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 February 28, 2009

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


Indicated  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:  179,337,912  shares of common
stock as of April 15, 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>
<TABLE>
<CAPTION>
JACOBS FINANCIAL GROUP, INC.
CONSOLIDATED CONDENSED BALANCE SHEETS (UNAUDITED)

                                                                                   FEBRUARY 28, 2009        MAY 31, 2008
                                                                                  ------------------     -----------------
<S>                                                                               <C>                    <C>
ASSETS
INVESTMENTS AND CASH:
 Bonds available for sale, at market value                                        $          912,649     $        105,866
   (amortized cost - 02/28/09 $884,329; 05/31/08 $98,774)
 Mortgage-back securities held to maturity, at amortized costs                             5,070,792            3,826,688
  (market value - 02/28/09 $5,096,825; 05/31/08 $3,800,909)
 Short-term investments, at cost (approximates market value)                                 137,330            1,176,056
 Cash                                                                                         27,417               48,640
                                                                                  ------------------     -----------------
                                  TOTAL INVESTMENTS AND CASH                               6,148,188            5,157,250

 Investment income due and accrued                                                            28,358               19,892
 Premiums and other accounts receivable                                                       70,393               47,353
 Deferred policy acquisition costs                                                            79,048               75,940
 Furniture and equipment, net of accumulated depreciation of
 $130,657 and $120,931, respectively                                                          26,005               29,168
 Other assets                                                                                133,737              298,163
 Intangible assets                                                                           150,000              150,000
                                                                                  ------------------     -----------------
                                                TOTAL ASSETS                      $        6,635,729     $      5,777,766
                                                                                  ==================     =================

LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
 Reserve for losses and loss expenses                                             $          387,697     $        246,651
 Reserve for unearned premiums                                                               351,228              277,208
 Accrued expenses and professional fees payable                                              580,668              412,039
 Accounts payable                                                                            303,425              315,577
 Demand note payable to related party                                                        281,796                1,000
 Notes payable                                                                             3,775,557            2,967,016
 Accrued interest payable                                                                    203,538               71,483
 Other liabilities                                                                            13,857               16,402
                                                                                  ------------------     -----------------
                                           TOTAL LIABILITIES                               5,897,766            4,307,376

 SERIES A  PREFERRED  STOCK,  $.0001  par  value  per  share;  1  million
 shares authorized; 2,433 and 2,230 shares issued and outstanding at
 February 28, 2009 and May 31, 2008, respectively; stated liquidation value of
 $1,000 per share                                                                          2,598,386            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
 February 28, 2009 and May 31, 2008; stated liquidation value of $1,000 per share         11,048,368            9,936,866
                                                                                  ------------------     -----------------
                TOTAL MANDATORILY REDEEMABLE PREFERRED STOCK                              13,646,754           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 February 28, 2009 and May 31, 2008, respectively                              17,408               16,609
 Additional paid in capital                                                                2,530,330            2,423,537
 Accumulated deficit                                                                     (15,476,826)         (13,222,038)
 Accumulated other comprehensive income (loss)                                                20,297                6,483
                                                                                  ------------------     -----------------
                         TOTAL STOCKHOLDERS' EQUITY (DEFICIT)                            (12,908,791)         (10,775,409)
                                                                                  ------------------     -----------------
                             TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT) $        6,635,729     $      5,777,766
                                                                                  ==================     =================
</TABLE>
                             See accompanying notes.
                                       F-1
<PAGE>
<TABLE>
<CAPTION>
JACOBS FINANCIAL GROUP, INC,
CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS (UNAUDITED)

                                                              THREE MONTHS ENDED                    NINE MONTHS ENDED
                                                                  FEBRUARY 28                           FEBRUARY 28
                                                         -----------------------------        ------------------------------

                                                              2009             2008                2009            2008
                                                         ------------- ---------------        -------------  ---------------
<S>                                                      <C>           <C>                    <C>            <C>
REVENUES:

 Investment advisory services                            $    56,101   $       63,486         $    173,662   $     193,103
 Insurance premiums and commissions                          166,897          136,077              485,934         319,685
 Net investment income                                        76,608           58,123              218,451         165,183
 Net realized investment gains                                12,511            4,140               12,511           3,589
 Other income                                                  2,722                -                2,722               -
                                                         ------------- ---------------        -------------  ---------------
                                   TOTAL REVENUES            314,839          261,826              893,280         681,560


EXPENSES:

 Incurred policy losses                                       48,013           40,656              141,046          92,635
 Insurance policy acquisition costs                           35,934           39,724              114,947          88,825
 General and administrative                                  310,378          337,435            1,249,042         986,031
 Mutual fund costs                                            11,088           27,557               84,428         113,067
 Depreciation                                                  3,231            2,134                9,726           6,275
                                                         ------------- ---------------        -------------  ---------------
                                   TOTAL EXPENSES            408,644          447,506            1,599,189       1,286,833
                                                         ------------- ---------------        -------------  ---------------

                  NET INCOME (LOSS) FROM OPERATIONS          (93,805)        (185,680)            (705,909)       (605,273)

 Gain on debt extinguishment                                       -          115,470                    -         115,470
 Interest and dividend income                                    255            3,503                1,107           9,321
 Interest expense                                           (117,022)        (243,549)            (352,031)       (365,260)
                                                         ------------- ---------------        -------------  ---------------

                                 NET INCOME (LOSS)          (210,572)        (310,256)          (1,056,833)       (845,742)

 Accretion of Mandatorily Redeemable Convertible
  Preferred Stock, including accrued dividends              (408,379)        (371,231)          (1,197,955)     (1,089,383)
                                                         ------------- ---------------        -------------  ---------------

         NET INCOME (LOSS) ATTRIBUTABLE TO COMMON
                                     STOCKHOLDERS        $  (618,951)  $     (681,487)        $ (2,254,788)  $  (1,935,125)
                                                         ============= ===============        =============  ===============


BASIC AND DILUTIVE NET INCOME (LOSS) PER SHARE:

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

  WEIGHTED-AVERAGE SHARES OUTSTANDING                    174,077,272      157,309,520          172,093,454     157,152,081
                                                         ============= ===============        =============  ===============

</TABLE>

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





                                                                    THREE MONTHS ENDED                    NINE MONTHS ENDED
                                                                        FEBRUARY 28                           FEBRUARY 28
                                                           ------------------------------------     ------------------------------

                                                                 2009                 2008               2009            2008
                                                           -----------------     --------------     --------------  --------------

COMPREHENSIVE INCOME (LOSS):

<S>                                                        <C>                   <C>                <C>             <C>
  Net income (loss) attributable to common stockholders    $      (618,951)      $  (681,487)       $ (2,254,788)   $  (1,935,125)


OTHER COMPREHENSIVE INCOME (LOSS):

 Net unrealized gain (loss) of available-for-sale
 investments arising during period                                  49,703            (4,604)             26,325           (3,343)

 Reclassification adjustment for realized (gain) loss
 included in net income                                            (12,511)             (835)            (12,511)            (835)
                                                           -----------------     --------------     --------------  --------------

 Net unrealized gain (loss) attributable to available-for-
 sale investments recognized in other comprehensive income          37,192            (5,439)             13,814           (4,178)
                                                           -----------------     --------------     --------------  --------------

     COMPREHENSIVE INCOME (LOSS) ATTRIBUTABLE TO COMMON
                                           STOCKHOLDERS    $      (581,759)      $  (686,926)       $ (2,240,974)   $  (1,939,303)
                                                           =================     ==============     ==============  ==============

</TABLE>












                            See accompanying notes.
                                      F-3

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

                                                                 THREE MONTHS ENDED FEBRUARY 28,   NINE MONTHS ENDED FEBRUARY 28,
                                                                 -------------------------------   ------------------------------
                                                                        2009           2008              2009           2008
                                                                 --------------   --------------   -------------  ---------------
<S>                                                              <C>              <C>              <C>            <C>
CASH FLOWS FROM OPERATING ACTIVITIES

 Net Income (Loss)                                               $   (210,572)    $   (310,256)    $ (1,056,833)  $   (845,742)

