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


                                   FORM 10-QSB

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

                 For the quarterly period ended August 31, 2006


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

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


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


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

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

                156,437,837 common shares as of October 13, 2006




<PAGE>






                         PART I -- FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

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


                                                                            PAGE

    FINANCIAL STATEMENTS (UNAUDITED)

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
















                                        2




<PAGE>


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

<TABLE>
<CAPTION>


                                                                                          AUGUST 31, 2006          MAY 31, 2006
                                                                                        -------------------    -------------------
ASSETS

INVESTMENTS AND CASH:

<S>                                                                                     <C>                    <C>
 Bonds held to maturity, at amortized costs                                             $      1,127,605       $       1,029,963
 (market value - 08/31/06 $1,124,500; 05/31/06 $1,024,053)
 Mortgage-back securities held to maturity, at amortized costs                                 1,262,451               1,360,778
 (market value - 08/31/06 $1,244,963; 05/31/06 $1,343,108)
 Short-term investments, at cost (approximates market value)                                   1,384,627               1,196,111
 Cash                                                                                             64,576                       -
                                                                                        -------------------    -------------------

                                                TOTAL INVESTMENTS AND CASH                     3,839,259               3,586,852


 Investment income due and accrued                                                                40,198                  20,958
 Premiums and other accounts receivable                                                           47,838                  47,774
 Deferred policy acquisition costs                                                                72,198                  70,399
 Furniture and equipment, net of accumulated depreciation
  of $104,455 and $101,500, respectively                                                          28,419                  30,040
 Due from related party                                                                          309,956                 361,010
 Other assets                                                                                      7,475                  33,863
 Intangible assets                                                                               150,000                 150,000
                                                                                        -------------------    -------------------

                                                              TOTAL ASSETS              $      4,495,343       $       4,300,896
                                                                                        ===================    ===================


LIABILITIES AND STOCKHOLDERS' EQUITY

 Reserve for losses and loss expenses                                                           $ 28,213                $ 11,911
 Reserve for unearned premiums                                                                   199,018                 193,616
 Cash Overdraft                                                                                        -                 127,985
 Accrued expenses and professional fees                                                          637,798                 614,034
 Accounts payable                                                                                323,952                 278,621
 Notes payable                                                                                   402,503                 158,232
 Accrued interest payable                                                                         45,879                  41,942
 Other liabilities                                                                               468,694                 413,773
                                                                                        -------------------    -------------------

                                                         TOTAL LIABILITIES                     2,106,057               1,840,114


 Series A preferred stock, $.0001 par value per share;
   1 million shares authorized; 1,295 shares issued and outstanding                            1,236,767               1,035,841
 Series B preferred stock, $.0001 par value per share;
   10,000 shares authorized; 9,085.599 shares issued and outstanding                           7,073,090               6,780,186
                                                                                        -------------------    -------------------

                              TOTAL MANDATORILY REDEEMABLE PREFERRED STOCK                     8,309,857               7,816,027


STOCKHOLDERS' EQUITY (DEFICIT)

 Common stock, $.0001 par value per share; 490 million shares authorized;
   154,937,837 shares issued and outstanding                                                      15,494                  15,494
 Additional paid in capital                                                                    1,914,797               1,856,929
 Accumulated deficit                                                                          (7,850,862)             (7,227,668)
                                                                                        -------------------    -------------------

                                       TOTAL STOCKHOLDERS' EQUITY (DEFICIT)                   (5,920,571)             (5,355,245)
                                                                                        -------------------    -------------------


                                TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)    $      4,495,343       $       4,300,896
                                                                                        ===================    ===================
</TABLE>




                             See accompanying notes.

