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


                                   FORM 10-QSB

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

                For the quarterly period ended February 28, 2007


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

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


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

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


Check  whether the issuer (1) filed all reports  required to be filed by Section
13 or 15(d) of the  Exchange  Act during the past 12 months (or for such shorter
period that the registrant was required to file such reports),  and (2) has been
subject to such filing requirements for the past 90 days.

                                                     Yes [x]  No [  ]


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

                                                     Yes [  ] No [ x ]


State the number of shares outstanding of each of the issuer's classes of common
equity, as of the latest practicable date:

                  156,997,837 common shares as of April 2, 2007


Transitional Small Business Disclosure Format (check one)      Yes [  ] No [ x ]


<PAGE>


                         PART I -- FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

The following financial statements are included herein in response to Item 1:



                                                                         PAGE

         FINANCIAL STATEMENTS (UNAUDITED)

         Consolidated Condensed Balance Sheets                            F-1
         Consolidated Condensed Statements of Operations                  F-2
         Consolidated Condensed Statements of Cash Flows                  F-3
         Consolidated Condensed Statements of Mandatorily Redeemable
               Preferred Stock and Stockholders Equity (Deficit)          F-4
         Notes to Consolidated Condensed Financial Statements             F-5
















                                       2
<PAGE>
<TABLE>
<CAPTION>
JACOBS FINANCIAL GROUP, INC.
CONSOLIDATED CONDENSED BALANCE SHEETS (UNAUDITED)



                                                                               February 28, 2007           May 31, 2006
                                                                               -----------------           ------------
ASSETS

INVESTMENTS AND CASH:

<S>                                                                            <C>                         <C>
 Bonds held to maturity, at amortized costs                                    $     1,122,807             $ 1,029,963
  (market value - 02/28/07 $1,021,780; 05/31/06 $1,024,053)
 Mortgage-back securities held to maturity, at amortized costs                       1,431,757               1,360,778
  (market value - 02/28/07 $1,424,048; 05/31/06 $1,343,108)
 Short-term investments, at cost (approximates market value)                         1,266,202               1,196,111
 Cash                                                                                   28,002                       -
                                                                               -----------------           ------------

                                     TOTAL INVESTMENTS AND CASH                      3,848,768               3,586,852


 Investment income due and accrued                                                      39,463                  20,958
 Premiums and other accounts receivable                                                 39,979                  47,774
 Deferred policy acquisition costs                                                      43,025                  70,399
 Furniture and equipment, net of accumulated depreciation of
  $110,581 and $101,500, respectively                                                   26,966                  30,040
 Due from related party                                                                      -                 361,010
 Other assets                                                                          166,726                  33,863
 Intangible assets                                                                     150,000                 150,000
                                                                               -----------------           ------------

                                                   TOTAL ASSETS                $     4,314,927             $ 4,300,896
                                                                               =================           ============


LIABILITIES AND STOCKHOLDERS' EQUITY

 Reserve for losses and loss expenses                                          $        87,033             $    11,911
 Reserve for unearned premiums                                                         116,137                 193,616
 Cash Overdraft                                                                              -                 127,985
 Accrued expenses and professional fees                                                449,881                 614,034
 Accounts payable                                                                      306,139                 278,621
 Notes payable                                                                         411,787                 158,232
 Accrued interest payable                                                               10,340                  41,942
 Other liabilities                                                                     497,800                 413,773
                                                                               -----------------           ------------

                                              TOTAL LIABILITIES                      1,879,117               1,840,114


 Series A  preferred  stock,  $.0001  par  value  per  share;  1  million
  shares authorized; 1,377 shares issued and outstanding                             1,353,118               1,035,841
 Series B preferred stock, $.0001 par value per  share;  9,941.341
  shares  authorized;  9,546,940 shares  issued and outstanding                      8,151,595               6,780,186
                                                                               -----------------           ------------

                   TOTAL MANDATORILY REDEEMABLE PREFERRED STOCK                      9,504,713               7,816,027


STOCKHOLDERS' EQUITY (DEFICIT)

 Common stock, $.0001 par value per share; 490 million shares
  authorized; 156,947,837 shares issued and outstanding                                 45,695                  15,494
 Additional paid in capital                                                          2,041,376               1,856,929
 Accumulated deficit                                                                (9,125,974)             (7,227,668)
                                                                               -----------------           ------------

                            TOTAL STOCKHOLDERS' EQUITY (DEFICIT)                    (7,068,903)             (5,355,245)
                                                                               -----------------           ------------

                       TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)    $     4,314,927             $ 4,300,896
                                                                               =================           ============
</TABLE>


                            See accompanying notes.

                                      F-1
<PAGE>
<TABLE>
<CAPTION>
JACOBS FINANCIAL GROUP, INC,
CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS (UNAUDITED)





                                                           Three Months Ended                    Nine Months Ended
                                                              February 28                           February 28
                                                        -----------------------------       ------------------------------

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

REVENUES:
<S>                                                     <C>           <C>                   <C>             <C>
 Investment advisory services                           $     63,748  $        53,026       $      196,959  $      157,087
 Agency commissions                                           17,611           19,594               53,702          29,031
 Insurance premiums                                           77,828            2,072              234,786           2,072
 Net investment income                                        48,049           16,137              137,786          16,137
 Other income                                                      -              622                5,195             622
                                                        ------------- ---------------       --------------- --------------
                                   TOTAL REVENUES            207,236           91,451              628,428         204,949


EXPENSES:

 Incurred policy losses                                       23,326              446               75,122             446
 Insurance policy acquisition costs                           26,939            1,305               81,185           1,305
 General and administrative                                  373,045          371,352            1,155,434         919,619
 Mutual fund costs                                            38,222           36,000              132,804         106,913
 Depreciation and amortization                                 3,289            2,148                9,081           5,098
                                                        ------------- ---------------       --------------- --------------
                                   TOTAL EXPENSES            464,821          411,251            1,453,626       1,033,381
                                                        ------------- ---------------       --------------- --------------

                NET INCOME (LOSS) FROM OPERATIONS           (257,585)        (319,800)            (825,198)       (828,432)

 Gain on debt extinguishment                                  42,445                -               42,445               -
 Interest expense                                            (25,183)        (166,116)            (137,870)       (370,613)
 Interest income                                                  38                -               12,260               -
                                                        ------------- ---------------       --------------- --------------

                                 NET INCOME (LOSS)          (240,285)        (485,916)            (908,363)     (1,199,045)

 Accretion of Mandatorily Redeemable Convertible
  Preferred Stock, including accrued dividends              (335,462)         (78,035)            (989,944)        (78,035)
                                                        ------------- ---------------       --------------- --------------

 NET INCOME (LOSS) ATTRIBUTABLE TO COMMON STOCKHOLDERS  $   (575,747) $      (563,951)      $   (1,898,307) $   (1,277,080)
                                                        ============= ===============       =============== ==============


BASIC AND DILUTIVE NET INCOME (LOSS) PER SHARE:

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


        WEIGHTED-AVERAGE SHARES OUTSTANDING              156,865,392      135,034,346          156,045,180     126,742,042
                                                        ============= ===============       =============== ==============
</TABLE>














                            See accompanying notes.

