<PAGE>

                       SECURITIES AND EXCHANGE COMMISSION
                                    FORM 10-K

[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE
ACT OF 1934
                  For the fiscal year ended December 31, 2003
                                       OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934

         For the transition period from ____________ to
         Commission file number 0 - 6234

                                ACMAT CORPORATION
             ------------------------------------------------------
             (Exact name of registrant as specified in its charter)

       Connecticut                                       06-0682460
------------------------                    ------------------------------------
(State of incorporation)                    (I.R.S. Employer Identification No.)

233 Main Street
New Britain, Connecticut                                              06050-2350
-------------------------                                             ----------
(Address of principal executive offices)                              (Zip Code)

               Registrant's telephone number, including area code
                                 (860) 229-9000
                                 --------------

Securities registered pursuant to Section 12 (b) of the Act: None

Securities registered pursuant to Section 12 (g) of the Act:
                                        Common Stock, without par value
                                        Class A Stock, without par value

Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15 (d) or the Securities Exchange Act of 1934
during the preceding 12 months (or for such shorter period that the registrant
was required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.     Yes [X] No

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of Registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [ X ]

Indicate by check mark whether the registrant is an accelerated filer (as
defined in Rule 12b-2 of the Act). Yes [ ] No [X]

The aggregate market value of the Common Stock and Class A Stock held by
non-affiliates of the registrant was $20,536,236 as of the Registrant's most
recently completed second fiscal quarter.

As of March 1, 2004 there were 546,355 shares of the registrant's Common Stock
and 1,741,704 shares of registrant's Class A Stock, each without par value,
outstanding.

DOCUMENTS INCORPORATED BY REFERENCE:

Part III - Portions of the Registrant's definitive proxy statement to be issued
in conjunction with the Registrant's annual meeting of stockholders to be held
on June 24, 2004.

<PAGE>

<TABLE>
<S>                                                                                                 <C>
PART I
Item 1.  Business                                                                                    3

Item 2. Properties                                                                                  16

Item 3. Legal Proceedings                                                                           16

Item 4. Submission of Matters to a Vote of Security Holders                                         16

                                     PART II

Item 5. Market for the Registrant's Common Stock and Related Stockholder matters                    17

Item 6. Selected Financial Data                                                                     17

Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations       17

Item 7A. Quantatative and Qualitative Discussions about Market Risk                                 27

Item 8. Financial Statements and Supplementary Data                                                 29

Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure        58

Item 9A. Controls and Procedures                                                                    58
                                    PART III

Item 10. Directors and Executive Officers of the Registrant                                         58

Item 11. Executive Compensation                                                                     60

Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder     62
         Matters

Item 13. Certain Relationships and Related Transactions                                             63

Item 14. Principal Accountant Fees and Services                                                     63
                                     PART IV
Item 15. Exhibits, Financial Statement Schedules and Reports on Form 8-K                            63
</TABLE>


<PAGE>

                                     PART I
                                ITEM 1. BUSINESS

General

ACMAT Corporation ("ACMAT" or the "Company") provides specialized commercial
insurance and bonding coverage for contractors, architects, engineers and other
professionals in the construction and environmental fields and other specialty
insurance such as products liability. The Company derives its underwriting
expertise from its construction operations. Through United Coastal Insurance
Company ("United Coastal"), the Company provides a broad line of specialty
general liability and products liability insurance, professional liability
insurance to architects, engineers and other professions and environmental
liability insurance to specialty trade and environmental contractors, property
owners, storage and treatment facilities and allied professionals. Through
ACSTAR Insurance Company ("ACSTAR Insurance"), the Company provides surety bonds
for general building, specialty trade and environmental contractors and all
forms of commercial surety. Both United Coastal Insurance and ACSTAR Insurance
are rated A- (excellent) by A.M. Best Co., Inc. ("A.M. Best").

The Company is also engaged in construction contracting which consists of
general building construction for new buildings and interior contracting
services of building interiors for commercial, industrial and institutional
buildings.

Financial Information about Operating Segments

Financial information relating to the three business segments is set forth in
Note 16 to the consolidated financial statements included in this document.

The Company has three reportable operating segments: United Coastal Liability
Insurance, ACSTAR Bonding and ACMAT Contracting. The Company's reportable
segments are primarily the three main legal entities of the Company which offer
different products and services. The accounting policies of the segments are the
same as those described in the summary of significant accounting policies.

The United Coastal Liability Insurance operating segment offers specific lines
of liability insurance as an approved non-admitted excess and surplus lines
insurer in forty-seven states, Puerto Rico, the Virgin Islands and the District
of Columbia. United Coastal offers claims made and occurrence policies for
specific specialty lines of liability insurance through certain excess and
surplus lines brokers who are licensed and regulated by the state insurance
department(s) in the state(s) in which they operate. United Coastal provides
specialty general, environmental and professional liability insurance primarily
to general contractors, specialty trade and environmental contractors, property
owners, storage and treatment facilities and allied professionals. United
Coastal also offers products liability policies to manufacturers. In addition,
the company offers professional liability coverage to architects, consultants
and engineers.

The Bonding operating segment provides, primarily through ACSTAR, surety bonds
written for general building, specialty trade, environmental contractors and
others. ACSTAR also offers other miscellaneous surety such as workers'
compensation bonds, supply bonds, subdivision bonds and license and permit
bonds.

ACMAT Contracting provides construction contracting services to commercial and
governmental customers. ACMAT Contracting also provides underwriting services to
its insurance subsidiaries. In addition, ACMAT Contracting owns a commercial
office building in New Britain, Connecticut and leases office space to its
insurance subsidiaries as well as third parties.

                       UNITED COASTAL LIABILITY INSURANCE

The liability insurance lines of the Company are discussed more fully below:

Contractors

-        General Liability - Policies are offered to general contractors and
         specialty trade contractors involved in plumbing, heating, electrical,
         framing, roofing, drilling, excavation, demolition, road work, and
         other contracting activities. Coverage is also offered for other
         specialized non-contractor general liability risks. Coverage is limited
         to third-party bodily injury and property damage arising out of covered
         operations. General liability insurance is offered on either a
         claims-made or occurrence basis.

-        Contractor Pollution Liability - Policies are offered to contractors
         involved in hazardous waste remediation or cleanup, installation or
         removal of storage tanks, or the transportation of hazardous waste.
         Coverage is provided for third party-bodily injury or property damage
         liability caused by release of, or exposure to,

                                       3

<PAGE>

         pollutants as a result of contractors' operations. Contractor pollution
         liability insurance is offered on a claims-made basis.

-        Asbestos and Lead Abatement Liability - Policies are offered to
         contractors involved in the removal or encapsulation of asbestos and/or
         lead containing materials from structures or their containment through
         appropriate encapsulation or repair. Coverage is provided for
         third-party bodily injury and property damage liability as a result of
         a release of asbestos or lead which arises out of the contractors'
         operations. Asbestos and lead abatement liability insurance is provided
         primarily on a claims-made basis.

Professionals

-        Architects and Engineers Professional Liability - Policies are offered
         to architects and engineers and consultants in the fields of
         architecture; civil, electrical, mechanical, structural and process
         engineering; construction/property management; design/build services;
         laboratory testing and surveying. Project professional liability
         policies are also offered for architect and engineer design teams and
         owner controlled wrap-ups. All policies are written on a claims-made
         basis.

-        Environmental Asbestos and/or Lead Consultants Professional Liability -
         Policies are offered to consultants involved in providing services such
         as environmental assessments, design/build services, asbestos or lead
         consulting, remedial investigations and feasibility studies, and
         storage tank consulting. Coverage is provided for liability arising out
         of the acts, errors or omissions of a consultant in the performance of
         professional services. All professional liability coverages are written
         on a claims-made basis.

Owners and Lenders

-        Hazardous Waste Storage and Treatment Pollution Liability - Policies
         are offered on a claims-made basis in response to the insurance
         requirements of the Environmental Protection Agency in connection with
         facilities subject to the Resource Conservation and Recovery Act of
         1976 ("RCRA").

-        Site Specific Pollution Liability - These policies cover pollution
         claims arising or emanating from a specific site and are provided on a
         claims-made basis. Comprehensive site evaluations are required prior to
         providing coverage for any site.

-        Lenders Pollution Liability - Policies are offered to financial
         institutions for pollution occurring at property owned or controlled by
         the institution as a result of foreclosure or otherwise. Lender
         pollution liability coverage is offered on a claims-made basis.

Products Liability

-        Products Liability - Policies are offered on a claims-made or
         occurrence basis to manufacturers for a variety of products including
         chemicals, fertilizers, pesticides, pollution control devices, storage
         tanks and other.

                                       4

<PAGE>

The Company customizes many of its insurance policies to suit the individual
needs of its insureds. One limit insuring multiple exposures under one policy
form and limit are offered.

The combined ratio is a traditional measure of underwriting profitability. When
the combined ratio is under 100%, underwriting results are generally considered
profitable. Conversely, when the combined ratio is over 100%, underwriting
results are considered unprofitable. The combined ratio does not reflect
investment income, federal income taxes or other non-operating income or
expense.

The following table sets forth the combined ratios of United Coastal Liability
Insurance, prepared in accordance with accounting principles generally accepted
in the United States of America ("GAAP") and statutory accounting principles
prescribed or permitted by state insurance authorities.

<TABLE>
<CAPTION>
                                                                                            Year
                                                                                     Ended December 31,
                                                                                  ------------------------
                                                                        2003               2002                2001
                                                                        ----               ----                ----
<S>                                                                    <C>                <C>                 <C>
GAAP Ratios:
    Loss ratio                                                          53.2%              77.6%               30.0%
    Expense ratio                                                       47.1               56.3                64.2
                                                                       -----              -----               -----
    GAAP combined ratio                                                100.3              133.9                94.2
                                                                       =====              =====               =====
Statutory Ratios:
   Loss ratio                                                           53.2               77.6                30.0
   Expense ratio                                                        42.8               56.8                73.5
                                                                       -----              -----               -----
   Statutory combined ratio                                             96.0%             134.4%              103.5%
                                                                       =====              =====               =====
</TABLE>

The improvement in the combined ratios for 2003 are the result of improved loss
experience and an increase in written and earned premium. The increase in the
2002 combined ratios over the 2001 results primarily from two large losses
reported in 2002 of $1.7 million. See Item 7 "Management's Discussion and
Analysis of Financial Condition and Results of Operations".

                                 ACSTAR Bonding

Surety bonds are written for general, specialty trade, environmental, asbestos
and lead abatement contractors. The Company also offers a wide variety of
miscellaneous bonds. Most bonds are supported by various levels of collateral
based upon the financial condition of the customer.

The Company often requires cash or irrevocable letters of credit to
collateralize a portion of most bonds issued. In addition, the Company will only
accept irrevocable letters of credit from financial institutions which have a
rating of C "sound credit risk" or higher as determined by Fitch Ratings.
However, no assurance can be made that such financial institutions will maintain
their financial strength and, thus, that funds guaranteed under letters of
credit will be available, if needed, to offset any potential claims.

The Company provides the following types of bonds:

-        Payment and performance bonds - Bonds are provided for general building
         and specialty trade contractors, environmental remediation and asbestos
         abatement contractors and consultants, lead abatement contractors and
         solid waste disposal contractors. A payment and performance bond
         guarantees satisfactory performance and completion of the contractor's
         work and payment of the contractor's debts and obligations relating to
         the performance of the contract covered by the bond.

-        Closure and post-closure bonds - Bonds are provided for owners of solid
         and hazardous waste landfills as required to meet certain requirements
         under RCRA and remediation bonds in connection with the Comprehensive
         Environmental Response, Compensation and Liability Act of 1980
         ("CERCLA"). Closure bonds usually guarantee that a property owner will
         restore property to a specified level or condition. Post-closure bonds
         guarantee cultivation and maintenance of a closed site.

-        Supply and other specialty bonds - Bonds are provided for contractors,
         manufacturers and other owners in their normal course of operations,
         usually to guaranty the supply of equipment and material.

-        Miscellaneous surety, license, permit, self insurer, supersedeas and
         other bonds - Miscellaneous bonds are provided for applicants based on
         those requirements specified in the bond form and the applicant's
         financial strength.

                                       5

<PAGE>

The underwriting department and management are responsible for the development
of new insurance products and enhancements. Underwriting profitability is
enhanced by the creation of niche products focused on classes of business which
traditionally have provided underwriting profits.

The following table sets forth the combined ratios of ACSTAR Bonding, prepared
in accordance with accounting principles generally accepted in the United States
of America ("GAAP") and statutory accounting principles prescribed or permitted
by state insurance authorities.

<TABLE>
<CAPTION>
                                                                                            Year
                                                                                      Ended December 31,
                                                                                  ------------------------
                                                                        2003               2002                2001
                                                                        ----               ----                ----
<S>                                                                     <C>                <C>                 <C>
GAAP Ratios:
    Loss ratio                                                          29.9%              32.5%               10.6%
    Expense ratio                                                       49.7               71.1                74.4
                                                                        ----              -----                ----
    GAAP combined ratio                                                 79.6              103.6                85.0
                                                                        ====              =====                ====
Statutory Ratios:
   Loss ratio                                                           29.9               32.5                10.6
   Expense ratio                                                        46.3               67.2                80.7
                                                                        ----              -----                ----
   Statutory combined ratio                                             76.2%              99.7%               91.3%
                                                                        ====              =====                ====
</TABLE>

The improvement in the combined ratios for 2003 are the result of improved loss
experience and an increase in written and earned premium. The increase in the
2002 combined ratios over the 2001 results primarily from a large loss reported
in 2002 of $0.5 million. See Item 7 "Management's Discussion and Analysis of
Financial Condition and Results of Operations."

Underwriting

The Company's underwriting practices rely heavily upon the knowledge base which
it has developed in over fifty years of construction contracting. Accordingly,
ACMAT, in addition to its construction contracting operations, provides risk
evaluation, loss adjustment, underwriting, claims handling, funds administration
and monitoring services for its insurance subsidiaries, United Coastal Insurance
and ACSTAR Insurance. Contractors seeking liability insurance and bonding
through the Company are carefully reviewed with respect to their past practices,
claims history and records. Other factors considered are the contractors' and
professionals' financial conditions, training techniques, safety procedures,
histories of violations, record keeping, supervisory qualifications and
experience.

Underwriting procedures for products liability insurance involve conducting an
in-depth review of the product that is being manufactured or distributed. Such
review involves examining an applicant's past record of recalls, claims history
and litigation.

The Company's underwriting and pricing strategy is designed to produce an
underwriting profit resulting in a Company-wide combined ratio below 100% for
Statutory and GAAP. This has been achieved in two of the past three years.

The Company continually monitors financial stability of contractors with surety
bonds outstanding. Work in progress reports and updated financial information
are reviewed periodically by the Company to ensure that the contractor continues
to meet the underwriting guidelines. The Company also sends out status reports
to the Obligees to monitor progress of the projects.

Reinsurance

In the normal course of business, the Company assumes and cedes reinsurance with
other companies. Reinsurance ceded primarily represents excess of loss
reinsurance with companies with "A" ratings from the insurance rating
organization, A.M. Best. Reinsurance ceded also includes facultative reinsurance
which is applicable to excess policies written over a primary policy issued by
the Company for specific projects. Reinsurance is ceded to limit losses from
large exposures and to permit recovery of a portion of direct losses; however,
such a transfer does not relieve the originating insurer of its liability.

Effective November 1, 2002 through April 30, 2004, the Company cedes 80% of its
exposure in excess of $1,000,000 up to $5,000,000 on a per principal/insured
basis. Prior to October 31, 2002, reinsurance was applicable on a per
principal/insured basis for 100% of the losses in excess of $1,000,000 up to
$8,000,000. From May 1, 2000 to April 30, 2002, the Company also reinsured
surety losses on a per principal basis for losses in excess of $8,000,000 up to
$13,000,000.

                                       6

<PAGE>

The availability and price of reinsurance fluctuates according to market
conditions. The renewal of the reinsurance treaty in 2002 was arranged at a
moderate price increase and involved the Company's participation. Depending on
the availability and cost of reinsurance, the Company may, from time to time,
elect to cede greater or lesser portions of its underwriting risk. The
reinsurance treaty is effective through April 30, 2004.

Claims

The Company directly handles substantially all claims of its insureds, except
that independent claims adjusters and/or counsel, selected for their experience
and reputation in the locality of the claim, are retained to conduct initial
fact-finding investigations. All decisions respecting payment of claims are made
by experienced employees of the Company.

Reserves for Losses and Loss Adjustment Expenses

Reserves for losses and loss adjustment expenses are estimates at any given
point in time of what the Company may have to ultimately pay on incurred losses,
including related settlement costs, based on facts and circumstances then known.
The Company also reviews its claims reporting patterns, past loss experience,
risk factors and current trends and considers their effect in the determination
of estimates of incurred but not reported losses. Ultimate losses and loss
adjustment expenses are affected by many factors which are difficult to predict,
such as claim severity and frequency, inflation levels and unexpected and
unfavorable judicial rulings. Reserves for surety claims also consider the
amount of collateral held as well as the financial strength of the contractor
and its indemnitors. Management believes that the reserves for losses and loss
adjustment expenses at December 31, 2003 are adequate to cover the unpaid
portion of the ultimate net cost of losses incurred through that date and
related adjustment expenses incurred, including losses incurred but not
reported. The Company also has the reserves evaluated independently by a
qualified actuary.

Reserves for losses and loss adjustment expenses are established with respect to
both reported and incurred but not reported claims for insured risks. The amount
of loss reserves for reported claims is primarily based upon a case-by-case
evaluation of the type of risk involved, knowledge of the circumstances
surrounding each claim and the policy provisions relating to the type of claim.
In determining appropriate adjustments to reserves historical data is reviewed
and consideration is given to the anticipated impact of various factors such as
legal developments and economic conditions, including the effects of inflation
and collateral. Reserves are monitored and recomputed periodically using new
information on reported claims.

                                       7

<PAGE>

The following table sets forth a reconciliation of beginning and ending reserves
for losses and loss adjustment expenses for the periods indicated on a GAAP
basis for the business of the Company.

<TABLE>
<CAPTION>
                                                         2003                          2002                         2001
                                                         ----                          ----                         ----
<S>                                                  <C>                           <C>                           <C>
Balance at January 1                                 $25,642,865                   $22,585,626                   $29,310,606
 Less reinsurance recoverable                          8,383,894                     2,772,668                     2,580,388
                                                     -----------                   -----------                   -----------
 Net balance at January 1                             17,258,971                    19,812,958                    26,730,218

Incurred related to:
            Current year                               4,283,000                     4,363,000                     4,144,000
            Prior years                                  710,991                      (291,601)                   (2,607,978)
                                                     -----------                   -----------                   -----------
Total incurred                                         4,993,991                     4,071,399                     1,536,022

Payments related to:
            Current year                                  40,000                       625,000                     1,723,000
            Prior years                                5,740,616                     6,000,386                     6,730,282
                                                     -----------                   -----------                   -----------
Total Payments                                         5,780,616                     6,625,386                     8,453,282

Net balance at December 31                            16,472,346                    17,258,971                    19,812,958
 Plus reinsurance recoverable                          4,376,220                     8,383,894                     2,772,668
                                                     -----------                   -----------                   -----------
 Balance at December 31                              $20,848,566                   $25,642,865                   $22,585,626
                                                     ===========                   ===========                   ===========
</TABLE>

The decrease in net loss and loss adjustment expense reserves in 2003 from 2002
and 2001 was primarily due to payments on surety and general liability policies
for prior years net of subrogation and ceded recoveries partially offset by
unfavorable development in prior accident years. Loss and loss adjustment
expenses incurred primarily reflects two large losses of approximately $2.2
million in 2002. The increase in reinsurance recoverable in 2002 from 2001 is
primarily due to one liability claim, which exceeded the limits retained by the
Company. The claim was partially paid to the Company in 2003.

While management continually evaluates the potential for changes in loss
estimates, due to the uncertainty inherent in the liability and surety business,
the emergence of net favorable development may or may not occur. Management
believes that the reserves for losses and loss adjustment expense are adequate
to cover the unpaid portion of the ultimate net cost of losses and loss
adjustment expenses, including losses incurred but not reported.

The Company has no exposure to any asbestos or environmental claims associated
with general liability policies issued with the pre-1986 pollution exclusion.
Policies written without the exclusion are typically associated with mass tort
environmental and asbestos claims. The Company has never issued a policy with
the pre-1986 pollution exclusion. The Company's exposure to asbestos and
environmental liability claims is primarily limited to asbestos and
environmental liability insurance for contractors and consultants involved in
the remediation, removal, storage, treatment and/or disposal of environmental
and asbestos hazards.

As of December 31, 2003, 2002 and 2001 reserves for the combined losses and loss
adjustment expenses of the Company's insurance operations as determined in
accordance with accounting principles and practices prescribed or permitted by
insurance regulatory authorities ("Statutory basis reserves") were $16,472,346,
$17,258,971 and $19,812,958, respectively. As of December 31, 2003, 2002 and
2001 reserves determined in accordance with GAAP were $20,848,566, $25,642,865
and $22,585,626, respectively. The difference between the Statutory basis
reserves and the GAAP basis reserves is the netting of reinsurance recoverable
against losses and loss adjustment expense reserves for statutory purposes.

                                       8

<PAGE>

The following losses and loss adjustment expense reserve runoff table is for the
combined insurance operations of the Company's insurance subsidiaries. Each
column shows the reserve held at the indicated calendar year-end and cumulative
data on payments and re-estimated liabilities for that accident year and all
prior accident years making up that calendar year-end reserve. Therefore, the
redundancy (deficiency) is also a cumulative number for that year and all prior
years. It would not be appropriate to use this cumulative history to project
future performance.

<TABLE>
<CAPTION>
                                  1993    1994    1995    1996    1997    1998    1999    2000    2001     2002     2003
                                 ------   ----   ------   ----    ----    ----    ----    ----    ----     ----     ----
                                                 (thousands)
<S>                              <C>     <C>     <C>     <C>     <C>     <C>     <C>     <C>     <C>      <C>      <C>
Net liability for unpaid losses
 and loss adjustment expenses    30,437  36,726  41,363  44,119  45,423  40,891  34,620  26,730  19,813   17,259   16,472

Liability re-estimated as of:

 One year later                  30,437  35,825  40,193  43,282  43,106  37,816  33,503  26,735  19,487   18,083
 Two years later                 28,337  34,659  37,872  40,865  35,698  36,741  27,656  22,744  20,260
 Three years later               27,170  29,913  35,354  33,359  33,735  31,108  24,781  22,469
 Four years later                23,550  27,193  28,149  30,999  27,004  28,669  23,586
 Five years later                20,880  19,486  25,057  25,663  24,951  27,559
 Six years later                 13,673  16,254  21,499  23,315  24,128
 Seven years later               11,915  14,125  19,351  22,713
 Eight years later               10,819  11,968  18,849
 Nine years later                 8,762  11,694
 Ten years later                  8,807

Gross cumulative Redundancy
 (deficiency):                   21,630  25,032  22,514  21,408  21,295  13,334  11,042   4,266    (448)    (824)

Paid (cumulative) as of:

 One year later                   1,560   2,361   3,067   2,942   6,703   7,903   8,610   6,663   1,202    1,281
 Two years later                  3,655   4,582   5,256   8,951  13,928  14,843  13,766   9,651   2,819
 Three years later                5,022   6,412   8,922  16,047  16,655  19,920  13,888  10,422
 Four years later                 6,189   7,969  15,601  18,597  20,208  22,302  13,966
 Five years later                 6,869  12,425  17,564  21,791  22,041  21,654
 Six years later                  9,723  13,094  19,885  22,550  22,316
 Seven years later               10,296  13,902  20,180  22,687
 Eight years later               11,058  13,796  20,295
 Nine years later                 9,529  13,849
 Ten years later                  9,554
Gross liability - end of year    34,730  40,955  45,235  47,960  48,901  43,115  38,544  29,311  22,586   25,643   20,848
Reinsurance recoverable           4,293   4,229   3,872   3,841   3,478   2,224   3,924   2,581   2,773    8,384    4,376
                                 ------  ------  ------  ------  ------  ------  ------  ------  ------   ------   ------
Net liability - end of year      30,437  36,726  41,363  44,119  45,423  40,891  34,620  26,730  19,813   17,259   16,472
</TABLE>

In 1995, the Company changed its method of reporting estimated liabilities for
claims-made policies which is reflected in the reserve run-off table. For
calendar years 1994 and prior, reserves associated with claims-made policies
were reported based on accident year basis consistent with the Company's
treatment in Schedule P to the Company's Statutory Annual Statement. At the
request of the Arizona Insurance Department, ("Department") the Company was
required to change its method of reporting in Schedule P to the Annual
Statement, reserve and payment data associated with claims-made policies to a
report year basis versus an accident year basis in order to comply with the
National Association of Insurance Commissioners ("NAIC") guidelines. The
Company's prior treatment of claims-made loss data on an accident basis was
approved by the Department during years prior to 1995. For its 1995 statutory
filing, the Company restated loss data reported in Schedule P to comply with the
Department's request. As a result of the change to Schedule P for claims-made
policies, the Company has also changed the method for reporting claims-made loss
payment data in the reserve run-off table to conform to a report year basis for
claims-made policies. Occurrence policies were and continue to be reported on an
accident year basis. The 1995 re-estimated liabilities for each calendar year
have been restated to reflect the new method of reporting.