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

        Unearned premium                                               97,211          137,724           74,020         32,105
        Stock option expense                                            9,847           22,433           36,829         79,619
        Stock issued (or to be issued) in connection with
        financing arrangements                                         10,808          173,584           70,763        201,771
        Provision for loss reserves                                    48,013           40,656          141,046         92,635
        Amortization of premium                                         9,072            5,547           28,216         12,498
        Depreciation                                                    3,231            2,134            9,726          6,275
        Premium and other receivables                                  (9,716)           3,378          (23,040)           941
        Accretion of discount                                          (4,878)          (2,853)          (8,552)        (9,025)
        Investment income due and accrued                                (619)          13,347           (7,359)        16,505
        Realized (gain) loss on sale of securities                    (12,511)          (4,140)         (12,511)        (3,589)
        Deferred policy acquisition costs                             (13,607)         (41,277)          (3,108)       (36,925)
        (Gain) on extinguishment of debt                                    -         (115,470)               -       (115,470)
        Loss on disposal of furniture and equipment                         -              684                -            684
        Change in operating assets and liabilities:
         Other assets                                                  (4,934)        (553,680)         157,012       (943,513)
         Accounts payable and cash overdraft                           (1,222)          (7,361)         (12,152)      (122,547)
         Accrued expenses and other liabilities                       226,112           42,293          298,139       (453,220)
                                                                 --------------   --------------  -------------  ---------------
       NET CASH FLOWS FROM (USED IN) OPERATIONS ACTIVITIES            146,235         (593,257)        (307,804)    (2,086,998)

CASH FLOWS FROM INVESTING ACTIVITIES

 Short-term loan                                                            -                -                -        (50,000)
 (Increase) decrease in short-term investments                        (90,597)        (690,072)       1,038,726       (895,944)
 Costs of available for sale securities acquired                            -          (97,582)        (976,160)       (97,582)
 Costs of mortgaged-backed securities acquired                       (470,409)      (2,181,077)      (1,849,137)    (2,503,752)
 Purchase of equity securities                                              -             (438)               -        (25,438)
 Sale of securities available for sale                                107,639                -          107,639        169,330
 Redemption of available for sale securities upon call                 20,000          830,000           20,000        830,000
 Repayment of mortgage-backed securities                              220,703          116,751          659,739        257,071
 Redemption of bonds upon call or at maturity                               -        1,175,000                -      1,325,000
 Purchase of furniture and equipment                                     (261)          (1,510)          (6,563)        (1,510)
                                                                 --------------   --------------  -------------  ---------------
       NET CASH FLOWS FROM (USED IN) INVESTING ACTIVITIES            (212,925)        (848,928)      (1,005,756)      (992,825)

CASH FLOWS FROM FINANCING ACTIVITIES

 Proceeds from related party debt                                      51,612                -          358,112        127,200
 Repayment of related party debt                                      (44,916)               -          (77,316)      (142,963)
 Proceeds from borrowings                                                   -          175,000          955,000      2,625,000
 Repayment of borrowings                                               (9,520)         (59,952)        (146,459)      (214,837)
 Proceeds from issuance of Series A preferred stock                    29,000          701,000          203,000        771,000
 Proceeds from issuance of Series B preferred stock                         -                -                -         25,000
 Proceeds from exercise of common stock warrants                            -              335                -            335
                                                                 --------------   --------------  -------------  ---------------
       NET CASH FLOWS FROM FINANCING ACTIVITIES                        26,176          816,383        1,292,337      3,190,735

NET INCREASE (DECREASE) IN CASH                                       (40,514)        (625,802)         (21,223)       110,912

CASH AT BEGINNING OF PERIOD                                            67,931          762,012           48,640         25,298
                                                                 --------------   --------------  -------------  ---------------
CASH AT END OF PERIOD                                            $     27,417     $    136,210      $    27,417    $   136,210
                                                                 ==============   ==============  =============  ===============
SUPPLEMENTAL DISCLOSURES

 Interest paid                                                   $      3,737     $      8,637        $   171,062    $    49,295
 Income taxes paid                                                          -                -                  -              -

 Non-cash investing and financing transaction:
 Additional consideration paid for issuance of debt                    10,808          173,584             70,763        201,771
 Reclassification of bonds held-to-maturity to bonds
 available for sale                                                         -                -                  -        998,534
</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 FEBRUARY 28, 2009
                                                                --------------------------------------------------------------------

                                                                                   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,
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)

Issuance of Series A
and B Preferred Stock
and common stock          29      29,000         -           -            -       -          -            -         -             -

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

Less expense previously
recognized

Accretion of
mandatorily redeemable
convertible preferred
stock                      -       4,263         -     138,916            -       -          -     (143,179)        -      (143,179)

Accrued dividends of
mandatorily redeemable
convertible preferred
stock                      -      25,684         -     239,516            -       -          -     (265,200)        -      (265,200)

Expense of common
shares to be issued in
connection with
financing arrangements     -           -         -           -            -       -     10,808            -         -        10,808

Common stock option
expense                    -           -         -           -            -       -      9,847            -         -         9,847

Unrealized net gain (loss)
on available for sale
securities                 -           -         -           -            -       -          -            -     37,192       37,192

Net income (loss),
three month period
ended February 28, 2009    -           -         -           -            -       -          -     (210,572)        -      (210,572)
                       -----  ---------- --------- -----------  ----------- ------- ---------- ------------- --------- -------------
BALANCE,
FEBRUARY 28, 2009      2,433  $2,598,386 9,621.940 $11,048,368  174,077,272 $17,408 $2,530,330 $(15,476,826) $ 20,297  $(12,908,791)
                       =====  ========== ========= ===========  =========== ======= ========== ============= ========= =============
                       ---------------------------------------  --------------------------------------------------------------------
</TABLE>




                            See accompanying notes.
                                      F-5
<PAGE>
<TABLE>
<CAPTION>

JACOBS FINANCIAL GROUP, INC.
CONSOLIDATED CONDENSED STATEMENT OF MANDATORILY REDEEMABLE PREFERRED STOCK AND STOCKHOLDERS' EQUITY (DEFICIT) (UNAUDITED)
FOR THE NINE MONTH PERIOD ENDED FEBRUARY 28, 2009
                                                                --------------------------------------------------------------------

                                                                                   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         203     203,000         -           -            -       -          -            -         -             -

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                      -      12,618         -     409,478            -       -          -     (422,096)        -      (422,096)

Accrued dividends of
mandatorily redeemable
convertible preferred
stock                      -      73,835         -     702,024            -       -          -     (775,859)        -      (775,859)

Expense of common
shares to be issued in
connection with
financing arrangements     -           -         -           -            -       -     40,206            -         -        40,206

Common stock option
expense                    -           -         -           -            -       -     36,829            -         -        36,829

Unrealized net gain
on available for sale
securities                 -           -         -           -            -       -          -            -     13,814       13,814

Net income (loss),
nine month period
ended February 28, 2009    -           -         -           -            -       -          -   (1,056,833)        -    (1,056,833)
                       -----  ---------- --------- -----------  ----------- ------- ---------- ------------- --------- -------------
BALANCE,
FEBRUARY 28, 2009      2,433  $2,598,386 9,621.940 $11,048,368  174,077,272 $17,408 $2,530,330 $(15,476,826) $ 20,297  $(12,908,791)
                       =====  ========== ========= ===========  =========== ======= ========== ============= ========= =============
                       ---------------------------------------  --------------------------------------------------------------------
</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 nine month periods ended  February 28, 2009,  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 February
28, 2009. 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  $620,000 and $2,255,000 for the
three and  nine-month  periods ended  February 28, 2009.  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   believed  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 were 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 or March 2009 loan  amortization
payments with respect to this  financing  and,  thus, it has incurred  events of
default with respect to these obligations, but remains in negotiations to modify
the terms of the obligations in order to cure such defaults (See Notes E).

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  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.

On March 23, 2009, the Company announced that FSC has entered into a reinsurance
agreement  with  Lloyd's  of  London  for its coal  reclamation  surety  bonding
programs (See Note I) that will take effect on April 1, 2009.  Such  arrangement
will provide FSC additional surety capacity and enable FSC to expand its efforts
in marketing its products to include larger coal operators.