                                      F-2
<PAGE>
<TABLE>
<CAPTION>
JACOBS FINANCIAL GROUP, INC,
CONSOLIDATED CONDENSED STATEMENT OF CASH FLOWS (UNAUDITED)

                                                                   THREE MONTHS ENDED FEBRUARY 28,    NINE MONTHS ENDED FEBRUARY 28,
                                                                   ------------------------------     ------------------------------
                                                                          2007           2006                 2007           2006
                                                                   -------------- ---------------     --------------- --------------

CASH FLOWS FROM OPERATING ACTIVITIES

<S>                                                                <C>            <C>                 <C>             <C>
 Net Income (Loss)                                                 $    (240,285) $    (485,916)      $     (908,363) $  (1,199,045)

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

        Unearned premium                                                 (21,315)        47,657              (77,479)        47,657
        Stock option expense                                              50,633              -              166,368              -
        Provision for loss reserves                                       23,325            446               75,122            446
        Amortization of premium                                            7,978          2,330               26,148          2,330
        Depreciation                                                       3,289          2,148                9,082          5,098
        Premium and other receivables                                     11,309        (27,245)               7,795        (33,825)
        Accretion of discount                                             (5,716)        (3,238)             (16,900)        (3,238)
        Investment income due and accrued                                (15,461)       (13,058)             (17,647)       (13,058)
        Deferred policy acquisition costs                                  8,290        (15,727)              27,374        (15,727)
        (Gain) on extinguishment of debt                                 (42,445)             -              (42,445)             -
        Change in operating assets and liabilities:
          Other assets                                                  (149,724)           308             (132,863)        (1,940)
          Accounts payable and cash overdraft                             (6,198)        50,920             (100,467)        83,229
          Accrued expenses and other liabilities                         133,877         89,740              295,717        281,047
                                                                   -------------- ---------------     --------------- --------------

                NET CASH FLOWS FROM (USED IN) OPERATING ACTIVITIES      (242,443)      (351,635)            (688,558)      (847,026)

CASH FLOWS FROM INVESTING ACTIVITIES

  Advances to related party                                                    -              -              (76,173)             -
  Repayments from related party                                                -              -              127,227              -
  (Increase) decrease in short-term investments                           83,353      1,545,582              (56,360)     1,545,582
  Costs of bonds acquired                                                      -     (1,545,582)            (100,000)    (1,545,582)
  Costs of mortgaged-backed securities acquired                         (189,963)             -             (458,906)             -
  Repayment of mortgage-backed securities                                106,950              -              371,246              -
  Acquisition of insurance company                                             -     (2,860,000)                   -     (2,860,000)
  Purchase of furniture and equipment                                     (2,051)       (25,273)              (6,008)       (25,273)
                                                                   -------------- ---------------     --------------- --------------

                NET CASH FLOWS FROM (USED IN) INVESTING ACTIVITIES        (1,711)    (2,885,273)            (198,974)    (2,885,273)

CASH FLOWS FROM FINANCING ACTIVITIES

  Proceeds from related party debt                                        36,908        131,714              115,457        969,734
  Repayment of related party debt                                        (73,647)      (373,559)            (133,698)      (803,450)
  Proceeds from short-term borrowings                                     25,000        145,765              325,000        484,265
  Repayment of short-term borrowings                                     (46,645)       (78,692)            (108,248)      (281,191)
  Proceeds from issuance of Series A preferred stock                      30,000        350,000              268,000        350,000
  Proceeds from issuance of Series B preferred stock                     253,320      3,085,000              493,220      3,085,000
  Redemption of Series B preferred stock                                       -              -              (62,477)             -
  Proceeds from issuance of common stock                                   6,680              -               16,780              -
  Proceeds from exercise of common stock warrants                              -          3,833                1,500          3,833
                                                                   -------------- ---------------     --------------- --------------

                NET CASH FLOWS FROM FINANCING ACTIVITIES                 231,616      3,264,061              915,534      3,808,191

NET INCREASE (DECREASE) IN CASH                                          (12,538)        27,153               28,002         75,892

CASH AT BEGINNING OF PERIOD                                               40,540         49,176                    -            437
                                                                   -------------- ---------------     --------------- --------------

CASH AT END OF PERIOD                                              $      28,002  $      76,329       $       28,002  $      76,329
                                                                   ============== ===============     =============== ==============

SUPPLEMENTAL DISCLOSURES

  Interest paid                                                    $      12,320  $     114,838       $       38,502  $     272,420
  Income taxes paid                                                            -              -                    -              -

  Non-cash investing and financing transaction:
        Assumption of accounts payable by related party                        -              -              365,000              -
        Additional consideration paid for issuance of debt                     -         40,630                    -         61,775
        Accrued interest converted to notes payable                            -              -                    -         20,740
        Notes payable converted to Series B preferred stock                    -      3,480,026                    -        340,026
        Accrued interest converted to Series B preferred stock                 -        154,184                    -        154,184
        Accounts payable converted to Series B preferred stock                 -         33,740                    -         33,740
</TABLE>
                            See accompanying notes.
                                      F-3
<PAGE>
JACOBS FINANCIAL GROUP, INC.
CONSOLIDATED CONDENSED STATEMENT OF MANDATORILY REDEEMABLE PREFERRED STOCK
AND STOCKHOLDERS' EQUITY (DEFICIT) (UNAUDITED)
FOR THE THREE-MONTH PERIOD ENDED FEBRUARY 28, 2007

<TABLE>
<CAPTION>

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

                                                                                        STOCKHOLDERS' EQUITY (DEFICIT)
                                                       SERIES B
                                  SERIES A       MANDATORILY REDEEMABLE  -----------------------------------------------------------
                           MANDATORILY REDEEMABLE    CONVERTIBLE                              ADDITIONAL
                               PREFERRED STOCK     PREFERRED STOCK                             PAID-IN     ACCUMULATED
                             SHARES      AMOUNT  SHARES     AMOUNT      SHARES      AMOUNT     CAPITAL       DEFICIT        TOTAL
                            -------- ----------  -------   ---------  -----------  --------  ------------  -----------  -----------
<S>                         <C>      <C>         <C>       <C>        <C>          <C>       <C>           <C>          <C>
BALANCE, NOVEMBER 30, 2006      1,347 $1,305,555 9,286.940 $7,580,377  156,687,837  $ 15,669  $  1,984,089  $(8,550,228)$(6,550,470)

Issuance of Series A and B
 Preferred Stock and Common
 Stock                             30     30,000   260.000     253,320     260,000        26         6,654            -       6,680

