UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-K

ANNUAL REPORT UNDER SECTION 13 OR 15 (d)

OF THE SECURITIES EXCHANGE ACT OF 1934

For the fiscal year ended May 31, ~~2016~~2017

Commission file number 0-21210

JACOBS FINANCIAL GROUP, INC.

(Exact name of registrant as specified in its charter)

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

179 Summers Street, Suite 307, Charleston, WV 25301

(Address of principal executive offices) (Zip Code)

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

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

NONE

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

COMMON STOCK $.0001 PAR VALUE

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

Yes [_]

No [X]

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

Yes [_]

No [X]

Indicate by a check mark whether the issuer (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 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 [_] No [_XX]

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).

Yes [_]

No [X]

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

[X]

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company.

Large accelerated filer [_] Accelerated filer [_] Non-accelerated filer [_] Smaller reporting company [X] Emerging growth company [_]

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

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

Yes [_]

No [X]

State the aggregate market value of the voting and non-voting common equity held by non-affiliates computed by reference to the price at which the common equity was sold, or the average bid and asked price of such common equity, as of the last business day of the registrant’s most recently completed second fiscal quarter. As of November 30, ~~2015~~2016: $ 1962,~~859,076~~731 ( ~~379~~385,~~403~~092,~~267~~203 shares at $.~~0049~~0025 / share)

Indicate the number of shares outstanding of each of the registrant’s classes of common stock, as of the latest practicable date: ~~379~~385,~~908~~892,~~267~~203 shares of common stock as of May 31, ~~2016~~2017.

		Page
	TABLE OF CONTENTS

	PART I

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

	PART II

Item 5	Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities	6
Item 6	Selected Financial Data	7
Item 7	Management’s Discussion and Analysis of Financial Condition and Results of Operations	7
Item 7A	Quantitative and Qualitative Disclosures About Market Risk	24
Item 8	Financial Statements and Supplementary Data	25
Item 9	Changes in and Disagreements With Accountants on Accounting and Financial Disclosure	26
Item 9A(T)	Controls and Procedures	26
Item 9B	Other Information	27

	PART III

Item 10	Directors, Executive Officers and Corporate Governance	28
Item 11	Executive Compensation	30
Item 12	Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters	31
Item 13	Certain Relationships and Related Transactions and Director Independence	33
Item 14	Principal Accounting Fees and Services	34

	PART IV

Item 15	Exhibits, Financial Statement Schedules	35

		Page
	TABLE OF CONTENTS
	PART I
Item 1	Business	4
Item 1A	Risk Factors	4
Item 2	Properties	5
Item 3	Legal Proceedings	5
Item 4	Submission of Matters to a Vote of Security Holders	5
	PART II
Item 5	Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities	6
Item 6	Selected Financial Data	7
Item 7	Management’s Discussion and Analysis of Financial Condition and Results of Operations	7
Item 7A	Quantitative and Qualitative Disclosures About Market Risk	24
Item 8	Financial Statements and Supplementary Data	25
Item 9	Changes in and Disagreements With Accountants on Accounting and Financial Disclosure	25
Item 9A(T)	Controls and Procedures	25
Item 9B	Other Information	27
	PART III
Item 10	Directors, Executive Officers and Corporate Governance	28
Item 11	Executive Compensation	30
Item 12	Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters	31
Item 13	Certain Relationships and Related Transactions and Director Independence	34
Item 14	Principal Accounting Fees and Services	35
	PART IV
Item 15	Exhibits, Financial Statement Schedules	36

Table of Contents

PART I

Item 1.

BUSINESS

The predecessor of Jacobs Financial Group, Inc. (the “Registrant”, “JFG” or the “Company”), NELX, Inc., was incorporated in the State of Kansas in March 1983 as Nelson Exploration, Inc. In October 1993 the Company changed its name to NELX, Inc. On or about December 29, 2005, NELX was merged with and into its newly-formed wholly-owned subsidiary, JFG, a Delaware corporation. JFG survived the merger as the Registrant. The merger effected a change in the Registrant’s name, a change in the state of incorporation of the Registrant from Kansas to Delaware, and amendments to the Articles of Incorporation and Bylaws of the Registrant. The Company holds ~~four~~three wholly owned subsidiaries, FS Investments, Inc. (“FSI”), Jacobs & Company (“Jacobs & Co.”), ~~First~~and ~~Surety~~Crystal ~~Corporation~~Mountain Spring Water, Inc. (“~~FSC~~CMW”) and ~~Crystal~~one ~~Mountain~~majority ~~Spring~~owned ~~Water~~subsidiary, ~~Inc.~~First Surety Corporation (“~~CMW~~FSC”).

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

Jacobs & Co., incorporated in 1988 in West Virginia, and whose executive offices are located in Charleston, West Virginia, provides fee based investment advisory services to institutions, companies and individuals.

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

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

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

Item 1A.

RISK FACTORS

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

~~Item~~Table 2.of ~~PROPERTIES~~Contents

~~Through~~Item ~~its wholly-owned subsidiary, CMW, the Company has an undeveloped leasehold interest in a mineral water spring located near Hot Springs, Arkansas~~2. Under this leasehold arrangement, CMW is obligated for minimum lease payments in the amount of approximately $180 per month with automatic options to extend the leasehold through October 2026. CMW has the right to cancel the lease upon sixty (60) days written notice at any time. The property is presently not being actively explored or developed. During the 2002 fiscal year, management evaluated the lease and determined the development was not then 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.PROPERTIES

~~Item~~Through 3its wholly-owned subsidiary, CMW, the Company has an undeveloped leasehold interest in a mineral water spring located near Hot Springs, Arkansas. ~~LEGAL~~Under ~~PROCEEDINGS~~this leasehold arrangement, CMW is obligated for minimum lease payments in the amount of approximately $180 per month with automatic options to extend the leasehold through October 2026. CMW has the right to cancel the lease upon sixty (60) days written notice at any time. The property is presently not being actively explored or developed. During the 2002 fiscal year, management evaluated the lease and determined the development was not then 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.

InItem ~~May 2015, an investor and lender to the Company brought action seeking payment of a Promissory Note~~3. ~~The~~ ~~Company~~LEGAL does not deny the claim and the matter has been continued while the Company negotiates terms with the lender. The principal and interest related to this claim are fully accrued in the financials of the Company.PROCEEDINGS

In ~~December~~May 2015, aan ~~lessor~~investor and lender to the Company brought action seeking payment of ~~defaulted~~a ~~lease~~Promissory ~~payments~~Note. Subsequent ~~and~~to ~~termination~~May of31, ~~lease~~2017, the matter has been fully settled. The ~~matter~~Company ~~was~~did ~~reduced~~not deny the claim and negotiated repayment terms to athe ~~judgement~~mutual ~~lien~~satisfaction ~~and will~~of beboth ~~paid~~parties. ~~from~~The ~~operations~~repayment ~~with~~did not nohave a material effect on the Company. ~~The~~as ~~lease~~the ~~payments~~principal ~~are~~and interest had been fully accrued in the financials ~~of the Company~~.

~~Item~~In 4December 2015, a lessor [of office space/office equipment/other] to the Company brought action seeking payment of defaulted lease payments and termination of lease. The matter ~~SUBMISSION~~has OFbeen ~~MATTERS~~reduced TOto Aa ~~VOTE~~judgment OFlien ~~SECURITY~~and ~~HOLDERS~~will be paid from operations with no material effect on the Company. The lease payments have been fully accrued in the financials of the Company.

~~Since~~Item ~~the last annual meeting in December 2005, two new members were appointed to the Company’s board of directors in July 2009, Mario J~~4. ~~Marra~~SUBMISSION ~~and~~OF ~~Bradley~~MATTERS W.TO ~~Tuckwiller. The~~A ~~appointed~~VOTE ~~directors~~OF ~~will~~SECURITY ~~serve until the next called meeting of shareholders.~~HOLDERS

5Since the last annual meeting in December 2005, two new members were appointed to the Company’s board of directors in July 2009, Mario J. Marra and Bradley W. Tuckwiller. The appointed directors will serve until the next called meeting of shareholders.

~~PART II~~5

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

~~The~~PART 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.II

		HIGH		LOW
Fiscal Year Ended May 31, 2016
	4th Quarter		.004		.002
	3rd Quarter		.003		..003
	2nd Quarter		.005		.003
	1st Quarter		.004		.002
	Fiscal Year Ended May 31, 2015
	4th Quarter		.004		.003
	3rd Quarter		.005		.003
	2nd Quarter		.005		.002
	1st Quarter		.020		.003

Item 5.

MARKET FOR COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASE OF EQUITY SECURITIES.

AsThe ofCompany’s ~~May~~common ~~31,~~stock ~~2016,~~is ~~there~~traded in ~~were~~the ~~approximately 900~~over-the-counter ~~holders~~market ofunder ~~record~~the ofsymbol 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.

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.

		HIGH		LOW
Fiscal Year Ended May 31, 2017

	4^th Quarter		.003		.002
	3^rd Quarter		.003		.002
	2^nd Quarter		.004		.002
	1^st Quarter		.004		.002

	Fiscal Year Ended May 31, 2016

	4^th Quarter		.004		.002
	3^rd Quarter		.003		.003
	2^nd Quarter		.005		.003
	1^st Quarter		.004		.002

As of May 31, ~~2016~~2017, ~~the~~there ~~Registrant’s~~were approximately ~~2005~~850 ~~Stock~~holders ~~Incentive Plan authorizing the availability~~ of ~~35,000,000~~record ~~shares and approved by the stockholders~~ of the Company’s ~~on December~~common ~~8, 2005, had expired under its own terms ten years after its adoption~~stock. ~~There were 12,400,000 shares un-issued by the plan at its expiration.~~

~~There~~The ~~are~~Company nohas ~~other~~neither ~~equity~~declared ~~compensation~~nor ~~plans~~paid ~~approved~~any cash bydividends ~~stockholders~~on its common stock during the last two fiscal years, and it is not anticipated that any such dividend will be declared ofor paid in the ~~Company~~foreseeable future.

~~Unregistered~~As ~~Sales~~of May 31, 2017, the Registrant’s 2005 Stock Incentive Plan authorizing the availability of ~~Equity~~35,000,000 ~~Securities~~shares and approved by the stockholders of the Company on December 8, 2005, had expired under its own terms ten years after its adoption. There were 12,400,000 shares un-issued by the plan at its expiration.

~~The~~There ~~Certificate~~are ofno ~~Designations,~~other ~~Powers,~~equity ~~Preferences and~~compensation ~~Rights~~plans ofapproved ~~Series A Preferred Stock adopted~~ by ~~the Board~~ stockholders of ~~Directors of~~ the Company ~~on December 22, 2005 is set forth as Exhibit 4~~.1.

6Unregistered Sales of Equity Securities

The Certificate of Designations, Powers, Preferences and Rights of Series BA Preferred Stock adopted by the ~~board~~Board of ~~directors~~Directors of the Company on December 22, 2005 isand ~~set~~incorporated by ~~forth~~reference asto ~~Exhibit 4~~the Company’s Current Report on Form 8-K dated December 29, 2005.2.

~~The Certificate of Designations, Powers, Preferences and Rights of Series C Preferred Stock adopted by the board of directors of the Company on October 29, 2009 is set forth as Exhibit 4.3.~~6

InTable ~~the year ended May 31, 2016, 1,878,000 common shares were issued as additional consideration to various lenders in private placements pursuant to short term borrowings. A total~~ of 11,956,049 common shares were issued in connection with the additional 2% stock quarterly dividend associated with Series A and B Preferred shares that have requested to be redeemed upon maturity. Additionally, 2,500,000 common shares were issued to various individuals and entities who purchased investment units consisting of such shares and common stock of a subsidiary of the Company.Contents

The ~~Registrant’s~~Certificate ~~Common~~of ~~Shares~~Designations, ~~are~~Powers, ~~issued~~Preferences ~~under~~and ~~the~~Rights ~~restrictions~~ of ~~Rule~~Series ~~144~~B ~~and~~Preferred ~~bear~~Stock aadopted ~~legend~~by to the ~~effect~~board ~~that~~of ~~such~~directors ~~securities~~of ~~are~~the ~~not~~Company ~~registered~~on ~~under~~December ~~the~~22, ~~Securities~~2005 and incorporated ~~Act~~by ~~pursuant~~reference to anthe ~~exemption~~Company’s ~~from~~Current ~~such~~Report ~~registration~~on Form 8-K dated December 29, 2005.

The ~~issuance~~Certificate of ~~the~~Designations, ~~aforementioned~~Powers, ~~securities~~Preferences isand ~~exempt~~Rights ~~from registration provisions~~ of ~~the~~Series ~~Securities~~C ~~Act~~Preferred ofStock ~~1933,~~adopted ~~as amended (the “Securities Act”),~~ by ~~reason of~~ the ~~provision~~board of ~~Section~~directors ~~4(2)~~ of the ~~Securities~~Company ~~Act,~~on asOctober ~~transactions not involving any public offering~~29, in2009 ~~reliance~~and ~~upon,~~incorporated ~~among other things, the representations made~~ by ~~the~~reference investors, including representations regarding their status as accredited investors (as such term is defined under Rule 501 promulgated under the Securities Act), and their acquisition of the securities for investment and not with a current view to ~~distribution thereof. The securities contain a legend to~~ the ~~effect~~Company’s ~~that~~Current ~~such~~Report ~~securities~~on ~~are~~Form ~~not registered~~8-K ~~under~~dated ~~the~~December ~~Securities~~14, ~~Act pursuant to an exemption from such registration~~2009. ~~The issuance of the securities was not underwritten.~~

~~Item~~In 6the year ended May 31, 2017, 300,000 common shares were issued as additional consideration to a lender in private placements pursuant to short term borrowings. ~~SELECTED~~Additionally, 500,000 ~~FINANCIAL~~common ~~DATA~~shares were issued to an entity who purchased investment units consisting of such shares and common stock of a subsidiary of the Company.

AsThe ~~the~~ Registrant’s ~~qualifies~~Common asShares aare ~~small reporting~~issued ~~company~~under asthe ~~defined~~restrictions byof ~~§229.10(f)(1)~~Rule of144 ~~Regulation~~and ~~S-K,~~bear a legend to the ~~Registrant~~effect isthat ~~not~~such ~~required~~securities toare ~~provide~~not ~~the~~registered ~~information~~under ~~required~~the Securities byAct ~~this~~pursuant ~~item~~to an exemption from such registration.

~~Item~~The 7issuance of the aforementioned securities is exempt from registration provisions of the Securities Act of 1933, as amended (the “Securities Act”), by reason of the provision of Section 4(2) of the Securities Act, as transactions not involving any public offering, in reliance upon, among other things, the representations made by the investors, including representations regarding their status as accredited investors (as such term is defined under Rule 501 promulgated under the Securities Act), and their acquisition of the securities for investment and not with a current view to distribution thereof. ~~MANAGEMENT’S~~The ~~DISCUSSION~~securities ~~AND~~contain ~~ANALYSIS~~a OFlegend ~~FINANCIAL~~to ~~CONDITION~~the ~~AND~~effect ~~RESULTS~~that OFsuch ~~OPERATIONS~~securities are not registered under the Securities Act pursuant to an exemption from such registration. The issuance of the securities was not underwritten.

~~During~~Item ~~fiscal~~6. ~~2016,~~SELECTED ~~the~~FINANCIAL Company has focused its primary efforts on the development and marketing of its surety business in West Virginia and Ohio, securing potential strategic relationships that will accelerate the progression of the Company’s business plan strengthening its insurance subsidiary’s reserves for potential claims and raising additional capital to facilitate that subsidiary’s entry into other state markets.DATA

7As the Registrant qualifies as a small reporting company as defined by §229.10(f)(1) of Regulation S-K, the Registrant is not required to provide the information required by this item.

~~Results~~Item of7. ~~Operations~~MANAGEMENT’S ~~and~~DISCUSSION ~~Financial~~AND ~~Condition~~ANALYSIS asOF ofFINANCIAL ~~and~~CONDITION ~~for the~~AND ~~Year~~RESULTS ~~Ended~~OF ~~May 31, 2016~~OPERATIONS

~~Results~~During fiscal 2017, the Company has focused its primary efforts (i) on the development and marketing of ~~Operations~~its surety business in West Virginia and Ohio, (ii) securing potential strategic relationships that will accelerate the progression of the Company’s business plan, including by giving access to other state markets, (iii) strengthening its insurance subsidiary’s reserves for potential claims and (iv) raising additional capital to facilitate that subsidiary’s entry into other state markets.

Total revenues decreased from $1,576,000 in fiscal 2015 to $1,336,000 in fiscal 2016, while total operating expenses decreased from $3,080,000 in fiscal 2015 to $1,907,000 in fiscal 2016. This resulted in a net loss from operations of $571,000 in 2016 as compared with a net loss from operations of $1,505,000 in fiscal 2015.7

~~The~~Table ~~decrease in revenues is largely attributable to a decrease in net investment income~~ of approximately $490,000 in 2016, mainly due to an unrealized decline in market value of an investment account held as a result of a contractual arrangement, where the Company receives any appreciation and earning in excess of the initial deposit of collateral by a principal bondholder. The Company also realized losses of $79,000 on the sale of investments in 2016 compared to gains of $136,000 in 2015. Insurance premiums written for new and existing customers increased by approximately $100,000 in 2016. In addition, the Company recognized other income of approximately $287,000 from the removal of dormant account payable balances and commissions no longer payable on receivables that were written off as uncollectible, and approximately $81,000 in interest income on notes receivable issued during 2016.Contents

~~The~~Results ~~decrease in expenses is mainly attributable to a 2015 strengthening the reserve for incurred but not reported policy losses by approximately $800,000 that was recommended as a result~~ of anOperations ~~examination by the West Virginia Insurance Commissioner. In addition, the Company wrote off accounts receivable of approximately $300,000 as uncollectible in 2015,~~ and ~~reported~~Financial ~~decreased~~Condition ~~legal and accounting fees of approximately $200,000 in 2016, partially~~ as ~~a result~~ of ~~inadequate~~and ~~cash flow to enable~~ for the ~~contracting~~Year ~~with~~Ended ~~independent~~May ~~auditors for fiscal year 2014~~31, ~~2015,~~ ~~and~~ 2016.

~~Interest~~Results ~~expense increased from $833,000 in fiscal 2015 to $915,000 in fiscal 2016, as a result~~ of the issuance of stock as part of the 2% dividend on Series A and B Preferred shares that were requested to be redeemed, as well as an increase in stock issued as incentive for lending and continuation of terms for previously lent funds.Operations

~~During~~Total ~~the~~revenues ~~years~~increased ~~ending~~from ~~May 31~~$1,336,000 in fiscal 2016 ~~and~~to ~~May 31~~$2,869,000 ~~2015~~in ~~the~~fiscal ~~Company~~2017, ~~recorded~~while ~~gains~~total onoperating ~~extinguishment~~expenses ofincreased ~~debt~~from ~~in the amount of~~ $1,~~919~~907,~~532~~000 ~~and~~in fiscal 2016 to $12,~~257~~362,~~536~~000 in ~~respectively~~fiscal 2017. ~~These~~This ~~gains~~ resulted ~~from~~in ~~the~~net ~~waived~~income ~~interest~~from ~~and~~operations ~~forgiven principal on notes payables occurring upon the settlement~~ of ~~the~~$508,000 ~~bridge loans~~ in ~~2016~~ ~~and~~2017 ~~from~~as ~~the~~compared ~~purchase~~with of a ~~majority~~net ~~interest~~loss infrom ~~the~~operations ~~bridge loans and the payoff~~ of $571,000 ~~other notes payables~~ in ~~2015~~fiscal 2016.

~~Capital~~The ~~Resources~~increase in revenues is largely attributable to an increase in net investment income of approximately $709,000 in 2017, mainly due to the rebounding of a 2016 unrealized decline in market value of an investment account held as a result of a contractual arrangement, where the Company receives any appreciation and ~~Financial~~earning ~~Condition~~in excess of the initial deposit of collateral by the principal on a surety bond. The Company also realized gains of $138,000 on the sale of investments in 2017 compared to losses of $79,000 in 2016. Insurance premiums written for new and existing customers increased by approximately $762,000 in 2017, partially due to the recording of $329,000 in No Claims Bonus (recorded in 2017 for contract years 2015 and 2016) as part of the reinsurance contract. In addition, during 2016, the Company recognized other income of approximately $287,000 from the removal of dormant account payable balances and commissions no longer payable on receivables that were written off as uncollectible.

~~Mandatorily~~The increase in expenses is mainly attributable ~~Redeemable~~to ~~Preferred~~increased ~~Stock~~policy acquisition costs and provision for policy losses that are corollary to the previously mentioned increase in insurance premiums written for new and existing customers. However, general and administrative expenses decreased in 2017 due to reduced legal fees of approximately $200,000, as a result of a reduction in litigation and legal advice during 2016 relating to financing and settlement of debt.

~~In conjunction~~Interest ~~with~~expense ~~the~~decreased ~~acquisition~~from of$916,000 ~~FSC~~in fiscal at2016 ~~December~~to 31$575,000 ~~2005~~in fiscal 2017, adue ~~restructuring~~to the discontinuance of the ~~Company’s~~issuance ~~financing~~of ~~was~~stock ~~accomplished through~~as consideration for the ~~private~~additional 2% ~~placement~~dividend ofon ~~350~~Series A and B Preferred shares for those holders requesting to be redeemed, as well as an decrease in stock issued as incentive for lending and continuation of ~~Series~~terms Afor ~~Preferred~~previously lent funds.

8During the year ending May 31, 2016, the Company recorded gains on extinguishment of debt in the amount of $1,919,532. These gains resulted from the waived interest and forgiven principal on notes payables occurring upon the settlement of the bridge loans in 2016.

~~stock and~~During ~~3,980~~the ~~shares~~year ofending ~~Series~~May B31, ~~Preferred stock~~2017, ~~each accompanied by warrants to acquire common stock of~~ the Company ~~in exchange for~~ ~~cash~~recorded ~~totaling~~a ~~$3,335,000.~~settlement Ofexpense ~~the total funds received, $2,860,000 was used~~ in the ~~acquisition~~amount ~~and funding~~ of ~~the insurance subsidiary~~$350, ~~with~~000 ~~the remaining funds used~~ to ~~pay~~be ~~expenses~~paid ~~attributable~~ to ~~the~~a ~~acquisition~~former ~~and~~employee ~~the~~as ~~funding of on-going operations. Additionally, approximately $3,668,000 of indebtedness of~~ the ~~Company~~result ~~was converted into preferred stock and warrants reducing the Company’s borrowings under short-term financing arrangements to approximately $167,000 as~~ of ~~December~~a ~~30, 2005~~mediation.

~~The~~Capital ~~Series A designation was designed for issuance~~Resources 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~~Financial ~~capacity,~~Condition although to the extent that proceeds from the sale of Series B preferred shares was used in the initial acquisition and funding of FSC, the Company was allowed to use such proceeds to redeem Series B preferred stock (Company option to redeem) or for funding of on-going operations. Effective June 1, 2007, the Company agreed to the requirement of the West Virginia Insurance Department to downstream all future proceeds from sales of Series A preferred stock in order to increase capital and reserves of the insurance subsidiary to more substantial levels.

~~The Series A designation contains a conditional~~Mandatorily ~~redemption~~Redeemable ~~feature~~Preferred providing for the redemption of the Series A shares at any time after the seventh (7th) anniversary of the issue date, provided that the principal no longer requires surety bonds issued by FSC. Surety bonds currently being issued by FSC are primarily for coal mining and reclamation permits, which are long-term in nature and continually evolving whereby outstanding bonds are periodically released as properties are mined and reclaimed and new bonds issued for properties to be mined in the future. Accordingly, this source of financing was designed to be long-term by nature.Stock

~~The Company’s outstanding Series A Preferred~~In ~~stock~~conjunction ~~matures~~with on the ~~seventh~~acquisition ~~anniversary~~ of ~~the~~FSC ~~issuance~~at ~~date~~December if31, ~~the~~2005, ~~holder~~a ~~has~~restructuring ~~no outstanding surety bonds with the Registrant. Thereafter holders~~ of the ~~Series A Stock are eligible to request that the~~ Company’s ~~redeem~~financing ~~their~~was ~~Series A Shares. As of May 31, 2016,~~accomplished through the ~~Company~~private ~~has~~placement ~~received requests for redemption~~ of ~~1,026~~350 shares of Series A Preferred~~. The aggregate amount to which the holders requesting redemption are entitled as of June 30, 2016, is $1,535,688.~~

Under the terms of the Series A Preferred Stock, upon receipt of such a request, the Company’s Board was required to make a good faith determination regarding (A) whether the funds of the Company legally available for redemption of shares of Series A Stock are sufficient to redeem the total number of shares of Series A Stock to be redeemed on such date and (B) whether the amounts otherwise legally available for redemption would, if used to effect the redemption, not result in an impairment of the operations of the Insurance Subsidiary. If the Board determines that there is a sufficiency of legally available funds to accomplish the redemption and that the use of such funds to affect the redemption will not result in an impairment of the operations of the Insurance Subsidiary, then the redemption shall occur on the Redemption Date. If, however, the Board determines either that there are not sufficient funds legally available to accomplish the redemption or that the use of such funds to effect the redemption will result in an impairment of the operations of the Insurance Subsidiary, then (X) the Company shall notify the holders of shares that would otherwise have been redeemed of such fact and the consequences as provided in this paragraph,8

9Table of Contents

~~(Y) the Company will use those funds which~~stock ~~are legally available therefor~~ and which would not result in an impairment of the operations of the Insurance Subsidiary to redeem the maximum possible number of shares of Series A Stock for which Redemption Notices have been received ratably among the holders of such shares to be redeemed based upon their holdings of such shares3,980 ~~and (Z) thereafter, until such~~ shares ~~are redeemed in full, the dividends accruing and payable on such shares~~ of Series AB ~~Stock~~Preferred ~~to be redeemed shall be increased by 2% of the Series A Face Amount~~stock, ~~with the amount of such increase (i.e., 2% of the Series A Face Amount) to be satisfied by distributions on~~ each ~~Dividend Payment~~accompanied ~~Date of shares of Common Stock having a value (determined~~ by ~~reference~~warrants to ~~the~~acquire ~~average~~common ~~closing~~stock ~~price~~ of ~~such Common Stock over~~ the ~~preceding~~Company 20in ~~trading~~exchange ~~days)~~for cash ~~equal~~totaling ~~to the amount of such increase~~$3,335,000. ~~The~~Of ~~shares of Series A Stock not redeemed shall remain outstanding and entitled to all~~ the ~~rights~~total ~~and preferences provided herein. At any time thereafter when additional~~ funds ofreceived, ~~the Company~~$2,860,000 ~~are~~was ~~legally~~used ~~available~~in ~~for~~ the ~~redemption~~acquisition ~~of shares of Series A Stock~~ and ~~such~~funding ~~redemption will not result in an impairment~~ of ~~operations of~~ the ~~Insurance~~insurance ~~Subsidiary~~subsidiary, with ~~such~~the remaining funds ~~will immediately be~~ used to ~~redeem~~pay ~~the~~expenses ~~balance~~attributable ~~of the shares of Series A Stock~~ to ~~be redeemed. No dividends or other distributions shall be declared or paid on, nor shall~~ the ~~Company~~acquisition ~~redeem,~~and ~~purchase or acquire any shares of,~~ the ~~Common~~funding ~~Stock or any other class or series~~ of ~~Junior~~on-going ~~Securities~~operations. ~~or Equal Ranking Preferred of the~~Additionally, ~~Company~~approximately ~~unless the Redemption Price per share of all shares for which Redemption Notices have been given shall have been paid in full~~$3,668,000 ~~provided that the redemption price~~ of ~~any~~indebtedness ~~Equal Ranking Preferred subject to redemption shall be paid on a pari passu basis with the Redemption Price~~ of the ~~Series~~Company Awas ~~Stock~~converted ~~subject~~into topreferred ~~redemption~~stock in accordance herewith. Until the Redemption Price for each share of Series A Stock elected to be redeemed shall have been paid in full, such share of Series A Stock shall remain outstanding for all purposes and ~~entitle~~warrants ~~the~~reducing ~~holder thereof to all~~ the ~~rights and privileges provided herein, and Dividends shall continue~~Company’s toborrowings ~~accrue~~under ~~and,~~short-term iffinancing ~~unpaid~~arrangements ~~prior~~ to ~~the~~approximately ~~date such shares are redeemed~~$167,000 ~~shall be included~~ as ~~part~~ of ~~the~~December ~~Redemption~~30, ~~Price~~2005.

OnThe ~~April~~Series 4,A ~~2013,~~designation ~~the~~was ~~Company~~designed for issuance to principals desiring surety bonds under FSC’s ~~Board~~partially collateralized bonding programs. As designed, proceeds from the sale of ~~Directors~~Series ~~determined~~A ~~based~~preferred onstock is down-streamed to FSC to increase its capital and insurance capacity, although to the ~~criteria~~extent that ~~established~~proceeds ~~under~~from the ~~terms~~sale of Series B preferred shares was used in the ~~Preferred~~initial ~~Stocks~~acquisition ~~that~~and ~~there~~funding ~~were~~of ~~insufficient~~FSC, the Company was ~~funds~~allowed ~~available~~to use such proceeds to redeem Series B preferred stock (Company option to redeem) or for funding of on-going operations. Effective June 1, 2007, the ~~redemption~~Company agreed to the requirement of ~~Preferred~~the ~~Stocks~~West Virginia Insurance Department to downstream all future proceeds from sales of Series A preferred stock in order to increase capital and reserves of the insurance subsidiary to more substantial levels.

The Series BA designation ~~was~~contains ~~designed~~a ~~for issuance~~conditional toredemption ~~investors~~feature inproviding ~~JFG~~for ~~and~~the ~~contains both conversion rights to common stock and~~ redemption ~~features. Each share~~ of the Series BA ~~preferred stock is convertible, at the option of the holder, into 1,000~~ shares ~~of JFG common stock and can be converted~~ at any time. ~~The Series~~after Bthe ~~preferred~~seventh ~~shares were issued at a twenty-five percent~~ (~~25%~~7th) ~~discount~~anniversary of to the ~~stated~~issue ~~face value of $1~~date,~~000~~ ~~per~~provided ~~share~~that ~~or approximately $2,217,650 in total. Additional shares of~~ the ~~Series~~principal Bno ~~were~~longer ~~subsequently~~requires ~~sold~~surety atbonds aissued ~~discount~~by ofFSC. ~~approximately~~Surety ~~four~~bonds ~~and~~currently ~~one-half~~being issued ~~percent~~by ~~(4.5%)~~FSC orare ~~approximately~~primarily ~~$36,000.~~for ~~Additionally,~~coal ~~the~~mining ~~Series~~and Breclamation ~~preferred stock can be redeemed~~permits, atwhich ~~the~~are ~~option of the holder, at full~~long-~~face~~term ~~value~~in ~~plus~~nature ~~accrued~~ and ~~unpaid~~continually ~~cumulative~~evolving ~~dividends,~~whereby ~~commencing with the fifth (5th) anniversary of the~~outstanding ~~original~~bonds ~~issue~~are ~~date.~~periodically ~~The~~released ~~Company~~as ~~has~~properties ~~the~~are ~~option~~mined toand ~~redeem~~reclaimed ~~the~~and ~~Series~~new Bbonds ~~preferred~~issued ~~shares~~for atproperties ~~any~~to ~~time~~be ~~after~~mined ~~the~~in ~~first (1st) anniversary of~~ the ~~original issue date~~future. Accordingly, ~~subject~~this tosource ~~the~~of ~~holder~~financing ~~choosing~~was todesigned ~~exercise conversion privileges prior~~ to ~~the~~be ~~stated~~long-term ~~redemption date~~by nature.

The Company’s outstanding Series BA Preferred stock ~~matured~~matures on ~~December~~the ~~30,~~seventh ~~2010,~~anniversary ~~meaning~~of ~~that~~the issuance date if the holder has no outstanding surety bonds with the Registrant. Thereafter holders of the Series BA Stock ~~became~~are ~~entitled~~eligible to request that the Company redeem their Series BA Shares. As of May 31, ~~2016~~2017, the Company has received requests for redemption of 21,~~219~~026 shares of Series A Preferred. The aggregate amount to which the holders requesting redemption are entitled as of June 30, 2017, is $1,598,043.

10Under the terms of the Series A Preferred Stock, upon receipt of such a request, the Company’s Board was required to make a good faith determination regarding (A) whether the funds of the Company legally available for redemption of shares of Series A Stock are sufficient to redeem the total number of shares of Series A Stock to be redeemed on such date and (B) whether the amounts otherwise legally available for redemption would, if used to effect the redemption, not result in an impairment of the operations of the Insurance Subsidiary. If the Board determines that there is a sufficiency of legally available funds to accomplish the redemption and that the use of such funds to affect the redemption will not result in an impairment of the operations of the Insurance Subsidiary, then the redemption shall occur on the Redemption Date. If, however, the Board determines either that there are not sufficient funds legally available to accomplish the redemption or that the use of such funds to effect the redemption will result in an impairment of the operations of the Insurance Subsidiary, then (X) the Company shall notify the holders of shares that would otherwise have been redeemed of such fact and the consequences as provided in this paragraph,

~~shares of Series B Preferred. The aggregate redemption amount to which the holders are entitled as of June 30, 2016, is $5,099,573.~~9

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

On(Y) ~~March~~the 8,Company ~~2011,~~will use those funds which are legally available therefor and which would not result in an impairment of the ~~Company’s~~operations ~~Board~~of the Insurance Subsidiary to redeem the maximum possible number of ~~Directors~~shares ~~determined,~~of Series A Stock for which Redemption Notices have been received ratably among the holders of such shares to be redeemed based upon their holdings of such shares, and (Z) thereafter, until such shares are redeemed in full, the dividends accruing and payable on such shares of Series A Stock to be redeemed shall be increased by 2% of the ~~criteria~~Series ~~established~~A ~~under~~Face Amount, with the ~~terms~~amount of such increase (i.e., 2% of the Series BA ~~Preferred~~Face Amount) to be satisfied by distributions on each Dividend Payment Date of shares of Common Stock, ~~that~~having ~~there~~a ~~were~~value ~~insufficient~~(determined by reference to the average closing price of such Common Stock over the preceding 20 trading days) equal to the amount of such increase. The shares of Series A Stock not redeemed shall remain outstanding and entitled to all the rights and preferences provided herein. At any time thereafter when additional funds of the Company are legally available for the redemption of shares of Series BA Stock and such redemption will not result in an impairment of operations of the Insurance Subsidiary, such funds will immediately be used to redeem the balance of the shares of Series A Stock to be redeemed. No dividends or other distributions shall be declared or paid on, nor shall the Company redeem, purchase or acquire any shares of, the Common Stock or any other class or series of Junior Securities or Equal Ranking Preferred of the Company unless the Redemption Price per share of all shares for which Redemption Notices have been given shall have been paid in full, provided that the redemption price of any Equal Ranking Preferred subject to redemption shall be paid on a pari passu basis with the Redemption Price of the Series A Stock subject to redemption in accordance herewith. Until the Redemption Price for each share of Series A Stock elected to be redeemed shall have been paid in full, such share of Series A Stock shall remain outstanding for all purposes and entitle the holder thereof to all the rights and privileges provided herein, and Dividends shall continue to accrue and, if unpaid prior to the date such shares are redeemed, shall be included as part of the Redemption Price.

11On April 4, 2013, the Company’s Board of Directors determined based on the criteria established under the terms of the Preferred Stocks that there were insufficient funds available for the redemption of Preferred Stocks.

AsThe Series B designation was designed for issuance anto ~~inducement~~investors in JFG and contains both conversion rights to common stock and redemption features. Each share of the ~~initial~~Series ~~preferred~~B preferred stock ~~shareholders~~is convertible, ~~warrants~~at tothe ~~purchase~~option 45of the holder,~~402~~ into 1,~~996~~000 shares of JFG common stock and can be converted at anany ~~exercise~~time. The ~~price~~Series ofB ~~one-tenth~~preferred ofshares ~~one~~were ~~cent~~issued at a twenty-five percent (~~$.001~~25%) discount to the stated face value of $1,000 per share ~~were~~or ~~issued~~approximately $2,217,650 in total. ~~Warrants~~Additional ~~issued~~shares toof the Series AB ~~Preferred~~were ~~holders~~subsequently ~~had~~sold at a ~~seven~~discount ~~year~~of ~~expiration;~~approximately four and one-half ~~warrants~~percent ~~issued~~(4.5%) toor approximately $36,000. Additionally, the Series B ~~Preferred~~preferred ~~holders~~stock ~~had~~can abe ~~five-year~~redeemed, ~~expiration~~at ~~period.~~the ~~Such~~option ~~warrants~~of ~~were~~the ~~valued~~ holder, at ~~approximately~~full-face ~~$533~~value plus accrued and unpaid cumulative dividends,~~000 using~~ commencing with the ~~Black-Scholes~~fifth ~~pricing~~(5th) ~~model~~anniversary of the original issue date. ~~386,667~~The ~~warrants~~Company ~~issued~~has inthe ~~connection~~option ~~with~~to redeem the Series B ~~Preferred~~preferred ~~Stock~~shares ~~expired~~at ~~unexercised~~any time after the first (1st) onanniversary ~~December~~of ~~31,~~the ~~2010,~~original ~~while~~issue ~~600~~date,~~000~~ ~~warrants~~subject ~~issued~~to inthe ~~connection~~holder ~~with~~choosing ~~Series~~to Aexercise ~~Preferred~~conversion ~~Stock~~privileges ~~expired~~prior ~~unexercised~~to onthe ~~December 31,~~stated ~~2012~~redemption date.

