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 August 31, 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:  193,673,214  shares of common
stock as of October 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





















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


<TABLE>
<CAPTION>

                                                                                      AUGUST 31, 2009        MAY 31, 2009
                                                                                      ---------------      ---------------
ASSETS

INVESTMENTS AND CASH:
<S>                                                                                   <C>                  <C>
Bonds available for sale, at market value                                             $     902,201        $     908,766
 (amortized cost - 08/31/09 $855,078; 05/31/09 $866,855)
Mortgage-back securities held to maturity, at amortized costs                             5,159,445            5,085,300
 (market value - 08/31/09 $5,230,512; 05/31/09 $5,157,936)
Short-term investments, at cost (approximates market value)                                 312,245              387,753
Cash                                                                                        185,032               80,038
                                                                                      ---------------      ---------------
                                  TOTAL INVESTMENTS AND CASH                              6,558,923            6,461,857

Investment income due and accrued                                                            28,301               28,124
Premiums and other accounts receivable                                                       65,743               61,184
Prepaid reinsurance premium                                                                 149,725               87,114
Deferred policy acquisition costs                                                           158,734              143,173
Furniture and equipment, net of accumulated depreciation
 of $136,288 and $133,493, respectively                                                      20,374               23,169
Other assets                                                                                 36,527               43,517
Intangible assets                                                                           150,000              150,000
                                                                                      ---------------      ---------------

                                                TOTAL ASSETS                          $   7,168,327        $   6,998,138
                                                                                      ===============      ===============


LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)

Reserve for losses and loss expenses                                                  $     480,843        $     432,658
Reserve for unearned premiums                                                               594,359              530,795
Accrued expenses and professional fees payable                                              502,327              470,099
Accounts payable                                                                            325,983              268,066
Related party payable                                                                        90,534               75,009
Demand note payable to related party                                                          7,163                3,081
Notes payable                                                                             4,280,895            4,049,791
Accrued interest payable                                                                    172,874              303,914
Ceded reinsurance payable                                                                    47,926               92,173
Other liabilities                                                                           115,431               78,470
                                                                                      ---------------      ---------------
                                           TOTAL LIABILITIES                              6,618,335            6,304,056

Series a  preferred  stock,  $.0001  Par  value  per  share;  1  million  shares
 authorized; 2,675 and 2,665 shares issued and outstanding at August 31, 2009 and
 May 31, 2009, respectively; stated liquidation value of $1,000 per share                 2,902,070            2,860,670

Series  B  Preferred  Stock,  $.0001  par  value  per  share;  9,941.341  shares
 authorized;  9,621.940  shares issued and outstanding at August 31, 2009 and May
 31, 2009; stated liquidation value of $1,000 per share                                  11,816,899           11,429,440
                                                                                      ---------------      ---------------
                TOTAL MANDATORILY REDEEMABLE PREFERRED STOCK                             14,718,969           14,290,110

COMMITMENTS AND CONTINGENCIES (SEE NOTES)

STOCKHOLDERS' EQUITY (DEFICIT)

Common stock, $.0001 par value per share; 490 million shares authorized;
 187,150,178 and 179,682,912 issued outstanding at August 31, 2009
 and May 31, 2009, respectively                                                              18,715               17,968
Additional paid in capital                                                                2,990,061            2,626,236
Accumulated deficit                                                                     (17,222,667)         (16,279,725)
Accumulated other comprehensive income (loss)                                                44,914               39,493
                                                                                      ---------------      ---------------
                         TOTAL STOCKHOLDERS' EQUITY (DEFICIT)                           (14,168,977)         (13,596,028)
                                                                                      ---------------      ---------------

                              TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)    $   7,168,327        $   6,998,138
                                                                                      ===============      ===============
</TABLE>



                            See accompanying notes.

                                      F-1
<PAGE>
Jacobs Financial Group, Inc,
Consolidated Condensed Statements of Operations (Unaudited)


<TABLE>
<CAPTION>



                                                                       THREE MONTHS ENDED AUGUST 31,
                                                                   -----------------------------------
                                                                        2009                2008
                                                                   ---------------     ---------------

Revenues:
<S>                                                                <C>                 <C>
Investment advisory services                                       $      64,326       $      59,529
Insurance premiums and commissions                                       214,332             157,506
Net investment income                                                     72,244              68,680
Other income                                                               4,822                   -
                                                                   ---------------     ---------------
                                     Total Revenues                      355,724             285,715


Expenses:

Incurred policy losses                                                    48,185              44,785
Insurance policy acquisition costs                                        62,602              39,029
General and administrative                                               400,614             535,939
Mutual fund costs                                                         38,326              41,567
Depreciation                                                               2,795               3,195
                                                                   ---------------     ---------------
                                     Total Expenses                      552,522             664,515
                                                                   ---------------     ---------------

                  Net Income (Loss) from Operations                     (196,798)           (378,800)

Interest expense                                                        (327,284)           (118,778)
Interest income                                                                -                 849
                                                                   ---------------     ---------------

                                   Net Income (Loss)                    (524,082)           (496,729)

Accretion of Mandatorily Redeemable Convertible
 Preferred Stock, including accrued dividends                           (418,860)           (389,299)
                                                                   ---------------     ---------------

                      Net Income (Loss) Attributable
                              to Common Stockholders               $    (942,942)      $    (886,028)
                                                                   ===============     ===============


Basic and Dilutive Net Income (Loss) Per Share:

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

Weighted-Average Shares Outstanding                                  185,278,229         168,666,964
                                                                   ===============     ===============

</TABLE>

















                            See accompanying notes.

                                      F-2
<PAGE>
Jacobs Financial Group, Inc,
Consolidated Condensed Statements of Comprehensive Income (Loss) (Unaudited)

<TABLE>
<CAPTION>




                                                                               Three Months Ended
                                                                                     August 31
                                                                            -----------------------------
                                                                                2009            2008
                                                                            -------------   -------------
<S>                                                                         <C>             <C>

Comprehensive income (loss):

Net income (loss) attributable to common stockholders                       $ (942,942)     $ (886,028)


Other comprehensive income (loss):

Net unrealized gain (loss) of available-for-sale
investments arising during period                                                5,421          (4,872)
                                                                            -------------   -------------

Net unrealized gain (loss) attributable to available-for-sale
investments recognized in other comprehensive income                             5,421          (4,872)
                                                                            -------------   -------------


Comprehensive income (loss) attributable to common stockholders             $ (937,521)     $ (890,900)
                                                                            =============   =============
</TABLE>























                            See accompanying notes.