Accretion of mandatorily
 redeemable convertible
 preferred stock                    -      3,825        -     120,366            -         -             -     (124,191)   (124,191)

Accrued dividends of
 mandatorily redeemable
 convertible preferred stock        -     13,738        -     197,532            -         -             -     (211,270)   (211,270)

Common stock option expense         -          -        -           -            -         -        50,633            -      50,633

Net Income (loss), three
 month period ended
 February 28, 2007                  -          -        -           -            -         -             -     (240,285)   (240,285)
                             -------- ----------  -------   ---------  -----------  --------  ------------  -----------  -----------

BALANCE, FEBRUARY 28, 2007      1,377 $1,353,118 9,546.940 $8,151,595  156,947,837  $ 15,695  $  2,041,376  $(9,125,974)$(7,068,903)
                             ======== ==========  =======   =========  ===========  ========  ============  ===========  ===========
                             ----------------------------------------  -------------------------------------------------------------

</TABLE>
                            See accompanying notes.
                                      F-4
<PAGE>

JACOBS FINANCIAL GROUP, INC.
CONSOLIDATED CONDENSED STATEMENT OF MANDATORILY REDEEMABLE PREFERRED STOCK
AND STOCKHOLDERS' EQUITY (DEFICIT) (UNAUDITED)
FOR THE NINE MONTH PERIOD ENDED FEBRUARY 28, 2007

<TABLE>
<CAPTION>

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

                                                                                        STOCKHOLDERS' EQUITY (DEFICIT)
                                                       SERIES B
                                  SERIES A       MANDATORILY REDEEMABLE  -----------------------------------------------------------
                           MANDATORILY REDEEMABLE    CONVERTIBLE                              ADDITIONAL
                               PREFERRED STOCK     PREFERRED STOCK                             PAID-IN     ACCUMULATED
                             SHARES      AMOUNT  SHARES     AMOUNT      SHARES      AMOUNT     CAPITAL       DEFICIT        TOTAL
                            -------- ----------  -------   ---------  -----------  --------  ------------  -----------  -----------
<S>                         <C>      <C>         <C>       <C>        <C>          <C>       <C>           <C>          <C>
BALANCE, MAY 31, 2006           1,109 $1,035,841 9,095.599 $6,780,186  154,937,837  $ 15,494  $  1,856,929  $(7,227,668)$(5,355,245)

Issuance of Series A and B
 Preferred Stock and Common
 Stock                            268    268,000   510.000     493,220     510,000        51        16,729            -      16,780

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

Accretion of mandatorily
 redeemable convertible
 preferred stock                    -     11,322        -     356,755            -         -             -     (368,077)   (368,077)

Accrued dividends of
 mandatorily redeemable
 convertible preferred stock        -     37,955        -     573,194            -         -             -     (611,149)   (611,149)

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

Common stock option expense         -          -        -           -            -         -       166,368            -     166,368

Net Income (loss), nine
 month period ended
 February 28, 2007                  -          -        -           -            -         -             -     (908,363)   (908,363)
                             -------- ----------  -------   ---------  -----------  --------  ------------  -----------  -----------

BALANCE, FEBRUARY 28, 2007      1,377 $1,353,118 9,546.940 $8,151,595  156,947,837  $ 15,695  $  2,041,376  $(9,125,974)$(7,068,903)
                             ======== ==========  =======   =========  ===========  ========  ============  ===========  ===========
                             ----------------------------------------  -------------------------------------------------------------

</TABLE>
                            See accompanying notes.
                                      F-4
                                  (continued)



<PAGE>
JACOBS FINANCIAL GROUP, INC.

NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS

NOTE A - BASIS OF PRESENTATION

The accompanying  unaudited financial  statements are of Jacobs Financial Group,
Inc. (the "Company" or "JFG").  References  herein to the Company  include NELX,
Inc.,  of which JFG is  successor  by  reincorporation  merger  and name  change
effected on or about December 29, 2005. These financial statements were prepared
in  accordance  with  generally  accepted  accounting   principles  for  interim
financial information and Article 10 of Regulation S-X. Accordingly, they do not
include all of the  information  and  footnotes  required by generally  accepted
accounting  principles  for  complete  financial  statements.  In the opinion of
management,  all adjustments considered necessary for a fair presentation of the
results of operations  and financial  condition for the periods  presented  have
been included. Such adjustments are of a normal recurring nature. The results of
operations for the three and nine-month periods ended February 28, 2007, are not
necessarily indicative of the results of operations that can be expected for the
fiscal year ending May 31, 2007. For further information, refer to the Company's
audited  financial  statements and footnotes thereto included in Item 7. of Form
10-KSB filed on September 14, 2006.

LIQUIDITY AND GOING CONCERN

These  financial  statements  are  presented  on the basis that the Company is a
going  concern.  Going concern  contemplates  the  realization of assets and the
satisfaction  of  liabilities in the normal course of business over a reasonable
length  of  time.  The  Company  incurred   operating  losses  of  approximately
$1,874,000  and  $1,120,000  for the years  ended May 31,  2006 and 2005 and has
incurred losses of  approximately  $576,000 and $1,898,000  respectively for the
three and  nine-month  periods ended  February 28, 2007.  Losses are expected to
continue  until  the  Company's  insurance  company  subsidiary,   First  Surety
Corporation  ("FSC")  develops  substantial   business.   While  improvement  is
anticipated  as the business  plan is  implemented,  restrictions  on the use of
FSC's  assets  (See  Management's   Discussion  and  Analysis),   the  Company's
significant  deficiency  in  working  capital  and  stockholders'  equity  raise
substantial doubt about the Company's ability to continue as a going concern.

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


NOTE B - RECENT ACCOUNTING PRONOUNCEMENTS


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

                                      F-5
<PAGE>



JACOBS FINANCIAL GROUP, INC.

NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS

NOTE B - RECENT ACCOUNTING PRONOUNCEMENTS (CONTINUED)

SFAS No. 157 defines fair value,  establishes  a framework  for  measuring  fair
value in generally accepted accounting principles, and expands disclosures about
fair value  measurements.  The  Statement  does not  require  any new fair value
measurements, however, for some entities, the application of this Statement will
change  current  practice.  Management  does  not  expect  the  adoption  of the
provisions of SFAS No. 157 to have a material impact on the Company's results of
operations or financial position.

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

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

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

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

                                      F-6
<PAGE>

JACOBS FINANCIAL GROUP, INC.

NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS

NOTE B - RECENT ACCOUNTING PRONOUNCEMENTS (CONTINUED)

process of  evaluating  the  implications  of FIN No. 48, and while no  material
impact  on the  Company's  results  of  operations  or  financial  position  are
foreseen,  the  application  of FIN No.  48 may  result in a  reduction  of such
operating loss carryforwards.