                                       F-1



<PAGE>
JACOBS FINANCIAL GROUP, INC,
CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS (UNAUDITED)


<TABLE>
<CAPTION>



                                                                                            THREE MONTHS ENDED AUGUST 31,

                                                                                                2006              2005
                                                                                          ----------------  ---------------

REVENUES:

<S>                                                                                       <C>               <C>
 Investment advisory services                                                             $     73,408      $     50,116
 Agency commissions                                                                             28,966             9,511
 Insurance premiums                                                                             75,820                 -
 Net investment income                                                                          45,678                 -
 Other income                                                                                   11,092                 -
                                                                                          ----------------  ---------------
                                        TOTAL REVENUES                                         234,964            59,627


EXPENSES:

 Incurred policy losses                                                                         16,301                 -
 Insurance policy acquisition costs                                                             26,204                 -
 General and administrative                                                                    362,695           234,355
 Mutual fund costs                                                                              46,426            36,448
 Interest                                                                                       85,269            84,623
 Depreciation                                                                                    2,956             1,475
                                                                                          ----------------  ---------------
                                        TOTAL EXPENSES                                         539,851           356,901
                                                                                          ----------------  ---------------

                                      NET INCOME (LOSS)                                       (304,887)         (297,274)
                                                                                          ----------------  ---------------

 Accretion of Mandatorily Redeemable Convertible
  Preferred Stock, including accrued dividends                                                (318,307)               -
                                                                                          ----------------  ---------------

 NET INCOME (LOSS) ATTRIBUTABLE TO COMMON STOCKHOLDERS                                    $   (623,194)     $   (297,274)
                                                                                          ================  ===============


BASIC AND DILUTIVE NET INCOME (LOSS) PER SHARE:

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


        WEIGHTED-AVERAGE SHARES OUTSTANDING                                                154,937,837       122,663,860
                                                                                          ================  ===============

</TABLE>

                             See accompanying notes.

                                       F-2



<PAGE>

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

                                                                                       THREE MONTHS ENDED AUGUST 31,

                                                                                           2006             2005
                                                                                       --------------   --------------
CASH FLOWS FROM OPERATING ACTIVITIES

<S>                                                                                    <C>              <C>
 Net Income (Loss)                                                                     $  (304,887)     $   (297,274)

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

        Unearned premium                                                                     5,402                 -
        Stock option expense                                                                57,868
        Stock issued for debt forbearance and guarantees                                         -             3,626
        Provision for loss reserves                                                         16,302                 -
        Amortization of premium                                                              7,486                 -
        Depreciation                                                                         2,956             1,475
        Premium and other receivables                                                          (64)                -
        Accretion of discount                                                               (5,539)           (6,016)
        Investment income due and accrued                                                  (28,379)                -
        Deferred policy acquisition costs                                                   (1,799)                -
        Change in operating assets and liabilities:
         Other assets                                                                       26,388            (3,213)
         Accounts payable and cash overdraft                                               (82,654)           77,549
         Accrued expenses and other liabilities                                             91,539            79,200
                                                                                       --------------   --------------

                              NET CASH FLOWS FROM (USED IN) OPERATING ACTIVITIES          (215,381)         (144,653)

CASH FLOWS FROM INVESTING ACTIVITIES

 Advances to related party                                                                 (65,081)
 Repayments from related party                                                             127,227
 Increase in short-term investments                                                       (194,890)                -
 Costs of bonds acquired                                                                  (100,000)                -
 Repayment of mortgage-backed securities                                                    94,242
 Purchase of furniture and equipment                                                        (1,335)                -
                                                                                       --------------   --------------

                              NET CASH FLOWS FROM (USED IN) INVESTING ACTIVITIES          (139,837)                -

CASH FLOWS FROM FINANCING ACTIVITIES

 Proceeds from issuance of Series A preferred stock                                        186,000                 -
 Redemption of Series B preferred stock, including accrued dividends                       (10,477)                -
 Proceeds from related party debt                                                                -           322,570
 Repayment of related party debt                                                                 -          (152,107)
 Proceeds from short-term borrowings                                                       250,000            65,000
 Repayment of short-term borrowings                                                         (5,729)          (90,000)
                                                                                       --------------   --------------

