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

                                    FORM 10-Q

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

                For the quarterly period ended November 30, 2008

                         Commission file number 0-21210

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


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



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

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

Indicate  by a check  mark  whether  the  registrant  (1) has filed all  reports
required to be filed by Section 13 or 15(d) of the  Securities  Exchange  Act of
1934  during the  proceeding  12 months  (or for such  shorter  period  that the
registrant was required to file such reports),  and (2) has been subject to such
filing requirements for the past 90 days.

               Yes[X]                              No[ ]

Indicate by check mark 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]

<PAGE>


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

               Yes[ ]                             No[X]


Indicate the number of shares outstanding of each of the registrant's classes of
common stock, as of the latest  practicable date:  174,077,272  shares of common
stock as of January 13, 2009.


PART I- FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

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




Financial Statements (Unaudited)                                       Page
                                                                   -----------

Consolidated Condensed Balance Sheets                                  F-1
Consolidated Condensed Statements of Operations                        F-2
Consolidated Condensed Statements of Comprehensive Income (Loss)       F-3
Consolidated Condensed Statements of Cash Flows                        F-4
Consolidated Condensed Statement of Mandatorily Redeemable           F-5 and
 Preferred Stock and Stockholders Equity (Deficit)                     F-6
Notes to Consolidated Condensed Financial Statements                   F-7





















                                      -1-
<PAGE>
JACOBS FINANCIAL GROUP, INC.
CONSOLIDATED CONDENSED BALANCE SHEETS (UNAUDITED)
<TABLE>
<CAPTION>
                                                                                  NOVEMBER 30, 2008       MAY 31, 2008
                                                                                  -----------------     ----------------
<S>                                                                               <C>                   <C>
ASSETS

INVESTMENTS AND CASH:

Bonds available for sale, at market value                                         $     1,005,705     $       105,866
 (amortized cost - 11/30/08 $1,015,939; 05/31/08 $98,774)
Mortgage-back securities held to maturity, at amortized costs                           4,809,084           3,826,688
 (market value - 11/30/08 $4,732,359; 05/31/08 $3,800,909)
Short-term investments, at cost (approximates market value)                                46,733           1,176,056
Cash                                                                                       67,931              48,640
                                                                                  -----------------     ----------------
                                        TOTAL INVESTMENTS AND CASH                      5,929,453           5,157,250

Investment income due and accrued                                                          27,453              19,892
Premiums and other accounts receivable                                                     60,677              47,353
Deferred policy acquisition costs                                                          65,441              75,940
Furniture and equipment, net of accumulated depreciation of
 $127,427 and $120,931, respectively                                                       28,975              29,168
Other assets                                                                              130,165             298,163
Intangible assets                                                                         150,000             150,000
                                                                                  -----------------     ----------------
                                                        TOTAL ASSETS              $     6,392,164     $     5,777,766
                                                                                  =================     ================
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)

Reserve for losses and loss expenses                                              $       339,684     $       246,651
Reserve for unearned premiums                                                             254,017             277,208
Accrued expenses and professional fees payable                                            456,981             412,039
Accounts payable                                                                          304,647             315,577
Demand note payable to related party                                                      275,100               1,000
Notes payable                                                                           3,785,077           2,967,016
Accrued interest payable                                                                  102,223              71,483
Other liabilities                                                                          12,747              16,402
                                                                                  -----------------     ----------------
                                                        TOTAL LIABILITIES               5,530,476           4,307,376

SERIES A PREFERRED STOCK, $.0001 par value per share; 1 million shares
authorized; 2,404 and 2,230 shares issued and outstanding at November 30 and
May 31, 2008, respectively; stated liquidation value of $1,000 per share                2,539,439           2,308,933

SERIES B PREFERRED  STOCK,  $.0001 par value per share; 9,941.341 shares
authorized; 9,621.940 shares issued and outstanding at November 30 and
May 31, 2008; stated liquidation value of $1,000 per share                             10,669,936           9,936,866
                                                                                  -----------------     ----------------
                TOTAL MANDATORILY REDEEMABLE PREFERRED STOCK                           13,209,375          12,245,799

COMMITMENTS AND CONTINGENCIES (SEE NOTES)

STOCKHOLDERS' EQUITY (DEFICIT)

Common stock, $.0001 par value per share; 490 million shares
authorized; 174,077,272 and 166,091,242 shares issued and
outstanding at November 30 and May 31, 2008, respectively                                  17,408              16,609
Additional paid in capital                                                              2,509,675           2,423,537
Accumulated deficit                                                                   (14,857,875)        (13,222,038)
Accumulated other comprehensive income (loss)                                             (16,895)              6,483
                                                                                  -----------------     ----------------
                         TOTAL STOCKHOLDERS' EQUITY (DEFICIT)                         (12,347,687)        (10,775,409)
                                                                                  -----------------     ----------------
             TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)                 $     6,392,164       $   5,777,766
                                                                                  =================     ================
</TABLE>
                            See accompanying notes.
                                      F-1
<PAGE>
JACOBS FINANCIAL GROUP, INC,
CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS (UNAUDITED)
<TABLE>
<CAPTION>

                                                                 THREE MONTHS ENDED                  SIX MONTHS ENDED
                                                                    NOVEMBER 30                         NOVEMBER 30
                                                            -----------------------------      ---------------------------

                                                                2008             2007              2008            2007
                                                            ------------     ------------      ------------    -----------
<S>                                                         <C>              <C>               <C>             <C>
REVENUES:
Investment advisory services                                $   58,032       $   63,297        $  117,561      $  129,617
Insurance premiums and commissions                             161,531           92,372           319,037         183,609
Net investment income                                           73,163           53,221           141,843         107,060
Net realized investment gains (losses)                               -             (551)                -            (551)
                                                            ------------     ------------      ------------    -----------
                                   TOTAL REVENUES              292,726          208,339           578,441         419,735


EXPENSES:

Incurred policy losses                                           48,249           26,664            93,033          51,979
Insurance policy acquisition costs                               39,982           23,158            79,011          49,101
General and administrative                                      402,725          341,846           938,664         648,597
Mutual fund costs                                                31,773           45,178            73,340          85,510
Depreciation                                                      3,300            1,992             6,496           4,141
                                                            ------------     ------------      ------------    -----------
                                   TOTAL EXPENSES               526,029          438,838         1,190,544         839,328
                                                            ------------     ------------      ------------    -----------

                       NET INCOME (LOSS) FROM OPERATIONS       (233,303)        (230,499)         (612,103)       (419,593)

Interest expense                                               (116,231)         (90,719)         (235,009)       (121,711)
Interest income                                                       2            5,816               852           5,818
                                                            ------------     ------------      ------------    -----------

                                 NET INCOME (LOSS)             (349,532)        (315,402)         (846,260)       (535,486)

Accretion of Mandatorily Redeemable Convertible
Preferred Stock, including accrued dividends                   (400,277)        (364,061)         (789,576)       (718,152)
                                                            ------------     ------------      ------------    -----------

   NET INCOME (LOSS) ATTRIBUTABLE TO COMMON STOCKHOLDERS    $  (749,809)     $  (679,463)      $(1,635,836)    $(1,253,638)
                                                            ============     ============      ============    ===========


BASIC AND DILUTIVE NET INCOME (LOSS) PER SHARE:

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


WEIGHTED-AVERAGE SHARES OUTSTANDING                         173,595,579      157,122,836       171,117,806     157,073,792
                                                            ============     ============      ============    ===========

</TABLE>





                            See accompanying notes.
                                      F-2
<PAGE>
JACOBS FINANCIAL GROUP, INC,
CONSOLIDATED CONDENSED STATEMENTS OF COMPREHENSIVE INCOME (LOSS) (UNAUDITED)
<TABLE>
<CAPTION>


                                                              THREE MONTHS ENDED                     SIX MONTHS ENDED
                                                                 NOVEMBER 30                           NOVEMBER 30
                                                          ----------------------------        -----------------------------

                                                              2008            2007                2008            2007
                                                          -----------      -----------        -------------   -------------
<S>                                                       <C>              <C>                <C>             <C>
COMPREHENSIVE INCOME (LOSS):

 Net income (loss) attributable to common shareholders    $ (749,809)      $ (679,463)        $ (1,635,836)   $ (1,253,638)

OTHER COMPREHENSIVE INCOME (LOSS):

 Unrealized (depreciation) appreciation of investments       (18,506)           1,261              (23,378)          1,261
                                                          -----------      -----------        -------------   -------------

    COMPREHENSIVE INCOME (LOSS) ATTRIBUTABLE TO           $ (768,315)      $ (678,202)        $ (1,659,214)   $ (1,252,377)
     COMMON STOCKHOLDERS                                  ===========      ===========        =============   =============
</TABLE>




























                            See accompanying notes.
                                      F-3

<PAGE>
JACOBS FINANCIAL GROUP, INC,
CONSOLIDATED CONDENSED STATEMENT OF CASH FLOWS (UNAUDITED)
<TABLE>
<CAPTION>
                                                            THREE MONTHS ENDED NOVEMBER 30,   SIX MONTHS ENDED NOVEMBER 30,
                                                            -------------------------------   -----------------------------
                                                                  2008           2007             2008          2007
                                                            --------------   --------------   ------------  ---------------
<S>                                                         <C>              <C>              <C>           <C>
CASH FLOWS FROM OPERATING ACTIVITIES

Net Income (Loss)                                           $   (349,532)    $   (315,402)    $   (846,260) $   (535,486)

Adjustments  to reconcile  net income  (loss) to net
 cash  provided by (used in) operating activities:
Unearned premium                                                 (68,545)         (57,946)         (23,191)     (105,619)
Stock option expense                                              13,491           28,593           26,982        57,186
Stock issued (or to be issued) in connection with
 financing arrangements                                           10,671           25,761           31,828        28,187
Provision for loss reserves                                       48,249           26,664           93,033        51,979
Amortization of premium                                           10,381            3,561           19,145         6,951
Depreciation                                                       3,300            1,992            6,495         4,141
Premium and other receivables                                     (8,283)             909          (13,324)       (2,437)
Accretion of discount                                             (2,396)          (3,137)          (3,674)       (6,172)
Investment income due and accrued                                    351              557           (6,740)        1,344
Realized (gain) loss on sale of securities                             -              551                -           551
Deferred policy acquisition costs                                 13,655           14,543           10,499         4,352
Change in operating assets and liabilities:
        Other assets                                              75,374         (397,733)         190,072      (389,833)
        Accounts payable                                          48,629          (61,173)         (10,930)     (115,186)
        Accrued expenses and other liabilities                   (26,033)        (510,996)          72,027      (495,513)
                                                            --------------   --------------   ------------  ---------------
    NET CASH FLOWS FROM (USED IN) OPERATING ACTIVITIES          (230,688)      (1,243,256)        (454,038)   (1,495,555)