NOTE C - SETTLEMENT OF PROFESSIONAL FEE OBLIGATION

On December 21, 2006, the Company repaid an obligation owed to a creditor in the
amount of $87,221  relating to professional  fees incurred in the Company's 2002
fiscal year in  connection  with  litigation  resulting  from a failed  business
combination  transaction.  As of  November  30,  2006,  the  Company had accrued
interest expense on the obligation that amounted to $42,445.  Under the terms of
an agreement  reached in October 2006, in  consideration of the repayment of the
principal  obligation by a certain  agreed-upon  date,  the creditor  waived the
payment  of any  accrued  interest  on such  obligation.  Accordingly,  upon the
satisfaction  of  the  debt  in  accordance  with  such  agreement,  a  gain  on
extinguishment of debt was recognized.

NOTE D - DUE FROM/TO RELATED PARTY

During 2005 and 2006, the Company's  operating expenses were partially funded by
advances  from its largest  shareholder  and chief  executive  officer,  John M.
Jacobs.  The  funding  source for these  advances  originated  with  obligations
incurred by Mr. Jacobs with third-parties  (such obligations,  together with the
loans by Mr. Jacobs to the Company,  "back-to-back  loans") with interest  rates
ranging from 6.75% to 12%. To assure that  repayments of the various  borrowings
by the  Company  that  were  either  guaranteed  by Mr.  Jacobs or loaned to the
Company by Mr. Jacobs via such  back-to-back loan arrangements did not result in
a deemed loan to Mr.  Jacobs,  Mr. Jacobs  entered into an Assumption  Agreement
with the Company,  pursuant to which Mr. Jacobs assumes,  and agrees to hold the
Company harmless from, principal of specified indebtedness of the Company as and
when  necessary  to fully  offset what might  otherwise  be deemed an advance of
funds arising out of the Company's financing activities.

During  the  year  ended  May 31,  2006,  the  Company  made net  repayments  of
$1,170,546 on the  back-to-back  loans which was $508,036 more than the original
loans and interest  charges.  In accordance with the Assumption  Agreement,  the
Company assigned to Mr. Jacobs and Mr. Jacobs assumed responsibility for payment
of certain debt totaling  $101,326 and accounts payable totaling $365,000 during
the year ended May 31, 2006.  The debt  obligation  was re-issued in the name of
Mr.  Jacobs;  and therefore the debt amount was relieved and offset  against the
receivable  from Mr.  Jacobs.  Although the Company  assigned  accounts  payable
totaling $365,000 to Mr. Jacobs through the Assumption Agreement,  for financial
reporting purposes under generally accepted accounting principles,  the accounts
payable  amount could not be  derecognized  until either paid or released by the
creditor and accordingly,  the amount due from Mr. Jacobs as of May 31, 2006 was
$361,010. On September 13, 2006, the Company obtained a release from the obligee
of the $365,000  account  payable that was assumed by John M. Jacobs pursuant to
the Assumption Agreement,  with the effect that, in accordance with the terms of
the  Assumption  Agreement,  Mr. Jacobs' assumption of such account  payable was
offset  against and  eliminated  the account  receivable of the Company from Mr.
Jacobs.

                                      F-7
<PAGE>

JACOBS FINANCIAL GROUP, INC.

NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS

NOTE D - DUE FROM/TO RELATED PARTY (CONTINUED)

Subsequent  to May 31,  2006,  advances to the Company  from Mr.  Jacobs for the
three and  nine-month  periods  ended  February 28, 2007 amounted to $36,908 and
$242,684 respectively,  with repayments from the Company to Mr. Jacobs amounting
to $73,647 and $209,872 respectively,  resulting in a balance owed to Mr. Jacobs
as of February 28, 2007 of $36,802 that is recorded in notes payable.

NOTE E - NOTES PAYABLE

At February 28, 2007,  the Company had unsecured  notes  payable to  individuals
(primarily common shareholders)  amounting to $124,985. Such notes have maturity
dates of less than one year or are  payable on demand and bear  interest  at the
rate of ten percent (10.00%) per annum.

On June 28, 2006, the Company  borrowed  $250,000 under an unsecured  short-term
line of credit facility with a commercial bank to provide  additional  operating
capital.  The credit facility  required monthly interest  payments at a variable
interest rate based on the Wall Street Journal Prime rate plus five percent. The
loan was placed  into  repayment  over a term of five years on January  31, 2007
with   monthly   payments  of  $5,738   beginning   February  28,  2007  with  a
fixed-interest rate of 13.50%.

NOTE F - OTHER LIABILITIES

The Company had been delinquent in paying certain of its payroll tax obligations
for  periods  ending on or  before  December  31,  2005.  The  total  liability,
including an estimate for penalties and interest, is approximately  $485,400 and
is included  in the  Company's  financial  statements  under Other  Liabilities.
Management continues to seek financing  arrangements that will allow it to fully
satisfy this obligation in the near future.

NOTE G - MANDATORILY REDEEMABLE PREFERRED STOCK AND COMMON STOCK

In the  three-month  period  ended  February  28,  2007,  the Company  issued an
additional  260 shares of Series B  Preferred  Stock and  260,000  shares of the
Company's common stock as additional consideration,  in exchange for cash in the
amount of  $260,000.  In the  nine-month  period ended  February  28, 2007,  the
Company issued an additional 510 shares of Series B Preferred  Stock and 510,000
shares of the Company's  common stock as additional  consideration,  in exchange
for cash in the amount of $510,000.  As of February  28,  2007,  the Company has
394.401 shares of Series B Preferred stock authorized and available for issue.

In the  nine-month  period  ended  February  28,  2007,  previously  issued  and
outstanding stock warrants totaling 1,500,000 were exercised. As of February 28,
2007,  the Company had issued and  outstanding  warrants to purchase  15,404,664
shares of common stock.

On December  28,  2006,  the  compensation  committee  of the board of directors
awarded  2,100,000 of incentive  stock  options to acquire  common  shares at an
exercise  price of four cents ($.04) per share,  of which 450,000  shares vested
immediately  and the  remaining  1,650,000  options  vesting over the next three
years.  Stock-based compensation expense attributable to such awards amounted to
approximately  $21,000, of which approximately  $4,500 is attributable to shares
that

                                      F-8
<PAGE>

JACOBS FINANCIAL GROUP, INC.

NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS

NOTE G - MANDATORILY REDEEMABLE PREFERRED STOCK AND COMMON STOCK (CONTINUED)

vested  immediately  and  unrecognized  compensation  expense  of  approximately
$16,500 related to non-vested awards being recognized over the next three years.

NOTE H - SUBSEQUENT EVENTS

Subsequent to February 28, 2007,  the Company  issued an additional 50 shares of
Series B Preferred  Stock and 50,000  shares of the  Company's  common  stock as
additional consideration, in exchange for cash in the amount of $50,000.