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)".

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

NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (UNAUDITED)


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.

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

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

NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (UNAUDITED)


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".

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.

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

NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (UNAUDITED)


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.

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 nine month periods ended February
28,  2009 and 2008,  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.

                                      F-11

<PAGE>
JACOBS FINANCIAL GROUP, INC.

NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (UNAUDITED)


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
February 28, 2009.
<TABLE>
<CAPTION>

                                                        Gross Unrealized     Gross Unrealized
                                     Amortized Cost           Gains               Losses         Fair Market Value
                                   ------------------- -------------------- ------------------- --------------------
<S>                                <C>                 <C>                  <C>                 <C>
U.S. government agency             $          536,034  $             7,681                   -  $           543,715
mortgage-backed securities
State and municipal securities                348,295               20,639                   -              368,934

Equity securities(1)                           25,693                    -               8,023               17,670
                                   ------------------- -------------------- ------------------- --------------------
                                   $          910,022  $            28,320  $            8,023   $          930,319
                                   =================== ==================== =================== ====================
------------------
(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 and 2008 were reinvested.
</TABLE>

The Company's short-term  investments at February 28, 2009 of $137,330 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 February 28, 2009 and as such, they
are  carried  at  amortized  cost.  For the three and nine month  periods  ended
February 28, 2009 and 2008, 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         $        5,070,792  $            40,162  $           14,129  $         5,096,825
                                   =================== ==================== =================== ====================
</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.

                                      F-12

<PAGE>
JACOBS FINANCIAL GROUP, INC.

NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (UNAUDITED)


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

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

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

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

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

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


                                                                  February 28, 2009
                                         ---------------------------------------------------------------------
                                                   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    $             -  $        912,649  $             -  $        912,649
Equity securities at fair value                   17,670                 -                -            17,670
Short-term investments at fair value             137,330                 -                -           137,330
                                         ---------------- ----------------- ---------------- -----------------
Total Assets                             $       155,000  $        912,649  $             -  $      1,067,649
</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 February 28, 2009.


                                      F-13

<PAGE>
JACOBS FINANCIAL GROUP, INC.

NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (UNAUDITED)


The gross realized gains and losses on  available-for-sale  and held-to-maturity
securities  sold or redeemed by the issuer,  pursuant to call  features,  in the
three and nine-month period ended February 28, 2009 and 2008 are as follows:
<TABLE>
<CAPTION>

                               Three-Month       Three-Month        Nine-Month        Nine-Month
                               Period Ended      Period Ended      Period Ended      Period Ended
                               February 28,      February 29,      February 28,      February 29,
                                   2009              2008              2009              2008
                             ----------------- ----------------- ----------------- -----------------

AVAILABLE-FOR-SALE
SECURITIES
----------------------------

<S>                          <C>               <C>               <C>               <C>
       Gross realized gains  $         12,557  $            835  $         12,557  $            835
      Gross realized losses               (46)                -               (46)                -
                             ----------------- ----------------- ----------------- -----------------
          Net realized gain            12,511               835            12,511               835

HELD-TO-MATURITY SECURITIES
----------------------------

       Gross realized gains                 -  $          3,305                    $          3,305
      Gross realized losses                 -                 -                 -              (551)
                             ----------------- ----------------- ----------------- -----------------
          Net realized gain
                                            -             3,305                 -             2,754
                             ----------------- ----------------- ----------------- -----------------
          Net realized gain  $         12,511  $          4,140  $         12,511  $          3,589
                             ================= ================= ================= =================
</TABLE>


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 February 28, 2009 and May 31, 2008 such balances are
comprised of the following:

<TABLE>
<CAPTION>
                                                               February 28,        May 31,
                                                                   2009             2008
                                                             ---------------- ----------------
<S>                                                          <C>              <C>
Advance deposits for professional fees                       $         1,311  $       133,498
Escrow deposits for proposed acquisitions                             75,000          125,000
Mutual fund investment at market                                      17,670           24,829
Unamortized loan acquisition costs                                    23,863            3,060
Prepaid expense and other deposits                                    15,893           11,776
                                                             ---------------- ----------------
                                                      Total  $       133,737  $       298,163
                                                             ================ ================
</TABLE>

                                      F-14

<PAGE>
JACOBS FINANCIAL GROUP, INC.

NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (UNAUDITED)


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 after which time either party could  terminate  the
agreement.  Upon expiration of such closing date, the non-refundable deposit was
written-off  in the  three  month  period  ended  November  30,  2008 due to the
uncertainty of available financing and the Company's belief that consummation of
the  transaction  would  not  likely  be on the terms  reflected  in the  Merger
Agreement.

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").  In conjunction with such Agreement,  the Company made a
nonrefundable deposit in the amount of $75,000 that was to be applied toward the
purchase  price at closing.  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 such time either party
may terminate the Agreement.  Discussions  continue with NICO, the Agreement has
not been  terminated,  and the Company  continues to believe that it is probable
that the acquisition will be completed.  Accordingly, the non-refundable deposit
in the amount of $75,000 continues to be carried as an asset of the Company.

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 February 28, 2009 and May 31, 2008 respectively:
<TABLE>
<CAPTION>
                                                        February 28, 2009     May 31, 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%                                               180,557            205,016
                                                        ------------------ ------------------
                                    Notes payable       $       3,775,557  $       2,967,016
                                                        ================== ==================
</TABLE>

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

NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (UNAUDITED)

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 was unable to make
its  December  2008 and March 2009  payments,  and thus has  incurred  events of
default.  The Company is in discussions  with the note holders and is attempting
to negotiate terms that will enable it to cure these defaults.

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
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.

Advances  have been made to the Company by its principal  shareholder  and chief
executive  officer to fund ongoing  operations  under a  pre-approved  unsecured
financing  arrangement  bearing  interest at the rate of 12.00%.  The  following
table  summarizes  the activity  under such  arrangement  for the three and nine
month period ended February 28, 2009.

                                             Three month      Nine month
                                            period ended     period ended
                                            February 28,     February 28,
                                                2009             2009
                                           ---------------- ---------------

Balance owed, beginning of period                 $275,100        $  1,000
Proceeds from borrowings                            51,612         358,112
Repayments                                         (44,916)        (77,316)
                                           ---------------- ---------------
Balance owed, end of period                       $281,796       $ 281,796
                                           ================ ===============


                                      F-16

<PAGE>
JACOBS FINANCIAL GROUP, INC.

NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (UNAUDITED)


Scheduled  maturities  and  principal  payments  for each of the next five years
ending February 28, 2010 are as follows.  As the Company is currently in default
with respect to its  bridge-financing,  the holders of such notes have the right
to declare the principal amount  outstanding and the accrued interest thereon to
be immediately due and payable. Although no such notices have been received, for
this reason, such  bridge-financing  has been categorized as demand notes in the
following table:

        2010 (including demand notes)          $      3,933,143
        2011                                             55,694
        2012                                             63,539
        2013                                              4,977
                                               -----------------
                                               $      4,057,353
                                               =================

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.

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.


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

NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (UNAUDITED)


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.  The Company was
unable to provide  certification  to NICO 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 by
December 31, 2008.  Accordingly,  under the terms of the Agreement,  as amended,
the  NICO  has the  right to  terminate  the  Agreement  at its  discretion  and
retaining the good faith deposit of $75,000. 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.

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             FEBRUARY 28, 2009      FEBRUARY 29, 2008
                        ----------------             -----------------     -------------------

<S>                                                  <C>                   <C>
REVENUES:
 Investment advisory                                 $          59,078     $            63,925
 Surety insurance                                              256,016                 198,340
 Corporate                                                           -                 118,534
                                                     ------------------    -------------------
 Total revenues                                      $         315,094     $           380,799
                                                     ==================    ===================

NET INCOME (LOSS):
 Investment advisory                                 $          (9,134)    $           (45,718)
 Surety insurance                                               91,928                  62,416
 Corporate                                                    (293,366)               (326,954)
                                                     -----------------     -------------------
 Total net income (loss)                             $        (210,572)    $          (310,256)
                                                     =================     ===================
</TABLE>

                                      F-18
<PAGE>
JACOBS FINANCIAL GROUP, INC.

NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (UNAUDITED)
<TABLE>
<CAPTION>

                                                            NINE MONTH PERIOD ENDED
                        INDUSTRY SEGMENT             FEBRUARY 28, 2009      FEBRUARY 29, 2008
                        ----------------             -----------------     -------------------
<S>                                                  <C>                   <C>
REVENUES:
 Investment advisory                                 $         176,640     $           193,546
 Surety insurance                                              716,896                 488,457
 Corporate                                                         851                 124,348
                                                     -----------------     -------------------
 Total revenues                                      $         894,387     $           806,351
                                                     =================     ===================

NET INCOME (LOSS):
 Investment advisory                                 $        (108,960)    $          (160,451)
 Surety insurance                                              177,645                 100,337
 Corporate                                                  (1,125,518)               (785,628)
                                                     -----------------     -------------------
 Total net income (loss)                             $      (1,056,833)    $          (845,742)
                                                     =================     ===================
</TABLE>


NOTE I - SUBSEQUENT EVENTS

Subsequent  to February 28, 2009,  the Company  obtained  borrowings of $187,500
from individuals to fund ongoing operations and made repayments of $75,000. Such
borrowings  were obtained  under demand or 30-day notes bearing  interest at the
rate of 10.00% and included  the issuance of 250,000  shares of its common stock
as additional  consideration.  Additionally,  the Company obtained borrowings of
$11,750 from its principal  shareholder  and chief  executive  officer under its
pre-approved  financing  arrangement  bearing interest at the rate of 12.00% and
made repayments totaling $68,500.

On March 10, 2009,  in accordance  with the bridge  financing  arrangement,  the
Company  became  obligated  to issue in the  aggregate  5,010,640  shares of its
common stock to the holders of such notes.

In March,  2009,  the  Company  was  unable to make the  quarterly  amortization
payments  then due to the bridge  lenders and thus  incurred an event of default
under the bridge financing notes.

On March 23, 2009, the Company announced that FSC has entered into a reinsurance
agreement with Lloyd's of London  ("Reinsurer") for its coal reclamation  surety
bonding  programs  that  will  take  effect on April 1,  2009.  The  reinsurance
agreement  is an excess of loss  contract  which  protects  the Company  against
losses up to certain  limits over  stipulated  amounts,  has an initial  term of
three years and can be terminated by either party by written  notice of at least
90 days  prior to any April 1. The  contract  calls for a minimum  premium to be
paid to the Reinsurer of $490,000 per year.

On March 31, 2009, 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 $25,963 and $239,676,  respectively.
As of March 31, 2009, the accumulated  accrued and unpaid dividend on the Series
A  Preferred  stock and  Series B  Preferred  stock  amounted  to  $224,437  and
$2,767,979, respectively.

                                      F-19
<PAGE>


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

During  fiscal 2008 and the  nine-month  period ended  February  28,  2009,  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 FEBRUARY 28, 2009

The  Company  experienced  a loss (after  accretion  of  mandatorily  redeemable
convertible  preferred stock) for the three-month period ended February 28, 2009
of $618,951 as compared  with a loss of $681,487  for the  corresponding  period
ended February 29, 2008.

REVENUES

Revenues from operations for the three-month period ended February 28, 2009 were
$314,839 as compared with $261,826 for the  corresponding  period ended February
29, 2008.  The overall  increase in revenues is  attributable  to the  continued
growth of the surety business of FSC.

INVESTMENT ADVISORY REVENUES

Quarterly  revenues from the Company's  investment  management segment (Jacobs &
Company or J&C), net of advisory referral fees, were $56,101 for the three-month
period ended  February 28, 2009 as compared  with $63,486 for the  corresponding
period ended  February 29, 2008.  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
                                                        February 28,
                                             -----------------------------------
                                                   2009              2008
                                             -----------------------------------

Individually managed accounts                $         50,372  $         54,696
Mutual fund                                             5,729             8,790
                                             -----------------------------------
                                      Total  $         56,101  $         63,486
                                             ===================================


INSURANCE AND INVESTMENT REVENUES

Quarterly  revenues from the Company's surety insurance  segment,  consisting of
FSC and Triangle Surety Agency,  Inc ("TSA"),  were $243,505 for the three-month
period ended  February 28, 2009 as compared with $194,200 for the  corresponding
period ended February 29, 2008.

                                      -2-

<PAGE>

Revenues  attributable to premium earned,  net investment income and commissions
earned are as follows:
<TABLE>
<CAPTION>

                                                   Three-month Period Ended
                                                         February 28,
                                              ----------------------------------
                                                    2009              2008
                                              ----------------------------------

<S>                                           <C>               <C>
Premium earned                                $        166,422  $       135,603
Net investment income                                   76,608           58,123
Commissions earned                                         475              474
                                              ----------------------------------
                                       Total  $        243,505  $       194,200
                                              ==================================
</TABLE>

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 February 28, 2009
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 as well as the average
assets held for  investment.  The  increase in  corresponding  periods  reflects
growth in average assets held for investment in FSC's investment  portfolio from
approximately  $4.925 million for the three-month period ended February 29, 2008
to  approximately  $6.061 million for the three-month  period ended February 28,
2009 and an  increase  in  investment  yield  from  approximately  4.77% for the
three-month  period  ended  February  29,  2008 to  approximately  5.16% for the
three-month period ended February 28, 2009.

NET REALIZED INVESTMENT GAINS

In the three-month period ended February 28, 2009, the Company sold $200,000 par
value  (approximately  $95,000  carrying  value) of  certain  available-for-sale
zero-coupon bond municipal  securities that had appreciated in value realizing a
gain of $12,557.  Additionally,  the  Company had one of its  available-for-sale
securities  that had been purchased at a slight  premium  called  resulting in a
nominal loss of $46.

During the  three-month  period ended  February 29, 2008, a downturn in interest
rates  resulted in the Company  having  $2,005,000 of its  investment  portfolio
redeemed  pursuant  to  call  features  of  individual   securities  within  the
portfolio.  The  Company  recorded  a net  realized  gain of $4,140  from  these
transactions   and   reinvested   the   proceeds   in   government    guaranteed
mortgaged-backed  securities  ("GNMAs")  which  yielded  slightly  less than the
redeemed securities.

OTHER INCOME

In the  three-month  period ended  February 28, 2009,  the Company  commenced to
offer information technology services in an effort to generate additional income

                                      -3-
<PAGE>

to offset  internal  costs.  Revenue  generated  for such  services  amounted to
approximately  $2,270.  Additional revenues of approximately $450 for the period
were attributable to other investment advisory services.

EXPENSES

INCURRED POLICY LOSSES

The  Company  has  experienced  no claims for losses as of  February  28,  2009.
However,  "incurred but not reported"  (IBNR) policy losses for the  three-month
period  ended  February  28,  2009 and 2008  amounted  to  $48,013  and  $40,656
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.

POLICY ACQUISITION COSTS

Insurance  policy  acquisition  costs of $35,934 and $39,724 for the three-month
periods ended  February 28, 2009 and 2008,  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 21.59% and 29.29% for the periods ended February 28, 2009 and 2008
respectively.  The reduction in such cost as a percentage of earned  premiums is
attributable  to cost for policy  renewals being less than costs for the initial
policy acquisition.  As the growth in the book of insurance business slows, such
percentage is expected to gradually decline and then level off.

