<PAGE>
                     U.S. SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549

                                   FORM 10-QSB


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

      For the quarterly period ended September 30, 2001


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

      For the transition period from            to

      Commission File No. 0-32331

                              SURETY HOLDINGS CORP.
                 (Name of Small Business Issuer in its Charter)

          Delaware                                               56-2229054
State of other jurisdiction of                                 (IRS Employer
incorporation or organization                                Identification No.)

                              850 Fort Plains Road
                            Howell, New Jersey 07731
                    (Address of Principal Executive Offices)

Registrant's telephone number including area code       732-886-0706

Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15 (d) of the Exchange Act during the past 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.

(1) YES   X     NO                      (2)  YES   X     NO
        -----      -----                         -----      -----

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

                         2,246,000 - - December 17, 2001

<PAGE>
                      SURETY HOLDINGS CORP. AND SUBSIDIARY

                      CONDENSED CONSOLIDATED BALANCE SHEET
                               September 30, 2001
                (dollars in thousands, except for per share data)
                                   (unaudited)


<TABLE>
<S>                                                                   <C>
CURRENT ASSETS
  Cash                                                                $   7,739
  Real estate held for sale, current                                      2,337
  Other current assets                                                    1,087
                                                                      ---------
     Total current assets                                                11,163

NOTES RECEIVABLE, less current maturities                                 1,441

REAL ESTATE HELD FOR SALE                                                37,725

NOTES RECEIVABLE, MARINE FOREST RESORT, INC.,
   including accrued interest of $940 (see Note 5)                       10,690

REAL ESTATE DEVELOPMENT COSTS                                            34,959

PROPERTY AND EQUIPMENT, net of accumulated depreciation
  and amortization of $1,834                                              4,039

DEFERRED TAX ASSET                                                        1,589
                                                                      ---------
                                                                      $ 101,606
                                                                      =========
       LIABILITIES AND STOCKHOLDERS' EQUITY

CURRENT LIABILITIES
  Mortgage note payable, current maturity                             $      12
  Notes payable, current maturity                                            17
  Bank line of credit                                                       500
  Notes payable, president, including accrued
   interest of $16                                                          411
  Accounts payable                                                          475
  Accrued expenses and other current liabilities                            208
  Income taxes payable                                                      155
                                                                      ---------
     Total current liabilities                                            1,778
                                                                      ---------
LONG-TERM LIABILITIES
  Mortgage note payable, less current maturity                              406
  Notes payable, less current maturity                                       37
                                                                      ---------
                                                                            443
                                                                      ---------
CONTINGENCIES

STOCKHOLDERS' EQUITY
  Common stock, $.001 par value,
   200,000,000 shares authorized,
   2,246,000 shares issued and
   outstanding                                                                2
  Capital in excess of par value                                        101,683
  Accumulated deficit                                                    (2,300)
                                                                      ---------
     Total stockholders' equity                                          99,385
                                                                      ---------
                                                                      $ 101,606
                                                                      =========
</TABLE>


See accompanying notes to condensed consolidated financial statements.


                                       1
<PAGE>
                      SURETY HOLDINGS CORP. AND SUBSIDIARY

                 CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
             NINE AND THREE MONTHS ENDED SEPTEMBER 30, 2001 AND 2000
                (DOLLARS IN THOUSANDS, EXCEPT FOR PER SHARE DATA)
                                   (UNAUDITED)


<TABLE>
<CAPTION>
                                   Nine Months Ended September 30,  Three Months Ended September 30,
                                        2001             2000             2001             2000
                                    -----------      -----------      -----------      -----------
<S>                                 <C>              <C>              <C>              <C>
REVENUES                            $     2,470            6,448      $     1,131      $     4,172

COST OF REVENUES                            986            2,380              438            1,599
                                    -----------      -----------      -----------      -----------
GROSS PROFIT                              1,484            4,068              693            2,573