The Company’s ~~experienced~~outstanding aSeries ~~loss~~B ~~after accretion~~Preferred ofstock ~~mandatorily~~matured ~~redeemable~~on ~~convertible~~December ~~preferred~~30, ~~stock~~2010, ~~and~~meaning ~~accrued~~that ~~dividends~~the onholders ~~mandatorily~~of ~~redeemable~~the ~~preferred~~Series ~~stock~~B ofStock ~~$108,386~~became entitled to request that the Company inredeem ~~fiscal~~their ~~2016~~Series asB ~~compared~~Shares. toAs $1of May 31,~~669~~ 2017,~~587~~ inthe ~~fiscal~~Company ~~2015.~~has received requests for redemption of 2,219

~~Equity Preferred Stock~~10

~~In November~~Table ~~2009, as a means~~ of alleviating obligations associated with the Company's Series B Preferred Stock, which by its terms matured at the end of 2010, management proposed a recapitalization to assist in stabilizing the financial position of the Company. The Board deemed it advisable to designate a Series C Preferred Stock, with 10,000 authorized shares. The Recapitalization consisted of the exchange of 6,805 Series B Shares Preferred for a combination of Series C Preferred Shares and Common Stock Shares. For each Series B Preferred Share, the participating holder received (i) one Series C Preferred Share and (ii) 2,000 shares of JFG Common Stock. The accumulated dividend rights and preferences associated with the Series B Preferred Shares transferred undiminished to the corresponding Series C Preferred Shares. This exchange amounted to $6,269,051 of carrying value of Series B Preferred stock being exchanged for Series C Preferred and Common Stock. 13,609,872 shares of Common Stock were issued to the Series C Preferred Stock holders at the rate of 2,000 Common shares for each exchanged Series B Preferred Stock, with the related cost associated with the Common issuance offsetting the Series C Preferred carrying value by $265,120. The shares were valued at approximately $.01948 per share based on the average quoted closing price of the Company's stock for the 20-day period preceding the date of the transaction. Series C Preferred stock may be redeemed by the Company but does not have a fixed maturity date and is considered permanent equity. Holders of over 70% of the outstanding Series B Preferred Shares elected to participate in the recapitalization.Contents

~~Unlike the~~shares Series B Preferred Shares with their fixed maturity date, the Series C Preferred Shares are permanent equity, with accruing dividends only increasing the preference amount that must be satisfied before junior securities may participate in dividends or on liquidation. Accordingly, the effect of ~~the accrual of dividends with respect to the~~ Series CB Preferred Shares on the Company’s balance sheet is to increase the aggregate claim by the Series C Preferred Shares on the equity of the corporation and to increase the deficit in common equity, while having no effect on the net equity of the corporation as a whole. The ~~entitlement of the Series~~aggregate Credemption ~~Preferred~~amount ~~Shares~~ to awhich ~~priority in relation to junior securities with respect to dividends and on liquidation does not create an obligation by~~ the ~~Company~~holders ~~and therefore no liability is recorded until the dividends~~ are ~~declared~~entitled byas ~~the Board~~ of ~~the~~June ~~Company. The~~30, ~~Series~~2017, C Preferred Shares are pari passu with the Series A Preferred Shares and Series B Preferred Shares and no dividends or other distributions will be paid upon Common Shares or any other class of Shares that is ~~junior in priority to the Series C Preferred Shares while dividends are in arrears~~$5,519,942.

12Under the terms of the Series B Preferred Stock, receipt of a redemption request required the Company’s Board to make a good faith determination regarding (A) whether the funds of the Company legally available for redemption of shares of Series B Stock are sufficient to redeem the total number of shares of Series B Stock to be redeemed on such date and (B) whether the amounts otherwise legally available for redemption would, if used to effect the redemption, not result in an impairment of the operations of the Insurance Subsidiary. If the Board determines that there is a sufficiency of legally available funds to accomplish the redemption and that the use of such funds to affect the redemption will not result in an impairment of the operations of the Insurance Subsidiary, then the redemption shall occur on the Redemption Date. If, however, the Board determines either that there are not sufficient funds legally available to accomplish the redemption or that the use of such funds to effect the redemption will result in an impairment of the operations of the Insurance Subsidiary, then (X) the Company shall notify the holders of shares that would otherwise have been redeemed of such fact and the consequences as provided in this paragraph, (Y) the Company will use those funds which are legally available therefor and which would not result in an impairment of the operations of the Insurance Subsidiary to redeem the maximum possible number of shares of Series B Stock for which Redemption Notices have been received ratably among the holders of such shares to be redeemed based upon their holdings of such shares, and (Z) thereafter, until such shares are redeemed in full, the dividends accruing and payable on such shares of Series B Stock to be redeemed shall be increased by 2% of the Series B Face Amount, with the amount of such increase (i.e., 2% of the Series B Face Amount) to be satisfied by distributions on each Dividend Payment Date of shares of Common Stock having a value (determined by reference to the average closing price of such Common Stock over the preceding 20 trading days) equal to the amount of such increase. The shares of Series B Stock not redeemed shall remain outstanding and entitled to all the rights and preferences provided herein. At any time thereafter when additional funds of the Company are legally available for the redemption of shares of Series B Stock and such redemption will not result in an impairment of operations of the Insurance Subsidiary, such funds will immediately be used to redeem the balance of the shares of Series B Stock to be redeemed. No dividends or other distributions shall be declared or paid on, nor shall the Company redeem, purchase or acquire any shares of, the Common Stock or any other class or series of Junior Securities or Equal Ranking Preferred of the Company unless the Redemption Price per share of all shares for which Redemption Notices have been given shall have been paid in full, provided that the redemption price of any Equal Ranking Preferred subject to redemption shall be paid on a pari passu basis with the Redemption Price of the Series B Stock subject of redemption in accordance herewith. Until the Redemption Price for each share of Series B Stock elected to be redeemed shall have been paid in full, such share of Series B Stock shall remain outstanding for all purposes and entitle the holder thereof to all the rights and privileges provided herein, and Dividends shall continue to accrue and, if unpaid prior to the date such shares are redeemed, shall be included as part of the Redemption Price.

~~The~~On ~~accrual~~March of8, ~~dividends~~2011, on the ~~equity~~Company’s ~~preferred~~Board ~~stock~~of ~~resulted~~Directors indetermined, abased ~~charge~~on tothe ~~common~~criteria ~~stockholders’~~established ~~equity~~under ~~and~~the aterms ~~credit~~of to the ~~equity~~Series ofB ~~equity~~Preferred ~~preferred~~Stock, ~~stock~~that ofthere ~~$1,164,143~~were insufficient infunds ~~fiscal~~available ~~2016~~for asthe ~~compared~~redemption toof ~~$1,072,461~~Series inB ~~fiscal~~Preferred ~~2015~~Stock.

~~Dividend Preference and Accretion~~11

~~During~~Table ~~the year ended May 31, 2012, two holders~~ of Series A Preferred stock released all of their outstanding bonds held with FSC. The carrying value of these shares of Series A Preferred Shareholders are listed in the liability section of the balance sheet, and therefore the dividends associated with these shares of Series A Preferred stock after February 29, 2012 is a deduction from net income. The carrying value of the Series B Preferred Shares that did not convert are listed in the liabilities section of the balance sheet, and therefore the accretion and dividends associated with the Series B Preferred stock after November 30, 2009 are deductions from net income. Series C Preferred stock has no accretion. The recorded values of the Series A preferred stock was increased to their stated liquidation values using the interest method over a period of five years and such amounts were categorized as accretion of mandatorily redeemable preferred stock in the consolidated statement of operations. This accretion was concluded in December 2010.Contents

~~The~~As an ~~Series~~inducement Ato ~~Preferred~~the ~~designation~~initial ispreferred ~~entitled to~~stock ~~receive~~shareholders, ~~cumulative~~warrants ~~dividends~~to atpurchase ~~the~~45,402,996 ~~rate~~shares of ~~4.00%~~common ~~per~~stock ~~annum~~at ~~and~~an ~~the~~exercise price ~~Series~~of Bone-tenth ~~Preferred~~of ~~and~~one ~~Series~~cent C($.001) ~~Preferred~~per ~~designations~~share ~~are entitled~~were toissued. ~~receive~~Warrants ~~cumulative~~issued ~~dividends~~to atSeries ~~the~~A ~~rate~~Preferred ofholders ~~8.00%~~had ~~per~~a ~~annum,~~seven ~~with~~year ~~the~~expiration; warrants ~~Series~~issued A,to Series B ~~and C~~ Preferred ~~designations~~holders ~~having equal~~had ~~ranking~~a ~~and~~five-year ~~preference~~expiration asperiod. toSuch ~~dividends,~~warrants ~~liquidation~~were ~~rights~~valued ~~and~~at ~~priority~~approximately to$533,000 using the ~~Company’s~~Black-Scholes ~~common~~pricing ~~stockholders~~model. ~~The~~386,667 ~~accrued (but~~warrants ~~undeclared)~~issued ~~dividends~~in ~~associated~~connection with ~~the~~ Series CB Preferred ~~exchange~~Stock ~~amounted~~expired tounexercised on $2December 31,~~295~~ 2010,~~624~~ ~~and~~while ~~are~~600,000 ~~included~~warrants issued in ~~the~~connection ~~total amount~~with ~~exchanged for~~ Series CA Preferred ~~Shares~~Stock expired unexercised on December 31, 2012.

AtThe ~~this~~Company ~~time,~~experienced ~~management~~a ~~has~~loss ~~chosen~~after ~~to defer~~accretion ~~payment~~ of ~~dividends~~mandatorily toredeemable ~~the~~convertible ~~holders~~preferred ~~of the Series A~~stock, B and Caccrued ~~Preferred~~dividends ~~Shares~~on ~~until~~mandatorily ~~the~~redeemable ~~Company~~preferred ~~has~~stock ~~sufficient~~of ~~cash~~$1,357,656 in ~~flow~~fiscal ~~from~~2017 ~~operations~~ as compared to ~~service~~$108,386 ~~the~~in ~~obligation~~fiscal 2016.

~~Bridge-financing,~~Equity ~~Commitments~~Preferred ~~and Material Agreements~~Stock

OfIn November ~~primary~~2009, ~~importance~~as toa means of alleviating obligations associated with the Company's ~~ability to~~Series ~~fully~~B ~~implement~~Preferred Stock, which by its ~~business~~terms matured ~~plan~~at isthe end of 2010, management proposed a recapitalization to assist in stabilizing the ~~expansion~~financial position of ~~that~~the ~~business~~Company. The ~~into~~Board ~~additional~~deemed ~~states~~it advisable to designate a Series C Preferred Stock, with 10,000 authorized shares. ~~Regulatory~~ ~~approval~~The ~~and~~Recapitalization ~~licensing~~consisted isof ~~required~~the exchange of 6,805 Series B Preferred Shares for ~~each~~a ~~state~~combination ~~where~~of ~~FSC~~Series ~~seeks~~C toPreferred ~~conduct~~Shares ~~business~~and Common Stock Shares. For ~~Management~~each ~~found~~Series ~~entry~~B ~~into~~Preferred ~~additional~~Share, ~~states~~the participating holder received (asi) aone ~~surety~~Series C Preferred Share and (ii) ~~was~~2,000 shares of ~~proving~~JFG ~~difficult~~Common ~~without~~Stock. The accumulated dividend rights and preferences associated with the ~~benefit~~Series ofB ~~more~~Preferred ~~substantial~~Shares ~~capital~~transferred ~~and~~undiminished to ~~reserves~~the ~~due~~corresponding Series C Preferred Shares. This exchange amounted to ~~FSC's~~$6,269,051 ~~status~~of ascarrying avalue ~~recent~~of ~~entry~~Series ~~into~~B ~~this~~Preferred stock ~~market~~being exchanged for Series C Preferred and ~~due~~Common Stock. 13,609,872 shares of Common Stock were issued to the ~~cyclical~~Series ~~nature~~C Preferred Stock holders at the rate of 2,000 Common shares for each exchanged Series B Preferred Stock, with the ~~coal~~related ~~industry.~~cost ~~Accordingly~~associated with the Common issuance offsetting the Series C Preferred carrying value by $265,120. ~~management~~The ~~began~~shares ~~pursuing~~were ~~avenues~~valued ~~that~~at ~~would~~approximately $.01948 ~~provide~~per ~~additional~~share based on the average quoted closing price of the Company's stock for the 20-day period preceding the date of ~~capital~~the transaction. Series C Preferred stock may be redeemed by the Company but does not have a fixed maturity date and is considered permanent equity. Holders of over 70% of the outstanding Series B Preferred Shares elected to ~~facilitate~~participate ~~such~~in ~~expansion~~the recapitalization.

~~Beginning~~Unlike the inSeries ~~fiscal~~B ~~2008~~Preferred ~~and~~Shares ~~completed~~with ~~during~~ their fixed maturity date, the ~~first~~Series ~~quarter~~C ofPreferred ~~fiscal~~Shares ~~2009~~are permanent equity, with accruing dividends only increasing the ~~Company~~preference ~~obtained~~amount ~~two~~that ~~rounds~~must ofbe ~~bridge~~satisfied ~~financing~~before ~~totaling~~junior ansecurities ~~aggregate~~may ofparticipate ~~$3,500,000.~~in ~~The~~dividends or ~~purpose~~on liquidation. Accordingly, the effect of the ~~financing~~accrual ~~was~~of dividends with respect to ~~pay~~the ~~expenses~~Series ofC ~~operations~~Preferred ~~and~~Shares on the Company’s balance sheet is to ~~pay~~increase ~~fees~~the ~~and~~aggregate ~~expenses~~claim ~~incurred~~by orthe ~~expected~~Series toC bePreferred ~~incurred~~Shares ~~in connection~~on ~~with~~the aequity ~~larger~~of ~~permanent~~the ~~financing~~corporation and, to increase the deficit in ~~addition~~common equity, towhile ~~increase~~having no effect on the ~~capital~~net ~~surplus~~equity of ~~FSC~~the tocorporation ~~make~~as ~~possible~~a whole. The entitlement of the ~~reactivation~~Series ofC ~~FSC’s~~Preferred ~~surety~~Shares ~~license~~to a priority in relation to junior securities with respect to dividends and on liquidation does not create an obligation by the ~~state~~Company and therefore no liability is recorded until the dividends are declared by the Board of ~~Ohio.~~the Company. The ~~terms~~Series ofC Preferred Shares are pari passu with the ~~bridge-financing~~Series ~~arrangement~~A ~~provided~~Preferred ~~for~~Shares ~~payment~~and inSeries ~~full~~B Preferred Shares and no dividends or other distributions will be paid upon ~~consummation~~Common byShares or any other class of Shares that is junior in priority to the Series C Preferred Shares while dividends are in arrears.

1312

~~the~~Table ~~Company~~ of a qualified equity offering providing net proceeds of at least $15 million on or before September 10, 2013. Because such a qualified equity offering was not consummated by September 10, 2008, accrued interest-to-date was payable, and quarterly installments of principal and interest became payable over five years commencing in December 2008. The interest rates on such notes were fixed at 10.00%. Payments due December 2008 and March 2009 were not made by the Company as scheduled, but a forbearance agreement was subsequently entered into with the bridge lenders on June 5, 2009, modifying payment terms to cure the default (including increasing the interest rate on the loans to 17%), issuing additional common stock to the loan holders, and pledging the stock of the Company’s subsidiary, CMW, as security for repayment of the loans. The modification required the Company to pay interest of $224,515 on June 10, 2009 and increase the quarterly payments by $67,185 beginning September 10, 2009 to satisfy the arrearage. The Company failed to make the payment that was due September 10, 2009 and the payments that were due in the ensuing quarters.Contents

~~Certain~~The ~~equity~~accrual ~~inducements~~of individends on the ~~form~~equity ~~of common~~preferred stock ofresulted ~~the~~in ~~Company~~a ~~were~~charge ~~provided~~to ~~under~~common ~~the~~stockholders’ ~~terms~~equity ofand ~~the bridge loan documents, including~~ a ~~requirement~~credit ~~that the Company issue~~ to the ~~bridge~~equity ~~lenders~~of anequity ~~additional~~preferred ~~2.8%~~stock of ~~the~~$1,256,829 in ~~Company’s~~fiscal ~~outstanding~~2017 ~~common~~as ~~shares~~compared ~~upon~~to ~~each~~$1,164,143 ~~six-month~~in ~~anniversary~~fiscal ~~date until retirement of the notes~~2016.

InDividend ~~anticipation~~Preference ~~of a proposed financing~~ and as a condition thereof, the Company and each of the bridge lenders entered into a Loan Modification Agreement dated February 25, 2012 which provided for modification of the Promissory Notes, including an extension of the term of the Promissory Notes, and Subscription Agreements in exchange for a partial cash payment to each bridge lender. On August 10, 2012, the Company entered into an agreement with the bridge lenders, pursuant to which the bridge lenders formally agreed to forbear from exercising their rights and remedies arising from the accumulated acknowledged events of default with respect to the bridge loans until such date. As consideration for this forbearance, the Company entered into an Amended and Restated General Hypothecation and Pledge Agreement dated August 9, 2012 (the “August 2012 Pledge”), but effective September 23, 2011, granting to the bridge lenders as security for the repayment of the loans a lien and security interest in all of the Company’s shares of capital stock of First Surety Corporation. Under the August 2012 Pledge, the bridge lenders acknowledged that the effectiveness of certain of the rights and remedies provided by such agreement were subject to prior approval by the Office of the Commissioner of Insurance for the State of West Virginia.Accretion

OnDuring ~~July~~the 9,year ~~2014~~ended ~~the~~May ~~Company~~31, ~~completed~~2012, two holders aof ~~$4,500,000~~Series ~~financing. In~~A ~~effect,~~Preferred ~~FSI,~~stock areleased ~~subsidiary~~all of ~~the~~their ~~Registrant,~~outstanding ~~borrowed~~bonds ~~the~~held ~~funds~~with ~~at 8~~FSC.~~00%~~ ~~interest~~The ~~with~~carrying ~~principal repayments~~value onof athese ~~ten~~shares ~~year~~of ~~schedule. Proceeds~~Series A ofPreferred ~~the~~Shareholders ~~borrowing~~are ~~were~~listed ~~applied~~in ~~(i)~~the toliability ~~purchase~~section ~~from~~of ~~certain~~the ~~bridge~~balance ~~lenders~~sheet, ~~after waiving~~and ~~interest~~therefore ofthe ~~approximately~~dividends ~~$1.6~~associated ~~million, 50.7%~~with ~~($1.775~~these ~~million~~shares ~~face~~of ~~amount)~~Series ofA ~~the~~Preferred ~~outstanding~~stock ~~senior~~after ~~promissory~~February ~~notes~~29, ~~comprising~~2012 is a $3deduction from net income.5 ~~million~~The ~~financing~~carrying ~~dating~~value ~~from~~of ~~2008,~~the ~~together~~Series ~~with~~B ~~the~~Preferred ~~associated~~Shares ~~collateral,~~that ~~(ii)~~did tonot ~~pay~~convert inare ~~full~~listed ~~delinquent~~in ~~tax~~the liabilities ~~owed~~section toof the ~~Internal~~balance ~~Revenue~~sheet, ~~Service~~ and ~~State~~therefore ofthe accretion ~~West~~and ~~Virginia,~~dividends ~~(iii)~~associated towith ~~pay~~the anSeries ~~outstanding~~B ~~judgment,~~Preferred ~~and~~stock ~~(iv)~~after toNovember ~~pay~~30, ~~certain~~2009 ~~other~~are ~~current~~deductions ~~liabilities~~from net income. ~~FSI~~Series C Preferred ~~therefore~~stock ~~became~~has ano ~~member~~accretion. The recorded values of the ~~Bridge~~Series ~~Loan~~A ~~and~~preferred ~~notified~~stock ~~the~~was ~~Collateral~~increased ~~Agent~~to ~~for~~their stated liquidation values using the ~~group~~interest method over a period of ~~its~~five ~~purchase~~years and ~~majority~~such ~~holding. The~~amounts ~~transaction~~were ~~restored~~categorized ~~majority~~as ~~control~~accretion of ~~FSC~~mandatorily toredeemable preferred stock in the ~~Company~~consolidated ~~and~~statement ~~improved~~of ~~its~~operations. ~~balance~~This ~~sheet~~accretion ~~through~~was ~~waiver~~concluded ofin ~~accrued~~December ~~interest~~2010.

14The Series A Preferred designation is entitled to receive cumulative dividends at the rate of 4.00% per annum and the Series B Preferred and Series C Preferred designations are entitled to receive cumulative dividends at the rate of 8.00% per annum, with the Series A, B and C Preferred designations having equal ranking and preference as to dividends, liquidation rights and priority to the Company’s common stockholders. The accrued (but undeclared) dividends associated with the Series C Preferred exchange amounted to $2,295,624 and are included in the total amount exchanged for Series C Preferred Shares.

OnAt ~~August~~this 5time, ~~2015~~management ~~the~~has ~~Company~~chosen ~~completed~~to ~~a $1,600,000~~defer ~~transaction~~payment ~~which resulted in its acquisition~~ of ~~the~~dividends ~~remaining~~to ~~49.3% ($1.725 million face amount) of~~ the ~~senior~~holders ~~promissory notes~~ of the ~~$3.5~~Series ~~million~~A, ~~financing~~B ~~dating~~and ~~from~~C ~~2008,~~Preferred ~~after~~Shares ~~waiving~~until ~~interest~~the ofCompany ~~approximately~~has ~~$1.8~~sufficient ~~million.~~funds ~~Upon~~to ~~closing~~meet ofits redemption ~~the~~obligations ~~acquisition, the~~with ~~collateral~~respect ~~securing~~to the ~~senior~~Series ~~promissory~~A ~~notes,~~and ~~1,000~~Series ~~shares~~B ~~(100%)~~Preferred ofShares ~~FSC~~ and ~~1,000~~has ~~shares~~sufficient ~~(100%)~~cash offlow ~~CMW,~~from ~~was~~operations to ~~released~~service ~~to the~~its ~~Company~~dividend obligations.

~~The transaction was funded through sale in a private offering of investment units (Units) that consisted of 5.00% of the outstanding shares of FSC and 500~~Bridge-financing,~~000~~ ~~common~~Commitments shares of the Company. $1,600,00 was raised through the sale of units in exchange for consideration that included a combination of the cash purchase of units, cancellation of indebtedness owed by the Company to the purchaser in exchange for units and ~~loans~~Material to the Company by potential purchasers that are convertible into the purchase of Units. The Registrant’s Board of Directors has authorized the sale of up to nine Units, which, if completed, would include forty-five percent (45%) of the outstanding stock of FSC.Agreements

~~Restrictions~~Of onprimary ~~Use~~importance to the Company's ability to fully implement its business plan is the expansion of ~~Assets~~that business into additional states. Regulatory approval and licensing is required for each state where FSC seeks to conduct business. Management found entry into additional states (as a surety) was proving difficult without the benefit of more substantial capital and reserves due to FSC's status as a recent entry into this market and due to the cyclical nature of the coal industry. Accordingly, management began pursuing avenues that would provide additional capital to facilitate such expansion.

~~Regulatory~~Beginning ~~approval~~in ~~for~~fiscal ~~the~~2008 ~~acquisition~~and ofcompleted during ~~FSC~~the byfirst ~~JFG~~quarter ~~was~~of ~~provided~~fiscal by2009, athe ~~Consent~~Company ~~Order~~obtained ~~issued~~two ~~December~~rounds ~~23,~~of ~~2005~~bridge byfinancing ~~the~~totaling ~~Commissioner~~an ofaggregate ~~Insurance~~ of ~~the~~$3,500,000. ~~State~~The purpose of ~~West~~the ~~Virginia and~~financing ~~imposed~~was ~~several~~to ~~conditions~~pay ~~for~~expenses ~~the operation~~ of ~~FSC,~~operations ~~including~~and ~~the~~to ~~condition~~pay ~~that~~fees noand ~~dividends~~expenses incurred or ~~monies~~expected ~~were~~ to be ~~paid~~incurred toin ~~JFG~~connection ~~without~~with ~~regulatory~~a ~~approval.~~larger ~~This~~permanent ~~consent~~financing ~~order was terminated on March 26~~and, ~~2012 and dividends~~ in ~~the amounts of $173~~addition,~~000~~ ~~and $198,000~~to ~~were~~increase ~~paid during~~ the ~~years~~capital ~~ended~~surplus ~~May~~of ~~31,~~FSC ~~2015~~to ~~and~~make ~~May~~possible ~~31,~~the ~~2014,~~reactivation of ~~respectively.~~FSC’s ~~For~~surety ~~further~~license ~~information,~~in ~~see Notes C and O to~~ the ~~Consolidated~~state ~~Financial~~of ~~Statements~~Ohio. The

Accordingly, the payment of ordinary dividends is no longer restricted. However, cash, marketable investments, and other receivables held by FSC are restricted from the Company’s use to fund operations or meet cash needs outside of the insurance company’s domain. As of May 31, 2016, such assets amounted to approximately $9.38 million.13

~~Under~~Table ~~the West Virginia insurance code, ordinary dividends to stockholders are allowed to be paid only from that part~~ of FSC’s available surplus funds which is comprised of realized net profits from the business and whereby all such dividends or distributions made within the preceding twelve months do not exceed 1) the lesser of 10% of FSC’s surplus as regards to policyholders as of December 31st of the preceding year-end or 2) net income from FSC’s operations from the previous two calendar years, not including capital gains. Any payment of extraordinary dividends requires prior approval from the WV state insurance commissioner.Contents

~~Critical~~terms ~~Accounting~~of ~~Policies~~the bridge-financing arrangement provided for payment in full upon consummation by the Company of a qualified equity offering providing net proceeds of at least $15 million on or before September 10, 2013. A qualified equity offering was not consummated. On August 10, 2012, the Company entered into an agreement with the bridge lenders, pursuant to which the bridge lenders formally agreed to forbear from exercising their rights and ~~Estimates~~remedies arising from the accumulated acknowledged events of default. As consideration for this forbearance, the Company entered into an Amended and Restated General Hypothecation and Pledge Agreement, granting to the bridge lenders a lien and security interest in all of the capital stock of First Surety Corporation. Under the August 2012 Pledge, the bridge lenders acknowledged that the effectiveness of certain of the rights and remedies provided by such agreement were subject to prior approval by the Office of the Commissioner of Insurance for the State of West Virginia.

~~Investments~~On July 9, 2014 the Company completed a $4,500,000 financing. In effect, FSI, a subsidiary of the Registrant, borrowed the funds at 8.00% interest with principal repayments on a ten year schedule. Proceeds of the borrowing were applied (i) to purchase from certain bridge lenders, after waiving interest of approximately $1.6 million, 50.7% ($1.775 million face amount) of the outstanding senior promissory notes comprising the $3.5 million financing dating from 2008, together with the associated collateral, (ii) to pay in full delinquent tax liabilities owed to the Internal Revenue Service and State of West Virginia, (iii) to pay an outstanding judgment, and (iv) to pay certain other current liabilities. FSI therefore became a member of the Bridge Loan and notified the Collateral Agent for the group of its purchase and majority holding. The transaction restored majority control of FSC to the Company and improved its balance sheet through waiver of accrued interest.

~~Management~~On ~~believes~~August 5, 2015 the Company ~~has~~completed a $1,600,000 transaction which resulted in its acquisition of the ~~ability~~remaining 49.3% ($1.725 million face amount) of the senior promissory notes toof ~~hold~~the ~~all~~$3.5 ~~fixed~~million ~~income~~financing ~~securities~~dating tofrom ~~maturity~~2008, after waiving interest of approximately $1.8 ~~However~~million. Upon closing of the acquisition, the collateral securing the ~~Company~~senior ~~determined~~promissory itnotes, ~~may~~1,000 ~~dispose~~shares (100%) of ~~securities~~FSC ~~prior~~and to1,000 ~~their~~shares ~~scheduled~~(100%) of CMW, was released to ~~maturity~~the Company.

15The transaction was funded through sale in a private offering of investment units (Units) that consisted of 5.00% of the outstanding shares of FSC and 500,000 common shares of the Company. $1,600,00 was raised through the sale of units in exchange for consideration that included a combination of the cash purchase of units, cancellation of indebtedness owed by the Company to the purchaser in exchange for units and loans to the Company by potential purchasers that are convertible into the purchase of Units. The Registrant’s Board of Directors has authorized the sale of Units, which, if completed, would include up to forty-nine percent (49%) of the outstanding stock of FSC.

~~due~~Restrictions toon ~~changes~~Use ~~in interest rates, prepayments, tax and credit considerations, liquidity or regulatory capital requirements, or other similar factors. As a result, the Company classifies all~~ of its fixed income securities (bonds) and equity securities as available-for-sale. These securities are reported at fair value, with unrealized gains and losses, net of deferred income taxes, reported in stockholders’ equity as a separate component of accumulated other comprehensive income.Assets

Regulatory approval for the acquisition of FSC by JFG was provided by a Consent Order issued December 23, 2005 by the Commissioner of Insurance ~~Premiums~~of the State of West Virginia and imposed several conditions for the operation of FSC, including the condition that no dividends or monies were to be paid to JFG without regulatory approval. This consent order was terminated on March 26, 2012 and dividends in the amounts of $173,000 and $198,000 were paid during the years ended

Insurance premiums are recognized as revenue ratably over the term of the related policies in proportion to the insurance protection provided. Premium revenues are net of amounts ceded to reinsurers. Unearned premiums represent the portion of premiums written, before ceded reinsurance which is shown as an asset, applicable to the unexpired terms of policies in force determined on a pro rata basis.14

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

~~Reinsurance~~May 31, 2015 and May 31, 2014, respectively. For further information, see Notes C and O to the Consolidated Financial Statements.

~~The~~Accordingly, ~~Company limits~~ the ~~maximum~~payment ~~net loss that can arise from large risks by reinsuring (ceding) certain levels~~ of ~~such~~ordinary ~~risk~~dividends is ~~with~~no ~~reinsurers~~longer restricted. ~~Effective April 1~~However, ~~2009~~cash, ~~FSC entered~~marketable ~~into~~investments, aand ~~reinsurance~~other ~~agreement~~receivables ~~with~~held ~~Lloyd’s~~by ofFSC ~~London~~are ~~for~~restricted ~~its~~from ~~coal~~the ~~reclamation surety bonding programs. This agreement~~Company’s ~~has~~use ~~provided additional bonding capacity~~ to ~~FSC~~fund ~~and~~operations ~~has~~or ~~enabled~~meet ~~FSC~~cash toneeds ~~write~~outside ~~more bonds and~~ of ~~greater~~the ~~size~~insurance ~~for~~company’s ~~its coal reclamation bonding clients~~domain. ~~Management~~As ~~expects~~of ~~this~~May ~~reinsurance~~31, ~~arrangement~~2017, tosuch ~~continue~~assets ~~FSC’s expansion of market share and~~ amounted to ~~result in~~approximately ~~increased~~$38.38 ~~cash flow for each of the Company’s operating subsidiaries~~million.

~~Ceded~~Under ~~reinsurance~~the isWest ~~treated~~Virginia asinsurance ~~the~~code, ~~risk and~~ordinary ~~liability~~dividends ofto ~~the~~stockholders ~~assuming~~are ~~companies.~~allowed ~~The~~to ~~Company~~be ~~cedes~~paid ~~insurance~~only tofrom ~~other~~that ~~companies~~part ~~but~~of ~~these~~FSC’s ~~reinsurance~~available ~~contracts~~surplus dofunds ~~not~~which ~~relieve~~is comprised ~~the~~of ~~Company~~realized net profits from ~~its~~the ~~obligations~~business toand ~~policyholders.~~whereby ~~Ceded~~all ~~premiums,~~such atdividends aor ~~rate~~distributions ofmade ~~35%~~within ofthe ~~written~~preceding ~~premium~~twelve ~~with~~months do anot ~~minimum~~exceed 1) the lesser of ~~$490,000, are~~10% ~~recognized~~of FSC’s surplus as ~~reductions~~regards into ~~revenue~~policyholders ~~ratably~~as ~~over~~of ~~the~~December ~~term~~31st of the ~~related~~preceding year-end ~~policies.~~or ~~Ceded~~2) ~~unearned~~net ~~premiums~~income ~~represent~~from FSC’s operations from the ~~portion of~~previous ~~ceded~~two ~~premiums~~calendar ~~written~~years, ~~applicable~~not toincluding ~~the~~capital ~~unexpired~~gains. ~~terms~~Any payment of ~~policies~~extraordinary individends ~~force~~requires ~~determined~~prior onapproval afrom ~~pro~~the ~~rata~~WV ~~basis~~state insurance commissioner.

~~Under~~Critical ~~the~~Accounting ~~terms~~Policies of its reinsurance treaty, the Company is entitled to a No Claims Bonus from the reinsurers for each contract year in which no claims are received. The bonus is 20% of the contract year’s reinsurance premium. No claims had been made since the inception of the treaty until February 2014 when a performance bond claim of approximately $83,000 was paid during the year ended May 31, 2014. In August 2015, the Company paid a claim on a called bond in the amount of $550,000, of which $75,000 was paid using collateral of the principal. The remaining $475,000 has been established as a salvage receivable to be repaid with the assignment of proceeds from the potential sale of a closely held stock owned by the principal and ~~the assignment of a promissory note payable to the principal, with the total assigned values in excess of the salvage receivable.~~Estimates

The Company incurred loss adjustment expenses of $26,590 related to costs of engaging experts, attorney fees, and consultants for potential claims. These costs were charged against established case reserves or bulk reserves.Investments

16Management believes the Company has the ability to hold all fixed income securities to maturity. However, the Company determined it may dispose of securities prior to their scheduled maturity due to changes in interest rates, prepayments, tax and credit considerations, liquidity or regulatory capital requirements, or other similar factors. As a result, the Company classifies all of its fixed income securities (bonds) and equity securities as available-for-sale. These securities are reported at fair value, with unrealized gains and losses, net of deferred income taxes, reported in stockholders’ equity as a separate component of accumulated other comprehensive income.

~~Deferred~~Insurance ~~Policy Acquisition Costs~~Premiums

~~Policy~~Insurance ~~acquisition~~premiums ~~costs,~~are ~~consisting~~recognized ofas ~~commissions,~~revenue ~~premium~~ratably ~~taxes~~over ~~and other underwriting expenses which vary with, and are primarily related to,~~ the ~~production~~term of ~~business,~~the ~~are~~related ~~deferred and~~policies ~~amortized~~in asproportion ~~a charge~~ to ~~income as~~ the ~~related~~insurance ~~premiums~~protection ~~are earned~~provided. ~~The~~Premium ~~Company~~revenues ~~periodically~~are ~~tests~~net ~~that~~of ~~deferred policy acquisition~~amounts ~~costs~~ceded ~~are~~to ~~recoverable based on the expected profitability embedded in the reserve for unearned premium~~reinsurers. IfUnearned ~~the~~premiums ~~expected~~represent ~~profitability is less than~~ the ~~balance~~portion of ~~deferred~~premiums ~~policy acquisition costs~~written, abefore ~~charge~~ceded toreinsurance ~~income~~which is ~~taken~~shown ~~and~~as ~~the deferred policy acquisition~~an ~~cost~~asset, ~~balance~~applicable ~~is reduced~~ to the ~~amount~~unexpired ~~determined~~terms toof bepolicies ~~recoverable. Anticipated investment income is considered~~ in ~~the~~force ~~determination of~~determined ~~the~~on ~~recoverability~~a ofpro ~~deferred~~rata ~~policy acquisition costs~~basis.

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

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.Reinsurance

~~Reserve~~The Company limits the maximum net loss that can arise from large risks by reinsuring (ceding) certain levels of such risk with reinsurers. Effective April 1, 2009, FSC entered into a reinsurance agreement with Lloyd’s of London for ~~Losses~~its coal reclamation surety bonding programs. This agreement has provided additional bonding capacity to FSC and ~~Loss~~has ~~Expenses~~enabled FSC to write more

Reserves for unpaid losses and loss adjustment expenses of the insurance subsidiary are estimated using information derived from Company experience in addition to management’s estimate of expected future claims on those policies in force. Management’s estimate considers relevant industry information but is largely dependent upon management’s experience and judgment since prior Company experience and industry data available are extremely limited. In August 2015, the Company paid a claim on a called bond in the amount of $550,000, of which $75,000 was paid using collateral of the principal. The remaining $475,000 has been established as a salvage reserve to be repaid with the assignment of proceeds from sales of stock and an assignment of a promissory note as additional collateral with total assigned values in excess of the salvage reserve. In February, 2014, a performance bond obligee made claim under a bond relating to non-performance by the principal. The total claim of approximately $83,000 was paid during the year ended May 31, 2014. Prior to 2014, FSC had experienced no claims for losses since its acquisition.15

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

17bonds and of greater size for its coal reclamation bonding clients. Management expects this reinsurance arrangement to continue FSC’s expansion of market share and to result in increased cash flow for each of the Company’s operating subsidiaries.

InCeded ~~underwriting~~reinsurance ~~coal~~is ~~reclamation~~treated ~~bonds,~~as ~~management obtains estimates of costs to reclaim~~ the ~~properties~~risk inand liability ~~accordance with the specifications~~ of the ~~mining~~assuming ~~permit,~~companies. ~~prepared~~The byCompany ~~independent outside~~cedes ~~professionals~~insurance ~~experienced~~to inother ~~this~~companies ~~field~~but ofthese ~~work.~~reinsurance ~~Such~~contracts ~~estimates~~do ~~are~~not ~~then~~relieve the ~~periodically~~Company ~~updated~~from ~~and~~its ~~compared~~obligations ~~with~~to ~~marketable securities~~policyholders. ~~pledged~~Ceded premiums, ~~and~~at ~~held~~a ~~for~~rate ~~the~~of ~~benefit~~35% of ~~FSC~~written aspremium ~~collateral~~with ~~for~~a ~~the~~minimum ~~surety~~of ~~bond~~$490, ~~to mitigate~~ 000 (the ~~exposure~~newest tocontract ~~significant loss.~~effective ~~Should~~March ~~the~~1, ~~principal~~2017 ~~default~~ceded inpremium ~~its~~at ~~obligation~~a torate ~~reclaim~~of ~~the~~26.75% ~~property~~with asa ~~specified~~$842,610 ~~in the mining permit~~minimum), ~~FSC~~are ~~would~~recognized ~~then use~~as ~~the funds held~~ reductions in ~~the~~revenue ~~collateral~~ratably ~~account~~over ~~to reclaim~~ the ~~property~~term ~~or forfeit the face amount~~ of the ~~surety~~related ~~bond~~policies. ~~Losses~~Ceded ~~can occur~~unearned ifpremiums represent the ~~costs~~portion of ~~reclamation~~ceded ~~exceed~~premiums ~~the estimates obtained at the time the bond was underwritten or upon subsequent re-evaluations,~~written ifapplicable ~~sufficient~~to ~~collateral is not obtained, or if~~ the ~~collateral~~unexpired ~~held~~terms ~~has~~of ~~experienced~~policies ~~significant deterioration~~ in ~~value~~force ~~and~~determined ifon ~~FSC is~~a ~~not~~pro ~~otherwise~~rata ~~able to recover under its contractual rights to indemnification~~basis.