GENERAL AND ADMINISTRATIVE

General and administrative  expenses for the three-month  periods ended February
28,  2009 and 2008 were  $310,378  and  $337,435  respectively,  representing  a
decrease of $27,057, and were comprised of the following:

<TABLE>
<CAPTION>


                                                                 Three-month Period Ended
                                                                       February 28,
                                                           -------------------------------------
                                                                 2009               2008             DIFFERENCE
                                                                 ----               ----             ----------

<S>                                                        <C>                  <C>               <C>
Salaries and related costs                                 $         159,804    $       175,998   $        (16,194)
General office expense                                                22,298             32,157             (9,859)
Legal and other professional fees and costs                           46,981             11,089             35,892

Audit, accounting and related services                                33,349             37,267             (3,918)
Travel, meals and entertainment                                       10,489             20,590            (10,101)
Other general and administrative                                      37,457             60,334            (22,877)
                                                           ---------------------------------------------------------
                         Total general and administrative  $         310,378    $       337,435   $        (27,057)
                                                           =========================================================
</TABLE>

                                      -4-

<PAGE>



Salaries and related costs, net of deferred internal policy  acquisition  costs,
decreased approximately $16,000 and are comprised of the following:
<TABLE>
<CAPTION>


                                                                Three-month Period Ended
                                                                      February 28,
                                                          --------------------------------------
                                                                 2009               2008            DIFFERENCE
                                                                 ----               ----            ----------

<S>                                                       <C>                   <C>              <C>
Salaries and taxes                                        $          147,667    $    167,594     $        (19,927)
Commissions                                                           16,717          31,632              (14,915)
Stock option expense                                                   9,847          22,433              (12,586)
Fringe benefits                                                       13,816          13,050                  766
Key-man insurance                                                     12,224          12,704
                                                                                                             (480)
Deferred policy acquisition costs                                    (40,467)        (71,415)              30,948
                                                          --------------------------------------------------------
                         Total salaries and related costs $          159,804    $    175,998     $        (16,194)
                                                          ========================================================
</TABLE>


The decrease in salaries and taxes for the three-month period ended February 28,
2009 as  compared  to the same  period of the  previous  year was the  result of
eliminating  year-end  bonuses paid to  non-executive  staff  employees  and the
decrease of one staff position.  The decrease in commissions and deferred policy
acquisition  costs is  attributable to the Company's  commission  structure that
pays a  larger  commission  on the  origination  of a  policy  but  reduced  for
subsequent policy renewals. The decrease in stock option expense is attributable
to  non-uniform  vesting  schedules  under  which  options  vest for certain key
employees.

In the three-month  period ended February 28, 2009, the Company reduced the plan
benefits   under  its  group  health   insurance   resulting  in  a  savings  of
approximately  $1,850.  However,  this  decrease  was offset by a  reduction  of
approximately  $3,120 in annual premium  refunded under the Company's group life
insurance  policy.  The  decrease in key-man  insurance is  attributable  to the
elimination  of a  long-term  disability  policy  previously  maintained  by the
Company for its CEO.

General office expense  decreased by  approximately  $9,850 for the period ended
February 28, 2009 as compared to the corresponding  period of the previous year.
Approximately  $2,900 of such  decrease  was related to the  recovery of prepaid
express  mail  supplies  that had  been  previously  written-off  (approximately
$5,225) in the preceding  quarterly period upon  announcement by a major carrier
that it was  discontinuing  its  domestic-only  air and ground  services  in the
United  States.  Additionally,  included  in the  corresponding  period from the
previous  year  was an  adjustment  with  respect  to state  franchise  taxes of
approximately  $5,700 resulting from a change in estimate.  The remainder of the
decrease  resulted from a general  decrease in office related expense  resulting
from management's efforts to reduce operating costs.


                                      -5-
<PAGE>


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

                                                                Three-month Period Ended
                                                                      February 28,
                                                          --------------------------------------
                                                                 2009               2008            DIFFERENCE
                                                                 ----               ----            ----------

<S>                                                       <C>                   <C>               <C>
General corporate services                                $           20,710    $        11,089   $           9,621
Expansion of surety license to other states                            2,000                  -               2,000
Acquisition and financing related costs                               24,271                  -              24,271
                                                          ----------------------------------------------------------
                  Total legal and other professional fees $           46,981    $        11,089   $          35,892
                                                          ==========================================================
</TABLE>

The increase in general  corporate  services results primarily from consultation
with respect to matters relating to the Company's  incurring a quarterly payment
default with respect to its  bridge-financing  notes. In the three-month  period
ended  February 28, 2009,  the Company  incurred  expense of $2,000  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 $24,271  for the
three-month  period ended February 28, 2009. The Company  continues to carry its
$75,000  non-refundable  deposit made in conjunction with the Company's proposed
acquisition  of Unione  Italiana  Reinsurance  Company of America from  National
Indemnity  Company  ("NICO").  Under  the  terms of the  acquisition  agreement,
because  the  Company did not satisfy  the  required  financing  condition  (for
closing) by December 31, 2008,  NICO has  thereafter  had the right to terminate
the agreement at its discretion.  Nevertheless,  the relationship of the Company
and NICO continues;  the Agreement has not been terminated,  and the deposit has
not been forfeited or written-off.  The Company  continues to believe that it is
probable that the acquisition will be completed within the terms provided in the
acquisition  agreement.  For the three month  period  ended  February  29, 2008,
$492,952  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  February  28, 2009 as compared to the  corresponding  2008 period
related primarily to additional travel incurred in 2008 in the Company's ongoing
efforts to raise additional  capital.  In the three-month  period ended February
28, 2009,  travel and related costs  include  approximately  $7,200  relating to
meeting with  underwriters in efforts to establish  reinsurance  agreements that
would allow the FSC to write bonds for larger  companies and provide  additional
growth prospects.  On March 23, 2009, the Company announced that FSC had entered
into a  reinsurance  agreement  with Lloyd's of London for its coal  reclamation
bonding  programs  that  became  effective  on April 1,  2009 (see Note I in the
accompanying unaudited consolidated condensed financial statements).

                                      -6-
<PAGE>

Other general and administrative expense decreased approximately $22,875 for the
three-month period ended February 28, 2009 as compared to the corresponding 2008
period.  Approximately $8,300 of this reduction was attributable to professional
expenses incurred in 2008 relating to the settlement of the Company's delinquent
payroll tax obligations.  The remaining  decrease in general and  administrative
expense is result of management's efforts to curtail its operating costs.

MUTUAL FUND COSTS

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 $11,088 of the Fund's operating  expenses during the three-month period
ended February 28, 2009 as compared to $27,557 for corresponding period from the
previous  year.  Expense  reimbursement  accruals are recorded  monthly based on
billings  received  from  the  Fund of  estimated  expense  reimbursement.  Such
estimates are adjusted to actual expenses  incurred by the Fund as of January 31
of each year, the fiscal year-end for the Fund.

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 February 28, 2009, the Fund's investment  advisory
fees  decreased  to  $5,729  as  compared  with  $8,790  for  the  corresponding
three-month period ended February 29, 2008 as a result of a decrease in the Fund
size.  The Fund's average assets under  management  declined from  approximately
$2.93  million  for  the   three-month   period  ended   February  29,  2008  to
approximately  $1.82 million for the three-month period ended February 28, 2009.
As of February  28, 2009,  assets  under  management  were  approximately  $1.80
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.

                                      -7-

<PAGE>

GAIN ON DEBT EXTINGUISHMENT

The Company had been delinquent in paying certain of its payroll tax obligations
for periods  ending on or before  December 31, 2005. In the  three-month  period
ended November 30, 2007, the Company entered into negotiations for the repayment
and  settlement  of this  obligation  with  the  Internal  Revenue  Service.  In
conjunction with such negotiations,  the Company made a payment of approximately
$173,000  towards  the tax  portion  of this  obligation  leaving  an  estimated
liability of approximately  $344,500 as of November 30, 2007. In the three-month
period  ended  February  29, 2008,  the Company  made an  additional  payment of
approximately  $229,000  that was applied to the  remaining tax and interest due
and requested  abatement of all penalties  relating to this matter.  In February
2008,  the Company  received  notification  from the  Internal  Revenue  Service
granting  its request for  abatement  of penalty  with  respect to this  matter.
Accordingly,  in the  three-month  period ended  February 29, 2008,  the Company
recognized a gain of $115,470 upon final settlement of this matter.