GENERAL AND ADMINISTRATIVE
 EXPENSES                                   997              834              256              256
                                    -----------      -----------      -----------      -----------
INCOME FROM OPERATIONS                      487            3,234              437            2,317
                                    -----------      -----------      -----------      -----------
OTHER INCOME (EXPENSE)
  Interest income                           979              282              325              144
  Interest expense                          (47)             (30)             (19)             (12)
                                    -----------      -----------      -----------      -----------
                                            932              252              306              132
                                    -----------      -----------      -----------      -----------
INCOME BEFORE INCOME TAXES                1,419            3,486              743            2,449

INCOME TAXES                                562              717              168              527
                                    -----------      -----------      -----------      -----------
NET INCOME                          $       857      $     2,769      $       575      $     1,922
                                    ===========      ===========      ===========      ===========
NET INCOME PER COMMON
 SHARE, basic and diluted           $      0.38      $      1.26      $      0.26      $      0.86
                                    ===========      ===========      ===========      ===========
WEIGHTED AVERAGE COMMON SHARES
 OUTSTANDING, basic and diluted       2,246,000        2,197,000        2,246,000        2,246,000
                                    ===========      ===========      ===========      ===========
</TABLE>


See accompanying notes to condensed consolidated financial statements.


                                       2
<PAGE>
                      SURETY HOLDINGS CORP. AND SUBSIDIARY

                 CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
                  NINE MONTHS ENDED SEPTEMBER 30, 2001 AND 2000
                             (DOLLARS IN THOUSANDS)
                                   (unaudited)


<TABLE>
<CAPTION>
                                                           2001          2000
                                                         --------      --------
<S>                                                      <C>           <C>
CASH FLOWS FROM OPERATING ACTIVITIES
  Net income                                             $    857      $  2,769
  Adjustments to reconcile net income
   to net cash used in operating activities:
  Depreciation and amortization                               121            90
  Deferred income taxes                                       540           645
  Gain on sales of property                                (1,403)       (4,386)
  Gain on disposition of property                              (7)
  Increase (decrease) in cash attributable
   to changes in operating assets and liabilities:
    Other current assets                                     (918)           15
    Accounts payable                                          101           162
    Accrued expenses and other
     current liabilities                                     (161)           72
    Income taxes payable                                       28            72
                                                         --------      --------
NET CASH USED IN OPERATING ACTIVITIES                        (842)         (561)
                                                         --------      --------
CASH FLOWS FROM INVESTING ACTIVITIES
  Purchases of property and equipment                        (219)         (403)
  Proceeds from sales of property                           1,144         3,497
  Real estate development expenditures                     (2,160)       (1,143)
  Proceeds from notes receivable                              963           106
  Advances to Marine Forest Resort, Inc.                   (1,950)       (2,900)
                                                         --------      --------
NET CASH USED IN INVESTING ACTIVITIES                       (2,222)         (843)
                                                         --------      --------
CASH FLOWS FROM FINANCING ACTIVITIES
  Principal payments on mortgage
   note payable and bank line of credit                      (509)         (207)
  Proceeds from bank line of credit                         1,000           200
  Capital contributions                                                      72
  Proceeds from notes payable, president                      165           150
  Proceeds from sales of common
   stock, net of offering costs                                            7,240
                                                         --------      --------
NET CASH PROVIDED BY FINANCING ACTIVITIES                     656         7,455
                                                         --------      --------
NET INCREASE (DECREASE) IN CASH                            (2,408)        6,051

CASH
  Beginning of period                                      10,147         1,935
                                                         --------      --------
  End of period                                          $  7,739      $  7,986
                                                         ========      ========
</TABLE>


See accompanying notes to condensed consolidated financial statements.


                                       3
<PAGE>
                      SURETY HOLDINGS CORP. AND SUBSIDIARY

              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

                             (DOLLARS IN THOUSANDS)

1.    NATURE OF OPERATIONS

Surety Holdings Corp. ("Surety") and its wholly - owned subsidiary, Surety
Kohala Corporation's ("Kohala") (formerly known as Chalon International of
Hawaii) (collectively, the "Company") primary focus is the development of a
hotel, 18-hole golf course and resort homes on 642 acres of land in the North
Kahola district of Hawaii Island in the state of Hawaii (the "Mahukona
development project") (see Note 3).