                              NET CASH FLOWS FROM FINANCING ACTIVITIES                     419,794           145,463

NET INCREASE (DECREASE) IN CASH                                                             64,576               810

CASH AT BEGINNING OF PERIOD                                                                      -               437
                                                                                       --------------   --------------

CASH AT END OF PERIOD                                                                  $    64,576      $      1,247
                                                                                       ==============   ==============


SUPPLEMENTAL DISCLOSURES

 Interest paid                                                                         $    11,407      $     57,098
 Income taxes paid                                                                               -                 -
</TABLE>


                             See accompanying notes.

                                       F-3


<PAGE>

JACOBS FINANCIAL GROUP, INC.
CONSOLIDATED CONDENSED STATEMENT OF MANDATORILY REDEEMABLE PREFERRED STOCK
AND STOCKHOLDERS' EQUITY (DEFICIT) (UNAUDITED) FOR THE THREE-MONTH PERIOD
ENDED AUGUST 31, 2006

<TABLE>
<CAPTION>

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

                                                                                        STOCKHOLDERS' EQUITY (DEFICIT)
                                                       SERIES B
                                  SERIES A       MANDATORILY REDEEMABLE  -----------------------------------------------------------
                           MANDATORILY REDEEMABLE    CONVERTIBLE                              ADDITIONAL
                               PREFERRED STOCK     PREFERRED STOCK                             PAID-IN    ACCUMULATED
                             SHARES      AMOUNT  SHARES     AMOUNT      SHARES      AMOUNT     CAPITAL      DEFICIT        TOTAL
                            -------- ----------  -------   ---------  -----------  --------  ------------  -----------  -----------
<S>                         <C>      <C>         <C>       <C>        <C>          <C>       <C>           <C>          <C>
BALANCE, MAY 31, 2006           1,109 $1,035,841 9,095.599 $6,780,186  154,937,837  $ 15,494  $  1,914,797  $(7,850,862)$(5,920,571)

Issuance of Series A
 Preferred Stock                  186    186,000        -          -             -         -             -            -           -

Accretion of mandatorily
 redeemable convertible
 preferred stock                    -      3,723        -     118,363            -         -             -     (122,086)   (122,086)

Accrued Dividends of
 mandatorily redeemable
 convertible preferred stock        -     11,203        -     185,018            -         -             -     (196,221)   (196,221)

Redemption of Series B
 Preferred Stock and accrued
 dividends                          -          -   (10.000)   (10,477)           -         -             -            -           -

Common stock option expense         -          -        -           -            -         -        57,868            -      57,868

Net Income (loss), three
 month period ended
 August 31, 2006                    -          -        -           -            -         -             -     (304,887)   (304,887)
                             -------- ----------  -------   ---------  -----------  --------  ------------  -----------  -----------

BALANCE, AUGUST 31, 2006        1,295 $1,236,767 9,085.599 $7,073,090  154,937,837  $ 15,494  $  1,914,797  $(7,850,862)$(5,920,571)
                             ======== ==========  =======   =========  ===========  ========  ============  ===========  ===========
                             ----------------------------------------  -------------------------------------------------------------

</TABLE>

                             See accompanying notes.

                                       F-4



<PAGE>

JACOBS FINANCIAL GROUP, INC.

NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS

NOTE A - BASIS OF PRESENTATION

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

Liquidity and Going Concern
---------------------------

These  financial  statements  are  presented  on the basis that the Company is a
going  concern.  Going concern  contemplates  the  realization of assets and the
satisfaction  of  liabilities in the normal course of business over a reasonable
length  of  time.  The  Company  incurred   operating  losses  of  approximately
$1,874,000  and  $1,120,000  for the years  ended May 31,  2006 and 2005 and has
incurred a loss of  approximately  $623,000  for the  three-month  period  ended
August 31, 2006.  Losses are expected to continue until the Company's  insurance
company  subsidiary,  First  Surety  Corporation  ("FSC")  develops  substantial
business.  While improvement is anticipated as the business plan is implemented,
restrictions  on the  use of  FSC's  assets  (See  Management's  Discussion  and
Analysis),   the  Company's  significant   deficiency  in  working  capital  and
stockholders'  equity raise  substantial  doubt about the  Company's  ability to
continue as a going concern.