                                      F-3
<PAGE>
Jacobs Financial Group, Inc,
Consolidated Condensed Statement of Cash Flows  (Unaudited)
<TABLE>
<CAPTION>

                                                          THREE MONTHS ENDED AUGUST 31
                                                          -----------------------------
                                                               2009           2008
                                                          -------------   -------------
<S>                                                       <C>             <C>

CASH FLOWS FROM OPERATING ACTIVITIES

Net Income (Loss)                                         $   (524,082)   $  (496,729)

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

 Unearned premium                                                  953         45,354
 Stock option expense                                          138,890         13,491
 Stock issued (or to be issued) in connection
  with financing arrangements                                  223,886         23,227
 Provision for loss reserves                                    48,185         44,784
 Amortization of premium                                        14,873          8,764
 Depreciation                                                    2,795          3,195
 Premium and other receivables                                  (4,559)        (5,041)
 Accretion of discount                                          (4,579)        (1,278)
 Investment income due and accrued                                (817)        (7,091)
 Deferred policy acquisition costs                             (15,561)        (3,156)
 Change in operating assets and liabilities:
  Other assets                                                   7,199        112,629
  Related party accounts payable                                15,525         (6,758)
  Accounts payable and cash overdraft                           57,917        (51,301)
  Accrued expenses and other liabilities                      (106,098)        96,560
                                                          -------------   -------------

     Net cash flows from (used in) operating activities       (145,473)      (223,350)

CASH FLOWS FROM INVESTING ACTIVITIES

(Increase) decrease in short-term investments                   75,508        852,572
Cost of bonds acquired                                               -       (200,712)
Costs of mortgaged-backed securities acquired                 (396,343)      (921,795)
Purchases of securities available for sale                           -       (620,059)
Repayment of mortgage-backed securities                        324,321        193,125
                                                          -------------   -------------

     Net cash flows from (used in) investing activities          3,486       (696,869)

CASH FLOWS FROM FINANCING ACTIVITIES

Proceeds from related party debt                               106,597         28,000
Repayment of related party debt                               (102,515)       (29,000)
Proceeds from borrowings                                       317,500        940,000
Repayment of borrowings                                        (86,396)      (119,584)
Proceeds from issuance of Series A preferred stock              10,000        118,000
Proceeds from issuance of Series B preferred stock                   -              -
Proceeds from exercise of common stock warrants                  1,795              -
                                                          -------------   -------------

   Net cash flows from financing activities                    246,981        937,416

NET INCREASE (DECREASE) IN CASH                                104,994         17,197

CASH AT BEGINNING OF PERIOD                                     80,038         48,640
                                                          -------------   -------------

CASH AT END OF PERIOD                                     $    185,032    $    65,837
                                                          =============   =============


SUPPLEMENTAL DISCLOSURES

Interest paid                                             $    257,471    $     8,127
Income taxes paid                                                    -              -

Non-cash investing and financing transaction:
Additional consideration paid for issuance of debt             223,886         23,227

</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 AUGUST 31, 2008
                                                              ----------------------------------------------------------------------
                                                                                STOCKHOLDERS' EQUITY (DEFICIT)
                                                              ----------------------------------------------------------------------

                      SERIES A               SERIES B
               MANDATORILY REDEEMABLE  MANDATORILY REDEEMABLE                                                ACCUMULATED
                                           CONVERTIBLE                              ADDITIONAL                  OTHER
                  PREFERRED STOCK        PREFERRED STOCK                             PAID-IN    ACCUMULATED COMPREHENSIVE
                 SHARES     AMOUNT      SHARES      AMOUNT      SHARES      AMOUNT    CAPITAL     DEFICIT       INCOME      TOTAL
                                                                                                                (LOSS)
               -------- -----------  ---------  -----------   -----------  -------  -----------  ------------- ------- -------------
<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  $16,610  $ 2,423,537 $(13,222,039)  $ 6,483 $(10,775,409)

Issuance of
Series A            118      118,000          -            -            -        -            -            -         -            -
and B
Preferred
Stock and
common stock

Issuance of
common stock          -            -          -            -    3,115,581      312       27,814            -         -       28,126
stock as
additional
consideration
for financing
arrangement

Accretion of
mandatorily
redeemable
convertible
preferred stock      -        4,149          -      134,085             -        -            -     (138,234)        -     (138,234)

Accrued
dividends
of mandatorily
redeemable
convertible
preferred stock      -       23,352          -      227,713             -        -            -     (251,065)        -     (251,065)

Expense of
common shares
to be issued
in connection
with financing
arrangements         -            -          -            -             -        -       21,158            -         -       21,158

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

Unrealized net
gain on
available for
sale securities      -            -          -            -             -        -            -            -    (4,872)      (4,872)

Net income
(loss), three
month period
ended
August 31, 2008      -            -          -            -             -        -            -      (496,729)       -     (496,729)
               -------- -----------  ---------  -----------   -----------  -------  -----------  ------------- ------- -------------
BALANCE,
AUGUST 31, 2008  2,348  $ 2,454,434  9,621.940  $10,298,664   169,206,823  $16,921  $ 2,486,000  $(14,108,066) $ 1,611 $(11,603,534)
               ---------------------------------------------- ----------------------------------------------------------------------
</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 THREE MONTH PERIOD ENDED AUGUST 31, 2009

                                                                 -------------------------------------------------------------------
                                                                                   STOCKHOLDERS' EQUITY (DEFICIT)
                                                                 -------------------------------------------------------------------
                                                                                                                ACCUM.
                                            SERIES B                                                            OTHER
                      SERIES A        MANDATORILY REDEEMABLE                                                    COMPRE-
              MANDATORILY REDEEMABLE      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, 2009      2,665   $ 2,860,670   9,621.940 $11,429,440   $179,682,912 $17,968 $2,626,236 $(16,279,725) $39,493  $(13,596,028)

Issuance of
Series A
and B Preferred
Stock and common
stock                10        10,000           -           -              -       -          -            -        -             -

Issuance of
common stock as
additional
consideration for
financing arrange-
ments                 -             -           -           -        500,000      50     19,025            -        -        19,075

Exercise
of warrants           -             -           -           -      1,795,273     180      1,616            -        -         1,796

Accretion of
mandatorily
redeemable
convertible
preferred stock       -         4,380           -     143,920              -       -          -     (148,300)       -      (148,300)

Accrued dividends
of mandatorily
redeemable
convertible
preferred stock       -        27,020           -     243,539              -       -          -     (270,559)       -      (270,559)

Expense of
common shares
to be issued
in connection
with financing
arrangements          -             -           -           -      5,171,993     517    204,294            -        -       204,811

Common stock
option expense        -             -           -           -              -       -    138,890            -        -       138,890

Unrealized net
gain on available
for sale
securities            -             -           -           -              -       -          -            -    5,421         5,421

Net income (loss),
three month
period ended
August 31, 2009       -             -           -           -              -       -          -     (524,083)       -      (524,083)
                 ------   -----------   ---------  ----------    ----------- -------  ---------- ------------- ------  -------------
BALANCE,
AUGUST 31, 2009   2,675   $ 2,902,070   9,621.940 $11,816,899    187,150,178 $18,715  $2,990,061 $(17,222,667)$44,914  $(14,168,977)
                 ------   -----------   ---------  ----------    ----------- -------  ---------- ------------- ------  -------------

                  -------------------------------------------    -------------------------------------------------------------------
</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 month period ended August 31, 2009, are not necessarily  indicative of
the results of  operations  that can be expected  for the fiscal year ending May
31, 2010.  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 14, 2009.