The current operations of the Company include the sale of its non-Mahukona
development project real estate and other ancillary activities (See Note 6), all
of which are not deemed to be the future of the Company's business.


2.    UNAUDITED STATEMENTS AND NEW ACCOUNTING PRONOUNCEMENTS

Unaudited Statements

The accompanying condensed consolidated financial statements of Surety Holdings
Corp. and Subsidiary as of September 30, 2001 and for the nine and three-month
periods ended September 30, 2001 and 2000 are unaudited and reflect all
adjustments of a normal and recurring nature to present fairly the consolidated
financial position, results of operations and cash flows for the interim
periods. These unaudited condensed consolidated financial statements have been
prepared by the Company pursuant to instructions to Form 10-QSB. Pursuant to
such instructions, certain financial information and footnote disclosures
normally included in such financial statements have been omitted.

These unaudited condensed consolidated financial statements should be read in
conjunction with the consolidated audited financial statements and notes
thereto, together with management's discussion and analysis or plan of
operations, contained in the Company's Annual Report on the Form 10-SB for the
year ended December 31, 2000. The results of operations for the nine and the
three-month periods ended September 30, 2001 are not necessarily indicative of
the results that may occur for the year ending December 31, 2001.

New Accounting Pronouncements

In July 2001, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards ("SFAS") No.'s 141 and 142, "Business
Combinations" and "Goodwill and Other Intangibles". SFAS No. 141 requires all
business combinations initiated after June 30, 2001 to be accounted for using
the purchase method. Under SFAS No. 142, goodwill is no longer subject to
amortization over its estimated useful life. Rather, goodwill is subject to at
least an annual assessment for impairment applying a fair-market value based
test. Additionally, an acquired intangible asset should be separately recognized
if the benefit of the intangible asset is obtained through contractual or other
legal rights, or if the intangible asset can be sold, transferred, licensed,
rented, or exchanged, regardless of the acquirer's intent to do so. The Company
does not anticipate these pronouncements will have a significant impact on its
consolidated financial position and results of operations.


                                       4
<PAGE>
                      SURETY HOLDINGS CORP. AND SUBSIDIARY

              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

                             (DOLLARS IN THOUSANDS)

3.    REAL ESTATE DEVELOPMENT COSTS

At September 30, 2001, real estate development costs, attributed primarily to
the Company's Mahukona development project, consist of the following:

<TABLE>
<S>                                         <C>
  Land and land acquisition costs           $23,896
  Planning and studies                        1,834
  Engineering and architectural                 513
  Infrastructure                              5,350
  Professional and consulting fees            1,955
  Other                                       1,411
                                            -------
                                            $34,959
                                            =======
</TABLE>


4.    COMMITMENTS AND CONTINGENCIES

The prior approvals obtained for the Mahukona development project are
conditional; that is, each approval is subject to various conditions of
approval. Certain of these conditions of approval contain time limits or
financial compliance requirements, which if not met, may ultimately result in
legislative and/or administrative actions to void or revoke the prior approvals.
The effect of such adverse actions would be to return the land entitlements to
the former zoning, or more appropriate zoning as determined by the County of
Hawaii. The Company has continued to maintain the prior approvals through
compliance with all applicable conditions. In the future, however, the Company
may not be able to maintain compliance with all applicable conditions.

Approval of an environmental assessment and a permit to utilize state lands for
a cart underpass servicing the golf course, which must go under a state highway,
must still be obtained. These requirements resulted, in part, from an appeal
filed by a citizens group challenging the Company's approvals, and it can be
anticipated that this group will appeal future approvals or permits. There can
be no assurance that such matter will be favorably resolved. An adverse outcome
of such matter will adversely impact the Company's development plans.

The Company is involved in certain legal actions that arose in the normal course
of business. In the opinion of the Company's management, the resolution of these
matters will not have a material adverse effect on the consolidated financial
position, results of operations or cash flows of the Company.


5.    RELATED PARTY TRANSACTIONS

During 2000 and 2001, the Company's President advanced the Company $395 ($165
during the nine months ended September 30, 2001) pursuant to one-year, 5%
promissory notes. The Company's management has indicated that these notes will
be extended and repaid in mid-2002. Related interest expense for the nine months
ended September 30, 2001 and 2000 is approximately $16 and $1, respectively.