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

NOTE B - RECENT ACCOUNTING PRONOUNCEMENTS

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


                                       F-5


<PAGE>
JACOBS FINANCIAL GROUP, INC.

NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS

NOTE B - RECENT ACCOUNTING PRONOUNCEMENTS (continued)

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

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

NOTE C - DUE FROM RELATED PARTY

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

During  the  year  ended  May 31,  2006,  the  Company  made net  repayments  of
$1,170,546 on the  back-to-back  loans which was $508,036 more than the original
loans and interest  charges.  In accordance with the Assumption  Agreement,  the
Company assigned to Mr. Jacobs and Mr. Jacobs assumed responsibility for payment
of certain debt totaling  $101,326 and accounts payable totaling $365,000 during
the year ended May 31, 2006.  The debt  obligation  was re-issued in the name of
Mr.  Jacobs;  and therefore the debt amount was relieved and offset  against the
receivable  from Mr.  Jacobs.  Although the Company  assigned  accounts  payable
totaling $365,000 to Mr. Jacobs through the Assumption Agreement,  for financial
reporting purposes under generally accepted accounting principles,  the accounts
payable  amount could not be  derecognized  until either paid or released by the
creditor.  The  Company  did  receive  a release  after  August  31,  2006 as is
reflected in subsequent  events Note F. Based upon the failure of the assumption
of the account payable by Mr. Jacobs to meet the requirements for  derecognition
during the reporting period,  the balance due from Mr. Jacobs as of May 31, 2006
was  $361,010;  subsequent  to May 31,  2006,  advances  to Mr.  Jacobs  totaled
$65,081,  repayments  received  totaled  $127,227 and interest  accrued  totaled
$11,092; and the resulting balance due from Mr. Jacobs as of August 31, 2006 was
$309,956.

                                       F-6

<PAGE>

JACOBS FINANCIAL GROUP, INC.

NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS

NOTE D - NOTES PAYABLE

At August 31,  2006,  the Company had  unsecured  notes  payable to  individuals
(primarily common shareholders)  amounting to $152,503. Such notes have maturity
dates of less than one year or are  payable on demand and bear  interest  at the
rate of ten percent (10.00%) per annum.

On June 28, 2006, the Company  borrowed  $250,000 under an unsecured  short-term
line of credit facility with a commercial bank to provide  additional  operating
capital.  The credit facility  requires monthly interest  payments at a variable
interest rate based on the Wall Street Journal Prime rate plus five percent. The
loan matures on December 28, 2006.

NOTE E - OTHER LIABILITIES

The Company had been delinquent in paying certain of its payroll tax obligations
for  periods  ending on or  before  December  31,  2005.  The  total  liability,
including an estimate for penalties and interest, is approximately  $457,425 and
is included  in the  Company's  financial  statements  under Other  Liabilities.
Management continues to seek financing  arrangements that will allow it to fully
satisfy this obligation in the near future.

NOTE F - SUBSEQUENT EVENT

On September  13, 2006,  the Company  obtained a release from the obligee of the
$365,000  account  payable  that was assumed by John M.  Jacobs  pursuant to the
Assumption Agreement as described in Note C, with the effect that, in accordance
with the  terms of the  Assumption  Agreement,  Mr.  Jacobs  assumption  of such
account payable was offset against and eliminated the account  receivable of the
company from Mr. Jacobs.