Because of the change in reporting loss data for claims-made policies from an
accident year basis to a report year basis, prior accident year reserves have
been moved forward to fall within the report year resulting in no change to
total reserve amounts or estimates. Management believes that the aggregate
reserves for losses and loss adjustment expenses for all accident years are
adequate.

IRIS Ratios

The National Association of Insurance Commissioners ("NAIC") has developed the
Insurance Regulatory Information System ("IRIS"), intended to assist state
insurance departments in executing their statutory mandates to oversee the
financial condition of insurance companies operating in their respective states.
IRIS identifies twelve industry ratios and specifies "usual values" for each
ratio. When an insurance company's ratio falls outside the "usual value," it is
designated an "unusual value," which event alerts state insurance departments to
potential problems. For the year ended December 31, 2003, ACSTAR, had two IRIS
ratios designated as an "unusual value" and United Coastal had three IRIS ratios
designated as an "unusual value".

ACSTAR's investment yield ratio of 2.6% was below the minimum yield ratio of
4.5% primarily because of ACSTAR's 34% ownership of United Coastal which was not
a significant income producer in 2003. ACSTAR's change in net writings increased
76% which exceeded the "usual value" of 33%. The increase in net writings is due
to growth in new

                                       9

<PAGE>

business and strong customer retention. In addition, both gross and net written
premiums to policyholders surplus is below the "unusual" levels.

United Coastal's investment yield ratio of 3.8% was below the minimum yield
ratio of 4.5% primarily because of the lower interest rate environment and the
short duration of the investment portfolio in 2003. United Coastal's change in
net writings increased 77% which exceeded the "usual value" increase of 33%. The
increase in net writings is due to significant rate increases on new and renewal
business and strong customer retention. The estimated current reserve deficiency
to policyholders surplus was 46% which was in excess of the usual value of 25%.
This ratio relies on indicated ratios of reserve need to earned premium for
prior years to estimate current reserve need. This ratio does not provide
appropriate results because the growth in earned premium is due to increases in
premium per policy rather than exposure increase.

A.M. Best Ratings

A.M. Best ratings are indications of the solvency of an insurer based on an
analysis of the financial condition and operations of a company relative to the
industry in general. Occasionally, the requirement for an A.M. Best's-rated
insurer is a condition imposed upon the contractor by the party engaging the
contractor. Certain insurance brokers also restrict the business they will place
with insurers which are not A.M. Best's-rated. The 2003 Best letter ratings
range from A++ (superior) to F (in liquidation). United Coastal Insurance and
ACSTAR Insurance each have an A.M. Best's rating of A- (excellent).

The Company's insurance operations could be negatively impacted by a downgrade
in the Company's rating. If this were to occur, there could be a reduced demand
for certain products in certain markets.

Risk-Based Capital

Risk-based capital requirements are used as early warning tools by the National
Association of Insurance Commissioners and the states to identify companies that
require further regulatory action. The ratio for each of the Company's insurance
subsidiaries as of December 31, 2003 was above the level which might require
regulatory action.

Terrorism Risk Insurance Act of 2002

On November 26, 2002, the Terrorism Risk Insurance ACT of 2002 (the Terrorism
Act) was enacted into Federal law and established a temporary Federal program in
the Department of the Treasury that provides for a system of shared public and
private compensation for insured losses resulting from acts of terrorism
committed by or on behalf of a foreign interest. In order for a loss to be
covered under the Terrorism ACT (i.e., subject losses), the loss must be the
result of an event that is certified as an act of terrorism by the U.S.
Secretary of Treasury; with the exception of workers' compensation claim
payments, losses arising as a result of a war declared by Congress are not
covered by the Terrorism Act. The Terrorism Insurance Program (the Program)
generally requires that all commercial property casualty insurers licensed in
the U.S. participate in the Program. The Program became effective upon enactment
and terminates on December 31, 2005. The amount of compensation paid to
participating insurers under the Program is 90% of subject losses, after an
insurer deductible, subject to an annual cap. The deductible under the Program
is 7% for 2003, 10% for 2004 and 15% for 2005. In each case, the deductible
percentage is applied to the insurer's direct earned premiums from the calendar
year immediately preceding the applicable year. The Program also contains an
annual cap that limits the amount of subject losses to $100 billion aggregate
per program year. Once subject losses have reached the $100 billion aggregate
during a program year, there is no additional reimbursement from the U.S.
Treasury and an insurer that has met its deductible for the program year is not
liable for any losses (or portion thereof) that exceed the $100 billion cap.

                                ACMAT CONTRACTING

General

The Company provides a broad range of general building construction and
coordinated interior contracting services. The Company began to offer asbestos
abatement services in the 1970's and the Company continues to be active in the
asbestos abatement field. The Company provides new and renovation general
construction and installs interiors for office buildings, retail establishments,
schools, colleges, churches, hospitals and other buildings. The Company's
general building construction and interior contracting is provided both in
connection with new buildings and in connection with the remodeling and
renovation of interiors of existing buildings usually under contracts with
building owners and building occupants. The Company provides a broad range of
coordinated interior contracting services, many of which are performed by
subcontractors

                                       10

<PAGE>

Backlog

The following table sets forth the Company's backlog of unbilled contract
amounts representing the estimated sales value of work to be performed under
contract, the total number of contracts and the number of contracts with
unbilled amounts in excess of $400,000 as of December 31, 2003 and 2002:

<TABLE>
<CAPTION>
                                                                              December 31, 2003               December 31, 2002
                                                                              -----------------               -----------------
<S>                                                                           <C>                             <C>
Total Number of Contracts.                                                                 7                               3

Total unbilled contract amounts.                                                  $9,680,000                      $  620,000

Number of contracts with unbilled amounts in excess of
$400,000.                                                                                  4                               1

Aggregate unbilled amount of contracts in excess of $400,000.                     $9,540,000                      $  430,000
</TABLE>

The Company estimates that most of the December 31, 2003 backlog will be
completed prior to December 31, 2004.

Materials

The Company purchases the materials it installs in the course of its
construction contracting operations from a number of suppliers. Most of the
Company's materials are standard building components which historically have
been readily available from several suppliers. Some components are manufactured
to the Company's specifications. Most of the materials used by the Company are
shipped directly to the job site by the manufacturer.

Contract Acquisition

The Company's work projects are obtained by lump sum fixed price bids, unit
prices or are negotiated. Contract prices are usually determined by competition
with other contractors.

Warranty

Each project usually contains a one-year warranty or guaranty period, wherein
the Company and its subcontractors warrant that the work is free from defects
and was performed in accordance with the plans and specifications. Occasionally,
the Company is required to make minor corrections or adjustments, but has not
incurred any significant costs in connection with any such work.

Asbestos Abatement Operations

Both the Company's insurance and construction contracting operations have
involved risks associated with asbestos. The Company has in the past insured,
and continues to insure, risks associated with asbestos abatement or containment
operations on primarily a claims-made basis. Since harm from exposure to
asbestos fibers may not be detectable in humans for as much as thirty years,
losses under insurance contracts written on an occurrence basis may not be known
for some time.

The Company's construction contracting operations may involve the removal of
asbestos. As asbestos containing materials deteriorate or become disturbed by
incidental or intentional contact, asbestos fibers may enter the air and can
circulate into the breathing zone of building occupants. Exposure to asbestos
may be a cause of cancer. In the mid 1970's, the Company became engaged in the
removal of asbestos in addition to its other contracting operations. Since that
time, it has been engaged in hundreds of contracts involving the removal of
asbestos. Claims by employees and non-employees related to asbestos have been
made against the Company from time to time and are pending and there can be no
assurance that additional claims will not be made in the future. The Company
does not believe that any significant exposure exists relating to these claims.

The Company believes that it is fully covered by workers' compensation insurance
with respect to any claims by current and former employees relating to asbestos
operations. The Company currently obtains its workers' compensation insurance in
those states in which it performs work either from state insurance funds or one
of several insurance companies designated in accordance with the Assigned Risk
Pool. The amount of workers' compensation insurance maintained varies from state
to state but is generally greater than the maximum recovery limits established
by law and is not subject to any aggregate policy limits. In the past, the
Company has received a number of asbestos-related claims from employees, all of
which have been fully covered by its workers' compensation insurance. The
Company believes that it is sufficiently insured with respect to all future
claims.

                                       11

<PAGE>

                                    MARKETING

Insurance and Bonding

As an excess and surplus lines carrier, United Coastal Insurance markets its
policies through excess and surplus lines brokers only in those states in which
it is permitted to write coverage. Currently, United Coastal Insurance is
permitted to write excess and surplus lines insurance as an approved
non-admitted insurer in forty-seven states, the District of Columbia, Puerto
Rico and the Virgin Islands.

ACSTAR Insurance offers payment and performance bonds through insurance agents
which specialize in the needs of contractors. All underwriting approvals and
issuance of policies and bonds are performed directly by the Company's insurance
subsidiaries.

The Company's insurance and bonding products are marketed in all 50 states, the
District of Columbia, Puerto Rico and the Virgin Islands.

ACMAT Contracting

The Company markets its construction contracting services directly to building
owners and building occupants. Project opportunities are brought to the
attention of the Company through various sources such as F. W. Dodge Company,
which publishes lists of projects available for bid, architects, owners, general
contractors, or engineers who are familiar with the Company. The Company also
depends upon repeat business and responses to the Company's advertising program.
ACMAT's sales force consists of its senior management and project managers, all
of whom function as construction consultants and work closely with owners,
tenants and architects.

                                   COMPETITION

Insurance and Bonding

The property and casualty insurance industry is highly competitive. The Company
competes with large national and smaller regional insurers in each state in
which it operates, as well as monoline specialty insurers. The Company's
principal competitors include certain insurance subsidiaries of American
International Group, Inc. ("AIG"), Zurich Insurance Group, Admiral Insurance
Company, CNA Insurance Companies, Gulf Insurance Company and Lloyd's of London.
Many of its competitors are larger and have greater financial resources than the
Company. Among other things, competition may take the form of lower prices,
broader coverage, greater product flexibility, higher quality services or the
insurer's rating by independent rating agencies. The Company competes with
admitted insurers, surplus line insurers, new forms of insurance organizations
such as risk retention groups, and alternative self-insurance mechanisms.

Competition in the field of surety bonding is intense and many of the Company's
competitors are larger and have greater surplus than the Company, thereby
allowing them to provide bonds with higher limits than those which the Company
is able to provide. The Company's principal competitors include the St. Paul
Companies, Inc., Gulf Insurance Company and CNA. The Company's insurance
subsidiaries hold primary and reinsurance certificates of authority as
acceptable sureties on Federal bonds as do approximately 250 to 300 other surety
companies. The certificates give the Company an advantage over companies which
are not certified by the United States Treasury Department with respect to
surety bonding on Federal projects in that such certification has become a
standard with respect to both Federal and other bonds. Approximately one-half of
the surety bonds written by the Company's subsidiaries are required to be
provided by a Treasury listed company. With respect to other bonds, the Company
faces competition from as many as 1,000 additional non-certified surety
companies.

ACMAT Contracting

Competition in the interior construction business serviced by ACMAT generally is
intense. A majority of the Company's construction business is performed on
projects on which the Company had been in competition with other contractors.
The Company also focuses efforts on privately negotiated contracts obtained
through advertising and its reputation. Quality of service and pricing are the
Company's principal methods of competition.

The economic climate of the Northeast has increased the competitive pressure on
all aspects of the Company's contracting operations. The Company has responded
with marketing efforts seeking to obtain business when the Company's reputation
and experience allow it to privately negotiate contracts at prices which are
sufficiently profitable.

                                       12

<PAGE>

                                   REGULATION

The business of ACMAT's insurance subsidiaries is subject to comprehensive and
detailed regulation and supervision throughout the United States. The laws of
the various jurisdictions establish supervisory agencies with broad
administrative authority which includes, but is not limited to, the power to
regulate licenses, to transact business, trade practices, agent licensing,
policy forms, claim practices, underwriting practices, reserve requirements, the
form and content of required financial statements and the type and amounts of
investments permitted. The insurance companies are required to file detailed
annual reports with supervisory agencies in each of the jurisdictions in which
they do business, and their operations and accounts are subject to examination
by such agencies at regular intervals.

As an approved non-admitted excess and surplus lines insurer, United Coastal
Insurance is not subject to the comparatively more extensive state regulations
to which ACSTAR Insurance is subject. The regulations and restrictions to which
ACSTAR Insurance and United Coastal Insurance are subject include provisions
intended to assure the solvency of ACSTAR Insurance and United Coastal Insurance
and are primarily for the protection of policyholders and loss claimants rather
than for the benefit of investors.

State insurance regulations impose certain restrictions upon the types of
investments that the Company's insurance subsidiaries can acquire and the
percentage of their capital or assets that may be placed in any particular
investment or type of investment. Certain states also require insurance
companies to furnish evidence of financial security by means of a deposit of
marketable securities with the state insurance regulatory authority. On December
31, 2003, the Company's insurance subsidiaries had securities with an aggregate
fair value of approximately $10.5 million on deposit with various state
regulatory authorities.

The insurance subsidiaries of ACMAT are restricted as to the amount of cash
dividends they may pay. During 2003, United Coastal Insurance paid $1,500,000 in
dividends which was below the level that requires prior approval by the Arizona
Insurance Department. At January 1, 2004, approximately $1,272,000 is available
for the payment of dividends by United Coastal Insurance in 2004 without the
prior approval of the Arizona Insurance Department.

Under applicable insurance regulations in its domicile state of Illinois, ACSTAR
Insurance is also restricted as to the amount of dividends it may pay. ACSTAR
may pay or declare a dividend only up to the amount of any available surplus
funds derived from realized net profits on its business, as determined in
accordance with statutory accounting principles. During 2003, ACSTAR paid
$2,000,000 in dividends to ACSTAR Holdings which is below the level that
requires prior approval by the Illinois Insurance Department. At January 1,
2004, approximately $2,643,000 is available for the payment of dividends by
ACSTAR Insurance in 2004 without the prior approval of the Illinois Insurance
Department.

                                   INVESTMENTS

The Company's investment strategy is to maintain an investment policy focusing
on acquiring high quality securities, primarily bonds, with fixed effective
maturities of less than ten years. The investment portfolio is diversified and
is in compliance with regulatory requirements. The Company's bond portfolio is
composed primarily of investments rated AA or better by Standard and Poor's.

The Company's investment portfolio is subject to several risks including
interest rate and reinvestment risk. Fixed maturity security values generally
fluctuate inversely with movements in interest rates. The Company's corporate
and municipal bond investments may contain call and sinking fund features which
may result in early redemptions and the Company's mortgage-backed securities
investments held by the Company are subject to prepayment risk. Declines in
interest rates could cause early redemptions or prepayments which would require
the Company to reinvest at lower rates.

Investment securities are classified as held to maturity, available for sale or
trading. The Company currently classifies all investment securities as available
for sale. Investment securities available for sale are carried at fair value and
unrealized gains and losses are included in other comprehensive income, net of
estimated income taxes.

                                       13

<PAGE>

The Company historically invested in tax-exempt securities as part of its
strategy to maximize after-tax income. As a result of the alternative minimum
tax carryforward of approximately $2.1 million at December 31, 2003, the Company
has minimized its investment in tax-exempt securities and will continue this
trend for the foreseeable future. The following table summarizes the fair value
investments portfolio at December 31, 2003 and 2002 (dollars in thousands):

<TABLE>
<CAPTION>
                                                                                   December 31,
                                                                                   ------------
                                                                  2003                                      2002
                                                      ---------------------------                ---------------------------
                                                                          Percent                                    Percent
                                                                             Of                                         Of
                                                       Amount              Total                  Amount              Total
                                                       ------              -----                  ------              -----
<S>                                                   <C>                 <C>                    <C>                 <C>
Fixed maturities available for sale (1):
   U.S. government and government
      Agencies and authorities                        $16,146               25.0%                $14,554               20.8%
   State and political subdivisions                       547                 .8                   7,383               10.6
   Industrial and Miscellaneous                         7,712               11.9                   2,833                4.1
   Mortgage-backed securities                          28,950               44.8                  36,149               51.8
                                                      -------              -----                 -------              -----
Total fixed maturities available for sale              53,355               82.5                  60,919               87.3
Equity securities(2)                                   10,542               16.3                   6,697                9.6
Short-term investments (3)                                761                1.2                   2,133                3.1
                                                      -------              -----                 -------              -----
Total investments                                     $64,658              100.0%                $69,749              100.0%
                                                      =======              =====                 =======              =====
</TABLE>

         (1)      Fixed maturities available for sale are carried at fair value.
                  Total cost of fixed maturities was $53,057,097 at December 31,
                  2003 and $59,872,707 at December 31, 2002.

         (2)      Equity securities are carried at fair value. Total cost of
                  equity securities was approximately $10,240,559 at December
                  31, 2003 and $6,700,559 at December 31, 2002.

         (3)      Short-term investments, consisting primarily of money market
                  instruments maturing within one year are carried at cost
                  which, along with accrued interest, approximates fair value.

The following table sets forth our combined fair value of fixed maturity
investment portfolio classified by maturity distribution at December 31, 2003
(dollars in thousands):

<TABLE>
<CAPTION>
                                                                                   December 31, 2003
                                                                                   -----------------
                                                                                                  Percent
                                                                                                     Of
                                                                                Amount             Total
                                                                                ------             -----
<S>                                                                            <C>                <C>
Due in (1):
One year or less                                                               $ 4,754               8.9%
After one year through five years                                               12,301              23.1
After five years through ten years                                               3,493               6.5
After ten years                                                                  3,857               7.2
Mortgage-backed securities                                                      28,950              54.3
                                                                               -------             -----
                                                                               $53,355             100.0%
                                                                               =======             =====
</TABLE>

                  (1) Based on effective maturity dates. Actual maturities may
                  differ because borrowers may have the right to call or prepay
                  obligations with or without call or prepayment penalties.

                                       14

<PAGE>

The Company's insurance subsidiaries are subject to state laws and regulations
that require diversification of its investment portfolio and limit the amount of
investments in certain investment categories. Failure to comply with these laws
and regulations would cause non-conforming investments to be treated as
non-admitted assets for purposes of measuring statutory surplus and, in some
instances, would require divestiture. As of December 31, 2003, the Company's
investments complied with such laws and regulations.

Investment results for the years ended December 31, 2003, 2002 and 2001 are
shown in the following table (dollars in thousands):

<TABLE>
<CAPTION>
                                                 2003                  2002                   2001
                                                 ----                  ----                   ----
<S>                                            <C>                   <C>                    <C>
Invested assets (1)                            $ 95,522              $ 84,358               $ 83,403
Investment income (2)                          $  2,669              $  3,554               $  4,032

Average yield                                      2.79%                 4.21%                  4.83%
</TABLE>

         (1)      Average of the aggregate invested amounts at the beginning of
                  the period and at end of each quarter including cash and cash
                  equivalents.

         (2)      Investment income is net of investment expenses and does not
                  include realized investment gains or losses or provision for
                  income taxes.

In 2003, the interest rate environment decreased led by reduction in U.S.
Treasury rates, reflected in the marginal drop in yield. Invested assets are
attributable to the net cash flow generated by written premiums, cash collateral
and the reinvestment of investment income offset in part by cash used to repay
debt, repurchase stock and pay claims.

Derivatives

The Company uses interest rate swaps as a means of hedging exposure to interest
rate risk on its long-term debt. To qualify as a hedge, the hedge relationship
must be designated and documented at inception and be highly effective in
accomplishing the objective of offsetting the changes in cash flows for the risk
being hedged. To the extent these derivatives are effective in offsetting the
variability of the hedged cash flows, changes in the derivatives' fair value are
not be included in current earnings but are reported in accumulated other
comprehensive income ("AOCI").

During the year ended December 31, 2004, the amount of losses the Company
expects to reclassify from AOCI into interest expense for its cash flow hedges
is not significant. To the extent these hedges are not effective, changes in
their fair value would be immediately included in earnings.

General Business Factors

During 2003, 2002 and 2001, customers who individually accounted for more than
10% of consolidated construction contracting revenue are as follows; in 2003 -
five customers provided 21%, 19%, 15%, 13% and 12% respectively; in 2002 - four
customers provided 31%, 26%, 19% and 18%, respectively; in 2001 - three
customers provided 33%, 27%, and 20%, respectively. One customer accounted for
more than 10% of the United Coastal insurance revenues in 2001. However, in the
opinion of the Company's management, no material part of the business of the
Company and its subsidiaries is dependent upon a single customer or group of
customers, the loss of any one of which would have a materially adverse effect
on the Company.

                                       15

<PAGE>

                            ENVIRONMENTAL COMPLIANCE

The Company does not expect that its compliance with federal, state or local
environmental laws or regulations will have any material effect upon its capital
expenditures, earnings or competitive position.

                                    EMPLOYEES

As of December 31, 2003, the Company employed approximately 25 persons, all in
the United States. None of its current employees are employed subject to
collective bargaining agreements. The Company believes that its relations with
all of its employees are excellent.

ITEM 2. PROPERTIES

The Company and its subsidiaries occupy a 7 story office building located at 233
Main Street, in New Britain, Connecticut. ACMAT leases approximately 45% of the
building to unaffiliated tenants. The office building is suitable and adequate
for ACMAT's current and future requirements.

ITEM 3. LEGAL PROCEEDINGS

The Company is a party to legal actions arising in the ordinary course of its
business. In management's opinion, the Company has adequate legal defenses
respecting those actions where the Company is a defendant, has appropriate
insurance reserves recorded, and does not believe that their settlement will
materially affect the Company's operations or financial position.

The Company has, together with many other defendants, been named as a defendant
in actions brought by injured or deceased individuals or their representatives
based on product liability claims relating to materials containing asbestos. No
specific claims for monetary damages are asserted in these actions. Although it
is early in the litigation process, the Company does not believe that its
exposure in connection with these cases is significant.

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

No matters were submitted to a vote of security holders during the fourth
quarter of 2003.

                                       16

<PAGE>

                                     PART II

ITEM 5. MARKET FOR THE REGISTRANT'S COMMON STOCK AND RELATED STOCKHOLDER MATTERS

ACMAT's Class A Stock trades on the Nasdaq Stock Market under the symbol
"ACMTA." The Common Stock trades on the over-the-counter market under the symbol
"ACMT." The following table sets forth the quarterly high and low closing prices
of the Company's Common Stock and Class A Stock as reported by Nasdaq.

<TABLE>
<CAPTION>
                                                           2003                                            2002
                                               HIGH                    LOW                     HIGH                    LOW
<S>                                           <C>                     <C>                     <C>                     <C>
COMMON STOCK
  1st Quarter                                 10.55                   10.30                   19.00                   19.00
  2nd Quarter                                 10.38                    9.50                   19.00                   13.00
  3rd Quarter                                 10.65                   10.35                   14.25                   10.05
  4th Quarter                                 11.75                   10.65                   10.55                   10.05

CLASS A STOCK
  1st Quarter                                 10.31                    8.07                    9.65                    7.55
  2nd Quarter                                  9.35                    7.76                   11.99                    9.41
  3rd Quarter                                 12.78                    9.20                   10.20                    7.76
  4th Quarter                                 12.62                   11.34                   10.35                    8.24
</TABLE>

No dividends have been paid in the past five years and there is no intention of
paying dividends in the near future. As of March 1, 2004, there were 351 Common
Stock shareholders of record and 554 Class A Stock shareholders of record.

ITEM 6. SELECTED FINANCIAL DATA

<TABLE>
<CAPTION>
                                  2003                 2002                2001                 2000                  1999
                                  ----                 ----                ----                 ----                  ----
<S>                           <C>                  <C>                 <C>                  <C>                   <C>
Revenues                      $ 19,168,648         $ 31,574,097        $ 26,962,807         $ 26,341,755          $ 25,500,249
Total Assets                   132,429,857          121,964,763         109,463,456          112,216,369           125,855,611
Long-Term Debt                  19,107,293           21,511,921          24,550,361           27,696,587            30,792,720
Stockholders' Equity            42,082,178           40,853,708          37,972,175           37,483,665            36,126,992

Net Earnings                     1,613,994            3,156,893           1,706,588            2,224,317             3,013,723
Basic Earnings Per Share               .70                 1.33                 .70                  .80                  1.02
Diluted Earnings Per Share             .69                 1.32                 .68                  .78                   .99
</TABLE>

         Note: No cash dividends were paid during any of the periods above.

