INTRODUCTION

We were incorporated in Florida during February 2000. Most of our business is conducted through our wholly owned subsidiary Jesup & Lamont Securities Corporation. Empire Financial Group, Inc. was founded in 1992 and merged into Empire Financial Holding Company in 2000. On November 12, 2008, EFG was out of compliance with the SEC's Net Capital Rule 15c3-1 and, accordingly, ceased conducting a securities business, other than liquidating transactions, while remaining out of compliance with this rule. EFG's out of compliance condition was caused by an arbitration award against it for $772,000 plus costs and fees of approximately $100,000, notice of which was received by EFG on November 12, 2008. See Note 19 to the financial statements for further details. On November 10, 2006, effective as of November 1, 2006, we acquired Jesup & Lamont Securities Corporation. Effective January 2, 2008, we changed the name of Empire Financial Holding Company to Jesup & Lamont, Inc. Accordingly, the following discussion and analysis of our financial condition and results of operations is based on the combined results of these businesses.

JLSC is our financial brokerage services subsidiary providing brokerage services to full service retail and institutional customers. We provide our employee and independent registered representatives and advisors back office compliance and administrative services over the telephone at 1-800-569-3337 or through their designated registered representative. We provide our retail customers access to useful financial products and services through our website and by telephone. Our customers may, upon request, also receive advice from our brokers regarding stock, bonds, mutual funds and insurance products. We also provide securities execution and market making services, providing execution services involving filling orders to purchase or sell securities received from unaffiliated broker dealers on behalf of their retail customers. We typically act as principal in these transactions and derive our net trading revenues from the difference between the price paid when a security is bought and the price received when that security is sold. We typically do not receive a fee or commission for providing retail order execution services.

Additionally through EIA and JLSC, we offer fee-based investment advisory services to our customers, independent registered investment advisors and unaffiliated broker dealers. These services are web-based and are delivered through a platform that combines a variety of independent third party providers.

Services include access to separate account money managers, managed mutual fund portfolios, asset allocation tools, separate account manager and mutual fund research, due diligence and quarterly performance review. We charge our customers an all-inclusive fee for these services, which is based on assets under management. As of December 31, 2008, the annual fee was equal to approximately 140 basis points times the assets under management.

CRITICAL ACCOUNTING POLICIES

Our discussion and analysis of our financial condition and results of operations are based on our consolidated financial statements which have been prepared in conformity with accounting principles generally accepted in the United States of America. Because we operate in the financial services industry, we follow certain accounting guidance used by the brokerage industry. Our consolidated balance sheet is not separated into current and non-current assets and liabilities. Certain financial assets, such as trading securities are carried at fair market value on our consolidated statements of financial condition while other assets are carried at historic values.

We account for income taxes on an asset and liability approach to financial accounting and reporting. Deferred income tax assets and liabilities are computed annually for differences between the financial and tax basis of assets and liabilities that will result in taxable or deductible amounts in the future, based on enacted tax laws and rates applicable to the periods in which the differences are expected to affect taxable income. A valuation allowance is recognized if, based on the weight of available evidence, it is more likely than not that some portion or all of the deferred asset will not be realized. Income tax expense is the tax payable or refundable for the period, plus or minus the change during the period in deferred tax assets and liabilities.

ACCOUNTING FOR CONTINGENCIES

We accrue for contingencies in accordance with Statement of Accounting Standards ("SFAS") No. 5, "Accounting for Contingencies," when it is probable that a liability or loss has been incurred and the amount can be reasonably estimated. Contingencies by their nature relate to uncertainties that require our exercise of judgment both in assessing whether or not a liability or loss has been incurred and estimating the amount of probable loss.

USE OF ESTIMATES

Note 2 to our consolidated financial statements contains a summary of our
significant accounting policies, many of which require the use of estimates and assumptions that affect the amounts reported in the consolidated financial statements for the periods presented. We believe that certain of our significant accounting policies are based on estimates and assumptions that require complex, subjective judgments which can materially impact reported results.