On  September  30,  2006,  the Company  elected to continue to defer  payment of
dividends on its Series A Preferred stock and Series B Preferred stock with such
accrued and unpaid dividends amounting to $13,014 and $190,572, respectively. As
of September 30, 2006, the accumulated accrued and unpaid dividend on the Series
A Preferred stock and Series B Preferred stock amounted to $28,008 and $556,313,
respectively.

                                       F-7


<PAGE>

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

RECENT DEVELOPMENTS AND FUTURE DIRECTION OF COMPANY

Since the Company's  acquisition  of its  insurance  company  subsidiary,  First
Surety Corporation  (FSC), in December 2005,  management has focused its primary
efforts  on the  initial  development  and  marketing  of the  business  in West
Virginia and laying  groundwork  for the future  expansion of the business  into
other states. Of primary  importance to the Company's ability to fully implement
its  business  plan  and  expand  into  other  states  is the  ability  to raise
additional  capital to increase the capacity of the insurance  subsidiary and to
fund continuing operations as the business is being fully developed.


RESULTS OF OPERATIONS FOR THE THREE MONTH PERIOD ENDED AUGUST 31, 2006

The  Company  experienced  a loss (after  accretion  of  mandatorily  redeemable
convertible preferred stock) for the three-month period ended August 31, 2006 in
the amount of $623,194 as compared with a loss of $297,274 for the corresponding
period ended August 31, 2005.

REVENUES

Revenues  for the  three-month  period  ended  August 31, 2006 were  $234,964 as
compared with $59,627 for the  corresponding  period ended August 31, 2005.  The
overall  increase in revenues is  attributable to the acquisition of FSC and the
surety business it has secured since January 1, 2006.

Quarterly revenues from the Company's investment management segment,  consisting
of its subsidiary,  Jacobs & Company (J&C), net of advisory  referral fees, were
$73,408 for the  three-month  period  ended  August 31,  2006 as  compared  with
$50,116 for the  corresponding  period  ended  August 31,  2005.  As  investment
advisory  fees are based on the market  value of assets under  management,  some
fluctuation  will occur due to  overall  market  conditions.  For the most part,
however,  such revenues will remain relatively  constant from quarter to quarter
with any large  fluctuations  being attributable to the growth or loss of assets
under management.  The growth reflected in the corresponding  periods is largely
attributable to investment  collateral  accounts  required as a condition to the
issuance of surety bonds under FSC's bonding programs.

Quarterly  revenues from the Company's surety insurance  segment,  consisting of
FSC and the Company's  subsidiary  Triangle  Surety  Agency,  Inc.  (TSA),  were
$150,464  for the  three-month  period  ended  August 31, 2006 as compared  with
$9,511 for the  corresponding  period  ended  August 31,  2005,  and increase of
$140,953. Of this increase, $45,678 is attributable to net investment income and
$95,275 is  attributable  to premiums  and  commissions  earned on surety  bonds
written.  While  ultimately  the  revenue  for this  segment of the  business is
expected to be more  "seasonable"  from  quarter to  quarter,  due merely to the
timing of the issuance or renewal of bonds  placed by the Company,  the increase
in the corresponding periods reflects growth attributable to the Company's

                                        3



<PAGE>

acquisition of FSC. Due to the nature of surety bonds,  fluctuations  in revenue
for comparable periods largely reflect the overall growth or loss of business.

Other income reflects interest earned on amounts due from a related party.


EXPENSES

Incurred  policy losses  represent  the  provision for loss and loss  adjustment
expense for  "incurred but not reported"  (IBNR) losses  attributable  to surety
bonds issued by FSC since its  acquisition in December 2005. Such estimates have
been based on industry  averages  adjusted  for  factors  that are unique to the
FSC's underwriting approach. The Company has experienced no claims for losses as
of August 31, 2006.

Insurance policy acquisition costs in the amount of $26,204 represent charges to
operations  for  underwriting  expense and premium  tax  attributable  to surety
polices  issued  by FSC and are  recognized  ratably  over the  period  in which
premiums are earned.