On March 20,  2007,  the  Company  borrowed  $25,000  on a demand  basis from an
unrelated  individual.  Such  note  bears  interest  at the rate of ten  percent
(10.00%),  is unsecured and is guaranteed by the Company's  largest  shareholder
and chief executive officer, John M. Jacobs.

On March 31, 2007, the Company elected to continue to defer payment of dividends
on its Series A Preferred  stock and Series B Preferred  stock with such accrued
and unpaid  dividends  amounting to $13,918 and  $202,730,  respectively.  As of
March 31,  2007,  the  accumulated  accrued and unpaid  dividend on the Series A
Preferred  stock and Series B Preferred  stock amounted to $55,664 and $953,178,
respectively.


NOTE I - SEGMENT REPORTING

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








                                      F-9

<PAGE>


JACOBS FINANCIAL GROUP, INC.

NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS

NOTE I - SEGMENT REPORTING (CONTINUED)



                                            THREE-MONTH PERIOD ENDED
        INDUSTRY SEGMENT            FEBRUARY 28, 2007       FEBRUARY 28, 2006
        ----------------            -----------------       -----------------
REVENUES:
 Investment advisory                $        63,748         $      53,026
 Surety insurance                           143,488                37,803
 Corporate                                   42,483                   622
                                    -----------------       -----------------
 Total revenues                     $       249,719         $      91,451
                                    =================       =================

NET INCOME (LOSS):
 Investment advisory                $       (56,361)        $    (181,417)
 Surety insurance                            (2,947)              (46,474)
 Corporate                                 (180,977)             (258,025)
                                    -----------------       -----------------
 Total net income (loss)            $      (240,285)        $    (485,916)
                                    =================       =================


                                              NINE-MONTH PERIOD ENDED
       INDUSTRY SEGMENT             FEBRUARY 28, 2007       FEBRUARY 28, 2006
       ----------------             -----------------       -----------------
REVENUES:
 Investment advisory                $       202,154         $     157,087
 Surety insurance                           426,274                47,240
 Corporate                                   54,705                   622
                                    -----------------       -----------------
 Total revenues                     $       683,133         $     204,949
                                    =================       =================

NET INCOME (LOSS):
 Investment advisory                $      (286,415)        $    (454,186)
 Surety insurance                           (38,848)             (150,396)
 Corporate                                 (583,100)             (594,463)
                                    -----------------       -----------------
 Total net income (loss)            $      (908,363)        $  (1,199,045)
                                    =================       =================



                                      F-10
<PAGE>


ITEM 2. MANAGEMENT'S  DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS

RECENT DEVELOPMENTS AND FUTURE DIRECTION OF COMPANY

Since the  Registrant's  (Company or JFG)  acquisition of its insurance  company
subsidiary,  First Surety  Corporation  (FSC), in December 2005,  management has
focused its primary  efforts on the initial  development  and  marketing  of the
business in West Virginia and laying  groundwork for the future expansion of the
business into other states.  Of primary  importance to the Company's  ability to
fully implement its business plan and expand into other states is the ability to
raise  additional  capital to increase the capacity of the insurance  subsidiary
and to fund  continuing  operations  as the  business is being fully  developed.
Management is  investigating  various avenues of financing,  including  possible
public and private offerings of securities,  and business combinations that will
enhance the business of the Company.


RESULTS OF OPERATIONS FOR THE THREE MONTH PERIOD ENDED FEBRUARY 28, 2007

The  Company  experienced  a loss (after  accretion  of  mandatorily  redeemable
convertible  preferred stock) for the three-month period ended February 28, 2007
in the  amount  of  $575,747  as  compared  with  a loss  of  $563,951  for  the
corresponding period ended February 28, 2006.

REVENUES

Revenues from operations for the three-month period ended February 28, 2007 were
$207,236 as compared with $91,451 for the  corresponding  period ended  February
28, 2006. The overall increase in revenues is attributable to the acquisition of
FSC and the surety business it has secured since January 1, 2006.

Quarterly revenues from the Company's investment management segment,  consisting
of its subsidiary,  Jacobs & Company (J&C), net of advisory  referral fees, were
$63,748 for the  three-month  period ended  February  28, 2007 as compared  with
$53,026 for the  corresponding  period ended  February 28, 2006.  As  investment
advisory  fees are based on the market  value of assets under  management,  some
fluctuation  will occur due to  overall  market  conditions.  For the most part,
however,  such revenues will remain relatively  constant from quarter to quarter
with any large  fluctuations  being attributable to the growth or loss of assets
under management.  The growth reflected in the corresponding  periods is largely
attributable to investment  collateral  accounts  required as a condition to the
issuance of surety bonds under FSC's bonding programs.

Quarterly  revenues from the Company's surety insurance  segment,  consisting of
FSC and the Company's  subsidiary  Triangle  Surety  Agency,  Inc.  (TSA),  were
$143,488 for the  three-month  period ended  February 28, 2007 as compared  with
$37,803  for  the  corresponding   period  ended  February  28,  2006.  Revenues
attributable to premium earned, net investment income and commissions earned are
as follows:

                                       3
<PAGE>

                                           3 Month Period Ended
                                               February 28,
                                           2007            2006
                                        ---------       ---------
        Premium earned                  $ 77,828        $  2,072
        Net investment income             48,049          16,137
        Commissions earned                17,611          19,594
                                        ---------       ---------
                 Total                  $143,488        $ 37,803
                                        =========       =========


Revenues  for this  segment of the  business is  expected  to be  somewhat  more
"seasonable" from  quarter-to-quarter  as commission revenue is dependent on the
timing of issuance or renewal of bonds  placed by the Company,  whereas  premium
revenue is  recognized  ratably  over the term of the policy  period and thus is
more  stable  from  period  to  period.  Fluctuations  in  premium  revenue  for
comparable  periods largely reflect the overall growth or loss of business.  The
increase in premium revenue for the  three-month  period ended February 28, 2007
in comparison to the corresponding period from the prior year is a result of the
Company acquiring FSC on December 31, 2005 and thus just entering the market for
the period  ended  February 28,  2006.  Investment  income is expected to remain
relatively  consistent,  but can  fluctuate  based on interest  rates and market
conditions.  The increase in the corresponding periods reflects growth in assets
held for investment attributable to the Company's acquisition of FSC.


EXPENSES

Incurred policy losses for the three-month period ended February 28, 2007 in the
amount of $23,326  represent the provision for loss and loss adjustment  expense
for  "incurred  but not reported"  (IBNR)  losses  attributable  to surety bonds
issued by FSC since its  acquisition in December 2005.  Such estimates have been
based on industry  averages  adjusted  for factors  that are unique to the FSC's
underwriting  approach.  The Company has  experienced no claims for losses as of
February 28, 2007.

Insurance policy  acquisition costs in the amount of $26,939 for the three-month
period ended February 28, 2007 represent  charges to operations for underwriting
expense and premium tax  attributable  to surety  polices  issued by FSC and are
recognized ratably over the period in which premiums are earned.