                                       5
<PAGE>
                      SURETY HOLDINGS CORP. AND SUBSIDIARY

              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

                             (DOLLARS IN THOUSANDS)


5.    RELATED PARTY TRANSACTIONS (CONTINUED)

Pursuant to promissory notes, during 2000 and 2001, the Company advanced Marine
Forest Resort, Inc. ("Marine Forest"), a related Japanese corporation, $9,750
($1,950 during the nine months ended September 30, 2001). The notes bear
interest at the U.S. prime rate (6.00% at September 30, 2001) plus one percent.
Under their original terms, the notes are due six months after date of issuance
and some, which have become due, have been extended another six months.
Further, management has indicated its intention to further extend the notes to
2003 and/or apply such notes to management and/or other strategic arrangements
it is negotiating with Marine Forest, an owner of property in Okinawa, Japan,
in connection with Marine Forest's contemplated development projects. Related
interest income for the nine months ended September 30, 2001 and 2000 is
approximately $730 and $72, respectively. Presently, no interest has ever been
paid, however management anticipates (i) interest payments to begin in early
2002 in undetermined intervals and installments and/or (ii) interest to be
rolled into principal and applied to management and/or other strategic
arrangements, as previously discussed.


6.    SEGMENT REPORTING

As discussed in Note 1, the Company's primary business focus is the Mahukona
development project. Nonetheless, the Company complies with SFAS No. 131
"Disclosures about Segments of an Enterprise and Related Information", which
provides information about the Company's current business activities. Management
has divided the Company into the following segments: real estate sales, rental
activity, cattle sales and other. Transactions between segments are not common
and are not material to the segment information. Some business activities that
cannot be classified in the aforementioned segments are shown under "corporate".

Operating results, by segment, for the nine and three months ended September 30,
2001 and 2000 are as follows:

                      NINE MONTHS ENDED SEPTEMBER 30, 2001

<TABLE>
<CAPTION>
                                        Real Estate                   Cattle
                                           Sales        Rental         Sales        Other      Corporate       Total
                                           -----        ------         -----        -----      ---------       -----
<S>                                     <C>            <C>           <C>          <C>          <C>           <C>
 Total revenues                          $  1,683      $    273      $    309     $    205     $     --      $  2,470
 Total cost of revenues                       531           103           181          171                        986
                                         --------      --------      --------     --------     --------      --------
 Segment profit                             1,152           170           128           34                      1,484
 General and administrative expenses                                                               (997)         (997)
 Interest income, net                                                                               932           932
 Income taxes                                                                                      (562)         (562)
                                         --------      --------      --------     --------     --------      --------
 Net income (loss)                       $  1,152      $    170      $    128     $     34     $   (627)     $    857
                                         ========      ========      ========     ========     ========      ========
 Total assets                            $ 42,225      $  2,006      $     37     $    138     $ 57,200      $101,606
                                         ========      ========      ========     ========     ========      ========
</TABLE>


                                       6
<PAGE>
                      SURETY HOLDINGS CORP. AND SUBSIDIARY

              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

                             (DOLLARS IN THOUSANDS)


6.    SEGMENT REPORTING (CONTINUED)

                      NINE MONTHS ENDED SEPTEMBER 30, 2000

<TABLE>
<CAPTION>
                                        Real Estate     Rental        Cattle
                                           Sales       Activity        Sales        Other      Corporate       Total
                                           -----       --------        -----        -----      ---------       -----
<S>                                     <C>            <C>           <C>          <C>          <C>           <C>
 Total revenues                          $  5,628      $    246      $    359     $    215     $     --      $  6,448
 Total cost of revenues                     1,937           103           128          212                      2,380
                                         --------      --------      --------     --------     --------      --------
 Segment profit                             3,691           143           231            3                      4,068
 General and administrative expenses                                                               (834)         (834)
 Interest income, net                                                                               252           252
 Income taxes                                                                                      (717)         (717)
                                         --------      --------      --------     --------     --------      --------
 Net income (loss)                       $  3,691      $    143      $    231     $      3     $ (1,299)     $  2,769
                                         ========      ========      ========     ========     ========      ========
 Total assets                            $ 45,595      $  2,002      $     39     $    126     $ 46,933      $ 94,695
                                         ========      ========      ========     ========     ========      ========
</TABLE>