General and administrative  expenses for the three-month period ended August 31,
2006 were  $362,695 as compared with  $234,355 for the  comparable  period ended
August 31,  2005,  representing  an increase of  $128,340.  Salaries and related
expense  increased   approximately   $96,000  relating   primarily  to  staffing
additions,  related increased benefit  expenses,  and stock option  compensation
expense,  which approximated $58,000.  Other general and administrative  expense
increased  approximately $32,000 and can be attributed to the combination of the
operation of FSC and increased travel-related expenditures.

J&C is the investment  advisor to the Jacobs & Company Mutual Fund (the "Fund").
While  the Fund is  responsible  for its own  operating  expenses,  J&C,  as the
advisor,  has agreed to limit the Fund's aggregate annual operating  expenses to
2.00% of the average net assets.  Under this expense limitation  agreement,  J&C
absorbed  approximately  $46,500 of the  Fund's  operating  expenses  during the
three-month   period   ended   August  31,  2006  as  compared  to  $36,500  for
corresponding  period from the previous year. This increase can be attributed to
adjustments  made by the fund  administrator  for  underaccruals  of  expense in
comparison to budgeted amounts through the end of the Fund's fiscal year. As the
Fund grows in size (of assets under  management),  expenses (in excess of the 2%
level)  absorbed by J&C will decrease until the Fund reaches  sufficient size to
support its on-going  operating  costs. In contrast,  as the Fund grows in size,
revenues from investment advisory fees will increase.  Additionally,  should the
Fund's operating expense ratio fall below the 2.00% level, the costs absorbed by
J&C are now  reimbursable  to it for a  period  of up to  three  years.  For the
three-month  period ended August 31, 2006, the Fund's  investment  advisory fees
amounted to $12,180 as compared  to $10,751  for the  corresponding  three-month
period ended August 31, 2005.

Interest expense for the three-month period ended August 31, 2006 was $85,269 as
compared  with  $84,623 for the  corresponding  period  ended  August 31,  2005.
Included in interest expense for the three-month period ended August 31, 2006 is
an additional accrual of approximately  $70,000 relating to additional  interest
owed on the Company's payroll tax liability, based on recent notices provided by

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<PAGE>

the Internal Revenue Service. Such amount has been included in other liabilities
in the Consolidated Condensed Balance Sheet. Excluding this amount, the decrease
in  interest  expense is largely  attributable  to the  conversion  of  previous
indebtedness  of the Company  incurred to fund  ongoing  operations  to Series B
preferred stock.

ACCRETION AND DIVIDENDS

Accretion of mandatorily redeemable convertible preferred stock in the amount of
$318,307 is  comprised  of  accretion  of discount in the amount of $122,086 and
accrued but unpaid dividends on preferred stock in the amount of $196,221.

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 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, 2006.

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

In underwriting  such bonds,  management  obtains  estimates of costs to reclaim
such  properties,  in accordance with the  specifications  of the mining permit,
prepared by independent outside professionals experienced in this field of work.
Such  estimates  are then  periodically  updated and  compared  with  marketable
securities pledged, and held for the benefit of FSC as collateral for the surety
bond, to mitigate the exposure to significant 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

                                       5
<PAGE>

or upon subsequent re-evaluations,  if sufficient collateral is not obtained, or
if the collateral held has experienced significant deterioration in value.

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

ANALYSIS OF LIQUIDITY, CAPITAL RESOURCES AND FINANCIAL POSITION

Pursuant to the approval of the  transaction to acquire FSC by the West Virginia
Department  of  Insurance,  the Company is restricted in its ability to withdraw
monies  from FSC  without  the prior  approval  of the  Insurance  Commissioner.
Accordingly,  of total  investments  and cash in the amount of  $3,839,259 as of
August 31,  2006,  the use of  $3,802,634  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 generally be contributed by the Company into the surplus  accounts of
FSC.  Accordingly,  because  of these  restrictions,  as of August 31,  2006,  a
deficiency in working capital exists as the Company's current liabilities exceed
its available current assets by approximately $1,800,000.  The Company's ability
to pay  dividends  accrued  with  respect to its Series A and Series B preferred
stock will be limited until such time as current  liabilities are  substantially
liquidated  and  sufficient  cash flow from  operations  is being  generated  to
service such obligations.