INTEREST AND DIVIDEND INCOME

Interest and dividend income for the three-month periods ended February 28, 2009
and 2008  consists of  interest  earned from the  investment  of the  unexpended
proceeds  from  the  bridge-financing   arrangements  in  short-term  investment
accounts and dividends earned on the Company's mutual fund investment and are as
follows:
<TABLE>
<CAPTION>

                                                                Three-month Period Ended
                                                                      February 28,
                                                          --------------------------------------
                                                                 2009               2008            DIFFERENCE
                                                                 ----               ----            ----------

<S>                                                       <C>                   <C>               <C>
Interest                                                  $                -    $         3,065   $          (3,065)
Dividends on mutual fund investment                                      255                438                (183)
                                                          ----------------------------------------------------------
                             Total interest and dividends $              255    $         3,503   $          (3,248)
                                                          ==========================================================
</TABLE>


INTEREST EXPENSE

Interest expense for the three-month period ended February 28, 2009 was $117,022
as compared with $243,549 for the corresponding  period ended February 29, 2008.
Components of interest expense are comprised of the following:
<TABLE>
<CAPTION>

                                                                    Three-month Period Ended
                                                                          February 28,
                                                               -----------------------------------
                                                                     2009              2008            DIFFERENCE
                                                                     ----              ----            ----------

<S>                                                            <C>               <C>                <C>
Interest expense on bridge-financing                           $         90,166  $         59,803   $        30,363
Expense of common shares issued or to be issued in
connection with bridge financing and other arrangements                  10,808           173,584          (162,776)

Interest expense on demand and term notes                                15,600            10,017             5,583

Other finance charges                                                       448               145               303
                                                               -----------------------------------------------------
                                       Total interest expense  $        117,022  $        243,549   $      (126,527)
                                                               =====================================================
</TABLE>

                                      -8-
<PAGE>

The increase in interest expense on bridge-financing  is primarily  attributable
to the  second  round of  bridge-financing  notes  totaling  $1.0  million.  The
decrease  in the  expense of common  shares  issued  (or to be  issued)  for the
three-month  period  ended  February  28, 2009 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.  Interest  expense on demand and
term notes  increased  due to increase  borrowings,  primarily  from the CEO and
largest shareholder.

ACCRETION AND DIVIDENDS

Accretion of  mandatorily  redeemable  convertible  preferred  stock issued at a
discount and accrued  dividends for three-month  periods ended February 28, 2009
and 2008 are as follows:
<TABLE>
<CAPTION>

                                                                Three-month Period Ended
                                                                      February 28,
                                                          --------------------------------------
                                                                 2009               2008            DIFFERENCE
                                                                 ----               ----            ----------
<S>                                                       <C>                   <C>              <C>
Accretion of discount                                     $          143,179    $       133,461  $            9,718
Accrued dividends                                                    265,200            237,770              27,430
                                                          ----------------------------------------------------------
                            Total accretion and dividends $          408,379    $       371,231  $           37,148
                                                          ==========================================================
</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 NINE-MONTH PERIOD ENDED FEBRUARY 28, 2009

The  Company  experienced  a loss (after  accretion  of  mandatorily  redeemable
convertible  preferred stock) for the nine-month  period ended February 28, 2009
of $2,254,788 as compared with a loss of $1,935,125 for the corresponding period
ended February 29, 2008.

REVENUES

Revenues from operations for the nine-month  period ended February 28, 2009 were
$893,280 as compared with $681,560 for the  corresponding  period ended February
29, 2008.  The overall  increase in revenues is  attributable  to the  continued
growth of the surety business of FSC.

INVESTMENT ADVISORY REVENUES

Quarterly  revenues from the Company's  investment  management segment (Jacobs &
Company or J&C), net of advisory referral fees, were $173,662 for the nine-month
period ended  February 28, 2009 as compared with $193,103 for the  corresponding
period ended  February 29, 2008.  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

                                      -9-
<PAGE>

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:

                                                  Nine-month Period Ended
                                                        February 28,
                                             -----------------------------------
                                                   2009              2008
                                             -----------------------------------

Individually managed accounts                $        154,912  $        162,204
Mutual fund                                            18,750            30,899
                                             -----------------------------------
                                      Total  $        173,662  $        193,103
                                             ===================================


INSURANCE AND INVESTMENT REVENUES

Quarterly  revenues from the Company's surety insurance  segment,  consisting of
FSC and Triangle  Surety Agency,  Inc ("TSA"),  were $704,384 for the nine-month
period ended  February 28, 2009 as compared with $484,868 for the  corresponding
period ended February 29, 2008.  Revenues  attributable to premium  earned,  net
investment income and commissions earned are as follows:

                                                 Nine-month Period Ended
                                                       February 28,
                                            -----------------------------------
                                                  2009              2008
                                            -----------------------------------

Premium earned                              $        474,183   $       309,181
Net investment income                                218,451           165,183
Commissions earned                                    11,750            10,504
                                            -----------------------------------
                                     Total  $        704,384   $       484,868
                                            ===================================

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 nine-month period ended February 28, 2009 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 $4.370 million for the nine-month
period  ended  February  29,  2008  to  approximately  $5.885  million  for  the
nine-month  period ended  February 28, 2009,  offset by a decrease in investment
yield from approximately 5.08% for the nine-month period ended February 29, 2008
to approximately 5.01% for the nine-month period ended February 28, 2009.

                                      -10-

<PAGE>

NET REALIZED INVESTMENT GAINS

In the three-month period ended February 28, 2009, the Company sold $200,000 par
value  (approximately  $95,000  carrying  value) of  certain  available-for-sale
zero-coupon bond municipal  securities that had appreciated in value realizing a
gain of $12,557.  Additionally,  the  Company had one of its  available-for-sale
securities  purchased at a slight premium called  resulting in a nominal loss of
$46.

During the  three-month  period ended  February 29, 2008, a downturn in interest
rates  resulted in the Company  having  $2,005,000 of its  investment  portfolio
redeemed  pursuant  to  call  features  of  individual   securities  within  the
portfolio.  The  Company  recorded  a net  realized  gain of $4,140  from  these
transactions   and   reinvested   the   proceeds   in   government    guaranteed
mortgaged-backed  securities  ("GNMAs")  which  yielded  slightly  less than the
redeemed  securities.  Previously,  in the three-month period ended November 30,
2007,  the  Company  reclassified  investments  in debt  securities  of  Federal
National Mortgage Association ("FNMA" or "Fannie Mae") previously  classified as
held-to-maturity  to  the  available-for-sale   classification  in  response  to
uncertainties attributable to the slumping U.S. mortgage and housing markets and
its potential  effect on the issuer's  financial  condition.  At that time,  the
Company sold one its FNMA securities at a slight loss of $551.

OTHER INCOME

In the  three-month  period ended  February 28, 2009,  the Company  commenced to
offer information technology services in an effort to generate additional income
to offset  internal  costs.  Revenue  generated  for such  services  amounted to
approximately  $2,270.  Additional revenues of approximately $450 for the period
were attributable to other investment advisory services.

EXPENSES

INCURRED POLICY LOSSES

The  Company  has  experienced  no claims for losses as of  February  28,  2009.
However,  "incurred  but not reported"  (IBNR) policy losses for the  nine-month
period  ended  February  28,  2009 and 2008  amounted  to  $141,046  and $92,635
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.

POLICY ACQUISITION COSTS

Insurance  policy  acquisition  costs of $114,947 and $88,825 for the nine-month
periods ended  February 28, 2009 and 2008,  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 24.24% and 28.73% for the periods ended February 28, 2009 and 2008

                                      -11-
<PAGE>

respectively.  The reduction in such cost as a percentage of earned  premiums is
attributable  to cost for policy  renewals being less than costs for the initial
policy acquisition.  As the growth in the book of insurance business slows, such
percentage is expected to gradually decline and then level off.