CASH FLOWS FROM INVESTING ACTIVITIES

Short-term loan                                                        -          (50,000)               -       (50,000)
(Increase) decrease in short-term investments                    276,751          (80,614)       1,129,323      (205,872)
Costs of bonds acquired                                         (356,101)               -         (556,101)            -
Costs of mortgaged-backed securities acquired                   (456,220)        (320,860)      (1,998,787)     (320,860)
Purchase of equity securities                                          -          (25,000)               -       (25,000)
Redemption of bonds upon call or maturity                        200,000          150,000          200,000       150,000
Sale of securities available for sale                                  -          169,330                -       169,330
Repayment of mortgage-backed securities                          245,909           71,655          439,035       140,319
Purchase of furniture and equipment                              (6,302)                -           (6,302)           -
                                                            --------------   --------------   ------------  ---------------
    NET CASH FLOWS FROM (USED IN) INVESTING ACTIVITIES          (95,963)          (85,489)        (792,832)     (142,083)

CASH FLOWS FROM FINANCING ACTIVITIES

Proceeds from related party debt                                278,500                 -          306,500       127,200
Repayment of related party debt                                  (3,400)         (127,200)         (32,400)     (142,963)
Proceeds from borrowings                                         15,000         2,300,000          955,000     2,450,000
Repayment of borrowings                                         (17,355)         (139,649)        (136,939)     (154,885)
Proceeds from issuance of Series A preferred stock               56,000            30,000          174,000        70,000
Proceeds from issuance of Series B preferred stock                    -                 -                -        25,000
Redemption of Series B preferred stock                                -                 -                -             -
Proceeds from issuance of common stock                                -                 -                -             -
Proceeds from exercise of common stock warrants                       -                 -                -             -
                                                            --------------   --------------   ------------  ---------------
   NET CASH FLOWS FROM FINANCING ACTIVITIES                     328,745         2,063,151        1,266,161     2,374,352

NET INCREASE (DECREASE) IN CASH                                   2,094           734,406           19,291       736,714

CASH AT BEGINNING OF PERIOD                                      65,837            27,606           48,640        25,298
                                                            --------------   --------------   ------------  ---------------

CASH AT END OF PERIOD                                       $    67,931      $    762,012     $     67,931  $    762,012
                                                            ==============   ==============   ============  ===============

SUPPLEMENTAL DISCLOSURES

Interest paid                                               $   159,198      $     19,025     $    167,325  $     41,531
Income taxes paid                                                     -                 -                -             -

Non-cash investing and financing transaction:
 Additional consideration paid for issuance of debt              10,671            25,761           31,828        28,187
 Reclassification of bonds held-to-maturity to bonds
 available fOr sale                                                   -           998,280                -       998,280
</TABLE>
                            See accompanying notes.
                                      F-4
<PAGE>
<TABLE>
<CAPTION>

JACOBS FINANCIAL GROUP, INC.
CONSOLIDATED CONDENSED STATEMENT OF MANDATORILY REDEEMABLE PREFERRED STOCK AND STOCKHOLDERS' EQUITY (DEFICIT) (UNAUDITED)
FOR THE THREE MONTH PERIOD ENDED NOVEMBER 30, 2008
                                                                --------------------------------------------------------------------

                                                                                   STOCKHOLDERS' EQUITY (DEFICIT)
                                                                --------------------------------------------------------------------
                          SERIES A             SERIES B                                                    ACCUMULATED
                         MANDATORILY          MANDATORILY                                                     OTHER
                         REDEEMABLE           REDEEMABLE                                                     COMPRE-
                                              CONVERTIBLE                           ADDITIONAL               HENSIVE
                       PREFERRED STOCK      PREFERRED STOCK                           PAID-IN    ACCUMULATED  INCOME
                      SHARES     AMOUNT    SHARES      AMOUNT     SHARES     AMOUNT   CAPITAL      DEFICIT    (LOSS)       TOTAL
                      ------  ---------- --------- -----------  ----------- ------- ---------- ------------- --------- -------------
<S>                   <C>     <C>        <C>       <C>          <C>         <C>     <C>        <C>           <C>       <C>
BALANCE,
AUGUST 31, 2008        2,348  $2,454,434 9,621.940 $10,298,664  169,206,823 $16,921 $2,486,000 $(14,108,066)  $ 1,611  $(11,603,534)

Issuance of Series A
and B Preferred Stock
and common stock          56      56,000         -           -            -       -          -            -         -             -

Issuance of common
stock as additional
consideration for
financing arrangements     -           -         -           -    4,870,449     487     40,902            -         -        41,389

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

Accretion of
mandatorily redeemable
convertible preferred
stock                      -       4,206         -     136,477            -       -          -     (140,683)        -      (140,683)

Accrued dividends of
mandatorily redeemable
convertible preferred
stock                      -      24,799         -     234,795            -       -          -     (259,594)        -      (259,594)

Expense of common
shares to be issued in
connection with
financing arrangements     -           -         -           -            -       -      8,240            -         -         8,240

Common stock option
expense                    -           -         -           -            -       -     13,491            -         -        13,491

Unrealized net gain on
available for sale
securities                 -           -         -           -            -       -          -            -   (18,506)      (18,506)

Net income (loss),
three month period
ended November 30, 2008    -           -         -           -            -       -          -     (349,532)        -      (349,532)
                       -----  ---------- --------- -----------  ----------- ------- ---------- ------------- --------- -------------
BALANCE,
NOVEMBER 30, 2008      2,404  $2,539,439 9,621.940 $10,669,936  174,077,272 $17,408 $2,509,675 $(14,857,875) $(16,895) $(12,347,687)
                       =====  ========== ========= ===========  =========== ======= ========== ============= ========= =============
                       ---------------------------------------  --------------------------------------------------------------------
</TABLE>

                            See accompanying notes.
                                      F-5
<PAGE>
<TABLE>
<CAPTION>
JACOBS FINANCIAL GROUP, INC.
CONSOLIDATED  STATEMENT OF MANDATORILY REDEEMABLE PREFERRED STOCK AND STOCKHOLDERS' EQUITY (DEFICIT)
FOR THE SIX MONTH PERIOD ENDED NOVEMBER 30, 2008
                                                                --------------------------------------------------------------------

                                                                                   STOCKHOLDERS' EQUITY (DEFICIT)
                                                                --------------------------------------------------------------------
                          SERIES A             SERIES B                                                    ACCUMULATED
                         MANDATORILY          MANDATORILY                                                     OTHER
                         REDEEMABLE           REDEEMABLE                                                     COMPRE-
                                              CONVERTIBLE                           ADDITIONAL               HENSIVE
                       PREFERRED STOCK      PREFERRED STOCK                           PAID-IN    ACCUMULATED  INCOME
                      SHARES     AMOUNT    SHARES      AMOUNT     SHARES     AMOUNT   CAPITAL      DEFICIT    (LOSS)       TOTAL
                      ------  ---------- --------- -----------  ----------- ------- ---------- ------------- --------- -------------
<S>                   <C>     <C>        <C>       <C>          <C>         <C>     <C>        <C>           <C>       <C>
BALANCE,
MAY 31, 2008           2,230  $2,308,933 9,621.940 $ 9,936,866  166,091,242 $16,609 $2,423,537 $(13,222,038)  $ 6,483  $(10,775,409)

Issuance of Series A
and B Preferred Stock
and common stock         174     174,000         -           -            -       -          -            -         -             -

Issuance of common
stock as additional
consideration for
financing arrangements     -           -         -           -    7,986,030     799     68,716            -         -        69,515

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

Accretion of
mandatorily redeemable
convertible preferred
stock                      -       8,355         -     270,562            -       -          -     (278,917)        -      (278,917)

Accrued dividends of
mandatorily redeemable
convertible preferred
stock                      -       48,151        -     462,508            -       -          -     (510,659)        -      (510,659)

Expense of common
shares to be issued in
connection with
financing arrangements     -           -         -           -            -       -     29,398            -         -        29,398

Common stock option
expense                    -           -         -           -            -       -     26,982            -         -        26,982

Unrealized net gain on
available for sale
securities                 -           -         -           -            -       -          -            -   (23,378)      (23,378)

Net income (loss),
six month period
ended November 30, 2008    -           -         -           -            -       -          -     (846,261)        -      (846,261)
                       -----  ---------- --------- -----------  ----------- ------- ---------- ------------- --------- -------------
BALANCE,
NOVEMBER 30, 2008      2,404  $2,539,439 9,621.940 $10,669,936  174,077,272 $17,408 $2,509,675 $(14,857,875) $(16,895) $(12,347,687)
                       =====  ========== ========= ===========  =========== ======= ========== ============= ========= =============
                       ---------------------------------------  --------------------------------------------------------------------
</TABLE>

                            See accompanying notes.
                                      F-6
<PAGE>

JACOBS FINANCIAL GROUP, INC.

NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (UNAUDITED)

NOTE A - BASIS OF PRESENTATION
------------------------------

The accompanying  unaudited financial  statements are of Jacobs Financial Group,
Inc.  (the  "Company" or "JFG").  These  financial  statements  were prepared in
accordance with generally accepted  accounting  principles for interim financial
information and Article 8-03 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 six month periods  ended  November 30, 2008,  are not  necessarily
indicative of the results of operations that can be expected for the fiscal year
ending May 31, 2009.  For further  information,  refer to the Company's  audited
financial  statements  and  footnotes  thereto  included in Item 8. of Form 10-K
filed on September 8, 2008.

RECLASSIFICATIONS

Notes payable to a related party has been  reclassified  in the  presentation of
the  Consolidated  Condensed  Balance  Sheet as of May 31, 2008 to be consistent
with the presentation in the Consolidated Condensed Balance Sheet as of November
30, 2008. This reclassification had no impact on previously reported net income,
cash flow from operations or changes in shareholder equity.

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  (after  accretion  of
mandatorily redeemable convertible preferred stock, including accrued dividends)
of approximately  $3,333,000 and $2,661,000 for the years ended May 31, 2008 and
2007 and has incurred  losses of  approximately  $750,000 and $1,636,000 for the
three and  six-month  periods  ended  November 30, 2008.  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.

Expansion  of  FSC's  business  to  other  states  is a key  component  of fully
implementing the Company's business plan.  Regulatory  approval and licensing is
required for each state in which FSC seeks to conduct  business.  Management has
found that entry into other states (as a surety) has been difficult  without the
benefit of more substantial  capital and reserves,  due to FSC's status as a new
entry into this market, and based upon current financial condition of the parent
company.

In order to best  position  the  Company  to  accomplish  the  larger  financing
necessary to expand the  Company's  business  and  penetrate  new  markets,  the
Company  contracted to accomplish two acquisitions:  Reclamation  Surety Holding
Company,  Inc.  ("RSH")  and  Unione  Italiana  Reinsurance  Company  of America
("Unione")   (see  Note   G--Commitments)   that  the  Company   believes  would
substantially   enhance  the  business  and  prospects  of  the  Company.   Both

                                      F-7
<PAGE>
JACOBS FINANCIAL GROUP, INC.

NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (UNAUDITED)

acquisitions are contingent upon the Company's  obtaining  necessary  financing.
Additionally,  one of the acquisitions  (Unione,  an insurance  company) remains
contingent upon necessary regulatory approvals.

During fiscal 2008 and the three month period ended August 31, 2008, the Company
completed two rounds of bridge financing  totaling an aggregate of $3,500,000 in
order to pay expenses of  operations  and to pay fees and  expenses  incurred or
expected to be incurred in connection  with a larger  permanent  financing.  The
Company was not able to meet its December  2008 loan  amortization  payment with
respect to this financing and, thus, these  obligations are in default (See Note
I).