                      THREE MONTHS ENDED SEPTEMBER 30, 2001

<TABLE>
<CAPTION>
                                        Real Estate     Rental        Cattle
                                           Sales       Activity        Sales        Other      Corporate       Total
                                           -----       --------        -----        -----      ---------       -----
<S>                                     <C>            <C>           <C>          <C>          <C>           <C>
 Total revenues                          $    894      $     71      $     75     $     91     $     --      $  1,131
 Total cost of revenues                       273            26            75           64                        438
                                         --------      --------      --------     --------     --------      --------
 Segment profit                               621            45                         27                        693
 General and administrative expenses                                                               (256)         (256)
 Interest income, net                                                                               306           306
 Income taxes                                                                                      (168)         (168)
                                         --------      --------      --------     --------     --------      --------
 Net income (loss)                       $    621      $     45      $     --     $     27     $   (118)     $    575
                                         ========      ========      ========     ========     ========      ========
</TABLE>


                                       7
<PAGE>
                      SURETY HOLDINGS CORP. AND SUBSIDIARY

              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

                             (DOLLARS IN THOUSANDS)


6.    SEGMENT REPORTING (CONTINUED)

                      THREE MONTHS ENDED SEPTEMBER 30, 2000

<TABLE>
<CAPTION>
                                        Real Estate     Rental        Cattle
                                           Sales       Activity        Sales        Other      Corporate       Total
                                           -----       --------        -----        -----      ---------       -----
<S>                                     <C>            <C>           <C>          <C>          <C>           <C>
 Total revenues                          $  3,912      $     54      $    105     $    101     $     --      $  4,172
 Total cost of revenues                     1,396            38            51          114                      1,599
                                         --------      --------      --------     --------     --------      --------
 Segment profit                             2,516            16            54          (13)                     2,573
 General and administrative expenses                                                               (256)         (256)
 Interest income, net                                                                               132           132
 Income taxes                                                                                      (527)         (527)
                                         --------      --------      --------     --------     --------      --------
 Net income (loss)                       $  2,516      $     16      $     54     $    (13)    $   (651)     $  1,922
                                         ========      ========      ========     ========     ========      ========
</TABLE>


7.    SUBSEQUENT EVENT

In December 2001, the Company has entered into contracts with a financial
institution to sell (factor) some of its notes receivables at a discount. These
notes had a balance of $698 at September 30, 2001 and are included in other
current assets.


                                       8













<PAGE>
Item 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS

OVERVIEW

Surety Holdings Corp. ("Surety") and its wholly-owned subsidiary, Surety Kohala
Corporation ("Kohala") (formerly known as Chalon International of Hawaii)
(collectively, the "Company") primary focus is the development of a hotel,
18-hole golf course and resort homes on 642 acres of land in the North Kahola
district of Hawaii Island in the state of Hawaii (i.e. the Mahukona development
project).

The current operations of the Company (discussed below) include the sale of its
non-Mahukona development project real estate and other ancillary activities, all
of which are not deemed to be the future of the Company's business.

RESULTS OF OPERATIONS

The following table sets forth the statements of operations of the Company for
the nine months ended September 30, 2001 and 2000:

<TABLE>
<CAPTION>
                                             2001             2000

<S>                                     <C>              <C>
Real estate sales                       $ 1,683,000      $ 5,628,000
Rentals                                     273,000          246,000
Cattle sales                                309,000          359,000
Other                                       205,000          215,000
                                        -----------      -----------

    Total revenues                        2,470,000        6,448,000
                                        -----------      -----------

Cost of real estate sales                   531,000        1,937,000
Cost of rentals                             103,000          103,000
Cost of cattle sales                        181,000          128,000
Cost of other                               171,000          212,000
                                        -----------      -----------