~~Miscellaneous~~Under ~~fixed-liability~~the ~~limit~~terms ~~surety bonds~~of ~~are~~its ~~generally~~reinsurance ~~fully~~treaty, the ~~collateralized~~Company byis ~~the~~entitled ~~principal’s~~to ~~cash~~a ~~investment~~No ~~into~~Claims aBonus ~~collateral~~from ~~investment~~the ~~account~~reinsurers tofor ~~mitigate FSC’s~~each ~~exposure~~contract toyear ~~loss.~~in ~~Generally~~which ~~the~~no ~~collateral~~claims ~~investment~~are ~~account~~received. The bonus is ~~managed~~20% byof the ~~Company~~contract year’s ~~investment~~reinsurance ~~advisory subsidiary, Jacobs & Co~~premium. ~~Losses~~No ~~can~~claims ~~occur~~had ~~should~~been ~~the~~made ~~principal~~since ~~default on~~ the ~~performance~~inception ~~required~~of by the ~~bond~~treaty ~~and~~that ~~the~~rose ~~collateral~~to in the ~~investment~~coverage ~~account~~level ~~experiences~~of ~~deterioration~~the inreinsurance ~~value~~agreement.

InDeferred ~~establishing~~Policy ~~its~~Acquisition reserves for losses and loss adjustment expense, management continually reviews its exposure to loss based on reports provided in conjunction with the periodic monitoring and inspections performed along with industry averages and historical experience. Management has estimated such losses based on management’s experience, adjusted for factors that are unique to the Company’s approach, and in consultation with its consulting actuary experienced in the surety field. As a result of the limited Company and industry data and experience there is a significant risk that amounts reserved for future expected losses and loss adjustment expenses could vary from those amounts reserved and the variance could be material. Adjustments to reserves are reflected in earnings in the period of determination.Costs

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

~~The~~Intangible Company experienced operating income (loss) from operations of approximately ($571,000) and ($1,505,000) for the years ended May 31, 2016 and 2015, respectively. The Company’s income (or loss) decreases (or increases) when accretion of mandatorily redeemable convertible preferred stock and accrued dividends on mandatorily redeemable preferred stock, as well as income attributable to non-controlling interests, (i.e. 10% of FSC), are taken into account, to losses of approximately ($108,000) and ($1,670,000) for the years ended May 31, 2016 and 2015. The Company has not been able to pay certain amounts due to professionals and others and continues to be unable to pay its preferred stock dividend obligation. Due to this inability to pay professional fees, the financial audits and subsequent required filings for the fiscal years ended May 31, 2014, 2015, and 2016 were not completed or filed in a timely manner. A substantial portion of the Company’s cash flow is generated by its insurance subsidiary. Such cash flow is subject to restrictions including on the ability of FSC to pay dividends to its parent, resulting from insurance regulatory requirements. While management expects revenue growth and cash flow to increase significantly as its business plan is fully implemented, it is anticipated that losses will continue and the Company will be cash constrained until FSC is able to develop a substantial book of business.Assets

18Incident to its acquisition of FSC on December 31, 2005, 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 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.

~~During~~Reserve ~~2016,~~for ~~the~~Losses ~~Company sold in a private offering investment units (Units) that consisted of 10.00% of the outstanding shares of FSC~~ and ~~common~~Loss shares of the Company. The Registrant’s Board of Directors has authorized the sale of up to nine Units, which, if completed, would include forty-five percent (45%) of the outstanding stock of FSC. This sale, as well as the increase in the generation of cash flows in 2017 allowed the Company to secure the services of independent auditors and all filings that are past due are to be expedited and filed during 2017.Expenses

~~Expansion~~Reserves offor ~~FSC’s~~unpaid ~~business~~losses ~~to other~~and ~~states~~loss ~~is a key component to fully implementing the Company’s business plan. In fiscal 2009, the Company was able to~~adjustment ~~increase~~expenses ~~the capital~~ of ~~FSC~~the ~~and reactivate FSC’s~~ insurance ~~license~~subsidiary inare ~~Ohio~~estimated ~~and~~using ~~obtain~~information ~~authority~~derived tofrom ~~issue~~Company ~~surety~~experience ~~bonds~~ in ~~that~~ ~~state.~~addition ~~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~~management’s estimate ~~specialization in coal reclamation bonds, the cyclical nature~~ of ~~that industry~~expected ~~and~~future ~~the~~claims ~~financial~~on ~~condition~~those ofpolicies ~~the~~in ~~Company~~force. Management ~~believes that if FSC~~’s ~~capital~~estimate ~~and~~considers surplus reserves were significantly more substantial and the financial condition of the Company was stabilized, entry into other states would be less challenging. Accordingly, management continues to pursue avenues that can provide additional capital to increase the capacity of its insurance subsidiary and to fund continuing operations as the business is being fully developed.relevant

Through the sharing of resources (primarily personnel) to minimize operating costs, the Company and its subsidiaries attempt to minimize operating expenses and preserve resources. Although FSC is cash flow positive, the use of its assets and profits are restricted to its stand-alone operation by regulatory authority. While growth of the FSC business continues to provide additional revenue opportunities to the Company’s other subsidiaries, Jacobs & Company and Triangle Surety, it is anticipated that working capital deficiencies will continue 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, there is substantial doubt as to the Company’s ability to continue as a going concern. The consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty.16

~~Comparison~~Table of ~~Results of Operations for Fiscal 2016 With 2015~~Contents

~~The~~industry ~~Company~~information ~~experienced~~but ais ~~loss~~largely ~~from operations~~dependent ofupon ~~approximately~~management’s ~~($572,000)~~experience inand ~~2016~~judgment assince ~~compared~~prior with loss from operations of ($1,505,000) in fiscal 2015. The net loss attributable to common stockholders was ($1,364,660) in fiscal 2016 as compared to ($2,742,048) in fiscal 2015. Net loss attributable to the Company ~~after~~experience ~~deducting~~and ~~participation~~industry ~~attributable~~data toavailable ~~non-controlling~~are ~~interests~~extremely ~~is taken into account is ($1,273,529)~~limited.

~~Revenues~~In August 2015, the Company paid a claim on a called bond in the amount of $550,000, of which $75,000 was paid using collateral of the principal. The remaining $475,000 has been established as a salvage receivable to be repaid by the principal with collateral comprised of the assignment of a closely held stock owned by the principal and assignment of a promissory note payable to the principal, with the total assigned values in excess of the salvage receivable. As of May 31, 2017, the Company had received $45,000 in recovered salvage on this claim.

~~Revenues~~In ~~decreased~~February ~~15%~~2017, the Company paid a claim on a called bond in ~~fiscal~~the ~~2016~~amount toof $1752,~~335~~400,~~829 as~~ ~~compared~~of ~~with~~which $1722,~~575,620~~780 inwas ~~fiscal~~paid ~~2015~~using collateral of the principal. The ~~decrease~~remaining is$29,620 has ~~largely~~been ~~attributable~~established as a salvage receivable to be repaid with periodic payments from the ~~decrease~~bond principal. As of May 31, 2017, the Company has received $3,000 in ~~net~~recovered ~~investment~~salvage ~~income~~on ofthis ~~approximately~~claim.

19For the years ended May 31, 2017 and 2016, the Company incurred loss adjustment expenses of $7,597 and $26,590, respectively, related to costs of engaging experts, attorney fees, and consultants for potential claims. These costs were charged against established case reserves or bulk reserves

~~$490,000,~~FSC ~~mainly~~is ~~due~~currently licensed to ~~the~~write ~~severe~~coal ~~unrealized~~permit ~~loss~~and inmiscellaneous ~~market~~fixed-liability ~~value~~limit ofsurety anbonds ~~investment~~in ~~account~~West ~~held~~Virginia asand aOhio. ~~result~~Coal ofpermit abonds ~~contractual~~are ~~arrangement,~~required ~~where~~by regulatory agencies to assure the ~~Company~~reclamation ~~receives~~of ~~any~~land ~~appreciation and~~that ~~earning~~has inbeen ~~excess~~disturbed ofby ~~the~~mining ~~initial~~operations, ~~deposit~~and ofaccordingly ~~collateral~~is a highly regulated process by federal aand ~~principal~~state ~~bondholder~~agencies. ~~The~~Such ~~Company~~bonds ~~also~~are ~~had~~generally ~~losses~~long-term ofin ~~$(79,000)~~nature with mining operations and reclamation work being conducted in ~~2016~~unison onas the ~~sale~~property ofis ~~investments~~mined. ~~compared~~No two principals or properties are alike due to ~~realized~~varied ~~gains~~company ofstructures ~~$136,000~~and inunique ~~2015~~geography and geology of each site.

~~The~~In ~~Company~~underwriting ~~recognized~~coal ~~other~~reclamation ~~income~~bonds, management obtains estimates of ~~approximately $287,000~~costs ~~from~~to reclaim the ~~removal~~properties in accordance with the specifications of ~~dormant~~the ~~accounts~~mining ~~payable~~permit, prepared by independent outside professionals experienced in this field of work. Such estimates are then periodically updated and ~~commissions~~compared nowith ~~longer~~marketable securities ~~payable~~pledged, onand ~~premium~~held ~~receivables~~for ~~that~~the ~~were~~benefit ~~written~~of FSC as collateral for the surety bond, to mitigate the exposure to significant ~~off~~loss. Should the principal default in its obligation to reclaim the property as ~~uncollectible~~specified in the mining permit, ~~and~~FSC ~~approximately~~would ~~$81~~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,~~000~~ or if sufficient collateral is not obtained, or if the collateral held has experienced significant deterioration in ~~interest~~value ~~income~~and onif FSC ~~notes~~is ~~receivable~~not ~~issued~~otherwise ~~during~~able ~~2016~~to recover under its contractual rights to indemnification.

~~Revenue~~Miscellaneous ~~from~~fixed-liability ~~the~~limit ~~investment management segment,~~surety ~~net~~bonds ofare ~~advisory~~generally ~~referral~~fully ~~fees,~~collateralized ~~declined~~by ~~10%~~the ~~with~~principal’s ~~fiscal~~cash ~~2016~~investment ~~reporting~~into ~~$109,194~~a ascollateral ~~compared~~investment account to ~~$121,514~~mitigate FSC’s inexposure ~~fiscal~~to ~~2015~~loss. ~~This~~Generally ~~decline in~~the collateral investment ~~advisory~~account ~~fees~~is ~~related~~managed toby the ~~decrease~~Company’s ininvestment ~~the~~advisory subsidiary, ~~market~~Jacobs ~~value~~& ofCo. ~~assets~~Losses incan ~~portfolios~~occur ~~under~~should ~~management.~~the ~~Investment~~principal ~~advisory fees~~default ~~are based~~ on the ~~market~~performance ~~value~~required ofby ~~assets~~the ~~under~~bond ~~management~~ and ~~some~~the ~~fluctuation will occur due to overall market conditions.~~collateral ~~Generally~~in ~~such revenues will remain relatively constant from year to year with large fluctuations attributable to~~ the ~~growth~~investment ~~or loss~~account ofexperiences ~~assets~~deterioration ~~under~~in ~~management~~value.

Revenue from the surety insurance segment, consisting of FSC and TSA, decreased 42%, with $829,456 in fiscal 2016 as compared with $1,434,730 for the prior year. Revenues attributable to the insurance segment are as follows:17

	Year Ended May 31,
	2016			2015
Premiums earned	$	989,552		$	915,920
Commissions earned		134,346			9,483
No Claims Bonus from Reinsurers		—			98,000
Net investment income		(215,382	)		274,946
Net realized investment gains		(79,060	)		136,381
Total	$	829,456		$	1,434,730

Table of Contents

~~Premium~~In ~~revenue~~establishing isits ~~recognized~~reserves ~~ratably~~for ~~over~~losses and ~~the~~loss ~~term~~adjustment ofexpense, ~~the~~management ~~policy~~continually ~~period~~reviews ~~and~~its ~~thus~~exposure isto ~~relatively~~loss ~~stable~~based ~~from~~on ~~period~~reports toprovided ~~period~~in conjunction with ~~fluctuations~~the periodic ~~for~~monitoring ~~comparable~~and ~~periods~~inspections ~~generally reflecting~~performed ~~the~~along ~~overall~~with ~~growth~~industry oraverages ~~loss~~and ofhistorical ~~business~~experience. ~~Commission~~Management ~~revenue,~~has ~~which~~estimated such islosses ~~dependent~~based on management’s experience, adjusted for factors that are unique to the ~~timing~~Company’s approach, and in consultation with its consulting actuary experienced in the surety field. As a result of ~~issuance~~the orlimited ~~renewal~~Company and industry data ofand ~~bonds,~~experience there is a significant risk that amounts reserved for future expected tolosses beand ~~more~~loss ~~seasonal~~adjustment expenses could vary from ~~quarter-to-quarter~~those ~~with~~amounts ~~fluctuations~~reserved ~~for~~and ~~comparable~~the ~~periods~~variance ~~largely~~could ~~reflecting~~be ~~the overall~~material. ~~growth~~Adjustments orto ~~loss~~reserves are reflected in earnings in the period of ~~business~~determination.

~~Investment~~Liquidity ~~income is expected to remain relatively consistent from period to period, but can fluctuate based on interest rates, market conditions, growth or loss of business,~~ and ~~investment~~ ~~funds~~Going expended in the payment of claims. The decrease in revenues reflected above is mainly attributable to the severe drop in market value of an investment account held as a result of a contractual arrangement, where the Company receives any appreciation and earning in excess ofConcern

20The Company experienced operating income (loss) from operations of approximately $508,000 and ($571,000) for the years ended May 31, 2017 and 2016, respectively. The Company’s income (or loss) decreases (or increases) when accretion of mandatorily redeemable convertible preferred stock and accrued dividends on mandatorily redeemable preferred stock, as well as income attributable to non-controlling interests, (i.e. 30% and 10% of FSC in 2017 and 2016, respectively), are taken into account, to losses of approximately ($1,358,000) and ($108,000) for the years ended May 31, 2017 and 2016. The Company has not been able to pay certain amounts due to professionals and others and continues to be unable to pay its preferred stock redemption and dividend obligations. Due to this inability to pay professional fees, the financial audits and subsequent required filings for the fiscal years ended May 31, 2014, 2015, 2016, and 2017 were not completed or filed in a timely manner. A substantial portion of the Company’s cash flow is generated by its insurance subsidiary, with such cash flow subject to insurance regulatory restrictions, including a limitation of FSC to pay dividends to its parent. While management expects revenue growth and cash flow to increase significantly as its business plan is fully implemented, it is anticipated that losses will continue and the Company will be cash constrained until FSC is able to develop a more substantial book of business.

~~the~~During ~~initial~~2017 ~~deposit~~and of2016, ~~collateral~~the byCompany asold ~~principal~~in a ~~bondholder~~private asoffering ~~well~~investment asunits ~~realized losses of~~ (~~$79,060~~Units) inthat ~~2016~~consisted ~~compared to realized gains~~ of ~~$136,000~~a intotal ~~2015 on the sale~~ of ~~investments~~30. ~~Gross~~00% ~~premium~~of ~~written~~the inoutstanding ~~fiscal~~shares ~~2016~~of ~~amounted~~FSC toand $13,~~386~~000,~~837~~000 ascommon shares ~~compared~~of tothe ~~$1,382,725~~Company. inThe ~~fiscal~~Registrant’s ~~2015~~Board ~~and is reflective~~ of aDirectors ~~slight increase~~has inauthorized the ~~volume~~sale of ~~bonds~~Units, ~~required~~which, ~~for~~if ~~new~~completed, ~~and~~would ~~existing~~include up ~~clients.~~to ~~Commission~~forty-nine ~~income~~percent ~~earned~~(49%) ~~for~~of the ~~placement~~outstanding stock of ~~bonds~~FSC. ~~with outside~~These ~~insurers also increased from $9~~sales,~~483~~ inas ~~2015~~well toas ~~$134,346~~the ~~in 2016. This~~ increase in ~~commission~~cash ~~revenue~~flows ~~for~~in ~~2016~~2017 ~~is derived from one subsidiary’s facilitation of a contract with an outside company~~ (and ~~a separate subsidiary to provide replacement~~ ~~bonding~~2018) ~~for~~allowed ~~premium~~the ~~income. The~~ Company ~~did~~to ~~not~~secure ~~record~~the aservices Noof ~~Claims~~independent ~~Bonus~~auditors ~~for~~and ~~the~~all ~~year~~filings ~~ended~~that ~~May~~are ~~31,~~past ~~2016~~ due are to ~~the~~be ~~recording of~~expedited aand ~~claim~~filed ~~reserve~~during ~~in excess of the minimum amount specified in the reinsurance contract period covering October 1, 2014 through December 31, 2015~~2018.

Expansion of FSC’s ~~investment~~business ~~holdings~~to ~~in fiscal 2016~~other ~~averaged~~states ~~$9.748~~is ~~million~~a askey ~~compared~~component to ~~$9.860~~fully ~~million~~implementing ~~for~~the Company’s business plan. In fiscal ~~2015~~2009, ~~with~~the ~~investment~~Company ~~yields~~was ~~relatively~~able ~~flat,~~to ~~from~~increase the ~~3.05%~~capital of FSC and reactivate FSC’s insurance license in Ohio and obtain authority to 2issue surety bonds in that state.~~65%.~~ ~~The~~However, ~~ultimate~~management ~~effect~~has offound ~~zero~~that ~~coupon~~entry ~~bonds~~into ~~will~~other bestates ~~reflected~~(as ~~over~~a surety) has been difficult without the ~~life~~benefit of more substantial capital due to FSC’s specialization in coal reclamation bonds, the ~~bond~~cyclical ~~through~~nature ~~accretion~~of ~~rather~~that ~~than~~industry ~~yield.~~and ~~During~~the financial condition of the ~~period,~~Company. ~~equity~~Management ~~securities~~believes inthat ~~the~~if ~~portfolio~~FSC’s ~~provided~~capital ~~dividends~~and surplus were significantly more substantial and ~~gains~~the ~~from~~financial condition of the ~~covered~~Company ~~call~~was ~~strategy~~stabilized, ~~utilized~~entry oninto ~~the~~other ~~equities~~states would be less challenging.

~~Expenses~~18

~~Incurred~~Table 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. Due to overall concern for the coal industry brought about by substantial pricing competition from natural gas and resultant bankruptcies of publicly traded coal companies, the Company has agreed with its actuary and regulators to increase FSC’s reserves in 2015 and 2016 by recording $179,334 as IBNR for fiscal 2016, or 18% of earned premium, as compared to $968,017 or 106% of earned premium for fiscal 2015, strengthening its reserves by a net of approximately $820,000. In addition, FSC has adjusted the percentage of premium reserved for IBNR by increasing the reserve rate from 12% of earned premium to 23% for partially collateralized bonds beginning January 1, 2016. IBNR loss estimates have been based on actuarial recommendations and management’s judgment that are unique to the FSC’s underwriting approach. Prior to 2014, FSC had not received any claims for losses on any bonds underwritten since business began in 2006.Contents

~~Insurance~~Accordingly, ~~policy~~during ~~acquisition~~November ~~costs~~2016 ~~represent~~FSC received ~~charges~~approval to ~~operations~~issue ~~for~~up ~~underwriting~~to $50 million non-voting, ~~commissions~~non-cumulative ~~and~~3.5% ~~premium~~Series ~~tax~~A ~~attributable~~Preferred stock. A strategic partner purchased $8 million Preferred which was contributed to ~~surety~~capital ~~polices~~in ~~issued~~January by2017, ~~FSC~~increasing the subsidiary’s capital and ~~are~~surplus ~~recognized~~from ~~ratably~~$5 ~~over~~million to $13 million. Enabled by the ~~period~~increase in ~~which~~capital ~~premiums~~and ~~are~~desiring ~~earned.~~to Inexpand ~~fiscal~~its ~~2016~~geographic footprint, ~~such~~FSC ~~costs~~is ~~amounted~~actively pursuing expansion to ~~$284,127~~additional orstates. ~~29%~~Management ofcontinues ~~earned~~to ~~premium~~pursue avenues that can provide additional capital to increase asthe ~~compared~~capacity ~~with~~of ~~$298,756~~its orinsurance ~~33%~~subsidiary inand ~~fiscal~~to ~~2015~~fund the Company’s continuing operations as the business is being fully developed.

~~General~~Through the sharing of resources (primarily personnel) to minimize operating costs, the Company and ~~administrative~~its subsidiaries attempt to minimize operating expenses ~~for~~and ~~fiscal~~preserve resources. ~~2016~~Although ~~were~~FSC $1is cash flow positive,~~442,606~~ asthe ~~compared~~use ~~with~~of $1its assets and profits are restricted to its stand-alone operation by regulatory authority. While growth of the FSC business continues to provide additional revenue opportunities to the Company’s other subsidiaries,~~809,121~~ ~~for~~Jacobs ~~fiscal~~& ~~2015~~Company and Triangle Surety, ~~representing~~it anis ~~decrease~~anticipated that working capital deficiencies will continue to be met either through the raising of ~~$366~~additional capital or borrowings. However,~~515~~ there can be no assurance that additional capital (or debt financing) will be available when and ~~are~~to ~~comprised~~the ofextent required or, if available, on terms acceptable to the Company. Accordingly, ~~following:~~there is substantial doubt as to the Company’s ability to continue as a going concern. The consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty.

21Comparison of Results of Operations for Fiscal 2017 With 2016

	Year Ended May 31,
	2016		2015		Difference
Salaries and related costs	$	628,855	$	642,777	$	(13,922	)
General office expense		99,417		114,476		(15,059	)
Legal and other professional fees		225,739		350,665		(124,926	)
Audit, accounting and related services		63,256		169,137		(105,881	)
Travel, meals and entertainment		92,866		82,964		9,902
Other general and administrative		332,473		449,102		(116,629	)
Total general and administrative	$	1,442,606	$	1,809,121	$	(366,515	)

The Company experienced income from operations of approximately $507,000 in 2017 as compared with loss from operations of ($572,000) in fiscal 2016. Including non-cash expenses, the net loss attributable to common stockholders was ($2,351,714) in fiscal 2017 as compared to ($1,346,660) in fiscal 2016. Net loss attributable to the Company after deducting participation attributable to non-controlling interests is taken into account is ($2,614,485) in fiscal 2017 as compared to ($1,273,529) in fiscal 2016.

~~Salaries and related costs, net of deferred internal policy acquisition costs, decreased $13,922 and are comprised of the following:~~Revenues

	Year Ended May 31,
	2016			2015			Difference
Salaries and wages	$	572,764		$	563,982		$	8,782
Commissions		122,599			36,600			85,999
Payroll taxes		53,131			49,375			3,756
Fringe benefits		59,431			81,750			(22,319	)
Key-man life insurance		61,137			63,088			(1,951	)
Deferred policy acquisition costs		(240,207	)		(152,018	)		(88,189	)
Total salaries and related costs	$	628,855		$	642,777		$	(13,922	)

Revenues increased 115% in fiscal 2017 to $2,869,316 as compared with $1,335,829 in fiscal 2016. The increase is largely attributable to the increase in net investment income of approximately $709,000, mainly due to the rebounding of a 2016 severe unrealized loss in market value of an investment account held as a result of a contractual arrangement, where the Company receives any appreciation and earning in excess of the initial deposit of collateral by the principal on a surety bond. The Company also realized gains of $138,000 on the sale of investments in 2017 compared to losses of $79,000 in 2016. Insurance premiums written for new and existing customers increased by approximately $762,000 in 2017.

~~The~~In ~~increase~~2016 inthe ~~commissions~~Company isrecognized ~~partially~~other ~~attributable~~income toof ~~FSC’s~~approximately ~~commission~~$287,000 ~~structure~~from ~~that~~the ~~pays~~removal aof ~~larger~~dormant ~~commission~~accounts ~~percentage~~payable onand ~~the~~commissions ~~origination~~no oflonger apayable ~~policy~~on ~~but~~premium ~~reduced~~receivables that ~~for~~were ~~subsequent policy,~~written off as ~~well~~uncollectible. asDuring to2017, the ~~timing~~Company ofrecognized ~~payment~~approximately of$109,000 ~~commissions based upon collections. The decrease~~ in ~~fringe~~interest ~~benefits~~income ison ~~attributable~~notes toreceivable ~~decreased~~issued ~~cost~~during of2016, ~~health~~compared ~~insurance~~to ~~for~~approximately ~~employees~~$81,000 ~~after~~in ~~changing~~the ~~insurance~~previous ~~providers~~year.

Legal and professional fees decreased in 2016 compared to the prior year due to the Company’s above normal efforts and related expenses in 2015 to expand the Company’s business, remove debt of the Company via refinancing and sale of subsidiary stock, and penetrate new markets. In 2015 the Company reclassified an $80,000 deposit from prior years as legal expense for work on a financing arrangement that was not completed. Audit, accounting and related services decreased in 2016 due to a change in accounting and audit service provider in 2015 for the Company which resulted in the delay of audit related expenses for all of 2016.19

~~Other~~Table ~~general and administrative expense decreased by approximately $117,000 in 2016 compared to the corresponding 2015 period. This decrease is mainly due to the Company’s writing off accounts receivable~~ of ~~approximately $300,000 as uncollectible in 2015. The Company anticipates that some of these accounts receivable will be paid by an obligor in the future based on verbal agreements with this obligor.~~Contents

22Revenue from the investment management segment, net of advisory referral fees, declined 25% with fiscal 2017 reporting $81,918 as compared to $109,194 in fiscal 2016. This decline in investment advisory fees related to the decrease in the market value of assets in portfolios under management. Investment advisory fees are based on the market value of assets under management and some fluctuation will occur due to overall market conditions. Generally such revenues will remain relatively constant from year to year with large fluctuations attributable to the growth or loss of assets under management.

~~Interest~~Revenue ~~expense~~from the surety insurance segment, consisting of FSC and ~~interest~~TSA, ~~income~~increased 204%, with $2,518,089 in fiscal 2017 as compared with $829,456 for the prior year. Revenues attributable to the insurance segment are as follows:

Interest expense for fiscal 2016 was $915,098 compared to $833,242 in fiscal 2015. Components of interest expense are comprised of the following:

	Year Ended May 31,
	2017		2016

Premiums earned	$	1,461,797	$	979,552
Commissions earned		15,195		134,346
No Claims Bonus from Reinsurers		329,048		—
Other underwriting income		80,000		10,000
Net investment income		493,829		(215,382	)
Net realized investment gains		138,220		(79,060	)

Total	$	2,518,089	$	829,456

	Year Ended May 31,
	2016		2015		Difference
Interest expense on bridge financing	$	24,103	$	319,705	$	(295,602	)
Expense of common shares issued or to be issued in connection with bridge financing and other arrangements		51,322		29,174		22,148
Interest expense on demand and term notes		555,323		426,577		128,746
Other finance charges		284,350		57,786		226,564
Total interest expense	$	915,098	$	833,242	$	81,856

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. Commission revenue, which is dependent on the timing of issuance or renewal of bonds, is expected to be more seasonal from quarter-to-quarter with fluctuations for comparable periods largely reflecting the overall growth or loss of business

~~Interest~~Investment ~~expense~~income ~~increased~~is ~~from~~expected ~~$833,242~~to inremain relatively ~~fiscal~~consistent ~~2015~~from period to ~~$915~~period,~~098~~ inbut ~~fiscal~~can ~~2016,~~fluctuate ~~attributable~~based toon ~~several~~interest ~~factors;~~rates, i)market ~~interest~~conditions, ~~expense~~growth onor ~~bridge~~loss ~~financing~~of ~~decreased~~business, ~~due~~and toinvestment ~~elimination~~funds ofexpended in the ~~debt~~payment of claims. The increase in ~~July~~revenues ~~2015,~~reflected ~~ii)~~above anis ~~adjustment~~mainly inattributable to the rebounding from a 2016 tosevere ~~correctly~~drop ~~record~~in asmarket ~~interest~~value ~~expense~~of ~~part~~an investment account held as a result of a ~~mineral~~contractual ~~asset~~arrangement, where the Company ~~(land)~~receives ~~sale~~any ~~transaction~~appreciation ~~made~~and earning in ~~2015~~excess ~~iii)~~of ~~deferral~~the initial deposit of collateral by the ~~issuance~~principal ofon ~~stock~~a surety bond as 2%well as ~~dividend~~realized gain of 138,220 in 2017 compared to realized losses of (79,060) in 2016 on ~~Series~~the Asale ~~and~~of Binvestments. ~~Preferred~~Gross ~~shares~~premium ~~that~~written ~~have~~in ~~requested~~fiscal 2017 amounted to be$2,948,921 ~~redeemed.~~as Incompared ~~addition~~to $1,466,837 ~~there~~in ~~was~~fiscal a2016 ~~decrease~~and is reflective of an increase in the ~~market~~volume ~~value~~of bonds required for new and existing clients. Commission income earned for the placement of ~~common~~bonds ~~stock~~with ~~used~~outside insurers decreased from $134,346 in 2016 to ~~calculate~~$15,195 ~~the~~in ~~price~~2017. This decrease in commission revenue for 2017 is derived from one subsidiary’s 2016 facilitation of ~~shares~~a ~~issued~~contract aswith ~~incentive~~an outside company and a separate subsidiary to provide replacement bonding for ~~lending~~premium inincome. The Company did not record a No Claims Bonus for the year ended ~~2016~~May 31, ~~despite~~2016 andue ~~increase~~to in the ~~amount~~recording of ~~borrowings~~a inclaim ~~2016~~reserve ~~and~~payable ~~the~~under ~~interest~~the ~~associated~~terms ~~with~~of ~~those~~the ~~borrowings.~~reinsurance contract period covering October 1, 2014 through

~~Preferred Stock Accretion and Dividends~~ 20

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

	Year Ended May 31,
	2016		2015
Accrued dividends – mandatorily redeemable preferred stock	$	84,492	$	80,970
Accrued dividends – equity preferred stock		1,164,143		1,072,461
	$	1,248,635	$	1,153,431

December 31, 2015. However, during 2017, the claim, which was significantly less than the No Claim Bonus, was withdrawn in favor of receiving the applicable No Claims Bonus for the contract year ending December 31, 2015, in the amount of $106,578. The No Claims Bonus for the contract period ending March 31, 2017, in the amount of $222,470 was recorded on March 31, 2017 and this contract was commuted as well. The company also recorded a one-time additional other underwriting income premium of $80,000 from one client, associated with a special acceptance increasing certain reinsurance limits.

~~The~~FSC’s ~~Series~~investment Bholdings ~~class~~in offiscal ~~stock became treated~~2017 asaveraged a$26.550 ~~liability~~million ~~effective~~as ~~November~~compared ~~30,~~to ~~2009 when the majority was exchanged for Series C equity stock~~$9.748 ~~Therefore,~~million for ~~the~~fiscal ~~year ended May 31,~~ 2016, ~~dividends of $483,596 associated~~ with ~~the~~investment ~~Series~~yields Bdecreasing ~~outstanding after that date are deductions~~ from ~~net~~3.05% ~~income~~to ~~and~~1.68%. ~~not~~The ~~included~~ultimate ineffect ~~the~~of ~~table~~zero ~~above.~~coupon ~~For~~bonds ~~the~~will ~~year~~be ~~ended~~reflected ~~May~~over ~~31,~~the ~~2015,~~life ~~dividends~~ of ~~$445,510~~the ~~associated~~bond ~~with~~through ~~the~~accretion ~~Series~~rather Bthan ~~outstanding~~yield. During ~~after~~the ~~November 30~~period, ~~2009~~equity ~~are~~securities ~~deductions~~in ~~from~~the ~~net~~portfolio ~~income~~provided dividends and ~~not~~gains ~~included~~from in the ~~table~~covered ~~above.~~call ~~During~~strategy ~~the~~utilized ~~year~~on ~~ended~~the ~~May 31, 2012, two holders~~equities.

23Expenses

ofIncurred ~~Series~~policy Alosses ~~stock~~represent ~~released~~the ~~all~~provision for ofloss ~~their~~and ~~outstanding bonds~~loss ~~held~~adjustment ~~with~~expense for “incurred but not reported” (IBNR) losses attributable to surety bonds issued by FSC. ~~Therefore~~The Company reported $579,359 ~~these~~as ~~shares~~IBNR for fiscal 2017, or 40% of ~~Series~~earned Apremium ~~Preferred~~(25% ~~Shareholders~~of ~~are~~gross ~~listed~~earned inpremium ~~the~~before ~~liability~~reinsurance), as ~~section~~compared to $179,334 or 18% of ~~the~~earned ~~consolidated~~premium (13% of gross earned premium before reinsurance) for fiscal 2016. As an abundance ~~balance~~of ~~sheet~~caution ~~and~~to reflect the ~~dividends~~change ~~after~~in ~~February~~FSC’s 29reinsurance treaty. with higher limits but increased underlying exposure, ~~2012~~FSC ~~associated~~increased the ~~with~~percentage ~~these~~of ~~shares~~premium ~~are~~reserved afor ~~deduction~~IBNR from ~~net~~23% ~~income~~of inearned premium to 26% for partially collateralized bonds beginning May 1, 2017. Due to overall concern for the ~~amounts~~coal industry brought about by substantial pricing competition from natural gas and resultant bankruptcies of ~~$65~~publicly traded coal companies,~~374~~ FSC had previously agreed with its actuary and ~~$62,649,~~regulators to adjust the percentage of premium reserved for IBNR by increasing the ~~years~~reserve ~~ended~~rate ~~May~~from 3112% of earned premium for partially collateralized bonds to 23% beginning January 1, 2016. ~~and~~IBNR ~~2015,~~loss estimates have been based on actuarial recommendations and ~~not~~management’s ~~included~~judgment inthat are unique to the ~~table~~FSC’s ~~above~~underwriting approach. ~~Series~~Prior Cto ~~equity~~2014, ~~stock~~FSC is had not ~~mandatorily~~received ~~redeemable~~any ~~and~~claims ~~does~~for ~~not~~losses ~~accrete~~on any bonds underwritten since business began in 2006.

~~Off~~Insurance ~~Balance~~policy ~~Sheet~~acquisition ~~Arrangements~~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 2017, such costs amounted to $590,260 or 40% of earned premium as compared with $284,127 or 29% in fiscal 2016.

~~The~~General ~~Company~~and ~~does~~administrative ~~not~~expenses ~~have~~for ~~any off-balance sheet~~fiscal ~~arrangements~~2017 ~~that~~were ~~have~~$1,187,379 oras ~~are~~compared ~~reasonably~~with ~~likely to have a current or future effect on the Company’s financial condition~~$1, ~~changes~~442,606 infor ~~financial~~fiscal ~~condition~~2016, ~~revenues~~representing ora ~~expenses,~~decrease ~~results~~ of ~~operations~~$255,227 ~~liquidity,~~and ~~capital~~are ~~expenditures~~comprised orof ~~capital resources~~the ~~that is material to investors.~~following:

~~Future Direction of the Company~~21

~~Management~~Table ~~believes that the Company’s successful elimination~~ of the $3.5 million Bridge debt has been a substantial positive that will permit its insurance subsidiary to raise significant capital and more fully execute its business plan within the next 12 months. Additional capital will permit FSC to apply for licensing in additional states targeted for our coal reclamation surety program, plus file for approval with the U.S. Treasury to provide bonds for projects on federal lands.Contents

The substantial increase of funds placed in IBNR (a reserve for potential claims) directly strengthened FSC, allowing it to execute larger and more strategic groups of bonds going forward. This charge to income was taken in calendar 2015 and reflected in this fiscal year filing.

	Year Ended May 31,
	2017		2016		Difference

Salaries and related costs	$	605,501	$	628,855	$	(23,354	)
General office expense		112,959		99,417		13,542
Legal and other professional fees		38,388		225,739		(187,351	)
Audit, accounting and related services		168,967		63,256		105,711
Travel, meals and entertainment		51,008		92,866		(41,858	)
Other general and administrative		210,556		332,473		(121,917	)

Total general and administrative	$	1,187,379	$	1,442,606	$	(255,227	)

~~Item~~Salaries ~~7A.~~and ~~QUANTITATIVE~~related ~~AND~~costs, ~~QUALITATIVE~~net ~~DISCLOSURES~~of ~~ABOUT~~deferred internal ~~MARKET~~policy ~~RISK~~acquisition costs, decreased $23,354 and are comprised of the following:

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

	Year Ended May 31,
	2017			2016			Difference
Salaries and wages	$	702,067		$	572,764		$	129,303
Commissions		152,392			122,599			29,793
Payroll taxes		65,712			53,131			12,581
Fringe benefits		72,109			59,431			12,678
Key-man life insurance		60,378			61,137			(759	)
Deferred policy acquisition costs		(447,157	)		(240,207	)		(206,950	)

Total salaries and related costs	$	605,501		$	628,855		$	(23,354	)

24The increase in commissions is partially attributable to FSC’s commission structure that pays a larger commission percentage on the origination of a policy but reduced for subsequent policy renewals, as well as to the timing of payment of commissions based upon collections. The increase in salaries and wages is attributable to the hiring of three new employees in June of 2016, and one additional employee in January of 2017. The increase in payroll taxes and fringe benefits is attributable to the additional employees and the increased cost of health insurance related to adding a new employees to the plan.