GOODWILL AND OTHER INTANGIBLE ASSETS

The Company applies SFAS 142, Goodwill and Other Intangible Assets and performs a quarterly impairment test. Under SFAS 142, the fair value of an asset (or liability) is the amount at which that asset (or liability) could be bought (or incurred) or sold (or settled) in a current transaction between willing parties, that is, other than in a forced or liquidation sale. Thus, the fair value of a reporting unit refers to the amount at which the unit as a whole could be bought or sold in a current transaction between willing parties. Quoted market prices in active markets are the best evidence of fair value and shall be used as the basis for the measurement, if available. However, the market price of an individual equity security (and thus the market capitalization of a reporting unit with publicly traded equity securities) may not be representative of the fair value of the reporting unit as a whole. The quoted market price of an individual equity security, therefore, need not be the sole measurement basis of the fair value of a reporting unit. Substantial value may arise from the ability to take advantage of synergies and other benefits that flow from control over another entity. Consequently, measuring the fair value of a collection of assets and liabilities that operate together in a controlled entity is different from measuring the fair value of that entity's individual equity securities. An acquiring entity often is willing to pay more for equity securities that give it a controlling interest than an investor who would pay for a number of equity securities representing less than a controlling interest. That control premium may cause the fair value of a reporting unit to exceed its market capitalization.

Our goodwill was recorded for acquisitions which are less than three years old. We believe we have not nearly begun to realize the fair value of these acquisitions or the synergies which we believe will be realized from combining with our pre-acquisition operations. For example, fixed income is becoming a primary part of our business initiative. We believe that we can generate significant revenues by using our institutional sales force as a source of investment ideas for a retail distribution.

Application of the goodwill impairment test requires judgment, including the identification of reporting units, assignment of assets and liabilities to reporting units, assignment of goodwill to reporting units, and determination of the fair value of each reporting unit. The fair value of each reporting unit is estimated using a discounted cash flow methodology. This requires significant judgments including estimation of future cash flows, which is dependent on internal forecasts, estimation of the long-term rate of growth of the Company's business, the useful life over which cash flows will occur, and determination of the Company's weighted average cost of capital. Changes in these estimates and assumptions could materially affect the determination of fair value and potential goodwill impairment for each reporting unit. The Company has elected to perform its goodwill impairment test quarterly.

If the Company subsequently determines its goodwill and other intangible assets have been impaired, the Company may have to write off a portion or all of such goodwill and other intangible assets. If all goodwill and other intangible assets were written off, the Company would record a non cash loss approximating $17.4 million to operations and stockholders' equity.

MARKET-MAKING ACTIVITIES

Securities owned and securities sold, but not yet purchased, which primarily consist of listed, over-the-counter, American Depository Receipts and foreign ordinary stocks, are carried at market value and are recorded on a trade date basis. Market value is estimated daily using market quotations available from major securities exchanges and dealers.

SOURCES AND DESCRIPTION OF REVENUES

COMMISSIONS AND FEES.

Approximately 72% of our 2008 revenues and approximately 65% of our 2007 revenues consist of commissions and fees. Commissions and fees include revenues generated from transactional fees charged to retail and institutional customers. Commissions and fees also include mutual fund transaction commissions and trailer fees, which are periodic fees paid by mutual funds as an incentive to keep assets invested with them over time. Transactional fees charged to retail and institutional customers are primarily affected by changes in transaction volumes and changes in the commission or fee rates charged per transaction. Also included are commissions generated from our fixed income division. Commissions were generated in municipal bond trading, corporate bond trading and certificate of deposit underwritings.

TRADING REVENUES.

Approximately 22% of our 2008 and 13% of our 2007 revenues consist of equities market-making trading revenues. Equities market-making trading revenues are generated from the difference between the prices we pay to buy securities and the price we are paid when we sell securities. Volatility of stock prices, which can result in significant price fluctuations in short periods of time, may result in trading gains or losses. Our equities market-making trading revenues are dependent on our ability to evaluate and act rapidly on market trends and manage risk successfully. We typically act as principal in these transactions and do not receive a fee or commission for providing order execution services.

Our 2008 trading revenues were $8,398,425 which consisted of net realized gains of 8,150,527 and net unrealized gains of $247,898.

INVESTMENT BANKING.

The remaining 6% of our 2008 revenues came from investment banking as compared to 22% in 2007. Our 2008 and 2007 net investment banking revenues were $2,358,428 and $11,449,695, respectively.

DESCRIPTION OF OPERATING EXPENSES

EMPLOYEE COMPENSATION AND BENEFITS.

Employee compensation and benefits, which include salaries and wages, incentive compensation, stock compensation and related employee benefits and payroll taxes accounted for approximately 42% of our expenses during 2008 and approximately 34% of our expenses during 2007. Approximately 60% of our employees are compensated primarily on a performance basis. Therefore, a significant portion of compensation and benefits expense will fluctuate based on our operating revenue.