Item 7. Management's Discussion and Analysis of Financial Condition and Results
        of Operations:

Management's discussion and analysis (MD&A) reviews our consolidated and segment
financial condition as of December 31, 2003 and 2002, our consolidated results
of operations for the periods ended December 31, 2003, 2002 and 2001 and where
appropriate, factors that may affect our future financial performance. The MD&A
should be read in conjunction with the consolidated financial statements of the
Company and related notes included elsewhere in this Form 10K.

Forward-Looking Statement Disclosure and Certain Risks

This report contains certain forward-looking statements within the meaning of
the Private Securities Litigation Reform Act of 1995. Forward-looking statements
are statements other than historical information or statements of current
condition. Words such as "expects", "anticipates", "intends", "plans",
"believes", "seeks", or "estimates", or variations of such words, and similar
expressions are intended to identify forward-looking statements.

                                       17

<PAGE>

In light of the risks and uncertainties inherent in future projections, many of
which are beyond our control, actual results could differ materially from those
in forward-looking statements. These statements should not be regarded as a
representation that anticipated events will occur or that expected objectives
will be achieved. Risks and uncertainties include, but are not limited to, the
following:

         -        Changes in the demand for, pricing of, or supply of our
                  products;

         -        General economic conditions, including changes in interest
                  rates and the performance of financial markets;

         -        Additional statement of earnings charges if our loss reserves
                  are insufficient;

         -        The possibility that claims cost trends that we anticipate in
                  our businesses may not develop as we expect;

         -        The possibility of downgrades in our ratings significantly
                  adversely affecting us, including, but not limited to,
                  reducing the number of insurance policies we write, generally,
                  or causing clients who require an insurer with a certain
                  rating level to use higher-rated insurers;

         -        The risk that our subsidiaries may be unable to pay dividends
                  to us in sufficient amounts to enable us to meet our
                  obligations;

         -        The cyclicality of the property-liability insurance industry
                  causing fluctuations in our results.

EXECUTIVE SUMMARY:

2003 Consolidated Results of Operations:

         -        Net earnings of $1,613,994, or $.70 per share basic and $.69
                  per share diluted.

         -        Written premiums increased 75% over prior year.

         -        Favorable rate environment and improved loss trends.

         -        Decreased interest income offset by decreased interest
                  expense.

         -        Construction contract revenues down significantly, however,
                  resulting in a gross profit of 2.9%.

         -        No net life insurance proceeds in 2003 compared to $3.3
                  million in 2002.

         -        No tax benefit in 2003 compared to a benefit of $2.5 million
                  in 2002.

2003 Financial Condition:

         -        Total assets of $132.4 million, up $10.5 million from the
                  prior year.

         -        Total cash and invested assets of $102.3 million, up $13.8
                  million from the prior year.

         -        Stockholders' Equity of $42.1 million, up $1.2 million from
                  the prior year.

         -        Total debt reduced to $19.1 million from $21.5 million.

         -        Cash flow provided from operations of $17.4 million, up from
                  $11.6 million

CONSOLIDATED OVERVIEW:

<TABLE>
<CAPTION>
                                                                    2003                     2002                   2001
                                                                    ----                     ----                   ----
<S>                                                              <C>                      <C>                    <C>
Net Earnings                                                     $1,613,994               3,156,893              1,706,588
Basic Earnings Per Share                                         $      .70                    1.33                    .70
Diluted Earnings Per Share                                       $      .69                    1.32                    .68
</TABLE>

                                       18

<PAGE>

The Company's discussions related to all items, other than net earnings, are
presented on a pretax basis, unless otherwise noted.

Net earnings were $1,613,994 or $.70 per share basic and $.69 per share diluted
in 2003 compared to $3,156,893 or $1.33 per share basic and $1.32 per share
diluted in 2002. The decrease in net earnings for 2003 compared to 2002 is
primarily due to the absence of a one-time benefit from life insurance proceeds,
net of related obligations, and the related tax benefits due to the death of the
former Chairman and President of the Company in 2002. Net earnings for 2003
reflected the continuing favorable rate environment and lower unfavorable prior
year loss development. Construction contracting revenues exceeded the cost of
the construction contracts by $83,680 in 2003 compared to contract costs
exceeding contract revenues by ($2,050,208) in 2002 due to additional
remediation expenses incurred on a construction project that significantly
exceeded the original estimate. Investment income was $2,668,940 in 2003
compared to $3,553,565 in 2002 and was offset by the decrease in interest
expense of $1,059,974 in 2003 from $1,928,084 in 2002. Realized capital gains
were $361,542 in 2003 compared to $25,971 in 2002.

Net earnings were $3,156,893 or $1.33 per share basic and $1.32 per share
diluted in 2002 compared to $1,706,588 or $.70 per share basic and $.68 per
share diluted in 2001. The increase in net earnings for 2002 compared to 2001 is
primarily due to the one-time benefit from life insurance proceeds, net of
related obligations, and the related tax benefits due to the death of the former
Chairman and President of the Company in 2002. Construction contracting costs
exceeded contract revenues by ($2,050,208) in 2002 compared to contract revenues
exceeding the cost of the construction contracts by $891,821 in 2001 due to
additional remediation expenses incurred on a construction project that
significantly exceeded the original estimate in 2002. Net earnings in 2002 also
reflect an increase to loss reserves due to two large losses reported in current
year. Investment income was $3,553,565 in 2002 compared to $4,031,793 in 2001
and was offset by the decrease in interest expense of $1,928,084 in 2002 from
$2,723,052 in 2001. Realized capital gains were $25,971 in 2002 compared to
$374,301 in 2001.

Consolidated revenues were as follows:

<TABLE>
<CAPTION>
                                                       2003                        2002                     2001
                                                       ----                        ----                     ----
<S>                                               <C>                           <C>                      <C>
Contract revenues                                 $   2,982,197                 16,289,326               14,074,878
Earned premium                                       12,270,916                  7,571,725                7,581,276
Investment income                                     2,668,940                  3,553,565                4,031,793
Net realized capital gains                              361,542                     25,971                  374,301
Life insurance proceeds, net                                ---                  3,348,903                      ---
Other income                                            885,053                    784,607                  900,559
                                                  -------------                 ----------               ----------
   Consolidated revenues                          $  19,168,648                 31,574,097               26,962,807
                                                  =============                 ==========               ==========
</TABLE>

Total consolidated revenues decreased $12,405,449 or 39% in 2003 and increased
$4,611,290 or 17% in 2002.

Contract revenues decreased $13,307,129 or 82% in 2003 due primarily to the
timing of three large projects that were completed in 2002. The significant
decrease in contract revenues in 2003 reflects the impact of a significant
number of contractors competing for a limited number of projects available in
our market place. Contract revenues increased $2,214,448 or 16% in 2002 due to
the timing of three large projects in 2002. Contract revenue depends greatly on
the successful securement of contracts bid and execution. The backlog at
December 31, 2003 was $9,680,000 compared to $430,000 at December 31, 2002. The
significant increase in backlog reflects the four contracts successfully bid
during 2003.

Earned premiums increased $4,699,191 or 62% in 2003 due to a 75% increase in net
written premiums in ACSTAR Bonding primarily due to a growth in new business and
strong customer retention and a 76% increase in net written premiums in United
Coastal liability insurance business due primarily to significant rate increases
on new and renewal business and strong customer retention. Earned premium was
flat in 2002 compared to 2001 reflecting the Company's strategy to selectively
underwrite during uncertain economic times and unfavorable pricing in the
casualty insurance market.

                                       19

<PAGE>

Investment income decreased $884,625 or 25% in 2003 despite higher average
invested assets resulting from strong cash flows from operations. The decline
resulted from a reduction in investment yields to 2.79% in 2003 from 4.21% in
2002. The decrease in yield reflected the lower interest rate environment and
the short duration of the Company's portfolio partially offset by the sale of
most of the tax-exempt investments during 2003. Investment income decreased
$478,228 or 12% in 2002 despite average invested assets remaining relatively
flat. The decline resulted from a reduction in investment yields to 4.21% in
2002 from 4.83% in 2001. The decrease in yield reflected the lower interest rate
environment and the short duration of the Company's portfolio.

Net realized capital gains were $361,542 in 2003 compared to $25,971 in 2002.
During 2003, the Company sold most of its tax-exempt investments in order to
accelerate the use of an alternative minimum tax credit carryforward generated
with the recognition of net life insurance proceeds in 2002 that were exempt for
income tax purposes. Net realized gains of $374,301 were generated in 2001 as a
result of selling primarily fixed maturity investments.

Life insurance proceeds in 2002 reflect the net proceeds of several key-man life
insurance policies totaling approximately $8,800,000. In addition, the Company
incurred certain obligations, previously approved by the Board of Directors,
totaling approximately $5,500,000. These obligations for consulting fees,
widow's compensation and unused vacation pay were due only to the extent that
sufficient proceeds existed from the life insurance policies at the time of Mr.
Nozko's death.

Other income increased $100,446 in 2003 due primarily to increased fees related
to funds administration services income offset in part by a decrease in rental
income. Other income decreased $115,952 in 2002 primarily due to a decrease in
funds administration services income in 2002. Other revenues consist primarily
of rental income and funds administration fees charged to bonding customers.

Consolidated expenses were as follows:

<TABLE>
<CAPTION>
                                                    2003                         2002                        2001
                                                    ----                         ----                        ----
<S>                                            <C>                           <C>                          <C>
Cost of contract revenues                      $  2,898,517                  18,339,534                   13,183,057
Losses and loss adjustment expenses               4,993,991                   4,071,399                    1,536,022

Amortization of policy acquisition costs          2,346,902                   1,753,553                    2,049,946
General and Administrative expenses               5,341,416                   4,856,068                    4,856,785
Interest expense                                  1,059,974                   1,928,084                    2,723,052
                                               ------------                  ----------                   ----------
                                               $ 16,640,800                  30,948,638                   24,348,862
                                               ============                  ==========                   ==========
</TABLE>

Consolidated expenses decreased $14,307,838 or 46% in 2003 and increased
$6,599,776 or 27% in 2002.

Cost of contract revenues decreased $15,441,017 or 84% in 2003 primarily due to
the 82% decrease in contract revenues in 2003 due to the timing of three large
projects that were completed in 2002. The gross profit margin on construction
projects improved to 2.9% in 2003 compared to a gross loss margin of (12.6%) in
2002. The Company incurred additional remediation expenses on a construction
project in 2002 that significantly exceeded the original estimate. Cost of
contract revenues increased $5,156,477 or 39% in 2002 due primarily to the 15.7%
increase in contract revenues in 2002 due to the timing of three large projects
that were completed in 2002. The gross profit (loss) margin on construction
projects was (12.6%) in 2002 compared to a gross profit margin of 6.3% in 2001.
Gross margins fluctuate each year based upon the profitability of specific
projects.

Losses and loss adjustment expenses increased $922,592 or 23% in 2003 primarily
due to the 62% increase in earned premiums primarily offset by lower adverse
development. Losses and loss adjustment expenses increased $2,535,377 or 165% in
2002 primarily due to the strengthening of loss reserves due to adverse

                                       20

<PAGE>

development in prior accident years. The Company strengthened reserves by a net
amount of $750,000 in 2003 and $2,200,000 in 2002.

Amortization of policy acquisition costs increased $593,349 or 34% in 2003
primarily due to the increase in earned premiums offset in part by a decrease in
commissions rate. Amortization of policy acquisition costs decreased $296,393 or
14% in 2002 primarily due to the decrease in commission rates for agents and a
slight decrease in earned premiums.

General and administrative expenses increased $485,348 or 10% in 2003 primarily
due to an increase in salary expense. General and administrative expenses
remained relatively unchanged in 2002 primarily due to a decrease in
amortization of intangibles offset by an increase in bad debt expense.

Interest expense decreased $868,110 or 45% in 2003 and $794,968 or 29% in 2002
primarily due to the decrease in long-term debt and the replacement of high
interest-bearing debt with lower interest-bearing debt during the fourth quarter
of 2002.

The Company's effective tax rate was 36.2%, (404.7%) and 34.7% in 2003, 2002 and
2001, respectively. The 2003 increase in the effective tax rate reflected the
elimination of tax-exempt investments in 2003 and the one-time recognition of
net life insurance proceeds during 2002 that were exempt for income tax
purposes. The 2002 decrease in effective tax rate reflected the one-time
recognition of net life insurance proceeds of several key-man life insurance
policies as well as the effect of tax-exempt investments.

Results of Operations by Segment:

The Company has three reportable operating segments: ACSTAR Bonding, United
Coastal Liability Insurance and ACMAT Contracting. The Company's reportable
segments are primarily the three main legal entities of the Company which offer
different products and services. The accounting policies of the segments are the
same as those described in the summary of significant accounting policies. The
adjustments and eliminations required to arrive at consolidated amounts shown
above consist principally of the elimination of the intersegment revenues
related to the performance of certain services and rental charges.

Operating earnings for ACMAT contracting are operating revenues less cost of
contract revenues and identifiable general and administrative expenses.
Operating earnings for the bonding and liability insurance segments are revenues
less losses and loss adjustment expenses, amortization of policy acquisition
costs and identifiable general and administrative expenses.

<TABLE>
<CAPTION>
ACSTAR BONDING:              2003                    2002                    2001
                             ----                    ----                    ----
<S>                       <C>                     <C>                     <C>
Operating Earnings        $2,631,790              $1,217,718              $2,098,548
                          ----------              ----------              ----------
GAAP Combined Ratio             79.6%                  103.5%                   85.0%
                          ----------              ----------              ----------
</TABLE>

Operating earnings for the ACSTAR Bonding segment increased $1,414,072 or 116%
in 2003. The operating earnings in 2003 benefited from a 64% increase in earned
premiums and a 23.9 point improvement in the GAAP combined ratio in 2003.
Operating earnings decreased $880,830 or 42% in 2002. The decrease in 2002
operating earnings reflect the addition of $500,000, net of recoveries, to loss
reserves for a large loss reported in current year, flat revenue from earned
premiums and a decrease in investment income and realized capital gains.

The decrease in the 2003 GAAP combined ratio is due to the absence of large
losses reported in the 2002 loss year and improved expense management. In
addition, prior year favorable development is significantly lower due to actual
loss experience being closer to estimates. The increase in the 2002 GAAP
combined ratio results primarily from a large loss of approximately $500,000
reported in 2002.

                                       21

<PAGE>

ACSTAR Bonding revenues were as follows:

<TABLE>
<CAPTION>
                                        2003                   2002                  2001
                                        ----                   ----                  ----
<S>                                 <C>                     <C>                   <C>
Earned premium                      $ 6,578,324             4,001,183             3,808,737
Investment income                     1,177,091             1,451,169             1,560,080
Net realized capital gains              272,565                 5,737               191,670
Other income (expense)                 (160,636)              (97,218)              (72,804)
                                    -----------             ---------             ---------
                                    $ 7,867,344             5,360,871             5,487,683
                                    ===========             =========             =========
</TABLE>

Revenues increased $2,506,473 or 47% in 2003 and decreased $126,812 or 2% in
2002.

Earned premiums increased $2,577,141 or 64% in 2003 due to a 75% increase in net
written premiums primarily due to a growth in new business and strong customer
retention. Earned premiums increased $192,446 or 5% in 2002 due to a 24%
increase in written premiums reflecting the impact of a favorable insurance rate
market. Beginning in 2002, ACSTAR has experienced a significant increase in
business opportunities that meet ACSTAR's underwriting standards.

Investment income decreased $274,078 or 19% in 2003 despite higher average
invested assets resulting from strong cash flows from operations. The decline
resulted from a reduction in investment yields to 2.2% in 2003 from 3.3% in
2002. The decrease in yield reflected the lower interest rate environment and
the short duration of the Company's portfolio partially offset by the sale of
most of the tax-exempt investments during 2003. Investment income decreased
$108,911 or 7% in 2002 despite average invested assets remaining relatively
flat. The decline resulted from a reduction in investment yields to 3.3% in 2002
from 4.0% in 2001. The decrease in yield reflected the lower interest rate
environment and the short duration of the Company's portfolio.

Net realized capital gains were $272,565 in 2003 compared to $5,737 in 2002.
During 2003, the Company sold most of its tax-exempt investments in order to
accelerate the use of an alternative minimum tax credit carryforward generated
with the recognition of net life insurance proceeds by the parent company in
2002 that were exempt for income tax purposes. Net realized gains of $191,670
were generated in 2001 as a result of selling primarily fixed maturity
investments.

Other income (expense) relates primarily to fees related to funds administration
services. Funds administration fees charged to bonding customers for
administering payments to subcontractors and venders fluctuates depending on the
terms and conditions offered and accepted for the bonding programs each year.

ACSTAR Bonding expenses were as follows:

<TABLE>
<CAPTION>
                                                               2003                     2002                   2001
                                                               ----                     ----                   ----
<S>                                                        <C>                       <C>                    <C>
Losses and loss adjustment expenses                        $ 1,966,955               1,300,237                404,260
Amortization of policy acquisition costs                     2,136,115               1,564,398              1,601,377
General and administrative expenses                          1,132,484               1,278,518              1,383,498
                                                           -----------               ---------              ---------
                                                           $ 5,235,554               4,143,153              3,389,135
                                                           ===========               =========              =========
</TABLE>

Expenses increased $1,092,401 or 26% in 2003 and $754,018 or 22% in 2002.

Losses and loss adjustment expenses increased $666,718 or 51% in 2003 primarily
due to the 64% increase in earned premiums offset in part by a 23.9 point
decrease in the GAAP combined ratio for 2003. The improvement in the GAAP
combined ratio for 2003 is the result of improved loss experience and an
increase in earned premium. Losses and loss adjustment expenses increased
$895,977 or 222% in 2002 primarily due to the strengthening of loss reserves due
to adverse development in prior years. During 2002, the Company increased
reserves by $500,000, net of recoveries, due to a large loss reported in current
year.

Amortization of policy acquisition costs increased $571,717 or 37% in 2003
primarily due to the increase in earned premiums offset in part by a decrease in
commissions paid. Amortization of policy acquisition costs decreased $36,979 or
2% in 2002 primarily attributable to a decrease in the average commissions paid
to agents offset in part by the increase in 2002 earned premiums.

                                       22

<PAGE>

General and administrative expenses decreased $146,034 or 11% in 2003 primarily
due to a decrease in rental expense and depreciation expense. General and
administrative expenses decreased by $104,980 or 8% in 2002 due primarily to no
further amortization expense related to intangibles and a one-time rent recovery
from an affiliate.

UNITED COASTAL LIABILITY INSURANCE:

<TABLE>
<CAPTION>
                                                   2003                    2002                      2001
                                                   ----                    ----                      ----
<S>                                             <C>                     <C>                       <C>
Operating Earnings                              $1,414,416              $  677,349                $2,810,000
                                                ----------              ----------                ----------
GAAP Combined Ratio                                  100.3%                  133.9%                     94.2%
                                                ----------              ----------                ----------
</TABLE>

Operating earnings for the United Coastal Liability Insurance segment increased
$737,067 or 109% in 2003. The operating earnings in 2003 benefited from a 59%
increase in earned premiums and a 33.6 point improvement in the GAAP combined
ratio in 2003. Operating earnings decreased $2,132,651 or 76% in 2002. The
decrease in 2002 operating earnings is attributable to a large loss of
approximately $1,700,000 reported in 2002, decreased premiums and investment
income.

The decrease in the 2003 GAAP combined ratio is due to the absence of large
losses reported in the 2002 loss year and improved expense management. In
addition, prior year favorable development is significantly lower due to actual
loss experience being closer to estimates. The increase in the 2002 GAAP
combined ratio results primarily from a large loss of approximately $1,700,000
reported in 2002.

United Coastal Liability Insurance revenues were as follows:

<TABLE>
<CAPTION>
                                                    2003                         2002                        2001
                                                    ----                         ----                        ----
<S>                                              <C>                          <C>                         <C>
Earned premium                                   $5,692,592                   3,570,542                   3,772,539
Investment income                                 1,271,612                   1,845,179                   2,385,377
Net realized capital gains                           88,977                      20,234                     182,631
Other income                                         68,454                      22,418                      22,845
                                                 ----------                   ---------                   ---------
   Consolidated revenues                         $7,121,635                   5,458,373                   6,363,392
                                                 ==========                   =========                   =========
</TABLE>

Revenues increased $1,663,262 or 30% in 2003 and decreased $905,019 or 14% in
2002.

Earned premiums increased $2,122,050 or 59% in 2003 due to a 76% increase in net
written premiums primarily due to significant rate increases on new and renewal
business and strong customer retention. Earned premiums decreased $201,997 or 5%
in 2002 despite a 17% increase in written premiums reflecting the impact and
timing of a favorable insurance rate market.

Investment income decreased $573,567 or 31% in 2003 despite higher average
invested assets resulting from strong cash flows from operations. The decline
resulted from a reduction in investment yields to 3.6% in 2003 from 4.8% in
2002. The decrease in yield reflected the lower interest rate environment and
the short duration of the Company's portfolio partially offset by the sale of
most of the tax-exempt investments during 2003. Investment income decreased
$540,198 or 23% in 2002 despite average invested assets remaining relatively
flat. The decline resulted from a reduction in investment yields to 4.8% in 2002
from 5.4% in 2001. The decrease in yield reflected the lower interest rate
environment and the short duration of the Company's portfolio.

Net realized capital gains were $88,977 in 2003 compared to $20,234 in 2002.
During 2003, the Company sold most of its tax-exempt investments in order to
accelerate the use of an alternative minimum tax credit carryforward generated
with the recognition of net life insurance proceeds by the parent company in
2002 that were exempt for income tax purposes. Net realized gains of $182,631
were generated in 2001 as a result of selling primarily fixed maturity
investments.

                                       23

<PAGE>

United Coastal Liability Insurance expenses were as follows:

<TABLE>
<CAPTION>
                                                            2003                       2002                     2001
                                                            ----                       ----                     ----
<S>                                                      <C>                        <C>                      <C>
Losses and loss adjustment expenses                      $ 3,027,036                2,771,162                1,131,762
Amortization of policy acquisition costs                   1,555,151                  951,023                1,286,409
General and administrative expenses                        1,125,032                1,058,839                1,135,221
                                                         -----------                ---------                ---------
                                                         $ 5,707,219                4,781,024                3,553,392
</TABLE>

Expenses increased $926,195 or 19% in 2003 and $1,227,632 or 35% in 2002.

Losses and loss adjustment expenses increased $255,874 or 9% in 2003 primarily
due to the 59% increase in earned premiums offset in part by a 33.6 point
decrease in the GAAP combined ratio for 2003. Losses and loss adjustment
expenses increased $1,639,400 or 145% in 2002 primarily due to the strengthening
of loss reserves due to adverse development in prior years. During 2002, the
Company increased reserves by $1,700,000 due to a large loss reported in current
year.

Amortization of policy acquisition costs increased $604,128 or 64% in 2003
primarily due to the 59% increase in earned premiums. Amortization of policy
acquisition costs decreased $335,386 or 26% in 2002 primarily attributable to a
decrease in earned premiums and the significant reduction in ceded premiums.

General and administrative expenses increased $66,193 or 6% in 2003 primarily
due to an increase in bad debt expense and salary expense offset in part by a
decrease in rental expense. General and administrative expenses decreased by
$76,382 or 7% in 2002 due primarily to a reduction in rent expense from a
one-time rent recovery from an affiliate.

<TABLE>
<CAPTION>
ACMAT CONTRACTING:                                        2003                    2002                     2001
                                                          ----                    ----                     ----
<S>                                                    <C>                     <C>                     <C>
Operating Earnings (Loss)                              $( 458,384)             $(2,690,427)            $    912,376
                                                       ----------              -----------             ------------
</TABLE>

Operating earnings for the ACMAT Contracting segment improved $2,232,043 or 83%
in 2003. The gross profit margin on construction projects improved to 2.8% in
2003 compared to a gross loss margin of (12.6%) in 2002. The Company incurred
additional remediation expenses on a construction project in 2002 that
significantly exceeded the original estimate. However, the gross profit margin
of 2.8% in 2003 was not sufficient to cover the fixed costs in ACMAT Contracting
resulting in an operating loss of $458,384. The Company expects future gross
margins to be sufficient to cover fixed costs in 2004. The gross profit (loss)
margin on construction projects was (12.6%) in 2002 compared to a gross profit
margin of 6.2% in 2001. Gross margins fluctuate each year based upon the
profitability of specific projects.

ACMAT Contracting revenues were as follows:

<TABLE>
<CAPTION>
                                                   2003                            2002                          2001
                                                   ----                            ----                          ----
<S>                                             <C>                             <C>                            <C>
Contract revenues                               $2,982,197                      16,289,326                     14,074,878
Investment income, net                              10,388                          91,811                         44,707
Inter-segment revenue:
   Rental income                                   768,146                       1,286,000                      1,277,794
   Underwriting services and                     1,905,811                       1,131,857                      1,192,472
      agency commissions
Other income                                       977,234                         859,407                        950,518
                                                ----------                      ----------                     ----------
                                                $6,643,777                      19,658,401                     17,540,369
                                                ==========                      ==========                     ==========
</TABLE>

Contract revenues decreased $13,307,129 or 82% in 2003 due primarily to the
timing of three large projects that were completed in 2002. The significant
decrease in contract revenues in 2003 reflects the affect of a significant
number of contractors competing for a limited number of projects available in
our market place. Contract revenues increased $2,214,448 or 16% in 2002 due to
the timing of three large projects in 2002. Contract revenue depends greatly on
the successful securement of contracts bid and execution. The backlog at
December 31, 2003 was $9,680,000 compared to $430,000 at December 31, 2002. The
significant increase in backlog reflects four contracts successfully bid during
2003.