~~Item~~Legal 8and professional fees decreased in 2017 compared to the prior year due to the Company’s above normal efforts and related expenses in 2016 to expand the Company’s business, restructure debt of the Company via refinancing and sale of subsidiary stock, and penetrate new markets. ~~FINANCIAL~~Audit, ~~STATEMENTS~~accounting and ~~AND~~related ~~SUPPLEMENTARY~~services ~~DATA~~increased in 2017 due to a change in accounting and audit service provider in 2015 for the Company which resulted in the delay of audit related expenses for all of 2016.

~~The~~Other ~~following~~general ~~financial~~and ~~statements~~administrative ~~are~~expense ~~included~~decreased by ~~herein~~approximately $121,000 in ~~response~~2017 compared to the corresponding 2016 period. This decrease is mainly due to the Company’s writing off accounts receivable of approximately $55,000 in 2017 compared to ~~Item~~$156,000 8:as uncollectible in

		Page
Table of Contents		F-1
Report of Independent Registered Public Accounting Firm		F-2
Financial Statements
Consolidated Balance Sheets		F-3
Consolidated Statements of Operations		F-4
Consolidated Statements of Comprehensive Loss		F-5
Consolidated Statements of Cash Flows		F-6
Consolidated Statements of Series A Redeemable Preferred Stock and Stockholders’ Equity (Deficit)		F-7
Notes to Consolidated Financial Statements		F-9

25Table of Contents

~~TABLE~~2016. OFThe Company anticipates that some of ~~CONTENTS~~these accounts receivable will be paid by an obligor in the future based on verbal agreements with this obligor.

		Page
Table of Contents		F-1
Report of Independent Registered Public Accounting Firm		F-2
Financial Statements
Consolidated Balance Sheets		F-3
Consolidated Statements of Operations		F-4
Consolidated Statements of Comprehensive Loss		F-5
Consolidated Statements of Cash Flows		F-6
Consolidated Statements of Series A Redeemable Preferred Stock and Stockholders’ Equity (Deficit)		F-7
Notes to Consolidated Financial Statements		F-9

Interest expense and interest income

~~F-1~~Interest expense for fiscal 2017 was $574,971 compared to $915,098 in fiscal 2016. Components of interest expense are comprised of the following:

EKS&H

	Year Ended May 31,
	2017		2016		Difference

Interest expense on bridge financing	$	—	$	24,103	$	(24,103	)
Expense of common shares issued or to be issued in connection with bridge financing and other arrangements		2,109		51,322		(49,213	)
Interest expense on demand and term notes		461,022		555,323		(94,301	)
Other finance charges		111,840		284,350		(172,510	)

Total interest expense	$	571,971	$	915,098	$	(343,127	)

~~8181~~Interest ~~East~~expense ~~Tufts~~decreased ~~Avenue~~from $915,098 ~~Suite~~in fiscal ~~600~~2016 to $571,971 in fiscal 2017, attributable to several factors; i) interest expense on bridge financing decreased due to elimination of the debt in July 2015, ii) an adjustment in 2016 to correctly record as interest expense part of a mineral asset (land) sale transaction made in 2015 iii) deferral of the issuance of stock as 2% dividend on Series A and B Preferred shares that have requested to be redeemed. In addition, there was a decrease in the market value of common stock used to calculate the price of shares issued as incentive for lending in the year ended 2016, as well as a decrease in the amount of borrowings in 2017 and the interest associated with those borrowings.

~~Denver,~~Preferred Stock ~~Colorado~~Accretion ~~80237-2521~~and Dividends

P:Accretion ~~303-740-9400~~of mandatorily redeemable convertible preferred stock is comprised of accretion of discount and accrued but unpaid dividends on preferred stock as follows:

F: 303-740-9009

	Year Ended May 31,
	2017		2016
Accrued dividends – mandatorily redeemable preferred stock	$	87,688	$	84,492
Accrued dividends – equity preferred stock		1,256,829		1,164,143

	$	1,344,517	$	1,248,635

~~www~~The Series B class of stock became treated as a liability effective November 30, 2009 when the majority was exchanged for Series C equity stock.~~EKSH~~ Therefore, for the year ended May 31, 2017, dividends of $522,099 associated with the Series B outstanding after that date are deductions from net income and not included in the table above.~~com~~ For the year ended May 31, 2016, dividends of

~~EKS&H LLLP~~23

~~REPORT~~Table OFof ~~INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM~~Contents

~~Board~~$483,593 associated with the Series B outstanding after November 30, 2009 are deductions from net income and not included in the table above. During the year ended May 31, 2012, two holders of ~~Directors~~Series A stock released all of their outstanding bonds held with FSC. Therefore, these shares of Series A Preferred Shareholders are listed in the liability section of the consolidated balance sheet and ~~Stockholders~~the dividends after February 29, 2012 associated with these shares are a deduction from net income in the amounts of $67,847 and $65,374, for the years ended May 31, 2017 and 2016, and not included in the table above. Series C equity stock is not mandatorily redeemable and does not accrete.

~~Jacobs~~Off ~~Financial~~Balance ~~Group, Inc.~~Sheet Arrangements

~~Charleston~~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 ~~West~~in ~~Virginia~~financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources that is material to investors.

WeFuture ~~have~~Direction ~~audited the accompanying consolidated balance sheets~~ of ~~Jacobs Financial Group, Inc. (~~the “Company”) as of May 31, 2016 and 2015 and the related consolidated statements of operations, comprehensive income (loss), cash flows, and Series A redeemable preferred stock and stockholders' deficit for each of the years then ended. These 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.

WeManagement ~~conducted~~believes ~~our audit 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’s issuccessful ~~not required to have, nor were we engaged to perform,~~restructuring ~~an audit~~ of ~~its~~the ~~internal control over financial reporting~~$3.5 ~~Our~~million ~~audits~~Bridge ~~included~~debt ~~consideration~~has ofbeen ~~internal control over financial reporting as~~ a ~~basis~~substantial ~~for~~positive ~~designing audit procedures~~ that ~~are~~will ~~appropriate~~permit inits ~~the~~insurance ~~circumstances,~~subsidiary ~~but~~to ~~not~~raise ~~for the~~significant ~~purpose~~capital ofand ~~expressing~~more anfully ~~opinion~~execute onits ~~the~~business ~~effectiveness~~plan ofwithin the ~~Company's~~next ~~internal~~12 ~~control over financial reporting~~months. ~~Accordingly,~~ weAdditional ~~express~~capital nowill ~~such~~permit ~~opinion.~~FSC Anto ~~audit~~apply ~~also~~for ~~includes examining, on a test basis, evidence supporting the amounts~~licensing ~~and disclosures~~ in ~~the~~additional ~~financial~~states ~~statements,~~targeted ~~assessing~~for ~~the~~our ~~accounting~~coal ~~principles~~reclamation ~~used~~surety ~~and significant estimates made by management~~program, asplus ~~well~~file asfor ~~evaluating~~approval with the ~~overall financial statement presentation~~U.S. WeTreasury ~~believe~~to ~~that our audit provides a~~provide ~~reasonable~~bonds ~~basis~~ for ~~our~~projects ~~opinion~~on federal lands.

InThe ~~our~~substantial ~~opinion,~~increase ~~the~~of ~~consolidated~~funds ~~financial~~placed ~~statements referred to above present fairly,~~ in ~~all~~IBNR ~~material~~(a ~~respects,~~reserve ~~the~~for potential ~~financial~~claims) ~~position~~directly ofstrengthened ~~Jacobs Financial Group~~FSC, ~~Inc.~~allowing asit ofto ~~May~~execute ~~31,~~larger ~~2016~~ and ~~2015,~~more ~~and~~strategic ~~the~~groups ~~results~~ of ~~its~~bonds ~~operations~~going ~~and its cash flows for each of the years then ended, in conformity with accounting principles generally accepted in the United States of America~~forward.

~~The~~FSC ~~accompanying~~intends ~~financial statements have been prepared assuming the Company will continue as a going concern. As discussed in Note A~~ to ~~the~~branch ~~financial~~into ~~statements, the~~infra-structure ~~Company~~bonds has insufficient liquidity and capitalization, and has suffered recurring operating losses. These conditions, among others, raise substantial doubt about the Company's ability to continue as a going concern. Management's plans regarding these matters are also described in ~~Note A. The accompanying financial statements do not include any adjustments that might result from~~ the ~~outcome~~near ~~of this uncertainty~~future.

~~/s/~~Item ~~EKS&H~~7A. ~~LLLP~~QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

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

~~June 30, 2017~~24

~~Denver, Colorado~~Table of Contents

~~F-2~~Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

Jacobs Financial Group, Inc.
Consolidated Balance Sheets
	May 31, 2016			May 31, 2015
ASSETS
Investments and Cash:
Bonds and mortgaged-back securities available for sale, at fair value	$	7,230,261		$	7,028,728
(amortized cost - 5/31/16 $7,170,789; 5/31/15 $6,983,957)
Equity investments available for sale, at fair value, net		1,488,440			755,301
Mortgage-back securities held to maturity, at amortized costs		—			—
(market value - 5/31/10 $0; 05/31/09 $5,157,936)
(cost - 5/31/16 $1,550,217; 5/31/15 $778,659)
Short-term investments $197,752 total held before restrictions)		—			—
Cash ($465,810 total held before restrictions)		250,603			197,644
Restricted cash and short term investments (additional $1,655,293
restricted in bonds and equity cost)		412,959			2,119,327
Total Investments and Cash		9,382,263			10,101,000
Investment income due and accrued		63,545			56,172
Premiums and other accounts receivable, net of allowance for
doubtful accounts of $40,658		291,856			372,108
Contractual receivable/(liability) for collateral invested		(431,814	)		54,208
Prepaid reinsurance premium		232,647			207,413
Demand note receivable from related party		—			—
Funds deposited with Reinsurers		—			5,689
Deferred policy acquisition costs		171,883			154,977
Furniture, automobile, and equipment, net of accumulated depreciation of $112,627 and $111,929, respectively		1,233			1,936
Note receivable		360,671			—
Related party note receivable		1,121,294			—
Due from relate party		515,488			633,039
Other assets		14,617			14,550
Intangible assets		150,000			150,000
TOTAL ASSETS	$	11,873,683		$	11,751,092
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
Reserve for losses and loss expenses, net	$	1,931,779		$	2,254,035
Reserve for unearned premiums		681,075			622,144
Advanced premium		45,968			186,271
Accrued expenses and professional fees payable		527,874			708,961
Accounts payable		244,096			178,252
Ceded reinsurance payable		27,898			—
Due to related party		124,723			172,609
Term and demand notes payable to related party		2,331,473			75,000
Demand notes payable to related party		—			—
Notes payable		5,045,969			7,706,619
Accrued interest payable		561,307			2,187,200
Accrued interest payable to related party		24,073			1,932
Deferred sale of FSC stock		1,500,000			—
Other liabilities		92,588			98,372
Funds held in trust for customers		2,068,252			2,352,487
Mandatorily redeemable Series A Preferred Stock, $.0001 par value per share; 1 million shares authorized; 1,126 shares issued and outstanding at May 31, 2016 and May 31, 2015, respectively; stated liquidation value of $1,000 per share; aggregate liquidation value at May 31, 2016 and May 31, 2015, of $1,670,945 and $1,605,571, respectively.		1,670,945			1,605,571
Mandatorily redeemable Series B Preferred Stock, $.0001 par value per share; 3,136 shares authorized; 2,817 shares issued and outstanding at May 31, 2016 and May 31, 2015; stated liquidation value of $1,000 per share; aggregate liquidation value at May 31, 2016 and May 31, 2015, of $6,331,152 and $5,847,557, respectively.		6,331,152			5,847,557
Total Liabilities		23,209,172			23,997,010
Mandatorily redeemable convertible Series A Preferred Stock, $.0001 par value per share; 1 million shares authorized; 1,549 shares issued and outstanding at May 31, 2016 and May 31, 2015, respectively; stated liquidation value of $1,000 per share; aggregate liquidation value at May 31, 2016 and May 31, 2015, of $2,159,602 and $2,075,110, respectively.		2,159,602			2,075,110
Series B Preferred Stock, $.0001 par value per share; 3,136.405 shares authorized; 2,817.004 and 9,621.940 (pre exchange to Series C) shares issued and outstanding at August 31, 2010 and May 31, 2010; stated liquidation value of $1,000 per share		—			—
Total Mandatorily Redeemable Convertible Preferred Stock		2,159,602			2,075,110
Commitments and Contingencies (See Notes)
Stockholders' Equity (Deficit)
Series C Preferred Stock, $.0001 par value per share; 10,000 shares authorized; 6,805 shares issued and outstanding at May 31, 2016 and May 31, 2015, respectively; includes $8,441,909 and $7,277,766 accrued Series C dividends, respectively; aggregate liquidation value at May 31, 2016 and May 31, 2015, of $14,472,840 and $13,308,697, respectively.		14,472,840			13,308,697
Common stock, $.0001 par value per share; 490 million shares authorized; 385,092,203 and 368,758,154 shares issued and outstanding at May 31, 2016 and May 31, 2015, respectively		37,991			36,357
Additional paid in capital		4,615,374			4,199,387
Accumulated deficit		(33,159,411	)		(31,886,882	)
Accumulated other comprehensive income		(2,305	)		21,413
Noncontrolling Interest		540,420			—
Total Stockholders' Equity (Deficit)		(13,495,091	)		(14,321,028	)
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)	$	11,873,683		$	11,751,092

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

F-3

		Page
Table of Contents		F-1

Report of Independent Registered Public Accounting Firm		F-2

Financial Statements

Consolidated Balance Sheets		F-3
Consolidated Statements of Operations		F-5
Consolidated Statements of Comprehensive Loss		F-6
Consolidated Statements of Cash Flows		F-7
Consolidated Statements of Series A Redeemable Preferred Stock and Stockholders’ Equity (Deficit)		F-8
Notes to Consolidated Financial Statements		F-10

Jacobs Financial Group, Inc,
Consolidated Statements of Operations
	Year Ended May 31,
	2016			2015
Revenues:
Investment advisory services	$	109,194		$	121,514
Insurance premiums and commissions		1,123,898			1,023,403
Net investment income (losses)		(215,382	)		274,946
Net realized investment gains (losses)		(79,060	)		136,381
Other income		316,267			19,376
Interest and dividend income		80,912			—
Total Revenues		1,335,829			1,575,620
Operating Expenses:
Provision for policy losses		179,335			968,017
Insurance policy acquisition costs		284,127			298,756
General and administrative		1,442,606			1,809,121
Mutual fund costs		—			—
Depreciation		1,251			4,478
Total Operating Expenses		1,907,319			3,080,372
Income (Loss) from Operations		(571,490	)		(1,504,752	)
Gain on debt extinguishment		1,919,532			1,257,536
Accrued dividends of Series A Mandatorily Redeemable
Preferred Stock		(65,374	)		(62,649	)
Accrued dividends and accretion of Series B Mandatorily
Redeemable Preferred Stock		(483,596	)		(445,510	)
Interest expense		(915,098	)		(833,242	)
Net Income (Loss)		(116,026	)		(1,588,617	)
Less:
Accretion of Mandatorily Redeemable Convertible
Preferred Stock, including accrued dividends		(84,492	)		(80,970	)
Accrued dividends on Series C Preferred Stock equity		(1,164,143	)		(1,072,461	)
Plus:
Net (loss) Attributable to Noncontrolling Interest		92,131			—
Net Income (Loss) Attributable to JFGI Stockholders	$	(1,272,530	)	$	(2,742,048	)
Basic and Dilutive Net Income (Loss) Per Share:
Net Income (Loss) Per Share	$	—		$	(0.01	)
Weighted-Average Shares Outstanding		381,912,411			364,552,677

~~F-4~~Table of Contents

Jacobs Financial Group, Inc,
Consolidated Statements of Comprehensive Income (Loss)
	Year Ended May 31,
	2016			2015
Net Income (loss)	$	(116,026	)	$	(1,588,617	)
Accretion of Mandatorily Redeemable Convertible
Preferred Stock, including accrued dividends		(84,492	)		(80,970	)
Accrued dividends on Series C Preferred Stock equity		(1,164,143	)		(1,072,461	)
		(1,248,635	)		(1,153,431	)
Net (loss) attributable to common stockholders	$	(1,364,661	)	$	(2,742,048	)
Other comprehensive income (loss):
Reclassification of investments from Held to Maturity to Avaialble for Sale		—			—
Unrealized gain (loss) of available-for-sale investments arising during period		(28,359	)		(51,473	)
Reclassification adjustment for realized loss included in net loss		4,641			(66,034	)
Unrealized loss attributable to available-for-sale investments recognized in other comprehensive income (loss)		(23,718	)		(117,507	)
Comprehensive (Loss)		(1,388,379	)		(2,859,555	)
Comprehensive (Loss) Attributable to Noncontrolling Interest	$	(94,503	)	$	—
Comprehensive (Loss) Attributable to JFGI	$	(1,293,876	)	$	(2,859,555	)

JACOBS FINANCIAL GROUP, INC.

~~F-5~~FINANCIAL STATEMENTS

Jacobs Financial Group, Inc,
Consolidated Statements of Cash Flows
	Year Ended May 31,
	2016			2015
CASH FLOWS FROM OPERATING ACTIVITIES
Net Loss	$	(116,026	)	$	(788,617	)
Adjustments to reconcile net loss to
net cash provided by operating activities:
(Increase) decrease in short-term investments		1,414,868			425,994
Unearned premium		(106,606	)		35,911
Stock option expense		—			—
Stock issued in connection with financing arrangements		12,987			3,768
Stock issued in connection with dividend arrangements		37,184			25,406
Accrual of Series A preferred stock dividends		65,374			62,649
Accrual of Series B preferred stock dividends and accretion		483,596			445,511
Stock issued in connection with services rendered		—			—
Provision for loss reserves		(322,256	)		168,017
Amortization of premium		96,216			99,685
Depreciation		1,251			4,478
Accretion of discount		—			(2,870	)
Realized (gain) loss on sale of securities		79,061			(136,381	)
Gain on extinguishment of debt		(1,919,532	)		(1,257,536	)
Loss on disposal of equipment		—			—
Change in operating assets and liabilities:
Other assets		(67	)		77,549
Premium and other receivables		566,273			(197,564	)
Investment income due and accrued		(11,353	)		15,892
Deferred policy acquisition costs		(16,906	)		(2,369	)
Related party accounts payable		(47,886	)		28,100
Accounts payable		65,844			(35,582	)
Accrued expenses and other liabilities		(246,738	)		(113,761	)
Net cash flows from operating activities		35,284			(1,141,720	)
CASH FLOWS FROM INVESTING ACTIVITIES
Short-term loan		—			—
Costs of bonds acquired		(1,775,947	)		(1,772,826	)
Costs of mortgaged-backed securities acquired		—			(1,308,567	)
Purchase of equity securities		(1,899,637	)		(1,266,618	)
Purchase of securities available for sale		—			—
Redemption of bonds upon call or maturity		—			—
Proceeds from sale of securities available for sale		1,910,797			2,834,890
Repayment of mortgage-backed securities		631,121			772,717
(Purchase)/Collection - accrued interest		3,980			(9,973	)
Purchase of furniture and equipment		(548	)		(1,679	)
Net cash flows used in investing activities		(1,130,234	)		(752,056	)
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from related party debt		1,957,658			1,008,718
Repayment of related party debt		(971,207	)		(1,652,038	)
Proceeds from borrowings		1,171,192			7,118,400
Repayment of borrowings		(2,319,269	)		(4,546,850	)
Proceeds from issuance of Series B preferred stock		—			—
Redemption of Series B preferred stock		—			—
Proceeds from issuance of common stock		—			—
Payment of lendings		(500,000	)		—
Payment of related party lendings		(1,250,000	)
Proceeds from repayment of lendings		139,329			—
Proceeds from repayment of related party lendings		128,706
Proceeds from sale of subsidiary stock		1,000,000			—
Proceeds from deferred sale of subsidiary stock		1,500,000			—
Proceeds from exercise of common stock warrants		—			—
Net cash flows from (used in) financing activities		856,409			1,928,230
NET INCREASE (DECREASE) IN CASH		(238,541	)		34,454
CASH AT BEGINNING OF PERIOD	$	704,351		$	669,897
CASH AT END OF PERIOD	$	465,810		$	704,351
SUPPLEMENTAL DISCLOSURES
Interest paid	$	918,048		$	290,627
Income taxes paid		—			—
Non-cash investing and financing transaction:
Additional consideration paid for issuance of debt	$	12,987		$	3,768

FOR THE YEARS ENDED MAY 31, 2017 and 2016

~~F-6~~(AUDITED)

Jacobs Financial Group, Inc.
Consolidated Statement of Series A Redeemable Preferred Stock and Stockholders' Equity (Deficit)
For the Year Ended May 31, 2016
				Stockholders' Equity (Deficit)
	Series A
	Mandatorily Redeemable			Common Stock						Series C Preferred							Accumulated						Total
								Additional									Other						JFGI			Total
	Preferred Stock							Paid-In				Amount		Accumulated			Comprehensive			Noncontrolling			Shareholder's			Shareholder's
	Shares	Amount		Shares		Amount		Capital		Shares		and APIC		Deficit			Income (Loss)			Interest			Interest			Interest
Balance, May 31, 2015	1,549	$	2,075,110		363,574,218	$	36,357	$	4,199,387		6,805	$	13,308,697	$	(31,886,882	)	$	21,413		$	—		$	(14,321,028	)	$	(14,321,028	)
Issuance of common stock as compensation for services	—		—		—		—		—		—		—		—			—			—			—			—
Issuance of common stock as additional consideration in financing arrangements	—		—		16,334,049		1,634		48,538		—		—		—			—			—			50,172			50,172
Accrued dividends of Series A mandatorily redeemable convertible preferred stock	—		84,491		—		—		—		—		—		(84,491	)		—			—			(84,491	)		(84,491	)
Accrued dividends of Series C equity preferred stock	—		—		—		—		—		—		1,164,143		(1,164,143	)		—			—			—			—
Sale of noncontrolling interest of subsidiary	—		—		—		—		367,449		—		—		—			—			632,551			367,449			1,000,000
Unrealized (loss) on available for sale securities	—		—		—		—		—		—		—		—			(23,718	)		—			(23,718	)		(23,718	)
Net (loss), year ended May 31, 2016	—		—		—		—		—		—		—		(23,895	)		—			(92,131	)		(23,895	)		(116,026	)
Balance, May 31, 2016	1,549	$	2,159,602		379,908,267	$	37,991	$	4,615,374		6,805	$	14,472,840	$	(33,159,411	)	$	(2,305	)	$	540,420		$	(14,035,511	)	$	(13,495,091	)

TABLE OF CONTENTS

F-7

		Page

Report of Independent Registered Public Accounting Firm		F-2

Financial Statements

Consolidated Balance Sheets		F-3
Consolidated Statements of Operations		F-5
Consolidated Statements of Comprehensive Loss		F-6
Consolidated Statements of Cash Flows		F-7
Consolidated Statements of Series A Redeemable Preferred Stock and Stockholders’ Equity (Deficit)		F-8
Notes to Consolidated Financial Statements		F-10

Jacobs Financial Group, Inc.
Consolidated Statement of Series A Redeemable Preferred Stock and Stockholders' Equity (Deficit)
For the Year Ended May 31, 2015
					Stockholders' Equity (Deficit)
	Series A
	Mandatorily Redeemable				Common Stock							Series C Preferred							Accumulated
									Additional										Other
	Preferred Stock								Paid-In					Amount		Accumulated			Comprehensive
	Shares		Amount		Shares		Amount		Capital			Shares		and APIC		Deficit			Income (Loss)			Total
Balance, May 31, 2014		1,549	$	1,994,140		352,741,649	$	35,274	$	4,171,296			6,805	$	12,236,236	$	(29,144,834	)	$	138,920		$	(12,563,108	)
Issuance of common stock as compensation for services		—		—		—		—		—			—		—		—			—			—
Issuance of common stock as additional consideration in financing arrangements		—		—		10,832,569		1,083		(1,711	)		—		—		—			—			(628	)
Exercise of warrants		—		—		—		—		—			—		—		—			—			—
Accretion of Series A mandatorily redeemable convertible preferred stock		—		—		—		—		—			—		—		—			—			—
Accrued dividends of Series A mandatorily redeemable convertible preferred stock		—		80,970		—		—		—			—		—		(80,970	)		—			(80,970	)
Accrued dividends of Series C equity preferred stock		—		—		—		—		—			—		1,072,461		(1,072,460	)		—			1
Exchange of Series C Preferred Stock for Series B Mandatorily Redeemable Convertible Preferred Stock		—		—		—		—		—			—		—		—			—			—
		—		—		—		—		—			—		—		—			—
Reclassification of Series A from temporary equity to liabilities		—		—		—		—		—			—		—		—			—			—
		—		—		—		—		—			—		—		—			—
Accrual of common shares to be issued in connection with financing arrangements		—		—		—		—		29,802			—		—		—			—			29,802
Common stock option expense		—		—		—		—		—			—		—		—			—			—
Unrealized (loss) on available for sale securities		—		—		—		—		—			—		—		—			(117,507	)		(117,507	)
Net (loss), year ended May 31, 2014		—		—		—		—		—			—		—		(1,588,618	)		—			(1,588,618	)
Balance, May 31, 2015		1,549	$	2,075,110		363,574,218	$	36,357	$	4,199,387			6,805	$	13,308,697	$	(31,886,882	)	$	21,413		$	(14,321,028	)

F-1

~~F-8~~Table of Contents

~~Jacobs~~REPORT ~~Financial~~OF ~~Group,~~INDEPENDENT ~~Inc.~~REGISTERED PUBLIC ACCOUNTING FIRM

~~Notes~~Stockholders toand ~~Consolidated~~Board ~~Financial~~of ~~Statements~~Directors

~~Note A~~Jacobs –Financial ~~Organization~~Group, ~~and Business~~Inc.

~~Organization and~~Charleston, ~~Nature~~West ~~of Business~~Virginia

~~Jacobs Financial~~We ~~Group,~~have ~~Inc.~~audited (the ~~“Company”~~accompanying ~~or “JFG”), formerly NELX, Inc., was incorporated in Kansas on March~~consolidated ~~25,~~balance ~~1983.~~sheets ~~In 2001, the Company acquired all the outstanding stock~~ of ~~two corporations located in Charleston, West Virginia:~~ Jacobs & ~~Company~~Financial ~~(“Jacobs”) and FS Investments~~Group, Inc. (~~“FSI”).~~the 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”"Company"), isas ~~engaged in the business~~ of ~~placing~~May ~~surety bonds with insurance companies for clients engaged in regulated industries~~31, ~~such~~2017 asand ~~the extraction of coal~~2016, ~~oil~~ and ~~gas. FSI receives commission income from~~ the ~~placement~~related ~~of these~~consolidated ~~bonds~~statements ~~and~~of ~~is licensed in five states primarily in the eastern United States. On December 30~~operations, ~~2005,~~comprehensive ~~the~~income ~~Company acquired all of the outstanding stock of West Virginia Fire & Casualty Company~~ (~~“WVFCC”~~loss), ancash ~~insurance~~flows, ~~company~~and ~~licensed~~Series toA ~~engage in~~redeemable ~~business~~preferred instock ~~West Virginia, Ohio~~ and ~~Indiana.~~stockholders' ~~The~~deficit for ~~acquisition~~each of ~~WVFCC consisted of~~ the ~~purchase~~years ofthen ~~marketable~~ended. ~~investments~~These ~~and insurance~~financial ~~licenses~~statements ~~and~~are ~~did not include any existing policies or customer base as~~ the ~~insurance~~responsibility ~~lines~~ of ~~business offered by WVFCC were not insurance lines that~~ the Company's ~~intended to pursue~~management. ~~Following~~Our ~~the~~responsibility is ~~acquisition, the name of WVFCC was changed~~ to ~~First Surety~~express ~~Corporation~~an ~~(“FSC”).~~opinion ~~FSC~~on ~~receives~~these ~~insurance~~financial ~~premium~~statements ~~income~~based inon ~~connection~~our ~~with the issuance of surety bonds~~audits. ~~The Company and its subsidiaries are subject to the business risks inherent in the financial services industry.~~

~~Liquidity~~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 ~~Going~~perform the ~~Concern~~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. As part of our audits, we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company's internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

~~These~~The ~~consolidated~~accompanying financial statements ~~are~~have ~~presented~~been onprepared ~~the~~assuming ~~basis~~ that the Company iswill continue as a going concern. ~~Going~~As ~~concern~~discussed ~~contemplates~~in ~~the~~Note ~~realization~~A ofto ~~assets and~~ the ~~satisfaction of~~financial ~~liabilities in the normal course of business over a reasonable length of time. Presently~~statements, the Company has insufficient liquidity ~~and~~, ~~capitalization~~financial resources, is in default with ~~respect to~~ certain loan and preferred stock agreements, and has suffered significant recurring ~~losses from~~operating ~~operations~~losses. ~~Losses~~These ~~are~~conditions, ~~expected~~among toothers, ~~continue~~raise ~~until the Company develops a more~~ substantial ~~book~~doubt ofabout ~~business. While improvement is anticipated as~~ the Company’s ability ~~business~~to ~~plan~~continue ~~is implemented, other conditions, such~~ as ~~restrictions~~a ongoing ~~the~~concern. ~~use of FSC~~Management’s ~~assets~~ ~~(See~~plans ~~Note~~regarding ~~C),~~these ~~and~~matters ~~the~~are ~~Company’s~~also ~~significant~~discussed ~~deficiency~~ in ~~working~~Note ~~capital~~A. ~~and~~The ~~stockholders’~~accompanying financial ~~equity~~statements ~~raise~~do ~~substantial doubt~~not ~~about~~include ~~the~~any ~~Company’s~~adjustments ~~ability~~that tomight ~~continue~~result asfrom athe ~~going~~outcome ~~concern~~of this uncertainty.

~~Management~~/s/ ~~intends~~EKS&H 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.LLLP

~~1998~~ EKS&H LLLP

~~F-9~~Denver, Colorado

~~Jacobs~~June ~~Financial Group~~26, ~~Inc.~~2018

~~Notes to Consolidated Financial Statements~~F-2

~~Principles~~ Table of ~~Consolidation~~Contents

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

Jacobs Financial Group, Inc.
Consolidated Balance Sheets



	May 31, 2017		May 31, 2016
ASSETS

Investments and Cash:

Bonds and mortgaged-back securities available for sale, at fair value		33,546,645	$	7,230,261
(amortized cost - 5/31/17 $33,634,403; 5/31/16 $7,170,789)
Equity investments available for sale, at fair value, net		2,422,476		1,488,440
Cash		240,153		250,603
Restricted cash and short term investments		2,165,770		412,959
Total Investments and Cash		38,375,044		9,382,263

Investment income due and accrued		299,555		63,545
Premiums and other accounts receivable, net of allowance for
doubtful accounts of $15,053 and $40,658, respectively		540,775		291,856
Prepaid reinsurance premium		418,124		232,647
Deferred policy acquisition costs		367,609		171,883
Furniture, automobile, and equipment, net of accumulated depreciation of $83,845 and $112,627, respectively		37,245		1,233
Note receivable		364,525		360,671
Related party note receivable		960,540		1,121,294
Due from related party		939,945		515,488
Other assets		16,780		14,617
Intangible assets		150,000		150,000

TOTAL ASSETS	$	42,470,142	$	12,305,497


LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)

Reserve for losses and loss expenses, net	$	2,521,921	$	1,931,779
Reserve for unearned premiums		1,346,668		681,075
Advanced premium		21,740		45,968
Contractual liability for collateral invested, net		327,217		431,814
Accrued expenses and professional fees payable		1,059,206		527,874
Accounts payable		242,708		244,096
Ceded reinsurance payable		422,017		27,898
Due to related party		124,323		124,723
Term and demand notes payable to related party		2,343,999		2,331,473
Notes payable		5,059,385		5,045,969
Accrued interest payable		651,834		561,307
Accrued interest payable to related party		31,853		24,073
Deferred sale of FSC stock		—		1,500,000
Other liabilities		267,133		92,588
Amounts held for accounts of others		21,926,872		2,068,252
Mandatorily redeemable Series A Preferred Stock, $.0001 par value per share; 1 million shares authorized; 1,126 shares issued and outstanding at May 31, 2017 and May 31, 2016, respectively; stated liquidation value of $1,000 per share; aggregate liquidation value at May 31, 2017 and May 31, 2016, of $1,738,792 and $1,670,945, respectively.		1,738,792		1,670,945
Mandatorily redeemable Series B Preferred Stock, $.0001 par value per share; 3,136 shares authorized; 2,817 shares issued and outstanding at May 31, 2017 and May 31, 2016; stated liquidation value of $1,000 per share; aggregate liquidation value at May 31, 2017 and May 31, 2016, of $6,853,251 and $6,331,152, respectively.		6,853,251		6,331,152
Total Liabilities		44,938,919		23,640,986

~~Non-Controlling Interest~~See accompanying notes.

~~First Surety Corporation, a subsidiary of the Jacobs Financial Group, Inc. has a non~~F-controlling ownership interest. The Company’s board of directors has authorized the sale of up to nine Units (5% per Unit), which, if completed, would include forty-five percent (45%) of the outstanding stock of FSC.3

~~Cash and~~Table ~~Short~~of ~~Term Investments~~ Contents

The Company considers all highly liquid instruments purchased with an original maturity of three months or less to be cash equivalents. The Company continually monitors its positions with, and the credit quality of, the financial institutions with which it invests. Included in cash and cash equivalents are restricted amounts held in trust for customers in the form of collateral for the bonding program of FSC.


Mandatorily redeemable convertible Series A Preferred Stock, $.0001 par value per share; 1 million shares authorized; 1,549 shares issued and outstanding at May 31, 2017 and May 31, 2016, respectively; stated liquidation value of $1,000 per share; aggregate liquidation value at May 31, 2017 and May 31, 2016, of $2,247,290 and $2,159,602, respectively.		2,247,290			2,159,602
Total Mandatorily Redeemable Convertible Preferred Stock		2,247,290			2,159,602

Commitments and Contingencies (See Notes)

Stockholders' Equity (Deficit)

Series C Preferred Stock, $.0001 par value per share; 10,000 shares authorized; 6,805 shares issued and outstanding at May 31, 2017 and May 31, 2016, respectively; includes $9,698,738 and $8,441,909 accrued Series C dividends, respectively; aggregate liquidation value at May 31, 2017 and May 31, 2016, of $15,729,669 and $14,472,840, respectively.		15,729,669			14,472,840
Common stock, $.0001 par value per share; 490 million shares authorized; 385,892,203 and 385,092,203 shares issued and outstanding at May 31, 2017 and May 31, 2016, respectively		38,071			37,991
Additional paid in capital		5,231,327			4,615,374
Accumulated deficit		(35,773,897	)		(33,159,411	)
Accumulated other comprehensive income		(130,503	)		(2,305	)
Preferred stock of FSC, par value $1,000 per share; 50,000 authorized, 8,000 shares outstanding (all non-controlling)		8,000,000			-
Noncontrolling Interest		2,189,266			540,420
Total Stockholders' Equity (Deficit)		(4,716,067	)		(13,495,091	)


TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)	$	42,470,142		$	12,305,497

~~Use of~~See ~~Estimates~~accompanying notes.

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 reported amounts of assets and liabilities and disclosure of contingent assets and liabilities. Significant areas requiring the use of management estimates are loss reserves, stock options, valuation of investments, and the valuation of deferred tax assets. Actual results inevitably will differ from those estimates, and such differences may be material to the financial statements.F-4

~~Revenue~~Table ~~Recognition~~of Contents

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.

Jacobs Financial Group, Inc,
Consolidated Statements of Operations


	Year Ended May 31,

	2017			2016

Revenues:

Investment advisory services	$	81,918		$	109,194
Insurance premiums and commissions		1,886,040			1,123,898
Net investment income (losses)		493,829			(215,382	)
Net realized investment gains (losses)		138,220			(79,060	)
Other income		160,493			316,267
Interest and dividend income		108,816			80,912
Total Revenues		2,869,316			1,335,829


Operating Expenses:

Provision for policy losses		579,359			179,335
Insurance policy acquisition costs		590,260			284,127
General and administrative		1,187,379			1,442,606
Depreciation		4,598			1,251
Total Operating Expenses		2,361,596			1,907,319

Income (Loss) from Operations		507,720			(571,490	)

Gain on debt extinguishment		—			1,919,532
Settlement Expense		(350,000	)		—
Accrued dividends of Series A Mandatorily Redeemable
Preferred Stock		(67,847	)		(65,374	)
Accrued dividends and accretion of Series B Mandatorily
Redeemable Preferred Stock		(522,099	)		(483,596	)
Interest expense		(574,971	)		(915,098	)

Net Loss		(1,007,197	)		(116,026	)


Accretion of Mandatorily Redeemable Convertible
Preferred Stock, including accrued dividends		(87,688	)		(84,492	)
Accrued dividends on Series C Preferred Stock equity		(1,256,829	)		(1,164,143	)

Net loss attributable to common stockholders		(2,351,714	)		(1,364,661	)

Net loss attributable to noncontrolling interest		(262,771	)		92,131

Net Loss Attributable to JFGI Stockholders	$	(2,614,485	)	$	(1,272,530	)


Basic and Dilutive Net Income (Loss) Per Share:

Net Income (Loss) Per Share	$	(0.01	)	$	—


Weighted-Average Shares Outstanding		385,197,135			381,912,411

~~The~~See ~~Company~~accompanying ~~accounts for its surety bond issuances as short duration contracts~~notes. Surety premiums are recorded as receivables when due and are earned pro rata over the term of the policies of generally one year, subject to annual renewal. 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.