COMMISSIONS AND CLEARING COSTS.

Commissions and clearing costs include commissions paid to independent brokers, fees paid to floor brokers and exchanges for trade execution costs, fees paid to third-party vendors for data processing services and fees paid to clearing entities for certain clearance and settlement services. Commissions and clearing costs generally fluctuate based on transaction volume. Approximately 38% of our 2008 expenses and approximately 49% of our 2007 expenses consisted of commissions and clearing costs.

GENERAL AND ADMINISTRATIVE.

Our general and administrative expenses consist primarily of executive compensation, legal, accounting and other professional fees, software consulting fees, travel and entertainment expenses, insurance coverage, depreciation, occupancy expenses, communications and other similar operating expenses. These expenses accounted for approximately 21% and 17% of our expenses for 2008 and 2007, respectively.

OTHER INCOME AND EXPENSES.

Other income and expenses consist of interest income earned on our bank balances while interest expenses are costs of capital employed in our market making activities to purchase and hold inventory and to service our debt. Interest income (expense) net for 2008 and 2007 was ($1,031,374) and ($1,327,593), respectively.

Included in other income for 2008 is the gain on termination settlement with a former officer of $806,744. This resulted from reduction of notes payable due that officer arising from the acquisition of Jesup & Lamont Securities of which he was a former owner. Also included in other income for 2007, we recognized income of $350,000 resulting from funds returned to us from a settlement with the SEC.

RESULTS OF OPERATIONS - DECEMBER 31, 2008 COMPARED WITH DECEMBER 31, 2007

The year ending 2008 was a transitional year for the Company. While the poor economy negatively impacted many, if not all, industries, it had a severe negative impact on the financial services business. Trading volumes among institutional investors throughout the industry were down and this contributed to lower commission revenues. In addition, retail volumes were also lower as customers stayed away from the financial markets as they waited for markets and the economy to stabilize.

In response to these issues, the Company took certain initiatives that it believes will help make the Company stronger over the long term. The Company exited certain low margined businesses and entered into higher margined sectors. In particular, the Company strategically entered the fixed income arena, a sector that not only has higher margins but is also a sector that benefits during market turmoil as investors purchase these vehicles since they are viewed as safer securities.

Total revenues for the year ended December 31, 2008 decreased $12,601,237 or 25%, to $38,070,661 from $50,671,898 for the year ended December 31, 2007. Commissions and fees revenue accounted for $5,420,039 or approximately 43% of the decrease in total revenues. Investment banking income accounted for $9,091,267, or approximately 72% of the decrease in revenues. The revenue decline was partially offset by Trading revenues from equities and market-making activities which increased $1,910,069.

The decrease in total revenues is primarily due to the following:

Commission and fees revenue decreased by $5,420,039 to $27,313,808 from $32,733,847 in 2007, due to the overall decrease in financial market activity which accounted for 100% of the decrease. Commissions and fees revenues accounted for approximately 72% and 65% of our total revenues for the years ended December 31, 2008 and 2007, respectively.

Investment banking revenues decreased $9,091,267 to $2,358,428 from $11,449,695 in 2007. The decrease was primarily due to the lack of available credit to fund investment activities and the overall economic downturn.

These revenue decreases were offset by an increase in trading revenues, which increased by $1,910,069 to $8,398,425 in 2008 from $6,488,356, in 2007, due to a reorganization of our trading activities.

Operating expenses in 2008 decreased $7,002,448, or approximately 12%, to $53,419,522 from $60,421,970 in 2007, from a combination of reasons as described below:

Clearing and execution costs in 2008 decreased $9,513,924, or approximately 32%, to $20,063,213 from $29,577,137 in 2007. This decrease was due to the decrease in financial market activity, and our reduction of retail business. As a percentage, clearing and execution costs accounted for approximately 38% and 49% of total expenses for the years ended December 31, 2008 and 2007, respectively.

Employee compensation and benefits in 2008 increased $1,990,267, or approximately 10%, to $22,488,833 from $20,498,566 in 2007. This increase was primarily due to the addition of salaried personnel for fixed income and institutional trading business lines. In addition, 2008 included a charge for employee compensation of $933,651 for stock option expense related to SFAS No. 123 verses $725,480 in 2007. Employee compensation and benefits as a percentage of total expenses increased from approximately 34% in 2007 to 42% in 2008.

