----------

  Net income (loss) attributable to common stockholders                         $(2,661,431)  $(1,874,186)
                                                                                ===========   ===========
</TABLE>

                                      F-41

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

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


STATEMENT OF CASH FLOWS - PARENT COMPANY ONLY
 YEAR ENDED MAY 31,
                                                                                    2007          2006
                                                                                -----------    -----------
 CASH FLOWS FROM OPERATING ACTIVITIES:

<S>                                                                             <C>           <C>
 Net income (loss)                                                              $(1,328,263)  $(1,494,015)

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

  Equity in undistributed net loss of consolidated subsidiaries                     279,080       698,553
  Stock option compensation expense                                                 206,681       117,979
  Issuance of stock in lieu of interest                                                   -        61,145
  Depreciation                                                                        4,309         1,210
  Change in other assets, accounts payable and accrued expense, net                 261,848       188,589
                                                                                -----------    -----------

         TOTAL CASH USED IN OPERATIONS                                             (576,345)     (426,539)


 CASH FLOWS FROM INVESTING ACTIVITIES:

  Acquisition of insurance company subsidiary                                             -    (2,860,000)
  Contributions to insurance company subsidiary                                    (191,000)     (744,000)
  Funds provided to affiliates for operations                                      (209,655)     (595,102)
  Purchase of furniture and equipment                                                (6,007)      (11,696)
                                                                                -----------    -----------

        TOTAL CASH USED IN INVESTING ACTIVITIES                                    (406,662)   (4,210,798)

 CASH FLOWS FROM FINANCING ACTIVITIES:

  Proceeds from issuance of mandatorily redeemable preferred stock                  878,000     4,319,000
  Proceeds from exercise of stock warrants                                            1,500        14,801
  Redemption of mandatorily redeemable preferred stock                              (62,477)            -
  Proceeds from short-term borrowings                                               375,000       737,030
  Repayment of short-term borrowings                                               (138,859)     (433,931)
  Proceeds from short-term borrowings from related party                             79,616             -
  Repayment of short-term borrowings to related party                              (137,395)            -
                                                                                -----------    -----------

        TOTAL CASH PROVIDED BY FINANCING ACTIVITIES                                 995,385     4,636,900
                                                                                -----------    -----------

        CHANGE IN CASH                                                               12,378          (437)

 Cash at beginning of year                                                                -           437
                                                                                -----------    -----------

 Cash at end of year                                                            $    12,378   $         -
                                                                                ===========    ===========
</TABLE>
                                      F-42


<PAGE>
                          JACOBS FINANCIAL GROUP, INC.
                                AND SUBSIDIARIES

<TABLE>

------------------------------------------------------------------------------------------------------------------------------------
 SUPPLEMENTARY INSURANCE INFORMATION
 AS OF MAY 31, 2007 AND FOR THE YEARS ENDED MAY 31, 2007 AND 2006                                                       SCHEDULE III
------------------------------------------------------------------------------------------------------------------------------------



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

<S>               <C>         <C>         <C>            <C>    <C>        <C>         <C>         <C>              <C>   <C>
2007
 Surety           $ 52,365    $ 110,784   $ 271,222      $ -    $ 314,067  $ 189,956   $ 98,873    $ 108,065        $ -   $ 264,639


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

2006

 Surety           $ 70,399     $ 11,911   $ 193,616      $ -     $ 55,402   $ 53,181   $ 11,911     $ 18,877        $ -   $ 249,018
</TABLE>




















                                      F-43



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

------------------------------------------------------------------------------------------------------------------------------------
 SUPPLEMENTAL INFORMATION
 AS OF MAY 31, 2007 AND FOR THE YEARS ENDED MAY 31, 2007 AND 2006                                                        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                                                              AMORTI-
                               LOSSES      DISCOUNT                              CLAIMS, LOSSES AND   ZATION
                                 AND        IF ANY,                              SETTLEMENT EXPENSES    OF
                 DEFERRED   LOSS EXPENSES, DEDUCTED                              INCURRED RELATED TO  DEFERRED   PAID CLAIMS
                  POLICY       FUTURE         IN                           NET                        POLICY     AND CLAIMS   NET
AFFILIATION     ACQUISITION    POLICY       COLUMN   UNEARNED  PREMIUM  INVESTMENT CURRENT  PRIOR   ACQUISITION  ADJUSTMENT PREMIUMS
WITH REGISTRANT    COSTS       CLAIMS         C      PREMIUMS  REVENUE   INCOME    YEAR     YEARS     COSTS       EXPENSES   WRITTEN
--------------- ----------- -------------  --------  --------  -------  ---------- ------- -------- -----------  ---------- --------
<S>             <C>         <C>            <C>       <C>       <C>      <C>        <C>     <C>      <C>          <C>        <C>