RECLASSIFICATIONS

Certain amounts have been  reclassified in the  presentation of the Consolidated
Financial   Statements  as  of  August  31,  2008  to  be  consistent  with  the
presentation  in the  Consolidated  Financial  Statements as of August 31, 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  $3,058,000 and $3,333,000 for the years ended May 31, 2009 and
2008 and has  incurred  losses of  approximately  $943,000  for the three  month
period  ended  August  31,  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.

Effective  April 1, 2009, FSC entered into a reinsurance  agreement with Lloyd's
of London for its coal reclamation  surety bonding programs.  This agreement has
provided  additional  bonding  capacity to FSC and has enabled FSC to write more
bonds and of greater size for its coal reclamation  bonding clients.  Management
expects this reinsurance arrangement to allow FSC to expand its market share and
to  result  in  increased  cash  flow  for  each  of  the  Company's   operating
subsidiaries.

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.  In fiscal 2009,
the  Company  was able to  increase  the  capital  of FSC and  reactivate  FSC's
insurance  license in Ohio and obtain  authority  to issue  surety bonds in that
state. However,  management has found that entry into other states (as a surety)
has been difficult without the benefit of more substantial capital and reserves,
due to FSC's  status as a new entry into this  market,  and based  upon  current

                                      F-7
<PAGE>

JACOBS FINANCIAL GROUP, INC.

NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (UNAUDITED)

financial condition of the parent company.  This is the case notwithstanding the
reinsurance  agreement  entered  into by FSC  with  Lloyd's  of  London  and the
resulting  increase  in  bonding  capacity.  Management  believes  that if FSC's
capital  and  surplus  reserves  were  significantly  more  substantial  and the
financial condition of the Company was stabilized, entry into other states would
be less challenging.  Accordingly,  management  continues to pursue avenues that
can  provide  additional  capital to  increase  the  capacity  of its  insurance
subsidiary  and to fund  continuing  operations  as the  business is being fully
developed. In addition, as an alternative means of addressing access to markets,
management  is  seeking  to  establish  a  relationship  with any one of several
possible sureties that are licensed in those states in addition to West Virginia
and Ohio that comprise  significant  markets for the bonding programs of FSC and
could issue surety bonds that are  underwritten and reinsured by FSC. Under such
a "fronting" arrangement, the need for additional capital at the level of FSC to
facilitate  entry to other  state  markets  would  become  secondary,  since the
payment of a fronting fee to the insurance  company with active  licenses  would
provide access to the state market without formal entry.

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,  incurred  payment  defaults
with respect to these obligations. On June 5, 2009 the Company reached agreement
with the Holders to forbear from  exercising  their rights and remedies  arising
from the Acknowledged Events of Default. The Holders agreed that the Company may
satisfy its  obligation  to make the Initial  Amortization  Payments by making 8
consecutive  quarterly payments of $67,185 each,  commencing September 10, 2009,
and within 14 days after same (See Note K), and  continuing on the payment dates
prescribed by the  Amortization  Schedule for the Promissory Notes and ending on
June 10, 2011  (collectively,  the  "Payments"),  it being  understood  that the
Payments  shall  result in the payment of the  principal  of and interest on the
unpaid portion of the Initial Amortization Payments at the rate of 10% per annum
from and after the originally scheduled payment dates. (See Note E).

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.

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

NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (UNAUDITED)

NOTE B - RECENT ACCOUNTING PRONOUNCEMENTS

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.  The application of Statement No. 160 does not have a material impact
on the Company's results of operations or financial position.

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

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.  The application of Statement No. 163 does
not have a material  impact on the Company's  results of operations or financial
position.

In June 2009, the Financial  Accounting Standards Board ("FASB") issued SFAS No.
168, "The FASB Accounting Standards  Codification and the Hierarchy of Generally
Accepted Accounting  Principles - A Replacement of FASB Statement No. 162." This
SFAS establishes the FASB Accounting Standards Codification as the single source

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

NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (UNAUDITED)

of authoritative US generally accepted  accounting  principles.  SFAS No. 168 is
effective for financial  statements issued for interim and annual periods ending
after  September  15,  2009.  Management  does not  expect  the  application  of
Statement  No.  168 to  have a  material  impact  on the  Company's  results  of
operations or financial position.

In June 2009, the FASB issued SFAS No. 167,  "Amendments to FASB  Interpretation
No. 46(R)." This statement  changes how a reporting  entity  determines  when an
entity that is  insufficiently  capitalized or is not controlled  through voting
(or similar rights) should be  consolidated.  New  disclosures  will be required
regarding  involvement  with  variable  interest  entities  and any  significant
changes in risk exposure due to that involvement. SFAS No. 167 will be effective
for the start of the first fiscal year  beginning  after November 15, 2009 (June
1, 2010 for the Company). This SFAS is not expected to have a material impact on
the Company's financial statements.

In June 2009,  the FASB  issued  SFAS No.  166,  "Accounting  for  Transfers  of
Financial Assets." This is a revision to SFAS No. 140, "Accounting for Transfers
and Servicing of Financial Assets and  Extinguishments of Liabilities," and will
require  more  information  about  transfers  of  financial  assets,   including
securitization transactions,  and where entities have continuing exposure to the
risks related to transferred  financial  assets.  It eliminates the concept of a
"qualifying   special-purpose   entity,"  and  changes  the   requirements   for
derecognizing  financial assets, and requires additional  disclosures.  SFAS No.
166 will be  effective  for the start of the first fiscal year  beginning  after
November 15, 2009 (June 1, 2010 for the  Company).  This SFAS is not expected to
have a material impact on the Company's financial statements.

In May 2009, the FASB issued SFAS No. 165,  "Subsequent  Events." This statement
establishes  general  standards of accounting  for and disclosure of events that
occur after the balance sheet date but before financial statements are issued or
are  available to be issued.  SFAS No. 165 is  effective  for interim and annual
financial  periods  ending  after June 15,  2009,  and has been  applied with no
material impact on the Company's financial statements.

In  April  2009,  the  FASB  issued  FASB  Staff  Position  ("FSP")  FAS  157-4,
"Determining  Fair Value When the Volume and Level of Activity  for the Asset or
Liability Have Significantly Decreased and Identifying Transactions That Are Not
Orderly." This FSP provides  additional  clarification  on the  determination of
fair value,  including  illustrative  examples.  FSP FAS 157-4 is effective  for
interim and annual  periods  ending  after June 15,  2009,  with early  adoption
permitted  for  periods  ending  after March 15,  2009.  This FSP did not have a
material impact on the Company's financial statements.

In April  2009,  the FASB issued FSP FAS 115-2 and FAS 124-2,  "Recognition  and
Presentation of Other-Than-Temporary Impairments." This FSP provides guidance on
determining whether an impairment is other than temporary,  provides examples to
be considered and identifies reporting requirements related to such impairments.
FSP FAS 115-2 and FAS 124-2 is effective for interim and annual  periods  ending
after June 15, 2009,  with early  adoption  permitted  for periods  ending after
March  15,  2009.  This  FSP did not have a  material  impact  on the  Company's
financial statements.