Increases  in both  incurred  policy  losses  and  policy  acquisition  costs in
comparison to prior year amounts are due to the start-up nature of this business
segment that coincides with the acquisition of FSC.

General and  administrative  expenses for the three-month  period ended February
28, 2007 were $373,045 as compared with $371,352 for the comparable period ended
February  28,  2006,  representing  a modest  increase of $1,693.  Salaries  and
related expense increased  approximately  $81,000 relating primarily to staffing
additions,  related increased benefit  expenses,  and stock option  compensation
expense, which approximated $51,000. General office expense remained

                                       4

<PAGE>
relatively  constant with increases in rent,  relating primarily to the lease of
additional  office space,  being offset by decreases in  telephone,  postage and
office   supplies.   Other   general  and   administrative   expense   decreased
approximately  $79,000 resulting  primarily from a decrease in legal and outside
consulting  services  related  to the  Company's  acquisition  of FSC  that  was
consummated  in the prior year quarter.  Legal and other  professional  expenses
incurred in the  three-month  period ended  February  28, 2007 of  approximately
$167,000  related to a proposed  financing that is currently  being explored has
been  deferred  pending  final  outcome of the  proposed  financing.  Should the
proposed  financing be consummated,  the deferred costs will be capitalized as a
cost thereof.  Should the proposed  financing be abandoned,  the deferred  costs
will be expensed in the period of such abandonment.

J&C is the investment  advisor to the Jacobs & Company Mutual Fund (the "Fund").
While  the Fund is  responsible  for its own  operating  expenses,  J&C,  as the
advisor,  has agreed to limit the Fund's aggregate annual operating  expenses to
2.00% of the average net assets.  Under this expense limitation  agreement,  J&C
absorbed  approximately  $38,225 of the  Fund's  operating  expenses  during the
three-month   period  ended  February  28,  2007  as  compared  to  $36,000  for
corresponding  period from the previous year. This increase can be attributed to
a decline in the average size of the Fund over the  respective  periods.  As the
Fund grows in size (of assets under  management),  expenses (in excess of the 2%
level)  absorbed by J&C will decrease until the Fund reaches  sufficient size to
support its on-going  operating  costs. In contrast,  as the Fund grows in size,
revenues from investment advisory fees will increase.  Additionally,  should the
Fund's operating expense ratio fall below the 2.00% level, the costs absorbed by
J&C are now  reimbursable  to it for a  period  of up to  three  years.  For the
three-month period ended February 28, 2007, the Fund's investment  advisory fees
decreased to $11,507 as compared with $13,057 for the corresponding  three-month
period ended February 28, 2006 as a result of a decrease in the Fund size.


GAIN ON EXTINGUISHMENT OF DEBT

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


INTEREST EXPENSE

Interest expense for the three-month  period ended February 28, 2007 was $25,183
as compared with $166,116 for the corresponding  period ended February 28, 2006.
Included in interest expense for the three-month  period ended February 28, 2007
is an additional accrual of approximately $9,375 relating to additional interest
owed on the Company's payroll tax liability, based on recent notices provided by
the Internal Revenue Service. Such amount has been included in other liabilities

                                       5
<PAGE>

in the Consolidated Condensed Balance Sheet. Excluding this amount, the decrease
in  interest  expense is largely  attributable  to the  conversion  of  previous
indebtedness of the Company,  incurred to fund ongoing  operations,  to Series B
preferred stock.


ACCRETION AND DIVIDENDS

Accretion of mandatorily redeemable convertible preferred stock in the amount of
$335,462  for the  three-month  period  ended  February 28, 2007 is comprised of
accretion of discount in the amount of $124,192 and accrued but unpaid dividends
on  preferred  stock  in  the  amount  of  $211,270.  Accretion  of  mandatorily
redeemable  convertible  preferred  stock  in the  amount  of  $78,035  for  the
three-month  period ended February 28, 2006 is comprised  solely of accretion of
discount since date of issuance on December 31, 2005.


RESULTS OF OPERATIONS FOR THE NINE-MONTH PERIOD ENDED FEBRUARY 28, 2007

The  Company  experienced  a loss (after  accretion  of  mandatorily  redeemable
convertible  preferred stock) for the nine-month  period ended February 28, 2007
in the  amount of  $1,898,307  as  compared  with a loss of  $1,277,080  for the
corresponding period ended February 28, 2006.

REVENUES

Revenues from operations for the nine-month  period ended February 28, 2007 were
$628,428 as compared with $204,949 for the  corresponding  period ended February
28, 2006. The overall increase in revenues is attributable to the acquisition of
FSC and the surety business it has secured since January 1, 2006.

Revenues from the Company's investment management segment (J&C), net of advisory
referral fees,  were $202,154 for the nine-month  period ended February 28, 2007
as compared with $157,087 for the corresponding  period ended February 28, 2006.
As  investment  advisory  fees are based on the  market  value of  assets  under
management,  some fluctuation will occur due to overall market  conditions.  For
the most part,  however,  such revenues will remain relatively constant with any
large  fluctuations  being  attributable  to the growth or loss of assets  under
management.  The  growth  reflected  in the  corresponding  periods  is  largely
attributable to investment  collateral  accounts  required as a condition to the
issuance of surety bonds under FSC's bonding programs.

Revenues from the Company's surety insurance segment, consisting of FSC and TSA,
were $426,274 for the nine-month period ended February 28, 2007 as compared with
$47,240  for  the  corresponding   period  ended  February  28,  2006.  Revenues
attributable to premium earned, net investment income and commissions earned are
as follows:

                                       6
<PAGE>
                                           9 Month Period Ended
                                                February 28,
                                            2007           2006
                                        ----------       ---------
        Premium earned                  $ 234,786        $  2,072
        Net investment income             137,786          16,137
        Commissions earned                 53,702          29,031
                                        ----------       ---------
                 Total                  $ 426,274        $ 47,240
                                        ==========       =========

The increase in revenues for the  nine-month  period ended  February 28, 2007 in
comparison to the  corresponding  period from the prior year are a result of the
Company acquiring FSC on December 31, 2005.


EXPENSES

Incurred policy losses in the amount of $75,122 for the nine-month  period ended
February 28, 2007 represent the provision for loss and loss  adjustment  expense
for  "incurred  but not reported"  (IBNR)  losses  attributable  to surety bonds
issued by FSC since its  acquisition in December 2005.  Such estimates have been
based on industry  averages  adjusted  for factors  that are unique to the FSC's
underwriting  approach.  The Company has  experienced no claims for losses as of
February 28, 2007.

Insurance policy  acquisition  costs in the amount of $81,185 for the nine-month
period ended February 28, 2007 represent  charges to operations for underwriting
expense and premium tax  attributable  to surety  polices  issued by FSC and are
recognized ratably over the period in which premiums are earned.