    Total cost of revenues                  986,000        2,380,000
                                        -----------      -----------

Gross profit                              1,484,000        4,068,000

General and administrative expenses         997,000          834,000
                                        -----------      -----------

Income from operations                      487,000        3,234,000
                                        -----------      -----------


Interest income                             979,000          282,000
Interest expense                            (47,000)         (30,000)
Income taxes                               (562,000)        (717,000)
                                        -----------      -----------

                                            370,000         (465,000)
                                        -----------      -----------

Net income                              $   857,000      $ 2,769,000
                                        ===========      ===========
</TABLE>


                                       9
<PAGE>
Real estate sales and rental -

During the nine months ended September 30, 2001, real estate sales were only
comprised of four sales because they were delayed due to the Company's survey
company, the largest survey company on the Big Island of Hawaii and probably the
only survey company large enough to handle the Company's PCRS (Parcel
Consolidation Re-subdivision) parcels and subdivisions, being backlogged with
work. This surveying backlog is a result of increasing demand of the Company's
North Kohala property in a favorable economic time. Further, many of the
properties the Company is selling have never been surveyed and the topography
and terrain are very difficult for surveyors. To address the backlog, the
Company recently switched surveyors on several projects. Once the surveyors have
finished, the land court begins verifying title of the land. Through the
surveying and title work, the Company believes to have an additional 820 acres
of property available for sale in 2002, which would generate sales of
approximately $5.3 million. Real estate sales during the 4th quarter of 2001
have increased and should continue through January 2002, however, thereafter,
the Company may have to await the results of the Company's appeal of the
County's new Planning Director's initiative to condition certain PCRS with
additional requirements. The appeal is scheduled for February 2002.

Rental revenues -

The slight increase in rental revenue is attributable to the rental of the
Sandalwood property, a new home built on the island during 2001.

Cattle sales -

The approximate 14% decrease in cattle sales is attributable to a
difficult-to-predict beef market. Cattle sales declined to 1,087 heads in the
nine months ended September 30, 2001, down from 1,357 heads in the nine months
ended September 30, 2000, or a decrease of 20%. The deteriorated cattle sales
margins are attributable to the fixed cost nature of the cattle sales
operations. Processes and tasks such as branding, culling, moving, fence
repairs, medicine and labor costs are required regardless of sales. Also, in
2001, the Company had to lease pasture previously owned and undertake major
fence repairs. The Company anticipates that 2001 annual cattle revenues will
approximate 2000 annual cattle revenues.

Other revenues -

During the nine months ended September 30, 2001, other revenues were slightly
down, as compared to the same period of the prior year, due to the September
11th disaster's effect on tourism in Hawaii.

General and administrative expenses -

General and administrative expenses increased approximately 20% primarily as a
result of increased professional fees due to the Company's regulatory filing
requirements and increased salaries related to Kohala's President and Chairman
of the Board (added to the payroll in September 2000).


                                       10
<PAGE>
Other income and expense  -

Interest income has increased substantially as a result of (i) outstanding
promissory notes receivable ($9.75 million at September 30, 2001) from Marine
Forest Resort, Inc. ("Marine Forest") that accrues interest at the U.S. prime
rate (6% at September 30, 2001) plus one percent per annum and (ii) the
Company's high cash balance generated from the March 2000 private placement (see
Liquidity and Capital Resources). Interest expense has increased approximately
56% as a result of outstanding indebtedness ($395,000 at September 30, 2001) to
the Company's President that accrues interest at 5% per annum.


The following table sets forth the statements of operations of the Company for
the three months ended September 30, 2001 and 2000:

<TABLE>
<CAPTION>
                                            2001             2000

<S>                                     <C>              <C>
Real estate sales                       $   894,000      $ 3,912,000
Rentals                                      71,000           54,000
Cattle sales                                 75,000          105,000
Other                                        91,000          101,000
                                        -----------      -----------

    Total revenues                        1,131,000        4,172,000
                                        -----------      -----------

Cost of real estate sales                   273,000        1,396,000
Cost of rentals                              26,000           38,000
Cost of cattle sales                         75,000           51,000
Cost of other                                64,000          114,000
                                        -----------      -----------