GENERAL AND ADMINISTRATIVE

General and  administrative  expenses for the nine-month  periods ended February
28, 2009 and 2008 were  $1,249,042 and $986,031  respectively,  representing  an
increase of $263,011, and were comprised of the following:
<TABLE>
<CAPTION>

                                                                 Nine-month Period Ended
                                                                       February 28,
                                                           -------------------------------------
                                                                 2009               2008             DIFFERENCE
                                                                 ----               ----             ----------

<S>                                                        <C>                  <C>              <C>
Salaries and related costs                                 $         498,797    $       544,342  $          (45,545)
General office expense                                                80,686             84,149              (3,463)
Legal and other professional fees and costs                          413,806             58,591             355,215
Audit, accounting and related services                                83,204             92,913              (9,709)
Travel, meals and entertainment                                       44,868             54,076              (9,208)
Other general and administrative                                     127,681            151,960             (24,279)
                                                           ---------------------------------------------------------
                         Total general and administrative  $       1,249,042    $       986,031  $          263,011
                                                           =========================================================
</TABLE>

Salaries and related costs, net of deferred internal policy  acquisition  costs,
decreased approximately $45,550 and are comprised of the following:

<TABLE>
<CAPTION>
                                                                 Nine-month Period Ended
                                                                      February 28,
                                                          --------------------------------------
                                                                 2009               2008            DIFFERENCE
                                                                 ----               ----            ----------
<S>                                                       <C>                   <C>              <C>
Salaries and taxes                                        $          443,828    $       464,157  $          (20,329)
Commissions                                                           23,403             31,855             ( 8,452)
Stock option expense                                                  36,829             79,619             (42,790)
Fringe benefits                                                       47,936             44,747               3,189
Key-man insurance                                                     42,576             30,638              11,938
Deferred policy acquisition costs                                    (95,775)          (106,674)             10,899
                                                          ----------------------------------------------------------
                         Total salaries and related costs $          498,797    $       544,342  $          (45,545)
                                                          ==========================================================
</TABLE>

The decrease in salaries and taxes for the nine-month  period ended February 28,
2009 as  compared  to the same  period of the  previous  year was the  result of
eliminating  year-end  bonuses paid to  non-executive  staff  employees  and the
decrease of one staff position.  The decrease in commissions and deferred policy
acquisition  costs is  attributable to the Company's  commission  structure that
pays a  larger  commission  on the  origination  of a  policy  but  reduced  for
subsequent policy renewals. The decrease in stock option expense is attributable
to  non-uniform  vesting  schedules  under  which  options  vest for certain key
employees.

                                      -12-

<PAGE>



The increase in fringe  benefits for the  nine-month  period ended  February 28,
2009 is  attributable  to  increased  health care costs and a reduced  return of
premium on the Company's group life insurance.  On December 1, 2008, the Company
reduced the plan  benefits  under its group  health care plan in order to reduce
costs.  The increase in key-man  insurance is  attributable  to additional  life
insurance purchased in connection with the increased debt the Company incurred.

General  office  expense  decreased by  approximately  $3,500 for the nine-month
period ended  February 28, 2009 as compared to the  corresponding  period of the
previous year.  Included in the corresponding  period from the previous year was
an adjustment  with respect to state  franchise  taxes of  approximately  $5,700
resulting  from a change in estimate.  This  decrease in comparison to the prior
year  period was offset by the  write-off  and  subsequent  partial  recovery of
prepaid   express  mail  supplies  of   approximately   $2,325  (net)  upon  the
announcement by a major carrier that it was  discontinuing its domestic-only air
and ground  services  in the United  States.  Management  has  returned a second
shipment of such supplies through its vendor supply chain in an effort to recoup
its remaining cost.

Legal and other professional fees and costs were comprised of the following:
<TABLE>
<CAPTION>
                                                                 Nine-month Period Ended
                                                                      February 28,
                                                          --------------------------------------
                                                                 2009               2008            DIFFERENCE
                                                                 ----               ----            ----------
<S>                                                       <C>                   <C>               <C>
General corporate services                                $           44,417    $        34,865   $           9,552
Expansion of surety license to other states                           61,982                  -              61,982
Acquisition and financing related costs                              307,407             23,726             283,681
                                                          ----------------------------------------------------------
                  Total legal and other professional fees $          413,806    $        58,591   $         355,215
                                                          ==========================================================
</TABLE>


In the nine-month period ended February 28, 2009, the Company incurred legal and
professional  expense of $61,982  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 $307,407  for the
nine-month  period ended February 28, 2009. Such expense  includes the write-off
of a  $50,000  non-refundable  deposit  made in  connection  with the  Company's
proposed acquisition of Reclamation Surety Holding Company,  Inc. ("RSH").  This
write-off was incurred  based upon the  Company's  release of the deposit to RSH
incident to the Company's obtaining an extension of the period for the Company's
fulfilling its financing  condition  until October 31, 2008,  and  determination
that any  acquisition  of RSH by the Company is unlikely to be on terms provided
in  the  Merger   Agreement.   The  Company   continues  to  carry  its  $75,000
non-refundable  deposit made in  conjunction  with its proposed  acquisition  of
Unione Italiana  Reinsurance  Company of America from National Indemnity Company
("NICO"). Under the terms of the acquisition agreement,  because the Company did
not satisfy the required financing condition (for closing) by December 31, 2008,

                                      -13-
<PAGE>

NICO has thereafter had the right to terminate the agreement at its  discretion.
Nevertheless,  the relationship of the Company and NICO continues; the agreement
has not been  terminated;  and the Company  continues  to believe it is probable
that  the  acquisition  will be  completed  within  the  terms  provided  in the
acquisition  agreement.  For the  nine-month  period  ended  February  29, 2008,
$23,726 of such costs were  expensed  and  $561,606  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.

Audit,  accounting and related services for the nine-month period ended February
29, 2008 includes a billing for professional  services of  approximately  $9,000
related to a non-recurring accounting matter.

The  decrease in travel,  meals and  entertainment  expense  for the  nine-month
period  ended  February  28, 2009 as compared to the  corresponding  2008 period
related primarily to additional travel incurred in 2008 in the Company's ongoing
efforts to raise  additional  capital.  Included in the nine-month  period ended
February 28, 2009 are travel and related costs of approximately $10,900 relating
to meetings with  underwriters  in efforts to establish  reinsurance  agreements
that  would  allow  the FSC to write  bonds for  larger  companies  and  provide
additional growth  prospects.  On March 23, 2009, the Company announced that FSC
had entered  into a  reinsurance  agreement  with Lloyd's of London for its coal
reclamation  bonding programs that became effective on April 1, 2009 (see Note I
in the accompanying unaudited consolidated condensed financial statements).

Other general and administrative expense decreased approximately $27,279 for the
nine-month period ended February 28, 2009 as compared to the corresponding  2008
period.  Approximately $8,300 of this reduction was attributable to professional
expenses incurred in 2008 relating to the settlement of the Company's delinquent
payroll tax obligations.  The remaining  decrease in general and  administrative
expense is result of management's efforts to curtail its operating costs.

MUTUAL FUND COSTS

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 $84,428 of the Fund's operating  expenses during the nine-month  period
ended  February 28, 2009 as compared to $113,067 for  corresponding  period from
the previous year. Expense reimbursement  accruals are recorded monthly based on
billings  received  from  the  Fund of  estimated  expense  reimbursement.  Such
estimates are adjusted to actual expenses  incurred by the Fund as of January 31
of each year, the fiscal year-end for the Fund.

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

                                      -14-
<PAGE>

will increase,  while revenues from investment advisory fees will decrease.  For
the nine-month  period ended February 28, 2009, the Fund's  investment  advisory
fees  decreased  to $18,750  as  compared  with  $30,899  for the  corresponding
nine-month  period ended February 29, 2008 as a result of a decrease in the Fund
size.  The Fund's average assets under  management  declined from  approximately
$3.46 million for the nine-month period ended February 29, 2008 to approximately
$2.05 million for the nine-month  period ended February 28, 2009. As of February
28, 2009, assets under management were approximately $1.80 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.