In June 2008,  JFG made a capital  contribution  in the amount of $500,000 (from
its  bridge-financing  proceeds discussed above) to FSC in order to increase its
capital and surplus beyond the $5.0 million statutory  requirement for surety in
the state of Ohio. In July 2008,  FSC filed its  application  with the Insurance
Commissioner  of Ohio to reactivate its insurance  license in Ohio and to obtain
authority to issue surety bonds in that state.  On August 5, 2008,  FSC received
approval to write the surety  line of business in Ohio from the Ohio  Department
of Insurance.

Recent turmoil in financial  markets has severely impacted the Company's efforts
to  accomplish  a  larger  permanent  financing.  While  efforts  have  not been
abandoned  and will  continue to be pursued,  to date,  no  commitment  has been
secured,  and there remains substantial doubt regarding the Company's ability to
obtain the necessary  financing to complete the  acquisitions of RSH and Unione.
Both time frames  provided  within the  acquisition  agreements  for closing the
transactions have expired, but neither agreement has been terminated.

Given current  financial  market  conditions  and the  uncertainties  as to when
stability will return to the financial markets, until permanent financing can be
secured, management will strive to reduce and then eliminate operating losses by
implementing  further measures to control and reduce costs while maintaining and
growing the Company's  current revenue base.  Unless permanent  financing can be
secured,  future  revenue growth can be expected to be achieved at a slower pace
than has been  projected  by the  Company.  Until  such time that the  Company's
operating costs can be serviced by the Company's revenue stream, management will
continue  to seek to raise  additional  funds  for  operations  through  private
placements  of stock,  other  long-term or permanent  financing,  or  short-term
borrowings.  However,  the  Company  cannot be  certain  that it will be able to
continue to obtain  adequate  funding in order to reasonably  predict whether it
will  be  able  to  continue  as a going  concern.  The  accompanying  financial
statements do not include any adjustments  that might result from the outcome of
this uncertainty.

NOTE B - 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)".

In September  2006, the Financial  Accounting  Standards  Board ("FASB")  issued
Statement  of  Financial  Accounting  Standards  "SFAS")  No.  157,  "Fair Value
Measurements" ("SFAS 157"). SFAS 157 defines fair value, establishes a framework
for measuring fair value in accordance with GAAP and expands  disclosures  about
fair value measurements.

                                      F-8
<PAGE>
JACOBS FINANCIAL GROUP, INC.

NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (UNAUDITED)

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.  SFAS 157 retains the  exchange  price  notion in the
definition of fair value and clarifies  that the exchange  price is the price in
an orderly transaction between market participants to sell the asset or transfer
the liability in the market in which the reporting entity would transact for the
asset or  liability.  SFAS 157  emphasizes  that  fair  value is a  market-based
measurement,  not an entity-specific  measurement and the fair value measurement
should be determined based on the assumptions that market participants would use
in pricing the asset or liability.  SFAS 157 expands disclosures surrounding the
use of fair value to measure assets and liabilities and specifically  focuses on
the sources  used to measure fair value.  In instances of recurring  use of fair
value measures using unobservable  inputs, SFAS 157 requires separate disclosure
of the effect on  earnings  for the period.  For fiscal  years  beginning  after
November  15,  2007,  companies  are  required to  implement  the  standard  for
financial  assets  and  liabilities,  as  well  as  for  any  other  assets  and
liabilities  that are  carried at fair value on a recurring  basis in  financial
statements.  In  February  2008,  the FASB  issued  Staff  Position  SFAS 157-2,
"Effective Date of FASB Statement No. 157" ("FSP SFAS 157-2"),  which delays the
effective  date of SFAS 157 for all  nonrecurring  fair  value  measurements  of
nonfinancial  assets and nonfinancial  liabilities  until fiscal years beginning
after  November 15, 2008. In October 2008,  the FASB issued Staff  Position SFAS
157-3, "Determining the Fair Value of a Financial Asset When the Market for That
Asset is Not Active" ("FSP SFAS 157-3"), which clarifies the application of SFAS
157 in a market  that is not active and  provides  an example to  illustrate  in
determining fair value in that market. FSP SFAS 157-3 was effective  immediately
upon  issuance.  The adoption of the  provisions  of SFAS No. 157 did not 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
currently provide any defined benefit postretirement plans, and accordingly, the
provisions of SFAS No. 158 have had no 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  beginning  after  November 15, 2007 although early adoption is
permitted.  Adoption of SFAS No. 159 has had no material impact on the Company's
results of operations or financial position.

In December  2007,  the FASB issued a revised  Statement No. 141 (revised  2007)
"Business  Combinations"  and  Statement No. 160  "Non-controlling  Interests in
Consolidated Financial Statements - an amendment of Accounting Research Bulletin
No. 51".

                                      F-9
<PAGE>
JACOBS FINANCIAL GROUP, INC.

NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (UNAUDITED)

Statement  No.  141 was  revised  to  improve  the  relevance,  representational
faithfulness,  and  comparability  of the  information  that a reporting  entity
provides in its financial  report about a business  combination and its effects.
The Statement  establishes  principles and requirements for how the acquirer: a)
recognizes  and measures in its financial  statements  the  identifiable  assets
acquired,  the  liabilities  assumed,  and any  noncontrolling  interest  in the
acquiree;  b)  recognizes  and measures  the  goodwill  acquired in the business
combination  or  a  gain  from  a  bargain  purchase;  and  c)  determines  what
information to disclose to enable users of the financial  statements to evaluate
the  nature  and  financial  effects  of the  business  combination.  While  the
Statement  retains the fundamental  requirement that the acquisition or purchase
method of  accounting  be used for all  business  combinations,  it replaces the
cost-allocation  process  that  resulted  in not  recognizing  some  assets  and
liabilities at the acquisition date and measuring some assets and liabilities at
amounts  other than fair  market  value at the  acquisition  date.  Among  other
matters,   the  revised   Statement   requires  that   acquisition-related   and
restructuring  costs be recognized  separately from the business  combination as
expenses  in the  periods  in which the costs are  incurred  and  provides  that
"bargain   purchases"   (those   business   combinations   in  which  the  total
acquisition-date  fair value of the identifiable net assets acquired exceeds the
fair  value  of the  consideration  transferred  plus  any  non-controlling,  or
minority,  interest  in the  acquiree)  be  recognized  in the  earnings  of the
acquirer  as  a  gain.  This  Statement   applies   prospectively   to  business
combinations  for which the acquisition date is on or after the beginning of the
first annual reporting  period beginning on or after December 15, 2008.  Earlier
adoption  is  prohibited.  Application  of FAS 141R would be  effective  for any
acquisitions that are consummated by the Company after May 31, 2009.

Statement  No. 160 was  issued to  improve  the  relevance,  comparability,  and
transparency of financial  information for the reporting  entity by establishing
accounting and reporting standards attributable to noncontrolling,  or minority,
interests  in  subsidiaries  included  in the  reporting  entity's  consolidated
financial statements. This Statement clarifies that a noncontrolling interest in
a subsidiary is an ownership interest in the consolidated  entity that should be
reported  as  equity  in the  consolidated  financial  statements  and  requires
consolidated  net  income  to  be  reported  at  amounts  that  include  amounts
attributable to both the parent and the noncontrolling  interest.  The Statement
also  provides  a single  method for  accounting  for  changes  in the  parent's
ownership interest in a subsidiary that does not result in  deconsolidation,  as
well as  recognition  of gain or loss when a subsidiary is  deconsolidated  as a
result of an ownership  change in which the parent  ceases to have a controlling
financial  interest  in the  subsidiary,  and  expanded  disclosures  to clearly
identify and  distinguish  between the interests of the parent's  owners and the
interests  of the  noncontrolling  owners of a  subsidiary.  This  Statement  is
effective  for fiscal  years,  and interim  periods  within those fiscal  years,
beginning on or after December 15, 2008.  Earlier  adoption is prohibited.  This
Statement shall be applied  prospectively as of the beginning of the fiscal year
in which this Statement is initially  applied,  except for the  presentation and
disclosure requirements,  which shall be applied retrospectively for all periods
presented.  Management  does not expect the  application of Statement No. 160 to
have a material  impact on the  Company's  results of  operations  or  financial
position.

In March 2008, the FASB issued Statement No. 161  "Disclosures  about Derivative
Instruments  and Hedging  Activities--an  amendment of FASB  Statement No. 133".
This Statement  changes the disclosure  requirements for derivative  instruments
and hedging  activities in order to provide  improved  transparency of financial
reporting with respect to derivative  instruments and hedging  activities.  This
Statement  is effective  for  financial  statements  issued for fiscal years and
interim  periods   beginning  after  November  15,  2008,  with  early  adoption
encouraged.  The  Company  does  not  currently  employ  the  use of  derivative
instruments  or engage  in  hedging  activities  and thus the  issuance  of this
Statement is not expected to have any impact on the Company's  current financial
statement disclosure requirements.

                                      F-10
<PAGE>
JACOBS FINANCIAL GROUP, INC.

NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (UNAUDITED)

In May 2008,  the FASB issued  Statement  No. 162 "The  Hierarchy  of  Generally
Accepted  Accounting  Principles".  This  Statement  identifies  the  sources of
accounting  principles and the framework for selecting  principles to be used in
the  preparation of financial  statements of  nongovernmental  entities that are
presented in conformity with generally accepted accounting  principles (GAAP) in
the United  States (the GAAP  hierarchy).  This  Statement  became  effective on
November 16, 2008. The  application of Statement No. 162 did not have a material
impact on the Company's results of operations or financial position.

In May 2008,  the FASB  issued  Statement  No.  163  "Accounting  for  Financial
Guarantee  Insurance  Contracts - an  interpretation  of FASB Statement No. 60".
This  Statement  clarifies how  Statement No. 60 applies to financial  guarantee
insurance  contracts,  including the  recognition  and measurement to be used to
account  for  premium  revenue  and claim  liabilities.  A  financial  guarantee
insurance  contract  within  the  scope  of  this  Statement  generally  insures
investment securities in the form of municipal bonds or asset-backed securities.
FASB's  intent in setting the scope of this  Statement was to address the narrow
issue relating to those contracts for which diversity  existed in the accounting
for claim losses.  This Statement is effective for financial  statements  issued
for fiscal years  beginning  after  December 15, 2008,  and all interim  periods
within those  fiscal  years,  except for some  disclosures  about the  insurance
enterprise's  risk  management  activities,  which are  effective  for the first
interim period after issuance to the  Statement.  Except for those  disclosures,
earlier application is not permitted. Management does not expect the application
of  Statement  No. 163 to have a  material  impact on the  Company's  results of
operations or financial position.

NOTE C - INVESTMENTS AND FAIR VALUE DISCLOSURES
-----------------------------------------------

The Company  classifies a portion of investments as  available-for-sale,  and as
such,  they are carried at fair value.  The  amortized  cost of  investments  is
adjusted  for  amortization  of premiums and  accretion  of discounts  which are
included  in net  investment  income.  Changes in fair value are  reported  as a
component  of other  comprehensive  income,  exclusive  of  other-than-temporary
impairment  losses,  if any. For the three and six month periods ended  November
30,  2008 and 2007,  there have been no  other-than-temporary  impairments.  The
Company  intends and believes it has the ability to hold all  investments  in an
unrealized loss position until the expected  recovery in value,  which may be at
maturity.