In April 2009, the FASB issued FSP FAS 107-1 and APB 28-1, "Interim  Disclosures
about Fair Value of Financial  Instruments." This FSP requires  disclosure about
the  fair  value  of  financial   instruments   whenever  summarized   financial
information for interim periods is issued,  and requires  disclosure of the fair

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

NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (UNAUDITED)

value  of  all  financial   instruments  (where  practicable)  in  the  body  or
accompanying notes of interim and annual financial statements. FSP FAS 107-1 and
APB 28-1 is effective for interim periods ending after June 15, 2009, with early
adoption  permitted  for periods  ending after March 15, 2009.  This FSP did not
have a material impact on the Company's financial statements.

In December 2008,  the FASB issued FSP 132(R)-1,  "Employers'  Disclosure  about
Postretirement Benefit Plan Assets." This FSP provides guidance on an employer's
disclosures  regarding  plan  assets  of a  defined  benefit  pension  or  other
postretirement  plan. The objectives of the disclosures  required under this FSP
are to provide users of financial statements with an understanding of:

     a)   How investment allocation decisions are made;
     b)   The major categories of plan assets;
     c)   The inputs and valuation  techniques used to measure the fair value of
          plan assets;
     d)   The effect of fair value measurements  using significant  unobservable
          inputs on changes in plan assets for the period; and
     e)   Significant concentrations of risk within plan assets.

The  disclosures  about plan assets required by this FSP are required for fiscal
years ending after December 15, 2009, and earlier application is permitted.

In April 2008, the FASB issued FSP 142-3,  "Determination  of the Useful Life of
Intangible  Assets."  This FSP amends the factors that should be  considered  in
developing renewal or extension assumptions used to determine the useful life of
a recognized intangible asset under SFAS No. 142, "Goodwill and Other Intangible
Assets." The intent of this FSP is to improve the consistency between the useful
life of a  recognized  intangible  asset  under  SFAS No.  142 and the period of
expected  cash flows used to measure  the fair value of the asset under SFAS No.
141(R),  "Business  Combinations," and other U.S. generally accepted  accounting
principles.  FSP 142-3 is effective for financial  statements  issued for fiscal
years beginning after December 15, 2008, and interim periods within those fiscal
years.  The  application  of this FSP does not  have a  material  impact  on the
Company's financial statements.

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 month  period ended August 31, 2009,
there have been no  other-than-temporary  impairments.  The Company  intends and
believes  it has the  ability  to hold all  investments  in an  unrealized  loss
position until the expected recovery in value, which may be at maturity.

The following table sets forth the amortized cost and estimated  market value of
bonds and equity  securities  available-for-sale  and carried at market value on
August 31, 2009.

                                      F-11
<PAGE>

JACOBS FINANCIAL GROUP, INC.

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

                                                        Gross Unrealized     Gross Unrealized
                                     Amortized Cost           Gains               Losses         Fair Market Value
                                   ------------------- -------------------- ------------------- --------------------
<S>                                <C>                 <C>                  <C>                 <C>
U.S. government agency             $          497,683  $            14,707  $                -  $           512,390
mortgage-backed securities
State and municipal securities                357,395               32,416                   -              389,811

Equity securities 1                            10,280                    -               2,209                8,071
                                   ------------------- -------------------- ------------------- --------------------
                                   $          865,358  $            47,123  $            2,209  $           910,272
                                   =================== ==================== =================== ====================

1 Equity  securities  consist of an investment in the original  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.  A partial  withdrawal of $11,000 was
made on March 25, 2009
</TABLE>

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
May 31, 2009.
<TABLE>
<CAPTION>
                                     Amortized Cost     Gross Unrealized     Gross Unrealized    Fair Market Value
                                                              Gains               Losses
                                   ------------------- -------------------- ------------------- --------------------
<S>                                <C>                 <C>                  <C>                 <C>
U.S. government agency             $          514,039  $            13,342  $                -  $           527,381
mortgage-backed securities
State and municipal securities                352,816               28,570                   -              381,386

Equity securities 1                            10,280                    -               2,418                7,862
                                   ------------------- -------------------- ------------------- --------------------
                                   $          877,135  $            41,912  $            2,418  $           916,629
                                   =================== ==================== =================== ====================
</TABLE>

The Company's short-term investments at August 31, 2009 of $312,245 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 August 31, 2009, and as such,  they
are carried at  amortized  cost.  For the three month  periods  ended August 31,
2009, 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         $        5,159,445  $            78,189  $            7,122  $         5,230,512
                                   =================== ==================== =================== ====================
</TABLE>

The Company held the following investments,  by security type, with the positive
intent and ability to hold to maturity as of May 31, 2009, and as such, they are
carried at amortized cost.

                                      F-12
<PAGE>
JACOBS FINANCIAL GROUP, INC.

NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (UNAUDITED)
<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         $        5,085,300  $            79,739  $            7,103  $         5,157,936
                                   =================== ==================== =================== ====================
</TABLE>

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

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

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

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

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

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

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


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

NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (UNAUDITED)

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>

                                                                   August 31, 2009
---------------------------------------- --------------------------------------------------- -----------------
                                                   Fair Value Measurements Using
---------------------------------------- --------------------------------------------------- -----------------
                                             Level 1          Level 2           Level 3         Assets At
                                                                                                Fair Value
---------------------------------------- ---------------- ----------------- ---------------- -----------------
<S>                                      <C>              <C>               <C>              <C>
Assets:
Fixed income securities at fair value    $             -  $        902,201  $             -  $        902,201
Equity securities at fair value                    8,071                 -                -             8,071
Short-term investments at fair value             312,245                 -                -           312,245
---------------------------------------- ---------------- ----------------- ---------------- -----------------
Total Assets                             $       320,316  $        902,201  $             -  $      1,222,517
</TABLE>

<TABLE>
<CAPTION>

                                                                     May 31, 2009
---------------------------------------- --------------------------------------------------- -----------------
                                                   Fair Value Measurements Using
---------------------------------------- --------------------------------------------------- -----------------
                                             Level 1          Level 2           Level 3         Assets At
                                                                                                Fair Value
---------------------------------------- ---------------- ----------------- ---------------- -----------------
<S>                                      <C>              <C>               <C>              <C>
Assets:
Fixed income securities at fair value    $             -  $        908,766  $             -  $        908,766
Equity securities at fair value                    7,862                 -                -             7,862
Short-term investments at fair value             387,753                 -                -           387,753
---------------------------------------- ---------------- ----------------- ---------------- -----------------
Total Assets                             $       395,615  $        908,766  $             -  $      1,304,381
</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 August 31, 2009.

There  were no  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 month period ended August 31, 2009.

NOTE D - OTHER ASSETS

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

                                      F-14

<PAGE>
JACOBS FINANCIAL GROUP, INC.

NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (UNAUDITED)
<TABLE>
<CAPTION>
                                                                 August 31,       May 31,
                                                                  2009             2009
                                                             ---------------- ----------------
<S>                                                          <C>              <C>
Advance deposits for professional fees                       $         1,311  $         1,311
Mutual fund investment at market                                       8,071            7,862
Prepaid expense and other deposits                                    27,145           34,344
                                                             ---------------- ----------------
                                                      Total  $        36,527  $        43,517
                                                             ================ ================
</TABLE>

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 August 31, 2009 and May 31, 2009 respectively:
<TABLE>
<CAPTION>

                                                           August 31,           May 31,
                                                              2009               2009
                                                        ------------------ ------------------
<S>                                                     <C>                <C>
Unsecured demand notes payable to individuals
and others; interest rate fixed @ 10.00%                $         640,500  $         380,000

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

Unsecured short-term advances from principal
shareholder and chief executive officer;
interest rate fixed @ 12.00                                         7,163              3,081

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% maturing
January 31, 2012                                                  140,395            169,791
                                                        ------------------ ------------------
                                    Notes payable       $       4,288,058  $       4,052,872
                                                        ================== ==================
</TABLE>


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

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

NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (UNAUDITED)

the Company's  common shares (where the numerator is the amount of financing and
the denominator is $50 million).

Beginning  September  10,  2008,  because  a  qualified  financing  had not been
completed,  the Company became required under the terms of the bridge  financing
to issue 2.80% of the Company's  outstanding common shares and shall issue 2.80%
of the Company's  outstanding common shares upon each six-month anniversary date
thereof until retirement of the notes. On September 10, 2008 and March 10, 2009,
4,870,449  and  5,010,640  common  shares,  respectively,  were  issued to those
noteholders.

Pursuant  to the  terms  of the  Promissory  Notes,  the  first  two of 20 equal
quarterly installments of principal and interest payable thereunder were to have
been paid on December  10, 2008 and March 10,  2009 (the  "INITIAL  AMORTIZATION
PAYMENTS").  As the result of upheavals and dislocations in the capital markets,
the Company was unable to either  refinance  the  indebtedness  evidenced by the
Promissory Notes or make the Initial  Amortization  Payments to the Holders when
due; and an Event of Default (as defined in the Promissory Notes) occurred under
the  Promissory  Notes as a result of the  Company's  failure to pay the Initial
Amortization Payments within 14 days after same became due and payable.

On June 5, 2009 the Company entered into an agreement with the bridge lenders to
forbear from exercising  their rights and remedies arising from the Acknowledged
Events of Default.  As  consideration  for the  forbearance,  the Company issued
5,171,993  shares of  Common  stock,  and  pledged  the  stock of the  Company's
subsidiary, CMW, as security for repayment of the loans. The Holders agreed that
the Company may satisfy its obligation to make the Initial Amortization Payments
by making 8 consecutive quarterly payments of $67,185 each, commencing September
10, 2009, and within a 14 day grace period after the due date (See Note K) , and
continuing on the payment dates prescribed by the Amortization  Schedule for the
Promissory Notes and ending on June 10, 2011 (collectively,  the "PAYMENTS"), it
being  understood that the Payments shall result in the payment of the principal
of and interest on the unpaid  portion of the Initial  Amortization  Payments at
the rate of 10% per annum from and after the originally scheduled payment dates.
The Payments shall be allocated among and paid to the Holders in accordance with
the  balances  due to each.  The  Company  may at any time  prepay  the  balance
remaining due with respect to the principal of the Initial Amortization Payments
by paying the amount thereof, together with interest accrued through the date of
such prepayment.

During the three months ended August 31, 2009 and the year ended May 31, 2009, a
company  owned by a board  member  provided  consulting  services.  This company
provided services totaling $15,525 in the three months ended August 31, 2009 and
$15,525 in the three months ended August 31, 2008.  Amounts owed to this company
at year end are treated as related  party  payables  in the amounts  $90,534 and
$75,009 at August 31, 2009 and May 31, 2009.

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 month periods
ended August 31, 2009 and 2008.

                                      F-16
<PAGE>

JACOBS FINANCIAL GROUP, INC.

NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (UNAUDITED)



                                             Three month        Three month
                                             period ended      period ended
                                              August 31,        August 31,
                                                 2009              2008
------------------------------------------ ----------------- -----------------
Balance owed, beginning of period          $         3,081   $          1,000
Proceeds from borrowings                           106,597             28,000
Repayments                                        (102,515)           (29,000)
Balance owed, end of period                $         7,163   $              -
------------------------------------------ ================= =================


Scheduled  maturities  and  principal  payments  for each of the next five years
ending August 31 are as follows:

2010 (including demand notes)          $      4,199,656
2011                                             60,650
2012                                             27,752
                                       -----------------
                                       $      4,288,058
                                       =================

NOTE F-STOCKHOLDERS EQUITY

In the three month period ended August 31, 2009,  the Company  issued  5,171,993
shares of the Company's  common stock in connection  with the June 5th agreement
with the Holders of the bridge financing arrangement.  The shares were valued at
approximately  $.0365 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 $188,778.

In the three month period ending August 31, 2009,  warrants  totaling  1,795,273
were exercised for cash and issuance of 1,795,273 common shares of the Company.

In the three month period ending  August 31, 2009,  the Company  issued  500,000
shares of the Company's  common stock in  connection  with short term and demand
borrowing   arrangements   totaling   $250,000.   The  shares   were  valued  at
approximately $.03815 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 $19,075.


NOTE G - COMMITMENTS, CONTINGENCIES, AND MATERIAL AGREEMENTS

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

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

NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (UNAUDITED)

deposit to the sellers and extending the date for closing until October 31, 2008
after which time either party may  terminate the Merger  Agreement.  Discussions
continue with RSH, and the Merger Agreement has not been terminated. Among other
conditions,  closing  was  subject to the  closing  by the  Company of an equity
financing.

On August 20,  2008,  the  Company  entered  into a  definitive  Stock  Purchase
Agreement (the "Agreement") with National  Indemnity Company ("NICO"),  pursuant
to which the Company agreed to acquire 100% of the  outstanding  stock of Unione
Italiana  Reinsurance Company of America ("Unione").  Such agreement was amended
on November  13, 2008 to clarify  certain  definitions  and  calculation  of the
purchase  price,  in addition to extending  until  December 31, 2008 the date by
which the Company  must  satisfy the  financing  condition  prior to closing and
which after time  either  party may  terminate  the  Agreement.  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 retain
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.

During fiscal year 2009 and the three months ended August 31, 2009,  the Company
sold shares of Series A Preferred  Stock in conjunction  with the sale of surety
bonds.  As of August  31,  2009,  the  Company  has not  transferred  the monies
received  from the sale of stock to FSC to be applied  towards its surplus.  The
amount of Preferred A Stock was  $186,000.  Pursuant to the terms of the Consent
Order dated  December 23, 2005  (Consent  Order) and the Amended  Consent  Order
dated  June 8,  2007  (Amended  Consent  Order),  each  with the  West  Virginia
Insurance  Commissioner  (Commissioner)  , all money  received  from the sale of
Series A Preferred  Stock shall be placed into the surplus  accounts of FSC. The
monies  received from the above described  transaction  were not placed with FSC
but were retained by the Company.  This action is viewed by the  Commissioner to
be a violation of the Consent Order and Amended  Consent Order.  Under the terms
of the  Amended  Consent  Order any  knowing  or  intentional  violation  of the
conditions of the Order shall constitute grounds for the Commissioner to issue a
Confidential  Order  immediately  suspending  FSC from  doing  business  in West
Virginia.  FSC  advised  the  Commissioner  of  this  violation.  Presently  the
Commissioner  has advised  FSC that no action will be taken by the  Commissioner
with  respect  to this  violation.  FSC has  submitted  a plan to  correct  this
violation as  expeditiously  as  possible,  and the Company has agreed with this
plan.  Subsequent to August 31, 2009 approximately $50,000 of the amount owed to
FSC has been repaid by reducing the amount due to affiliates from FSC.