GAIN ON DEBT EXTINGUISHMENT

The Company had been delinquent in paying certain of its payroll tax obligations
for periods  ending on or before  December 31, 2005. In the  three-month  period
ended November 30, 2007, the Company entered into negotiations for the repayment
and  settlement  of this  obligation  with  the  Internal  Revenue  Service.  In
conjunction with such negotiations,  the Company made a payment of approximately
$173,000  towards  the tax  portion  of this  obligation  leaving  an  estimated
liability of approximately  $344,500 as of November 30, 2007. In the three-month
period  ended  February  29, 2008,  the Company  made an  additional  payment of
approximately  $229,000  that was applied to the  remaining tax and interest due
and requested  abatement of all penalties  relating to this matter.  In February
2008,  the Company  received  notification  from the  Internal  Revenue  Service
granting  its request for  abatement  of penalty  with  respect to this  matter.
Accordingly,  in the  three-month  period ended  February 29, 2008,  the Company
recognized a gain of $115,470 upon final settlement of this matter.

INTEREST AND DIVIDEND INCOME

Interest and dividend income for the nine-month  periods ended February 28, 2009
and 2008  consists of  interest  earned from the  investment  of the  unexpended
proceeds  from  the  bridge-financing   arrangements  in  short-term  investment
accounts and dividends earned on the Company's mutual fund investment and are as
follows:


                                      -15-
<PAGE>
<TABLE>
<CAPTION>

                                                                 Nine-month Period Ended
                                                                      February 28,
                                                          --------------------------------------
                                                                 2009               2008              DIFFERENCE
                                                                 ----               ----              ----------
<S>                                                       <C>                   <C>                <C>
Interest                                                  $              852    $         8,883    $      (8,031)
Dividends on mutual fund investment                                      255                438             (183)
                                                          ----------------------------------------------------------
                             Total interest and dividends $            1,107    $         9,321    $      (8,214)
                                                          ==========================================================
</TABLE>

INTEREST EXPENSE

Interest expense for the nine-month  period ended February 28, 2009 was $352,031
as compared with $365,260 for the  corresponding  period ended February 29, 2008
and is comprised of the following:
<TABLE>
<CAPTION>

                                                                    Nine-month Period Ended
                                                                          February 28,
                                                               -----------------------------------
                                                                     2009              2008           DIFFERENCE
                                                                     ----              ----           ----------

<S>                                                            <C>                <C>               <C>
Interest expense on bridge financing                           $        266,186   $       108,166   $      158,020
Expense of common shares issued or to be issued in
connection with bridge financing and other arrangements                  42,637           200,216         (157,579)
Interest expense on demand and term notes                                39,404            39,260              144
Interest expense accrued on debt obligations subsequently
settled and recorded as gain on debt extinguishment                           -            13,075          (13,075)
Other finance charges                                                     3,804             4,543             (739)
                                                               -----------------------------------------------------

                                       Total interest expense  $        352,031   $       365,260   $      (13,229)
                                                               =====================================================
</TABLE>

The increase in interest expense on bridge-financing  is primarily  attributable
to the  second  round of  bridge-financing  notes  totaling  $1.0  million.  The
decrease  in the  expense of common  shares  issued  (or to be  issued)  for the
nine-month  period  ended  February  28, 2009 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 in addition to less shares being
issued under the terms of the bridge-financing arrangement.

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




                                      -16-
<PAGE>

ACCRETION AND DIVIDENDS

Accretion of  mandatorily  redeemable  convertible  preferred  stock issued at a
discount and accrued  dividends for  nine-month  periods ended February 28, 2009
and 2008 are as follows:
<TABLE>
<CAPTION>
                                                                 Nine-month Period Ended
                                                                      February 28,
                                                          --------------------------------------
                                                                 2009               2008               DIFFERENCE
                                                                 ----               ----               ----------
<S>                                                       <C>                   <C>                 <C>
Accretion of discount                                     $          422,095    $       393,447     $        28,648
Accrued dividends                                                    775,860            695,936              79,924
                                                          ----------------------------------------------------------
                            Total accretion and dividends $        1,197,955    $     1,089,383     $       108,572
                                                          ==========================================================
</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.

RESERVE FOR LOSSES AND LOSS EXPENSES

Reserves  for  unpaid  losses  and loss  adjustment  expenses  of the  insurance
subsidiary are estimated using individual  case-basis  valuations in conjunction
with estimates derived from industry and company experience. FSC has experienced
no claims for losses as of February 28, 2009.

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.

                                      -17-

<PAGE>

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
$619,000 and $2,255,000 for the three and nine-month  periods ended February 28,
2009.  The  Company  continues  to  experience  significant  cash flow  concerns
resulting in the deferral of payments to professionals and others. Additionally,
the  Company  defaulted  on its  December  10,  2008  quarterly  payment  to its
bridge-financing  lenders (see Note E in the accompanying unaudited consolidated
condensed financial  statements).  The Company reported cash flow from operating
activities of approximately  $146,000 for the three-month  period ended February
28,  2009,   however   deferral  of  payments  to  professional  and  others  of
approximately  $106,000 contributed to this result.  Additionally,  as discussed
below,  a  substantial  portion of the  Company's  cash flow is generated by its
insurance subsidiary and is subject to certain withdrawal restrictions.

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 $6,148,188
as  of  February  28,  2009,  $6,143,525  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.

                                      -18-
<PAGE>

Accordingly,  because  of  these  restrictions,  as  of  February  28,  2009,  a
significant  deficiency  in  working  capital  exists as the  Company's  current
liabilities exceed its available current assets.  Additionally,  the Company has
incurred  a payment  default  with  respect  to its  quarterly  bridge-financing
payments. Management has initiated discussions with the bridge-financing lenders
in an effort to negotiate terms for curing the default. 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 these and other 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.  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 continues to pursue avenues
that will provide  additional  capital at the FSC level 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  in  the
accompanying  unaudited  consolidated  condensed financial  statements) that the
Company believed would  substantially  enhance the business and prospects of the
Company. The acquisitions were contingent upon the Company's obtaining necessary
financing  and one (for an insurance  company) was and remains  contingent  upon
necessary  regulatory  approvals.  The  Company  failed to obtain the  necessary
financing within the time periods prescribed by the acquisition agreements;  but
remains in  discussions  with both  parties;  and the Company's  agreement  with
respect to the insurance company remains in effect.

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
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.

                                      -19-
<PAGE>

Recent turmoil in financial  markets has severely affected the Company's efforts
to  accomplish  a larger  permanent  financing.  While  efforts  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.

On March 23, 2009, the Company announced that FSC had entered into a reinsurance
agreement with Lloyd's of London for its coal reclamation  bonding programs that
became  effective  on April 1, 2009 (see  Note I in the  accompanying  unaudited
consolidated  condensed  financial  statements).  This reinsurance  program will
provide  additional  bonding  capacity to FSC and enable it the ability to write
more bonds and of greater  size for coal  operators.  Management  believes  that
having  this  program  will allow FSC to expand its market  share  resulting  in
increased cash flow at each of the Company's operating subsidiaries.

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  continue  to  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  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.



                                      -20-

<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  February  28,  2009,  were  effective.   Accordingly,  the  Chief  Executive
Officer/Chief Financial Officer concluded that the Company's disclosure controls
and procedures, as of February 28, 2009, 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
February  28, 2009 and May 31, 2008 and the results of its  operations  and cash
flows for the three and  nine-month  periods ended February 28, 2009 and 2008 in
conformity with U.S. generally accepted accounting principals (GAAP).

                                      -21-
<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 January 2009, 29 shares of Series A Preferred  Stock were issued  pursuant to
ongoing bonding programs of FSC in exchange for cash of $29,000.

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

The Company has incurred an event of default with respect to quarterly  interest
and principal payments under its bridge-financing arrangement. As of the date of
filing this report, the amount required to cure the default is $459,456.

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

None.

ITEM 5. OTHER INFORMATION

None.


                                      -22-
<PAGE>
<TABLE>
<CAPTION>

ITEM 6. EXHIBITS
<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  and Chief  Financial  Officer pursuant to Rule 13a-146.1  promulgated under the
      Securities  Exchange Act of 1934
32.1  Certification of Chief Executive Officer and 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>






                                      -23-
<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: April 20, 2009                        JACOBS FINANCIAL GROUP, INC.
                                    --------------------------------------------
                                                   (Registrant)
                                 By:
                                    /s/John M. Jacobs
                                    --------------------------------------------
                                    John M. Jacobs, President




























                                      -24-