For the  three-month  period ended August 31, 2006,  the Company  experienced  a
deficiency  in  cash  flow  from  operations  of  approximately  $215,000.  Such
deficiency was funded through  short-term  borrowings.  While management expects
revenue growth and cash flow to increase  significantly  as its business plan is
fully implemented,  it anticipates that losses and working capital  deficiencies
will  continue  until FSC is able to  develop a  substantial  book of  business.
Management  continues to seek additional capital to increase the capacity of its
insurance subsidiary and to fund continuing  operations as the business is being
fully  developed.  As a result  of  being  able to  share  resources  (primarily
personnel)  to  minimize  operating  costs,  management  expects  FSC  to  be at
break-even or cash flow positive in fiscal 2007,  although the use of its assets
and profits are expected to remain  restricted to its  stand-alone  operation by
regulatory  authority.  And  while  growth  of the  FSC  business  will  provide
additional  cash flow to the Company's  other  subsidiaries,  J&C and TSA, it is
anticipated that working capital deficiencies will need to be met either through
the  raising of  additional  capital  or  borrowings.  However,  there can be no
assurance that additional capital (or debt financing) will be available when and
to the extent  required or, if  available,  on terms  acceptable to the Company.
Accordingly, concerns as to the Company's ability to continue as a going concern
are substantial.  The consolidated condensed financial statements do not include
any adjustments that might result from the outcome of this uncertainty.


                                        6




<PAGE>

ITEM 3. CONTROLS AND PROCEDURES

EVALUATION OF INTERNAL AND DISCLOSURE CONTROLS

As required by Rule 13a-15 under the Securities  Exchange Act of 1934, as of the
end of the period  covered by the  quarterly  report,  being August 31, 2006, we
have carried out an evaluation of the  effectiveness of the design and operation
of the Company's disclosure controls and procedures. This evaluation was carried
out  under  the  supervision  and  with  the   participation  of  the  Company's
management,  including  Company's  president and chief financial officer.  Based
upon that evaluation,  the Company's  president and chief financial officer have
concluded that the Company's disclosure controls and procedures are effective as
of the end of the period  covered by this report.  There have been no changes in
our internal  controls over financial  reporting  that occurred  during the most
recent fiscal quarter that have materially affected, or are reasonably likely to
materially affect our internal controls over financial reporting.



                           PART II - OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

None.

ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

None, except as previously reported.

ITEM 3. DEFAULTS UPON SENIOR SECURITIES

None.

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

None.

ITEM 5. OTHER INFORMATION

None.


                                        7

<PAGE>


ITEM 6. EXHIBITS

3.1  Company's Articles of Incorporation (1)

3.2  Company's By-laws (1)

31.1 Certification  of  Chief  Executive  Officer  pursuant  to  Rule  13a-146.1
     promulgated under the Securities Exchange Act of 1934

31.2 Certification  of  Chief  Financial  Officer  pursuant  to  Rule  13a-146.1
     promulgated under the Securities Exchange Act of 1934

32.1 Certification  of Chief  Executive  Officer  pursuant to 18 U.S.C.  Section
     1950, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

32.2 Certification  of Chief  Financial  Officer  pursuant to 18 U.S.C.  Section
     1950, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

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



SIGNATURES


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

                          JACOBS FINANCIAL GROUP, INC.
                                  (Registrant)

Dated: October 16, 2006              By: /s/  John M. Jacobs
                                     ----------------------------------------
                                          John M. Jacobs
                                          President



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