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

NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (UNAUDITED)


As of August 31,  2009,  the  Company had  accrued  and  withheld  approximately
$87,500 in Federal  payroll taxes.  These amounts have not been remitted and are
still payable at October 19, 2009.  Management intends to pay this obligation as
soon as possible.


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.

                                                     THREE MONTH PERIOD ENDED
                                                 -------------------------------
                        INDUSTRY SEGMENT          AUGUST 31,          AUGUST 31,
                                                     2009                2008
                                                 ------------        ----------
REVENUES:
 Investment advisory                             $    69,148         $   59,529
 Surety insurance                                    286,575            226,186
 Corporate                                                 -                849
                                                 ------------        -----------
 Total revenues                                  $   355,723         $  286,564
                                                 ============        ===========

NET INCOME (LOSS):
 Investment advisory                             $   (11,042)        $  (54,911)
 Surety insurance                                    129,930             40,053
 Corporate                                          (642,970)          (481,871)
                                                 ------------        -----------
 Total net income (loss)                         $  (524,082)        $ (496,729)
                                                 ============        ===========

NOTE I - REINSURANCE

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 took effect 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.  At August 31,  2009,  the Company  had prepaid  reinsurance
premiums of $149,725 and ceded reinsurance payable of $47,926.

The  Company  limits the  maximum  net loss that can arise  from large  risks by
reinsuring  (ceding) certain levels of such risk with reinsurers.  The Company's
reinsurer is comprised of five syndicates.  Ceded  reinsurance is treated as the
risk and liability of the assuming  companies.  The Company  cedes  insurance to
other companies and these reinsurance  contracts do not relieve the Company from
its obligations to policyholders.

                                      F-19
<PAGE>
JACOBS FINANCIAL GROUP, INC.

NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (UNAUDITED)

The  effects of  reinsurance  on premium  written and earned for the three month
period ended August 31, 2009 are as follows;

                                 3 months ended      3 months ended
                                 August 31, 2009 -   August 31, 2009 -
                                 Written             Earned
                                 ------------------- -------------------
                  Direct         $          313,598       $    250,033
                                 ------------------- -------------------
                  Ceded          $          105,752       $      43,141
                                 ------------------- -------------------
                  Net            $          207,846       $    206,892

There was no  reinsurance  effect on premium  written for the three month period
ended August 31, 2008 due to the reinsurance agreement not being in effect until
April 1, 2009.  There were no ceded  losses for the three  month  periods  ended
August 31, 2009 and 2008.


NOTE J-STOCK-BASED COMPENSATION

On June 30, 2009 the  compensation  committee of the board of directors  awarded
10,000,000 of incentive  stock  options to acquire  common shares at an exercise
price  of four  cents  ($.04)  per  share,  of  which  4,700,000  shares  vested
immediately  and the  remaining  5,300,000  options  vesting over the next three
years ending in June 2011.  The term of the options is five years and expires in
June 2014.


NOTE K - SUBSEQUENT EVENTS

Subsequent  events have been evaluated  through October 20, 2009, the date these
financial  statements  were issued.  Subsequent to August 31, 2009,  the Company
obtained  borrowings of $100,000 from individuals to fund ongoing operations and
made repayments of $8,500.  Such borrowings were obtained under demand or 30-day
notes bearing interest at the rate of 10.00%. Additionally, the Company obtained
borrowings of $15,500 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 $20,400.

In September  2009,  warrants were exercised for a total of 1,168,395  shares of
the Company's common stock.

On September  10, 2009,  the Company  issued  5,354,642  shares of the Company's
common stock in  connection  with the  semi-annual  issuance of shares under the
bridge-financing  arrangements.(see  Note E). On September 10, 2009, the Company
became  obligated to make principal and interest  payments to the holders of the
bridge-financing  notes of  approximately  291,700.  The Company is currently in
default with respect to such payment.  Under the terms of such  bridge-financing
agreements,  upon the  occurrence  of any Event of Default,  the holders of said
bridge-financing  notes have the right to declare,  upon  written  notice to the
Company,  that the entire  principal  amount  and  interest  be due and  payable
immediately.

On  September  30,  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 $27,479  and  $247,479,
respectively.  As of September  31,  2009,  the  accumulated  accrued and unpaid
dividend on the Series A Preferred  stock and Series B Preferred  stock amounted
to $278,936 and $3,258,937, respectively.

                                      F-20

<PAGE>

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

During fiscal 2009 and the three-month period ended August 31, 2009, the Company
has focused its primary  efforts on the  development and marketing of its surety
business  in West  Virginia  and  Ohio,  arranging  for  reinsurance  and  other
potential  strategic  relationships  that will 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 AUGUST 31, 2009

The  Company  experienced  a loss (after  accretion  of  mandatorily  redeemable
convertible preferred stock) for the three-month period ended August 31, 2009 of
$942,942 as compared with a loss of $886,028 for the corresponding  period ended
August 31, 2008.

REVENUES

Revenues from operations for the  three-month  period ended August 31, 2009 were
$355,724 as compared with $285,715 for the corresponding period ended August 31,
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 $64,326 for the three-month
period  ended  August 31, 2009 as compared  with  $59,529 for the  corresponding
period ended  August 31,  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 decline of assets under  management.  The increase
in revenues is attributable to the growth in  individually  managed  accounts as
summarized below:

                                                Three-month Period Ended
                                                       August 31,
                                                       ----------
                                                 2009              2008
                                              -------------- --------------

Individually managed accounts                       $58,419       $ 52,536
Mutual fund                                           5,907          6,993
                                              -------------- --------------
                                       Total        $64,326       $ 59,529
                                              ============== ==============


INSURANCE AND INVESTMENT REVENUES

Quarterly  revenues from the Company's surety insurance  segment,  consisting of
FSC and Triangle Surety Agency,  Inc ("TSA"),  were $286,575 for the three-month
period ended  August 31, 2009 as compared  with  $226,186 for the  corresponding
period ended August 31,  2008.

                                       3
<PAGE>

Revenues  attributable to premium earned,  net investment income and commissions
earned are as follows:

                                                Three-month Period Ended
                                                       August 31,
                                                       ----------
                                                 2009              2008
                                              -------------- --------------
Premium earned                                     $206,892       $149,309
Net investment income                                72,243         68,680
Commissions earned                                    7,440          8,197
                                              -------------- --------------
                                       Total       $286,575       $226,186
                                              ============== ==============

Revenues for this segment of the business  are  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  August  31,  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
$5.59 million for the three-month  period ended August 31, 2008 to approximately
$6.452  million for the  three-month  period  ended  August 31, 2009 offset by a
decrease in investment yield from approximately 4.92% for the three-month period
ended August 31, 2008 to  approximately  4.31% for the three-month  period ended
August 31, 2009.