The following table sets forth the amortized cost and estimated  market value of
bonds and equity  securities  available-for-sale  and carried at market value on
November 30, 2008.
<TABLE>
<CAPTION>
                                                        Gross Unrealized     Gross Unrealized
                                     Amortized Cost           Gains               Losses         Fair Market Value
                                   ------------------- -------------------- ------------------- --------------------
<S>                                <C>                 <C>                  <C>                 <C>
U.S. government agency             $           20,049  $                 -  $               47  $            20,002
U.S. government agency
mortgage-backed securities                    557,390                  310                 228              557,472
State and municipal securities                438,500                1,542              11,811              428,231
Equity securities(1)                           25,438                    -               6,661               18,777
                                   ------------------- -------------------- ------------------- --------------------
                                   $        1,041,377  $             1,852  $           18,747  $         1,024,482
                                   =================== ==================== =================== ====================
</TABLE>
-------------------------
(1) Equity securities  consist of an investment in the amount of $25,000 made in
the Jacobs & Company Mutual Fund ("the Fund") by its investment advisor,  Jacobs
& Company,  and is recorded in other assets at market value.  Dividends  paid by
the Fund at calendar year-end 2007 were reinvested.

                                      F-11
<PAGE>

The Company's  short-term  investments at November 30, 2008 of $46,733 consisted
of money-market investment funds.

The Company held the following investments,  by security type, with the positive
intent and ability to hold to maturity as of November 30, 2008 and as such, they
are  carried  at  amortized  cost.  For the three and six  month  periods  ended
November 30, 2008 and 2007, there have been no other-than-temporary impairments.
<TABLE>
<CAPTION>

                                     Amortized Cost     Gross Unrealized     Gross Unrealized    Fair Market Value
                                                              Gains               Losses
                                   ------------------- -------------------- ------------------- --------------------
<S>                                <C>                 <C>                  <C>                 <C>
U.S government agency
mortgage-backed securities         $        4,809,084  $                 -  $           76,725  $         4,732,359
                                   =================== ==================== =================== ====================
</TABLE>

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

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

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

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

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

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

                                      F-12
<PAGE>

JACOBS FINANCIAL GROUP, INC.

NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (UNAUDITED)


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

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

Assets measured at fair value on a recurring basis are summarized below:
<TABLE>
<CAPTION>

                                                                  November 30, 2008
                                         ---------------------------------------------------------------------
                                                  Fair Value Measurements Using
                                         ---------------------------------------------------
                                                                                                 Assets At
                                             Level 1          Level 2           Level 3         Fair Value
                                         ---------------- ----------------- ---------------- -----------------
<S>                                      <C>              <C>               <C>              <C>
Assets:
Fixed income securities at fair value    $             -  $      1,005,705  $             -  $      1,005,705
Equity securities at fair value                   18,777                 -                -            18,777
Short-term investments at fair value              46,733                 -                -            46,733
                                         ---------------- ----------------- ---------------- -----------------
Total Assets                             $        65,510  $      1,005,705  $             -  $      1,071,215
</TABLE>

The Company had no assets or  liabilities  measured at fair value on a recurring
basis using significant  unobservable inputs (Level 3) at either the adoption of
SFAS 157 on June 1, 2008 or at November 30, 2008.


NOTE D - OTHER ASSETS
---------------------

Included in other assets are escrow  deposits  relating to pending  acquisitions
and advance  deposits for  professional  fees relating to such  acquisitions and
certain  equity  financing  matters the Company has  endeavored  to undertake in
fiscal  2008 and 2009.  As of November  30 and May 31,  2008 such  balances  are
comprised of the following:

                                                   November 30,      May 31,
                                                      2008            2008
                                                 --------------- ---------------
Advance deposits for professional fees           $        1,311  $      133,498
Escrow deposits for proposed acquisitions                75,000         125,000
Mutual fund investment at market                         18,777          24,829
Unamortized loan acquisition costs                       26,072           3,060
Prepaid expense and other deposits                        9,005          11,776
                                                 --------------- ---------------
                                          Total  $      130,165  $      298,163
                                                 =============== ===============

Upon execution of the Merger Agreement with Reclamation  Surety Holding Company,
Inc. ("RSH"), the Company made a nonrefundable  deposit in the amount of $50,000
for the benefit of the RSH  shareholders,  which amount was to be applied toward
the  Merger  Consideration  at  closing.  The  closing  date for the  merger was
extended  to October 31, 2008 at which time  either  party could  terminate  the
agreement.  Upon expiration of such closing date, the non-refundable deposit was
written-off.

                                      F-13
<PAGE>
JACOBS FINANCIAL GROUP, INC.

NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (UNAUDITED)


Unamortized  loan  acquisition  costs represent the unamortized  value of common
shares  issued  in  connection  with  borrowings   under  the  second  round  of
bridge-financing  and are being  expensed over the term of the  bridge-financing
arrangement (See notes E and F).


NOTE E - NOTES PAYABLE AND ADVANCES FROM RELATED PARTY
------------------------------------------------------

The Company had the  following  unsecured  notes  payable to  individuals  and a
commercial bank as of November 30 and May 31, 2008 respectively:
<TABLE>
<CAPTION>

                                                            November 30,        May 31,
                                                                2008             2008
                                                        ------------------ ------------------
<S>                                                     <C>                <C>
Unsecured demand notes payable to individuals
and others; interest rate fixed @ 10.00%                $          95,000  $         127,000

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

Unsecured  term  note  payable  to  commercial
bank in the  original  amount of $250,000 and
payable in equal monthly payments of $5,738;
interest rate fixed @ 13.25%                                      190,077            205,016
                                                        ------------------ ------------------
                                    Notes payable       $       3,785,077  $       2,967,016
                                                        ================== ==================
</TABLE>

The terms (as revised in connection  with the second round of  bridge-financing)
of  the   bridge-financing   arrangement   provide  for  payment  in  full  upon
consummation  by the  Company  of a  qualified  equity  offering  providing  net
proceeds of at least $15 million on or before  September 10, 2013; and if such a
qualified  equity  offering is not  consummated  by September 10, 2008,  accrued
interest-to-date  shall be payable, with quarterly installments of principal and
interest in the aggregate  amount of $224,515  commencing in December  2008. The
interest  rates on such notes are fixed at 10.00%.  The Company is  currently in
default with respect to its December 2008 payment (see Note I).

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

                                      F-14
<PAGE>
JACOBS FINANCIAL GROUP, INC.

NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (UNAUDITED)


on a sliding scale to a fraction of 28% of the amount retained by the holders of
the Company's  common shares (where the numerator is the amount of financing and
the denominator is $50 million).

On September 10, 2008,  the Company paid accrued  interest-to-date  and issued a
total of 2.80% of the Company's outstanding common shares at such date (see Note
F) and shall issue a total of 2.80% of the Company's  outstanding  common shares
upon each six-month anniversary date thereof until retirement of the notes.

In the three month period ended August 31, 2008,  the Company  borrowed  $28,000
from its largest  shareholder and CEO and made repayments  totaling $29,000.  In
the three month period ended  November 30, 2008, the Company  borrowed  $278,500
from its  largest  shareholder  and CEO and  made  repayments  totaling  $3,400.
Proceeds  from  such   borrowings  and  advances  were  used  to  fund  on-going
operations.  The following  amounts were owed as of November 30 and May 31, 2008
respectively.

                                                --------------- ----------------
                                                  November 30,       May 31,
                                                     2008             2008
                                                --------------- ----------------
Unsecured short-term advances from principal
shareholder and chief executive officer;
interest rate fixed @ 12.00%                    $     275,100   $        1,000
                                                =============== ================

Scheduled  maturities  and  principal  payments  for each of the next five years
ending November 30 are as follows (see Note I):

2009 (including demand notes)          $      986,518
2010                                          681,124
2011                                          753,800
2012                                          794,116
2013                                          844,619
                                       ---------------
                                       $    4,060,177
                                       ===============



NOTE F-STOCKHOLDERS EQUITY
--------------------------

In the three month period ended August 31, 2008,  the Company  issued  3,115,581
shares of the Company's common stock in connection with the remaining borrowings
of $940,000 under the second round of  bridge-financing  arrangements  (see Note
E). The shares were valued at approximately $.009 per share based on the average
quoted closing price of the Company's stock for the 20-day period proceeding the
date of the  transaction and totaled  $28,126.  Such costs were deferred and are
being  recognized  as  interest  expense  over the term of the  bridge-financing
arrangement.

In the three month period ended November 30, 2008, the Company issued  4,870,449
shares of the  Company's  common stock in connection  with the  bridge-financing
arrangements  (see Note E). The shares were valued at  approximately  $.0085 per
share based on the average quoted  closing price of the Company's  stock for the
20-day period  proceeding the date of the transaction and totaled $41,389.  Such
costs have been  expensed  over six month  period  prior to the  issuance of the
common shares.

                                      F-15
<PAGE>
JACOBS FINANCIAL GROUP, INC.

NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (UNAUDITED)


NOTE G - COMMITMENTS AND MATERIAL AGREEMENTS
--------------------------------------------

By Agreement dated December 5, 2007 (the  "Engagement  Agreement"),  the Company
engaged an  investment  bank (the  "Bank") to act as  placement  agent/financial
advisor with respect to certain equity financing matters. The agreement provided
for a retainer of $250,000  and fees equal to 7% of the gross  proceeds  raised,
against  which the  retainer  will be  credited,  as well as  reimbursement  for
expenses. The agreement was terminated with an effective date of June 9, 2008

On  February  8, 2008,  the  Company  entered  into an  agreement  (the  "Merger
Agreement") with Reclamation Surety Holding Company,  Inc. ("RSH") to acquire by
merger (the "Merger") all of the business and assets of RSH, including the stock
of RSH's  subsidiaries,  Cumberland  Surety,  Inc.  ("Cumberland") and NewBridge
Services,  Inc.  ("NewBridge") for a purchase price of $3,400,000,  less certain
indebtedness of RSH (the "Merger  Consideration").  Upon execution of the Merger
Agreement, the Company made a nonrefundable deposit in the amount of $50,000 for
the  benefit of the RSH  shareholders,  such  amount to be applied  towards  the
Merger  Consideration  at closing.  On June 24,  2008,  the Company  amended its
Merger Agreement with Reclamation  Surety Holding  Company,  Inc.  releasing the
deposit to the sellers and extending the date for closing until October 31, 2008
after which time either party may  terminate the Merger  Agreement.  Discussions
continue with RSH, and the Merger Agreement has not been terminated. Among other
conditions,  closing  was  subject to the  closing  by the  Company of an equity
financing.