Inter-segment revenues consists primarily of rental income and underwriting
services fees and agency commissions. Rental income decreased $517,854 or 40% in
2003 as a result of a reduction in rent charged to ACSTAR and United Coastal
effective January 1, 2003. Rental income increased $8,206 or 1% in 2002
primarily due to a slight increase in operating expense increases related to the
rental property.

                                       24

<PAGE>

Underwriting services fees and agency commissions increased $773,954 or 68% in
2003 due primarily to a 76% increase in net written premiums. Underwriting
services fees and agency commissions decreased $60,615 or 5% in 2002 due
primarily to the timing of premiums written.

Other income consists primarily of rental income and varies depending on the
timing of tenants and their leases. Other income increased $117,827 or 14% in
2003 and decreased $91,111 or 10% in 2002.

ACMAT Contracting expenses were as follows:

<TABLE>
<CAPTION>
                                                         2003                      2002                    2001
                                                         -----                     -----                   ----
<S>                                                   <C>                       <C>                     <C>
Cost of contract revenues                             $2,898,517                18,339,534              13,183,057
General and administrative expenses                    4,203,644                 4,009,294               3,444,936
                                                      ----------                ----------              ----------
                                                      $7,102,161                22,348,828              16,627,993
                                                      ==========                ==========              ==========
</TABLE>

Expenses decreased $15,246,667 or 68% in 2003 and $5,720,835 or 34% in 2002.

Cost of contract revenues decreased $15,441,017 or 84% in 2003 primarily due to
the 82% decrease in contract revenues in 2003 due to the timing of three large
projects that were completed in 2002. The gross profit margin on construction
projects improved to 2.9% in 2003 compared to a gross loss margin of (12.6%) in
2002. The Company incurred additional remediation expenses on a construction
project in 2002 that significantly exceeded the original estimate. Cost of
contract revenues increased $5,156,477 or 39% in 2002 due primarily to the 39%
increase in contract revenues in 2002 due to the timing of three large projects
that were completed in 2002. The gross profit (loss) margin on construction
projects was (12.6%) in 2002 compared to a gross profit margin of 6.3% in 2001.
Gross margins fluctuate each year based upon the profitability of specific
projects.

General and administrative expenses increased $194,350 or 5% in 2003 primarily
due to an increase in salary expense offset in part by a decrease in bad debt
expense, rental expense and amortization of intangibles. General and
administrative expenses increased by $564,358 or 16% in 2002 due primarily an
increase in bad debt expense and a one-time return of rental income to
affiliates collected on their behalf offset in part by a decrease in salary
expense in 2002.

CRITICAL ACCOUNTING ESTIMATES

The Company considers its most significant accounting estimates to be those
applied to reserves for losses and loss adjustment expenses and revenue
recognition on construction projects using the percentage of completion method.

Reserves for losses and loss adjustment expenses were $20,848,566 at December
31, 2003. The Company maintains reserves to cover estimated ultimate unpaid
liability for losses and loss adjustment expenses with respect to both reported
and incurred but not reported claims for insured risks incurred as of the end of
each accounting period. The amount of loss reserves for reported claims is
primarily based upon a case-by-case evaluation of the type of risk involved,
knowledge of the circumstances surrounding each claim and the policy provisions
relating to the type of claim. As part of the reserving process, historical data
is reviewed and consideration is given to the anticipated impact of various
factors such as legal developments and economic conditions, including the
effects of inflation. Reserves are monitored and evaluated periodically using
current information on reported claims. This is a critical accounting policy for
the insurance operations.

Management believes that the reserves for losses and loss adjustment expenses at
December 31, 2003 are adequate to cover the unpaid portion of the ultimate net
cost of losses and loss adjustment expenses, including losses incurred but not
reported. Reserves for losses and loss adjustment expenses are estimates at any
given point in time of what the Company may have to pay ultimately on incurred
losses, including related settlement costs based on facts and circumstances then
known. The Company also reviews its claims reporting patterns, past loss
experience, risk factors and current trends and considers their effect in the
determination of estimates of incurred but not reported reserves. Ultimate
losses and loss adjustment expenses are affected by many factors which are
difficult to predict, such as claim severity and frequency, inflation levels and
unexpected and unfavorable judicial rulings. Reserves for surety claims also
consider the amount of collateral held as well as the financial strength of the
principal and its indemnitors.

Revenue on construction contracts is recorded using the percentage of completion
method. Under this method revenues with respect to individual contracts are
recognized in the proportion that costs incurred to date relate to total
estimated costs. Revenues and cost estimates are subject to revision during the
terms of the contracts, and any required adjustments are made in the periods in
which the revisions become known. Provisions are made, where applicable, for the
entire amount of anticipated future losses on contracts in progress.
Construction claims are recorded as revenue at the time of settlement and profit
incentives and change orders are included in revenues when their realization is
reasonably assured. Selling, general and administrative expenses are not
allocated to contracts. This is a critical accounting policy for the ACMAT
construction segment.

                                       25

<PAGE>

LIQUIDITY AND CAPITAL RESOURCES:

The Company internally generates sufficient funds for its current operations and
maintains a relatively high degree of liquidity in its investment portfolio. The
primary sources of funds to meet the demands of claim settlements and operating
expenses are premium collections, investment earnings and maturing investments.
The Company has no material commitments for capital expenditures and, in the
opinion of management, has adequate sources of liquidity to fund its operations
over the next 12 months.

ACMAT, exclusive of its subsidiaries, has incurred negative cash flows from
operating activities primarily because of interest expense related to notes
payable and long-term debt incurred by ACMAT to acquire and capitalize its
insurance subsidiaries and to repurchase Company stock.

ACMAT's principal sources of funds are dividends from its wholly owned
subsidiaries, intercompany and short-term borrowings, insurance underwriting
fees from its subsidiaries, construction contracting operations and rental
income. Management believes that these sources of funds are adequate to serve
its indebtedness. ACMAT has relied on dividends from its insurance subsidiaries
to repay debt.

The Company realized cash flow from operations in the amount of $17,393,270 in
2003, $11,615,814 in 2002 and $1,465,272 in 2001. The cash flow from operations
is due primarily to the increase of cash collateral. Substantially all of the
Company's cash flow is used to repay long-term debt, repurchase stock and
purchase investments. Purchases of investments are made based upon excess cash
available after the payment of losses and loss adjustment expenses and other
operating and non-operating expenses. The Company's short term investment
strategy coincides with the relatively short maturity of its liabilities which
are comprised primarily of reserves for losses covered by claims-made insurance
policies, reserves related to surety bonds and collateral held for surety
obligations.

Net cash provided by investing activities was $4,140,298 in 2003 compared to net
cash used for investing activities of $1,918,242 in 2002 and to net cash
provided by investing activities was $8,821,721 in 2001.

The terms of the Company's note agreements contain limitations on payment of
cash dividends, re-acquisition of shares, borrowings and investments and require
maintenance of specified ratios and minimum net worth levels, including cross
default provisions. The Company was in compliance with all of these covenants at
December 31, 2003.

The Company maintains a short-term unsecured bank credit line of $10 million to
fund interim cash requirements. There were no borrowings outstanding under this
line of credit as of December 31, 2003.

During 2003, the Company purchased, in the open market and privately negotiated
transactions, 13,700 shares of its Class A Stock at an average price of $8.89.
During 2003, the Company also purchased 4,000 shares of its Common Stock at an
average price of $10.93.

The Company's principal source of cash for repayment of long-term debt is
dividends from its two insurance companies. During 2003, ACMAT received
$2,990,000 as dividends from its subsidiaries. Under applicable insurance
regulations, ACMAT's insurance subsidiaries are restricted as to the amount of
dividends they may pay to their respective holding companies, without the prior
approval of their domestic state insurance department. For 2004, the amount of
dividends ACMAT's insurance subsidiaries may pay, without prior approval of
their domestic state insurance departments, is limited to approximately
$3,920,000.

In 2004, the Company anticipates that internally generated funds will be
utilized for repayment of long-term debt. Principal repayments on long-term debt
is scheduled to be $2,708,396 in 2004.

REGULATORY ENVIRONMENT:

Risk-based capital requirements are used as early warning tools by the National
Association of Insurance Commissioners and the states to identify companies that
require further regulatory action. The ratio for each of the Company's insurance
subsidiaries as of December 31, 2003 was above the level which might require
regulatory action.

                                       26

<PAGE>

CONTRACTUAL CASH OBLIGATIONS AND COMMITMENTS:

Contractual obligations at December 31, 2003 include the following:

<TABLE>
<CAPTION>
                                                                         Payment due by Period
                                     -------------------------------------------------------------------------------------------
                                                           Less than             1 to 3               4 to 5            After 5
                                        Total                1 Year              Years                Years              Years
                                        -----                ------              -----                -----              -----
<S>                                  <C>                   <C>                 <C>                  <C>                <C>
Long-Term Debt (principal)           $19,107,293           2,708,396           5,091,305            5,359,166          5,948,426
</TABLE>

The Company also has cash collateral of $41,718,225 at December 31, 2003 which
it would be required to return at the end of expiration of applicable bond
period subject to any claims.

ITEM 7A. QUANTATATIVE AND QUALITATIVE DISCUSSIONS ABOUT MARKET RISK:

MARKET RISK

Market risk is the risk of loss arising from adverse changes in market rates and
prices, such as interest rates, foreign currency exchange rates, and other
relevant market rate or price changes. Market risk is directly influenced by the
volatility and liquidity in the markets in which the related underlying assets
are traded. The following is a discussion of the Company's primary market risk
exposures and how those exposures are currently managed as of December 31, 2003.
The Company's market risk sensitive instruments are entered into for purposes
other than trading.

The carrying value of the Company's investment portfolio as of December 31, 2003
was $64,657,599, 83% of which is invested in fixed maturity securities. The
primary market risk to the investment portfolio is interest rate risk associated
with investments in fixed maturity securities. The Company's exposure to equity
price risk and foreign exchange risk is not significant. The Company has no
direct commodity risk.

For the Company's investment portfolio, there were no significant changes in the
Company's primary market risk exposures or in how those exposures are managed
compared to the year December 31, 2003. The Company does not anticipate
significant changes in the Company's primary market risk exposures or in how
those exposures are managed in future reporting periods based upon what is known
or expected to be in effect in future reporting periods.

The primary market risk for all of the Company's long-term debt is interest rate
risk at the time of refinancing. As the majority of the Company's debt is fixed
rate debt, the Company's exposure to interest rate risk on its long-term debt is
not significant. The Company continually monitors the interest rate environment
and evaluates refinancing opportunities as the maturity dates approach. In
addition, the Company uses interest rate swaps as a means of hedging exposure
to interest rate risk on its long-term debt. The Company does not hold or issue
derivative instruments for trading purposes.

                                       27

<PAGE>

SENSITIVITY ANALYSIS

Sensitivity analysis is defined as the measurement of potential loss in future
earnings, fair values or cash flows of market sensitive instruments resulting
from one or more selected hypothetical changes in interest rates and other
market rates or prices over a selected time. In the Company's sensitivity
analysis model, a hypothetical change in market rates is selected that is
expected to reflect reasonably possible near-term changes in those rates. The
term "near term" means a period of time going forward up to one year from the
date of the consolidated financial statements. Actual results may differ from
the hypothetical change in market rates assumed in this disclosure, especially
since this sensitivity analysis does not reflect the results of any action that
would be taken by us to mitigate such hypothetical losses in fair value.

In this sensitivity analysis model, the Company uses fair values to measure its
potential loss. The sensitivity analysis model includes the following financial
instruments: fixed maturities, interest-bearing non-redeemable preferred stocks,
short-term securities, cash, investment income accrued, and long-term debt. The
primary market risk to the Company's market sensitive instruments is interest
rate risk. The sensitivity analysis model uses a 100 basis point change in
interest rates to measure the hypothetical change in fair value of financial
instruments included in the model.

For invested assets, duration modeling is used to calculate changes in fair
values. Durations on invested assets are adjusted for call, put and interest
rate reset features. Duration on tax exempt securities is adjusted for the fact
that the yield on such securities is less sensitive to changes in interest rates
compared to Treasury securities. Invested asset portfolio durations are
calculated on a market value weighted basis, including accrued investment
income, using holdings as of December 31, 2003.

The sensitivity analysis model used by the Company produces a loss in fair value
of market sensitive instruments of $2.1 million based on a 100 basis point
increase in interest rates as of December 31, 2003, which is not considered
material. This loss value only reflects the impact of an interest rate increase
on the fair value of the Company's financial instruments, which constitute
approximately 49% of total assets. As a result, the loss value excludes a
significant portion of the Company's consolidated balance sheet which would
partially mitigate the impact of the loss in fair value associated with a 100
basis point increase in interest rates.

For example, certain non-financial instruments, primarily insurance accounts for
which the fixed maturity portfolio's primary purpose is to fund future claims
payments related thereto, are not reflected in the development of the above loss
value. These non-financial instruments include premium balances receivable,
reinsurance recoverables, claims and claim adjustment expense reserves and
unearned premium reserves. Forward-looking information contained in this report
is subject to risk and uncertainty.

                                       28

<PAGE>

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

Index to Consolidated Financial Statements and Schedules

ACMAT Corporation and Subsidiaries:

The following Consolidated Financial Statements of the Company, related notes
and Independent Auditors' Report are included herein:

         Independent Auditors' Report

         Consolidated Statements of Earnings for the years ended December 31,
         2003, 2002 and 2001

         Consolidated Balance Sheets as of December 31, 2003 and 2002

         Consolidated Statements of Stockholders' Equity for the years ended
         December 31, 2003, 2002 and 2001

         Consolidated Statements of Cash Flows for the years ended December 31,
         2003, 2002 and 2001

         Notes to Consolidated Financial Statements - December 31, 2003, 2002
         and 2001

         Consolidated Schedules included in Part II of this Report - Years ended
         December 31, 2003, 2002 and 2001

                  I - Condensed Financial Information of Registrant (Parent
                      Company Only)

                  II - Valuation and Qualifying Accounts and Reserves

                  V - Supplemental Information Concerning Property-Casualty
                      Insurance Operations

                                       29

<PAGE>

INDEPENDENT AUDITORS' REPORT

The Board of Directors and Stockholders
ACMAT Corporation:

We have audited the consolidated financial statements of ACMAT Corporation and
subsidiaries as listed in the accompanying index. In connection with our audits
of the consolidated financial statements, we also have audited the financial
statement schedules as listed in the accompanying index. These consolidated
financial statements and financial statement schedules are the responsibility of
the Company's management. Our responsibility is to express an opinion on these
consolidated financial statements and financial statement schedules based on our
audits.

We conducted our audits in accordance with auditing standards generally accepted
in the United States of America. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of ACMAT Corporation
and subsidiaries as of December 31, 2003 and 2002, and the results of their
operations and their cash flows for each of the years in the three-year period
ended December 31, 2003, in conformity with accounting principles generally
accepted in the United States of America. Also in our opinion, the related
financial statement schedules, when considered in relation to the basic
consolidated financial statements taken as a whole, present fairly, in all
material respects, the information set forth therein.

As discussed in Note 1 to the consolidated financial statements, the Company
changed its method of accounting for goodwill and other intangible assets in
2002.

/s/ KPMG LLP

Hartford, Connecticut
March 12, 2004

                                       30

<PAGE>

                       ACMAT CORPORATION AND SUBSIDIARIES

Consolidated Statements of Earnings
Years Ended December 31, 2003, 2002 and 2001

<TABLE>
<CAPTION>
                                                          2003                         2002                       2001
                                                          ----                         ----                       ----
<S>                                                    <C>                          <C>                        <C>
Contract revenues                                      $ 2,982,197                  16,289,326                 14,074,878
Earned premiums                                         12,270,916                   7,571,725                  7,581,276
Investment income, net                                   2,668,940                   3,553,565                  4,031,793
Net realized capital gains                                 361,542                      25,971                    374,301
Life insurance proceeds, net                                    --                   3,348,903                         --
Other income                                               885,053                     784,607                    900,559
                                                       -----------                  ----------                 ----------
                                                        19,168,648                  31,574,097                 26,962,807

Cost of contract revenues                                2,898,517                  18,339,534                 13,183,057
Losses and loss adjustment expenses                      4,993,991                   4,071,399                  1,536,022
Amortization of policy acquisition costs                 2,346,902                   1,753,553                  2,049,946
General and administrative expenses                      5,341,416                   4,856,068                  4,856,785
Interest expense                                         1,059,974                   1,928,084                  2,723,052
                                                       -----------                  ----------                 ----------
                                                        16,640,800                  30,948,638                 24,348,862
                                                       -----------                  ----------                 ----------

Earnings before income taxes                             2,527,848                     625,459                  2,613,945

Income taxes (benefits)                                    913,854                  (2,531,434)                   907,357
                                                       -----------                  ----------                 ----------

Net earnings                                           $ 1,613,994                   3,156,893                  1,706,588
                                                       ===========                  ==========                 ==========

Basic earnings per share                               $       .70                        1.33                        .70
                                                       -----------                  ----------                 ----------

Diluted earnings per share                             $       .69                        1.32                        .68
                                                       -----------                  ----------                 ----------
</TABLE>

See Notes to Consolidated Financial Statements.

                                       31

<PAGE>

                       ACMAT CORPORATION AND SUBSIDIARIES

Consolidated Balance Sheets
December 31, 2003 and 2002

<TABLE>
<CAPTION>
                         ASSETS                                              2003                              2002
                         ------                                              ----                              ----
<S>                                                                      <C>                               <C>
Investments:
 Fixed maturities - available for sale at fair value
  (Cost of $53,057,097 in 2003 and $59,872,707 in 2002 )                 $ 53,355,212                        60,919,291
 Equity securities - available for sale at fair value
  (Cost of $10,240,559 in 2003 and $6,700,559 in 2002)                     10,541,515                         6,697,150
 Short-term investments, at cost which approximates fair value                760,872                         2,132,966
                                                                         ------------                      ------------
  Total Investments                                                        64,657,599                        69,749,407

Cash and cash equivalents                                                  37,687,994                        18,724,560
Accrued interest receivable                                                   341,451                           452,724
Receivables, net of allowance for doubtful accounts of
  $302,606 in 2003 and $345,143 in 2002                                     2,222,971                         2,580,046
Reinsurance recoverable:
  Unpaid losses                                                             4,376,220                         8,383,894
  Paid losses                                                               2,327,436                         1,036,726
Prepaid expenses                                                              210,127                           161,712
Income tax receivable                                                         330,883                           308,459
Deferred income taxes                                                       2,155,028                         2,639,582
Property and equipment, net                                                11,195,363                        11,723,140
Deferred policy acquisition costs                                           1,639,325                         1,270,669
Other assets                                                                3,365,100                         3,013,484
Intangibles                                                                 1,920,360                         1,920,360
                                                                         ------------                      ------------
  Total Assets                                                           $132,429,857                       121,964,763
                                                                         ============                      ============

Liabilities & Stockholders' Equity
Accounts payable                                                              848,427                      $  2,260,950
Reserves for losses and loss adjustment expenses                           20,848,566                        25,642,865
Unearned premiums                                                           6,357,447                         4,660,194
Collateral held                                                            41,718,225                        25,991,045
Other accrued liabilities                                                   1,467,721                         1,044,080
Long-term debt                                                             19,107,293                        21,511,921
                                                                         ------------                      ------------
 Total Liabilities                                                         90,347,679                        81,111,055

Stockholders' Equity:
  Common Stock (No par value; 3,500,000 shares authorized;
   549,355 and 553,355 shares issued and outstanding)                         549,355                           553,355
  Class A Stock (No par value; 10,000,000 shares authorized;
   1,742,705 and 1,756,405 shares issued and outstanding)                   1,742,705                         1,756,405
  Retained earnings                                                        39,438,778                        37,972,590
  Accumulated other comprehensive income                                      351,340                           571,358
                                                                         ------------                      ------------
     Total Stockholders' Equity                                            42,082,178                        40,853,708
                                                                         ------------                      ------------

                                                                         $132,429,857                       121,964,763
                                                                         ============                      ============
</TABLE>

See Notes to Consolidated Financial Statements.

                                       32

<PAGE>

                       ACMAT CORPORATION AND SUBSIDIARIES

Consolidated Statements of Stockholders' Equity
December 31, 2003, 2002 and 2001

<TABLE>
<CAPTION>

                                                    Common
                                                  Stock par  Class A Stock     Additional     Retained
                                                    value      par value    paid-in capital   earnings
                                                    -----      ---------    ---------------   --------
<S>                                               <C>        <C>            <C>              <C>
Balance as of December 31, 2000                   $ 557,589    2,057,254            ---      35,326,305

Comprehensive income:
  Net unrealized appreciation of debt and
      equity securities, net of reclassification
      adjustment                                        ---          ---            ---             ---
  Net earnings                                          ---          ---            ---       1,706,588

Total comprehensive income

Acquisition and retirement of 234,235
    shares of Class A Stock                             ---     (234,235)       (20,000)     (1,572,667)
Issuance of 4,000 shares of Class A Stock
    pursuant to stock options                           ---        4,000         20,000             ---
                                                  ---------    ---------        -------      ----------
Balance as of December 31, 2001                   $ 557,589    1,827,019            ---      35,460,226

Comprehensive income:
    Net unrealized appreciation of debt and
      equity securities, net of reclassification
      adjustment                                        ---          ---            ---             ---
    Net unrealized loss on derivatives
      qualifying as hedges                              ---          ---            ---             ---
    Net earnings                                        ---          ---            ---       3,156,893

Total comprehensive income

    Acquisition and retirement of 4,234
      shares of Common Stock                         (4,234)         ---            ---         (76,255)
    Acquisition and retirement of 78,114
      shares of Class A Stock                           ---      (78,114)           ---        (615,149)
    Issuance of 7,500 shares of Class A
       Stock pursuant to stock options                  ---        7,500            ---          46,875
                                                  ---------    ---------        -------      ----------
Balance as of December 31, 2002                   $ 553,355    1,756,405            ---      37,972,590

Comprehensive income:
    Net unrealized loss on debt and
      equity securities, net of reclassification
      adjustment                                        ---          ---            ---             ---
    Net unrealized gain on derivatives
      qualifying as hedges                              ---          ---            ---             ---
    Net earnings                                        ---          ---            ---       1,613,994

Total comprehensive income

Acquisition and retirement of 4,000
     shares of Common Stock                          (4,000)         ---            ---         (39,700)
Acquisition and retirement of 13,700
  shares of Class A Stock                               ---      (13,700)           ---        (108,106)
                                                  ---------    ---------        -------      ----------
Balance of December 31, 2003                      $ 549,355    1,742,705            ---      39,438,778
                                                  =========    =========        =======      ==========

<CAPTION>
                                                    Accumulated
                                                       other          Total
                                                   comprehensive  stockholders'
                                                   income (loss)      equity
                                                   -------------      ------
<S>                                                <C>            <C>
Balance as of December 31, 2000                       (457,483)     37,483,665

Comprehensive income:
  Net unrealized appreciation of debt and
      equity securities, net of reclassification
      adjustment                                       584,824         584,824
  Net earnings                                             ---       1,706,588
                                                                    ----------
Total comprehensive income                                           2,291,412

Acquisition and retirement of 234,235
    shares of Class A Stock                                ---      (1,826,902)
Issuance of 4,000 shares of Class A Stock
    pursuant to stock options                              ---          24,000
                                                      --------      ----------
Balance as of December 31, 2001                        127,341      37,972,175

Comprehensive income:
    Net unrealized appreciation of debt and
      equity securities, net of reclassification
      adjustment                                       561,159         561,159
    Net unrealized loss on derivatives
      qualifying as hedges                            (117,142)       (117,142)
    Net earnings                                           ---       3,156,893
                                                                    ----------
Total comprehensive income                                           3,600,910

    Acquisition and retirement of 4,234
      shares of Common Stock                               ---         (80,489)
    Acquisition and retirement of 78,114
      shares of Class A Stock                              ---        (693,263)
    Issuance of 7,500 shares of Class A
       Stock pursuant to stock options                     ---          54,375
                                                      --------      ----------
Balance as of December 31, 2002                        571,358      40,853,708

Comprehensive income:
    Net unrealized loss on debt and
      equity securities, net of reclassification
      adjustment                                      (293,115)       (293,115)
    Net unrealized gain on derivatives
      qualifying as hedges                              73,097          73,097
    Net earnings                                           ---       1,613,994
                                                                    ----------
Total comprehensive income                                           1,393,976

Acquisition and retirement of 4,000
     shares of Common Stock                                ---         (43,700)
Acquisition and retirement of 13,700
  shares of Class A Stock                                  ---        (121,806)
                                                      --------      ----------
Balance of December 31, 2003                           351,340      42,082,178
                                                      ========      ==========
</TABLE>

See Notes to Consolidated Financial Statements.