2007

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


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

2006

Consolidated
 property -
 casualty
 entities        $70,399      $ 11,911      $ -     $ 193,616  $ 55,402  $ 53,181  $ 11,911  $ -     $ 18,877     $ -      $ 249,018

</TABLE>






















                                      F-44


<PAGE>


ITEM  8.  CHANGES  IN AND  DISAGREEMENTS  WITH  ACCOUNTANTS  ON  ACCOUNTING  AND
FINANCIAL DISCLOSURE

In connection with the audits for the years ended May 31, 2007 and May 31, 2006,
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 8A. CONTROLS AND PROCEDURES

As required by Rule 13a-15 under the Securities  Exchange Act of 1934, as of the
end of the period  covered by the annual  report,  being May 31,  2007,  we have
carried out an  evaluation of the  effectiveness  of the design and operation of
the Company's  disclosure  controls and procedures.  This evaluation was carried
out  under  the  supervision  and  with  the   participation  of  the  Company's
management, including the Company's president and chief financial officer. Based
upon that evaluation,  the Company's  president and chief financial officer have
concluded that the Company's disclosure controls and procedures are effective as
of the end of the period  covered by this report.  There have been no changes in
our internal  controls over financial  reporting  that occurred  during the most
recent fiscal year that have materially  affected,  or are reasonably  likely to
materially affect our internal controls over financial reporting.


ITEM 8B. OTHER INFORMATION

None



                                    PART III

ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS; COMPLIANCE
WITH SECTION 16(A) OF THE EXCHANGE ACT.

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

                                                COMPANY
         NAME             AGE                   POSITION
----------------------    ---               ----------------------
John M. Jacobs             53               President and CEO
                                            Director

Frederick E. Ferguson      73               Director

C. David Thomas            54               Director

Robert J. Kenney           60               Vice President

                                       16

<PAGE>

Robert L. Neal             51               Chief Financial Officer


JOHN M. JACOBS

Mr.  Jacobs is the  founder of Jacobs & Company 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 & Company and FS  Investments,  Inc. since
their inception. Prior to establishing Jacobs & Company, in 1988, Mr. Jacobs was
a practicing  public  accountant for over thirteen years,  during which he was a
managing  partner of his accounting firm and a business and personal  advisor to
his clients.  Mr. Jacobs has served as a director and President of JFG since May
2001.

FREDERICK E. FERGUSON

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

C. DAVID THOMAS

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

ROBERT J. KENNEY

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

                                       17

<PAGE>

ROBERT L. NEAL

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

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

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

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

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

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

The Board has determined  that John M. Jacobs is the Audit  Committee  Financial
Expert as such term is defined in Item 401 (h) 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.

COMPLIANCE WITH SECTION 16(A) OF THE EXCHANGE ACT

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

CODE OF ETHICS

The  Company is in the process of drafting a new  Conflict of  Interest/Code  of
Ethics policy for approval by its Board of Directors.

                                       18

<PAGE>

ITEM 10. EXECUTIVE COMPENSATION

The information required by Item 10. will be submitted by a subsequent amendment
to this Report to be filed with the Securities and Exchange Commission.


ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

The following  table sets forth the beneficial  ownership of common stock of the
Company as of  September  5, 2007 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  Officer 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>

         NAME AND ADDRESS OF                         AMOUNT AND NATURE OF
         BENEFICIAL OWNERSHIP                        BENEFICIAL OWNERSHIP (1)           PERCENT OF CLASS (2)
         --------------------                        ------------------------           --------------------
<S>                                                         <C>                                  <C>

         John M. Jacobs
         300 Summers Street, Suite 970
         Charleston, WV  25351                              24,595,627 (3)                       15.11%

         Charles L. Stout
         Route 1, Box 41J
         Bridgeport, WV  26330                              13,175,000  (4)                       8.39%

         Fay S. Alexander
         6318 Timarron Cove Lane
         Burke, VA  22015-4073                              13,256,041  (5)                       8.32%

         William D. Jones
         513 Georgia Avenue
         Chattanooga, TN  37403                             10,752,694  (6)                       6.77%

         Sue C. Hunt
         1508 Viewmont Drive
         Charleston, WV  25302                               8,611,588  (7)                       5.43%

         DIRECTORS

         Frederick E. Ferguson
         Rt. 3, Box 408
         Fayetteville, WV 25840                              1,600,000  (8)                       1.01%

                                       19

<PAGE>

         C. David Thomas
         P.O. Box 5157
         Charleston, WV 25361                                  992,295                            0.63%

         ALL EXECUTIVE OFFICERS
         AND DIRECTORS AS A GROUP (5 PERSONS)               31,097,922                           18.62%

</TABLE>


(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  5, 2007 are deemed  outstanding  for  computing  the  percentage
     ownership of the person holding such options or warrants but are not deemed
     outstanding for computing the percentage ownership of any other person.