F-105

~~Jacobs~~Table ~~Financial~~of ~~Group, Inc.~~Contents

Notes to Consolidated Financial Statements

Jacobs Financial Group, Inc.
Consolidated Statements of Comprehensive Income (Loss)

	Year Ended May 31,

		2017			2016




Net (loss) attributable to common stockholders	$	(2,351,714	)	$	(1,364,661	)

Other Comprehensive Loss:

Unrealized loss of available-for-sale investments arising during period		(34,548	)		(28,359	)

Reclassification adjustment for realized loss included in net loss		(93,649	)		4,641

Unrealized loss attributable to available-for-sale investments recognized in other comprehensive income (loss)		(128,197	)		(23,718	)


Comprehensive Loss	$	(2,479,911.00	)	$	(1,388,379.00	)

~~Agency~~See ~~commissions~~accompanying ~~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~~notes. ~~No significant continuing services subsequent to the issuance or renewal of surety bonds are required.~~

Policy acquisition costs include costs that vary with and are primarily related to the acquisition of new business. Such costs generally include commissions, underwriting expenses, and premium taxes and are deferred and amortized over the period in which the related premiums are earned. The deferred policy acquisition cost assets are reviewed for recoverability based on the profitability of the underlying surety policy. Investment income is not anticipated in the recoverability of deferred policy acquisition costs.F-6

~~Investments~~Table of Contents

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.

Jacobs Financial Group, Inc,
Consolidated Statements of Cash Flows

	Year Ended May 31,

	2017			2016

CASH FLOWS FROM OPERATING ACTIVITIES

Net Loss	$	(1,007,197	)	$	(116,026	)

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

(Increase) decrease in short-term investments		(1,659,849	)		1,414,868
Unearned premium		455,888			(106,606	)
Stock issued in connection with financing arrangements		2,108			12,987
Stock issued in connection with dividend arrangements		—			37,184
Accrual of Series A preferred stock dividends		67,847			65,374
Accrual of Series B preferred stock dividends and accretion		522,098			483,596
Provision for loss reserves		590,142			(322,256	)
Amortization of premium		158,488			96,216
Depreciation		4,598			1,251
Accretion of discount		(16,620	)		—
Proceeds from funds held in trust		19,858,620			—
Realized (gain) loss on sale of securities		(138,220	)		79,061
Gain on extinguishment of debt		—			(1,919,532	)
Change in operating assets and liabilities:
Other assets		(2,163	)		(67	)
Premium and other receivables		(353,515	)		566,273
Investment income due and accrued		(110,809	)		(11,353	)
Deferred policy acquisition costs		(195,726	)		(16,906	)
Related party accounts payable		(400	)		(47,886	)
Accounts payable		(1,388	)		65,844
Accrued expenses and other liabilities		1,198,302			(246,738	)

Net cash flows from operating activities		19,372,204			35,284

CASH FLOWS FROM INVESTING ACTIVITIES

Costs of bonds acquired		(47,146,079	)		(1,775,947	)
Costs of mortgaged-backed securities acquired		(1,864,276	)		—
Purchase of equity securities		(2,667,650	)		(1,899,637	)
Redemption of bonds upon call or maturity		17,000,000			—
Proceeds from sale of securities available for sale		6,614,202			1,910,797
Repayment of mortgage-backed securities		681,537			631,121
(Purchase)/Collection - accrued interest		(125,201	)		3,980
Purchase of furniture and equipment		(40,610	)		(548	)

Net cash flows used in investing activities		(27,548,077	)		(1,130,234	)

CASH FLOWS FROM FINANCING ACTIVITIES

Proceeds from related party debt		599,452			1,957,658
Repayment of related party debt		(1,011,383	)		(971,207	)
Proceeds from borrowings		195,060			1,171,192
Repayment of borrowings		(181,643	)		(2,319,269	)
Payment of lendings		(200,000	)		(500,000	)
Payment of related party lendings		—			(1,250,000	)
Proceeds from repayment of lendings		196,146			139,329
Proceeds from repayment of related party lendings		160,754			128,706
Proceeds from sale of subsidiary common stock		500,000			1,000,000
Proceeds from sale of subsidiary preferred stock		8,000,000			—
Proceeds from deferred sale of subsidiary stock		—			1,500,000

Net cash flows from (used in) financing activities		8,258,386			856,409

NET INCREASE (DECREASE) IN CASH		82,513			(238,541	)

CASH AT BEGINNING OF PERIOD	$	465,810		$	704,351

CASH AT END OF PERIOD	$	548,323		$	465,810

SUPPLEMENTAL DISCLOSURES

Interest paid	$	918,048		$	918,048
Income taxes paid		—			—

Non-cash investing and financing transaction:
Additional consideration paid for issuance of debt	$	12,987.00		$	12,987.00

~~Debt~~See ~~and~~accompanying equity securities that are bought and held principally for sale in the near future are classified as trading securities and are carried at fair value, with changes in fair value being recorded in current operationsnotes.

~~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 fair value.~~F-7

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

An investment is considered impaired when its fair value is less than its cost or amortized cost, as applicable. When an investment is impaired, a determination is made as to whether the impairment is other than temporary (“OTTI”).

Jacobs Financial Group, Inc.
Consolidated Statement of Series A Redeemable Preferred Stock and Stockholders' Equity (Deficit)
For the Year Ended May 31, 2017


					Stockholders' Equity (Deficit)
	Series A
	Mandatorily Redeemable				Common Stock								Series C Preferred							Accumulated			Total
									Additional		Preferred									Other			JFGI					Total
	Preferred Stock								Paid-In		Stock of				Amount		Accumulated			Comprehensive			Sharesholder's			Noncontrolling		Sharesholder's
	Shares		Amount		Shares		Amount		Capital		Subsidiaries		Shares		and APIC		Deficit			Income (Loss)			Interest			Interest		Interest

Balance, May 31, 2016		1,549	$	2,159,602		379,908,267	$	37,991	$	4,615,374		—		6,805	$	14,472,840	$	(33,159,411	)	$	(2,305	)	$	(14,035,511	)	$	540,420	$	(13,495,091	)

Issuance of common stock as compensation for services		—		—		—		—		—		—		—		—		—			—			—			—		—

Issuance of common stock as additional consideration in financing arrangements		—		—		800,000		80		2,029		—		—		—		—			—			2,109			—		2,109
						—																		—
Exercise of warrants		—		—		—		—		—		—		—		—		—			—			—			—		—
																								—
Accretion of Series A mandatorily redeemable convertible preferred stock		—		—		—		—		—		—		—		—		—			—			—			—		—
																								—
Accrued dividends of Series A mandatorily redeemable convertible preferred stock		—		87,689		—		—		—		—		—		—		(87,689	)		—			(87,689	)		—		(87,689	)
																								—
Accrued dividends of Series C equity preferred stock		—		—		—		—		—		—		—		1,256,828		(1,256,828	)		—			—			—		—
																								—
Exchange of Series C Preferred Stock for Series B Mandatorily Redeemable Convertible Preferred Stock		—		—		—		—		—		—		—		—		—			—			—			—		—
		—		—		—		—		—		—		—		—		—			—			—			—
Reclassification of Series A from temporary equity to liabilities		—		—		—		—		—		—		—		—		—			—			—			—		—
		—		—		—		—		—		—		—		—		—			—			—			—
Sale of noncontrolling interest of subsidiary		—		—		—		—		613,925		—		—		—		—			—			613,925			1,386,075		2,000,000
																								—
Sale of preferred stock of subsidiaries		—		—		—		—		—		8,000,000		—		—		—			—			8,000,000			—		8,000,000
																								—
Common stock option expense		—		—		—		—		—		—		—		—		—			—			—			—		—
																								—
Unrealized (loss) on available for sale securities		—		—		—		—		—		—		—		—		—			(128,198	)		(128,198	)		—		(128,198	)
																								—
Net (loss), year ended May 31, 2017		—		—		—		—		—		—		—		—		(1,269,968	)		—			(1,269,968	)		262,771		(1,007,197	)

Balance, May 31, 2017		1,549	$	2,247,292		380,708,267	$	38,071	$	5,231,328	$	8,000,000		6,805	$	15,729,668	$	(35,773,896	)	$	(130,503	)	$	(6,905,332	)	$	2,189,266	$	(4,716,066	)

~~Factors considered in identifying~~See ~~OTTI~~accompanying include: 1) for debt securities, whether the Company intends to sell the investment or whether it is more likely than not that the Company will be required to sell the security prior to the anticipated recovery in value; 2) the likelihood of the recoverability of principal and interest for debt securities (inotes.~~e., whether there is a credit loss) or cost for equity securities; 3) the length of time and extent to which~~

F-118

~~Jacobs~~Table ~~Financial~~of ~~Group, Inc.~~Contents

Notes to Consolidated Financial Statements

Jacobs Financial Group, Inc.
Consolidated Statement of Series A Redeemable Preferred Stock and Stockholders' Equity (Deficit)
For the Year Ended May 31, 2016


					Stockholders' Equity (Deficit)
	Series A
	Mandatorily Redeemable				Common Stock						Series C Preferred							Accumulated			Total
									Additional									Other			JFGI						Total
	Preferred Stock								Paid-In				Amount		Accumulated			Comprehensive			Sharesholder's			Noncontrolling			Sharesholder's
	Shares		Amount		Shares		Amount		Capital		Shares		and APIC		Deficit			Income (Loss)			Interest			Interest			Interest

Balance, May 31, 2015		1,549	$	2,075,110		363,574,218	$	36,357	$	4,199,387		6,805	$	13,308,697	$	(31,886,882	)	$	21,413		$	(14,321,028	)	$	—		$	(13,521,028	)

Issuance of common stock as compensation for services		—		—		—		—		—		—		—		—			—			—			—			—

Issuance of common stock as additional consideration in financing arrangements		—		—		16,334,049		1,634		48,538		—		—		—			—			50,172			—			50,172

Exercise of warrants		—		—		—		—		—		—		—		—			—			—			—			—

Accretion of Series A mandatorily redeemable convertible preferred stock		—		—		—		—		—		—		—		—			—			—			—			—

Accrued dividends of Series A mandatorily redeemable convertible preferred stock		—		84,491		—		—		—		—		—		(84,491	)		—			(84,491	)		—			(84,491	)

Accrued dividends of Series C equity preferred stock		—		—		—		—		—		—		1,164,143		(1,164,143	)		—			—			—			—

Exchange of Series C Preferred Stock for Series B Mandatorily Redeemable Convertible Preferred Stock		—		—		—		—		—		—		—		—			—			—			—			—
		—		—		—		—		—		—		—		—			—			—			—
Reclassification of Series A from temporary equity to liabilities		—		—		—		—		—		—		—		—			—			—			—			—
		—		—		—		—		—		—		—		—			—			—			—
Sale of noncontrolling interest of subsidiary		—		—		—		—		367,449		—		—		—			—			367,449			632,551			1,000,000

Common stock option expense		—		—		—		—		—		—		—		—			—			—			—			—

Unrealized (loss) on available for sale securities		—		—		—		—		—		—		—		—			(23,718	)		(23,718	)		—			(23,718	)

Net (loss), year ended May 31, 2016		—		—		—		—		—		—		—		(23,895	)		—			(23,895	)		(92,131	)		(116,025	)

Balance, May 31, 2016		1,549	$	2,159,602		379,908,267	$	37,991	$	4,615,374		6,805	$	14,472,840	$	(33,159,411	)	$	(2,305	)	$	(14,035,511	)	$	540,420		$	(13,495,091	)

~~the fair value has been less than~~See ~~amortized~~accompanying cost for debt securities or carrying value for equity securities; and 4) the financial condition, near-term and long-term prospects for the issuer, including the relevant industry conditions and trends, and implications of rating agency actions and offering pricesnotes.

~~Short~~F-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.9

~~Interest~~Jacobs ~~income~~Financial ~~with~~Group, ~~respect~~Inc.Notes to ~~fixed maturity~~Consolidated ~~securities~~Financial isStatements ~~accrued~~Table asof ~~earned. Dividend income is generally recognized when receivable.~~Contents

~~Realized gains and losses are determined~~Note byA ~~specific~~– ~~identification~~Organization ofand ~~the security sold.~~Business

~~Derivatives~~Organization and Nature of Business

~~The~~Jacobs Financial Group, Inc. (the “Company” ~~uses~~or ~~derivatives~~“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 ~~form~~& 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 ~~covered~~placing ~~call~~surety ~~options~~bonds ~~sold~~with toinsurance ~~generate~~companies ~~additional~~for clients engaged in regulated industries, such as the extraction of coal, oil and gas. Triangle receives commission income from the placement of these bonds and ~~provide~~is ~~limited~~licensed ~~downside~~in ~~protection~~five states primarily in the ~~event~~eastern United States. On December 30, 2005, the Company acquired all of athe ~~market~~outstanding stock of West Virginia Fire & Casualty Company (“WVFCC”), an insurance company licensed ~~correction~~to engage in business in West Virginia, Ohio and Indiana. The acquisition of WVFCC consisted of the purchase of marketable investments and insurance licenses and did not include any existing policies or customer base as the insurance lines of business offered by WVFCC were not insurance lines that the Company intended to pursue. Following the acquisition, the name of WVFCC was changed to First Surety Corporation (“FSC”). FSC receives insurance premium income in connection with the issuance of surety bonds. The Company and its subsidiaries are subject to the business risks inherent in the financial services industry.

These transactions expose the Company to potential market risk for which the Company receives a premium up front and the Company realizes the option premium received as income. The market risk relates to the requirement to deliver the underlying security to the purchaser of the call within a definite time at an agreed market price regardless of the then current market price of the security. As a result the Company takes the risk that it may be required to sell the security at the strike priceLiquidity, ~~which could be a price less than the then market price.~~ ~~Should~~Financial ~~the~~Resources ~~security decline in market price over the holding period of the call option, the Company can lessen or mitigate the risk of loss with a closing transaction for the covered call~~ and ~~sale~~Substantial ofDoubt ~~the~~about ~~underlying~~Going ~~security.~~Concern

~~The~~These consolidated financial statements are presented on the basis that the Company ~~invests~~is ina ~~large~~going ~~capitalized US~~concern. ~~securities~~Going ~~traded~~concern oncontemplates ~~major~~the realization USof ~~exchanges~~assets and ~~writes~~the ~~standardized~~satisfaction ~~covered~~of ~~calls~~liabilities ~~only~~in ~~against~~the ~~these~~normal ~~positions~~course ~~(covered~~of ~~calls)~~business over a reasonable length of time. Presently, ~~which~~the Company has insufficient liquidity, financial resources, is in default with certain loan and preferred stock agreements, and has suffered significant recurring losses from operations. Losses are ~~openly~~expected ~~traded~~to oncontinue ~~major~~until USthe ~~exchanges~~Company develops a more substantial book of business. ~~The~~While improvement is anticipated as the Company’s business plan is implemented, other conditions, such as restrictions on the use of ~~such~~FSC’s ~~underlying~~assets ~~securities~~(See Note C), and ~~standardized~~the ~~calls~~Company’s ~~lessens~~significant ~~the~~deficiency ~~credit~~in working ~~risk~~capital toand stockholders’ equity raise substantial doubt about the ~~furthest~~Company’s ~~extent~~ability ~~possible~~to continue as a going concern.

~~The~~Management intends ~~Company~~to isimprove ~~not~~cash ~~exposed~~flow through the implementation of its business plan. Additionally, management continues to ~~significant~~seek to raise ~~cash~~additional ~~requirements~~funds for operations through ~~the~~private ~~use~~placements of ~~covered~~stock, ~~calls~~other inlong-term or permanent financing, or short-term borrowings. However, the Company cannot be certain that it ~~sells~~will abe ~~call~~able ~~for~~to acontinue ~~premium~~to ~~and~~obtain ~~may~~adequate ~~use~~funding ~~these~~in ~~proceeds~~order to ~~enter~~reasonably apredict ~~closing~~whether ~~transaction~~it ~~for~~will ~~the~~be ~~call~~able atto continue as a ~~later~~going ~~date~~concern. The accompanying financial statements do not include any adjustments that might result from the outcome of this uncertainty.

~~Allowance~~Principles of ~~for uncollectible premium and other receivables~~Consolidation

The ~~majority of the Company’s~~ ~~fee~~consolidated ~~revenue~~financial isstatements ~~generated~~include ~~by services provided to companies and individuals throughout~~ the ~~Eastern~~accounts ~~United States. Management evaluates the need for a reserve for the amount~~ of ~~these~~Jacobs ~~receivables~~Financial ~~that may be uncollectible~~Group, ~~based on historical collection activity adjusted for current conditions~~Inc. ~~Premium~~ and ~~other~~its ~~receivables~~majority ~~are~~owned ~~charged-off~~subsidiaries, ~~when~~after the ~~deemed~~elimination ~~uncollectible.~~of ~~Based~~intercompany ontransactions. ~~this evaluation, management believes~~

F-1210

Jacobs Financial Group, Inc.Notes to Consolidated Financial Statements Table of Contents

~~Notes to Consolidated Financial Statements~~Non-Controlling Interest

~~that~~First Surety ~~most~~Corporation, ~~accounts~~a ~~receivable~~subsidiary ~~are collectible~~of the Jacobs Financial Group, ~~and~~Inc. has ~~established~~a annon-controlling ~~allowance~~ownership ~~for~~interest. ~~estimated~~The ~~uncollectible~~Company’s board ~~accounts~~of directors has authorized the sale of Units (5% per Unit), which, if completed, would include forty-nine percent (49%) of the outstanding stock of FSC. As of May 31, 2017, the Company still had ownership of 70% of First Surety Corporation. For further discussion of these Units, see Note H.

~~Impairment~~ Summarized balance sheet and income statement amounts for First Surety Corporation are as follows;

The Company evaluates 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, The Company may be subject to future impairment charges related to these long-lived assets.

FSC Balance Sheet	As of May 31,2017
Total Assets	$	39,599,254

Total Liabilities		25,930,920
Total Equity		13,668,334
Total Liabilities and Equity	$	39,599,254

Furniture and Equipment

FSC Income Statement	Year Ended May 31,2017
Total Revenue	$	2,459,801
Total Expenses		(1,828,415	)
Net Income	$	631,386

~~Furniture and equipment is recorded~~ Cash ~~at cost. Maintenance~~ and ~~repairs~~Short ~~are~~Term ~~charged~~Investments 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~~The Company ~~for~~considers ~~Losses~~all highly liquid instruments purchased with an original maturity of three months or less to be cash equivalents. The Company continually monitors its positions with, and ~~Loss~~the ~~Expenses~~credit quality of, the financial institutions with which it invests.

~~Losses and loss adjustment expenses~~Use ~~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 industry averages, however, will include individual case-basis valuations in the event if claims are received. These estimates and methods of establishing reserves are continually reviewed and updated.Estimates

~~Stock-based~~Preparation of ~~Compensation~~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 reported amounts of assets and liabilities and disclosure of contingent assets and liabilities. Significant areas requiring the use of management estimates are loss reserves, valuation of investments, and the valuation of deferred tax assets. Actual results inevitably will differ from those estimates, and such differences may be material to the financial statements.

~~The fair value of stock options is~~Revenue ~~estimated at the grant date using the Black Scholes Option Pricing Model. This model requires the input of a number of assumptions, including expected volatility~~ and ~~dividend~~Expense 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.Recognition

~~Income~~Fees for ~~Taxes~~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.

~~The Company currently has net operating loss (“NOL”) carry~~F-forwards that can be utilized to offset future income for federal and state tax purposes. These NOLs represent a significant deferred tax asset. However, the Company has recorded a valuation allowance against this deferred tax asset as it has determined that it is more likely than not that it will11

~~F-13~~Jacobs Financial Group, Inc.Notes to Consolidated Financial Statements Table of Contents

~~Jacobs~~The Company ~~Financial~~accounts ~~Group~~for its surety bond issuances as short duration contracts. Surety premiums are recorded as receivables when due and are earned pro rata over the term of the policies of generally one year, ~~Inc~~subject to annual renewal. The reserve for unearned premiums represents the deferred revenue 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.

~~Notes~~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 ~~Consolidated~~the ~~Financial~~issuance or ~~Statements~~renewal of surety bonds are required.

~~not~~Policy acquisition becosts ~~able~~include tocosts ~~fully~~that ~~utilize~~vary ~~the NOLs. Should~~with ~~assumptions~~and ~~regarding~~are primarily related to the ~~utilization~~acquisition of ~~these~~new ~~NOLs~~business. ~~change~~Such costs generally include commissions, underwriting expenses, and premium taxes and are deferred and amortized over the ~~Company~~period ~~may~~in ~~reduce~~which ~~some~~the orrelated premiums ~~all~~are ofearned. ~~this~~The ~~valuation~~deferred policy acquisition cost assets are reviewed for recoverability based on the profitability of ~~allowance,~~the ~~which~~underlying ~~would~~surety ~~result~~policy. Investment income is not considered in the ~~recording~~determination of arecoverability of deferred ~~income~~policy ~~tax benefit~~acquisition costs.

The Company follows a more-likely-than-not measurement methodology to reflect the financial statement impact of uncertain tax positions taken or expected to be taken in a tax return. If taxing authorities were to disallow any tax positions taken by the Company, the additional income taxes, if any, would be imposed on the Company.Investments

~~Interest~~Debt securities ~~and~~are ~~penalties~~designated ~~associated with~~at ~~tax~~purchase ~~positions~~as ~~are~~held-to-maturity, ~~recorded~~trading inor ~~the~~available ~~period~~for ~~assessed~~sale. asHeld-to-maturity ~~general~~debt ~~and~~securities ~~administrative~~are carried ~~expenses.~~at ~~However,~~amortized nocost ~~interest~~where orthe ~~penalties have~~Company ~~been~~has ~~assessed~~the asability ofand ~~May~~intent ~~31,~~to ~~2016~~hold orthese ~~2015.~~securities ~~The~~until ~~Company's~~maturity. ~~tax~~Premiums ~~returns~~and ~~subject~~discounts arising tofrom ~~examination~~the bypurchase ~~tax~~of ~~authorities~~debt ~~include~~securities ~~May 31,~~are ~~2011~~treated ~~through~~as ~~the~~yield ~~current~~adjustments ~~period~~over ~~for~~the ~~state~~estimated ~~and~~lives ~~federal~~or ~~tax~~call ~~reporting~~date, ~~purposes~~if applicable.

~~Earnings~~Debt and ~~(Loss)~~equity securities that the Company may not have a positive intent to hold until maturity and not classified as trading, are ~~Per~~considered ~~Share~~to be available for sale and carried at fair value.

~~Basic~~Management ~~earnings~~has ~~(loss)~~determined ~~per~~it ~~share~~may dispose of ~~common~~securities ~~stock~~prior ~~are~~to ~~computed~~their ~~using~~scheduled ~~the~~maturity ~~weighted~~due ~~average~~to ~~number~~changes ofin ~~shares~~interest ~~outstanding~~rates, ~~during~~prepayments, ~~each period.~~tax ~~Diluted~~and ~~earnings~~credit ~~per~~considerations, ~~share~~liquidity ~~are~~or ~~computed~~regulatory oncapital ~~the~~requirements, ~~basis~~or ofother ~~the~~similar ~~average~~factors. ~~number~~These ofsecurities ~~common~~are ~~shares outstanding plus the dilutive effect~~reported ofat ~~convertible~~fair ~~debt~~value, ~~stock~~with ~~options~~unrealized gains and ~~warrants.~~losses, Innet ~~periods~~ of ~~net~~deferred ~~loss~~income taxes, ~~there~~reported ~~are~~in nostockholders’ ~~diluted~~equity ~~earnings~~as ~~per~~a ~~share~~separate component ~~since~~of ~~the~~accumulated ~~result would~~other becomprehensive ~~anti-dilutive~~income.

~~Note~~Debt Band –equity ~~Newly~~securities ~~Adopted~~that are bought and ~~Recent~~held ~~Accounting~~principally ~~Pronouncements~~for sale in the near future are classified as trading securities and are carried at fair value, with changes in fair value being recorded in current operations. Short-term investments consist primarily of debt securities having maturities of one year or less at date of purchase, and other similar investments that have immediate availability.

~~In May 2014, the FASB issued Accounting Standards Update 2014~~F-09 (ASU 2014-09), Revenue from Contracts with Customers. The guidance in this Update affects any entity that either enters into contracts with customers to transfer goods or services or enters into contracts for the transfer of nonfinancial assets unless those contracts are within the scope of other standards (for example, insurance contracts or lease contracts). The standard's core principle is that a company will recognize revenue when it transfers promised goods or services to customers in an amount that reflects the consideration to which the company expects to be entitled in exchange for those goods or services. In doing so, companies will need to use more judgment and make more estimates than under current guidance. This may include identifying performance obligations in the contract, estimating the amount of variable consideration to include in the transaction price and allocating the transaction price to each separate performance obligation. The amendments in this Update are effective for annual reporting periods beginning after December 15, 2017, including interim periods within that reporting period. Early adoption is not permitted. Companies have the option of using either a full or modified retrospective approach in applying this standard. The Company is in the process of assessing the impact of ASU 2014-09 on its consolidated financial statements.12

InJacobs ~~August~~Financial ~~2014~~Group, ~~the FASB issued Accounting Standards Update No~~Inc.Notes ~~2014-15,~~to ~~Presentation~~Consolidated of Financial Statements~~-Going~~ ~~Concern~~Table ~~(Subtopic~~of ~~205-40) (ASU 2014-15). ASU 2014-15 is intended to define management's responsibility to evaluate whether there is substantial~~Contents

~~F-14~~An investment is considered impaired when its fair value is less than its cost or amortized cost, as applicable. When an investment is impaired, a determination is made as to whether the impairment is other than temporary (“OTTI”).

~~Jacobs~~Factors considered ~~Financial~~in ~~Group~~identifying OTTI include: 1) for debt securities, ~~Inc~~whether the Company intends to sell the investment or whether it is more likely than not that the Company will be required to sell the security prior to the anticipated recovery in value; 2) the likelihood of the recoverability of principal and interest for debt securities (i.e., whether there is a credit loss) or cost for equity securities; 3) the length of time and extent to which the fair value has been less than amortized cost for debt securities or carrying value for equity securities; and 4) the financial condition, near-term and long-term prospects for the issuer, including the relevant industry conditions and trends, and implications of rating agency actions and offering prices.

~~Notes~~Realized gains toand ~~Consolidated~~losses ~~Financial~~are ~~Statements~~determined by specific identification of the security sold.

~~doubt about an organization's ability~~Interest toincome ~~continue~~with asrespect ~~a going concern and~~ to ~~provide~~fixed ~~related~~maturity ~~footnote~~securities ~~disclosures. This guidance~~ is ~~effective~~accrued ~~for~~as ~~us for the annual period ending May 31, 2017 and interim and annual periods thereafter~~earned. WeDividend doincome ~~not~~is ~~expect~~generally ~~the~~recognized ~~adoption~~when ~~of this standard to have a material impact on our consolidated financial position, results of operations and cash flows~~receivable.

In April 2015, the FASB issued ASU 2015-03, “Interest - Imputation of Interest”, which require debt issuance costs to be presented in the balance sheet as a direct deduction from the associated debt liability. The new rules were effective for the Company in the first quarter of 2016. In August 2015, the FASB issued ASU 2015-15, “Interest - Imputation of Interest (Subtopic 835-30) - Presentation and Subsequent Measurement of Debt Issuance Costs Associated with Line-of-Credit Arrangements”. The guidance clarifies accounting for debt issuance costs related to line-of-credit arrangements. The standard states that the FASB deems deferring debt issuance costs related to line-of-credit arrangements as an asset and amortizing over the term of the agreement to be appropriate. The adoption of these accounting rules did not have a material impact on the Company’s financial condition, results of operations or cash flows.Derivatives

In February 2015, the FASB issued ASU 2015-02, “Consolidation (Topic 810)”, an update to their existing consolidation model, which changes the analysis a reporting entity must perform to determine whether it should consolidate certain types of legal entities. The ~~new rules will~~ beCompany ~~effective~~uses ~~for~~derivatives ~~the Company~~ in the ~~first~~form ~~quarter~~ of ~~2016.~~covered ~~The~~call ~~adoption~~options ofsold ~~the~~to ~~new~~generate ~~accounting~~additional ~~rules~~income ~~will~~and ~~not~~provide ~~have~~limited adownside ~~material impact~~protection onin the ~~Company’s~~event ~~financial condition, results~~ of ~~operations~~a ormarket ~~cash flows~~correction.

InThese transactions ~~May~~expose ~~2015,~~the Company to potential market risk for which the ~~FASB~~Company ~~issued~~receives ~~ASU~~a premium up front and the Company realizes ~~2015-07,~~the ~~“Fair~~option ~~Value~~premium ~~Measurement~~received ~~(Topic~~as ~~820)”,~~income. ~~which~~The ~~removes~~market risk relates to the requirement to ~~categorize~~deliver the underlying security to the purchaser of the call within a definite time at an agreed market price regardless of the ~~fair~~then ~~value~~current ~~hierarchy all~~market ~~investments~~price ~~for~~of ~~which~~the ~~fair~~security. ~~value~~As isa result ~~measured~~the ~~using~~Company takes the ~~net~~risk ~~asset~~that ~~value~~it ~~per~~may ~~share~~be ~~practical~~required ~~expedient~~to sell the security at the strike price, ~~and~~which ~~requires~~could ~~separate~~be a price less ~~disclosure~~than ofthe ~~those~~then ~~investments~~market ~~instead~~price. ~~These~~Should ~~disclosures~~the ~~were~~security ~~effective~~decline ~~for~~in ~~the~~market ~~Company~~price inover the ~~first~~holding ~~quarter~~period of ~~2016.~~the ~~The~~call ~~adoption of~~option, the ~~new~~Company can ~~accounting~~lessen ~~rules~~or ~~did~~mitigate ~~not~~the ~~have~~risk anof ~~impact~~loss onwith a closing transaction for the ~~Company’s~~covered ~~financial~~call ~~condition,~~and ~~results~~sale of ~~operations~~the orunderlying ~~cash flows~~security.

~~In September 2015, the FASB issued~~The ~~ASU~~Company ~~2015-16,~~invests ~~“Business~~in ~~Combinations~~large ~~(Topic~~capitalized ~~805)”,~~US ~~which~~securities ~~simplify~~traded ~~the~~on ~~accounting~~major ~~for~~US ~~measurement~~exchanges ~~period~~and ~~adjustments by~~writes ~~eliminating~~standardized ~~the~~covered ~~requirements~~calls toonly ~~restate prior period financial statements for~~ against these ~~adjustments.~~positions ~~The new guidance requires that the cumulative impact of a measurement period adjustment~~ (~~including~~covered ~~the impact on prior periods~~calls), bewhich ~~recognized~~are inopenly ~~the~~traded ~~reporting period~~on inmajor ~~which~~US ~~the adjustment is identified~~exchanges. The ~~new~~use ~~standard,~~of ~~which~~such ~~should~~underlying besecurities ~~applied~~and ~~prospectively to measurement period adjustments~~standardized ~~that~~calls ~~occur~~lessens ~~after~~ the ~~effective~~credit ~~date,~~risk ~~was~~to ~~effective for~~ the ~~Company~~furthest inextent ~~the first quarter of 2016~~possible. ~~The adoption of the new accounting rules did not have a material impact on the Company’s financial condition, results of operations or cash flows.~~

OnThe Company ~~October~~is ~~2016,~~not exposed to significant cash requirements through the ~~FASB~~use ~~issued~~of covered calls in that it sells a call for a premium ~~ASU~~and ~~2016-17,~~may ~~“Consolidation~~use ~~(Topic~~these ~~810):~~proceeds ~~Interests~~to ~~Held~~enter ~~through~~a ~~Related~~closing ~~Parties~~transaction ~~That~~for ~~Are~~the ~~under~~call ~~Common~~at ~~Control”,~~a ~~that affects~~later ~~reporting~~date.

F-1513

Jacobs Financial Group, Inc.Notes to Consolidated Financial Statements Table of Contents

~~Notes~~Allowance for touncollectible ~~Consolidated~~premium ~~Financial~~and ~~Statements~~other receivables

~~entities~~The majority ~~that~~of ~~are~~the ~~required~~Company’s fee revenue is generated by services provided to ~~evaluate whether~~companies ~~they~~and ~~should~~individuals ~~consolidate~~throughout athe ~~Variable~~Eastern United ~~Interest~~States. ~~Entity~~Management ~~(VIE)~~evaluates inthe ~~certain~~need ~~situations~~for ~~involving~~a ~~entities~~reserve ~~under~~for ~~common~~the ~~control. The~~amount ~~amendments~~of inrelated ~~this~~receivables ~~Update~~that ~~will~~may be ~~effective~~uncollectible, ~~for~~based on ~~the~~historical ~~Company~~collection inactivity ~~the~~adjusted ~~first~~for ~~quarter~~current ~~of 2017~~conditions. ~~The~~Premium ~~adoption~~and ofother ~~the~~receivables ~~new~~are ~~accounting~~charged-off when deemed uncollectible. ~~rules~~Based ~~will~~on ~~not~~this ~~have~~evaluation amanagement ~~material~~has ~~impact~~established onan ~~the~~allowance ~~Company’s~~for ~~financial~~estimated ~~condition,~~uncollectible ~~results~~accounts of ~~operations~~$15,053 orand ~~cash~~$40,658 ~~flows~~for fiscal 2017 and 2016, respectfully.

~~In November 2015, the FASB issued an ASU 2015~~Long-~~17, “Income Taxes (Topic 740)”, an update to simplify income tax accounting. The update requires that all~~lived ~~deferred tax assets and liabilities be classified as noncurrent on the balance sheet instead of separating deferred taxes into current and noncurrent amounts.~~Assets

~~This~~The Company ~~update~~evaluates islong-lived ~~effective~~assets for impairment annually, or whenever events or changes in circumstances indicate that the ~~Company~~assets ~~first~~may ~~quarter~~not ~~2017~~be ~~and~~recoverable. Impairment is ~~not~~measured by discounting estimated future cash flows expected to ~~have~~be agenerated, ~~material~~and comparing ~~impact~~this onamount to the ~~Company’s~~carrying ~~financial~~value ~~condition,~~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 the Company may be subject to future impairment charges related to recovery of these long-lived assets. During the periods presented management determined ~~operations~~impairment orhad ~~cash~~not ~~flows~~occurred.

~~In March 2016, the FASB issued ASU~~Furniture ~~No. 2016-07, “Investments - Equity Method~~ and Joint Ventures (Topic 323)”, that eliminates the requirement that when an investment qualifies for use of the equity method as a result of an increase in the level of ownership interest or degree of influence, an adjustment must be made to the investment, results of operations and retained earnings retroactively on a step-by-step basis as if the equity method had been in effect during all previous periods that the investment had been held. The new standard will be effective for the Company on January 1, 2017. The adoption of the new accounting rule is not expected to have a material impact on the Company’s financial condition, results of operations or cash flows.Equipment

InFurniture and ~~March~~equipment ~~2016,~~is ~~the~~recorded ~~FASB~~at ~~issued ASU~~cost. ~~2016-09,~~Maintenance ~~“Improvements~~and torepairs ~~Employee~~are ~~Share-Based~~charged ~~Payment~~to ~~Accounting”,~~operations ~~which~~when ~~simplifies~~incurred. ~~several~~When ~~aspects~~property ofand ~~the accounting~~equipment ~~for~~are ~~share-based~~sold ~~payment~~or ~~transactions~~disposed of, ~~including~~ the ~~income~~asset ~~tax~~account ~~consequences,~~and ~~classification~~related ofaccumulated ~~awards~~depreciation asaccount ~~either~~are ~~equity or liabilities~~relieved, and ~~classification~~any ongain ~~the~~or ~~statement~~loss ofis included ~~cash~~in ~~flows~~operations. The ~~new~~cost ~~rules~~of ~~are~~property ~~effective~~and ~~for~~equipment ~~the~~is ~~Company~~depreciated inover the ~~first~~estimated ~~quarter~~useful oflives ~~2017. The Company does not expect the adoption~~ of the ~~new~~related ~~accounting~~assets, ranging ~~rules~~from three to ~~have~~seven ayears, ~~material~~using ~~impact~~the onstraight-line ~~the~~or ~~Company’s~~double-declining ~~financial~~balance ~~condition~~methods, ~~results~~ ofwhich ~~operations~~approximates orestimated ~~cash flows~~economic depreciation.

~~In January 2016, the FASB issued~~Reserve ASU 2016-01, “Financial Instruments-Overall (Subtopic 825-10)”, which updated the accounting guidance related to the recognition and measurement of financial assets and financial liabilities. The updated accounting guidance, among other things, requires that all nonconsolidated equity investments, except those accounted for ~~under~~Losses ~~the equity method, be measured at fair value~~ and ~~that~~Loss the changes in fair value be recognized in net income. The updated guidance will be effective for the Company as of January 1, 2018. The updated accounting guidance requires, with certain exceptions, a cumulative effect adjustment to beginning retained earnings when the guidance is adopted. The Company is currently in the process of evaluating the impact of adoption of the new rules on the Company’s financial condition, results of operations and cash flows.Expenses

InLosses and ~~August~~loss ~~2016,~~adjustment ~~the~~expenses ~~FASB~~represent ~~issued~~management’s ~~ASU 2016-15,~~best ~~“Statement~~estimate of ~~Cash~~the ~~Flows~~ultimate ~~(Topic~~net ~~230):~~cost ~~Classification~~ of ~~Certain~~all ~~Cash~~reported ~~Receipts~~ and ~~Cash~~unreported losses ~~Payments”~~incurred. ~~The~~Reserves ~~guidance is~~for ~~intended~~unpaid tolosses ~~reduce~~and ~~the~~loss ~~diversity~~adjustment expenses are estimated using industry averages, however, will include individual case-basis valuations in ~~practice~~the asevent toclaims ~~how~~are ~~certain~~received. ~~cash~~These ~~receipts~~estimates and ~~cash~~methods ~~payments~~of establishing reserves are continually reviewed and updated.