                                       33

<PAGE>

                       ACMAT CORPORATION AND SUBSIDIARIES

Consolidated Statements of Cash Flows
Years ended December 31, 2003, 2002 and 2001

<TABLE>
<CAPTION>
                                                                                2003               2002               2001
                                                                                ----               ----               ----
<S>                                                                         <C>                 <C>                <C>
Cash Flows From Operating Activities:
    Net earnings                                                            $  1,613,994          3,156,893          1,706,588
    Adjustments to reconcile net earnings to net cash provided by
         (used for) operating activities:
         Depreciation and amortization                                         1,396,716          1,066,891          1,535,057
         Net realized capital gains                                             (361,542)           (25,971)          (374,301)
         Deferred income taxes                                                   484,554            418,865            383,562
    Changes In:
         Accrued interest receivable                                             111,273            297,354            283,333
         Receivables, net                                                        357,075          2,259,513           (699,196)
         Reinsurance recoverable                                               1,680,238         (6,647,952)          (192,280)
         Deferred policy acquisition costs                                      (368,656)          (105,113)           273,191
         Prepaid expenses and other assets                                       636,695          1,831,707         (1,261,646)
         Accounts payable and other liabilities                                 (915,785)        (1,110,327)           651,095
         Collateral held                                                      15,727,180         10,042,409          7,275,258
         Reserves for losses and loss adjustment expenses                     (4,794,299)         3,057,239         (6,724,980)
         Income taxes                                                            128,574         (3,130,691)          (102,829)
         Unearned premiums                                                     1,697,253            504,997         (1,287,580)
                                                                            ------------        -----------        -----------
             Net cash provided by operating activities                        17,393,270         11,615,814          1,465,272
                                                                            ------------        -----------        -----------

Cash Flows From Investing Activities:
    Proceeds from investments sold or matured:
          Fixed maturities - sold                                              7,652,707         19,898,298         25,677,741
          Fixed maturities - matured                                          35,304,460         12,035,000         28,261,000
          Equity securities                                                    5,711,774          2,145,444          3,568,173
          Mortgages                                                                  ---                ---            289,625
    Purchases Of:
          Fixed maturities                                                   (36,601,408)       (30,250,075)       (45,430,756)
          Equity securities                                                   (9,115,599)        (3,760,297)        (6,000,000)
    Short-term investments, (purchases) sales, net                             1,372,094         (1,761,222)         2,877,321
    Capital expenditures                                                        (183,730)          (225,390)          (421,383)
                                                                            ------------        -----------        -----------
            Net cash provided by (used for) investing activities               4,140,298         (1,918,242)         8,821,721
                                                                            ------------        -----------        -----------

Cash Flows From Financing Activities:
    Repayments on long-term debt                                              (2,404,628)       (13,038,440)        (8,146,226)
    Issuance of long-term debt                                                       ---         10,000,000          5,000,000
    Issuance of Class A Stock                                                        ---             54,375             24,000
    Payments for acquisition and retirement of stock                            (165,506)          (773,753)        (1,826,902)
                                                                            ------------        -----------        -----------
            Net cash used for financing activities                            (2,570,134)        (3,757,818)        (4,949,128)
                                                                            ------------        -----------        -----------

Net change in cash and cash equivalents                                       18,963,434          5,939,754          5,337,865

Cash and cash equivalents, beginning of year                                  18,724,560         12,784,806          7,446,941
                                                                            ------------        -----------        -----------

Cash and cash equivalents, end of year                                      $ 37,687,994         18,724,560         12,784,806
                                                                            ============        ===========        ===========
</TABLE>

See Notes to Consolidated Financial Statements.

                                       34

<PAGE>

                       ACMAT CORPORATION AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                        DECEMBER 31, 2003, 2002 AND 2001

(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

(a) Principles of Consolidation

The consolidated financial statements include ACMAT Corporation ("ACMAT" or the
"Company"), its subsidiaries, including AMINS, Inc., ACSTAR Holdings, Inc.
("ACSTAR Holdings") and ACSTAR Holdings' wholly-owned subsidiary, ACSTAR
Insurance Company ("ACSTAR"); and United Coastal Insurance Company ("United
Coastal Insurance").

These consolidated financial statements have been prepared in conformity with
accounting principles generally accepted ("GAAP") in the United States of
America. All significant intercompany accounts and transactions have been
eliminated in consolidation.

Certain reclassifications have been made to prior years financial statements to
conform to the current year presentation.

(b) Business

The Company has three reportable operating segments: ACMAT Contracting, ACSTAR
Bonding and United Coastal Liability Insurance. The Company's reportable
segments are primarily the three main legal entities of the Company which offer
different products and services. The accounting policies of the segments are the
same as those described in the summary of significant accounting policies.

ACMAT Contracting provides construction contracting services to commercial and
governmental customers. ACMAT Contracting also provides underwriting services to
its insurance subsidiaries. In addition, ACMAT Contracting owns a commercial
office building in New Britain, Connecticut and leases office space to its
insurance subsidiaries as well as to third parties.

The United Coastal Liability Insurance operating segment offers specific lines
of liability insurance as an approved non-admitted excess and surplus lines
insurer in forty-seven states, Puerto Rico, the Virgin Islands and the District
of Columbia. United Coastal offers claims made and occurrence policies for
specific specialty lines of liability insurance through certain excess and
surplus lines brokers who are licensed and regulated by the state insurance
department(s) in the state(s) in which they operate. United Coastal provides
specialty general, environmental and professional liability insurance primarily
to general contractors, specialty trade and environmental contractors, property
owners, storage and treatment facilities and allied professionals. United
Coastal also offers products liability policies to manufacturers. In addition,
the company offers professional liability coverage to architects, consultants
and engineers.

The Bonding operating segment provides, primarily through ACSTAR, surety bonds
written for general building, specialty trade, environmental contractors and
others. ACSTAR also offers other miscellaneous surety such as workers'
compensation bonds, supply bonds, subdivision bonds and license and permit
bonds.

During 2003, 2002 and 2001, customers who individually accounted for more than
10% of consolidated construction contracting revenue are as follows; in 2003 -
five customers provided 21%, 19%, 15%, 13% and 12%, respectively; in 2002 - four
customers provided 31%, 26%, 19% and 18%, respectively; and in 2001 - three
customers provided 33%, 27%, and 20%, respectively. One customer accounted for
more than 10% of the United Coastal insurance revenues in 2001.

(c) Investments

Fixed maturities include bonds, notes and redeemable preferred stocks. Equity
securities reflect investment in common stock, non-redeemable preferred stock
and mutual funds.

Investments are classified as "available for sale" and are reported at fair
value, with unrealized gains or losses, net of tax, charged or credited directly
to stockholders' equity.

The fair value of investment securities are based on quoted market prices.
Premiums and discounts on debt securities are amortized into interest income
over the term of the securities in a manner that approximates the interest
method. Realized gains and losses on sales of securities are computed using the
specific identification method. Any security which management believes has
experienced a decline in value which is other than temporary is written down to
its fair value and a charge is recorded in net realized capital gains.

Short-term investments, consisting primarily of money market instruments
maturing within one year are carried at cost which, along with accrued interest,
approximates fair value. Cash and cash equivalents include cash on hand and
short-term highly liquid investments of maturities of three months or less when
purchased. These investments are carried at cost plus accrued interest which
approximates fair value.

                                       35

<PAGE>

ACMAT CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(d) Deferred Policy Acquisition Costs

Deferred policy acquisition costs, representing commissions and certain pre-tax
underwriting costs, are deferred and amortized pro rata over the contract
periods in which the related premiums are earned. Deferred acquisition costs are
reviewed to determine if they are recoverable from future income, and if not,
are charged to expense. Future investment income attributable to related
premiums is taken into account in measuring the recoverable of the carrying
value of this asset.

(e) Property and Equipment

Property and equipment are stated at costs, net of depreciation. Depreciation is
computed using the straight-line method at rates based upon the respective
estimated useful lives of the assets. Maintenance and repairs are expensed as
incurred.

(f) Intangibles

Intangible assets relate to insurance operating licenses and are deemed to have
an indefinite useful life. The Company performs an impairment test at least
annually or more frequently if events or conditions indicate that the asset
might be impaired. Based on these tests, the Company did not impair any
intangible assets.

Prior to adoption of Statement of Financial Accounting Standards No. 142,
"Goodwill and Other Intangible Assets" (FAS 142) on January 1, 2002, intangibles
were stated at amortized cost and amortized using the straight-line method.
Intangibles include insurance operating licenses and goodwill, which represents
the excess of cost over the fair market value of net assets acquired. These
intangible assets were amortized over periods ranging from 15 to 25 years.

(g) Insurance Reserve Liabilities

Reserves for losses and loss adjustment expenses are established with respect to
both reported and incurred but not reported claims for insured risks. The amount
of loss reserves for reported claims is primarily based upon a case-by-case
evaluation of the type of risk involved, knowledge of the circumstances
surrounding the claim and the policy provisions relating to the type of claim.
As part of the reserving process, historical data is reviewed and consideration
is given to the anticipated impact of various factors such as legal developments
and economic conditions, including the effects of inflation. Reserves are
monitored and recomputed periodically using new information on reported claims.

Reserves for losses and loss adjustment expenses are estimates at any given
point in time of what the Company may have to pay ultimately on incurred losses,
including related settlement costs, based on facts and circumstances then known.
The Company also reviews its claims reporting patterns, past loss experience,
risk factors and current trends and considers their effect in the determination
of estimates of incurred but not reported losses. Ultimate losses and loss
adjustment expenses are affected by many factors which are difficult to predict,
such as claim severity and frequency, inflation levels and unexpected and
unfavorable judicial rulings. Reserves for surety claims also consider the
amount of collateral held as well as the financial strength of the contractor
and its indemnitors. Management believes that the reserves for losses and loss
adjustment expenses are adequate to cover the unpaid portion of the ultimate net
cost of losses and loss adjustment expenses incurred, including losses incurred
but not reported.

(h) Collateral Held

Collateral held represents cash and investments retained by the Company for
surety bonds issued by the Company to cover costs of claims or unpaid premiums.
The carrying amount of collateral held approximates its fair value because of
the short maturity of these instruments.

(i) Reinsurance

In the normal course of business, the Company assumes and cedes reinsurance with
other companies. Reinsurance ceded primarily represents excess of loss
reinsurance with companies with "A" ratings from the insurance rating
organization, A.M. Best Company, Inc. Reinsurance ceded also includes a
facultative reinsurance treaty which is applicable to excess policies written
over a primary policy issued by the Company for specific projects. Reinsurance
is ceded to limit losses from large exposures and to permit recovery of a
portion of direct losses; however, such a transfer does not relieve the
originating insurer of its liability.

Amounts recoverable from reinsurers are estimated in a manner consistent with
the claim liability associated with the reinsured business. The Company
evaluates and monitors the financial condition of reinsurers under reinsurance
arrangements to minimize its exposure to significant losses from reinsurer
insolvencies.

Effective November 1, 2002 through April 30, 2004, the Company cedes 80% of its
exposure in excess of $1,000,000 up to $5,000,000 on a per principal/insured
basis. Prior to October 31, 2002, reinsurance was applicable on a per
principal/insured basis for 100% of the losses in excess of $1,000,000 up to
$8,000,000. From May 1, 2000 to April 30, 2002, the Company also reinsured
surety losses on a per principal basis for losses in excess of $8,000,000 up to
$13,000,000.

                                       36
<PAGE>

ACMAT CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Reinsurance recoverables include ceded reserves for losses and loss adjustment
expenses. Ceded unearned premiums of $621,805 and $690,902 at December 31, 2003
and 2002, respectively, are included in other assets. All reinsurance contracts
maintained by the Company qualify as short-duration prospective contracts. A
summary of reinsurance premiums written and earned is provided below:

<TABLE>
<CAPTION>
                             Premiums Written                           Premiums Earned
                  ---------------------------------------    --------------------------------------
                      2003          2002          2001          2003           2002        2001
                  -----------     ---------     ---------    -----------     ---------    ---------
<S>               <C>            <C>           <C>           <C>            <C>          <C>
Direct            $15,623,105     9,104,072     8,350,916    $13,942,316     8,576,573    9,639,764
Assumed                11,485         1,387        47,491          4,745        26,965       32,795
Ceded              (1,597,325)   (1,119,464)   (1,766,087)    (1,676,147)   (1,031,813)  (2,091,283)
                  -----------    ----------    ----------    -----------    ----------   ----------
   Totals         $14,037,265     7,985,995     6,632,320    $12,270,916     7,571,725    7,581,276
                  ===========    ==========    ==========    ===========    ==========   ==========
</TABLE>

Ceded incurred losses and loss adjustment expenses totaled $682,155, $6,549,843
and $148,557 for the years ended December 31, 2003, 2002 and 2001, respectively.

(j) Derivative Financial Instruments

The Company uses interest rate swaps as a means of hedging exposure to interest
rate on its long-term debt. The Company does not hold or issue derivative
instruments for trading purposes. The Company recognizes all derivatives as
either assets or liabilities in the consolidated balance sheet and measure those
instruments at fair value. Where applicable, hedge accounting is used to account
for derivatives. To qualify for hedge accounting, the changes in value of the
derivative must be expected to substantially offset the changes in value of the
hedged item. Hedges are monitored to ensure that there is a high correlation
between the derivative instruments and the hedged investment. Derivatives that
do not qualify for hedge accounting, if any, would be marked to market with the
changes in fair value reflected in the consolidated statement of earnings.

(k) Revenue Recognition

Revenue on construction contracts is recorded using the percentage of completion
method. Under this method revenues with respect to individual contracts are
recognized in the proportion that costs incurred to date relate to total
estimated costs. Revenues and cost estimates are subject to revision during the
terms of the contracts, and any required adjustments are made in the periods in
which the revisions become known. Provisions are made, where applicable, for the
entire amount of anticipated future losses on contracts in progress.
Construction claims are recorded as revenue at the time of settlement and profit
incentives and change orders are included in revenues when their realization is
reasonably assured. Selling, general and administrative expenses are not
allocated to contracts.

Insurance premiums are recognized over the coverage period. Unearned premiums
represent the portion of premiums written that is applicable to the unexpired
terms of policies in force, calculated on a prorata basis.

(l) Income Taxes

The provision for taxes comprises two components, current income taxes and
deferred income taxes. Deferred income taxes arise from changes during the year
in cumulative temporary differences between the tax basis and book basis of
assets and liabilities.

Deferred tax assets and liabilities are measured using enacted tax rates
expected to apply to taxable income in the years in which those temporary
differences are expected to be recovered or settled. The effect on deferred tax
assets and liabilities of a change in tax rates is recognized in income in the
period that includes the enactment date.

(m) Use of Estimates

The preparation of financial statements in conformity with accounting principles
generally accepted in the United States of America requires management to make
estimates and assumptions that affect the amounts reported in the financial
statements and accompanying notes. Actual results could differ from reported
results using those estimates.

                                       37
<PAGE>

ACMAT CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(n) Comprehensive Income

The following table summarizes reclassification adjustments for other
comprehensive income and the related tax effects for the years ended December
31, 2003, 2002 and 2000:

<TABLE>
<CAPTION>
                                                                            2003                2002           2001
                                                                          -----------          -------        -------
<S>                                                                       <C>                  <C>            <C>
Unrealized gains on investments:
Unrealized holding gain (loss) arising during period,
  net of income tax expense                                               $   (54,497)         578,300        831,863
Less reclassification adjustment for gains included in net earnings,
  net of income tax expense of $122,924, $8,830 and
  $127,262 for 2003, 2002 and 2001, respectively.                             238,618           17,141        247,039
Unrealized gain (loss) on derivatives qualifying as hedges                     73,097         (117,142)           ---
                                                                          -----------          -------        -------
Other comprehensive income (loss)                                         $  (220,018)         444,017        584,824
                                                                          ===========          =======        =======
</TABLE>

(o) Accounting Changes

Goodwill and Other Intangible Assets

In July 2001, the Financial Accounting Standards Board (FASB) issued FAS 142,
"Goodwill and Other Intangible Assets". FAS 142 addresses the initial
recognition and measurement of intangible assets acquired either singly or with
a group of other assets, as well as the measurement of goodwill and other
intangible assets subsequent to their initial acquisition. FAS 142 changes the
accounting for goodwill and intangible assets that have indefinite useful lives
from an amortization approach to an impairment-only approach that requires that
those assets be tested at least annually for impairment. Intangible assets that
have finite useful lives will continue to be amortized over their useful lives,
but without an arbitrary ceiling on their useful lives.

Upon adoption of FAS No. 142, on January 1, 2002 the Company evaluated its
existing intangible asset that was acquired in a purchase business combination
to make any necessary reclassifications in order to conform with the new
classification criteria in FAS No. 141 for recognition separate from goodwill.
The Company reassessed the useful lives and residual values of all intangible
assets acquired. If an intangible asset is identified as having an indefinite
useful life, the Company is required to test the intangible asset for impairment
in accordance with the provisions of FAS No. 142. Impairment is measured as the
excess of carrying value over the fair value of an intangible asset with an
indefinite life.

As of January 1, 2002, the Company had an unamortized asset in the amount of
$1,920,360 which was subject to the transition provisions of FAS No. 142. The
Company stopped amortizing intangibles on January 1, 2002. Net earnings and
earnings per share adjusted to exclude intangible amortization for the year
ended December 31, 2001 are as follows:

<TABLE>
<CAPTION>
                                                                                            2001
                                                                                         ----------
<S>                                                                                      <C>
Net earnings                                                                             $1,706,588
Intangible amortization                                                                     321,707
                                                                                         ----------
Adjusted net earnings                                                                    $2,028,295
                                                                                         ==========
Basic earnings per share:
     Reported earnings per share                                                         $      .70
     Intangible amortization                                                                    .13
                                                                                         ----------
     Adjusted basic earnings per share                                                   $      .83
                                                                                         ==========
Diluted earnings per share:
     Reported earnings per share                                                         $      .68
     Intangible amortization                                                                    .13
                                                                                         ----------
     Adjusted diluted earnings per share                                                 $      .81
                                                                                         ==========
</TABLE>

In addition, the Company has performed the transitional impairment tests using
the fair value approach required by the new standard. Based on these tests, the
Company did not impair any intangible asset.

Accounting for Stock-Based Compensation-Disclosure

In December, 2002, the FASB issued Statement of Financial Accounting Standards
No. 148 "Accounting for Stock-Based Compensation-Transition and Disclosure" (FAS
148), an amendment to FASB Statement No. 123 "Accounting for Stock-Based
Compensation" (FAS 123). It amends the disclosure provisions of FAS 123 to
require prominent annual disclosure about the effects on reported net earnings
of stock-based compensation in the Summary of Significant Accounting Policies
and also requires disclosure about these effects in interim financial
statements. These provisions are effective for financial statements for fiscal
years ending after December 15, 2002. Accordingly, the Company has adopted the
applicable disclosure requirements of this statement for year-end reporting.

                                       38
<PAGE>

The Company accounts for stock options under the recognition and measurement
principles of Accounting Principles Board Opinion No. 25 (APB 25), "Accounting
for Stock Issued to Employees", and related interpretations.

The stock options were awarded at an exercise price equal to the market value of
the underlying common stock on the date of the grant. Accordingly, there has
been no employee compensation cost recognized in earnings for the stock options.

FAS 123 provides an alternative to APB 25 whereby fair values may be ascribed to
options using a valuation model and amortized to compensation cost over the
vesting period of the options. The following tables illustrate the pro forma
effect on net income (loss) and earnings per share for each period indicated as
if the Company applied the fair value recognition provisions of FAS 123 to its
stock option program. See Note 15 for a description of the method and fair value
assumptions used in estimating the fair value of options.

The pro forma fair value of stock-based compensation in the Company's Class A
Shares for the year ended December 31, 2003, 2002 and 2001 is as follows:

<TABLE>
<CAPTION>
                                                                      2003                  2002             2001
                                                                   ----------             ---------        ---------
<S>                                                                <C>                    <C>              <C>
Net earnings as reported                                           $1,613,994             3,156,893        1,706,588
Add: Stock-based employee compensation expense included in
 reported net earnings, net of related tax effects                        ---                   ---              ---
Deduct: Stock-based compensation expense determined under fair
 value based method, net of related tax effects                       (90,495)             (221,207)        (134,915)
                                                                   ----------             ---------        ---------
Net earnings, pro forma                                            $1,523,499             2,935,686        1,571,673
                                                                   ==========             =========        =========
Earnings per share
  Basic and diluted - as reported                                  $  .70/.69            1.33/$1.32          .70/.68
  Basic and diluted - pro forma                                    $  .66/.65            1.24/$1.22          .64/.63
</TABLE>

The Meaning of Other-Than-Temporary Impairments

Effective December 31, 2003, the Company adopted FASB Emerging Issues Task Force
(EITF) Issue 03-01, "The Meaning of Other-Than-Temporary Impairment and Its
Application to Certain Investments (EITF 03-01). EITF 03-01 requires that
certain quantitative and qualitative disclosures be made for debt and marketable
equity securities classified as available for sale or held to maturity that are
impaired at the balance sheet date but for which an impairment has not been
recognized.

Hedging Instruments

In April 2003, the FASB issued Statement of Financial Standards No.149,
"Amendment of Statement 133 on Derivative Investments and Hedging Activities"
(FAS 149), which amends and clarifies the accounting for derivative instruments,
including certain derivative instruments embedded in other contracts, and for
hedging activities under FAS 133. FAS 149 amends FAS 133 for decisions made as
part of the Derivatives Implementation Group process that effectively required
amendment to FAS 133. FAS 149 also clarifies under what circumstances a contract
with an initial net investment and purchases and sales of when-issued securities
that do not yet exist meet the characteristics of a derivative. In addition, it
clarifies when a derivative contains a financing component that warrants special
reporting in the statement of cash flows. FAS 149 is effective for contracts
entered into or modified after June 30, 2003 and for hedging relationships
designated after June 30, 2003. The adoption of FAS 149 did not have an impact
on the Company's results of operations, financial condition or liquidity.

(p) Accounting Standards Not Yet Adopted

Consolidation of Variable Interest Entities

In December 2003, the FASB issued Revised Interpretation No. 46R, "Consolidation
of Variable Interest Entities" (FIN 46R). FIN 46R clarifies the application of
Accounting Research Bulletin No. 51, "Consolidated Financial Statements", to
certain entities in which equity investors do not have the characteristics of a
controlling financial interest or do not have sufficient equity at risk for the
entity to finance its activities without additional subordinated financial
support from other parties. FIN 46R separates entities into two groups: (1)
those for which voting interests are used to determine consolidation and (2)
those for which variable interests are used to determine consolidation. FIN 46R
clarifies how to identify a variable interest entity and how to determine when a
business enterprise should include the assets, liabilities, non-controlling
interests and results of activities of a variable interest entity in its
consolidated financial statements. FIN 46R is effective for public companies
that have VIEs or potential VIEs that are special-purpose entities for periods
ending after December 15, 2003. Application by public companies for all other
types of entities is required for periods ending after March 15, 2004.

The Company holds mortgage-backed and asset-backed securities which are
considered variable interest entities. The Company has assessed the impact that
the provisions of FIN 46R may have on the consolidated financial statements. The
provisions of the new standard is not expected to impact the Company.

(q) Life Insurance Proceeds, net

On January 13, 2002, the Founder, Chairman, President and Chief Executive
Officer of the Corporation died at the age of 82. The Company was the owner and
beneficiary of several key-man life insurance policies totaling approximately
$11.9 million. After consideration of the cash-surrender value of the policies,
the Company reported a gross gain of approximately $8.8 million in 2002. In
connection with the passing of Henry W. Nozko, Sr., the Company incurred certain
obligations, previously approved by the Board of Directors, totaling
approximately $5.5 million. These obligations for consulting fees, widow's
compensation and unused vacation pay were due only to the extent that sufficient
proceeds existed from the life insurance policies at the time of Mr. Nozko's
death.