(2)  Based on  157,122,836  shares of common stock issued and  outstanding as of
     September 5, 2007.

(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 6,695,916 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  5, 2007.  Includes  the right to
     convert Series B Preferred Stock holdings to 666,667 shares of common stock
     exercisable within 60 days of September 5, 2007.

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

(5)  Includes  9,900,000  shares of common  stock  held in the name of  Graphite
     Investment,  LLC  ("Graphite")  and  1,000,000  shares  held in the name of
     Southall Management  Corporation  ("Southall") of which Fay S. Alexander is
     President (both entities). Includes the right to convert Series B Preferred
     Stock holdings of Graphite and Southall to 2,141,341 shares of common stock
     exercisable  within 60 days of September 5, 2007.  Includes  214,700 shares
     held in joint tenancy with spouse, Dan C. Alexander.

(6)  Includes  9,060,000  shares  of common  stock  held in joint  tenancy  with
     spouse,  Cynthia B. Jones. Includes the right to convert Series B Preferred
     Stock  holdings to 282,116 shares of common stock (182,116 in joint tenancy
     with spouse)  exercisable within 60 days of September 5, 2007. Includes the
     right to  purchase  1,410,578  shares of  common  stock  (910,578  in joint
     tenancy with spouse)  pursuant to issued and outstanding  stock warrants at
     an exercise  price of  one-tenth of one cent per share  ("stock  warrants")
     exercisable within 60 days of September 5, 2007.

                                       20

<PAGE>

(7)  Includes 1,209,515 shares of common stock held in the Individual Retirement
     Account ("IRA") of spouse,  Douglas E. Hunt.  Includes the right to convert
     Series B Preferred Stock holdings to 200,000 shares of common stock and the
     right to purchase  1,000,000  shares of common stock pursuant to issued and
     outstanding stock warrants  exercisable within 60 days of September 5, 2007
     and held in the IRA of  Douglas  E.  Hunt.  Includes  the right to  convert
     Series B Preferred  Stock holdings to 33,679 shares of common stock and the
     right to purchase  168,395  shares of common  stock  pursuant to issued and
     outstanding stock warrants  exercisable within 60 days of September 5, 2007
     and held jointly with spouse.

(8)  Includes  750,000 shares of common stock held in joint tenancy with spouse,
     Sandra B. Ferguson.  Includes  130,000 shares held in the name of The Party
     Store,  Inc.  ("Party  Store") of which Fred E. Ferguson is President and a
     director.  Includes the right to convert Series B Preferred  Stock holdings
     held in the name Party Store to 120,000 shares of common stock  exercisable
     within 60 days of September 5, 2007. Includes the right to purchase 600,000
     shares of common stock  pursuant to issued and  outstanding  stock warrants
     held in the name of Party Store at an exercise  price of  one-tenth  of one
     cent per share exercisable within 60 days of September 5, 2007.

There are no outstanding  arrangements that may result in a change in control of
the Company.

ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

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

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

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

                                       21


<PAGE>

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

During  fiscal 2006,  Mr. Jacobs  invested  $500,000 for the purchase of 666.667
shares of the Company's Series B preferred stock and 3,333,333 stock warrants on
the same terms and conditions (see Item 6. Management's Discussion and Analysis)
as other initial  investors  that made  investments  in the  Company's  Series B
preferred  shares.  Such  warrants  were  exercised  in a  cashless  transaction
resulting in the issuance in 3,300,000 shares of the Company's common stock.

BORROWING FROM DIRECTOR

On three separate occasions,  dating from January 26, 2004 to March 5, 2004, the
Company borrowed funds totaling  $105,000 from a closely-held  company of one of
the Company's  directors,  Frederick B.  Ferguson.  Such  promissory  notes were
unsecured borrowings,  payable on demand with interest accruing at a rate of ten
percent  (10.00%) per annum,  which was  comparable to other Company  borrowings
from  individuals  that were obtained  from time to time. On July 19, 2004,  the
Company  borrowed an additional  $25,000 on the same terms and conditions as the
previous notes.

During  fiscal  2006,  principal  in the amount of $90,000 was  converted to 120
shares of the Company's  Series B preferred  stock and 600,000 stock warrants on
the same terms and conditions (see Item 6. Management's Discussion and Analysis)
as other  individuals that had made loans to the Company.  The principal balance
owed  after  this  transaction  was  $21,221  which was  repaid in full over the
following 12-month period and included interest expense of $1,840.