FStock-16based Compensation

~~Jacobs~~The fair ~~Financial~~value ~~Group~~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, ~~Inc~~including expected volatility and 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. As of and for the periods presented there were no stock options outstanding.

~~Notes to Consolidated Financial Statements~~Income Taxes

~~presented~~The Company ~~and~~currently ~~classified~~has innet ~~the~~operating ~~statement of~~loss ~~cash~~(“NOL”) ~~flows~~carry-forwards bythat ~~providing~~can ~~guidance~~be ~~for~~utilized ~~several~~to ~~specific~~offset ~~cash~~future ~~flow~~income ~~issues.~~for Infederal and ~~addition,~~state intax ~~November~~purposes. ~~2016,~~These ~~the~~NOLs ~~FASB~~represent ~~issued~~a ~~ASU~~significant ~~2016-18, “Statement~~deferred oftax ~~Cash~~asset. ~~Flows~~However, ~~(Topic~~the ~~230):~~Company ~~Restricted~~has ~~Cash”.~~recorded ~~The~~a ~~amendment~~valuation ~~requires~~allowance against ~~that~~this ~~amounts~~deferred ~~generally~~tax ~~described~~asset as ~~restricted~~ ~~cash~~it ~~and~~has ~~restricted~~determined ~~cash~~that ~~equivalents~~it ~~should~~is bemore ~~included~~likely ~~with~~than ~~cash~~not ~~and~~that ~~cash~~it ~~equivalents~~will ~~when~~not ~~reconciling~~be ~~the~~able ~~beginning-of-period and~~to ~~end-of-period~~fully ~~total~~utilize the ~~amounts~~NOLs. Should ~~shown~~assumptions onregarding the ~~statement~~utilization of ~~cash~~these ~~flows.~~NOLs ~~The~~change, ~~new~~the ~~rules~~Company ~~will~~may bereduce ~~effective~~some ~~for~~or ~~the~~all ~~Company~~of inthis ~~the first~~valuation ~~quarter~~allowance, ofwhich ~~2018.~~would ~~The~~result ~~Company~~in ~~does not expect~~ the ~~adoption~~recording of ~~the new accounting rules to have~~ a ~~material~~deferred ~~impact~~income ontax ~~the Company’s cash flows~~benefit.

~~Management has assessed the potential~~The ~~impact~~Company offollows ~~recently~~a ~~issued, but~~ more-likely-than-not ~~yet~~measurement ~~effective,~~methodology ~~accounting~~to ~~standards~~reflect ~~and~~the ~~determined~~financial ~~that~~statement ~~the~~impact ~~provisions~~of ~~are~~uncertain ~~either~~tax ~~not applicable~~positions totaken ~~the Company,~~ or ~~are~~expected ~~not anticipated~~ to ~~have a material impact on the consolidated financial statements.~~

~~Note C – Investments~~F-14

~~The~~Jacobs ~~Company~~Financial ~~held the following investments~~Group, ~~by security~~ ~~type,~~Inc.Notes ~~that~~to ~~were~~Consolidated ~~classified~~Financial asStatements ~~available-for-sale~~Table ~~and~~of ~~carried at fair value at May 31, 2016:~~Contents

	Amortized Cost			Gross Unrealized Gains			Gross Unrealized Losses			Fair Value
State and municipal securities	$	4,013,256		$	64,789		$	58,217		$	4,019,828
Equity securities		1,628,713			91,339			155,299			1,564,753
Derivatives		(78,497	)		(7,329	)		(9,513	)		(76,313	)
Mortgage Backed Securities		3,157,534			67,689			14,790			3,210,433
	$	8,721,006		$	216,488		$	218,793		$	8,718,701

be taken in a tax return. If taxing authorities were to disallow any tax positions taken by the Company, the additional income taxes, if any, would be imposed on the Company.

~~The~~Interest and ~~Company~~penalties ~~held~~associated ~~the~~with ~~following~~tax ~~investments, by security~~positions ~~type,~~are ~~that~~recorded ~~have~~in ~~been classified~~the period assessed as ~~available-for-sale~~general and ~~carried~~administrative atexpenses. ~~fair~~However, no ~~value~~interest ator penalties have been assessed as of May 31, ~~2015:~~2017 or 2016.

	Amortized Cost			Gross Unrealized Gains			Gross Unrealized Losses			Fair Value
State and municipal securities	$	3,128,282		$	3,234		$	43,452		$	3,088,064
Equity securities		795,971			18,193			42,123			772,041
Derivatives		(17,312	)		(1,146	)		(1,718	)		(16,740	)
Mortgage Backed Securities		3,855,674			91,454			6,465			3,940,663
	$	7,762,615		$	111,735		$	90,322		$	7,784,028

On December 22, 2017, the U.S. Tax Cuts and Jobs Act (the “Tax Act”) was enacted. The Tax Act, among other things, reduces the U. S. federal income tax rate from 35 percent to 21 percent, effective January 1, 2018. The Company has made a reasonable estimate of the effects of the Tax Act on existing deferred tax balances. These amounts are provisional and subject to change. The most significant impact of the legislation for the Company was a $2,050,000 reduction of the value of the Company’s net deferred tax assets (which represent future tax benefits).

~~F-17~~Earnings (Loss) Per Share

~~Jacobs~~Basic earnings ~~Financial~~(loss) ~~Group~~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, ~~Inc~~stock options and warrants. In periods of net loss, there are no diluted earnings per share since the result would be anti-dilutive.

~~Notes~~Note B to– ~~Consolidated~~Newly ~~Financial~~Adopted ~~Statements~~and Recent Accounting Pronouncements

~~There~~In May ~~are~~2014, nothe ~~securities~~Financial ~~classified~~Accounting Standards Board (“FASB”) issued Accounting Standards Update 2014-09 (ASU as2014-09), ~~held~~Revenue from Contracts with Customers. The guidance in this Update affects any entity that either enters into contracts with customers to ~~maturity~~transfer atgoods ~~May~~or 31services or enters into contracts for the transfer of nonfinancial assets unless those contracts are within the scope of other standards (for example, ~~2016~~insurance contracts or ~~May~~lease 31contracts). The standard's core principle is that a company will recognize revenue when it transfers promised goods or services to customers in an amount that reflects the consideration to which the company expects to be entitled in exchange for those goods or services. In doing so, ~~2015~~companies will need to use more judgment and make more estimates than under current guidance. This may include identifying performance obligations in the contract, estimating the amount of variable consideration to include in the transaction price and allocating the transaction price to each separate performance obligation. The Update will be effective for the Company’s fiscal 2019 annual and interim financial statements. Companies have the option of using either a full or modified retrospective approach in applying this standard. The Company is in the process of assessing the impact of ASU 2014-09. We anticipate the impact will be quantitatively immaterial to our consolidated financial statements as a whole and expect the timing of our revenues to remain the same.

~~Invested assets are exposed to various~~In ~~risks~~August 2014, ~~such~~the asFASB ~~interest~~issued ~~rate,~~Accounting ~~market~~Standards ~~and~~Update ~~credit risks~~No. ~~Due~~ to2014-15, ~~the~~Presentation ~~level~~ of ~~risk~~Financial ~~associated~~Statements-Going ~~with~~Concern ~~certain of these invested~~(Subtopic ~~assets~~205-40) ~~and~~(ASU ~~the~~2014-15). ~~level~~ASU of2014-15 ~~uncertainty~~is ~~related~~intended to ~~changes~~define inmanagement's ~~the~~responsibility ~~value~~to ofevaluate ~~these~~whether ~~assets,~~there it is ~~possible~~substantial doubt ~~that~~about ~~changes~~an inorganization's ~~risks~~ability into ~~the near~~continue ~~term~~as ~~may~~a ~~significantly~~going ~~affect~~concern ~~the~~and ~~amounts~~to ~~reported~~provide inrelated ~~the~~footnote ~~Consolidated~~disclosures. ~~Balance~~We ~~Sheets~~adopted ~~and~~this guidance ~~Statements~~for ofour ~~Operations~~fiscal 2017 financial statements.

Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. The Company uses the following fair value hierarchy in selecting inputs, with the highest priority given to Level 1, as these are the most transparent or reliable:F-15

oJacobs ~~Level~~Financial 1Group, –Inc.Notes ~~Quoted~~to ~~prices~~Consolidated ~~for~~Financial ~~identical~~Statements ~~instruments~~Table inof ~~active markets.~~Contents

oIn January ~~Level~~2016, 2the –FASB ~~Quoted~~issued ~~prices~~ASU ~~for~~2016-01, ~~similar~~“Financial ~~instruments~~Instruments-Overall in(Subtopic ~~active~~825-10)”, ~~markets;~~which ~~quoted~~updated ~~prices~~the ~~for~~accounting guidance ~~identical~~related orto ~~similar~~the ~~instruments~~recognition inand ~~markets~~measurement of financial assets and financial liabilities. The updated accounting guidance, among other things, requires that ~~are~~all ~~not~~nonconsolidated ~~active;~~equity investments, except those accounted for under the equity method, be measured at fair value and ~~model-derived~~that ~~valuations~~the changes in ~~which~~fair ~~all~~value ~~significant~~be ~~inputs~~recognized ~~are~~in ~~observable~~net income. The Update will be effective for the Company’s fiscal 2019 annual and interim financial statements. The updated accounting guidance requires, with certain exceptions, a cumulative effect adjustment to beginning retained earnings when the guidance is adopted. The Company is currently in ~~active~~the ~~markets~~process of evaluating the impact of adoption of the new rules.

oIn August ~~Level~~2016, 3the –FASB ~~Valuations~~issued ~~derived~~ASU ~~from~~2016-15, ~~valuation~~“Statement ~~techniques~~of Cash Flows (Topic 230): Classification of Certain Cash Receipts and Cash Payments”. The guidance is intended to reduce the diversity in ~~which~~practice ~~one~~as orto ~~more~~how ~~significant~~certain ~~inputs~~cash receipts and cash payments are ~~unobservable~~presented and classified in the statement of cash flows by providing guidance for several specific cash flow issues. In addition, in November 2016, the FASB issued ASU 2016-18, “Statement of Cash Flows (Topic 230): Restricted Cash”. The amendment requires that amounts generally described as restricted cash and restricted cash equivalents should be included with cash and cash equivalents when reconciling the beginning-of-period and end-of-period total amounts shown on the statement of cash flows. The Update will be effective for the Company’s fiscal 2020 annual financial statements and interim periods thereafter.

~~Fair~~In March ~~values~~2016, ~~are~~the ~~provided~~FASB byissued ASU 2016-05, “Derivatives and Hedging (Topic 815): Effect of Derivative Contract Novations on Existing Hedge Accounting Relationships”, which clarifies that a change in the counterparty to a derivative contract, in and of itself, does not require the designation of a hedging relationship. The new standard which can be adopted prospectively or on a modified retrospective basis, is effective for the Company’s fiscal 2019 annual and interim financial statements. ~~independent~~The ~~investment~~Company ~~custodians~~does ~~that~~not ~~utilize~~expect ~~third-party~~the ~~quotation~~adoption ~~services~~of ~~for~~the new accounting rules to have a material impact on the ~~valuation~~Company’s financial condition, results of operations and cash flows. Also in March 2016, the ~~fixed~~FASB issued ASU 2016-~~income~~06, ~~investment~~“Derivatives and Hedging ~~securities~~(Topic 815): Contingent Put and ~~money-market~~Call ~~funds~~Options ~~held.~~in ~~The~~Debt ~~Company’s~~Instruments”, ~~investment~~which ~~custodians~~clarify the requirements for assessing whether contingent call (put) options that can accelerate the payment of principal on debt instruments are ~~large~~clearly ~~money~~and closely related to their debt hosts. An entity performing the assessment under the amendments in this update is required to assess the embedded call (put) options solely in accordance with the four-~~center~~step ~~banks~~decision sequence. The new standard, which should be applied on a modified prospective basis is effective for the Company’s ~~equity~~ ~~investment~~2019 isannual ~~valued~~financial ~~using~~statements ~~quoted~~and ~~market~~interim ~~prices~~periods thereafter.

~~The~~In January ~~following~~2017, ~~section~~the ~~describes~~FASB issued ASU 2017-01, “Business Combinations (Topic 805): Clarifying the ~~valuation~~ ~~methodologies~~Definition ~~used~~of toa ~~measure~~Business”. The ~~different~~update ~~financial~~provides ~~instruments~~that atwhen ~~fair~~substantially ~~value,~~all ~~including~~the anfair ~~indication~~value of the ~~level~~assets acquired is concentrated in a single identifiable ~~the~~asset ~~fair~~or ~~value~~group ~~hierarchy~~of insimilar ~~which~~identifiable assets, the ~~instrument~~set is ~~generally~~not ~~classified~~a business. The new rules will be effective for the Company’s fiscal 2021 financial statements and interim periods thereafter.

~~Fixed~~In February 2018, the FASB issued ASU No. 2018-02, “Income ~~Securities~~Statement-Reporting Comprehensive Income (Topic 220) Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income”, to address a specific consequence of

Securities valued using Level 1 inputs include highly liquid government bonds for which quoted market prices are available. Securities using Level 2 inputs are valued using pricing for similar securities, recently executed transactions, cash flow models with yield curves and other pricing models utilizing observable inputs. Most fixed income securities are valued using Level 2 inputs. Level 2 includes corporate bonds, municipal bonds, assetF-~~backed securities and mortgage pass-through securities.~~16

~~Equity~~Jacobs ~~Securities~~Financial Group, Inc.Notes to Consolidated Financial Statements Table of Contents

~~Level~~the Tax 1Cuts ~~includes~~and ~~publicly~~Jobs ~~traded~~Act (TCJA) by allowing a reclassification from accumulated other comprehensive income to retained ~~securities~~earnings ~~valued~~for ~~using~~stranded ~~quoted~~tax ~~market~~effects ~~prices~~resulting from the TCJA’s reduction of the U.S. federal corporate income tax rate. The ASU is effective for all entities for the Company’s fiscal 2020 financial statements, with early adoption permitted, and is to be applied either in the period of adoption or retrospectively to each period in which the effect of the change in the U.S. federal corporate income tax rate in the TCJA is recognized.

~~Short~~In June 2016, the FASB issued ASU 2016-~~Term~~13, ~~Investments~~“Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments”. This guidance requires the measurement of all expected credit losses for financial assets held at the reporting date based on historical experience, current conditions and reasonable and supportable forecasts. This guidance also requires enhanced disclosures regarding significant estimates and judgments used in estimating credit losses. The new guidance is effective for the Company’s fiscal 2020 financial statements. The Company is currently evaluating the impact that the adoption of this guidance will have on its financial statements.

In February 2016, the FASB issued ASU 2016-02, which amends the FASB Accounting Standards Codification and creates Topic 842, “Leases.” The ~~valuation~~new oftopic ~~securities~~supersedes ~~that~~Topic 840, “Leases,” and increases transparency and comparability among ~~are~~organizations ~~actively~~by ~~traded~~recognizing orlease ~~have~~assets ~~quoted~~and ~~prices~~lease ~~are~~liabilities ~~classified~~on asthe ~~Level~~balance 1sheet and requires disclosures of key information about leasing arrangements. ~~These~~The ~~securities~~guidance ~~include~~is ~~money~~effective ~~market~~for ~~funds~~the ~~and~~Company’s Ufiscal 2020 financial statements.S. ~~Treasury~~ASU 2016-02 mandates ~~bills~~a modified retrospective transition method. ~~Level~~The 2Company ~~includes~~is ~~commercial~~currently ~~paper,~~assessing ~~for~~the ~~which~~impact ~~all~~this ~~significant~~guidance ~~inputs~~will ~~are~~have ~~observable~~on its financial statements.

~~F-18~~Management has assessed the potential impact of recently issued, but not yet effective accounting standards and, except as noted, has determined that the provisions are either not applicable to the Company, or are not anticipated to have a material impact on the consolidated financial statements.

~~Jacobs~~Note C ~~Financial~~– ~~Group, Inc.~~Investments

~~Notes~~The Company toheld ~~Consolidated~~the ~~Financial~~following ~~Statements~~investments, by security type, that were classified as available-for-sale and carried at fair value at May 31, 2017:

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

	Amortized Cost			Gross Unrealized Gains			Gross Unrealized Losses			Fair Value
State and municipal securities	$	17,893,683		$	71,906		$	215,421		$	17,750,168
Bond – US Treasuries		11,479,990			—			2,083			11,477,907
Equity securities		2,569,438			104,041			146,775			2,526,704
Derivatives		(104,217	)		(9,745	)		(9,734	)		(104,228	)
Mortgage backed securities		4,260,730			68,904			11,064			4,318,570
	$	36,099,624		$	235,106		$	365,609		$	35,969,121

	May 31, 2016
		Fair Value Measurements Using
		Level 1		Level 2		Level 3		Assets At Fair Value
Assets:
Fixed income securities at fair value	$	—	$	7,230,261	$	—	$	7,230,261
Equity securities at fair value (includes derivatives)		1,488,440		—		—		1,488,440
Short-term investments at fair value		197,752		—		—		197,752
Total Assets	$	1,686,192	$	7,230,261	$	—	$	8,916,453

F-17

	May 31, 2015
		Fair Value Measurements Using
		Level 1		Level 2		Level 3		Assets At Fair Value
Assets:
Fixed income securities at fair value	$	—	$	7,028,728	$	—	$	7,028,728
Equity securities at fair value (includes derivatives)		755,301		—		—		755,301
Short-term investments at fair value		1,612,620		—		—		1,612,620
Total Assets	$	2,367,921	$	7,028,728	$	—	$	9,396,649

Jacobs Financial Group, Inc.

Notes to Consolidated Financial Statements

Table of Contents

The Company ~~had~~held nothe ~~assets~~following orinvestments, ~~liabilities measured~~by security attype, ~~fair~~that ~~value~~have onbeen classified aas ~~recurring~~available-for-sale ~~basis~~and ~~using~~carried at ~~significant~~fair ~~unobservable~~value ~~inputs (Level 3)~~ at ~~either~~ May 31, 2016 ~~or at May 31, 2015.~~:

At May 31, 2016, the Company’s insurance subsidiary had securities and short-term investment with a fair value of $1,171,307 on deposit with the State insurance department to satisfy regulatory requirements. In connection with regulatory approval of the Company’s acquisition of its insurance subsidiary, certain restrictions were imposed on the ability of the Company to withdraw funds from FSC without prior approval of the state Insurance Commissioner. Accordingly, investments and cash in the amount of $9,386,503 and $10,100,908 as of May 31, 2016 and 2015, respectively, are restricted to the use of FSC.

		Amortized Cost			Gross Unrealized Gains			Gross Unrealized Losses			Fair Value
State and municipal securities	$	4,013,256		$	64,789		$	58,217		$	4,019,828
Equity securities		1,628,713			91,339			155,299			1,564,753
Derivatives		(78,497	)		(7,329	)		(9,513	)		(76,313	)
Mortgage backed securities		3,157,534			67,689			14,790			3,210,433
	$	8,721.006		$	216,488		$	218,793		$	8,718,701

~~At May 31, 2016, the Company’s~~There ~~insurance~~are ~~subsidiary~~no ~~had cash,~~ securities ~~and~~classified ~~short~~as ~~term investments~~ held asto ~~collateral~~maturity ~~for~~at ~~their~~May ~~bonding~~31, ~~program~~2017 inor ~~the~~May ~~amount of $2~~31,~~068,252~~ 2016.

~~Principal~~Invested assets ~~repayments~~are onexposed Uto various risks, such as interest rate, market and credit risks.S. Due ~~government~~to ~~agency~~the ~~mortgage-backed~~level of risk associated ~~securities~~with ~~held~~certain byof these invested assets and the ~~Company~~level asof uncertainty related to changes in the value of ~~December~~these 31assets, ~~2016~~it ~~are~~is ~~estimated~~possible that aschanges ~~follows:~~in risks in the near term may significantly affect the amounts reported in the Consolidated Balance Sheets and Statements of Operations.

~~F-19~~Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. The Company uses the following fair value hierarchy in selecting inputs, with the highest priority given to Level 1, as these are the most transparent or reliable:

~~Jacobs~~o ~~Financial~~Level ~~Group,~~1 ~~Inc~~– Quoted prices for identical instruments in active markets.

~~Notes~~o toLevel ~~Consolidated~~2 ~~Financial~~– ~~Statements~~Quoted prices for similar instruments in active markets; quoted prices for identical or similar instruments in markets that are not active; and model-derived valuations in which all significant inputs are observable in active markets.

	Amortized Cost		Fair Market Value
Due in one year or less	$	725,940	$	730,887
Due after one year through five years		1,076,573		1,117,073
Due after five years through ten years		958,413		964,405
Due after ten years		396,608		398,068
	$	3,157,534	$	3,210,433

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

~~Estimated~~Fair values ~~repayments~~ are ~~forecast based~~provided onby ~~varying~~the ~~prepayment~~Company’s ~~speeds~~independent investment custodians that utilize third-party quotation services for ~~each~~the valuation ~~particular~~of ~~security~~the ~~held~~fixed-income ~~assuming~~investment ~~that~~securities ~~interest~~and ~~rates~~money-market ~~remain~~funds ~~constant~~held. ~~Expected~~The ~~repayments will~~Company’s ~~differ~~investment ~~from~~custodians ~~actual~~are large ~~repayments~~money-center ~~because~~banks. ~~borrowers~~The ofCompany’s ~~the~~equity ~~underlying~~investment ~~mortgages~~is ~~have~~valued ausing ~~right~~quoted tomarket ~~prepay obligations~~prices.

AnThe following ~~analysis~~section describes the valuation methodologies used to measure different financial instruments at fair value, including an indication of ~~net~~the ~~investment~~level ~~income~~in ~~follows:~~the fair value hierarchy in which the instrument is generally classified.

	2016			2015
Bonds – fixed maturities	$	154,300		$	102,187
Mortgage-backed securities		113,654			132,726
Equity investments		38,910			36,703
Short-term investments		151			60
Other investment income		(485,479	)		41,619
Total investment income		(178,464	)		313,295
Investment expense		36,918			38,349
Net investment income	$	(215,382	)	$	274,946

F-18

~~The~~Jacobs ~~unrealized~~Financial ~~appreciation~~Group, ~~(depreciation) of~~Inc.Notes ~~investments~~to ~~were~~Consolidated asFinancial ~~follows:~~Statements Table of Contents

	2016			2015
Bonds-fixed maturities	$	46,790		$	(60,892	)
Mortgage-backed securities		(32,089	)		(7,164	)
Equity securities		(38,419	)		(49,450	)
Increase (decrease) in unrealized appreciation	$	(23,718	)	$	(117,506	)

Fixed Income Securities

~~Gains~~Securities valued ~~and~~using ~~losses~~Level ~~are~~1 ~~calculated~~inputs ~~based~~include onhighly ~~sales~~liquid ~~proceeds received~~government ~~less~~bonds ~~the~~for ~~cost~~which ofquoted ~~the~~market ~~security~~prices ~~sold,~~are ~~which~~available. isSecurities ~~determined~~using Level by2 ~~specific~~inputs ~~identification~~are valued using pricing for ~~each~~similar ~~investment.~~securities, ~~The~~recently ~~gross~~executed ~~gains~~transactions, cash flow models with yield curves and ~~gross~~other ~~losses~~pricing ~~realized~~models onutilizing ~~available~~observable inputs. Most fixed income securities are valued using Level 2 inputs. Level 2 includes corporate bonds, municipal bonds, asset-~~for-sale~~backed securities ~~were~~and asmortgage ~~follows:~~pass-through securities.

~~F-20~~Equity Securities

~~Jacobs~~Level 1 ~~Financial~~includes ~~Group,~~publicly ~~Inc~~traded securities valued using quoted market prices.

~~Notes to Consolidated Financial Statements~~Short-Term Investments

	Gross Proceeds		Gross Realized Gains		Gross Realized Losses
2016
Bonds-fixed maturities	$	858,870	$	6,346	$	(9,253	)
Mortgage-backed securities		—		—		—
Equity securities		391,758		8,965		(36,135	)
Derivatives (equity securities)		598,984		113,407		(162,390	)
Total	$	1,849,612	$	128,718	$	(207,778	)
2015
Bonds-fixed maturities	$	1,453,069	$	35,239	$	(2,352	)
Mortgage-backed securities		—		—		—
Equity securities		1,221,704		138,421		(2,572	)
Derivatives (equity securities)		169,889		29,316		(61,670	)
Total	$	2,844,662	$	202,976	$	(66,594	)

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

~~The following table summarizes~~Assets ~~the~~measured ~~gross~~at ~~unrealized losses and~~ fair value on ~~investment securities aggregated by major investment category and length of time that individual securities have been in~~ a ~~continuous~~recurring ~~loss~~basis ~~position~~are atsummarized ~~May 31, 2016 and May 31, 2015.~~below:

F-21

	May 31, 2017
	Fair Value Measurements Using
	Level 1		Level 2		Level 3		Assets At Fair Value

Fixed income securities at fair value	$	—	$	33,546,645	$	—	$	33,546,645
Equity securities at fair value (includes derivatives)		2,422,476		—		—		2,422,476
Short-term investments at fair value		1,857,601		—		—		1,857,601
Total Assets	$	4,280,077	$	33,546,645	$	—	$	37,826,722

Jacobs Financial Group, Inc.

	May 31, 2016
	Fair Value Measurements Using
	Level 1		Level 2		Level 3		Assets At Fair Value

Fixed income securities at fair value	$	—	$	7,230,261	$	—	$	7,230,261
Equity securities at fair value (includes derivatives)		1,488,440		—		—		1,488,440
Short-term investments at fair value		197,752		—		—		197,752
Total Assets	$	1,686,192	$	7,230,261	$	—	$	8,916,453

~~Notes~~The Company tohad ~~Consolidated~~no ~~Financial~~assets ~~Statements~~or liabilities measured at fair value on a recurring basis using significant unobservable inputs (Level 3) at either May 31, 2017 or at May 31, 2016.

	Less than 12 Months				12 Months or More				Total
	Cost (a)		Unrealized Losses		Cost (a)		Unrealized Losses		Fair Value		Unrealized Losses
2016
Equity securities	$	571,913	$	80,340	$	244,664	$	74,960	$	661,277	$	155,300
Bonds- Fixed Maturities		493,941		10,003		2,004,819		48,214		2,440,543		58,217
Mortgage-backed securities		894,532		5,118		535,416		9,672		1,415,158		14,790
Total	$	1,960,386	$	95,461	$	2,784,899	$	132,846	$	4,516,978	$	228,307
2015
Equity securities	$	364,217	$	16,905	$	94,064	$	25,217	$	416,159	$	42,122
Bonds- Fixed Maturities		1,765,902		54,453		779,118		13,704		2,476,863		68,157
Mortgage-backed securities		784,332		5,105		91,997		1,360		869,864		6,465
Total	$	2,914,451	$	76,463	$	965,179	$	40,281	$	3,762,886	$	116,744

F-19

~~(a)~~Jacobs ~~For~~Financial ~~bonds-fixed~~Group, ~~maturities~~Inc.Notes ~~and~~to ~~mortgage-backed securities,~~Consolidated ~~represents~~Financial ~~amortized~~Statements ~~costs.~~Table of Contents

~~As of~~ At May 31, ~~2016~~2017, the Company’s ~~held twenty-seven~~insurance ~~mortgage-backed~~subsidiary ~~securities~~had ~~with gross unrealized losses of $14~~cash,~~790,~~ ~~four of which have been in a continuous loss position for more than 12 months. These~~ securities ~~consist~~and ~~of fixed~~short-~~rate~~term ~~securities~~investments ~~issued~~held byas ~~Government~~collateral ~~National Mortgage Association (GNMA)~~for ~~that~~their ~~are~~bonding ~~sensitive~~program ~~to movements~~ in ~~market~~the ~~interest~~amount ~~rates~~of $21,926,872.

AsIn connection with regulatory approval of ~~May~~the ~~31,~~Company’s ~~2016~~acquisition of its insurance subsidiary, certain restrictions were imposed on the ability of the Company ~~held fifteen~~to ~~fixed~~withdraw ~~maturity~~funds ~~bonds~~from ~~with~~FSC ~~gross~~without ~~unrealized~~prior ~~losses~~approval of the state Insurance Commissioner. Accordingly, investments and cash in the amount of $5838,~~217~~374,571 ~~seven~~and $9,384,909 as of ~~which~~May ~~have~~31, ~~been~~2017 inand a2016, ~~continuous~~respectively, ~~loss~~are ~~position~~restricted ~~for~~to ~~more~~the ~~than~~use 12of ~~months~~FSC.

~~As of~~ At May 31, 2016, the Company’s ~~held seventeen~~insurance ~~equity~~subsidiary ~~security~~had ~~investments~~securities and short-term investment with ~~gross~~a ~~unrealized~~fair ~~losses~~value of $~~155~~1,~~300~~153, ~~two of which have been in a continuous loss position~~324 ~~for~~on ~~more~~deposit ~~than~~with 12the ~~months.~~State ~~These~~insurance ~~securities~~department ~~consist of common stock whose fair value is sensitive~~ to ~~movements~~satisfy inregulatory ~~market interest rates~~requirements.

FPrincipal repayments on U.S. government agency mortgage-22backed securities held by the Company as of May 31, 2017 are estimated as follows:

Jacobs Financial Group, Inc.

	Amortized Cost		Fair Value
Due in one year or less	$	725,940	$	730,887
Due after one year through five years		2,179,769		2,225,209
Due after five years through ten years		958,413		964,40
Due after ten years		396,608		398,068
	$	4,260,730	$	4,318,570

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

~~Note~~An analysis ~~D-Deferred~~of ~~Policy~~net ~~Acquisition~~investment ~~Costs~~income follows:

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

	2017		2016
Bonds – fixed maturities	$	242,266	$	154,300
Mortgage-backed securities		108,236		113,654
Equity investments		64,398		38,910
Short-term investments		1,070		151
Other investment income (loss)		113,001		(485,479	)
Total investment income (loss)		528,971		(178,464	)
Investment expense		35,142		36,918
Net investment income	$	493,829	$	(215,382	)

	2016			2015
Balance at beginning of year	$	154,978		$	152,608
Acquisition costs deferred		301,032			301,126
Amortization charged to operations		(284,127	)		(298,756	)
Total	$	171,883		$	154,978

F-20

~~Note~~Jacobs EFinancial –Group, ~~Other~~Inc.Notes ~~Assets~~to Consolidated Financial Statements Table of Contents

~~Included in other assets as of May 31, 2016 and May 31,~~The ~~2015~~unrealized ~~are~~appreciation ~~$14,617~~(depreciation) ~~and $14,550~~ of ~~prepaid~~investments ~~expenses~~were ~~and~~as ~~deposits.~~follows:

Note F – Intangibles

	2017			2016

Bonds – US Treasury	$	(2,082	)	$	—
Bonds-fixed maturities		(150,087	)		46,790
Mortgage-backed securities		4,940			(32,089	)
Equity securities		19,032			(38,419	)
Increase (decrease) in unrealized appreciation	$	(128,197	)	$	(23,718	)

AsGains and ~~the~~losses ~~result~~are ofcalculated ~~the~~based ~~acquisition of FSC~~ on ~~December~~sales ~~30,~~proceeds ~~2005,~~received inless ~~exchange for~~ the ~~purchase~~cost ~~price~~ of ~~$2,900,000,~~ the ~~Company~~security ~~received~~sold, ~~cash~~which ~~and~~is ~~investments~~determined ~~held~~ by ~~FSC~~ ~~with a fair value of $2,750,000, with the difference of $150,000 being attributed to the property and casualty licenses of~~specific ~~FSC~~identification infor ~~the~~each ~~states of West Virginia, Ohio and Indiana~~investment. ~~Such~~The ~~licenses~~gross ~~have~~gains ~~indefinite lives~~ and ~~are~~gross ~~evaluated~~losses ~~annually,~~realized oron ~~more frequently if circumstances indicate that a possible impairment has occurred,~~ available-for-sale ~~recoverability~~securities ~~and~~were ~~possible~~as ~~impairment loss. No impairment has been recorded in fiscal years ended May 31, 2016 and 2015.~~follows:

Note G - Reserve for Losses and Loss Expense

	Gross Proceeds		Gross Realized Gains		Gross Realized Losses
2017
Bonds – US Treasury	$	17,000,000	$	—	$	—
Bonds-fixed maturities		4,778,067		79,561		24,831
Mortgage-backed securities		—		—		—
Equity securities		1,015,216		103,532		15,762
Derivatives (equity securities)		848,325		193,123		197,403
Total	$	23,641,608	$	376,216	$	237,99
2016
Bonds-fixed maturities	$	858,870	$	6,346	$	9,253
Mortgage-backed securities		—		—		—
Equity securities		391,758		8,965		36,135
Derivatives (equity securities)		598,984		113,407		162,390
Total	$	1,849,612	$	128,718	$	207,778

~~Reserves for unpaid losses and loss~~The ~~adjustment~~following ~~expenses~~table ~~are~~summarizes ~~estimated based primarily on management’s judgment as~~ the ~~Company~~gross ~~has~~unrealized ~~incurred limited~~ losses ~~since its inception~~ and ~~available~~fair ~~industry~~value ~~data~~on isinvestment ~~also~~securities ~~extremely~~aggregated ~~limited.~~by Inmajor ~~the~~investment category ~~event~~and length of ~~the~~time ~~Company~~that ~~receiving a claim it will use~~ individual ~~case~~securities ~~basis~~have ~~estimates~~been ~~including~~in ~~all~~a ~~estimated~~continuous ~~future~~loss ~~expenses~~position toat ~~settle such claims. As of~~ May 31, ~~2016,~~2017 ~~the Company’s insurance subsidiary, FSC, is only licensed to write surety in West Virginia~~ and ~~Ohio~~May ~~and has focused its primary efforts towards coal permit reclamation bonds while also providing other miscellaneous surety bonds~~31, ~~most of which are partially collateralized by investment accounts that are managed by Jacobs & Company~~2016. Reclamation of land that has been disturbed by mining operations is highly regulated by federal and state agencies and the required bonds are generally long-term in nature with mining operations and reclamation work conducted in unison as the property is being mined.

~~Additionally, no two principals or properties are alike due to varied company structures and unique geography and geology of each site. In underwriting such bonds, management~~F-21

~~F-23~~Jacobs Financial Group, Inc.Notes to Consolidated Financial Statements Table of Contents

Jacobs Financial Group, Inc.

	Less than 12 Months				12 Months or More				Total
	Cost (a)		Unrealized Losses		Cost (a)		Unrealized Losses		Fair Value		Unrealized Losses
2017
Equity securities	$	1,004,585	$	60,327	$	301,525	$	86,449	$	1,159,335	$	146,775
Bonds- Fixed Maturities		9,185,478		152,367		1,344,509		62,774		10,314,847		215,141
Mortgage-backed securities		1,686,199		10,291		134,742		773		1,820,941		11,064
Total	$	11,876,262	$	222,985	$	1,780,776	$	149,995	$	13,295,123	$	372,980

Notes to Consolidated Financial Statements

2016
Equity securities	$	571,913	$	80,340	$	244,664	$	74,960	$	661,277	$	155,300
Bonds- Fixed Maturities		493,941		10,003		2,004,819		48,214		2,440,543		58,217
Mortgage-backed securities		894,532		5,118		535,416		9,672		1,415,158		14,790
Total	$	1,960,386	$	95,461	$	2,784,899	$	132,846	$	4,516,978	$	228,307

~~develops, through consultation with professionals experienced in the specific field of work, estimates of costs to reclaim the properties subject of the permit~~(sa) inFor ~~accordance~~bonds-fixed ~~with~~maturities ~~those mining permit(s), in addition to other underwriting~~ and ~~financial~~mortgage-backed ~~risk considerations. FSC requires the principal to provide cash~~securities, orrepresents ~~other~~amortized ~~acceptable collateral such as irrevocable letters of credit, in amounts determined through the underwriting process to reclaim the disturbed land and thus mitigate the exposure to significant loss~~costs.

~~FSC~~As of ~~maintains~~May ~~reinsurance~~31, ~~agreement with~~2017, ~~various~~the ~~syndicates~~Company atheld ~~Lloyd's~~twenty-two ofmortgage-backed ~~London.~~securities ~~The~~with ~~reinsurance~~gross ~~agreement~~unrealized islosses anof ~~excess~~$11,064, six of ~~loss~~which have ~~contract~~been ~~that~~in ~~protects~~a ~~FSC~~continuous ~~against losses~~loss upposition tofor ~~certain~~more ~~limits~~than ~~over~~12 ~~stipulated amounts~~months. ~~Such~~These ~~cash~~securities isconsist ~~invested~~of infixed-rate ~~investment~~securities ~~collateral~~issued ~~accounts managed~~ by ~~Jacobs~~Government ~~utilizing~~National ~~investment~~Mortgage ~~strategies~~Association ~~consistent~~(GNMA) ~~with~~that ~~the~~are ~~state~~sensitive ~~code~~to ~~governing~~movements ~~investments~~in ofmarket aninterest ~~insurance company~~rates.

~~Inspections~~ As of ~~mining~~May ~~activity~~31, ~~and reclamation~~2017, ~~work are performed on a regular basis with initial cost estimates being updated periodically. Should~~ the ~~principal default~~Company inheld ~~the~~one ~~obligation~~hundred totwo ~~reclaim~~fixed ~~the~~maturity ~~property~~bonds inwith ~~accordance~~gross ~~with~~unrealized ~~the~~losses ~~mining~~of ~~permit~~$215,420, ~~FSC~~six ~~would~~of ~~then~~which have ~~use~~been ~~the funds held~~ in ~~the collateral~~a ~~account~~continuous toloss ~~reclaim~~position ~~the~~for ~~property~~more orthan ~~would~~12 ~~be required to forfeit the face amount of the bond to the agency to which the bond is issued~~months.