EXPENSES

INCURRED POLICY LOSSES

The Company has experienced no claims for losses as of August 31, 2009. However,
"incurred but not reported"  (IBNR)  policy  losses for the  three-month  period
ended  August 31, 2009 and 2008  amounted  to $48,185 and $44,785  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 23% and 30% of earned premium, respectively.

POLICY ACQUISITION COSTS

Insurance  policy  acquisition  costs of $62,602 and $39,029 for the three-month
periods  ended  August 31,  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  30% and 26% for the  periods  ended  August  31,  2009  and  2008
respectively.

                                       4
<PAGE>

GENERAL AND ADMINISTRATIVE

General and administrative expenses for the three-month periods ended August 31,
2009 and 2008 were $400,614 and $535,939  respectively,  representing a decrease
of $135,325, and were comprised of the following:

<TABLE>
<CAPTION>
                                                                 Three-month Period Ended
                                                                        August 31,
                                                           -------------------------------------
                                                                 2009               2008              Difference
                                                           ------------------ ------------------ -------------------
<S>                                                        <C>                <C>                <C>
Salaries and related costs                                 $         233,504  $       $ 165,862  $         67,642

General office expense                                                27,841             27,680               161

Legal and other professional fees and costs                           67,076            252,287          (185,211)

Audit, accounting and related services                                24,018             22,910             1,108

Travel, meals and entertainment                                       15,332             19,844            (4,512)

Other general and administrative                                      32,843             47,356           (14,513)
                                                           ------------------ ------------------ -------------------
                         Total general and administrative  $         400,614  $         535,939  $       (135,325)
                                                           ================== ================== ===================
</TABLE>


Salaries and related costs, net of deferred internal policy  acquisition  costs,
increased approximately $67,500 and are comprised of the following:
<TABLE>
<CAPTION>
                                                                Three-month Period Ended
                                                                       August 31,
                                                          --------------------------------------
                                                                 2009               2008              Difference
                                                           ------------------ ------------------ -------------------
<S>                                                        <C>                <C>                <C>
Salaries and taxes                                         $         126,761  $         151,689  $        (24,928)
Commissions                                                           11,332              5,307             6,025
Stock option expense                                                 138,890             13,491           125,399
Fringe benefits                                                       12,561             17,017            (4,456)
Key-man insurance                                                     11,219             12,224            (1,005)
Deferred payroll costs                                               (67,259)           (33,866)          (33,393)
                                                           ------------------ ------------------ -------------------
                         Total salaries and related costs  $         233,504  $         165,862  $         67,642
                                                           ================== ================== ===================
</TABLE>


The decrease in salaries and taxes for the  three-month  period ended August 31,
2009 as compared to the same period of the  previous  year was the result of the
decrease of two staff  position.  The increase in commissions 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 increase
in stock option  expense is  attributable  to the award of stock options on June
30, 2009.

                                       5
<PAGE>

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

<TABLE>
<CAPTION>
                                                                Three-month Period Ended
                                                                       August 31,
                                                           -------------------------------------
                                                                 2009               2008              Difference
                                                           ------------------ ------------------ -------------------
<S>                                                        <C>                <C>                <C>
General corporate services                                 $           8,120  $          14,163  $         (6,043)
Expansion of surety license to other states                                -             35,662           (35,662)
Acquisition and financing related costs                               58,956            202,462          (143,506)
                                                           ------------------ ------------------ -------------------
                  Total legal and other professional fees  $          67,076  $         252,287  $       (185,211)
                                                           ================== ================== ===================
</TABLE>

The  decrease  in general  corporate  services  results  primarily  from  timing
differences  related to review and  assistance  provided in connection  with the
filing  of  the  Company's  annual  report  with  the  Securities  and  Exchange
Commission.  In the  three-month  period  ended  August 31,  2008,  the  Company
incurred expense of $35,662 relating to expansion of FSC's surety license to the
State of Ohio and other  license  expansion  related  services.  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 $58,956 and  $202,462 for the
three-month periods ended August 31, 2009 and 2008, respectively.

The  decrease in travel,  meals and  entertainment  expense for the  three-month
period  ended  August 31,  2009 as  compared  to the  corresponding  2008 period
related primarily to additional efforts made by management to reduce expense.

Other general and administrative expense decreased approximately $14,513 for the
three-month  period ended August 31, 2009 as compared to the corresponding  2008
period.  This  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 $38,326 of the Fund's operating  expenses during the three-month period
ended August 31, 2009 as compared to $41,567 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 August 31, 2009, the Fund's  investment  advisory
fees  decreased  to  $5,907  as  compared  with  $6,993  for  the  corresponding

                                       6
<PAGE>

three-month  period  ended August 31, 2008 as a result of a decrease in the Fund
size.  The Fund's average assets under  management  declined from  approximately
$2.33 million for the three-month  period ended August 31, 2008 to approximately
$1.82 million for the three-month period ended August 31, 2009. As of August 31,
2009, assets under management were approximately $1.84 million.

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

INTEREST EXPENSE

Interest  expense for the three-month  period ended August 31, 2009 was $327,284
as compared  with $118,778 for the  corresponding  period ended August 31, 2008.
Components of interest expense are comprised of the following:
<TABLE>
<CAPTION>
                                                                   Three-month Period Ended
                                                                           August 31,
                                                               -----------------------------------
                                                                     2009              2008           Difference
                                                               ----------------- ----------------- -----------------
<S>                                                            <C>               <C>               <C>
Interest expense on bridge-financing                           $      83,911     $       83,884    $           27
Expense of common shares issued or to be issued in
connection with bridge financing and other arrangements              225,970             24,008           201,962
Interest expense on demand and term notes                             17,047             10,365             6,682
Other finance charges                                                    356                521              (165)
                                                               ----------------- ----------------- -----------------
                                       Total interest expense  $     327,284     $      118,778    $      208,506
                                                               ================= ================= =================
</TABLE>


The  increase in the expense of common  shares  issued (or to be issued) for the
three-month period ended August 31, 2009 as compared to the corresponding period
of the previous year was largely attributable to the issuance of common stock on
June 5, 2009 in relation to the agreement with the bridge loan holders. Interest
expense on demand and term notes increased due to increased borrowings.

                                       7
<PAGE>

ACCRETION AND DIVIDENDS

Accretion of  mandatorily  redeemable  convertible  preferred  stock issued at a
discount and accrued dividends for three-month periods ended August 31, 2009 and
2008 are as follows:
<TABLE>
<CAPTION>
                                                                   Three-month Period Ended
                                                                          August 31,
                                                               -----------------------------------
                                                                     2009              2008           Difference
                                                               ----------------- ----------------- -----------------
<S>                                                            <C>               <C>               <C>
Accretion of discount                                          $     148,300     $      138,233    $         10,067
Accrued dividends                                                    270,559            251,066              19,493
                                                               ----------------- ----------------- -----------------
                            Total accretion and dividends      $     418,859     $      389,299    $         29,560
                                                               ================= ================= =================
</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 August 31, 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.