BORROWING FROM EXECUTIVE OFFICER

During  fiscal  2006,  as an  accommodation  to  assist  in the  closing  of the
transaction  for the purchase of WVFCC by the Company  from Celina,  the Company
borrowed  funds from one of its  executive  officers,  Robert J. Kenney,  in the
amount of $75,000 facilitated through a back-to-back borrowing from a commercial
bank.  Such funds were  repaid  within one week upon  receipt by the  Company of
committed  funds  from an  unrelated  third-party.  Interest  and  fees  paid in
connection  with this  borrowing  amounted to $1,001 which were identical to the
amounts  incurred by the  executive  officer from the  commercial  bank.  75,000
shares of the  Company's  common  stock was issued to the  executive  officer as
additional  consideration for extending such credit,  consistent with additional
consideration  (shares of common stock) provided to other individuals  extending
credit to the Company.


                                       22

<PAGE>



ITEM 13. EXHIBITS

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

EXHIBIT NUMBER

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)

21    Subsidiaries of Company

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

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

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

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

(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.

                                       23



<PAGE>

ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES

AUDIT FEES

Billings for principal  accounting fees and services related to the annual audit
of  financial  statements,  review  of  financial  statements  included  in  the
Company's  Forms 10-QSB,  and services  provided by the accountant in connection
with statutory and  regulatory  filings for the year ended May 31, 2007 amounted
to  $27,823.  Management  estimates  that  additional  amounts  to be billed are
approximately $35,000.

Billings for principal  accounting fees and services related to the annual audit
of  financial  statements,  review  of  financial  statements  included  in  the
Company's  Forms 10-QSB,  and services  provided by the accountant in connection
with statutory and  regulatory  filings for the year ended May 31, 2006 amounted
to $72,807.

AUDIT-RELATED SERVICES

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

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, 2006 amounted to $775.

TAX FEES

During fiscal 2007, billings for tax preparation  services were $14,250.  During
fiscal 2006, billings for tax preparation services were $5,970.

ALL OTHER FEES

Billings for other  services  related to  potential  financing  transactions  in
fiscal 2007  amounted to $5,675.  There were no billings  for other  services in
fiscal 2006.

ADMINISTRATION OF AUDIT AND NON-AUDIT ENGAGEMENTS

The  Company  does not  have a  standing  audit  committee.  The  full  Board of
Directors  is  performing  the  functions of the audit  committee.  The Board of
Director's policy is to pre-approve all audit and permissible non-audit services
provided by the independent auditors. These services may include audit services,
audit-related  services,  tax  services  and  other  services.  Pre-approval  is
generally provided for up to one year and any pre-approval is detailed as to the
particular  service  or  category  of  services  and is  generally  subject to a
specific  budget.  The  independent  auditors  and  management  are  required to
periodically  report to the Board of Directors  regarding the extent of services
provided by the independent  auditors in accordance with this pre-approval,  and
the fees for the  services  performed to date.  The Board of Directors  may also
pre-approve  particular services on a case-by-case basis. The Board of Directors
pre-approved  each audit and  non-audit  service  rendered to the Company by its
independent  Auditors as set forth above and no services were approved using the
de minimus exception afforded by Rule 2-01(c)(7)(i)(C) of Regulation S-X.

                                       24

<PAGE>

SIGNATURES

In accordance  with Section 13 or 15(d) of the Exchange Act, the Company  caused
this  report to be  signed on its  behalf  by the  undersigned,  thereunto  duly
authorized.


                                     JACOBS FINANCIAL GROUP, INC.

Dated:   September 13, 2007          By: /s/ John M. Jacobs
                                     --------------------------
                                     John M. Jacobs
                                     President and CEO
                                     Director



























                                       25

<PAGE>


SIGNATURES

In  accordance  with the Exchange  Act, 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, 2007                        By:  /s/ John M. Jacobs
        ------------------------                   ----------------------------
                                                   John M. Jacobs
                                                   President and CEO
                                                   Director


Dated:   September 13, 2007                        By:  /s/ Robert L Neal
        ------------------------                   ----------------------------
                                                   Robert L. Neal
                                                   Chief Financial Officer



Dated:   September 13, 2007                        By: /s/ Frederick E. Ferguson
        ------------------------                   ----------------------------
                                                   Frederick E. Ferguson
                                                   Director


Dated:   September 13, 2007                        By: /s/ C. David Thomas
        ------------------------                   ----------------------------
                                                   C. David Thomas
                                                   Director















                                       26