~~Losses can occur if the costs of~~As ~~reclamation~~of exceed estimates obtained at the time the bond was underwritten or upon subsequent re-evaluations, if sufficient collateral is not obtained and increased if necessary, or if collateral held has experienced a significant deterioration in value. FSC has experienced two claims for loss through May 31, ~~2016 (one fiscal 2016~~2017, ~~detailed below) and thus provisions for losses and loss adjustment expense have been based on management’s experience adjusted for other factors unique to~~ the Company’s ~~approach, and~~held intwenty-one ~~consultation~~equity ~~with~~security ~~actuaries~~investments ~~experienced~~with ingross ~~the~~unrealized ~~surety~~losses ~~field. In August 2015, the Company paid a claim on a called bond in the amount~~ of $~~550~~146,~~000~~775, seven of which have ~~$75,000 was paid using collateral of the principal. The remaining $475,000 has~~ been ~~established as~~in a ~~salvage~~continuous ~~reserve~~loss toposition befor ~~repaid~~more ~~with~~than ~~the~~12 ~~assignment~~months. ofThese ~~proceeds~~securities ~~from~~consist ~~sales~~ of common stock ~~and~~whose anfair ~~assignment~~value ~~of a promissory note as~~is ~~additional~~sensitive ~~collateral~~to ~~with~~movements ~~total assigned values~~ in ~~excess~~market ofinterest ~~the salvage reserve~~rates.

The Company incurred loss adjustment expenses of $26,590 ($25,000 in Fiscal 2014) related to costs of engaging experts, attorney fees, and consultants for potential claims. These costs were charged against established case reserves and bulk reserves.F-22

AsJacobs aFinancial ~~result of an examination by the West Virginia Insurance Commissioner~~Group, aInc.Notes ~~reserve strengthening in the form of an increase~~ to ~~the~~Consolidated ~~Loss~~Financial ~~Reserve~~Statements ~~was~~Table ~~recorded in Fiscal 2015 and 2016 in the amounts~~ of ~~approximately $800,000 and $20,402.~~Contents

FNote D-24Deferred Policy Acquisition Costs

~~Jacobs~~The following ~~Financial~~reflects ~~Group,~~the ~~Inc~~policy acquisition costs deferred for amortization against future income and the related amortization charged to operations.

Notes to Consolidated Financial Statements

	2017			2016

Balance at beginning of year	$	171,883		$	154,978
Acquisition costs incurred		785,986			301,032
Amortization charged to operations		(590,260	)		(284,127	)
Total	$	367,609		$	171,883

~~At May 31, 2016 and May 31, 2015, the reserve for losses~~Note ~~and~~E ~~loss~~– ~~expenses~~Other ~~consisted of:~~Assets

	2016			2015
Balance at beginning of year	$	2,254,035		$	1,286,018
Incurred policy losses-current year		243,632			968,017
Incurred policy losses-prior year		20,402			—
Paid policy losses – current year		(1,590	)		—
Paid policy losses-prior year		(25,000	)		—
Balance at end of year	$	2,491,479		$	2,254,035

Included in other assets as of May 31, 2017 and May 31, 2016 are $16,780 and $14,617 of prepaid expenses and deposits.

Note F~~-25~~ – Intangibles

~~Jacobs~~As the ~~Financial~~result ~~Group~~of the acquisition of FSC on December 30, ~~Inc~~2005, in exchange for the purchase price of $2,900,000, the Company received cash and investments held by FSC with a fair 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, 2017 and 2016.

~~Notes~~Note G to- ~~Consolidated~~Reserve ~~Financial~~for ~~Statements~~Losses and Loss Expense

~~Note~~Reserves Hfor –unpaid ~~Notes~~losses ~~Payable~~and loss adjustment expenses are estimated based primarily on management’s judgment as the Company has incurred limited losses since its inception and available industry data is also extremely limited. In the event of the Company receiving a claim it will use individual case basis estimates including all estimated future expenses to settle such claims. As of May 31, 2017, the Company’s insurance subsidiary, FSC, is only licensed to write surety in West Virginia and Ohio and has focused its primary efforts towards coal permit reclamation bonds while also providing other miscellaneous surety bonds, most of which are partially collateralized by investment accounts that are managed by Jacobs & Company. Reclamation of land that has been disturbed by mining operations is highly regulated by federal and state agencies and the required bonds are generally long-term in nature with mining operations and reclamation work conducted in unison as the property is being mined.

AtAdditionally, no ~~May~~two ~~31,~~principals ~~2016~~or properties are alike due to varied company structures and ~~2015~~unique geography and geology of each site. In underwriting such bonds, management develops, through consultation with professionals experienced in the ~~Company~~specific ~~had~~field of work, estimates of costs to reclaim the ~~following~~properties ~~unsecured~~subject of the permit(s) in accordance with those mining permit(s), in addition to other underwriting ~~notes~~and ~~payable~~financial risk considerations. FSC requires the principal to ~~individuals:~~ provide cash, or other acceptable collateral such as irrevocable letters of credit, in amounts determined through the underwriting process to reclaim the disturbed land and thus mitigate the exposure to significant loss.

		2016		2015
Secured notes payable to individuals; interest rate fixed @ 8%; secured by 500 shares FSC stock ($1,387,573 related party for 2016)	$	4,334,997	$	4,185,684
Secured notes payable to same individuals as above with same collateral; no interest;		235,000		250,000
Unsecured demand notes payable to individuals and others; no interest ($83,900 related party in 2016)		113,050		22,000
Unsecured demand notes payable to individuals and others; interest rate fixed @ 10% ($75,000 to related party)		1,506,859		1,533,422
Unsecured demand notes payable to individuals and others; interest rate fixed @ 12%		15,000		15,000
Unsecured demand note payable to individuals; interest rate fixed @ 14%;		1,658		6,254
Secured demand note payable to individuals; interest rate fixed @ 10%; secured by accounts receivable for investment advisory fees		36,628		44,260
Unsecured demand note payable to individuals; interest rate fixed @ 2% ($785,000 related party)		885,000		—
Secured notes payable to individuals; interest rate fixed @ 10%; secured by shares FSC stock		249,250		—
Unsecured note(s)payable to individual(s) under bridge- financing arrangements described below		—		1,725,000
Total	$	7,377,442	$	7,781,619

F-23

~~F-26~~Jacobs Financial Group, Inc.Notes to Consolidated Financial Statements Table of Contents

FSC maintains reinsurance agreements with various syndicates at Lloyd's of London. The reinsurance agreement is an excess of loss contract that protects FSC against losses up to certain limits over stipulated amounts. Each client’s cash is invested in investment collateral accounts managed by Jacobs ~~Financial~~utilizing ~~Group,~~investment ~~Inc~~strategies consistent with the state code governing investments of an insurance company.

~~Notes~~Inspections of mining activity and reclamation work are performed on a regular basis with initial cost estimates being updated periodically. Should the principal default in the obligation to ~~Consolidated~~reclaim ~~Financial~~the ~~Statements~~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.

~~During~~Losses can occur if the ~~year~~costs ~~ended~~of ~~May~~reclamation ~~31,~~exceed ~~2015,~~ estimates obtained at the ~~Company~~time ~~borrowed~~the ~~$75~~bond was underwritten or upon subsequent re-evaluations,~~000~~ ~~from~~if sufficient collateral is not obtained and increased if necessary, or if collateral held has experienced a significant ~~board~~deterioration ~~member~~in value. ~~Accrued~~FSC ~~related~~has ~~party~~experienced ~~interest~~two ofclaims $9for loss through May 31,~~452~~ is2017 ~~payable~~as todetailed ~~this~~below, ~~individual~~and atthus provisions ~~May~~for losses and loss adjustment expense have been based on management’s experience adjusted for other factors 31unique to the Company’s approach, ~~2016~~and in consultation with actuaries experienced in the surety field.

~~During~~In August 2015, the ~~year~~Company ~~ended~~paid ~~May~~a ~~31,~~claim ~~2016, an~~on ~~individual~~a ~~who~~called ~~holds~~bond ~~secured~~in ~~notes~~the ~~payables~~amount ~~from~~of ~~the Company~~$550,000, ~~became~~of awhich ~~greater~~$75,000 ~~than~~was ~~10%~~paid ~~owner~~using collateral of ~~outstanding~~the ~~common~~principal. ~~stock~~The ~~of the~~remaining ~~Company.~~$475,000 ~~During~~has ~~the~~been ~~year~~established ~~ended~~as ~~May~~a ~~31,~~salvage ~~2016,~~reserve ~~the~~to ~~Company~~be ~~borrowed~~repaid ~~additional~~with ~~money~~the assignment of proceeds from ~~this~~sales ~~individual~~of stock and ~~entities~~an ~~controlled by~~assignment ~~this~~of ~~individual.~~a ~~Amounts~~promissory ~~owed~~note toas ~~this~~additional ~~individual~~collateral ~~(and~~with ~~the~~total ~~individual’s~~assigned ~~companies~~values ~~and~~in excess ~~relatives)~~of atthe ~~May~~salvage ~~31,~~reserve. ~~2016~~As ~~consisted~~ of ~~$868~~May 31,~~900~~ in2017, ~~demand~~the ~~notes,~~Company had received $145,~~387,573~~000 in ~~notes~~recovered ~~payable~~salvage ~~secured~~on bythis ~~FSC~~claim. ~~stock~~As of June 2018, ~~and~~the unrecovered balance of this salvage was $14280,~~621~~000, inwith ~~accrued~~full ~~interest~~recovery expected in future.

~~All~~In February ~~notes payables~~2017, ~~with~~the Company paid a claim on a called bond in the ~~exception~~amount of $752,400, of which $722,780 was paid using collateral of the ~~bridge-financing~~principal. ~~arrangement~~The ~~and~~remaining ~~those~~$29,620 ~~secured~~was byestablished ~~FSC~~as ~~stock~~a ~~are~~salvage onreserve ~~demand~~to ~~terms~~be ~~and~~repaid ~~therefore~~with ~~current.~~periodic ~~The~~payments ~~terms~~from of the bond ~~bridge-financing~~principal. ~~arrangement~~As ~~(which~~of ~~was~~May ~~paid~~31, ~~off~~2017, inthe ~~2016)~~Company ~~are~~has ~~detailed~~received $3,000 in ~~the~~recovered ~~following~~salvage ~~paragraphs~~on this claim.

~~In accordance with~~ For the ~~terms~~years ofended ~~the first~~May ~~round bridge-financing of $2.5 million on March 10~~31, ~~2008,~~2017 ~~the holders of such notes were paid accrued interest-to date~~ and ~~issued~~ ~~5.00% of the Company's common shares. During 2009~~2016, ~~holders of~~ the ~~second round of bridge-financing notes of $1.0 million received 2.00% of the~~ Company's ~~common~~incurred ~~shares.~~loss ~~Upon~~adjustment ~~retirement~~expenses of ~~the notes subsequent to consummation of a qualified equity offering~~$7, ~~the~~597 ~~Company~~and was to issue to the holders of the bridge financing notes additional Company common stock that when added to the stock initially issued to the holders of the notes, would equal the note holders’ pro rata share of the applicable percentage of the outstanding common stock of the Company as follows: If the qualified financing consists of $~~50 million or more~~26,590, the holders of such notes will receive 28% of the common stock of the Company that would otherwise be retained by the holders of the Company's common shares immediately prior to the financing; if the qualified financing is for an amount less than $50 millionrespectively, ~~the percentage~~related ~~will be reduced on a sliding scale~~ to acosts ~~fraction~~ of ~~28%~~engaging ofexperts, ~~the~~attorney ~~amount~~fees, ~~retained by the holders of the Company's common shares (where the numerator is the amount of financing~~ and ~~the~~consultants ~~denominator~~for ispotential ~~$50 million)~~claims. ~~This~~These ~~feature~~costs ~~was~~were ~~analyzed~~charged ~~and~~against ~~determined to be an~~established ~~embedded~~case ~~derivative,~~reserves ~~but~~or ~~the~~bulk ~~value was considered to be immaterial, and therefore was not recorded~~reserves.

~~Beginning September 10, 2008, because~~As a ~~qualified~~result ~~financing had not been completed, the Company became required under the terms~~ of ~~the~~an ~~bridge~~examination ~~financing~~by ~~to issue 2.80% of~~ the ~~Company's~~West ~~outstanding~~Virginia ~~common~~Insurance ~~shares~~Commissioner, ~~and~~a ~~shall~~reserve ~~issue~~strengthening ~~2.80%~~in of the ~~Company's~~form ~~outstanding common shares upon each six-month anniversary date thereof until retirement~~ of ~~the notes. This feature was analyzed and determined to be~~ an ~~embedded~~increase ~~derivative,~~to ~~but~~ the ~~value~~Loss ~~was~~Reserve ~~considered to be immaterial and therefore~~ was ~~not~~ recorded ~~for~~in ~~the~~Fiscal ~~remaining~~2015 ~~shares~~and to2016 bein ~~issued. Pursuant to~~ the ~~terms~~amounts of ~~the~~approximately ~~Promissory Notes~~$800,000 ~~the first two of 20 equal quarterly installments of principal~~ and ~~interest payable thereunder were to have been paid on December 10~~$20, ~~2008 and March 10, 2009 (the “Initial Amortization Payments”)~~402. ~~As the result of upheavals and dislocations in the capital markets, the Company was unable to either refinance the indebtedness evidenced by the Promissory Notes or make the Initial~~

F-2724

Jacobs Financial Group, Inc.Notes to Consolidated Financial Statements Table of Contents

~~Notes~~At May to31, ~~Consolidated~~2017 ~~Financial~~and ~~Statements~~May 31, 2016, the reserve for losses and loss expenses consisted of:

Amortization Payments to the Holders when due; and an Event of Default (as defined in the Promissory Notes) occurred under the Promissory Notes as a result of the Company’s failure to pay the Initial Amortization Payments within 14 days after same became due and payable.

	2017			2016

Balance at beginning of year	$	2,491,479		$	2,254,035
Incurred policy losses-current year		494,659			243,632
Incurred policy losses-prior year		—			20,402
Paid policy losses – current year		(7,597	)		(1,590	)
Paid policy losses-prior year		—			(25,000	)
Balance at end of year	$	2,978,541		$	2,491,479
Reserve for anticipated salvage		(456,620	)		(475,000	)
Ceded losses outstanding		—			(84,700	)
Balance at year end, net of reserve	$	2,521,921			1,931,779

~~On June 5, 2009 the Company entered~~Note ~~into~~H an– ~~agreement~~Notes with the bridge lenders to forbear from exercising their rights and remedies arising from the Acknowledged Events of Default. The Original forbearance was amended October 13, 2009. As consideration for the forbearance, the Company issued 5,171,993 shares of Common stock, and pledged the stock of an inactive subsidiary of the Company, Crystal Mountain Water (CMW), as security for repayment of the loans.Payable

~~In anticipation of a proposed financing~~At ~~and~~May ~~as a condition thereof~~31, ~~the~~2017 ~~Company~~ and ~~each of the bridge lenders entered into a loan modification agreement dated February 25~~2016, ~~2012 which provided for modification of~~ the ~~Promissory Notes, including an extension of the term of the promissory notes, and subscription agreements in exchange for a partial cash payment to each bridge lender. On August 10, 2012, the~~ Company ~~entered~~had ~~into an agreement with~~ the ~~bridge~~following ~~lenders,~~secured ~~pursuant to which the bridge lenders formally agreed to forbear from exercising their rights~~ and ~~remedies~~unsecured ~~arising~~notes ~~from~~payable ~~the accumulated acknowledged events of default with respect~~ to the bridge loans until such date. As consideration for this forbearance, the Company entered into an Amended and Restated General Hypothecation and Pledge Agreement dated August 9, 2012 (the “August 2012 Pledge”), but effective September 23, 2011, granting to the bridge lenders as security for the repayment of the loans a lien and security interest in all of the Company’s shares of capital stock of First Surety Corporation. Under the August 2012 Pledge, the bridge lenders acknowledged that the effectiveness of certain of the rights and remedies provided by such agreement would be subject to prior approval by the Office of the Commissioner of Insurance for the State of West Virginia.individuals:

On July 9, 2014 the Company completed a $4,500,000 financing. In effect, FSI, a subsidiary of the Company, borrowed the funds at 8.00% interest with principal repayments on a ten year schedule. Proceeds of the borrowing were applied (i) to purchase from certain bridge lenders, after waiving interest of approximately $1.6 million, i.e. 50.7%, ($1.775 million face amount) of the outstanding senior $3.5 million financing dating from 2008, together with the associated collateral, (ii) to pay in full delinquent tax liabilities owed to the Internal Revenue Service and State of West Virginia, (iii) to pay an outstanding judgment, and (iv) to pay certain other current liabilities. FSI therefore became a member of the Bridge Loan and notified the Collateral Agent for the group of its purchase and majority holding. The transaction restored majority control of FSC to the Company.

		2017		2016

Secured notes payable to individuals; interest rate fixed @ 8%; secured by 500 shares FSC stock (including $1,248,920 related party for 2017 and $1,387,573 for 2016)	$	4,169,072	$	4,334,997
Secured notes payable to same individuals as above with same collateral; no interest;		235,784		235,000
Unsecured demand notes payable to individuals and others; no interest (including $75,000 related party in 2017 and $83,900 for 2016)		104,200		113,050
Unsecured demand notes payable to individuals and others; interest rate fixed @ 10% (including $75,000 to related party for 2017 and 2016)		1,548,372		1,506,859

Unsecured demand notes payable to individuals and others; interest rate fixed @ 12%		15,000		15,000

On August 5, 2015 the Company completed a $1,600,000 transaction which resulted in its acquisition of the remaining 49.3% ($1.725 million face amount) senior promissory notes of the $3.5 million financing dating from 2008, after waiving interest of approximately $1.8 million. Upon closing of the acquisition, the collateral securing the senior promissory notes, 1,000 shares (100%) of FSC and 1,000 shares (100%) of CMW, was released to the Company. This extinguishment of debt resulted in a gain from forgiven principal andF-25

~~F-28~~Jacobs Financial Group, Inc.Notes to Consolidated Financial Statements Table of Contents

Jacobs Financial Group, Inc.

Unsecured demand note payable to individuals; interest rate fixed @ 14%;		—		1,658

Secured demand note payable to individuals; interest rate fixed @ 10%; secured by accounts receivable for investment advisory fees		36,628		36,628

Unsecured demand note payable to individuals; interest rate fixed @ 2% (including $945,079 related party for 2017 and $785,000 for 2016)		1,045,079		885,000
Secured notes payable to individuals; interest rate fixed @ 10%; secured by shares FSC stock		249,250		249,250

Total	$	7,403,385	$	7,377,442

~~Notes~~During the year ended May 31, 2015, the Company borrowed $75,000 from a board member. Accrued related party interest of $5,000 is payable to ~~Consolidated~~this ~~Financial~~individual ~~Statements~~at May 31, 2017, with $0 and $3,068 interest expense for the years ended May 31,2017 and 2016, respectively.

~~interest~~During the inyear ended May 31, 2016, an individual who holds secured notes payables from the ~~amounts~~Company, became a greater than 10% owner of ~~$125~~outstanding common stock of the Company. During the year ended May 31,~~000~~ 2016, the Company borrowed additional money from this individual and entities controlled by this individual. Amounts owed to this individual (and the individual’s companies and relatives) at May 31, 2017 consisted of $1,~~795~~020,~~000~~079 in demand notes, ~~respectively~~$1,248,920 ~~for~~in anotes ~~total~~payable ~~gain~~secured ofby FSC stock, and $126,~~920,000~~853 in accrued interest.

~~The transaction was funded through~~All ~~sale~~notes ~~in a private offering of investment units (Units) that consisted of 5.00% of the outstanding shares of FSC and 500~~payables,~~000~~ ~~common shares~~with of the ~~Company.~~exception ~~$1,600,000 was raised through a combination~~ of ~~cash,~~those ~~partial~~secured ~~assignments~~by ofFSC ~~loans~~stock ~~back~~are toon ~~the~~demand ~~Company~~terms ~~that were debt of the Company~~ and ~~loans~~therefore ~~that~~current ~~are convertible into purchase of Units~~liabilities. ~~The Registrant’s Board of Directors has authorized the sale of up to nine Units, which, if completed, would include forty-five percent (45%) of the outstanding stock of FSC.~~

~~Scheduled~~On July ~~maturities~~9, ~~are~~2014 asthe ~~follows:~~Company completed a $4,500,000 financing. In effect, FSI, a subsidiary of the Company, borrowed the funds at 8.00% interest with principal repayments on a ten year schedule. Proceeds of the borrowing were applied (i) to purchase from certain bridge lenders, after waiving interest of approximately $1.6 million, i.e. 50.7%, ($1.775 million face amount) of the outstanding senior $3.5 million financing dating from 2008, together with the associated collateral, (ii) to pay in full delinquent tax liabilities owed to the Internal Revenue Service and State of West Virginia, (iii) to pay an outstanding judgment, and (iv) to pay certain other current liabilities. FSI therefore became a member of the Bridge Loan and notified the Collateral Agent for the group of its purchase and majority holding. The transaction restored majority control of FSC to the Company.

	2016
Fiscal year 2016-2017 (including demand notes)	$	2,696,038
Fiscal year 2017-2018 (including demand notes)		280,256
Fiscal year 2018-2019 (including demand notes)		366,392
Fiscal year 2019-2020 (including demand notes)		500,181
Fiscal year 2020-2021 (including demand notes)		541,696
Thereafter		2,477,391
Total	$	6,861,954

F-26

~~Note~~Jacobs IFinancial -Group, ~~Other~~Inc.Notes ~~Liabilities~~to Consolidated Financial Statements Table of Contents

AsOn August of5, ~~May~~2015 ~~31,~~the ~~2016~~Company completed a $1,600,000 transaction which resulted in its acquisition of the ~~Company~~remaining ~~had~~49.3% ($1.725 ~~accrued~~million ~~and~~face ~~withheld~~amount) ~~approximately~~senior promissory notes of the $~~31,000~~3.5 inmillion ~~Federal~~bridge ~~payroll~~loan ~~taxes~~financing ~~and~~dating from 2008, after waiving interest of approximately $311.8 million. Upon closing of the acquisition, the collateral securing the senior promissory notes, 1,000 inshares (100%) ~~estimated~~of ~~penalties~~FSC and ~~interest~~1,000 shares (100%) of CMW, was released to the Company. This extinguishment of debt resulted in a gain from ~~which~~forgiven ~~are~~principal ~~reflected~~and interest in the ~~financial~~amounts ~~statements~~of as$125,000 ~~other~~and ~~liabilities~~$1,795,000, respectively for a total gain on debt extinguishment of approximately $1,920,000.

AsThe transaction was funded through sale in a private offering of ~~May~~investment ~~31,~~units ~~2016,~~(Units) ~~the~~that ~~Company~~consisted ~~had~~of 5.00% of the outstanding ~~accrued~~shares ~~and~~of ~~withheld~~FSC ~~approximately~~and ~~$44~~500,000 incommon ~~West~~shares ~~Virginia~~of ~~payroll~~the ~~withholdings~~Company. ~~and approximately~~ $71,600,000 inwas ~~interest~~raised ~~and~~through ~~penalties~~a combination of cash, partial assignments ~~which~~of loans back to the Company that were debt of the Company and loans that are ~~reflected~~convertible ininto purchase of Units. The Registrant’s Board of Directors has authorized the ~~accompanying~~sale ~~financial~~of ~~statements~~up asto ~~other~~forty-nine ~~liabilities~~percent (49%)of the outstanding stock of FSC.

AsScheduled maturities as of May 31, ~~2016~~2017 ~~and~~are ~~May 31, 2015 the Company held approximately $2,068,192 and $2,352,427 respectively in its cash and investment accounts that was for the benefit of clients~~ as ~~collateral for their surety bonding program.~~follows:

Note J - Preferred Stock



Fiscal year 2017-2018 (including demand notes)	$	3,384,473
Fiscal year 2018-2019 (including demand notes)		208,387
Fiscal year 2019-2020 (including demand notes)		439,622
Fiscal year 2020-2021 (including demand notes)		512,495
Fiscal year 2021-2022 (including demand notes)		555,032
Thereafter		2,303,375
Total	$	7,403,384

~~Redeemable~~Note I ~~Preferred~~- ~~Stock~~Other Liabilities

OnAs of ~~December~~May 3031, ~~2005~~2017, ~~through a private placement,~~ the Company ~~issued~~had ~~350~~accrued ~~shares~~and ofwithheld 4%approximately ~~Non-Voting~~$172,000 ~~Series~~in AFederal ~~Preferred~~payroll ~~Stock~~taxes ~~(Series~~and Aapproximately ~~Preferred Stock)~~$32, ~~along with 1,050,~~000 ~~warrants~~in ~~for~~estimated ~~common~~penalties ~~shares~~and ~~of Company stock as additional consideration~~interest, ~~for~~which aare ~~cash~~reflected ~~investment~~ in the ~~amount~~financial ofstatements ~~$350,000,~~as inother ~~connection with~~liabilities ~~the~~and ~~Company's~~accrued ~~acquisition~~expenses and ofprofessional ~~FSC.~~fees ~~Holders of Series A Preferred Stock are entitled to participate in FSC's partially~~payable.

~~F-29~~As of May 31, 2017, the Company had accrued and withheld approximately $73,000 in West Virginia payroll withholdings and approximately $17,000 in interest and penalties, which are reflected in the accompanying financial statements as other liabilities and accrued expenses and professional fees payable.

~~Jacobs~~As of ~~Financial~~May ~~Group~~31, ~~Inc~~2016, the Company had accrued and withheld approximately $31,000 in Federal payroll taxes and approximately $31,000 in estimated penalties and interest, which are reflected in the financial statements as other liabilities and accrued expenses and professional fees payable.

~~Notes~~As of toMay ~~Consolidated~~31, ~~Financial~~2016, ~~Statements~~the Company had accrued and withheld approximately $44,000 in West Virginia payroll withholdings and approximately $7,000 in interest and penalties, which are reflected in the accompanying financial statements as other liabilities and accrued expenses and professional fees payable.

~~collateralized bonding programs,~~As ~~subject to continuing satisfaction~~ of ~~underwriting~~May ~~criteria~~31, ~~based~~2017 ~~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~~May ~~so long as the subscriber holds the Series A shares. Holders of the Series A Preferred Stock are entitled to receive~~31, ~~when and as declared by the board of directors~~2016, ~~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~~held ~~and pari passu with the Company's Series B Preferred and Series C Preferred Stock with respect to dividend rights and rights upon liquidation~~$21, ~~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~~926,872 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~~$2, ~~the Company~~068,192, ~~at the option of the holder~~respectively, ~~will~~in ~~redeem~~its ~~all~~cash ~~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~~investment ~~with respect to the shares of the Series A Preferred Stock of such holder to be redeemed. The conditional redemption~~accounts ~~shall~~as ~~not~~collateral ~~be available to any holder of Series A Preferred Stock~~ for soclients ~~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, 2016, the Company has issued 2,675 shares of Series A Preferred Stock in exchange for cash investments in the amount of $2,675,000, of which no shares were issued in fiscal 2016 or 2015.

The Company’s outstanding Series A Preferred stock matures on the seventh anniversary of the issuance date and thereafter holders of the Series A Stock are eligible to request that the Company redeem their Series A Shares. As of May 31, 2016, the Company has received requests for redemption of 1,026 shares of Series A Preferred. The aggregate amount to which the holders requesting redemption are entitled as of June 30, 2016, is $1,535,688.F-27

~~Under~~Jacobs ~~the~~Financial ~~terms of the Series A Preferred Stock~~Group, upon receipt of such a request, the Company’s Board was required to make a good faith determination regarding (A) whether the funds of the Company legally available for redemption of shares of Series A Stock are sufficient to redeem the total number of shares of Series A Stock to be redeemed on such date and (B) whether the amounts otherwise legally available for redemption would, if used to effect the redemption, not result in an impairment of the operations of the Insurance SubsidiaryInc.Notes ~~If the Board determines that there is a sufficiency of legally available funds~~ to ~~accomplish~~Consolidated ~~the~~Financial ~~redemption~~Statements ~~and~~Table ~~that the use~~ of such funds to affect the redemption will not result in an impairment of the operations of the Insurance Subsidiary, then the redemption shall occur on the Redemption Date. If, however, the Board determines either that there are not sufficient funds legally available to accomplish the redemption or that the use of such funds to effect the redemption will result in an impairment of the operations of theContents

FNote J -30 Preferred Stock

~~Jacobs~~Redeemable Preferred ~~Financial Group, Inc.~~Stock

~~Notes~~On December 30, 2005, through a private placement, the Company issued 350 shares of 4% Non-Voting Series A Preferred Stock (Series A Preferred Stock), along with 1,050,000 warrants for common shares of Company stock as additional consideration, for a cash investment in the amount of $350,000, in connection with the Company's acquisition of FSC. Holders of Series A Preferred Stock are entitled to ~~Consolidated~~participate ~~Financial~~in ~~Statements~~FSC's partially collateralized bonding programs, subject to continuing satisfaction of underwriting criteria, based upon the bonding capacity of FSC attributable to capital reserves of FSC established with the subscription proceeds (i.e., bonding capacity equal to ten times subscription proceeds) and for so long as the subscriber holds the Series A shares. Holders of the Series A Preferred Stock are entitled to receive, when and as declared by the board of directors, cumulative preferential cash dividends at a rate of four percent of the $1,000 liquidation preference per annum (equivalent to a fixed annual rate of $40 per share). The Series A Preferred Stock ranks senior to the Company's common stock and pari passu with the Company's Series B Preferred and Series C Preferred Stock with respect to dividend rights and rights upon liquidation, dissolution or winding up of the Company. The holder may redeem the Series A Preferred Stock on or after the seventh anniversary of the Issue Date, if the holder provides a written statement to the Company that it will no longer require surety bonds issued by the Company's insurance subsidiary (FSC) under its partially collateralized bonding programs and, if no such surety bonds are then outstanding, the Company, at the option of the holder, will redeem all or any portion of the Series A Preferred Stock of such holder at a price per share equal to the Series A Preferred Stock Issue Price plus all accrued and unpaid dividends with respect to the shares of the Series A Preferred Stock of such holder to be redeemed. The conditional redemption shall not be available to any holder of Series A Preferred Stock for so long as surety bonds of the Company's insurance subsidiary issued on a partially collateralized basis remain outstanding for the benefit of such holder, and upon redemption, such holder shall no longer be eligible to participate in the partially collateralized bonding programs of the insurance subsidiary. The Company is authorized to issue up to 1,000,000 shares of the Series A Preferred Stock. As of May 31, 2017, the Company has issued 2,675 shares of Series A Preferred Stock in exchange for cash investments in the amount of $2,675,000, of which no shares were issued in fiscal 2017 or 2016.

~~Insurance Subsidiary, then (X) the~~The Company’s ~~shall~~outstanding notify the holders of shares that would otherwise have been redeemed of such fact and the consequences as provided in this paragraph, (Y) the Company will use those funds which are legally available therefor and which would not result in an impairment of the operations of the Insurance Subsidiary to redeem the maximum possible number of shares of Series A ~~Stock~~Preferred ~~for~~stock ~~which~~matures ~~Redemption Notices~~on ~~have been received ratably among~~ the ~~holders~~seventh ofanniversary ~~such shares to be redeemed based upon their holdings~~ of ~~such shares, and (Z) thereafter, until such shares are redeemed in full,~~ the ~~dividends~~issuance ~~accruing~~date and ~~payable~~thereafter ~~on such shares of Series A Stock to~~holders ~~be redeemed shall be increased by 2%~~ of the Series A ~~Face Amount, with the amount of such increase (i.e., 2% of the Series A Face Amount) to be satisfied by distributions on each Dividend Payment Date of shares of Common~~ Stock ~~having~~are aeligible ~~value (determined by reference~~ to ~~the~~request ~~average~~that ~~closing price of such Common Stock over~~ the ~~preceding~~Company 20redeem ~~trading~~their ~~days) equal to the amount of such increase. The shares of~~ Series A ~~Stock not redeemed shall remain outstanding and entitled to all the rights and preferences provided herein~~Shares. At ~~any~~As ~~time~~of ~~thereafter~~May ~~when~~31, ~~additional~~2017, ~~funds of~~ the Company ~~are~~has received ~~legally~~requests ~~available~~ for ~~the~~ redemption of ~~shares of Series A Stock and such redemption will not result in an impairment of operations of the Insurance Subsidiary~~1,026 ~~such funds will immediately be used to redeem the balance of the~~ shares of Series A ~~Stock to be redeemed~~Preferred. NoThe ~~dividends~~aggregate oramount ~~other~~to distributions shall be declared or paid on, nor shall the Company redeem, purchase or acquire any shares of, the Common Stock or any other class or series of Junior Securities or Equal Ranking Preferred of the Company unless the Redemption Price per share of all shares for which ~~Redemption Notices have been given shall have been paid in full, provided that~~ the ~~redemption~~holders ~~price~~requesting ~~of any Equal Ranking Preferred subject to~~ redemption ~~shall~~are beentitled ~~paid~~as ~~on a pari passu basis with the Redemption Price~~ of ~~the~~June ~~Series A Stock subject to redemption in accordance herewith. Until the Redemption Price for each share of Series A Stock elected to be redeemed shall have been paid in full~~30, ~~such share of Series A Stock shall remain outstanding for all purposes and entitle the holder thereof to all the rights and privileges provided herein~~2017, ~~and~~is ~~Dividends shall continue to accrue and~~$1, ~~if unpaid prior to the date such shares are redeemed~~598, ~~shall be included as part of the Redemption Price~~043.

~~The~~Under the terms of the Series A Preferred Stock, upon receipt of such a request, the Company’s Board was required to make a good faith determination regarding (A) whether the funds of ~~Directors~~the Company legally available for redemption of shares of Series A Stock ~~determined~~are ~~based~~sufficient to redeem the total number of shares of Series A Stock to be redeemed on such date and (B) whether the ~~criteria~~amounts otherwise ~~established~~legally ~~under~~available for redemption would, if used to effect the ~~terms~~redemption, not result in an impairment of the ~~Preferred~~operations of ~~Stocks~~the Insurance Subsidiary. If the Board determines that there ~~were~~is ~~insufficient~~a ~~funds~~sufficiency of legally available funds to accomplish the ~~for~~redemption and that the use of such funds to affect the redemption will not result in an impairment of ~~Preferred~~the ~~Stocks~~operations of the Insurance Subsidiary, then the redemption shall occur on the Redemption Date. If, however, the Board determines either that there

~~On December 30, 2005, through a private placement, the Company issued 3,980 shares of 8% Non~~F-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 4,891 shares of Series B Preferred Stock, along with 24,452,996 warrants for common shares of Company stock as additional consideration, for a conversion of $3,667,949 of indebtedness of the Company, in connection with the Company's acquisition of FSC. Holders of the Series B Preferred Stock are entitled to receive, when and as declared by the board of directors, cumulative preferential cash dividends at a rate of eight percent of the $1,000 liquidation preference per annum (equivalent to a fixed annual rate of $80 per share). The Series B Preferred Stock ranks senior to the Company's common stock and pari passu with the Company's Series A Preferred and Series C Preferred Stock with respect to dividend28

~~F-31~~Jacobs Financial Group, Inc.Notes to Consolidated Financial Statements Table of Contents

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

~~Notes~~The Company’s toBoard ~~Consolidated~~of ~~Financial~~Directors ~~Statements~~determined based on the criteria established under the terms of the Preferred Stocks that there were insufficient funds available for the redemption of Preferred Stocks.