    Total cost of revenues                  438,000        1,599,000
                                        -----------      -----------

Gross profit                                693,000        2,573,000

General and administrative expenses         256,000          256,000
                                        -----------      -----------

Income from operations                      437,000        2,317,000
                                        -----------      -----------


Interest income                             325,000          144,000
Interest expense                            (19,000)         (12,000)
Income taxes                               (168,000)        (527,000)
                                        -----------      -----------

                                            138,000         (395,000)
                                        -----------      -----------

Net income                              $   575,000      $ 1,922,000
                                        ===========      ===========
</TABLE>


                                       11
<PAGE>
Real estate sales and rental -

During the three months ended September 30, 2001, real estate sales were only
comprised of two sales because they were delayed due to the Company's survey
company, the largest survey company on the Big Island of Hawaii and probably the
only survey company large enough to handle the Company's PCRS (Parcel
Consolidation Re-subdivision) parcels and subdivisions, being backlogged with
work. This surveying backlog is a result of increasing demand of the Company's
North Kohala property in a favorable economic time. Further, many of the
properties the Company is selling have never been surveyed and the topography
and terrain are very difficult for surveyors. Through the recent hiring of a new
surveyor on several projects the Company expects real estate sales activity to
pick-up during 2002 however, thereafter, the Company may have to await the
results of the Company's appeal of the County's new Planning Director's
initiative to condition certain PCRS with additional requirements. The appeal is
scheduled for February 2002.

Rental revenues increased slightly as a result of the recent leasing of the
Sandalwood property, a new home built on the island during 2001.

Cattle sales -

The approximate 29% decrease in cattle sales is attributable to a
difficult-to-predict beef market. Cattle sales decreased to 245 heads in the
three months ended September 30, 2001, down from 416 heads in the three months
ended September 30, 2000. The deteriorated cattle sales margins are attributable
to the fixed cost nature of the cattle sales operations. The Company anticipates
that 2001 annual cattle revenues will approximate 2000 annual cattle revenues.

Other revenues -

During the three months ended September 30, 2001, other revenues decreased
approximately 10% as a result of the effects on tourism activity that resulted
from the September 11th tragedy.

General and administrative expenses -

General and administrative expenses remained unchanged.

Other income and expense  -

Interest income has increased substantially as a result of (i) outstanding
promissory notes receivable ($9.75 million at September 30, 2001) from Marine
Forest Resort, Inc. ("Marine Forest") that accrues interest at the U.S. prime
rate (6% at September 30, 2001) plus one percent per annum and (ii) the
Company's high cash balance generated from the March 2000 private placement (see
Liquidity and Capital Resources). Interest expense has increased approximately
50% as a result of outstanding indebtedness ($395,000 at September 30, 2001) to
the Company's President that accrues interest at 5% per annum.


                                       12
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES

For the nine months ended September 30, 2001 and 2000, the Company's net cash
used in operating activities of approximately $842,000 and $561,000,
respectively, is comprised of the following:

<TABLE>
<CAPTION>
                                                  2001             2000


<S>                                           <C>              <C>
Net income                                    $   857,000      $ 2,769,000

Depreciation and amortization                     121,000           90,000

Deferred income taxes                             540,000          645,000

Gain on sales and disposition of property      (1,410,000)      (4,386,000)

Changes in operating assets
 and liabilities                                 (950,000)         321,000
                                              -----------      -----------

                                              $  (842,000)     $  (561,000)
                                              ===========      ===========
</TABLE>


For the nine months ended September 30, 2001 and 2000, the Company's net cash
used in investing activities of approximately $2,222,000 and $843,000,
respectively, is comprised of the following:


<TABLE>
<CAPTION>
                                        2001             2000
<S>                                 <C>              <C>
Capital expenditures including
  real estate development           $(2,379,000)     $(1,546,000)

Proceeds from sales of property       1,144,000        3,497,000

Proceeds from notes receivable          963,000          106,000

Advances to Marine Forest            (1,950,000)      (2,900,000)
                                    -----------      -----------