On August 20,  2008,  the  Company  entered  into a  definitive  Stock  Purchase
Agreement (the "Agreement") with National  Indemnity Company ("NICO"),  pursuant
to which the Company agreed to acquire 100% of the  outstanding  stock of Unione
Italiana  Reinsurance Company of America ("Unione").  Such agreement was amended
on November  13, 2008 to clarify  certain  definitions  and  calculation  of the
purchase  price,  in addition to extending  until  December 31, 2008 the date by
which the Company  must  satisfy the  financing  condition  prior to closing and
which after time either party may terminate the Agreement.  Discussions continue
with  NICO,  and the  Agreement  has not been  terminated.  Unione is a New York
domiciled  insurer  licensed in 24 states and has license  applications  pending
with the Commonwealth of Kentucky and with the Financial  Management  Service of
the United States Department of Treasury. The purchase price for the acquisition
of Unione (the "Transaction") is equal to the sum of (i) $2,750,000 plus (ii) an
amount in cash equal to Unione's New York  statutory  policyholders'  surplus of
not less than $20  million  dollars as of the closing  date of the  Transaction,
less (iii) $75,000  (which  amount is equal to a good faith  deposit  previously
provided to NICO).  The  Company's  acquisition  of Unione,  when coupled with a
reinsurance  agreement  with NICO  that is to be  executed  simultaneously  with
closing,  will consist of the purchase of marketable  investments  and insurance
licenses and will cede to NICO the existing policies and customer base (pursuant
to the  reinsurance  agreement)  as the insurance  lines of business  offered by
Unione  are not  insurance  lines  that  the  Company  intends  to  pursue.  The
Transaction  remains  contingent  upon  necessary  regulatory  approvals and the
Company's obtaining necessary financing.


                                      F-16
<PAGE>
JACOBS FINANCIAL GROUP, INC.

NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (UNAUDITED)


NOTE H - SEGMENT REPORTING
--------------------------

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

                                                               THREE MONTH PERIOD ENDED
                        INDUSTRY SEGMENT                 NOVEMBER 30,              NOVEMBER 30,
                        ----------------                     2008                     2007
                                                         ------------              -----------
<S>                                                      <C>                       <C>
REVENUES:
 Investment advisory                                     $    58,033               $   63,299
 Surety insurance                                            234,694                  145,042
 Corporate                                                         1                    5,814
                                                         ------------              -----------
 Total revenues                                          $   292,728               $  214,155
                                                         ============              ===========

NET INCOME (LOSS):
 Investment advisory                                     $   (44,914)              $  (55,566)
 Surety insurance                                             45,664                   10,388
 Corporate                                                  (350,282)                (270,224)
                                                         ------------              -----------
 Total net income (loss)                                 $  (349,532)              $ (315,402)
                                                         ============              ===========


                                                               SIX MONTH PERIOD ENDED
                        INDUSTRY SEGMENT                 NOVEMBER 30,              NOVEMBER 30,
                        ----------------                     2008                     2007
                                                         ------------              -----------
REVENUES:
 Investment advisory                                     $   117,562               $  129,622
 Surety insurance                                            460,880                  290,117
 Corporate                                                       851                    5,814
                                                         ------------              -----------
 Total revenues                                          $   579,293               $  425,553
                                                         ============              ===========

NET INCOME (LOSS):
 Investment advisory                                     $   (99,825)              $ (119,671)
 Surety insurance                                             61,717                   42,861
 Corporate                                                  (808,152)                (458,676)
                                                         ------------              -----------
 Total net income (loss)                                 $  (846,260)              $ (535,486)
                                                         ============              ===========
</TABLE>

                                      F-17
<PAGE>
JACOBS FINANCIAL GROUP, INC.

NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (UNAUDITED)


NOTE I - SUBSEQUENT EVENTS
--------------------------

Subsequent to November 30, 2008, the Company  obtained  borrowings of $24,262 to
fund ongoing  operations  from its  principal  shareholder  and chief  executive
officer under a board of directors  pre-approved  financing  arrangement bearing
interest at the rate of 12.00% and made repayments totaling $16,821.

On December  10,  2008,  the Company  became  obligated  to make  principal  and
interest payments to the holders of the bridge-financing  notes of approximately
$224,515.  The Company is currently  in default  with  respect to such  payment.
Under the terms of such bridge-financing  agreements, upon the occurrence of any
Event of Default, the holders of said  bridge-financing  notes have the right to
declare,  upon written notice to the Company,  that the entire  principal amount
and interest be due and payable immediately.

The Company was unable to provide  certification to National  Indemnity  Company
("NICO" or  "Seller")  that the Company had cash  available  or had  existing or
committed  borrowing  facilities  ("Financing  Certificate") which together were
sufficient  to enable  it to  consummate  the  acquisition  of  Unione  Italiana
Reinsurance  Company of America by December  31,  2008.  Accordingly,  under the
terms of the definitive Stock Purchase  Agreement (the "SPA"),  as amended,  the
Seller has the right to terminate  the SPA at its  discretion  and retaining the
good faith deposit of $75,000.  Discussions  continue with NICO, and the SPA has
not been terminated.

On  December  31,  2008,  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  quarterly  dividends  amounting  to $25,676  and  $239,516,
respectively.  As of  December  31,  2008,  the  accumulated  accrued and unpaid
dividend on the Series A Preferred  stock and Series B Preferred  stock amounted
to $198,475 and $2,528,303, respectively.













                                      F-18
<PAGE>

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

During fiscal 2008 and the six-month period ended November 30, 2008, the Company
has focused its primary  efforts on the  development and marketing of its surety
business in West Virginia,  arranging for strategic  acquisitions  to accelerate
the progression of the Company's  business plan, and raising  additional capital
to  increase  the  capital  base  of  its  insurance  subsidiary,  First  Surety
Corporation ("FSC"), to facilitate entry into other state markets.

RESULTS OF OPERATIONS FOR THE THREE-MONTH PERIOD ENDED NOVEMBER 30, 2008

The  Company  experienced  a loss (after  accretion  of  mandatorily  redeemable
convertible  preferred stock) for the three-month period ended November 30, 2008
of $749,809 as compared  with a loss of $679,463  for the  corresponding  period
ended November 30, 2007.

REVENUES

Revenues from operations for the three-month period ended November 30, 2008 were
$292,726 as compared with $208,339 for the  corresponding  period ended November
30, 2007.  The overall  increase in revenues is  attributable  to the  continued
growth of the surety business of FSC.

Quarterly  revenues from the Company's  investment  management segment (Jacobs &
Company or J&C), net of advisory referral fees, were $58,032 for the three-month
period ended  November 30, 2008 as compared  with $63,297 for the  corresponding
period ended  November 30, 2007.  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 decrease in
revenues is  attributable  to the decline in size of the Jacobs & Company Mutual
Fund that J&C manages as investment advisor as summarized below:

                                                   THREE-MONTH PERIOD ENDED
                                                         NOVEMBER 30,
                                              ---------------------------------
                                                    2008              2007
                                              ----------------- ---------------

Individually managed accounts                 $         52,003  $       53,366
Mutual fund                                              6,029           9,931
                                              ----------------- ---------------
                                       Total  $         58,032  $       63,297
                                              ================= ===============


Quarterly  revenues from the Company's surety insurance  segment,  consisting of
FSC and Triangle Surety Agency,  Inc ("TSA"),  were $234,694 for the three-month
period ended  November 30, 2008 as compared with $145,042 for the  corresponding
period ended November 30, 2007.  Revenues  attributable to premium  earned,  net
investment income and commissions earned are as follows:

                                      -2-
<PAGE>


                                                   THREE-MONTH PERIOD ENDED
                                                          NOVEMBER 30,
                                              ---------------------------------
                                                    2008              2007
                                              ----------------- ---------------
Premium earned                                $        158,452  $       89,041
Net investment income                                   73,163          52,670
Commissions earned                                       3,079           3,331
                                              ----------------- ---------------
                                       Total  $        234,694  $      145,042
                                              ================= ===============

Revenues  for this  segment of the  business  are  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 November 30, 2008
in comparison to the corresponding period from the prior year is a result of the
addition of new clients to FSC's surety  business and  increased  business  from
existing clients. Investment income should remain relatively consistent, but can
fluctuate  based on  interest  rates and  market  conditions.  The  increase  in
corresponding  periods  reflects growth in average assets held for investment in
FSC's investment portfolio from approximately $4.105 million for the three-month
period  ended  November  30,  2007  to  approximately  $5.852  million  for  the
three-month  period ended November 30, 2008,  offset by a decrease in investment
yield from  approximately  5.23% for the  three-month  period ended November 30,
2007 to approximately 5.07% for the three-month period ended November 30, 2008.

EXPENSES

The  Company  has  experienced  no claims for losses as of  November  30,  2008.
However,  "incurred but not reported"  (IBNR) policy losses for the  three-month
period  ended  November  30,  2008 and 2007  amounted  to  $48,249  and  $26,664
respectively.  Such amounts represent the provision for loss and loss adjustment
expense  attributable to surety bonds issued by FSC. Such estimates are based on
industry averages adjusted for factors that are unique to the FSC's underwriting
approach  and are  constantly  reviewed  for  adequacy  based on current  market
conditions  and  other  factors  unique  to  FSC's  business.  For each of these
periods, IBNR policy losses were approximately 30% of earned premium.

Insurance  policy  acquisition  costs of $39,982 and $23,158 for the three-month
periods ended  November 30, 2008 and 2007,  respectively,  represent  charges to
operations for policy acquisition expense and premium tax attributable to surety
polices  issued  by FSC and are  recognized  ratably  over the  period  in which
premiums  are  earned.   Such  cost  as  a  percentage  of  earned  premium  was
approximately 25.23% and 26.01% for the periods ended November 30, 2008 and 2007
respectively.

General and administrative  expenses for the three-month  periods ended November
30, 2008 and 2007 were  $402,725  and  $341,846  respectively,  representing  an
increase of $60,879, and were comprised of the following:

                                      -3-
<PAGE>
<TABLE>
<CAPTION>

                                                                 THREE-MONTH PERIOD ENDED
                                                                       NOVEMBER 30,
                                                           -------------------------------------
                                                                 2008               2007              DIFFERENCE
                                                           ------------------ ------------------ -------------------

<S>                                                        <C>                <C>                <C>
Salaries and related costs                                 $         173,131  $         199,158  $          (26,027)
General office expense                                                30,708             26,246               4,462
Legal and other professional fees and costs                          114,539             20,646              93,893

Audit, accounting and related services                                26,945             32,693              (5,748)

Travel, meals and entertainment                                       14,534             22,816              (8,282)
Other general and administrative                                      42,868             40,287               2,581
                                                           ------------------ ------------------ -------------------
                         Total general and administrative  $         402,725  $         341,846  $           60,879
                                                           ================== ================== ===================
</TABLE>

Salaries and related costs, net of deferred internal policy  acquisition  costs,
decreased approximately $26,000 and are comprised of the following:
<TABLE>
<CAPTION>

                                                                THREE-MONTH PERIOD ENDED
                                                                      NOVEMBER 30,
                                                          --------------------------------------
                                                                 2008               2007              DIFFERENCE
                                                          ------------------- ------------------ -------------------

<S>                                                       <C>                 <C>                <C>
Salaries and taxes                                        $          144,958  $         147,188  $           (2,230)
Commissions                                                            1,379                                  1,379
                                                                                              -
Stock option expense                                                  13,491             28,593             (15,102)
Fringe benefits                                                       17,104             15,998               1,106
Key-man life insurance                                                18,128             13,514               4,614
Deferred policy acquisition costs                                    (21,929)            (6,135)            (15,794)
                                                          ------------------- ------------------ -------------------
                         Total salaries and related costs $          173,131  $         199,158  $          (26,027)
                                                          =================== ================== ===================
</TABLE>

Increases in salaries and taxes paid to non-executive employees were offset by a
non-paid  leave-of-absence  during the period.  The increase in commissions  and
deferred policy  acquisition  costs is attributable to the increase in insurance
business written in the three-month period ended November 30, 2008. The decrease
in stock option expense is attributable to non-uniform  vesting  schedules under
which options vest for certain key employees. The increase in fringe benefits is
attributable  to  increased  health care  costs.  The  increase in key-man  life
insurance is attributable to the increased debt the Company has incurred.