General and administrative expenses for the nine-month period ended February 28,
2007 were  $1,155,434 as compared with $919,619 for the comparable  period ended
February 28, 2006,  representing  an increase of $235,815.  Salaries and related
expense  increased   approximately   $269,500  relating  primarily  to  staffing
additions,  related increased benefit  expenses,  and stock option  compensation
expense,   which  approximated   $166,250.   General  office  expense  increased
approximately  $10,000 related primarily to the lease of additional office space
offset by decreases in telephone, postage and office supplies. Other general and
administrative expense decreased  approximately $43,500 resulting primarily from
a decrease in legal  expense in the amount of $97,500  related to the  Company's
acquisition  of FSC that was  consummated  in the  prior  year;  and  offset  by
increased  travel  related  expense  ($29,500  increase),  the  use  of  outside
consultants ($11,500 increase) in pursuit of additional capital and expansion of
the Company's  business into other states and other expense  attributable to the
operation  of  FSC.  Legal  and  other  professional  expenses  incurred  in the
three-month period ended February 28, 2007 of approximately  $167,000 related to
a proposed  financing that is currently being explored has been deferred pending
final  outcome of the  proposed  financing.  Should the  proposed  financing  be
consummated,  the deferred costs will be  capitalized as a cost thereof.  Should
the proposed financing be abandoned,  the deferred costs will be expensed in the
period of such abandonment.

                                       7
<PAGE>

J&C is the investment  advisor to the Jacobs & Company Mutual Fund (the "Fund").
While  the Fund is  responsible  for its own  operating  expenses,  J&C,  as the
advisor,  has agreed to limit the Fund's aggregate annual operating  expenses to
2.00% of the average net assets.  Under this expense limitation  agreement,  J&C
absorbed  approximately  $133,000 of the Fund's  operating  expenses  during the
nine-month   period  ended  February  28,  2007  as  compared  to  $107,000  for
corresponding  period from the previous year. This increase can be attributed to
a decline in the average size of the Fund over the  respective  periods.  As the
Fund grows in size (of assets under  management),  expenses (in excess of the 2%
level)  absorbed by J&C will decrease until the Fund reaches  sufficient size to
support its on-going  operating  costs. In contrast,  as the Fund grows in size,
revenues from investment advisory fees will increase.  Additionally,  should the
Fund's operating expense ratio fall below the 2.00% level, the costs absorbed by
J&C are now  reimbursable  to it for a  period  of up to  three  years.  For the
nine-month period ended February 28, 2007, the Fund's  investment  advisory fees
decreased to $35,160 as compared with $39,847 for the  corresponding  nine-month
period ended February 28, 2006 as a result of a decrease in the Fund size.


GAIN ON EXTINGUISHMENT OF DEBT

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


INTEREST EXPENSE AND INTEREST INCOME

Interest expense for the nine-month  period ended February 28, 2007 was $137,870
as compared with $370,613 for the corresponding  period ended February 28, 2006.
Additionally,  included in  interest  expense for the  nine-month  period  ended
February 28, 2007 is an additional accrual of approximately  $88,525 relating to
additional interest owed on the Company's payroll tax liability, based on recent
notices provided by the Internal Revenue Service.  Such amount has been included
in other liabilities in the Consolidated Condensed Balance Sheet. Excluding this
amount,  the  decrease  in  interest  expense  is  largely  attributable  to the
conversion  of previous  indebtedness  of the Company  incurred to fund  ongoing
operations to Series B preferred stock.

Other income  reflects  interest  earned on amounts due from a related party and
income from other advisory services provided.

                                       8
<PAGE>


ACCRETION AND DIVIDENDS

Accretion of mandatorily redeemable convertible preferred stock in the amount of
$989,944 is  comprised  of  accretion  of  discount  in the amount of  $368,078,
accrued but unpaid  dividends on preferred stock in the amount of $611,149,  and
$10,717 by which the  redemption  price  exceeded the carrying value of redeemed
shares  of  Series  B  preferred  stock.  Accretion  of  mandatorily  redeemable
convertible  preferred stock in the amount of $78,035 for the nine-month  period
ended February 28, 2006 is comprised  solely of accretion of discount since date
of issuance on December 31, 2005.


CRITICAL ACCOUNTING POLICIES AND ESTIMATES

INTANGIBLE ASSETS

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


RESERVE FOR LOSSES AND LOSS EXPENSES

Reserves  for  unpaid  losses  and loss  adjustment  expenses  of the  insurance
subsidiary are estimated using individual  case-basis  valuations in conjunction
with estimates derived from industry and company experience. FSC has experienced
no claims for losses as of February 28, 2007.

FSC is currently  licensed to write surety in West  Virginia and has focused its
primary efforts  towards coal permit bonds. By nature,  reclamation of land that
has been disturbed by mining operations is a highly regulated process by federal
and state  jurisdictions  and such bonds are generally  long-term in nature with
mining operations and reclamation work being conducted in unison as the property
is being mined.  Additionally,  no two principals or properties are alike due to
varied company structures and unique geography and geology of each site.

In underwriting  such bonds,  management  obtains  estimates of costs to reclaim
such  properties,  in accordance with the  specifications  of the mining permit,
prepared by independent outside professionals experienced in this field of work.
Such  estimates  are then  periodically  updated and  compared  with  marketable
securities  pledged and held in a collateral account in which FSC has a security
interest as  collateral  for the surety  bond,  to  significantly  mitigate  the
exposure to loss.  Should the principal default in its obligation to reclaim the

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<PAGE>

property as specified in the mining permit, FSC would then use the funds held in
the collateral account to reclaim the property or forfeit the face amount of the
surety bond.  Losses can occur if the costs of reclamation  exceed the estimates
obtained   at  the  time  the  bond   was   underwritten   or  upon   subsequent
re-evaluations,  if  sufficient  collateral  is not  obtained  and  increased if
necessary, or if the collateral held has experienced  significant  deterioration
in value.

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


ANALYSIS OF LIQUIDITY, CAPITAL RESOURCES AND FINANCIAL POSITION

Pursuant to the  approval  of the  transaction  to acquire FSC by the  Insurance
Commissioner  of the State of West  Virginia,  the Company is  restricted in its
ability to withdraw  monies from FSC without the prior approval of the Insurance
Commissioner.  Accordingly,  substantially all of the Company's  investments and
cash in the amount of $3,848,768 as of February 28, 2007 are  restricted to FSC.
Furthermore,  additional  capital  raised  pursuant  to the  sale  of  Series  A
preferred   stock  of  the   Company  in   connection   with  the   issuance  of
partially-collateralized  surety  bonds must  generally  be  contributed  by the
Company  into  the  surplus  accounts  of FSC.  Accordingly,  because  of  these
restrictions, as of February 28, 2007, a deficiency in working capital exists as
the  Company's  current  liabilities  exceed  its  available  current  assets by
approximately  $1,590,000.  The Company's  ability to pay dividends accrued with
respect to its Series A and Series B preferred  stock will be limited until such
time as current  liabilities  are  substantially  liquidated and sufficient cash
flow from operations is being generated to service such obligations.