                                       39
<PAGE>

ACMAT CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(2)  INVESTMENTS

<TABLE>
<CAPTION>
                                                          AMORTIZED                 ESTIMATED
INVESTMENTS AT DECEMBER 31, 2003 AND 2002 FOLLOWS:          COST                   FAIR VALUE
                                                        -------------              ----------
<S>                                                     <C>                        <C>
2003
Fixed maturities - available for sale:
Bonds:
 States, municipalities and political subdivisions      $     550,017                 546,750
 United States government and government agencies          15,930,132              16,146,082
 Mortgage-backed securities                                28,777,239              28,949,766
 Industrial and miscellaneous                               7,799,709               7,712,614
                                                        -------------              ----------
  Total fixed maturities                                   53,057,097              53,355,212
Equity securities - common stocks:
 Banks, trusts and insurance                                  265,559                 261,605
Equity securities - redeemable preferred stocks:
 Banks, trusts and insurance                                2,100,000               2,180,960
 Public utilities                                             500,000                 533,400
 Industrial and miscellaneous                               6,375,000               6,545,950
Equity securities perpetual preferreds:

 Industrial and miscellaneous                               1,000,000               1,019,600
                                                        -------------              ----------
  Total equity securities                                  10,240,559              10,541,515
Short-term investments                                        760,872                 760,872
                                                        -------------              ----------
  Total investments                                     $  64,058,528              64,657,599
                                                        =============              ==========

2002
Fixed maturities - available for sale:
Bonds:
 States, municipalities and political subdivisions      $   7,111,710               7,382,742
 United States government and government agencies          14,077,949              14,554,348
 Mortgage-backed securities                                35,883,048              36,149,429
 Industrial and miscellaneous                               2,800,000               2,832,772
                                                        -------------              ----------
  Total fixed maturities                                   59,872,707              60,919,291
Equity securities - common stocks:
 Banks, trusts and insurance                                  265,559                232,100
Equity securities - redeemable preferred stocks:
 Banks, trusts and insurance                                2,060,000               2,051,800
 Industrial and miscellaneous                               4,375,000               4,413,250
                                                        -------------              ----------
  Total equity securities                                   6,700,559               6,697,150
Short-term investments                                      2,132,966               2,132,966
                                                        -------------              ----------
  Total investments                                     $  68,706,232              69,749,407
                                                        =============              ==========
</TABLE>

Fair value estimates are made based on quoted market prices and information
about the financial instrument. These estimates do not reflect any premium or
discount that could result from offering for sale at one time the Company's
entire holdings of a particular financial instrument. These estimates are
subjective in nature and involve uncertainties and matters of significant
judgment and, therefore, cannot be determined with precision. Changes in
assumptions could significantly affect the estimates.

On December 31, 2003, the Company's insurance subsidiaries had securities with
an aggregate fair value of approximately $10.5 million on deposit with various
state regulatory authorities.

                                       40
<PAGE>

ACMAT CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

The amortized cost and fair value of fixed maturities at December 31, 2003,
by effective maturity, follows:

<TABLE>
<CAPTION>
                                                                  2003
                                                  -------------------------------
                                                   Amortized              Fair
                                                      Cost               Value
                                                   ------------         ----------
<S>                                               <C>                  <C>
Due in one year or less                           $  4,719,578          4,753,951
Due after one year through five years               12,010,263         12,301,295
Due after five years through ten years               3,550,017          3,492,900
Due after ten years                                  4,000,000          3,857,300
Mortgage-backed securities                          28,777,239         28,949,766
                                                  ------------         ----------
    Total                                         $ 53,057,097         53,355,212
                                                  ============         ==========
</TABLE>

Actual maturities will differ from contractual maturities because borrowers may
have the right to call or prepay obligations with or without call or prepayment
penalties.

The Company's portfolio is comprised primarily of fixed maturity securities
rated AA or better by Standard and Poor's and includes mostly U.S. Treasuries
and tax-free municipal securities

The Company makes investments in collateralized mortgage obligations (CMOs).
CMOs typically have high credit quality, offer good liquidity, and provide a
significant advantage in yield and total return compared to U.S. Treasury
securities. The Company's investment strategy is to purchase CMO tranches which
offer the most favorable return given the risks involved. One significant risk
evaluated is prepayment sensitivity. This drives the investment process to
generally favor prepayment protected CMO tranches including planned amortization
classes and last cash flow tranches. The Company does invest in other types of
CMO tranches if a careful assessment indicates a favorable risk/return tradeoff.
The Company does not purchase residual interests in CMOs.

At December 31, 2003 and 2002, the Company held CMOs classified as available for
sale with a fair value of $27,024,674 and $33,057,515, respectively.
Approximately 69% and 47% of the Company's CMO holdings are fully collateralized
by GNMA, FNMA or FHLMC securities at December 31, 2003 and 2002, respectively.
In addition, the Company held $1,925,092 and $3,091,914 of GNMA, FNMA, FHLMC or
FHA mortgage-backed pass-through securities classified as available for sale at
December 31, 2003 and 2002, respectively. Virtually all of these securities are
rated Aaa.

A summary of gross unrealized gains and losses at December 31, 2003 and 2002
follows:

<TABLE>
<CAPTION>
                                            2003                      2002
                                 ------------------------     ---------------------
                                   Gains           Losses       Gains       Losses
                                 ---------        -------     ---------     -------
<S>                              <C>             <C>          <C>          <C>
States, municipalities and
  Political subdivisions         $     ---         (3,267)      271,032         ---
United States government and
  Government agencies              301,435        (85,485)      476,399         ---
Industrial and miscellaneous        25,075       (112,170)       32,772         ---
Mortgage-backed securities         313,052       (140,525)      403,739    (137,358)
                                 ---------       --------     ---------    --------
    Total                          639,562       (341,447)    1,183,942    (137,358)
Equity securities                  322,156        (21,200)      152,491    (155,900)
                                 ---------       --------     ---------    --------
Total                            $ 961,718       (362,647)    1,336,433    (293,258)
                                 =========       ========     =========    ========
</TABLE>

An investment in debt or equity security is impaired if its fair value falls
below its book value and the decline is considered to be other-than temporary.
Factors considered in determining whether a decline is other-than-temporary
include the length of time and the extent to which fair value has been below
cost, the financial condition and the near-term prospects of the issuer; and the
Company's ability and intent to hold the investment for a period of time
sufficient to allow for any anticipated recovery. Additionally, for certain
securitized financial assets with contractual cash flows (including asset backed
securities), EITF 99-20 requires the Company to periodically update its best
estimate of cash flows over the life of the security. If management determines
that the fair value of its securitized financial asset is less than its carrying
amount and there has been a decrease in the present value of the estimated cash
flows since the last revised estimate, considering both timing and amount, then
an other-than-temporary impairment charge is recognized. A debt security is
impaired if it is probable that the Company will not be able to collect all
amounts due under the security's contractual terms. Equity investments are
impaired when it becomes apparent that the Company will not recover its cost
over the expected holding period and consideration given to the financial
condition of the issue. Further, for securities expected to be sold, an
other-than-temporary impairment charge is recognized if the Company does not
expect the fair value of a security to recover the cost prior to the expected
date of sale.

The Company's process for reviewing invested assets for impairments during any
quarter includes the following:

  -  Identification and evaluation of investments which have possible
     indications of impairment;

  -  Analysis of investments with gross unrealized investment losses that have
     fair value less than 80% of amortized cost during successive quarterly
     periods over a rolling one-year period;

  -  Management review of for other-than-temporary impairments based on the
     investee's current financial condition, liquidity, near term recovery
     prospects and other factors, as well as consideration of other investments
     that were not recommended for other-than-temporary impairments;

                                       41
<PAGE>

-    Consideration of evidential matter, including an evaluation of factors or
     triggers that would or could cause individual investments to qualify as
     having other-than-temporary impairment and those that would not support
     other-than-temporary impairments;

-    Determination of the status of each analyzed investment as
     other-than-temporary or not.

The gross unrealized investment losses and related fair value for fixed
maturities and equity securities at December 31, 2003 were as follows:

<TABLE>
<CAPTION>
                                                      Less than 12 months     12 months or longer            Total
                                                    -----------------------  ----------------------  ----------------------
                                                                   Gross                   Gross                   Gross
                                                                 Unrealized              Unrealized              Unrealized
                                                     Fair Value     Loss     Fair Value     Loss     Fair Value     Loss
                                                    -----------  ----------  ----------  ----------  ----------  ----------
<S>                                                 <C>          <C>         <C>         <C>         <C>         <C>
Fixed maturities:
 States, municipalities and political subdivisions  $   546,750     3,267           ---      ---        546,750     3,267
 United States government and government
    agencies
                                                      2,433,355    85,485           ---      ---      2,433,355    85,485
 Mortgage-backed securities                           8,116,905   131,842     1,451,831    8,683      9,568,736   140,525
 Industrial and miscellaneous                         4,887,830   112,170           ---      ---      4,887,830   112,170
                                                    -----------   -------     ---------   ------     ----------   -------
  Total fixed maturities                             15,984,840   332,764     1,451,831    8,683     17,436,671   341,447

Equity securities - common stocks:                      996,000     4,000           ---      ---        996,000     4,000
Equity securities - redeemable preferred:                   ---       ---       167,800   17,200        167,800    17,200
                                                    -----------   -------     ---------   ------     ----------    ------
  Total equity                                          996,000     4,000       167,800   17,200      1,163,800    21,200
                                                        -------   -------     ---------   ------     ----------    ------

 Total temporarily impaired securities              $16,980,840   336,764     1,619,631   25,883     18,600,471   362,647
                                                    ===========   =======     =========   ======     ==========   =======
</TABLE>

(3) INVESTMENT INCOME AND REALIZED CAPITAL GAINS AND LOSSES

A summary of net investment income for the years ended December 31, 2003, 2002
and 2001 follows:

<TABLE>
<CAPTION>
                                                          2003      2002         2001
                                                    -----------   ---------   ---------
<S>                                                 <C>           <C>         <C>
Tax-exempt interest                                 $    21,574     359,888     851,666
Taxable interest                                      2,185,283   2,885,223   3,050,142
Dividends on equity securities                          477,177     319,825     156,067
Investment expenses                                     (15,094)    (11,371)    (26,082)
                                                    -----------   ---------   ---------
  Net investment income                             $ 2,668,940   3,553,565   4,031,793
                                                    ===========   =========   =========
</TABLE>

Realized capital gains (losses) for the years ended December 31, 2003, 2002 and
2001 follows:

<TABLE>
<CAPTION>
                                                       2003          2002        2001
                                                    -----------     ------      -------
<S>                                                 <C>             <C>         <C>
Fixed maturities                                    $   225,366     20,511      302,378
Equity securities                                       136,176      5,460       71,923
                                                    -----------     ------      -------
   Net realized capital gains (losses)              $   361,542     25,971      374,301
                                                    ===========     ======      =======
</TABLE>

Proceeds from sales of fixed maturities classified as available for sale were
$42,957,167, $31,933,298 and $53,938,741 in 2003, 2002 and 2001, respectively.
Gross gains of $226,122, $36,482 and $314,351 and gross losses of $756, $15,971
and $11,973 were realized on fixed maturity sales for the years ended December
31, 2003, 2002 and 2001, respectively. Proceeds from sales of equity securities
were $5,711,774, $2,145,444 and $3,568,173 in 2003, 2002 and 2001, respectively.
Gross gains of $136,176, $11,490 and $71,923 were realized on the sale of equity
securities for the years ended December 31, 2003, 2002 and 2001, respectively,
and gross losses of $6,030 were realized on equity security sales for the year
ended December 31, 2002. There were no gross losses realized on equity security
sales for the year ended December 31, 2003 and 2001.

(4) RECEIVABLES

A summary of receivables at December 31, 2003 and 2002 follows:

<TABLE>
<CAPTION>
                                                                                2003             2002
                                                                             ----------       ---------
<S>                                                                          <C>              <C>
Insurance premiums due from agents                                           $  749,930         728,468
Receivables under construction contracts:
   Amounts billed                                                               949,697         970,478
   Recoverable costs in excess of billings on uncompleted contracts             373,398         212,776
   Billings in excess of costs on uncompleted contracts                       (257,079)        (385,577)
   Retainage, due on completion of contracts                                    660,920       1,365,122
                                                                             ----------       ---------
        Total receivables under construction contracts                        1,726,936       2,162,799
Other                                                                            48,711          33,922
                                                                             ----------       ---------
        Total receivables                                                     2,525,577       2,925,189
Less allowances for doubtful accounts                                         (302,606)        (345,143)
                                                                            -----------       ---------
        Total receivables, net                                               $2,222,971       2,580,046
                                                                             ==========       =========
</TABLE>

                                       42
<PAGE>

ACMAT CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

The balances billed but not paid by customers pursuant to retainage provisions
in construction contracts will be due upon completion of the contracts and
acceptance by the owner. In management's opinion, the majority of contract
retainage is expected to be collected in 2004.

Recoverable costs in excess of billings on uncompleted contracts are comprised
principally of amounts of revenue recognized on contracts for which billings had
not been presented to the contract owners as of the balance sheet date. These
amounts will be billed in accordance with the contract terms.

(5) PROPERTY AND EQUIPMENT

A summary of property and equipment at December 31, 2003 and 2002 follows:

<TABLE>
<CAPTION>
                                                       2003                       2002
                                                    -----------               -----------
<S>                                                 <C>                       <C>
Building                                            $15,325,468               15,285,930
Land                                                    800,000                  800,000
Equipment and vehicles                                1,508,179                1,402,061
Furniture and fixtures                                  862,599                  864,039
                                                    -----------               ----------
                                                     18,496,246               18,352,030
Less accumulated depreciation                         7,300,883                6,628,890
                                                    -----------               ----------
                                                    $11,195,363               11,723,140
                                                    ===========               ==========
</TABLE>

Useful lives for depreciation purposes are five years for equipment and
vehicles, fifteen years for furniture and fixtures and forty years for the
building. Depreciation expense in 2003, 2002 and 2001 was $711,507, $775,906 and
$772,519, respectively.

Future minimum rental income to be generated by leasing a portion of the
building under non-cancelable operating leases as of December 31, 2003 are
estimated to be $417,304 for 2004, $364,104 for 2005, $364,104 for 2006,
$364,104 for 2007 and $280,104 for 2008. Rental income earned in 2003, 2002 and
2001 was $496,820, $607,097 and $593,573, respectively.

                                       43
<PAGE>

ACMAT CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(6)  RESERVES FOR LOSSES AND LOSS ADJUSTMENT EXPENSES

The following table sets forth a reconciliation of beginning and ending reserves
for unpaid losses and loss adjustment expenses for the periods indicated on a
GAAP basis for the business of the Company.

<TABLE>
<CAPTION>
                                                       2003         2002        2001
                                                    -----------  ----------  ----------
<S>                                                 <C>          <C>         <C>
 Balance at January 1                               $25,642,865  22,585,626   29,310,606
     Less reinsurance recoverable                     8,383,894   2,772,668    2,580,388
                                                    -----------  ----------   ----------
Net balance at January 1                            $17,258,971  19,812,958   26,730,218

Incurred related to:
   Current year                                       4,283,000   4,363,000    4,144,000
   Prior years                                          710,991    (291,601)  (2,607,978)
                                                    -----------  ----------   ----------
Total incurred                                        4,993,991   4,071,399    1,536,022

Payments related to:
    Current year                                         40,000     625,000    1,723,000
    Prior years                                       5,740,616   6,000,386    6,730,282
                                                    -----------  ----------    ---------
    Total payments                                    5,780,616   6,625,386    8,453,282

    Net balance at December 31                       16,472,346  17,258,971   19,812,958
    Plus reinsurance recoverable                      4,376,220   8,383,894    2,772,668
                                                    -----------  ----------   ----------
Balance at December 31                              $20,848,566  25,642,865   22,585,626
                                                    ===========  ==========   ==========
</TABLE>

The decrease in net loss and loss adjustment expense reserves was primarily due
to payments on surety and general liability policies for prior years net of
subrogation and ceded recoveries partially offset by unfavorable development in
prior accident years. Loss and loss adjustment expenses incurred primarily
reflects two large losses of approximately $2.2 million in 2002. Also, the
favorable development observed previously in prior years reduced significantly
as the actual loss experience came in closer to the estimates. The increase in
reinsurance recoverable in 2002 from 2001 is primarily due to one liability
claim, which exceeded the limits retained by the Company and was partially paid
in 2003.

While management continually evaluates the potential for changes in loss
estimates, due to the uncertainty inherent in the liability and surety business,
the emergence of net favorable development may or may not occur. Management
believes that the reserves for losses and loss adjustment expense are adequate
to cover the unpaid portion of the ultimate net cost of losses and loss
adjustment expenses, including losses incurred but not reported.

The Company has no exposure to any asbestos or environmental claims associated
with general liability policies issued with the pre-1986 pollution exclusion.
Policies written with the exclusion are typically associated with mass tort
environmental and asbestos claims. The Company has never issued a policy with
the pre-1986 pollution exclusion. The Company's exposure to asbestos and
environmental liability claims is primarily limited to asbestos and
environmental liability insurance for contractors and consultants involved in
the remediation, removal, storage, treatment and/or disposal of environmental
and asbestos hazards.

(7) NOTES PAYABLE TO BANKS

At December 31, 2003, the Company has a $10,000,000 bank line of credit with two
financial institutions. The line of credit does not require the Company to
maintain a compensating balance. There were no outstanding borrowings under this
line of credit at December 31, 2003 and 2002. Under the terms of the line of
credit, interest on the outstanding balance is calculated based upon the London
Inter-Bank Offering Rate (LIBOR) plus 160 basis points in effect during the
borrowing period. The Company pays an annual commitment fee of .25% of the
unused portion of the bankline.

(8)  LONG-TERM DEBT

A summary of long-term debt at December 31, 2003 and 2002 follows:

<TABLE>
<CAPTION>
                                                         2003                   2002
                                                    -------------            ----------
<S>             <C>                                 <C>                      <C>
Term Loan I due 2004                                $     250,000             1,250,000
Term Loan II due 2008                                   5,000,000             5,000,000
Term Loan III due 2009                                  9,277,778             9,944,444
Mortgage Note due 2009                                  4,579,515             5,317,477
                                                      -----------            ----------
                                                    $  19,107,293            21,511,921
                                                    =============            ==========
</TABLE>

                                       44
<PAGE>

ACMAT CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

On November 22, 2002, the Company obtained a $10,000,000 term loan from two
financial institutions, which is payable in monthly installments of $55,556 with
a balloon payment of $5,388,888 due on November 22, 2009. The term loan has a
balance of $9,277,778 at December 31, 2003. The interest rate for this term loan
varies based on LIBOR plus 200 basis points in effect during the borrowing
period. In connection with this term loan, the Company also entered into an
interest rate swap that establishes a fixed interest rate for half of the loaned
amount at 6.08%. The loan agreement contains certain limitations on borrowing,
minimum statutory capital levels and requires maintenance of certain ratios. The
proceeds were used to prepay the balance of the Convertible Notes due 2022.

On December 17, 2001, the Company obtained a $5,000,000 term loan from a
financial institution, which is payable in quarterly installments of $250,000
which is to commence March 1, 2004. The term loan, due 2009 has a balance of
$5,000,000 at December 31, 2003. The interest rate varies based on LIBOR plus
190 basis points in effect during the borrowing period. The interest rate cannot
exceed 5.5%. The loan agreement contains certain limitations on borrowings,
minimum statutory capital levels and requires maintenance of certain ratios. The
proceeds were used to prepay $5,005,000 of the Convertible Notes due 2022.

On September 1, 1999, the Company obtained a $4,500,000 term loan from a
financial institution, which is payable in quarterly installments of $250,000
which commenced December 1, 1999. The term loan, due 2004 has a balance of
$250,000 at December 31, 2003. The interest rate is fixed at 7.25%. The loan
agreement contains certain limitations on borrowings, minimum statutory capital
levels and requires maintenance of certain ratios. The proceeds were used to
replace a $5,000,000, five year term loan obtained on December 9, 1998.

On December 23, 1998, the Company obtained a permanent mortgage loan from a
financial institution. The $7,800,000 mortgage note, with interest fixed at
6.95% is payable in monthly installments of principal and interest over 10
years. The mortgage note, due 2009, has a balance of $4,579,515 at December 31,
2003. The loan agreements contain certain limitations on borrowings, minimum
statutory capital levels and require maintenance of certain ratios.

Principal payments on long-term debt are $2,708,396, $2,515,208, $2,576,097,
$2,641,354 and $2,717,812 for the years 2004 through 2008, respectively.
Interest expense paid in 2003, 2002 and 2001 amounted to $1,068,514, $1,977,661
and $2,804,927, respectively.

The fair value at December 31, 2003 of the mortgage and the term loans
approximate carrying value.

(9) INCOME TAXES

The components of income tax expense (benefit) for the years ended December 31,
2003, 2002 and 2001 follows:

<TABLE>
<CAPTION>
                                                      2003          2002           2001
                                                    --------      ---------       -------
<S>                                                 <C>           <C>            <C>
Current Taxes:
   Federal                                          $193,303       (226,658)      542,635
   State                                              85,000         85,000        75,000
                                                    --------      ---------       -------
                                                     278,303       (141,658)      617,635
                                                    --------      ---------       -------
Deferred Taxes:
   Federal                                           635,551     (2,389,776)      289,722
                                                    --------      ---------       -------
Total                                               $913,854     (2,531,434)      907,357
                                                    ========      =========       =======
</TABLE>

The effective income tax rate, as a percentage of earnings before income taxes
for the years ended December 31, 2003, 2002 and 2001 follows:

<TABLE>
<CAPTION>
                                                      2003         2002     2001
                                                      ----         -----    ----
<S>                                                   <C>          <C>      <C>
Federal statutory tax rate                            34.0%         34.0%    34.0%
State income tax                                       2.2           9.0      1.9
Effect of tax-exempt interest                          (.2)        (15.5)    (9.0)
Amortization of goodwill                               ---           8.9      4.2
Proceeds from life insurance proceeds                  ---        (441.6)     ---
Officers life insurance premiums                        .7           4.8      2.4
Other, net                                             (.5)         (4.3)     1.2
                                                      ----         -----     ----
  Effective income tax rate                           36.2%       (404.7%)   34.7%
                                                      ====         =====     ====
</TABLE>

                                       45
<PAGE>

ACMAT CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

The tax effects of temporary differences that give rise to significant portions
of the deferred tax assets and deferred tax liabilities at December 31, 2003 and
2002 are presented below:

<TABLE>
<CAPTION>
                                                                                      2003              2002
                                                                                   -----------        ---------
<S>                                                                                <C>               <C>
Deferred Tax Assets:
   Reserves for losses and loss adjustment expenses                                $   797,449          865,873
   Unearned premiums                                                                   390,024          269,912
   Accounts receivable, principally due to allowance for doubtful accounts             102,886          117,349
   State effect of temporary differences and net operating loss carryforward         1,006,614        1,396,707
   Federal net operating loss carryforward                                                   0          178,697
   Alternative minimum tax credit carryforward                                       2,128,529        2,416,391
   Other                                                                                 5,450          126,996
                                                                                   -----------       ----------
      Total gross deferred tax assets                                                4,430,952        5,371,925
      Less valuation allowance                                                      (1,006,614)      (1,396,707)
                                                                                   -----------       ----------
      Net deferred tax assets                                                      $ 3,424,338        3,975,218

Deferred Tax Liabilities:
   Plant and equipment                                                             $   469,497          517,816
   Deferred policy acquisition costs                                                   557,370          432,027
   Unrealized gains on investments                                                     203,684          354,682
   Other                                                                                38,759           31,111
                                                                                   -----------       ----------
      Total gross deferred tax liabilities                                           1,269,310        1,335,636
                                                                                   -----------       ----------

Net deferred tax assets                                                            $ 2,155,028        2,639,582
                                                                                   ===========       ==========
</TABLE>

The alternative minimum tax credit carryforward as of December 31, 2003 is
$2,128,529 and has an indefinite life. In assessing the realization of deferred
tax assets, management considers whether it is more likely than not that the
deferred tax assets will be realized. The ultimate realization of deferred tax
assets is dependent upon the generation of future taxable income during the
periods in which those temporary differences become deductible. Management
considers the scheduled reversal of deferred tax liabilities, tax planning
strategies and anticipated future taxable income in making this assessment and
believes it is more likely than not the Company will realize the benefits of its
deductible temporary differences, net of the valuation allowance, at December
31, 2003 and 2002.

The most significant component of the state gross deferred asset is the net
operating loss carryforward for the State of Connecticut which amounted to
$19,617,404 as of December 31, 2003. Of this amount, $12,166,096 expires in 2020
and 2023. In 2003 and 2002, a valuation allowance is provided to offset the
deferred tax asset related to the state deferred tax assets as management
believes it is more likely than not that these deferred tax assets are
unrealizable.

Taxes paid in 2003, 2002 and 2001 were $300,727, $180,392 and $626,625,
respectively.

(10) PENSION AND PROFIT SHARING PLANS

Effective January 1, 2000, the Company adopted the ACMAT 401(k) plan for the
benefit of non-union employees. The Company contributed $75,000 to the ACMAT
401(k) Plan in 2003, 2002 and 2001. Costs associated with operating the Plan are
borne by the Company and were insignificant for each of the years ended December
31, 2003, 2002 and 2001.

The Company participated in various multi-employer defined contribution plans
for its union employees. Upon withdrawal from these plans, the Company may be
liable for its share of the unfunded vested liabilities of the plans. Such
obligations, if any, of the Company are not determinable at December 31, 2003.