General  office  expense  increased  by  approximately  $4,500  relating  to the
write-off of prepaid  express  mail  supplies of  approximately  $5,225 upon the
announcement by a major carrier that it was  discontinuing its domestic-only air
and ground  services in the United  States.  Management is exploring  efforts to
recoup this cost through its vendor supply chain.

Legal and other professional fees and costs were comprised of the following:


                                      -4-
<PAGE>
<TABLE>
<CAPTION>
                                                                THREE-MONTH PERIOD ENDED
                                                                      NOVEMBER 30,
                                                          --------------------------------------
                                                                 2008               2007              DIFFERENCE
                                                          ------------------- ------------------- ------------------
<S>                                                       <C>                 <C>                 <C>
General corporate services                                $            8,291  $          20,646   $         (12,355)
Expansion of surety license to other states                           25,574                  -              25,574
Acquisition and financing related costs                               80,674                  -
                                                                                                             80,674
                                                          ------------------- ------------------- ------------------
                  Total legal and other professional fees $          114,539  $          20,646   $          93,893
                                                          =================== =================== ==================
</TABLE>


The  decrease  in general  corporate  services  results  primarily  from  timing
differences and the degree of assistance  provided with respect to the review of
the Company's annual report with the Securities and Exchange  Commission on Form
10-K. In the  three-month  period ended November 30, 2008, the Company  incurred
expense of $25,574  relating to  application  preparation  and efforts to expand
FSC's  surety  licenses to other  neighboring  states.  Such  efforts  have been
thwarted by regulatory  concerns at the parent  company  level.  Legal and other
professional  services and costs related to the Company's  pending  acquisitions
and  on-going  efforts to obtain  financing  necessary  to expand the  Company's
business  and  penetrate  new markets  amounted  to $80,674 for the  three-month
period ended  November 30, 2008.  Such expense  includes the  writing-off of the
$50,000  non-refundable deposit made upon execution of the merger agreement with
Reclamation  Surety  Holding  Company,  Inc.  ("RSH")  which was released to the
sellers in  consideration  of an extension  of the stated  closing date for said
acquisition  to October 31, 2008  (discussions  continue with RSH and the merger
agreement has not been  terminated).  For the three month period ended  November
30, 2007,  $68,655 in  professional  fees were  deferred in  anticipation  of an
equity financing  transaction and were subsequently  expensed as of May 31, 2008
upon determination that such equity financing transaction was no longer probable
due to changing equity market conditions.

The  decrease in travel,  meals and  entertainment  expense for the  three-month
period  ended  November  30, 2008 as compared to the  corresponding  2007 period
related primarily to additional travel incurred in 2007 in the Company's ongoing
efforts to raise additional capital.

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% of the average net  assets.  Under this  expense  limitation  agreement,  J&C
absorbed $31,773 of the Fund's operating  expenses during the three-month period
ended November 30, 2008 as compared to $45,178 for corresponding period from the
previous year. 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,  while revenues from
investment  advisory fees will  increase.  In contrast,  as the Fund declines in
size (of assets under management), expenses (in excess of the 2% level) absorbed
by J&C  will  increase,  while  revenues  from  investment  advisory  fees  will
decrease.  For the  three-month  period  ended  November  30,  2008,  the Fund's

                                      -5-
<PAGE>

investment  advisory  fees  decreased to $6,029 as compared  with $9,931 for the
corresponding  three-month  period  ended  November  30,  2007 as a result  of a
decrease in the Fund size. The Fund's average assets under  management  declined
from  approximately  $3.31 million for the three-month period ended November 30,
2007 to  approximately  $1.97 million for the three-month  period ended November
30, 2008. As of November 30, 2008,  assets under  management were  approximately
$1.77 million.

The Fund was initially established by J&C to provide the ability to manage funds
for smaller  accounts in a more efficient and  diversified  manner than could be
achieved on an  individual  account  basis.  Additionally,  the Fund provided an
investment  vehicle that would fit within the Company's broader business plan of
issuing smaller bonds under its collateralized surety programs. While the Fund's
lackluster  performance  has contributed to its gradual decline in size, and the
maintenance  of the Fund continues to be a significant  cost to the Company,  it
remains a key component in the Company's  broader  business plan.  Moreover,  if
successful in these broader  efforts,  the opportunity  exists to  significantly
increase  the assets  under  management  within the Fund.  Should the Company be
successful  in  increasing  the size of the Fund to such a level that the Fund's
operating  expense ratio falls below the 2.00% level,  the costs absorbed by J&C
are currently  reimbursable to it for a period of up to three years.  Management
continually evaluates the cost/benefit of maintaining the Fund.

INTEREST EXPENSE

Interest expense for the three-month period ended November 30, 2008 was $116,231
as compared with $90,719 for the  corresponding  period ended November 30, 2007.
The increase in interest  expense is primarily  attributable  to the  additional
borrowings  under the  bridge-financing  arrangement  undertaken  by the Company
beginning in September  2007 to pay  professional  fees and expenses and provide
funds for on-going  operations until a larger, more permanent financing could be
accomplished. Components of interest expense are comprised of the following:

<TABLE>
<CAPTION>

                                                                    THREE-MONTH PERIOD ENDED
                                                                          NOVEMBER 30,
                                                               -----------------------------------
                                                                     2008              2007            DIFFERENCE
                                                               ----------------- ----------------- -----------------
<S>                                                            <C>               <C>               <C>
Interest expense on bridge financing                           $         87,022  $         47,623  $         39,399

Expense of common shares issued or to be issued in
connection with bridge financing and other arrangements                  12,935            25,761           (12,826)

Interest expense on demand and term notes                                14,124            13,032             1,092

Interest expense accrued on debt obligations subsequently
settled and recorded as gain on debt extinguishment                           -             3,300            (3,300)

Other finance charges                                                     2,150             1,003             1,147
                                                               ----------------- ----------------- -----------------
                                       Total interest expense  $        116,231  $         90,719  $         25,512
                                                               ================= ================= =================
</TABLE>

The  decrease in the expense of common  shares  issued (or to be issued) for the
three-month  period  ended  November  30, 2008 as compared to the  corresponding
period of the  previous  year was  largely  attributable  to the  decline in the
average price of the company's common shares.


                                      -6-


<PAGE>

INTEREST INCOME

Interest  income for the  three-month  period ended  November 30, 2007 of $5,816
resulted   from   the   investment   of  the   unexpended   proceeds   from  the
bridge-financing  arrangement  undertaken by the Company  beginning in September
2007 in short-term investment accounts.

ACCRETION AND DIVIDENDS

Accretion of  mandatorily  redeemable  convertible  preferred  stock issued at a
discount and accrued  dividends for three-month  periods ended November 30, 2008
and 2007 are as follows:
<TABLE>
<CAPTION>

                                                                THREE-MONTH PERIOD ENDED
                                                                      NOVEMBER 30,
                                                          --------------------------------------
                                                                 2008               2007               DIFFERENCE
                                                          ------------------- -------------------- -----------------
<S>                                                       <C>                 <C>                  <C>
Accretion of discount                                     $          140,683  $         131,138    $          9,545
Accrued dividends                                                    259,594            232,923              26,671
                                                          ------------------- -------------------- -----------------
                            Total accretion and dividends $          400,277  $         364,061    $         36,216
                                                          =================== ==================== =================
</TABLE>


The increase in the accretion of discount  results from the  application  of the
interest or constant yield method to the initial discount  recorded with respect
to the mandatorily  redeemable  preferred stock over a period of five years from
the date of issuance of the stock.  The  increase in accrued  dividends  results
from the issuance of additional shares of the company's Series A Preferred stock
(in  connection  with  additional  bonding  provided),  and the  compounding  of
dividends on accrued but unpaid dividends.

RESULTS OF OPERATIONS FOR THE SIX-MONTH PERIOD ENDED NOVEMBER 30, 2008

The  Company  experienced  a loss (after  accretion  of  mandatorily  redeemable
convertible preferred stock) for the six-month period ended November 30, 2008 of
$1,635,836 as compared with a loss of $1,253,638  for the  corresponding  period
ended November 30, 2007.

REVENUES

Revenues from  operations for the six-month  period ended November 30, 2008 were
$578,441 as compared with $419,735 for the  corresponding  period ended November
30, 2007.  The overall  increase in revenues is  attributable  to the  continued
growth of the surety business of FSC.

Quarterly  revenues from the Company's  investment  management segment (Jacobs &
Company or J&C), net of advisory  referral fees, were $117,561 for the six-month
period ended  November 30, 2008 as compared with $129,617 for the  corresponding
period ended  November 30, 2007.  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 decrease in
revenues is largely  attributable to the decline in size of the Jacobs & Company
Mutual Fund that J&C manages as investment advisor as summarized below:

                                      -7-
<PAGE>

                                                 SIX-MONTH PERIOD ENDED
                                                      NOVEMBER 30,
                                           -----------------------------------
                                                 2008              2007
                                           ----------------- -----------------
Individually managed accounts              $        104,539  $        107,508
Mutual fund                                          13,022            22,109
                                           ----------------- -----------------
                                    Total  $        117,561  $        129,617
                                           ================= =================


Quarterly  revenues from the Company's surety insurance  segment,  consisting of
FSC and Triangle  Surety  Agency,  Inc ("TSA"),  were $460,880 for the six-month
period ended  November 30, 2008 as compared with $290,118 for the  corresponding
period ended November 30, 2007.  Revenues  attributable to premium  earned,  net
investment income and commissions earned are as follows:

                                                 SIX-MONTH PERIOD ENDED
                                                      NOVEMBER 30,
                                           -----------------------------------
                                                 2008              2007
                                           ----------------- -----------------

Premium earned                             $        307,762  $        173,579
Net investment income                               141,843           106,509
Commissions earned                                   11,275            10,030
                                           ----------------- -----------------
                                    Total  $        460,880  $        290,118
                                           ================= =================

Revenues  for this  segment of the  business  are  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 six-month  period ended November 30, 2008 in
comparison  to the  corresponding  period from the prior year is a result of the
addition of new clients to FSC's surety  business and  increased  business  from
existing clients. Investment income should remain relatively consistent, but can
fluctuate  based on  interest  rates and  market  conditions.  The  increase  in
corresponding  periods  reflects growth in average assets held for investment in
FSC's investment  portfolio from approximately  $4.092 million for the six-month
period ended November 30, 2007 to approximately $5.798 million for the six-month
period ended  November 30, 2008,  offset by a decrease in investment  yield from
approximately  5.25%  for  the  six-month  period  ended  November  30,  2007 to
approximately 4.93% for the six-month period ended November 30, 2008.

EXPENSES

The  Company  has  experienced  no claims for losses as of  November  30,  2008.
However,  "incurred  but not  reported"  (IBNR)  policy losses for the six-month
period  ended  November  30,  2008 and 2007  amounted  to  $93,033  and  $51,979
respectively.  Such amounts represent the provision for loss and loss adjustment
expense  attributable to surety bonds issued by FSC. Such estimates are based on
industry averages adjusted for factors that are unique to the FSC's underwriting

                                      -8-
<PAGE>

approach  and are  constantly  reviewed  for  adequacy  based on current  market
conditions  and  other  factors  unique  to  FSC's  business.  For each of these
periods, IBNR policy losses were approximately 30% of earned premium.