For the nine-month  period ended  February 28, 2007,  the Company  experienced a
deficiency  in  cash  flow  from  operations  of  approximately  $690,000.  Such
deficiency  was funded through  short-term  borrowings and the sale of shares of
the Company's Series B Preferred stock.  While management expects revenue growth
and  cash  flow  to  increase  significantly  as  its  business  plan  is  fully
implemented,  it anticipates that losses and working capital  deficiencies  will
continue until FSC is able to develop a substantial book of business. Management
remains  encouraged  as to the  overall  market  conditions  and  the  need  for
additional  bonding  capacity,  by both  large  and  small  companies,  although
additional  capital  and  seasoning  are  anticipated  to  be  impediments  that
management  needs to mitigate and overcome in order to expand its business  both
within West Virginia and into other states. Accordingly, management continues to
seek additional capital to increase the capacity of its insurance subsidiary and
to fund  continuing  operations as the business is being fully  developed.  As a
result  of being  able to share  resources  (primarily  personnel)  to  minimize
operating  costs,  management  expects  FSC to be at  break-even  or  cash  flow
positive in fiscal 2007, although the use of its assets and profits are expected
to remain restricted to its stand-alone operation by regulatory  authority.  And
while  growth  of the FSC  business  will  provide  additional  cash flow to the
Company's  other  subsidiaries,  J&C and TSA,  it is  anticipated  that  working

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<PAGE>

capital  deficiencies  will  need  to be  met  either  through  the  raising  of
additional  capital  or  borrowings.  However,  there can be no  assurance  that
additional  capital (or debt financing) will be available when and to the extent
required or, if  available,  on terms  acceptable  to the Company.  Accordingly,
concerns  as to the  Company's  ability  to  continue  as a  going  concern  are
substantial.  The consolidated condensed financial statements do not include any
adjustments that might result from the outcome of this uncertainty.


ITEM 3. CONTROLS AND PROCEDURES

EVALUATION OF INTERNAL AND DISCLOSURE CONTROLS

As required by Rule 13a-15 under the Securities  Exchange Act of 1934, as of the
end of the period covered by the quarterly  report,  being February 28, 2007, we
have carried out an evaluation of the  effectiveness of the design and operation
of the Company's disclosure controls and procedures. This evaluation was carried
out  under  the  supervision  and  with  the   participation  of  the  Company's
management,  including  Company's  president and chief financial officer.  Based
upon that evaluation,  the Company's  president and chief financial officer have
concluded that the Company's disclosure controls and procedures are effective as
of the end of the period  covered by this report.  There have been no changes in
our internal  controls over financial  reporting  that occurred  during the most
recent fiscal quarter that have materially affected, or are reasonably likely to
materially affect our internal controls over financial reporting.



                           PART II - OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

None.

ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES

In January 2007, 30 shares of Series A Preferred  Stock were issued  pursuant to
ongoing bonding programs of FSC in exchange for cash in the amount of $30,000.

In December 2006,  200 shares of Series B Preferred  Stock and 200,000 shares of
common stock were issued to individuals  (less than 5% shareholders) in exchange
for cash in the amount of $200,000.

In January  2007,  10 shares of Series B  Preferred  Stock and 10,000  shares of
common stock were issued to an individual (less than 5% shareholder) in exchange
for cash in the amount of $10,000.

In February  2007,  50 shares of Series B Preferred  Stock and 50,000  shares of
common stock were issued to an individual (less than 5% shareholder) in exchange
for cash in the amount of $50,000.

                                       11
<PAGE>

By its terms, the Series B preferred stock provides the holder with a conversion
privilege  pursuant  to which each share of such stock may be  converted  at the
option of the holder into 1,000 shares of common stock.

Certificates  of  Designations,  Powers,  Preferences  and  Rights  of  Series A
Preferred  Stock and Series B Preferred  Stock adopted by the Board of Directors
of the  Company  on  December  22,  2005 are set forth as  Exhibits  4.1 and 4.2
respectively.

The  issuance  of the  aforementioned  securities  is exempt  from  registration
provisions of the Securities Act of 1933, as amended (the "Securities  Act"), by
reason of the provision of Section 4(2) of the Securities  Act, as  transactions
not involving any public  offering,  in reliance upon,  among other things,  the
representations made by the investors, including representations regarding their
status  as  accredited  investors  (as  such  term is  defined  under  Rule  501
promulgated  under the Securities Act), and their  acquisition of the securities
for  investment  and not  with a  current  view  to  distribution  thereof.  The
securities  contain  a  legend  to the  effect  that  such  securities  are  not
registered  under the  Securities  Act or  pursuant  to an  exemption  from such
registration. The issuance of the securities was not underwritten.

ITEM 3. DEFAULTS UPON SENIOR SECURITIES

None.

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

None.

ITEM 5. OTHER INFORMATION

None.





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<PAGE>

ITEM 6. EXHIBITS

     3.1  Company's Articles of Incorporation (1)
     3.2  Company's By-laws (1)
     3.3  Certificate of the  Designations,  Powers,  Preferences  and Rights of
          Series A Preferred Stock of Jacobs Financial Group (1)
     3.4  Certificate of the  Designations,  Powers,  Preferences  and Rights of
          Series B Preferred Stock of Jacobs Financial Group (1)
     4.1  Certificate of the  Designations,  Powers,  Preferences  and Rights of
          Series A Preferred Stock of Jacobs Financial Group (1)
     4.2  Certificate of the  Designations,  Powers,  Preferences  and Rights of
          Series B Preferred Stock of Jacobs Financial Group (1)
     31.1 Certification  of Chief Executive  Officer  pursuant to Rule 13a-146.1
          promulgated under the Securities Exchange Act of 1934
     31.2 Certification  of Chief Financial  Officer  pursuant to Rule 13a-146.1
          promulgated under the Securities Exchange Act of 1934
     32.1 Certification of Chief Executive Officer pursuant to 18 U.S.C. Section
          1950, as adopted pursuant to Section 906 of the  Sarbanes-Oxley Act of
          2002
     32.2 Certification of Chief Financial Officer pursuant to 18 U.S.C. Section
          1950, as adopted pursuant to Section 906 of the  Sarbanes-Oxley Act of
          2002

          (1)  Incorporated by reference to the Company's Current Report on form
               8-K dated December 29, 2005.



SIGNATURES


In accordance with the  requirements of the Exchange Act, the registrant  caused
this  report to be  signed on its  behalf  by the  undersigned,  thereunto  duly
authorized.

                          JACOBS FINANCIAL GROUP, INC.
                               ------------------
                                  (Registrant)

Dated: April 13, 2007                  By:    /s/ John M. Jacobs
                                       -----------------------------------
                                                  John M. Jacobs
                                                  President


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