(11) DERIVATIVE FINANCIAL INSTRUMENTS

The Company uses interest rate swaps as a means of hedging exposure to interest
rate risk on its long-term debt. To qualify as a hedge, the hedge relationship
must be designated and documented at inception and be highly effective in
accomplishing the objective of offsetting the changes in cash flows for the risk
being hedged. To the extent these derivatives are effective in offsetting the
variability of the hedged cash flows, changes in the derivatives' fair value are
not be included in current earnings but are reported in accumulated other
comprehensive income ("AOCI"). For the years ended December 31, 2003 and 2002,
the amounts included in AOCI for these changes were losses of $73,097 and
$117,142, respectively, and would be included in the earnings of future periods
when those earnings are also affected by the variability of the hedged cash
flows.

During the year ending December 31, 2004, the amount of losses the Company
expects to reclassify from AOCI into interest expense for its cash flow hedges
is not significant. To the extent these hedges are not effective, changes in
their fair value would be immediately included in earnings.

                                       46
<PAGE>

ACMAT CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(12) STOCKHOLDERS' EQUITY

The Company has two classes of common stock; the Common Stock and the Class A
Stock, each without par value. The rights of the Common Stock and the Class A
Stock are identical, except with respect to voting rights. Holders of the Class
A Stock are entitled to one-tenth vote per share in relation to the Common
Stock, holders of which are entitled to one vote per share.

During 2003 and 2002, ACMAT repurchased, in open market and privately negotiated
transactions, 4,000 and 4,234, respectively, shares of its Common Stock at an
average price of $10.93 and $19.01 per share, respectively. The Company also
repurchased during 2003, 2002 and 2001, in open market and privately negotiated
transactions, 13,700, 78,114 and 234,235, respectively, shares of its Class A
Stock at an average price of $8.89, $8.88 and $7.80 per share, respectively.

The Board of Directors has periodically approved the grant of non-qualified
stock options to certain officers and directors giving such individuals the
right to purchase restricted shares of the Company's Common Stock and Class A
Stock. Transactions regarding these stock options are summarized below:

<TABLE>
<CAPTION>
                                                                               2003              2002             2001
                                                                            ----------        -----------      -----------
<S>                                                                         <C>               <C>              <C>
Options outstanding at December 31                                             384,500            384,500          333,500
Weighted average price per share of
    options outstanding                                                     $     8.50        $      8.50      $      8.30
Expiration dates                                                             9/04-6/12          9/04-6/12       9/04-12/10
Options exercisable at December 31                                             272,500            276,500          333,500
Options granted                                                                    ---            174,500              ---
Options exercised or surrendered                                                   ---            123,500            4,000
Price ranges of options exercised or surrendered                                   ---        $      7.25      $      6.00
</TABLE>

The exercise price of each option equals the market price of the Company's stock
on the date of grant and the option's term is ten years. On June 20, 2002 the
Board of Directors granted 174,500 options to certain directors and officers
which generally vest over a ten-year period for employees. The Board of
Directors granted 70,000 options to certain directors and officers on December
16, 2000 which vested on June 14, 2001.

Under applicable insurance regulations, ACMAT's insurance subsidiaries are
restricted as to the amount of dividends they may pay, without the prior
approval of any insurance department and are limited to approximately $3,920,000
in 2004.

The Company's insurance subsidiaries, United Coastal Insurance and ACSTAR, are
domiciled in Arizona and Illinois, respectively. The statutory financial
statements of United Coastal Insurance and ACSTAR are prepared in accordance
with accounting practices prescribed by the Arizona Department of Insurance and
the Illinois Department of Insurance, respectively. Prescribed statutory
accounting practices include a variety of publications of the National
Association of Insurance Commissioners (NAIC), as well as the state laws,
regulations, and general administrative rules. Permitted statutory accounting
practices encompass all accounting practices not so prescribed of which the
Company has none.

In accordance with statutory accounting practices, ACMAT's insurance
subsidiaries' statutory capital and surplus was $47,863,948 and $48,423,319 at
December 31, 2003 and 2002, respectively, and their statutory net income for the
years ended December 31, 2003, 2002 and 2001 was $2,845,372, $1,988,493 and
$6,048,222, respectively. The primary differences between amounts reported in
accordance with GAAP and amounts reported in accordance with statutory
accounting practices are carrying value of fixed maturity investments; assets
not admitted for statutory purposes such as agents balances over 90 days,
furniture and fixtures and certain notes receivable; and deferred acquisition
costs recognized for GAAP only.

                                       47
<PAGE>

ACMAT CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(13) EARNINGS PER SHARE

The following is a reconciliation of the numerators and denominators of the
basic and diluted earnings per share ("EPS") computations for the years ended
December 31, 2003, 2002 and 2001:

<TABLE>
<CAPTION>
                                                              Average
                                                               Shares         Per-Share
                                               Earnings      Outstanding       Amount
                                              ----------     -----------      ---------
<S>                                           <C>            <C>              <C>
2003:
Basic EPS:
     Earnings available to stockholders       $1,613,994      2,299,557         $ .70

Effect of Dilutive Securities:
     Stock options                                   ---         36,441
                                              ----------      ---------

Diluted EPS:
     Earnings available to stockholders       $1,613,994      2,335,998         $ .69
                                              ==========      =========         =====
2002:
Basic EPS:
     Earnings available to stockholders       $3,156,893      2,365,344         $1.33

Effect of Dilutive Securities:
     Stock options                                   ---         32,653
                                              ----------      ---------
Diluted EPS:
     Earnings available to stockholders
                                              $3,156,893      2,397,997         $1.32
                                              ==========      =========         =====
2001:
Basic EPS:
     Earnings available to stockholders       $1,706,588      2,438,996         $ .70

Effect of Dilutive Securities:                       ---         55,094
                                              ----------      ---------
     Stock options

Diluted EPS:
     Earnings available to stockholders       $1,706,588      2,494,090         $ .68
                                              ==========      =========         =====
</TABLE>

(14) STOCK OPTION FAIR VALUE INFORMATION

The fair value effect of stock options reported in Note 1, Stock-Based
Compensation, is derived by application of a variation of the Black-Scholes
option pricing model. No options were granted in 2003 and 2001.

The significant assumptions used during the year in estimating the fair value on
the date of the grant for original options and reload options granted in 2002
were as follows:

<TABLE>
<CAPTION>
                                                 2002
                                                 ----
<S>                                              <C>
Expected life of stock options, in years           9
Expected volatility of ACMAT stock                44%
Risk-free interest rate                          4.0
Expected annual dividend yield                   ---
Expected annual forfeiture rate                  ---
</TABLE>

(15) COMMITMENTS AND CONTINGENCIES

The Company is a party to legal actions arising in the ordinary course of its
business. In management's opinion, the Company has adequate legal defenses
respecting those actions where the Company is a defendant, has appropriate
insurance reserves recorded, and does not believe that their settlement will
materially affect the Company's operations or financial position.

Many construction projects in which the Company has been engaged have included
asbestos exposures which the Company believes to involve a particularly high
degree of risk because of the hazardous nature of asbestos. The Company believes
it has reduced the risks associated with asbestos through proper training of its
employees and by maintaining general liability and workers' compensation
insurance. From 1986 to 1996, the Company obtained its general liability
insurance from its insurance subsidiaries. Since 1996, the Company obtained its
general liability insurance from unaffiliated insurance companies. Since 1989,
the Company has obtained its surety bonds from its insurance subsidiary.

The Company has, together with many other defendants, been named as a defendant
in actions by injured or deceased individuals or their representatives based on
product liability claims relating to materials containing asbestos. No specific
claims for monetary damages are asserted in these actions. Although it is early
in the litigation process, the Company does not believe that its exposure in
connection with these cases is significant.

                                       48
<PAGE>

ACMAT CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(16) SEGMENT REPORTING

The Company has three reportable operating segments: ACMAT Contracting, ACSTAR
Bonding and United Coastal Liability Insurance. The Company's reportable
segments are primarily the three main legal entities of the Company which offer
different products and services. The accounting policies of the segments are the
same as those described in the summary of significant accounting policies.

ACMAT Contracting provides construction contracting services to commercial and
governmental customers. ACMAT Contracting also provides underwriting services to
its insurance subsidiaries. In addition, ACMAT Contracting owns a commercial
office building in New Britain Connecticut and leases office space to its
insurance subsidiaries as well as third parties.

The United Coastal Liability Insurance operating segment offers specific lines
of liability insurance as an approved non-admitted excess and surplus lines
insurer in forty-six states, Puerto Rico, the Virgin Islands and the District of
Columbia. United Coastal offers claims made and occurrence policies for specific
specialty lines of liability insurance through certain excess and surplus lines
brokers who are licensed and regulated by the state insurance department(s) in
the state(s) in which they operate. United Coastal offers general, asbestos,
lead, pollution and professional liability insurance nationwide to specialty
trade contractors, environmental contractors, property owner, storage and
treatment facilities and professionals. United Coastal also offers products
liability insurance to manufacturers and distributors.

The Bonding operating segment provides, primarily through ACSTAR, surety bonds
written for prime, specialty trade, environmental, asbestos and lead abatement
contractors and miscellaneous obligations. ACSTAR also offers other
miscellaneous surety such as workers' compensation bonds, supply bonds,
subdivision bonds and license and permit bonds.

The Company evaluates performance based on earnings before income taxes and
excluding interest expense. The Company accounts for intersegment revenue and
expenses as if the products/services were to third parties. Information relating
to the three segments is summarized as follows:

<TABLE>
<CAPTION>
                                                 2003            2002            2001
                                            --------------    -----------     -----------
<S>                                         <C>               <C>             <C>
Revenues:
    ACSTAR Bonding                          $    7,867,344      5,360,871       5,487,683
    United Coastal Liability Insurance           7,121,635      5,458,373       6,363,392
    ACMAT Contracting                            6,643,777     19,658,401      17,540,369
                                            --------------    -----------     -----------
                                            $   21,632,756     30,477,645      29,391,444
                                            ==============    ===========     ===========
Operating Earnings (Loss):
    ACSTAR Bonding                          $    2,631,790      1,217,718       2,098,548
    United Coastal Liability Insurance           1,414,416        677,349       2,810,000
     ACMAT Contracting                            (458,384)    (2,690,427)        912,376
                                            --------------    -----------     -----------
                                            $    3,587,822       (795,360)      5,820,924
                                            ==============    ===========     ===========

Depreciation and Amortization:
    ACSTAR Bonding                          $      604,048        378,906         578,967
    United Coastal Liability Insurance             307,970        203,506         299,353
    ACMAT Contracting                              484,698        484,479         656,737
                                            --------------    -----------     -----------
                                            $    1,396,716      1,066,891       1,535,057
                                            ==============    ===========     ===========

Identifiable Assets:
    ACSTAR Bonding                          $   73,704,644     56,407,938      48,282,555
    United Coastal Liability Insurance          41,015,316     46,443,389      42,801,086
    ACMAT Contracting                           17,709,807     19,113,436      18,379,815
                                            --------------    -----------     -----------
                                            $  132,429,857    121,964,763     109,463,456
                                            ==============    ===========     ===========

Capital Expenditures:
    ACSTAR Bonding                          $       66,194         82,134          55,596
    United Coastal Liability Insurance              43,191         53,296         105,678
    ACMAT Contracting                               74,345         89,960         260,109
                                            --------------    -----------     -----------
                                            $      183,730        225,390         421,383
                                            ==============    ===========     ===========
</TABLE>

                                       49
<PAGE>

ACMAT CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

The components of revenue for each segment are as follows:

<TABLE>
<CAPTION>
                                                           2003           2002          2001
                                                        -----------    ----------    ----------
<S>                                                     <C>            <C>           <C>
ACSTAR Bonding:
    Premiums                                            $ 6,578,324     4,001,183     3,808,737
    Investment income, net                                1,177,091     1,451,169     1,560,080
    Capital gains                                           272,565         5,737       191,670
    Other income (expense)                                 (160,636)      (97,218)      (72,804)
                                                        -----------    ----------    ----------
                                                        $ 7,867,344     5,360,871     5,487,683
                                                        ===========    ==========    ==========
United Coastal Liability Insurance:
    Premiums                                              5,692,592     3,570,542     3,772,539
    Investment income, net                                1,271,612     1,845,179     2,385,377
    Capital gains                                            88,977        20,234       182,631
    Other income                                             68,454        22,418        22,845
                                                        -----------    ----------    ----------
                                                        $ 7,121,635     5,458,373     6,363,392
                                                        ===========    ==========    ==========
ACMAT Contracting:
    Contract revenues                                   $ 2,982,197    16,289,326    14,074,878
    Investment income, net                                   10,388        91,811        44,707
    Inter-segment revenue:
       Rental income                                        768,146     1,286,000     1,277,794
       Underwriting services and agency commissions       1,905,811     1,131,857     1,192,472
   Other income                                             977,235       859,407       950,518
                                                        -----------    ----------    ----------
                                                        $ 6,643,777    19,658,401    17,540,369
                                                        ===========    ==========    ==========
</TABLE>

The following is a reconciliation of segment totals for revenue and operating
income to corresponding amounts in the Company's statement of earnings:

<TABLE>
<CAPTION>
                                                                 2003            2002            2001
                                                              -----------    ------------     ----------
<S>                                                           <C>            <C>              <C>
Revenue:
        Total revenue for reportable segments                 $21,632,756      30,477,645     29,391,444
        Life insurance proceeds, net                                  ---       3,348,903            ---
        Inter-segment eliminations                             (2,464,108)     (2,252,451)    (2,428,637)
                                                              -----------    ------------     ----------
                                                              $19,168,648      31,574,097     26,962,807
                                                              ===========    ============     ==========
Operating Earnings:
       Total operating earnings for reportable segments       $ 3,587,822        (795,360)     5,820,924
        Interest expense                                       (1,059,974)     (1,928,084)    (2,723,052)
        Life insurance proceeds, net                                  ---       3,348,903            ---
        Intersegment interest expense                                 ---             ---       (128,188)
        Other operating expenses                                      ---             ---       (355,739)
                                                              -----------    ------------     ----------
                                                              $ 2,527,848    $    625,459      2,613,945
                                                              ===========    ============     ==========
</TABLE>

Operating earnings for ACMAT contracting are operating revenues less cost of
contract revenues and identifiable selling, general and administrative expenses.
Operating earnings for the bonding and liability insurance segments are revenues
less losses and loss adjustment expenses, amortization of policy acquisition
costs and identifiable selling, general and administrative expenses. The
adjustments and eliminations required to arrive at consolidated amounts shown
above consist principally of the elimination of the intersegment revenues
related to the performance of certain services and rental charges. Identifiable
assets are those assets that are used by each segment's operations. Foreign
revenues are not significant.

                                       50
<PAGE>

ACMAT CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(17) QUARTERLY RESULTS OF OPERATIONS (UNAUDITED)

A summary of the unaudited quarterly results of operations for 2003 and 2002
follows:

<TABLE>
<CAPTION>
                                          MARCH 31       JUNE 30      SEPTEMBER 30     DECEMBER 31
                                         -----------    ----------    ------------     -----------
<S>                                      <C>            <C>           <C>              <C>
2003
Revenue                                  $ 4,005,193     4,352,178     5,103,958        5,707,319
                                         -----------    ----------     ---------        ---------

Net Earnings                             $   377,587       504,590       631,629          100,188
                                         -----------    ----------     ---------        ---------

Basic Earnings Per Share                 $       .16           .22           .28              .04
                                         -----------    ----------     ---------        ---------
Diluted Earnings Per Share               $       .16           .22           .27              .04
                                         -----------    ----------     ---------        ---------

2002
Revenue                                  $11,061,136     9,870,189     6,861,143        3,781,629
                                         -----------    ----------     ---------        ---------

Net Earnings                             $   737,309       806,163       868,596          744,825
                                         -----------    ----------     ---------        ---------

Basic Earnings Per Share                 $       .31           .34           .37              .32
                                         -----------    ----------     ---------        ---------
Diluted Earnings Per Share               $       .30           .33           .36              .32
                                         -----------    ----------     ---------        ---------
</TABLE>

Annual earnings per share for 2002 does not equate to the sum of the quarters
due to the timing of stock repurchases.

                                       51
<PAGE>

Schedule I

                       ACMAT CORPORATION AND SUBSIDIARIES

       Condensed Financial Information of Registrant (Parent Company Only)
                  As of December 31, 2003 and 2002 and for the
                  years ended December 31, 2003, 2002 and 2001

The following presents the condensed financial position of ACMAT Corporation
(parent company only) as of December 31, 2003 and 2002 and its condensed
statements of earnings and cash flows for the years ended December 31, 2003,
2002 and 2001.

                                 BALANCE SHEETS

<TABLE>
<CAPTION>
                                                                            2003              2002
                                                                        ------------       ----------
<S>                                                                     <C>                <C>
                                       Assets

Current assets:
        Cash                                                            $  2,604,576        2,582,926
        Receivables                                                        1,520,252        1,941,326
        Other current assets                                                 273,624          614,122
                                                                        ------------       ----------
                             Total current assets                          4,398,452        5,138,374

Property and equipment, net                                               10,966,037       11,376,390
Investments in and advance from subsidiaries                              45,280,522       45,854,775
Other assets                                                               2,277,084        2,588,236
                                                                        ------------       ----------
                                                                        $ 62,922,095       64,957,775
                                                                        ============       ==========

                             Liabilities and Stockholders' Equity

Current liabilities:
        Current portion of long-term debt                               $  2,708,396        2,405,388
        Other current liabilities                                          1,732,624        2,592,146
                                                                        ------------       ----------
                             Total current liabilities                     4,441,020        4,997,534
Long-term debt                                                            16,398,897       19,106,533
                                                                        ------------       ----------
Total liabilities                                                         20,839,917       24,104,067

Commitments and contingencies

Stockholders' equity                                                      42,082,178       40,853,708
                                                                        ------------       ----------

                                                                        $ 62,922,095       64,957,775
                                                                        ============       ==========
</TABLE>

See Notes to Condensed Financial Statements.

                                       52
<PAGE>

                                                           Schedule I, continued

                       ACMAT CORPORATION AND SUBSIDIARIES

 Condensed Financial Information of Registrant (Parent Company Only), Continued

                              STATEMENT OF EARNINGS

<TABLE>
<CAPTION>
                                                                                2003            2002             2001
                                                                            ------------     -----------     -----------
<S>                                                                         <C>              <C>             <C>
Contract revenues                                                           $  2,982,197     $16,289,326     $14,074,878
Cost of contract revenues                                                      2,898,517      18,339,534      13,183,057
                                                                            ------------     -----------     -----------
           Gross profit (loss)                                                    83,680      (2,050,208)        891,821

Selling, general and administrative expenses                                   4,073,311       3,876,648       3,674,476
                                                                            ------------     -----------     -----------
           Operating loss                                                     (3,989,631)     (5,926,856)     (2,782,655)

Interest expense                                                              (1,059,974)     (1,928,084)     (2,851,240)
Interest income                                                                    9,661          91,811          44,707
Underwriting fees                                                              1,459,697         883,644         836,694
Life insurance proceeds, net                                                         ---       3,348,903             ---
Other income                                                                   1,745,381       2,145,407       2,228,312
                                                                            ------------     -----------     -----------
           Loss before income taxes and equity in net
                  earnings of subsidiaries                                    (1,834,866)     (1,385,175)     (2,524,182)

Income tax benefit                                                              (590,000)     (3,129,748)       (695,000)
                                                                            ------------     -----------     -----------

           Earnings (loss) before equity in net earnings of subsidiaries      (1,244,866)      1,744,573      (1,829,182)

Equity in net earnings of subsidiaries                                         2,858,860       1,412,320       3,535,770
                                                                            ------------     -----------     -----------

           Net earnings                                                     $  1,613,994     $ 3,156,893     $ 1,706,588
                                                                            ============     ===========     ===========
</TABLE>

See Notes to Condensed Financial Statements.

                                       53
<PAGE>

                                                           Schedule I, Continued

                       ACMAT CORPORATION AND SUBSIDIARIES

 Condensed Financial Information of Registrant (Parent Company Only), Continued

                            STATEMENTS OF CASH FLOWS

<TABLE>
<CAPTION>
                                                                                2003            2002             2001
                                                                            ------------     -----------      ----------
<S>                                                                         <C>              <C>              <C>
Cash flows from operating activities:
              Net earnings                                                  $  1,613,994       3,156,893       1,706,588
              Depreciation and amortization                                      484,698         484,479         656,737
              Equity in undistributed earnings of subsidiaries                (2,858,860)     (1,412,320)     (3,535,770)
              (Increase) decrease in accounts receivable                         421,074       2,111,933      (1,301,962)
              (Increase) decrease in other assets                                724,745        (208,466)       (528,767)
              Increase (decrease) in other liabilities                          (859,522)     (1,776,455)        448,840
                                                                            ------------     -----------       ---------
                       Net cash provided by (used for) operating activities     (473,871)      2,356,064      (2,554,334)
                                                                            ------------     -----------       ---------

Cash flows from investing activities:
              Capital expenditures                                               (74,345)        (89,960)       (260,109)
              Decrease in investment in subsidiaries                           3,140,000       3,640,000       7,140,000
                                                                            ------------     -----------       ---------
                       Net cash provided by investing activities               3,065,655       3,550,040       6,879,891
                                                                            ------------     -----------       ---------

Cash flows from financing activities:
              Repayment of long-term debt                                     (2,404,628)    (13,038,440)     (8,146,226)
              Issuance of long-term debt                                             ---      10,000,000       5,000,000
              Issuance of Class A stock                                              ---          54,375          24,000
              Payments for acquisition and retirement of stock                  (165,506)       (773,753)     (1,826,902)
                                                                            ------------     -----------       ---------
                       Net cash used for financing activities                 (2,570,134)     (3,757,818)     (4,949,128)
                                                                            ------------     -----------       ---------

Net change in cash                                                                21,650       2,148,286        (623,571)

Cash, beginning of year                                                        2,582,926         434,640       1,058,211
                                                                            ------------     -----------       ---------

Cash, end of year                                                           $  2,604,576       2,582,926         434,640
                                                                            ============     ===========       =========
</TABLE>

See Notes to Condensed Financial Statements.

                                       54
<PAGE>

                                                           Schedule I, Continued

                       ACMAT CORPORATION AND SUBSIDIARIES
              Condensed Financial Information (Parent Company Only)
                     Notes to Condensed Financial Statements

The accompanying condensed financial statements should be read in conjunction
with the Consolidated Financial Statements and Notes thereto in the Company's
2003 Annual Report.

(1)      SUPPLEMENTAL CASH FLOW INFORMATION

         Income taxes received from subsidiaries during the years ended December
         31, 2003, 2002 and 2001 were $1,226,055, $694,197, and $516,173,
         respectively. Interest paid during the years ended December 31, 2003,
         2002 and 2001 was $1,068,514, $1,977,661 and $2,933,115, respectively.
         Interest paid in 2001 included $128,188, paid to subsidiaries for
         intercompany loans.

(2)      LONG-TERM DEBT

         A summary of long-term debt at December 31, 2003 and 2002 follows:

<TABLE>
<CAPTION>
                                   2003            2002
                               ------------     ----------
<S>                            <C>              <C>
Term Loan I due 2004           $    250,000      1,250,000
Term Loan II due 2008             5,000,000      5,000,000
Term Loan III due 2009            9,277,778      9,944,444
Mortgage Note due 2009            4,579,515      5,317,477
                               ------------     ----------
                               $ 19,107,293     21,511,921
Less current portion of
  long-term debt                 (2,708,396)    (2,405,388)
                               ------------     ----------
                               $ 16,398,897     19,106,533
                               ============     ==========
</TABLE>

         See Note 8 to the Consolidated Financial Statements in the Annual
         Report for a description of the long-term debt and aggregate maturities
         for 2004 to 2008 and thereafter.

(3)      INCOME TAXES

         See Note 9 to the Consolidated Financial Statements in the Annual
         Report for a description of income taxes.

(4)      DERIVATIVE FINANCIAL INSTRUMENTS

         See Note 11 to the Consolidated Financial Statements in the Annual
         Report for a description of the derivative financial instruments.

(5)      COMMITMENTS AND CONTINGENCIES

         See Note 15 to the Consolidated Financial Statements in the Annual
         Report for a description of the commitments and contingencies.

                                       55
<PAGE>

                                                                     SCHEDULE II

                       ACMAT CORPORATION AND SUBSIDIARIES

                 Valuation and Qualifying Accounts and Reserves

                  Years ended December 31, 2003, 2002 and 2001

<TABLE>
<CAPTION>
                                  Balance         Additions
                                     at            charged                      Balance
                                 beginning         to costs                       at
                                     of              and                         End of
   Description                     period          expenses    Deductions (a)    Period
   -----------                   ---------         --------    --------------   --------
<S>                              <C>              <C>          <C>              <C>
Allowance for
doubtful accounts:

      2003                       $ 345,143         120,000        162,537       $302,606
                                 =========         =======        =======       ========

      2002                       $  82,355         250,000        (12,788)      $345,143
                                 =========         =======        =======       ========

      2001                       $ 147,346         (69,312)        (4,321)      $ 82,355
                                 =========         =======        =======       ========
</TABLE>

(a) Deductions represent accounts written off.