Insurance  policy  acquisition  costs of $79,011 and  $49,101 for the  six-month
periods ended  November 30, 2008 and 2007,  respectively,  represent  charges to
operations for policy acquisition expense and premium tax attributable to surety
polices  issued  by FSC and are  recognized  ratably  over the  period  in which
premiums  are  earned.   Such  cost  as  a  percentage  of  earned  premium  was
approximately 25.67% and 28.29% for the periods ended November 30, 2008 and 2007
respectively.

General and administrative expenses for the six-month periods ended November 30,
2008 and 2007 were $938,664 and $648,597 respectively,  representing an increase
of $290,067, and were comprised of the following:
<TABLE>
<CAPTION>
                                                                  SIX-MONTH PERIOD ENDED
                                                                       NOVEMBER 30,
                                                           -------------------------------------
                                                                 2008               2007              DIFFERENCE
                                                           ------------------ ------------------ -------------------
<S>                                                        <C>                <C>                <C>
Salaries and related costs                                 $         339,042  $         368,581  $          (29,539)
General office expense                                                58,424             52,297               6,127
Legal and other professional fees and costs                          366,826             47,503             319,323

Audit, accounting and related services                                49,855             55,646              (5,791)
Travel, meals and entertainment                                       34,329             33,249               1,080

Other general and administrative                                      90,188             91,321              (1,133)
                                                           ------------------ ------------------ -------------------
                         Total general and administrative  $         938,664  $         648,597  $          290,067
                                                           ================== ================== ===================
</TABLE>

Salaries and related costs, net of deferred internal policy  acquisition  costs,
decreased approximately $29,500 and are comprised of the following:
<TABLE>
<CAPTION>
                                                                 Six-month Period Ended
                                                                      November 30,
                                                          --------------------------------------
                                                                 2008               2007               DIFFERENCE
                                                          -------------------- ------------------- -----------------
<S>                                                       <C>                  <C>                 <C>
Salaries and taxes                                        $          296,160   $        296,563    $          (403)
Commissions                                                            6,686                223               6,463
Stock option expense                                                  26,982             57,186             (30,204)
Fringe benefits                                                       34,121             31,697               2,424
Key-man life insurance                                                30,352             17,934              12,418
Deferred policy acquisition costs                                    (55,259)           (35,022)            (20,237)
                                                          -------------------- ------------------- -----------------
                         Total salaries and related costs $          339,042   $        368,581    $        (29,539)
                                                          ==================== =================== =================
</TABLE>


Increases in salaries and taxes paid to non-executive employees were offset by a
non-paid  leave-of-absence  during the period.  The increase in commissions  and
deferred policy  acquisition  costs is attributable to the increase in insurance
business  written in the six-month  period ended November 30, 2008. The decrease

                                      -9-
<PAGE>

in stock option expense is attributable to non-uniform  vesting  schedules under
which options vest for certain key employees. The increase in fringe benefits is
attributable  to  increased  health care  costs.  The  increase in key-man  life
insurance is attributable to the increased debt the Company has incurred.

General  office  expense  increased  by  approximately  $6,125  relating  to the
write-off of prepaid  express  mail  supplies of  approximately  $5,225 upon the
announcement by a major carrier that it was  discontinuing its domestic-only air
and ground  services in the United  States.  Management is exploring  efforts to
recoup this cost through its vendor supply chain.

Legal and other professional fees and costs were comprised of the following:
<TABLE>
<CAPTION>

                                                                 SIX-MONTH PERIOD ENDED
                                                                      NOVEMBER 30,
                                                          --------------------------------------
                                                                 2008               2007               DIFFERENCE
                                                          ------------------- ------------------- ------------------
<S>                                                       <C>                 <C>                 <C>
General corporate services                                $           22,454  $          23,777   $          (1,323)
Expansion of surety license to other states                           61,236                  -              61,236
Acquisition and financing related costs                              283,136             23,726
                                                                                                            259,410
                                                          ------------------- ------------------- ------------------
                  Total legal and other professional fees $          366,826  $          47,503   $         319,323
                                                          =================== =================== ==================
</TABLE>

In the six-month period ended November 30, 2008, the Company incurred expense of
$61,236  relating to efforts to expand FSC's surety license to the State of Ohio
and other  neighboring  states.  FSC was  successful  with its  efforts in Ohio,
however  efforts to expand its  licenses to other  neighboring  states have been
thwarted by regulatory  concerns at the parent  company  level.  Legal and other
professional  services and costs related to the Company's  pending  acquisitions
and  on-going  efforts to obtain  financing  necessary  to expand the  Company's
business and penetrate new markets amounted to $283,136 for the six-month period
ended November 30, 2008.  Such expense  includes the  writing-off of the $50,000
non-refundable  deposit  made  upon  execution  of  the  merger  agreement  with
Reclamation  Surety Holding  Company,  Inc. which was released to the sellers in
consideration of an extension of the stated closing date for said acquisition to
October 31, 2008 (discussions continue with RSH and the merger agreement has not
been terminated).  For the six-month period ended November 30, 2007,  $23,726 of
such costs were  expensed  and  $68,655 in  professional  fees were  deferred in
anticipation of an equity financing  transaction and were subsequently  expensed
as of May 31, 2008 upon determination that such equity financing transaction was
no longer probable due to changing equity market conditions.

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% of the average net  assets.  Under this  expense  limitation  agreement,  J&C
absorbed  $73,340 of the Fund's  operating  expenses during the six-month period
ended November 30, 2008 as compared to $85,510 for corresponding period from the
previous year. 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,  while revenues from
investment  advisory fees will  increase.  In contrast,  as the Fund declines in
size (of assets under management), expenses (in excess of the 2% level) absorbed

                                      -10-
<PAGE>

by J&C  will  increase,  while  revenues  from  investment  advisory  fees  will
decrease.  For  the  six-month  period  ended  November  30,  2008,  the  Fund's
investment  advisory fees  decreased to $13,022 as compared with $22,109 for the
corresponding six-month period ended November 30, 2007 as a result of a decrease
in the Fund size.  The Fund's  average  assets under  management  declined  from
approximately  $3.71 million for the six-month period ended November 30, 2007 to
approximately $2.14 million for the six-month period ended November 30, 2008. As
of November 30, 2008, assets under management were approximately $1.77 million.

The Fund was initially established by J&C to provide the ability to manage funds
for smaller  accounts in a more efficient and  diversified  manner than could be
achieved on an  individual  account  basis.  Additionally,  the Fund provided an
investment  vehicle that would fit within the Company's broader business plan of
issuing smaller bonds under its collateralized surety programs. While the Fund's
lackluster  performance  has contributed to its gradual decline in size, and the
maintenance  of the Fund continues to be a significant  cost to the Company,  it
remains a key component in the Company's  broader  business plan.  Moreover,  if
successful in these broader  efforts,  the opportunity  exists to  significantly
increase  the assets  under  management  within the Fund.  Should the Company be
successful  in  increasing  the size of the Fund to such a level that the Fund's
operating  expense ratio falls below the 2.00% level,  the costs absorbed by J&C
are currently  reimbursable to it for a period of up to three years.  Management
continually evaluates the cost/benefit of maintaining the Fund.

INTEREST EXPENSE

Interest  expense for the six-month  period ended November 30, 2008 was $235,009
as compared with $121,711 for the corresponding  period ended November 30, 2007.
The increase in interest  expense is primarily  attributable  to the  additional
borrowings  under the  bridge-financing  arrangement  undertaken  by the Company
beginning in September  2007 to pay  professional  fees and expenses and provide
funds for on-going  operations until a larger, more permanent financing could be
accomplished. Components of interest expense are comprised of the following:
<TABLE>
<CAPTION>

                                                                     SIX-MONTH PERIOD ENDED
                                                                          NOVEMBER 30,
                                                               -----------------------------------
                                                                     2008              2007           DIFFERENCE
                                                               ----------------- ----------------- -----------------

<S>                                                            <C>               <C>               <C>
Interest expense on bridge financing                           $        170,906  $         48,254  $        122,652

Expense of common shares issued or to be issued in
connection with bridge financing and other arrangements                  36,943            28,188             8,755

Interest expense on demand and term notes                                23,804            26,950            (3,146)

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

Other finance charges                                                     3,356             5,244            (1,888)
                                                               ----------------- ----------------- -----------------
                                       Total interest expense  $        235,009  $        121,711  $        113,298
                                                               ================= ================= =================
</TABLE>

                                      -11-

<PAGE>


The  increase in the expense of common  shares  issued (or to be issued) for the
six-month period ended November 30, 2008 as compared to the corresponding period
of the previous  year was largely  attributable  to the  outstanding  borrowings
under the bridge-financing arrangement and such financing not being in place for
the entire six-month period ended November 30, 2007.


Interest expense on debt obligations subsequently settled relates to payroll tax
obligations  for periods ended on or before  December 31, 2005 that were settled
in February 2008.

INTEREST INCOME

Interest  income for the six-month  period ended November 30, 2007 was $5,818 as
compared with $852 for the six-month period ended November 30, 2008 and resulted
from  the  investment  of the  unexpended  proceeds  from  the  bridge-financing
arrangement  undertaken by the Company beginning in September 2007 in short-term
investment accounts.

ACCRETION AND DIVIDENDS

Accretion of  mandatorily  redeemable  convertible  preferred  stock issued at a
discount and accrued dividends for six-month periods ended November 30, 2008 and
2007 are as follows:
<TABLE>
<CAPTION>

                                                                 SIX-MONTH PERIOD ENDED
                                                                      NOVEMBER 30,
                                                          --------------------------------------
                                                                 2008               2007              DIFFERENCE
                                                          ------------------- ------------------- ------------------
<S>                                                       <C>                 <C>                 <C>
Accretion of discount                                     $          278,916  $         259,986   $          18,930
Accrued dividends                                                    510,660            458,166              52,494
                                                          ------------------- ------------------- ------------------
                            Total accretion and dividends $          789,576  $         718,152   $          71,424
                                                          =================== =================== ==================
</TABLE>


The increase in the accretion of discount  results from the  application  of the
interest or constant yield method to the initial discount  recorded with respect
to the mandatorily  redeemable  preferred stock over a period of five years from
the date of issuance of the stock.  The  increase in accrued  dividends  results
from the issuance of additional shares of the company's Series A Preferred stock
(in  connection  with  additional  bonding  provided),  and the  compounding  of
dividends on accrued but unpaid dividends.

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.

                                      -12-
<PAGE>


RESERVE FOR LOSSES AND LOSS EXPENSES

Reserves  for  unpaid  losses  and loss  adjustment  expenses  of the  insurance
subsidiary are estimated using individual  case-basis  valuations in conjunction
with estimates derived from industry and company experience. FSC has experienced
no claims for losses as of November 30, 2008.