                                    $(2,222,000)     $  (843,000)
                                    ===========      ===========
</TABLE>


                                       13
<PAGE>
Approximately $2,160,000 of the $2,379,000 of the 2001 capital expenditures was
made to progress the Company's Mahukona development endeavors. These
expenditures include approximately $1,134,000 for land-clearing, leveling and
grading, approximately $850,000 for design, engineering and surveying and
approximately $176,000 of other costs. Increased proceeds from notes receivable
are attributable to early mortgage redemptions. During the nine months ended
September 30, 2001, the Company continued to advance Marine Forest monies
pursuant to short-term promissory notes (see Note 5 in the accompanying
condensed consolidated financial statements). In connection with the notes, the
Company is negotiating management and other strategic arrangements with Marine
Forest, an owner of property in Okinawa, Japan, in connection with Marine
Forest's contemplated development projects.


For the nine months ended September 30, 2001 and 2000, the Company's net cash
provided by financing activities of approximately $656,000 and $7,455,000,
respectively, is comprised of the following:

<TABLE>
<CAPTION>
                                                     2001             2000

<S>                                             <C>              <C>
Debt proceeds (from President)                  $   165,000      $   150,000

Proceeds from notes and bank line of credit       1,000,000          200,000

Capital contributions                                                 72,000

Debt repayments                                    (509,000)        (207,000)

Proceeds from stock sales                                          7,240,000
                                                -----------      -----------

                                                $   656,000      $ 7,455,000
                                                ===========      ===========
</TABLE>


In March 2000, the Company raised approximately $7.2 million, net of offering
costs, pursuant to a private placement of 146,000 shares of its common stock at
$50 per share. The proceeds will be used for development of the properties in
Hawaii including soft costs of approvals and development (i.e. engineering,
architecture, professional fee, etc.), construction, advertising and marketing,
offices expense and general working capital purposes.


                                       14
<PAGE>
As of September 30, 2001, the Company has total current assets of approximately
$11.2 million and total current liabilities of approximately $1.8 million or a
working capital of approximately $9.4 million. Looking forward to 2002, the
Company anticipates revenue levels to be higher with levels experienced during
2001. However, given the Company's anticipated cash requirements to complete the
Mahukona Resort project and plans to pursue the Okinawa Marine Forest Resort
project, future capital raising or debt financing activities will be required.
If the Company is unsuccessful in its capital raising or debt financing
activities, it will modify its Mahukona development plans, whereby it would
initially develop the golf course and 1 acre house units using the proceeds of
its non-Mahukona development project real estate. Subsequently, as phase two,
using proceeds from the sales of its 1 acre house lots as well as the
non-Mahukona development project real estate, complete the more costly hotel
endeavor.

The anticipated cash requirements to complete the Mahukona Resort project are as
follows (in millions):

<TABLE>
<S>                                       <C>                 <C>
         Golf course                                          $  5.9

         Hotel
                  Entry road              $  1.2
                  Infrastructure            22.0
                  Timeshare units           17.7
                  Park improvements          3.1                44.0
                                          ------

         Sports   facility                                       0.6

         1 Acre house lots                                      10.8

         Off-site infrastructure                                 9.4
                                                              ------

                                                                70.7

         Less:    Costs incurred through
                  September 30, 2001                           (11.1)
                                                              ------


         Anticipated cost to complete                         $ 59.6
</TABLE>


                                       15
<PAGE>
PART II - OTHER INFORMATION

Item 1.  Legal Proceedings:

         There have been no material changes in legal proceedings as required to
be reported on Form 10QSB from as previously reported in the Company's 10-SB for
the fiscal year ended December 31, 2000.

Item 2.  Change in Securities

         None

Item 3.  Default Upon Senior Securities:

         None

Item 4.  Submission of Matters to a Vote of Securities Holders:

         None

Item 5.  Other information:

         None

Item 6.  Exhibits and Reports on Form 8-K:

         None


<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.

                                                SURETY HOLDINGS CORP.
                                                         (Registrant)



                                                By:  /s/  Howard R. Knapp
                                                --------------------------------
                                                Howard R. Knapp
                                                Chief Financial Officer



Dated:  December 27, 2001