                                       56

<PAGE>

                       ACMAT CORPORATION AND SUBSIDIARIES             Schedule V

   Supplemental Information concerning property-casualty insurance operations

         As of and for the years ended December 31, 2003, 2002 and 2001

<TABLE>
<CAPTION>
                                      Discount Ded.
                         Reserves for  from Unpaid
             Deferred   Unpaid Losses     Losses
Affiliation   Policy       and Loss      and Loss                          Net
   With     Acquisition   Adjustment    Adjustment  Unearned   Earned   Investment
Registrant     Costs       Expenses      Expenses   Premiums  Premiums    Income
----------  ----------- ------------- ------------- --------- --------- ----------
<S>         <C>         <C>           <C>           <C>       <C>       <C>
United Coastal Liability Insurance:

   2003     $   747,818  15,245,560         --      2,968,267 5,692,592 1,271,612
            =========== ===========        ===      ========= ========= =========

   2002     $   567,765  20,239,315         --      2,374,149 3,570,542 1,845,179
            =========== ===========        ===      ========= ========= =========

   2001     $   531,015  16,463,542         --      2,368,912 3,772,539 2,385,377
            =========== ===========        ===      ========= ========= =========

ACSTAR Bonding:

   2003     $   891,507   7,672,033         --      3,675,463 6,578,324 1,177,091
            =========== ===========        ===      ========= ========= =========

   2002     $   702,904   7,849,100         --      2,626,022 4,001,183 1,451,169
            =========== ===========        ===      ========= ========= =========

   2001     $   634,541   9,309,961         --      1,906,026 3,808,737 1,560,080
            =========== ===========        ===      ========= ========= =========

<CAPTION>

                                      Amortization    Paid
            Losses & Loss Adjustment  of Deferred    Losses
Affiliation   Expenses     Incurred      Policy     and Loss
   With        Related         To      Acquisition Adjustment  Premiums
Registrant  Current Year  Prior Years     Costs     Expenses    Written
----------  ------------  ----------- ------------ ----------  ---------
<S>         <C>           <C>         <C>          <C>         <C>
United Coastal Liability Insurance:

   2003       2,706,000      321,036    1,555,151   3,917,353  6,441,764
            ===========   ==========   ==========   =========  =========

   2002       2,702,000       69,162      994,920   5,017,359  3,659,805
            ===========   ==========   ==========   =========  =========

   2001       1,024,000      107,762    1,286,409   5,665,869  3,133,460
            ===========   ==========   ==========   =========  =========

ACSTAR Bonding:

   2003       1,577,000      389,955    2,136,115   1,863,263  7,595,501
            ===========   ==========   ==========   =========  =========

   2002       1,661,000     (360,763)   1,564,398   1,608,027  4,326,190
            ===========   ==========   ==========   =========  =========

   2001       1,397,000     (992,740)   1,601,377   2,787,413  3,498,860
            ===========   ==========   ==========   =========  =========
</TABLE>

                                       57

<PAGE>

ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE: None

ITEM 9A. CONTROLS AND PROCEDURES

Company management, with the participation of the Company's chief executive
officer and chief financial officer, evaluated the effectiveness of our
disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e)
under the Securities Exchange Act of 1934) as of December 31, 2003. Based on
this evaluation, the Company's chief executive officer and chief financial
officer concluded that, as of December 31, 2003, the Company's disclosure
controls and procedures were (1) designed to ensure that material information
relating to the Company, including its consolidated subsidiaries, is made known
to our chief executive officer and chief financial officer by others within
those entities, particularly during the period in which this report was being
prepared, and (2) effective, in that they provide reasonable assurance that
information required to be disclosed by the Company in the reports that it files
or submits under the Exchange Act is recorded, processed, summarized and
reported within the time periods specified in the rules and forms of the
Securities and Exchange Commission.

No changes in the Company's internal control over financial reporting (as
defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) have occurred
during the fiscal quarter ended December 31, 2003 that have materially affected,
or are reasonably likely to materially affect, our internal control over
financial reporting.

                                    PART III

ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

The following table shows for each director (a) his or her age, (b) the year in
which the director first served as a director of the Company, (c) position with
the Company and business experience during the past five years, including
principal occupation, (d) his or her committee assignments, and (e) his or her
other directorships. Each director is elected for a term of one year and until
his or her successor shall be elected.

<TABLE>
<CAPTION>
                                                DIRECTOR      POSITION WITH THE COMPANY AND BUSINESS EXPERIENCE
         NAME                          AGE       SINCE           DURING LAST FIVE YEARS, INCLUDING OCCUPATION
<S>                                    <C>      <C>           <C>
HENRY W. NOZKO, JR. (1)                 57        1971        President, Chief Executive Officer, Treasurer,
                                                              Director and Chairman of the Board of the Company.
                                                              President, Chief Executive Officer and Treasurer of
                                                              United Coastal Insurance Company.  President and
                                                              Treasurer of ACSTAR Holdings, Inc. and ACSTAR
                                                              Insurance Company. Member, Boards of Directors of
                                                              United Coastal Insurance Company, ACSTAR Holdings,
                                                              Inc., ACSTAR Insurance Company.

VICTORIA C. NOZKO (1)                   85        1982        Housewife during past five years.

JOHN C. CREASY                          84        1987        Retired Chief Executive Officer of Danbury Hospital,
                                                              Member, Board of United Coastal Insurance Company.
                                                              Member of the Compensation Committee and Audit
                                                              Committee.

ARTHUR R. MOORE                         70        1999        Former General President of Sheet Metal Workers'
                                                              International Association.  Member of the Audit
                                                              Committee.

HENRY W. NOZKO III (1)                  26        2002        Construction Manager of the Company and an
                                                              Underwriting Manager of ACSTAR and United Coastal
                                                              Insurance Companies. Member, Board of United Coastal
                                                              Insurance Company.

ANDREW W. SULLIVAN, JR.                 61        2003        Retired Partner of KPMG LLP. Director and Finance
                                                              Committee Chairman of Connecticut Resources Recovery
                                                              Authority since June 2002. Trustee and Investment
                                                              Committee Chairman of Mark Twain House since November
                                                              1997. Chairman of the Audit Committee.
</TABLE>


(1) Mrs. Victoria C. Nozko is the mother of Mr. Henry W. Nozko, Jr. Mr. Henry W.
Nozko III is the son of Mr. Henry W. Nozko, Jr. and the grandson of Mrs.
Victoria C. Nozko.


                                       58

<PAGE>

Executive Officers of the Registrant:

The following are the Company's Executive Officers, their age, and offices held.
Officers are appointed to serve until the meeting of the Board of Directors
following the next Annual Meeting of Stockholders and until their successors
have been elected.

<TABLE>
<CAPTION>
      NAME                               AGE             OFFICES HELD
      ----                               ---             ------------
<S>                                      <C>    <C>
Henry W. Nozko, Jr.                      57     President, Chief Executive
                                                Officer, Treasurer, Director
                                                and Chairman of the Board
                                                since January 2002.  Executive
                                                Vice President since 1982.
                                                Treasurer since 1973. Director
                                                since 1971, and Chief
                                                Operating Officer since 1985.

Robert H. Frazer                         57     Vice President since 1982.
                                                Secretary since 1992. General
                                                Counsel since 1977.

Michael P. Cifone                        45     Senior Vice President and
                                                Chief Financial Officer since
                                                March 2002.  Vice
                                                President-Finance since 1990.
                                                Corporate Controller since
                                                1989.
</TABLE>

Certain information required by this Item 10 is set forth in the proxy statement
under the headings "Directors and Nominees for Director", Board and Committee
Meetings" and "Section 16(a) Beneficial Ownership Reporting Compliance", which
information is incorporated herein by reference.

The Company does not currently have a "code of ethics" as defined under the
Item 406 of Regulation S-K adopted by the SEC. The Company intends to adopt in
the near future a code of business conduct and ethics applicable to all of its
directors, officers and employees that satisfies the requirements of a "code of
ethics" under SEC rules and also satisfies the requirements of Nasdaq
Marketplace Rule 4350(n). To the extent permitted by applicable rules of the SEC
and the Nasdaq Stock Market, Inc., we intend to satisfy the disclosure
requirements under Item 10 of Form 8-K regarding an amendment to, or waiver
from, a provision of the code of business conduct and ethics with respect to our
principal executive officer, principal financial officer, principal accounting
officer or controller, or persons performing similar functions, by posting such
information on our website.

                                       59

<PAGE>

ITEM 11. EXECUTIVE COMPENSATION

Directors who are not employees of the Company are paid an annual fee of $6,000.
The Chairman of the Compensation Committee and the Audit Committee are also paid
an additional annual fee of $1,000. The Company does not have any employment
agreements with any employee.

The following table provides certain summary information regarding compensation
of the Company's Chief Executive Officer and each of the executive officers of
the Company for the periods indicated.

<TABLE>
<CAPTION>
                                                                                 LONG-TERM
                                              ANNUAL COMPENSATION               COMPENSATION    ALL OTHER
      NAME AND PRINCIPAL                      -------------------               CLASS A STOCK  COMPENSATION
           POSITION                   YEAR       SALARY   BONUS (A)  OTHER (B)     OPTIONS          (C)
<S>                                   <C>      <C>        <C>        <C>        <C>            <C>
Henry W. Nozko, Jr.                   2003     $ 402,477  $ 330,000  $     ---        ---       $  11,256
Chairman, President and Chief         2002     $ 371,925  $ 135,000  $ 365,233     65,500       $  11,131
Executive Officer                     2001     $ 337,833  $     ---  $     ---        ---       $   8,633

Michael P. Cifone                     2003     $ 196,899  $ 290,000  $     ---        ---       $  11,256
Senior Vice President and Chief       2002     $ 176,347  $ 135,000  $     ---     40,000       $  11,131
Financial Officer                     2001     $ 160,333  $     ---  $     ---        ---       $   8,633

Robert H. Frazer, Esq.                2003     $ 200,932  $ 160,000  $     ---        ---       $  11,256
Vice President, Secretary and         2002     $ 151,314  $  25,000  $     ---     20,000       $   9,458
General Counsel                       2001     $ 115,185  $     ---  $     ---        ---       $   4,987
</TABLE>

(A) Represents a bonus earned in a reporting year and paid in the subsequent
year. Individual discretionary bonuses are paid to various officers and
employees.

(B) Does not include the aggregate amount of perquisites and other personal
benefits, which was less than the lesser of $50,000 or 10% of the total salary
and bonus reported. Henry W. Nozko, Jr. was paid $365,233 for unused vacation
time which was payable only from the proceeds of the life insurance policies
owned by the Company on Henry W. Nozko, Sr.

(C) The amounts shown in this column represent contributions made by the Company
to the Company's 401(K) Plan. All nonunion employees employed on a full time or
part time salaried basis are eligible to participate on the first day of January
or July after twelve consecutive months of employment. The Company contributes
amounts, as determined by the Board of Directors, to be allocated among the
participants according to a formula based upon the employee's years of service
and compensation. A participant becomes vested at the rate of 20% per year
commencing after two years of service.

                                       61

<PAGE>

The following table provides information on options during 2003 by the named
Executive Officers and the value of their unexercised options at December 31,
2003.

        AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR AND FISCAL YEAR
                             END 2003 OPTION VALUES

<TABLE>
<CAPTION>
                                                           Number of
                                                          Unexercised                  Value of Unexercised
                                                          Options at                   In-the-Money Options
                Name                                     12/31/03 (1)                    at 12/31/03 (2)
                ----                                     ------------                    ---------------
                                                   Exercisable/Unexercisable          Exercisable/Unexercisable
<S>                                                <C>                                <C>
Henry W. Nozko, Jr.
    - ACMAT Class A Stock Options                          76,500/40,000                  $364,650/$144,000
    - ACMAT Common Stock Options                           50,000/-                       $50,000

Michael P. Cifone
    - ACMAT Class A Stock Options                          28,000/32,000                  $135,800/$115,200

Robert H. Frazer
    - ACMAT Class A Stock Options                          39,000/16,000                  $201,650/$57,600
</TABLE>

(1)      Represents the number of options held at year end.

(2)      Represents the total gain that would have been realized if all options
         for which the year-end stock price was greater than the exercise price
         were exercised on the last day of the year.

                                       62
<PAGE>

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT:

As of March 1, 2004, no person was known to the Company to be the beneficial
owner of more than five percent of its outstanding shares of Common Stock or
Class A Stock except as set forth in the following table which also shows, as of
that date, the total number of shares of each class of stock of the Company
beneficially owned, and the percent of the outstanding class of stock so owned,
by each director, and by all directors and officers of the Company, as a group:

<TABLE>
<CAPTION>
                                                                         PERCENTAGE         PERCENTAGE
                                 CLASS         NUMBER OF SHARES           OF CLASS           OF TOTAL
          BENEFICIAL OWNER      OF STOCK     BENEFICIALLY OWNED (1)      OUTSTANDING     VOTING POWER (16)
          ----------------      --------     ----------------------      -----------     -----------------
<S>                             <C>          <C>                         <C>             <C>
Victoria C. Nozko               Common               310,780                   56.88%             43.85%
                                Class A               67,000(3)                 3.77
Henry W. Nozko, Jr.             Common               229,099(2)(4)             38.42              32.19
                                Class A              226,874(2)(5)             12.21
John C. Creasy                  Class A               26,500(6)                 1.50                .37
Arthur R. Moore                 Class A               11,500(7)                  .66                .16
Henry W. Nozko III              Common                 9,100(9)                 1.67               1.73
                                Class A               33,650(8)                 1.91
Andrew W. Sullivan, Jr.         Class A                  100                     .01                .00
Franklin Resources, Inc.        Class A              392,800(10)               22.55               5.45
Third Avenue Management         Class A              200,678(11)               11.52               2.79
First Manhattan Co.             Class A              165,763(12)                9.52               2.30
Robotti & Company, Inc.         Class A              129,040(13)                7.41               1.79
Vanguard Group, Inc.            Class A              114,623(14)                6.58               1.59
All Directors and
Officers (7 persons)
As a Group                      Common               507,479(15)               91.33              71.48
                                Class A              162,740(15)                9.22
</TABLE>

(1)      The person listed has the sole power to vote the shares of Common Stock
         and Class A Stock listed above as beneficially owned by such person and
         has sole investment power with respect to such shares.

(2)      Does not include 400 shares of Class A Stock and 9,100 shares of Common
         Stock held by his wife, Gloria C. Nozko.

(3)      Includes options to purchase 35,000 shares of Class A Stock.

(4)      Includes options to purchase 50,000 shares of Common Stock.

(5)      Includes options to purchase 116,500 shares of Class A Stock.

(6)      Includes options to purchase 26,500 shares of Class A Stock.

(7)      Includes option to purchase 11,500 shares of Class A Stock.

(8)      Includes options to purchase 20,000 shares of Class A Stock.

(9)      Does not include 1,000 shares of Common Stock held by his wife, Sage
         Nozko.

(10)     As reported in schedule 13G/A filed on February 9, 2004. Address of
         Franklin Resources, Inc. is 777 Mariners Island Blvd.
         San Mateo, CA 94404

(11)     As reported in schedule 13G/A filed on January 9, 2004. Address of
         Third Avenue Management LLC is 767 Third Avenue, New York,
         NY 10017-2023.

(12)     As reported in schedule 13G/A filed on February 12, 2004.Address of
         First Manhattan Co. is 437 Madison Avenue, New York, NY 10022.

(13)     As reported in schadule 13G/A filed on February 13, 2004. Address of
         Robotti & Company, Inc. is 52 Vanderbilt Avenue, Suite 503, New York,
         NY 10017.

(14)     Address of Vanguard Group, Inc. is 100 Vanguard Blvd. Malvern, PA
         19355.

(15)     Excludes options to purchase shares of Common and Class A Stock.

(16)     Based upon one vote for each share of Common Stock and one-tenth vote
         for each share of Class A Stock.

Certain information required by this Item 12 is set forth in the proxy statement
under the heading "Equity Compensation Plan Information," which information is
incorporated herein by reference.

                                       63
<PAGE>

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS:

Other Relationships

During the year ended December 31, 2003, the Company paid to Dr. Arthur Cosmas
$155,700 in fees in connection with consulting services rendered by Dr. Cosmas
with respect to inspection and engineering services relating to ACMAT's
environmental activities. Dr. Cosmas is the son-in-law of Victoria C. Nozko, the
brother-in-law of Henry W. Nozko, Jr. and uncle of Henry W. Nozko III.

Item 14. Principal Accountant Fees and Services

The information required by this Item 14 is set forth in the proxy statement
under the heading "Disclosure of Audit Fees" in the section entitled
"Appointment of Auditors," which information is incorporated herein by
reference.

                                     PART IV

ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K

         (a)      1. Consolidated Financial Statements

                  Included in Part II of this Report:

                  Independent Auditors' Report

                  Consolidated Statements of Earnings for the years ended
                  December 31, 2003, 2002 and 2001 Consolidated Balance Sheets
                  as of December 31, 2003 and 2002 Consolidated Statements of
                  Stockholders' Equity for the years ended December 31, 2003,
                  2002 and 2001 Consolidated Statements of Cash Flows for the
                  years ended December 31, 2003, 2002 and 2001 Notes to
                  Consolidated Financial Statements - December 31, 2003, 2002
                  and 2001

                                       64
<PAGE>

                  2. Financial Statement Schedules

                  Consolidated Schedules included in Part II of this
Report-Years ended December 31, 2003, 2002 and 2001:

                  I -      Condensed Financial Information of Registrant

                  II -     Valuation and Qualifying Accounts and Reserves

                  V -      Supplemental Information Concerning Property-Casualty
                           Insurance Operations

         All other schedules are omitted as the required information is not
         applicable or the information is presented in the Consolidated
         Financial Statements or related notes.

         (b)      Reports on Form 8-K

                  The Company did not file a report on Form 8-K during the
fourth quarter of 2003.

         (c)               Exhibits

         (3)               Certificate Amending and Restating the Company's
                           Bylaws as filed as an Exhibit to the Company's Form
                           10-Q for the Quarter ended March 31, 1989 is
                           incorporated herein by reference.

         (3a)              Certificate Amending and Restating the Company's
                           Certificate of Incorporation as amended May 1, 1991
                           as filed as an Exhibit to the Company's Form 10-Q for
                           the Quarter ended March 31, 1991 is incorporated by
                           reference.

         (3b)              Promissory Note between ACMAT Corporation and Webster
                           Bank as filed as an Exhibit to the Company's Form
                           10-K for the year ended December 31, 1998 is
                           incorporated by reference.

         (3c)              Open-end Mortgage Deed and Security Agreement between
                           ACMAT Corporation and Webster Bank as filed as an
                           Exhibit to the Company's Form 10-K for the year ended
                           December 31, 1999 is incorporated by reference.

         (3d)              Amended and Restated Commercial Credit Agreement
                           between ACMAT Corporation, Webster Bank and Fleet
                           National Bank as filed as an Exhibit to the Company's
                           Form 10-K for the year ended December 31, 2002 is
                           incorporated by reference.

         (3e)              Revolving Credit Note between ACMAT Corporation and
                           Webster Bank as filed as an Exhibit to the Company's
                           Form 10-K for the year ended December 31, 2002 is
                           incorporated by reference.

         (3f)              Term Note dated September 1, 1999 between ACMAT
                           Corporation and Webster Bank as filed as an Exhibit
                           to the Company's Form 10-K for the year ended
                           December 31, 1999 is incorporated by reference.

         (3g)              Term Note II dated December 17, 2001, between ACMAT
                           Corporation and Webster Bank as filed as an Exhibit
                           to the Company's Form 10-K for the year ended
                           December 31, 2001 is incorporated by reference.

         (3h)              Revolving Credit Note between ACMAT Corporation and
                           Fleet National Bank as filed as an Exhibit to the
                           Company's Form 10-K for the year ended December 31,
                           2002 is incorporated by reference.

         4(i)              Term Note III dated November 22, 2002 between ACMAT
                           Corporation and Webster Bank as filed as an Exhibit
                           to the Company's Form 10-K for the year ended
                           December 31, 2002 is incorporated by reference.

         4(j)              Term Note III dated November 22, 2002 between ACMAT
                           Corporation and Fleet National Bank as filed as an
                           Exhibit to the Company's Form 10-K for the year ended
                           December 31, 2002 is incorporated by reference.

         (21)              Subsidiaries of ACMAT is filed herewith.

         (31.1)            Certification of Henry W. Nozko, Jr., Chief Executive
                           Officer of the Company, as required by Section 302 of
                           the Sarbanes-Oxley Act of 2002 is filed herewith.

                                       65
<PAGE>
(31.2)                     Certification of Michael P. Cifone, Chief Financial
                           Officer of the Company, as required by Section 302
                           of the Sarbanes-Oxley Act of 2002 is filed herewith.

(32)                       Certification of Henry W. Nozko, Jr., Chief Executive
                           Officer, and Michael P. Cifone, Chief Financial
                           Officer, as required by Section 906 of the Sarbanes-
                           Oxley Act of 2002.




                                   SIGNATURES

Pursuant to the requirements of Section 13 or 15 (d) of the Securities Exchange
Act of 1934, the Registrant had duly caused this Report to be signed on its
behalf by the undersigned, thereunto duly authorized.

                                            ACMAT CORPORATION

Dated: March 30, 2004                       By: /s/ Henry W. Nozko, Jr.
                                               ------------------------
                                            Henry W. Nozko, Jr., President
                                            and Chief Executive Officer

Pursuant to the requirements of the Securities Exchange Act of 1934, this Report
has been signed below by the following persons on behalf of the Registrant and
in the capacities and on the dates indicated.

                                Chairman of the Board,
                                President, Chief Executive
/s/ Henry W. Nozko, Jr          Officer and Director             March 30, 2004
-------------------------
Henry W. Nozko, Jr.

                                Senior Vice President and
                                Chief Financial Officer
                                (Principal Financial and
 /s/ Michael P. Cifone          Accounting Officer)              March 30, 2004
----------------------
Michael P. Cifone

 /s/ Victoria C. Nozko          Director                         March 30, 2004
----------------------
Victoria C. Nozko

 /s/ John C. Creasy             Director                         March 30, 2004
-------------------
John C. Creasy

 /s/Henry W. Nozko III          Director                         March 30, 2004
----------------------
Henry W. Nozko III

 /s/ Andrew W. Sullivan, Jr.    Director                         March 30, 2004
----------------------------
Andrew W. Sullivan, Jr.

                                       66
<PAGE>

                                INDEX TO EXHIBITS

<TABLE>
<CAPTION>
Regulation S-K Exhibit                    Description                                  Page Number
----------------------                    -----------                                  -----------
<S>                       <C>                                                   <C>
Exhibit 3                 -  Bylaws                                             Incorporated by Reference

Exhibit 3a                -  Certificate of Incorporation
                              as amended May 1, 1991                            Incorporated by Reference

Exhibit 4b                -  Promissory Note between ACMAT
                              and Webster Bank                                  Incorporated by Reference

Exhibit 4c                -  Open-end Mortgage Deed/Security
                              Agreement between ACMAT and
                              Webster Bank.                                     Incorporated by Reference

Exhibit 4d                -  Amended and Restated Commercial
                              Credit Agreement between ACMAT,
                              Webster Bank and Fleet National Bank              Incorporated by Reference

Exhibit 4e                -  Revolving Credit Note between ACMAT
                              and Webster Bank                                  Incorporated by Reference

Exhibit 4f                -  Term Note between ACMAT and Webster Bank           Incorporated by Reference

Exhibit 4g                -  Term Note II between ACMAT and Webster Bank        Incorporated by Reference

Exhibit 4h                -  Revolving Credit Note between ACMAT
                               and Fleet National Bank                          Incorporated by Reference

Exhibit 4i                -  Term Note III between ACMAT and Webster Bank       Incorporated by Reference

Exhibit 4j                -  Term Note III between ACMAT and Fleet
                              National Bank                                     Incorporated by Reference

Exhibit 21                -  Subsidiaries of ACMAT                              Page 68
</TABLE>

<TABLE>
<CAPTION>
<S>                       <C>                                                   <C>
Exhibit 31.1              -  Certification of Henry W. Nozko, Jr., Chief
                              Executive Officer of the Company, as required
                              by Section 302 of the Sarbanes-Oxley Act of
                              2002                                              Page 69

Exhibit 31.2              -  Certification of Michael P. Cifone, Chief
                              Financial Officer of the Company, as required
                              by Section 302 of the Sarbanes-Oxley Act of
                              2002                                              Page 70

Exhibit 32                -  Certification of Henry W. Nozko, Jr., Chief
                              Executive Officer and Michael P. Cifone, Chief
                              Financial Officer, as required by Section 906
                              of the Sarbanes-Oxley Act of 2002                 Page 71
</TABLE>

                                       67