                                       8
<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  losses (after accretion of mandatorily
redeemable   convertible  preferred  stock,   including  accrued  dividends)  of
approximately  $3,058,000 and $3,333,000 for the fiscal years ended May 31, 2009
and 2008, respectively, and a loss of approximately $942,942 for the three-month
period ended August 31, 2009. The Company continues to face significant  working
capital  deficiencies and cash flow concerns.  The Company used $163,000 in cash
flow from operating activities for the three-month period ended August 31, 2009.
This has resulted in the deferral of payments to  professionals  and others,  an
inability to pay its preferred stock dividend obligation and defaults in certain
quarterly  payments  due  its  bridge-financing  lenders  (see  Note  E  in  the
accompanying  unaudited   consolidated   condensed  financial   statements).   A
substantial  portion of the  Company's  cash flow is generated by its  insurance
subsidiary and is subject to certain withdrawal  restrictions.  While management
expects revenue growth and cash flow to increase  significantly  as its business
plan is fully  implemented,  it is anticipated that losses will continue and the
Company will be cash constrained until FSC is able to develop a substantial book
of business.

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 of  $6,558,923  as of August 31, 2009,  $6,552,786  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. As of August 31, 2009,  $186,000 in proceeds  from
the sale of Series A preferred  stock had been collected but not yet contributed
to the surplus and capital of FSC.

                                       9
<PAGE>

Effective  April 1, 2009, FSC entered into a reinsurance  agreement with Lloyd's
of London for its coal reclamation  surety bonding programs.  This agreement has
provided  additional  bonding  capacity to FSC and has enabled FSC to write more
bonds and of greater size for its coal reclamation  bonding clients.  Management
expects this reinsurance arrangement to allow FSC to expand its market share and
to  result  in  increased  cash  flow  for  each  of  the  Company's   operating
subsidiaries.

Expansion  of  FSC's  business  to  other  states  is a key  component  to fully
implementing  the Company's  business plan. In fiscal 2009, the Company was able
to increase the capital of FSC,  reactivate FSC's insurance license in Ohio, and
obtain  authority to issue surety bonds in that state.  However,  management has
found that entry into other states (as a surety) has been difficult  without the
benefit of more substantial capital and reserves due to FSC's status as a recent
entry into this market and the financial  condition of the Company.  This is the
case notwithstanding the reinsurance  agreement entered into by FSC with Lloyd's
of London and the resulting  increase in bonding capacity.  Management  believes
that if FSC's capital and surplus reserves were  significantly  more substantial
and the  financial  condition  of the Company was  stabilized,  entry into other
states would be less challenging.  Accordingly,  management  continues to pursue
avenues  that can provide  additional  capital to increase  the  capacity of its
insurance subsidiary and to fund continuing  operations as the business is being
fully developed.  In addition,  as an alternative  means of addressing access to
markets,  management  is seeking to  establish  a  relationship  with any one of
several  possible  sureties  that are  licensed in those  states other than West
Virginia and Ohio that comprise  significant markets for the bonding programs of
FSC and could issue surety  bonds that are  underwritten  and  reinsured by FSC.
Under such a  "fronting"  arrangement,  the need for  additional  capital at the
level of FSC to facilitate entry to other state markets would become  secondary,
since the  payment  of a  fronting  fee to the  insurance  company  with  active
licenses would provide access to the state market without formal entry.

As a means of alleviating  obligations  associated  with the Company's  Series B
Preferred  Stock,  which by its terms matures at the end of 2010,  management is
considering a recapitalization. The goal of any such recapitalization will be to
stabilize the financial position of the Company,  which management believes will
improve the  Company's  prospects  for a  relationship  with  potential  capital
sources, assist FSC as it applies to enter other state markets and be an impetus
to the growth of the Company's business.  Any such  recapitalization is expected
to involve  the  voluntary  participation  of the  holders of Series B Preferred
Stock,  and  no  assurance  can  be  given  that  a  recapitalization   will  be
accomplished.

Through the sharing of resources  (primarily  personnel)  to minimize  operating
costs, the Company and its subsidiaries  attempt to minimize  operating expenses
and preserve resources.  Although FSC is now cash flow positive,  the use of its
assets and profits are  restricted  to its  stand-alone  operation by regulatory
authority until its capital and surplus reserves reach more substantial  levels.
And while growth of the FSC business  continues to provide  additional cash flow
to  the  Company's  other  subsidiaries,  Jacobs  and  Triangle  Surety,  it  is
anticipated that working capital  deficiencies will continue and will need to be
met either  through the raising of additional  capital or  borrowings.  However,
there can be no assurance that  additional  capital (or debt  financing) will be
available when and to the extent required or, if available,  on terms acceptable

                                       10
<PAGE>

to the Company. Accordingly, concerns as to the Company's ability to continue as
a going concern are substantial.  The consolidated  financial  statements do not
include any adjustments that might result from the outcome of this uncertainty.

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.  Neither  agreement has been formally
terminated.

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.


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.



                                       11
<PAGE>

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, 2009. As previously reported in our Annual Report on Form
10-K for the year ended May 31, 2009, 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,
2009, 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
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 August
31,  2009,  were  effective.  Accordingly,  the  Chief  Executive  Officer/Chief
Financial  Officer  concluded  that  the  Company's   disclosure   controls  and
procedures,  as of August 31, 2009, were  ineffective.  Management  continues to
monitor  changes  made in fiscal 2008 and 2009 and will  continue  to  implement
improvements. 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
August 31,  2009 and May 31,  2009 and the  results of its  operations  and cash
flows for the three month period  ended  August 31, 2009 and 2008 in  conformity
with U.S. generally accepted accounting principals (GAAP).


                                       12


<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 June 2009,  10 shares of Series A  Preferred  Stock were  issued  pursuant to
ongoing bonding programs of FSC in exchange for cash of $10,000.

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 $291,700.

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

None.

ITEM 5. OTHER INFORMATION

None.


                                       13
<PAGE>

ITEM 6. EXHIBITS
<TABLE>
<CAPTION>
<S>   <C>
3.1   Company's Articles of Incorporation (1)
3.2   Company's By-laws (1)
3.3   Certificate of the Designations, Powers, Preferences and Rights of Series A Preferred Stock of Jacobs
      Financial Group (1)
3.4   Certificate of the Designations, Powers, Preferences and Rights of Series B Preferred Stock of Jacobs
      Financial Group (1)
4.1   Certificate of the Designations, Powers, Preferences and Rights of Series A Preferred Stock of Jacobs
      Financial Group (1)
4.2   Certificate of the Designations, Powers, Preferences and Rights of Series B Preferred Stock of Jacobs
      Financial Group (1)
10.1  Agreement to acquire by merger Reclamation Surety Holding Company, Inc. (2) (4)
10.2  Stock Purchase Agreement with National Indemnity Company to purchase Unione Italiana Insurance Company of
      America dated August 20, 2008 (5) (6)
31.1  Certification  of Chief  Executive  Officer  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>












                                       14

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






























                                       15