General and administrative and communication and data processing expenses increased $521,210 or approximately 7%, to $10,867,477 from $10,346,267 in 2007. This increase was primarily due to our operations and facilities not changing significantly in 2008. As a percentage of total expenses, general and administrative expenses were 21% and 17% for 2008 and 2007, respectively.

Other income and expenses consisted of interest income, interest expense and other items as described below:

In 2008, interest income decreased $104,234, or approximately 69%, to $45,787 as compared to interest income in 2007 of $150,021, as we reduced deposits at our clearing organizations. Interest expense decreased $400,453, or approximately 27% to $1,077,161 as compared to $1,477,614 in 2007. This was due mainly to the reduction of balances due to clearing organizations which decreased $1,457,801.

During 2005, we received and executed a settlement offer from the Securities and Exchange Commission. This settlement offer resolved an enforcement action that was brought against EFG, in May of 2004, for trading mutual fund shares on behalf of clients. In connection with the settlement, EFG deposited $350,000 into an escrow account pending ratification by the SEC's main office in Washington D.C. On May 11, 2007, we notified the SEC that we were withdrawing our settlement offer related to the enforcement action brought against EFG in May of 2004. On June 14, 2007 we withdrew the $350,000 from escrow, which was recorded as other income in the statement of operations. On August 23, 2007, we received a letter from the SEC stating that this investigation was completed and no further action would be pursued.

In May 2008, the Company entered into settlement agreements with two former officers. The agreements included offsetting receivables owed to JLI totaling $675,297 against the note payable by JLI to the former officers totaling $861,105. As part of his settlement agreement one of the former officers also received the rights to certain investment banking engagements and transferred 524,118 shares of JLI's common stock to JLI. We recorded the stock received as $733,765 of treasury stock valued at the closing market price ($1.40 per share) on the date we entered into the settlement agreement. The gain recognized on these transactions totaled $806,744 after deduction of $112,829 of accelerated discount amortization related to the canceled notes payable. This gain is included in other income for 2008.

For the year ended December 31, 2008, we reported a net loss applicable to common stockholders of ($16,046,084), or ($1.00) per basic and diluted share, as compared to a net loss applicable to common stockholders of $(10,901,898), or ($1.00) per basic and diluted share for the year ended December 31, 2007.

LIQUIDITY AND CAPITAL RESOURCES

As of December 31, 2008, we had $26,402,567 in total assets, of which, $2,136,745 or approximately 8% consisted of cash or assets readily convertible into cash, principally securities owned and receivables from clearing brokers, which include interest bearing cash balances held with our clearing organization. At December 31, 2008, we had liabilities due within one year totaling 9,920,992. Historically, we have financed our operating cash deficits from private placements of stock and debt offerings as discussed below.

During 2008 cash used by operations was $11,480,946 as compared to $7,825,858 cash used in 2007. The major uses of cash from operations for the year ended December 31, 2008 resulted from the net loss of $15,773,491, which was partially offset from non cash expenses and revenues and changes in working capital totaling $4,292,545.

Net cash used in investing activities for 2008 was $947,033, related to purchases of furniture and equipment of $305,533 and issuances of notes receivable totaling $641,500. Cash used in investing activities for 2007 was $415,562, related to cash paid for the purchases of furniture and equipment of $266,063, and issuances of notes receivable, net of payments, totaling $149,489.

Net cash provided by financing activities was $12,303,282 in 2008, as compared to $7,786,871 provided in 2007.

The Company raised $2,000,000 and $6,038,106 from the sale of preferred stock and common stock respectively, and $2,894,996 from the subscription of common stock, and made payments of $1,994,137 against notes payable.

As of August 7, 2008, JLI entered into binding Subscription Agreements to sell an aggregate subscription amount of $175,000 to purchase a total of 205,554 shares of common stock, par value $0.01 per share along with five-year warrants to purchase a total of 51,388 shares of common stock. Each share of common stock was priced at $0.8201 per share, the closing price on May 12, 2008. The warrants are exercisable after six months from the date of issue at a price of $0.9841 per share, subject to limited anti-dilution protection for capital changes and similar events. The subscribers are to receive one warrant, priced at $0.125 per warrant, for each of the four shares of Common Stock subscribed. The Subscription Agreements were entered into pursuant to a private placement to accredited investors.