FSC is  currently  licensed to write  surety in West  Virginia  and Ohio and has
focused its efforts primarily on coal permit bonds. Reclamation of land that has
been  disturbed by mining  operations  is highly  regulated by federal and state
jurisdictions,  and the surety bonds that are posted to assure that  reclamation
is accomplished 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 coal reclamation bonds, management obtains estimates of costs to
reclaim the relevant  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  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.  At the  inception  of surety  operations,
management  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 AND
RECENT DEVELOPMENTS AND FUTURE DIRECTION OF COMPANY

The  Company  has  experienced  significant  operating  losses of  approximately
$3,333,000  (after  accretion of mandatorily  redeemable  convertible  preferred
stock,  including  accrued  dividends) and $2,661,000 for the fiscal years ended
May 31, 2008 and 2007,  respectively  and an operating  losses of  approximately
$750,000 and $1,636,000  for the three and six-month  periods ended November 30,
2008. The Company continues to experience significant  deficiencies in cash flow
from  operations  that  approximated  $231,000  and  $454,000  for the three and
six-month  periods  ended  November  30,  2008.  Additionally,  the  Company  is
currently in default with respect to certain financing arrangements.


                                      -13-
<PAGE>


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.  Of the Company's investments and cash in the amount of $5,929,453
as  of  November  30,  2008,  $5,882,299  is  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 be contributed by the Company into the surplus accounts of FSC.

Accordingly,  because  of  these  restrictions,  as  of  November  30,  2008,  a
significant  deficiency  in  working  capital  exists as the  Company's  current
liabilities  exceed its  available  current  assets and the Company has not been
able to pay its preferred stock dividend  obligation.  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.

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  for the
Company's products and services and the need for additional bonding capacity, by
both  large and small  companies.  Management  has found  that  entry into other
states (as a surety) has been difficult  without the benefit of more substantial
capital  and  reserves  due to FSC's  status  as new  entry  into  this  market.
Management   believes   that  if  FSC's   capital  and  surplus   reserves  were
significantly more substantial and the parent company's financial condition were
strengthened, entry into other states would be less challenging. As expansion of
FSC's  business to other  states is a key  component to fully  implementing  the
Company's  business  plan,  management  has pursued  avenues that would  provide
additional capital at the level of FSC to increase the capacity of its insurance
subsidiary and at the parent level to fund continuing operations as the business
is being fully developed.

In order to best  position  the  Company  to  accomplish  the  larger  financing
necessary to expand the  Company's  business  and  penetrate  new  markets,  the
Company contracted to accomplish two acquisitions (see Note G--Commitments) that
the Company believes would  substantially  enhance the business and prospects of
the Company.  Both  acquisitions  are  contingent  upon the Company's  obtaining
necessary  financing.  Additionally,  one of the acquisitions  (for an insurance
company) remains contingent upon necessary regulatory approvals.

During fiscal 2008 and the three-month period ended August 31, 2008, the Company
completed two rounds of bridge-financing  totaling an aggregate of $3,500,000 in
order to pay expenses of  operations  and to pay fees and  expenses  incurred or
expected to be incurred in connection with a larger permanent financing.

In  June  2008,  JFG  made  a  capital   contribution   of  $500,000  (from  its
bridge-financing  proceeds  discussed  above)  to FSC in order to  increase  its
capital and surplus beyond the $5.0 million statutory  requirement for surety in
the state of Ohio. In July 2008,  FSC filed its  application  with the Insurance
Commissioner  of Ohio to reactivate its insurance  license in Ohio and to obtain

                                      -14-
<PAGE>

authority to issue surety bonds in that state.  On August 5, 2008,  FSC received
approval to write the surety  line of business in Ohio from the Ohio  Department
of Insurance.

Recent turmoil in financial  markets has severely impacted the Company's efforts
to  accomplish  a  larger  permanent  financing.  While  efforts  have  not been
abandoned  and will  continue to be pursued,  to date,  no  commitment  has been
secured,  and there remains substantial doubt regarding the Company's ability to
obtain the necessary  financing to complete the acquisitions  within the current
time frames  provided in the acquisition  agreements.  Both time frames provided
within the acquisition agreements for closing the transactions have expired.

Given current  financial  market  conditions  and the  uncertainties  as to when
stability will return to the financial markets, until permanent financing can be
secured, management will strive to reduce and then eliminate operating losses by
implementing  further measures to control and reduce costs while maintaining and
growing the Company's  current revenue base.  Unless permanent  financing can be
secured,  future  revenue growth can be expected to be achieved at a slower pace
than has been  projected  by the  Company.  Until  such time that the  Company's
operating costs can be serviced by the Company's revenue stream, management will
continue  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.

The  Company's  exposure  to the  subprime  mortgage  risk is minimal due to its
investment  in  mortgage-backed  securities  having  been  limited to only those
securities  backed by the United States  government  (i.e.  Government  National
Mortgage  Association  or GNMA  securities).  The  Company  also  holds a direct
obligation  issued  by  Federal  Home  Loan  Mortgage  Corporation  (FHLMC)  and
municipal  obligations  that have been fully  defeased  through the  purchase of
Resolution  Funding  Corporation  ("REFCORP")  strips  that have been  placed in
escrow and provide the means for the bond repayment.  REFCORP was created by the
Financial  Institutions Reform,  Recovery and Enforcement Act of 1989 ("FIRREA")
to provide funds to the Resolution  Trust  Corporation  ("RTC") in order to help
resolve the  Savings  and Loan  failures.  REFCORP  operates as a United  States
Treasury agency under the direction of the RTC Oversight  Board,  whose chair is
the secretary of the United States Treasury,  and its obligations are ultimately
backed by the United States government.

While FHLMC may have  exposure to subprime  mortgage  risk,  and thus provide an
indirect  exposure to the Company,  management does not anticipate any losses at
this time. However, until market conditions stabilize, management is inclined to
limit new  investments  to U. S.  Treasury,  GNMA  securities,  certificates  of
deposit backed by Federal Deposit  Insurance  Corporation  (FDIC) and investment
quality money-market funds.



                                      -15-
<PAGE>


ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

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

ITEM 4T. CONTROLS AND PROCEDURES

We maintain  disclosure controls and procedures that are designed to ensure that
information  required to be disclosed  in the reports that the Company  files or
submits  under  the  Securities   and  Exchange  Act  is  recorded,   processed,
summarized,  and reported  within the time periods  specified in the SEC's rules
and forms,  and that such  information is accumulated  and  communicated  to the
Company's management,  including its Chief Executive Officer and Chief Financial
Officer,   as  appropriate,   to  allow  timely  decisions   regarding  required
disclosures.

Our management,  with the participation of its Chief Executive Officer and Chief
Financial  Officer,  has evaluated the effectiveness of our disclosure  controls
and procedures as defined in Rules 13a-15(e)  under the Securities  Exchange Act
of 1934, as of May 31, 2008. As previously reported in our Annual Report on Form
10-K for the year ended May 31, 2008, control  deficiencies were identified that
constitute a material  weakness in internal  control over  financial  reporting.
Such control  deficiencies  relate to inadequate  segregation of duties, lack of
effective   board  of  directors   oversight,   use  of   internally   developed
non-integrated   accounting   systems,   lack  of  internal  review  of  account
reconciliations,  and  lack of  internal  review  of  general  journal  entries,
elimination entries and the financial  statement  consolidation  process.  Based
upon their  evaluation,  the Chief Executive Officer and Chief Financial Officer
concluded that the Company's  disclosure controls and procedures,  as of May 31,
2008, were ineffective.

Effective  July 1, 2008,  management  implemented  changes in the  processing of
transactions  to  remediate  the  inadequate   segregation  of  duties  weakness
previously  identified.  Additionally,   management  identified  steps  at  both
management and the board of directors'  level to increase the  effectiveness  of
review as it relates to the financial reporting process.  Such changes have been
partially implemented during the first fiscal quarter of the Company's 2008-2009
fiscal  year.  While  management  believes  that the  changes  implemented  have
strengthened the overall control over financial reporting, such changes were not
sufficient to conclude that the Company's disclosure and control procedures,  as
of November 30, 2008, were effective.  Accordingly,  the Chief Executive Officer
and Chief Financial Officer concluded that the Company's disclosure controls and
procedures,  as of November 30, 2008,  were  ineffective.  Other changes will be
considered  as  additional  financial  resources  and  accounting  staff  become
available.

Notwithstanding  the  above,  management  believes  the  unaudited  consolidated
condensed  financial  statements  in this  Quarterly  Report on Form 10-Q fairly
present,  in all material  respects,  the  Company's  financial  condition as of
November 30 and May 31, 2008 and the  results of its  operations  and cash flows
for the  three  and  six-month  periods  ended  November  30,  2008  and 2007 in
conformity with U.S. generally accepted accounting principals (GAAP).



                                      -16-

<PAGE>


                           PART II - OTHER INFORMATION

ITEM 1.      LEGAL PROCEEDINGS

None.

ITEM 1A.   RISK FACTORS

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

ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES

In September  2008, 5 shares of Series A Preferred Stock were issued pursuant to
ongoing bonding programs of FSC in exchange for cash of $5,000.

In October  2008,  1 share of Series A  Preferred  Stock was issued  pursuant to
ongoing bonding programs of FSC in exchange for cash of $1,000.

In November 2008, 50 shares of Series A Preferred  Stock were issued pursuant to
ongoing bonding programs of FSC in exchange for cash of $50,000.

Certificates  of  Designations,  Powers,  Preferences  and  Rights  of  Series A
Preferred Stock adopted by the Board of Directors of the Company on December 22,
2005 is set forth as Exhibit 4.1

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

ITEM 3. DEFAULTS UPON SENIOR SECURITIES

None.

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

None.

ITEM 5. OTHER INFORMATION

None.

                                      -17-
<PAGE>

ITEM 6. EXHIBITS
<TABLE>
<CAPTION>
<S>   <C>
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)
10.1  Agreement to acquire by merger Reclamation Surety Holding Company, Inc. (2) (4)
10.2  Stock Purchase Agreement with National Indemnity Company to purchase Unione Italiana Insurance Company of
      America dated August 20, 2008 (5) (6)
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 1350, as adopted pursuant to Section
      906 of the Sarbanes-Oxley Act of 2002
32.2  Certification of Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section
      906 of the Sarbanes-Oxley Act of 2002
99.1  Form of Subscription Agreement and Promissory Note  (Bridge-financing) (3)
      (1)   Incorporated by reference to the Company's Current Report on form 8-K dated December 29, 2005.
      (2)   Incorporated by reference to the Company's Current Report on form 8-K dated February 8, 2008.
      (3)   Incorporated by reference to the Company's Current Report on form 8-K dated June 6, 2008
      (4)   Incorporated by reference to the Company's Current Report on form 8-K dated June 24, 2008
      (5)   Incorporated by reference to the Company's Current Report on form 8-K dated August 20, 2008
      (6)   Incorporated by reference to the Company's Current Report on form 8-K dated November 13, 2008
</TABLE>















                                      -18-
<PAGE>


SIGNATURES


Pursuant  to the  requirements  of the  Securities  Exchange  Act of  1934,  the
registrant  has duly  caused  this  report  to be  signed  on its  behalf by the
undersigned thereunto duly authorized.


Date: January 20, 2009                      JACOBS FINANCIAL GROUP, INC.
                                     -------------------------------------------
                                                     (Registrant)
                                  By:
                                     /s/John M. Jacobs
                                     -------------------------------------------
                                     John M. Jacobs, President



























                                      -19-