~~rights~~On December ~~and~~30, ~~rights upon liquidation~~2005, ~~dissolution~~ orthrough ~~winding~~a upprivate ofplacement, the Company. ~~Each~~issued ~~share~~3,980 shares of ~~the~~8% Non-Voting Series B ~~Preferred~~Convertible Preferred Stock is(Series ~~convertible~~B atPreferred ~~the option of the holder~~Stock), at ~~any~~along ~~time~~with ~~after the original issue date~~19, ~~into 1~~900,000 ~~fully~~warrants ~~paid~~for ~~and~~common ~~non-assessable~~ shares of ~~the~~ Company's ~~common~~ stock atas aadditional ~~conversion~~consideration, ~~price~~for ofa ~~$1.00~~cash ~~per~~investment ~~common~~in ~~share. The Company may redeem~~ the ~~Series~~amount Bof ~~Preferred~~$2,985,000; ~~Stock~~and atissued ~~any~~4,891 ~~time~~shares ~~after the first anniversary~~ of ~~the~~ ~~Original Issue Date at a price per share equal to the~~ Series B Preferred Stock, ~~Face~~along ~~Amount~~with ~~plus all accrued and unpaid dividends~~24,452,996 ~~with~~warrants ~~respect~~for tocommon ~~the~~ shares of ~~the~~Company ~~Series~~stock Bas ~~Preferred~~additional ~~Stock~~consideration, offor ~~such~~a ~~holder~~conversion toof be$3,667,949 ~~redeemed.~~of Toindebtedness ~~the~~of ~~extent that~~ the ~~Series B Preferred~~ ~~Stock~~Company, ~~has~~in ~~not~~connection ~~been~~with ~~redeemed by~~ the Company,'s ~~the~~acquisition ~~holder~~of ~~may~~FSC. ~~redeem~~Holders of the Series B Preferred Stock onare orentitled ~~after~~to ~~the fifth anniversary~~receive, ofwhen ~~the~~and ~~Original~~as ~~Issue~~declared ~~Date~~by ~~at a price per share equal to~~ the ~~Series~~board Bof ~~Preferred~~directors, ~~Stock~~cumulative ~~Face~~preferential ~~Amount~~cash ~~plus all accrued and unpaid~~ dividends ~~with~~ ~~respect~~at toa ~~the~~rate ~~shares~~ of ~~the~~eight ~~Series~~percent ~~B Preferred Stock~~ of ~~such~~the ~~holder~~$1,000 liquidation topreference beper ~~redeemed.~~annum ~~The~~(equivalent ~~Company is authorized~~ to ~~issue~~a ~~up to~~fixed ~~10,000~~annual ~~shares~~rate of ~~the~~$80 ~~Series~~per ~~B Preferred Stock~~share). The ~~Company has not issued any additional shares of~~ Series B Preferred ~~Stock during fiscal 2016.~~

The Company’s outstanding Series B Preferred stock matured on December 30, 2010, meaning that the holders of the Series B Stock that had not requested exchange to the Company’s Series C Preferred stock became entitled to request that the Company redeem their Series B Shares. As part of the exchange to Series C Preferred Stock in September 2009, the shares that did not exchange were treated as a liability on the balance sheet. As of May 31, 2016, of the 2,817 shares of Series B Preferred that remained outstanding, the Company has received requests for redemption of 2,219 shares of Series B Preferred. The aggregate amount to which the holders requesting redemption are entitled as of June 30, 2016, is $5,099,573.F-29

~~Under~~Jacobs ~~the~~Financial ~~terms of the Series B Preferred Stock~~Group, upon receipt of such a request, the Company’s Board was required to make a good faith determination regarding (A) whether the funds of the Company legally available for redemption of shares of Series B Stock are sufficient to redeem the total number of shares of Series B Stock to be redeemed on such date and (B) whether the amounts otherwise legally available for redemption would, if used to effect the redemption, not result in an impairment of the operations of the Insurance SubsidiaryInc.Notes ~~If the Board determines that there is a sufficiency of legally available funds~~ to ~~accomplish~~Consolidated ~~the~~Financial ~~redemption~~Statements ~~and~~Table ~~that the use~~ of such funds to affect the redemption will not result in an impairment of the operations of the Insurance Subsidiary, then the redemption shall occur on the Redemption Date. If, however, the Board determines either that there are not sufficient funds legally available to accomplish the redemption or that the use of such funds to effect the redemption will result in an impairment of the operations of the Insurance Subsidiary, then (X) the Company shall notify the holders of shares that would otherwise have been redeemed of such fact and the consequences as provided in this paragraph, (Y) the Company will use those funds which are legally available therefor and which would not result in an impairment of the operations of the Insurance Subsidiary to redeem the maximum possible number of shares of Series B Stock for which Redemption Notices have been received ratably among the holders of such shares to be redeemed based upon their holdings of such shares, and (Z) thereafter, until such shares are redeemed in full, the dividends accruing and payable on such shares of Series B Stock to be redeemed shall be increased by 2% of the Series B Face Amount, with the amount of such increaseContents

FStock ranks senior to the Company's common stock and pari passu with the Company's Series A Preferred and Series C Preferred Stock with respect to dividend rights and rights upon liquidation, dissolution or winding up of the Company. Each share of the Series B Preferred Stock is convertible at the option of the holder, at any time after the original issue date, into 1,000 fully paid and non-32assessable shares of the Company's common stock at a conversion price of $1.00 per common share. The Company may redeem the Series B Preferred Stock at any time after the first anniversary of the Original Issue Date at a price per share equal to the Series B Preferred Stock Face Amount plus all accrued and unpaid dividends with respect to the shares of the Series B Preferred Stock of such holder to be redeemed. To the extent that the Series B Preferred Stock has not been redeemed by the Company, the holder may redeem the Series B Preferred Stock on or after the fifth anniversary of the Original Issue Date at a price per share equal to the Series B Preferred Stock Face Amount plus all accrued and unpaid dividends with respect to the shares of the Series B Preferred Stock of such holder to be redeemed. The Company is authorized to issue up to 10,000 shares of the Series B Preferred Stock. The Company did not issue any additional shares of Series B Preferred Stock during fiscal 2017.

~~Jacobs~~The Company’s ~~Financial~~outstanding ~~Group~~Series B Preferred stock matured on December 30, ~~Inc~~2010, meaning that the holders of the Series B Stock that had not requested exchange to the Company’s Series C Preferred stock became entitled to request that the Company redeem their Series B Shares. As part of the exchange to Series C Preferred Stock in September 2009, the shares that did not exchange were treated as a liability on the balance sheet. As of May 31, 2017, of the 2,817 shares of Series B Preferred that remained outstanding, the Company has received requests for redemption of 2,219 shares of Series B Preferred. The aggregate amount to which the holders requesting redemption are entitled as of June 30, 2017, is $5,519,942.

~~Notes~~Under the terms of the Series B Preferred Stock, upon receipt of such a request, the Company’s Board was required to ~~Consolidated~~make ~~Financial~~a ~~Statements~~good faith determination regarding (A) whether the funds of the Company legally available for redemption of shares of Series B Stock are sufficient to redeem the total number of shares of Series B Stock to be redeemed on such date and (B) whether the amounts otherwise legally available for redemption would, if used to effect the redemption, not result in an impairment of the operations of the Insurance Subsidiary. If the Board determines that there is a sufficiency of legally available funds to accomplish the redemption and that the use of such funds to affect the redemption will not result in an impairment of the operations of the Insurance Subsidiary, then the redemption shall occur on the Redemption Date. If, however, the Board determines either that there are not sufficient funds legally available to accomplish the redemption or that the use of such funds to effect the redemption will result in an impairment of the operations of the Insurance Subsidiary, then (X) the Company shall notify the holders of shares that would otherwise have been redeemed of such fact and the consequences as provided in this paragraph, (Y) the Company will use those funds which are legally available therefor and which would not result in an impairment of the operations of the Insurance Subsidiary to redeem the maximum possible number of shares of Series B Stock for which Redemption Notices have been received ratably among the holders of such shares to be redeemed based upon their holdings of such shares, and (Z) thereafter, until such shares are redeemed in full, the dividends accruing and payable on such shares of Series B Stock to be redeemed shall be increased by 2% of the Series B Face Amount, with the amount of such increase (i.e., 2% of the Series B Face Amount) to be satisfied

(i.e., 2% of the Series B Face Amount) to be satisfied by distributions on each Dividend Payment Date of shares of Common Stock having a value (determined by reference to the average closing price of such Common Stock over the preceding 20 trading days) equal to the amount of such increase. The shares of Series B Stock not redeemed shall remain outstanding and entitled to all the rights and preferences provided herein. At any time thereafter when additional funds of the Company are legally available for the redemption of shares of Series B Stock and such redemption will not result in an impairment of operations of the Insurance Subsidiary, such funds will immediately be used to redeem the balance of the shares of Series B Stock to be redeemed. No dividends or other distributions shall be declared or paid on, nor shall the Company redeem, purchase or acquire any shares of, the Common Stock or any other class or series of Junior Securities or Equal Ranking Preferred of the Company unless the Redemption Price per share of all shares for which Redemption Notices have been given shall have been paid in full, provided that the redemption price of any Equal Ranking Preferred subject to redemption shall be paid on a pari passu basis with the Redemption Price of the Series B Stock subject to redemption in accordance herewith. Until the Redemption Price for each share of Series B Stock elected to be redeemed shall have been paid in full, such share of Series B Stock shall remain outstanding for all purposes and entitle the holder thereof to all the rights and privileges provided herein, and Dividends shall continue to accrue and, if unpaid prior to the date such shares are redeemed, shall be included as part of the Redemption Price.F-30

~~The~~Jacobs ~~Company’s~~Financial ~~Board~~Group, ofInc.Notes ~~Directors determined~~to ~~based~~Consolidated onFinancial ~~the~~Statements ~~criteria~~Table ~~established under the terms~~ of ~~the Series B Preferred Stock that there were insufficient funds available for the redemption of Series B Stock.~~Contents

by distributions on each Dividend Payment Date of shares of Common Stock having a value (determined by reference to the average closing price of such Common Stock over the preceding 20 trading days) equal to the amount of such increase. The shares of Series B Stock not redeemed shall remain outstanding and entitled to all the rights and preferences provided herein. At any time thereafter when additional funds of the Company ~~experienced~~are alegally ~~loss~~available ~~after~~for the redemption of shares of Series B Stock and such redemption will ~~accretion~~not result in an impairment of ~~mandatorily~~operations ~~redeemable~~of ~~convertible~~the ~~preferred~~Insurance ~~stock~~Subsidiary, ~~and~~such ~~accrued~~funds will immediately be used to redeem the balance of the shares of Series B Stock to be redeemed. No dividends or other distributions shall be declared or paid on, ~~mandatorily~~nor ~~redeemable~~shall ~~preferred~~the Company ~~stock~~redeem, purchase or acquire any shares of, the Common Stock or any other class or series of Junior Securities or Equal Ranking Preferred of ~~$108,386~~the Company unless the Redemption Price per share of all shares for which Redemption Notices have been given shall have been paid in ~~fiscal~~full, ~~2016~~provided asthat ~~compared~~the ~~with~~redemption price of any Equal Ranking Preferred subject to redemption shall be paid on a ~~loss~~pari ~~after~~passu ~~accretion~~basis with the Redemption Price of ~~mandatorily~~the ~~redeemable~~Series ~~convertible~~B ~~preferred~~Stock ~~stock,~~subject ~~and~~to ~~accrued~~redemption in accordance herewith. Until ~~dividends~~the onRedemption ~~mandatorily~~Price ~~redeemable~~for ~~preferred~~each ~~stock~~share of $1Series B Stock elected to be redeemed shall have been paid in full,~~669~~ such share of Series B Stock shall remain outstanding for all purposes and entitle the holder thereof to all the rights and privileges provided herein,~~587~~ and inDividends ~~fiscal~~shall ~~2015~~continue to accrue and, if unpaid prior to the date such shares are redeemed, shall be included as part of the Redemption Price.

~~Equity~~The Company’s Board of Directors determined based on the criteria established under the terms of the Series B Preferred Stock that there were insufficient funds available for the redemption of Series B Stock.

AsThe Company experienced a ~~means~~loss after accretion of ~~alleviating~~mandatorily ~~obligations~~redeemable convertible preferred stock, and accrued dividends on ~~associated~~mandatorily redeemable preferred stock of $1,357,656 in fiscal 2017 as compared with ~~the~~a ~~Company's~~loss ~~Series~~after Baccretion of mandatorily redeemable convertible preferred stock, and accrued dividends on mandatorily redeemable preferred stock of $108,386 in fiscal 2016.

~~F-33~~Equity Preferred Stock

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

~~Notes~~1. Designation. The shares of such series of Preferred Stock are designated “Series C Preferred Stock” (referred to ~~Consolidated~~herein ~~Financial~~as ~~Statements~~the “Series C Stock”). The date on which the first share of Series C Stock is issued shall hereinafter be referred to as the “Original Issue Date”.

Preferred Stock, which by its terms matured at the end of 2010, management proposed a recapitalization to assist in stabilizing the financial position of the Company. The Company’s Certificate of Incorporation provides for two classes of capital stock, known as common stock, $0.0001 par value per share (the “Common Stock”), and preferred stock, $0.0001 par value per share (the “Preferred Stock”). The Company’s Board is authorized by the Certificate of Incorporation to provide for the issuance of the shares of Preferred Stock in series, and by filing a certificate pursuant to the applicable law of the State of Delaware, to establish from time to time the number of shares to be included in such series and to fix the designations, preferences and rights of the shares of each such series and the qualifications, limitations and restrictions thereof. The Board deemed it advisable to designate a Series C Preferred Stock and fixed and determined the preferences, rights, qualifications, limitations and restrictions relating to the Series C Preferred Stock as follows:F-31

~~1. Designation. The~~Jacobs ~~shares~~Financial ofGroup, ~~such~~Inc.Notes ~~series of Preferred Stock are designated “Series C Preferred Stock” (referred~~ to ~~herein~~Consolidated asFinancial ~~the~~Statements ~~“Series~~Table ~~C Stock”). The date on which the first share~~ of ~~Series C Stock is issued shall hereinafter be referred to as the “Original Issue Date”.~~Contents

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

3. Ranking. The Series C Stock ranks, (a) as to dividends and upon Liquidation senior and prior to the Common Stock and all other equity securities to which the Series C ranks prior, with respect to dividends and upon Liquidation (collectively, “Junior Securities”), (b) pari passu with the Corporation’s Series A Preferred Stock, par value $0.0001 per share (the “Series A Stock”), the Corporation’s Series B Stock, and any other series of Preferred Stock subsequently established by the Board with equal ranking (any such other series of Preferred Stock, together with the Series C Stock, the Series B Stock and Series A Stock are collectively referred to as the “Equal Ranking Preferred”) and (c) junior to any other series of Preferred Stock subsequently established by the Board with senior ranking.

4. Dividends.

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

~~F-34~~The Recapitalization consisted of the exchange of Series B Shares for a combination of Series C Shares and Common Stock. For each Series B Share, the participating holder received (i) one Series C Share and (ii) 2,000 shares of JFG Common Stock (for no additional consideration).

~~Jacobs~~For the ~~Financial~~year ~~Group~~ended May 31, ~~Inc~~2010, 6,805 shares of Series B Stock were surrendered and exchanged for 6,805 shares of Series C Stock. This exchange amounted to $6,269,051 of carrying value of Series B stock being exchanged for Series C and Common Stock. 13,609,872 shares of Common Stock were issued to the Series C Stock holders at the rate of 2,000 Common shares for each

~~Notes to Consolidated Financial Statements~~F-32

BJacobs ~~Amount)~~Financial ~~shall be allocated and paid with respect to the shares of Series C Preferred and any other Equal Ranking Preferred~~Group, first, among the shares of Equal Ranking Preferred pro rata in accordance with the amounts of dividends accruing with respect to such shares at the current Dividend Payment Date, and, then, any additional amounts available for distribution in accordance with the accrued, but unpaid, dividends (and the Series B Amount then outstanding) at each prior Dividend Payment Date, in reverse chronological order, with respect to all shares of the Equal Ranking Preferred then outstanding in accordance with amounts accrued, but unpaidInc. ~~For~~Notes ~~purposes hereof, the term “Series B Original Issue Date” shall mean, with respect~~ to ~~any~~Consolidated ~~share~~Financial ofStatements ~~Series C~~Table ~~Stock issued by the Corporation in exchange for a share~~ of ~~Series B Stock, the date on which the Corporation originally issued such share of Series B Stock.~~ Contents

~~The~~exchanged ~~Recapitalization~~Series B ~~consisted~~Stock, of with the ~~exchange~~related ofcost ~~Series~~associated Bwith ~~Shares~~the ~~for~~Common aissuance ~~combination~~offsetting ofthe Series C ~~Shares~~carrying ~~and~~value ~~Common~~by ~~Stock~~$265,120. ~~For~~ ~~each~~The ~~Series~~shares were Bvalued ~~Share,~~at approximately $.01948 per share based on the ~~participating~~average quoted closing price of the Company's stock for the 20-day ~~holder~~period ~~received~~proceeding ~~(i)~~the ~~one~~date of the transaction. Series C ~~Share~~stock may be redeemed by the Company but does not have a fixed maturity date and, ~~(ii)~~thus, is classified as permanent equity. For the year ending May 31, 2016, 2,~~000~~817 shares of ~~JFG~~Series ~~Common~~B Stock ~~(for~~had nonot ~~additional consideration)~~been exchanged.

~~For the year ended May 31, 2010,~~The ~~6,805~~accrual ~~shares~~ of ~~Series~~dividends Bon ~~Stock~~the ~~were~~equity ~~surrendered~~preferred ~~and~~stock ~~exchanged~~resulted ~~for~~in ~~6,805~~a ~~shares~~charge ~~of Series C Stock. This exchange amounted~~ to ~~$6,269,051~~common ofstockholders’ ~~carrying~~equity ~~value of Series B stock being exchanged for Series C~~ and ~~Common~~a ~~Stock.~~credit ~~13,609,872 shares of Common Stock were issued~~ to the ~~Series C Stock holders at the rate of 2,000 Common shares for each exchanged Series B Stock, with the related~~ ~~cost~~equity ~~associated with the Common issuance offsetting the Series C carrying value by $265,120. The shares were valued at approximately $.01948 per share based on the average quoted closing price~~ of ~~the~~equity ~~Company's~~preferred stock ~~for the 20-day period proceeding the date~~ of ~~the~~ ~~transaction.~~$1,256,829 ~~Series~~in Cfiscal ~~stock~~2017 ~~may~~as becompared ~~redeemed~~with ~~by the Company but does not have~~ a ~~fixed~~charge ~~maturity~~to ~~date~~common ~~and,~~stockholders’ ~~thus, is classified as permanent~~ equity. ~~For the year ending May 31~~of $1, ~~2016~~164,143 ~~2,817~~in ~~shares~~fiscal ~~of Series B Stock had not been exchanged~~2016.

~~The accrual of dividends on the equity~~Dividend ~~preferred~~Preference ~~stock resulted in a charge to common stockholders’ equity~~ and ~~a credit to the equity of equity preferred stock of $1,164,143 in fiscal 2016 as compared with a charge to common stockholders’ equity of $1,072,461 in fiscal 2015.~~Accretion

~~Dividend~~The Series ~~Preference~~A ~~and~~Shares ~~Accretion~~are entitled to receive cumulative dividends at the compounding rate of 4.00% per annum.

The Series AB Shares have an 8.0% per annum compounding dividend preference, are ~~entitled to~~convertible ~~receive~~into ~~cumulative~~Common ~~dividends~~Shares of JFG at the ~~compounding~~option of ~~rate~~the holders at a conversion price of 4$1.00% per ~~annum~~Share (as adjusted for dilution) and, to the extent not converted, must be redeemed by the Corporation at any time after December 31, 2010 at the option of the holder. Any such redemption is subject to legal constraints, such as the availability of capital or surplus out of which to pay the redemption, and to a determination by the Board of Directors that the redemption will not impair the operations of First Surety Corporation.

The Series BC Shares issued in the Recapitalization have anthe same 8.0% per annum compounding dividend preference, ~~are~~and ~~convertible~~carry ~~into~~over from ~~Common~~the Series B Shares ofthe ~~JFG~~same ataccrued but unpaid dividends. While dividends had never been declared on the ~~option~~Series ofB shares, they had been accrued, increasing the ~~holders~~dividend atpreference aand ~~conversion~~ the redemption price and liquidity preference of $1such shares and increasing the liability represented thereby based upon the Series B Shares fixed maturity date.00 ~~per~~The ~~Share~~accrued (asbut undeclared) ~~adjusted~~dividends ~~for~~associated ~~dilution)~~with ~~and,~~the Series C exchange amounted to $2,295,624 and are included in the ~~extent~~total ~~not~~amount exchanged ~~converted~~for Series C Shares. Unlike the Series B Shares with their fixed maturity date, ~~must~~the beSeries ~~redeemed~~C byShares are permanent equity, with accruing dividends only increasing the ~~Corporation~~preference atamount ~~any~~that must be satisfied before junior securities may ~~time~~participate ~~after~~in ~~December~~dividends 31or on liquidation. Accordingly, ~~2010~~the ateffect of the ~~option~~accrual of dividends with respect to the ~~holder. Any~~Series ~~such~~C Shares ~~redemption~~on the Company’s balance sheet is ~~subject~~to increase the aggregate claim of the Series C Shares on the equity of the corporation and to ~~legal~~increase ~~constraints~~the deficit in common equity, ~~such~~while ashaving no effect on the ~~availability~~ net equity of ~~capital~~the orcorporation ~~surplus~~as ~~out~~a whole. The entitlement of ~~which~~the Series C Shares to ~~pay~~a ~~the~~priority ~~redemption,~~in relation to junior securities with respect to dividends and on liquidation does not create an obligation to athe ~~determination~~Company and therefore no liability is recorded until the dividends are declared by the Board of ~~Directors~~the ~~that~~Company. The Series C Shares are pari passu with the Corporation’s Series A Preferred ~~redemption~~Stock and Series B Shares (to the extent any remain outstanding following the Recapitalization) and no dividends or other distributions will ~~not~~be ~~impair~~paid upon Common Shares or any other class of Shares that is junior in priority to the ~~operations~~Series C Preferred while dividends are in arrears. In addition, the Series C Shares are convertible into Common Shares of ~~First~~JFG ~~Surety~~at ~~Corporation~~the option of the holders at a conversion price of $0.10 per

F-3533

Jacobs Financial Group, Inc.Notes to Consolidated Financial Statements Table of Contents

~~Notes~~Share. The toSeries ~~Consolidated~~C ~~Financial~~Shares ~~Statements~~may be redeemed by the Corporation, at its option, when it is in a financial position to do so.

~~The Series C Shares issued in the~~Holders ~~Recapitalization~~of ~~have~~over ~~the same 8.0~~70% ~~per~~of ~~annum compounding dividend preference and carry over from~~ the outstanding Series B Preferred Shares ~~the~~elected ~~same accrued~~to ~~but~~participate ~~unpaid~~in ~~dividends. While dividends had never been declared on~~ the ~~Series~~recapitalization. BThe shares, ~~they had been accrued, increasing the dividend preference and the redemption price and liquidity preference~~ of ~~such shares and increasing the liability represented thereby based upon the~~ Series B ~~Shares~~Preferred ~~fixed~~Shareholders ~~maturity~~that ~~date.~~chose ~~The~~not ~~accrued (but undeclared) dividends associated with the Series C exchange amounted~~ to ~~$2,295,624~~convert ~~and~~ are ~~included~~listed in the ~~total~~Liabilities ~~amount~~section ~~exchanged~~of ~~for Series C Shares. Unlike~~ the ~~Series~~Balance ~~B Shares with their fixed maturity date~~Sheet, ~~the~~and ~~Series~~therefore ~~C Shares are permanent equity, with accruing dividends only increasing~~ the ~~preference~~ ~~amount~~accretion ~~that~~and ~~must be satisfied before junior securities may participate in~~ dividends orassociated ~~on liquidation. Accordingly, the effect of the accrual of dividends~~ with ~~respect to~~ the Series CB ~~Shares~~stock onafter ~~the~~November ~~Company’s~~30, ~~balance~~2009 ~~sheet~~are isdeductions tofrom ~~increase~~net ~~the~~income. ~~aggregate claim~~Dividends ~~of the~~ on Series CB ~~Shares~~mandatorily onredeemable ~~the~~preferred ~~equity~~stock ofdeducted ~~the~~from ~~corporation~~net ~~and~~income amounted to ~~increase the deficit in common equity~~$522,099 ~~while~~for ~~having no effect on~~ the ~~net~~year ~~equity~~ended ofMay ~~the~~31, ~~corporation as a whole~~2017. The ~~entitlement~~remaining ~~of the~~ Series CB ~~Shares~~shares tonot aconverted ~~priority~~were inaccreted ~~relation~~from tocarrying ~~junior~~value ~~securities with respect~~ to ~~dividends and on liquidation does not create an obligation to~~ the ~~Company~~face ~~and~~amount ~~therefore~~for ~~no liability is recorded until~~ the ~~dividends~~5 ~~are~~year ~~declared~~period byfrom the date ~~Board~~ of ~~the Company~~issuance. ~~The~~ Series C ~~Shares~~stock ~~are~~has ~~pari~~no ~~passu~~accretion. ~~with~~There ~~the~~were ~~Corporation’s~~no ~~Series A~~shares ~~Preferred~~of ~~Stock and~~ Series B ~~Shares~~Stock ~~(to~~surrendered ~~the extent any remain outstanding following the Recapitalization) and no dividends~~ or ~~other~~ ~~distributions~~exchanged ~~will be paid upon Common Shares or any other class of Shares that is junior~~ in ~~priority to~~ the ~~Series C Preferred~~year ~~while~~ended ~~dividends~~May ~~are in arrears. In addition~~31, ~~the Series C Shares are convertible into Common Shares of JFG at the option of the holders at a conversion price of $0~~2016.~~10 per Share. The Series C Shares may be redeemed by the Corporation, at its option, when it is in a financial position to do so.~~

~~Holders~~During the ofyear ~~over~~ended ~~70%~~May of31, ~~the~~2012, ~~outstanding~~ two holders of Series BA ~~Preferred~~stock ~~Shares~~released ~~elected~~all toof ~~participate~~their inoutstanding ~~the~~bonds ~~recapitalization~~held with FSC. ~~The~~These shares of Series BA Preferred Shareholders ~~that chose not to convert~~ are listed in the ~~Liabilities~~liability section of the Balance Sheet, ~~and~~as ~~therefore~~of ~~the~~May ~~accretion~~31, ~~and~~2017, ~~dividends~~in ~~associated with~~ the ~~Series~~amount of B$1,738,792, ~~stock~~which ~~after~~consists ~~November~~of ~~30,~~the ~~2009~~fully ~~are~~accreted ~~deductions~~$1,126,000 ~~from~~face ~~net~~value ~~income.~~of ~~Dividends~~stock onand ~~Series~~$612,792 Bin ~~mandatorily~~dividends ~~redeemable~~payable. ~~preferred~~The dividends ~~stock~~associated ~~deducted~~with ~~from~~these ~~net~~shares ~~income~~of ~~amounted~~Series toA ~~$483,596~~stock for the year ended May 31, ~~2016.~~2017, ~~The~~is ~~remaining~~a ~~Series~~deduction ~~B shares not converted were accreted~~ from ~~carrying~~net ~~value~~income toin the ~~face~~ amount ~~for the 5 year period from the date~~ of ~~issuance~~ $67,847. ~~Series~~There Cwas ~~stock has~~ no current accretion~~. There~~ ~~were~~on nothese shares of Series BA ~~Stock surrendered or exchanged in the year ended May 31, 2016~~stock.

~~During~~As of ~~the year ended~~ May 31, ~~2012, two~~2017 ~~holders~~the ofCompany ~~Series~~has Achosen ~~stock~~to ~~released~~defer ~~all~~payment of ~~their~~dividends ~~outstanding~~on ~~bonds held with FSC. These shares of~~ Series A Preferred ~~Shareholders are~~Stock ~~listed~~with insuch ~~the~~accrued ~~liability~~and ~~section~~unpaid dividends ofamounting ~~the~~to ~~Balance Sheet as of May 31, 2016, in the amount of~~ $1,~~670~~311,~~945,~~080 ~~which~~through ~~consists~~May ~~of the fully accreted $1~~31,~~126,000~~ ~~face value of stock and $544,945 in dividends payable~~2017. ~~The~~These dividends ~~associated~~are ~~with~~included ~~these~~in ~~shares of Series A stock for~~ the ~~year~~amounts ~~ended~~reported ~~May~~on ~~31, 2016, is a deduction from net income in~~ the ~~amount~~face of ~~$65,374.~~the balance ~~There~~sheet ~~was~~for noeach ~~current~~classification ~~accretion on these shares~~ of Series A stock.

~~F-36~~As of May 31, 2017 the Company has chosen to defer payment of dividends on Series B and Series C Preferred Stock with such accrued and unpaid dividends amounting to $4,038,772 and $9,698,738 through May 31, 2017, respectively. These dividends are included in the amounts reported on the face of the balance sheet for each respective classification of stock.

~~Jacobs Financial Group, Inc.~~Accounting Treatment

~~Notes~~U.S. GAAP requires that an entity classify as liabilities certain financial instruments with characteristics of both liabilities and equity. The Company's Series A and B Preferred stock each have mandatory redemption features that subject the Company to ~~Consolidated~~the ~~Financial~~analysis of ~~Statements~~equity versus liability. 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, if the stock provides an option to the holder to convert to common shares at a rate equivalent to fair value, then the financial instruments are not mandatorily redeemable during the period in which the holder can convert the shares into common shares. Accordingly, the Company has determined that only the Series A preferred stocks held by principals with outstanding surety bonds should not be classified as liabilities. However, in accordance with FASB’s

As of May 31, 2016 the Company has chosen to defer payment of dividends on Series A Preferred Stock with such accrued and unpaid dividends amounting to $1,155,545 through May 31, 2016. These dividends are included in the amounts reported on the face of the balance sheet for each classification of Series A stock.F-34

AsJacobs ofFinancial ~~May 31~~Group, ~~2016~~Inc.Notes ~~the Company has chosen~~ to ~~defer~~Consolidated ~~payment~~Financial ofStatements ~~dividends~~Table on Series B and Series C Preferred Stock with such accrued and unpaid dividends amounting to $3,516,674 and $8,441,909 through May 31, 2016, respectively. These dividend are included in the amounts reported on the face of ~~the balance sheet for each respective classification if stock.~~ Contents

Accounting Standards ~~Treatment~~Codification Topic 480-10-S99-4, Liabilities, equity instruments with redemption features that are not solely within the control of the issuer are required to be classified on the balance sheet outside of permanent equity (often referred to as “temporary equity”).

~~U.S. GAAP requires that an entity~~Note ~~classify~~K as- liabilities certain financial instruments with characteristics of both liabilities and equity. 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. 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, if the stock provides an option to the holder to convert to common shares at a rate equivalent to fair value, then the financial instruments are not mandatorily redeemable during the period in which the holder can convert the shares into common shares. Accordingly, the Company has determined that only the Series A preferred stocks held by principals with outstanding surety bonds 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 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.Warrants

~~Note~~On December K30, 2005, the Company issued warrants to purchase 45,402,996 shares of common stock in connection with the Series A and B Preferred Stock private placements. The exercise price of the warrants is $.001 per share. The warrants were valued using the Black-Scholes pricing model. The warrants issued in connection with the Series A Preferred Stock ~~Warrants~~were valued at $.08 per share or $83,043. The warrants issued in connection with the Series B Preferred Stock were valued at $.01 per share or $449,972.

~~On December 30~~386, ~~2005, the Company~~667 ~~issued~~ warrants toissued ~~purchase 45,402,996 shares of common stock~~ in connection with ~~the~~ Series ~~A and~~ B Preferred Stock ~~private~~expired ~~placements. The~~unexercised ~~exercise~~on ~~price of~~ the ~~warrants~~fifth isanniversary ~~$.001~~at ~~per~~December ~~share.~~31, ~~The~~2010; 600,000 warrants ~~were valued using the Black-Scholes pricing model. The warrants~~ issued in connection with ~~the~~ Series A Preferred Stock ~~were~~expired ~~valued~~unexercised aton ~~$.08 per share or $83,043. The warrants issued in connection with~~ the ~~Series~~seventh Banniversary ~~Preferred Stock were valued~~ at ~~$.01 per share or $449~~December 31,~~972~~ 2012.

~~F-37~~As of May 31, 2017, there were no warrants outstanding.

~~Jacobs~~Note L-Stock-Based ~~Financial Group, Inc.~~Compensation

~~Notes~~On October 12, 2005, the board of directors adopted its 2005 Stock Incentive Plan (the "Plan") to ~~Consolidated~~allow ~~Financial~~the ~~Statements~~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

~~386,667 warrants issued in connection~~all ~~with~~awards ~~Series~~under ~~B Preferred Stock expired unexercised on~~ the ~~fifth~~Plan ~~anniversary~~is ~~at December 31~~35, ~~2010; 600~~000,000. ~~warrants~~No ~~issued~~awards inmay ~~connection with~~be ~~Series~~granted Aunder ~~Preferred Stock expired unexercised on~~ the ~~seventh~~Plan ~~anniversary~~after at December 318, ~~2012~~2015.

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 $.04 per share, of which 450,000 shares vested immediately and the remaining 1,650,000 options vesting over the next three years ending in December 2009. As of May 31, ~~2015~~2010, ~~there~~the ~~were~~awarded nooptions had been reduced to 1,800,000 ~~warrants~~due ~~outstanding~~to changes in employment status, all of which expired in December 2011.

~~Note~~On June ~~L-Stock-Based~~30, ~~Compensation~~2009 the compensation committee of the board of directors awarded 10,000,000 of incentive stock options to acquire common shares at an exercise price of $.04 per share, of which 4,700,000 shares vested immediately and the remaining 5,300,000 options vesting over the next three years ending in June 2011. As of May 31, 2015, the awarded options had been reduced to 9,800,000 due to changes in employment status, all of which expired in June 2014.

OnThe Plan’s ~~October~~terms ~~12,~~defined ~~2005,~~that ~~the~~it ~~board~~would ~~of directors~~terminate ~~adopted~~upon ~~its~~the ~~2005~~earlier ~~Stock~~of ~~Incentive Plan~~ (~~the "Plan"~~1) ~~to allow~~ the ~~Company~~adoption toof ~~make~~a ~~awards~~resolution ofby ~~stock~~the ~~options~~Company asterminating ~~part of~~ the ~~Company's~~Plan; ~~compensation~~or to(2) ~~key~~ten ~~employees,~~years ~~non-employee~~from ~~directors,~~the ~~contractors~~date ~~and~~on ~~consultants.~~which ~~The~~the Plan ~~was~~is initially 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~~Company,~~000,000.~~ ~~No awards may be granted under~~ therefore the Plan ~~after~~terminated ~~December~~on 8October 12, 2015.

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 $.04 per share, of which 450,000 shares vested immediately and the remaining 1,650,000 options vesting over the next three years ending in December 2009. As of May 31, 2010, the awarded options had been reduced to 1,800,000 due to changes in employment status, all of which expired in December 2011.F-35

OnJacobs ~~June~~Financial 30Group, ~~2009 the compensation committee of the board of directors awarded 10,000,000 of incentive stock options to acquire common shares at an exercise price of $~~Inc.04Notes per share, of which 4,700,000 shares vested immediately and the remaining 5,300,000 options vesting over the next three years ending in June 2011. As of May 31, 2015, the awarded options had been reduced to ~~9,800,000~~Consolidated ~~due~~Financial toStatements ~~changes~~Table ~~in employment status, all~~ of ~~which expired in June 2014.~~Contents

~~The Plan’s terms defined that~~There itwere ~~would~~no ~~terminate~~options ~~upon~~exercised ~~the~~in ~~earlier~~fiscal of2017 ~~(1)~~or ~~the~~2016. ~~adoption~~There ofis ano ~~resolution~~unrecognized bycompensation ~~the~~expense ~~Company~~related ~~terminating~~to ~~the~~non-vested ~~Plan;~~awards ~~or (2) ten years from~~at ~~the~~May ~~date~~31, on2017 ~~which~~or ~~the~~May ~~Plan is initially approved by the stockholders of the Company~~31, ~~therefore~~2016 ~~the~~as ~~Plan~~all ~~terminated~~awards onare ~~October~~fully ~~12, 2015~~vested.

~~There were no options exercised in~~Note ~~fiscal~~M ~~2016~~– orIncome ~~2015. There is no unrecognized compensation expense related to non-vested awards at May 31, 2016 or May 31, 2015 as all awards are fully vested.~~Taxes

~~Note~~Deferred Mtax –assets ~~Income~~and ~~Taxes~~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 statements. Such differences include the income recognition of a portion of the unearned premium reserve, loss reserve deductibility, 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, 2017, the Company had estimated operating loss carry forwards of approximately $14.2 million. These carry forwards began expiring in 2015 and, as a result of the ownership change resulting from the 2001 acquisitions of FSI and Jacobs, the utilization of approximately $6.4 million of the operating loss carry forwards are substantially limited.

~~Deferred~~The Company ~~tax~~has ~~assets~~fully ~~and~~reserved ~~liabilities are~~the ~~recorded~~$3.3 ~~for~~million ~~the~~tax ~~effects~~benefit of ~~temporary~~the ~~differences~~operating ~~between~~loss ~~the~~carry ~~tax~~forward, ~~basis~~adjusted offor anthe ~~asset~~Tax orCuts ~~liability~~ and ~~its~~Jobs Act ~~reported~~enacted ~~amount~~December ~~in the~~22, ~~consolidated~~2017, ~~financial~~by ~~statements.~~a ~~Such~~valuation ~~differences~~allowance ~~include~~of the ~~income~~same ~~recognition~~amount, ofbecause athe ~~portion~~likelihood of realization of the tax benefit is doubtful.

~~F-38~~Note N – Stockholders’ Equity

~~Jacobs~~In fiscal ~~Financial~~2017, ~~Group~~the Company issued 300,000 ~~Inc~~shares of the Company’s common stock as additional consideration in connection with new and continued borrowings totaling $75,000. The shares were valued at approximately $.002520 per share based on the average quoted closing price of the Company’s stock for the 20-day period preceding the date of the transaction and totaled $756.

~~Notes~~In fiscal to2017, ~~Consolidated~~the ~~Financial~~Company ~~Statements~~issued 500,000 shares of the Company’s common stock as additional consideration for the purchase and loans convertible into the purchase of 5% of FSC subsidiary stock. The shares were valued at approximately $.002705 per share based on the average quoted closing price of the Company’s stock for the 20-day period preceding the date of the transaction and totaled $1,353.

~~unearned~~In fiscal ~~premium reserve~~2016, ~~loss~~the ~~reserve deductibility,~~Company ~~accruals~~issued ~~not~~1,878,000 ~~currently~~shares ~~deductible~~of ~~relating~~the toCompany's common stock ~~option~~as ~~expense~~additional ~~and~~consideration ~~certain~~in ~~accrued~~connection ~~expenses that are not paid~~with ~~within~~new ~~specified time frames by the Internal Revenue Service,~~ and ~~the~~continued ~~deductibility~~borrowings oftotaling ~~deferred policy acquisition costs paid. As of May 31~~$1, ~~2016~~878,000. ~~the~~The ~~Company~~shares ~~had~~were ~~estimated~~valued ~~operating~~at ~~loss carry forwards of~~ approximately $16.3002887 ~~million.~~per ~~These~~share ~~carry~~based ~~forwards began~~on ~~expiring~~the inaverage quoted ~~2015~~closing ~~and,~~price ~~as a result~~ of the ~~ownership~~Company's ~~change~~stock ~~resulting~~for ~~from~~ the ~~2001~~20-day ~~acquisitions~~

Filing Compare · JACOBS FINANCIAL GROUP, INC.