In July 2008, JLI entered into agreements to sell an aggregate subscription amount of $1,162,497 to purchase a total of 1,096,695 shares of common stock, par value $0.01 per share at $1.06 per share, the closing price on July 11, 2008.

On June 12, 2008, JLI entered into binding Subscription Agreements to sell an aggregate subscription amount of $1,000,000 to purchase a total of 969,696 shares of common stock, par value $0.01 per share, and five-year warrants to purchase a total of 242,424 shares of common stock. Each share of common stock was priced at $1.00 per share, the closing price on June 11, 2008. The warrants are exercisable after six months from the date of issue at a price of $1.20 per share, subject to limited anti-dilution protection for capital changes and similar events. The subscribers are to receive one warrant, priced at $0.125 per warrant, for each of the four shares of Common Stock subscribed. The Subscription Agreements were entered into pursuant to a private placement to accredited investors. Pursuant to the terms of the agreements, the investors have demand rights to register the purchased shares for resale. None of the shares of common stock will be issued until the NYSE Amex has approved their listing.

On May 13, 2008, JLI entered into agreements to sell an aggregate amount of $1,038,105 to purchase a total of 1,219,363 shares of common stock, par value $0.01 per share along with five-year warrants to purchase a total of 304,841 shares of common stock. Each share of common stock was priced at $0.8201 per share, the closing price on May 12, 2008. The warrants are exercisable after six months from the date of issue at a price of $0.9841 per share, subject to limited antidilution protection for capital changes and similar events.

The investors received one warrant, priced at $0.125 per warrant, for each four shares of Common Stock received. The agreements were entered into pursuant to a private placement to accredited investors. Pursuant to the terms of the agreements, the investors have demand rights to register the purchased shares for resale.

On April 9, 2008, JLI entered into agreements to sell 7,739,938 shares of common stock, par value $0.01 per share, at a price of $0.646 per share, the closing price on April 9, 2008, for an aggregate amount of $5,000,000. The agreements were entered into pursuant to a private placement to accredited investors. Pursuant to the terms of the agreements, the investors have demand rights to register the purchased shares for resale.

As of March 3, 2008, the Company entered into binding Subscription Agreements to sell $2,000,000 of units in a private placement to accredited investors. Each unit consists of one share of Series G 10% Subordinated Cumulative Convertible Preferred Stock, par value $0.01 per share, and five-year warrants to purchase 1,470 shares of the Company's Common Stock, par value $0.01 per share. Each share of Series G Preferred Stock is initially convertible into 1,470 shares of Common Stock, subject to limited antidilution protection for capital changes and similar events. The warrants are exercisable after six months from the date of issue at a price of $0.816 per share, subject to limited antidilution protection for capital changes and similar events. The initial conversion price of the Series G Preferred Stock is $0.68 per share, the closing price of the Company's common stock on March 3, 2008. The Subscription Agreement also includes JLSC's agreement to register all shares of the common stock underlying the units. Pursuant to the terms of the transaction, the Company must pay partial liquidated damages in the amount of 1% per month of the purchase price, subject to a cap of an overall aggregate payment of 6% of the purchase price, upon any failure to (a) file a registration statement with the Securities and Exchange Commission within 30 days after the closing date of the transaction, or 30 days after filing its annual report on Form 10-K, whichever is later, or (b) register all shares of common stock underlying the units within 120 days of the closing date. None of the shares of common stock underlying the units will be issued until the NYSE Amex has approved their listing.

On March 19, 2008, effective as of January 29, 2008, Fifth Third Bank converted the credit line to a note payable. Under the new note payable, 100% of EFG's and JLSC's stock is still pledged as collateral. The note carries certain restrictions and requires pre-approval from Fifth Third Bank for certain events, including but not limited to, divesture of business assets. The note carries interest at the Bank's Prime Rate plus 4% (7.25% at March 19, 2009). The note calls for monthly interest payments and repayments of principal as follows:

Principal Reduction Due Date   Principal Reduction Payment Amount

March 31, 2008                 $                            100,000
May 1, 2008                    $                            250,000
August 1, 2008                 $                            250,000
November 3, 2008               $                            250,000
April 2, 2009                  $                          1,049,450

Total interest expense under this credit line for the year ended December 31, 2008 was $111,327.

As of August 20, 2007, the Company had entered into binding agreements to sell . . .